Wednesday, July 31, 2013

The Relevance of Ratings Agencies

Do people still look at rating agencies "wonderful recommendations"? To put yesterday's market into perspective, the KLCI lost about 1% while Nikkei lost 1.4% ... did Japan go through a downgrade too? Rating agencies nowadays only affirm what the market already knows. But just to be fair to them, we will fall a bit in sympathy.
Truth be told, foreign funds held a lot of Malaysian bonds and last month they were already exiting based on the turmoil in funds being pulled back. The ringgit did not fall just over night, it was weakening for the past few weeks.
The Malaysian ringgit closed slightly higher at RM3.2455 against the US dollar and RM2.5529 against the Singapore dollar today. The local currency slipped to historic three-year lows of RM3.2934 against the greenback and 15-year-low of RM2.5862 against the Singapore dollar yesterday on fears of capital outflows from bond transactions.
The ringgit has dropped 2.7 percent since June 30 to RM3.2463 per dollar, a loss second only to India’s rupee among 23 other emerging-market currencies. The decline pushed the ringgit beyond the limits of the Bollinger band, signaling a reversal may be imminent, data compiled by news agency, Bloomberg said today, adding that was the biggest deviation in developing markets. Stochastic oscillators also showed the ringgit is oversold.
The ringgit’s 5.2 percent loss this year would be its worst annual performance since a 35 percent plunge in 1997, during the Asian financial crisis. It closed at RM3.2379 to the US dollar yesterday in Kuala Lumpur, the weakest level since July 2010.
Yet we are not denying that there is a problem with our deficit. There is. We need to implement the GST but that seemed to be delayed pending the outcome of another mini election end of the year.
Bloomberg reported today that Morgan Stanley has predicted that Malaysia’s economic growth and current account surplus which is more than twice China’s relative to gross domestic product, will help the ringgit catch up with regional peers.
The central bank can use its US$138 billion war chest to prop up the ringgit, according to Bank of America Merrill Lynch. The GDP is forecast to grow 5 percent this year, after a 5.6 percent gain in 2012, the median estimate in a Bloomberg survey of 21 analysts shows.
The ringgit could underperform as US$2.9 billion of sovereign notes mature today, raising the prospect of capital outflows. The currency slid this month on concern global investors, who owned 33 percent of Malaysian government bonds in May, the highest proportion in Southeast Asia, will pull funds out as the U.S. outlines plans to rein in monetary stimulus. 
Malaysia’s debt-to-GDP ratio of 53.5 percent is higher than the 25 percent in Indonesia, 51 percent in the Phillippines and 43 percent in Thailand. It is also approaching the government’s 55 percent threshold.
While Malaysia’s current-account surplus will narrow to 6 percent of GDP this year, from 6.1 percent in 2012 and 12 percent in 2011, it is higher than the average 2.8 percent in Asian countries and 2.4 percent for China.
Malaysia’s “fundamentals of a current-account surplus and sustained growth should warrant a correction in the recent weakness in the ringgit,” according to a July 25 report from Morgan Stanley analysts. Bank of America strategists including Christy Tan recommended their clients use options to buy the ringgit, saying the central bank will sell foreign reserves to shore up the currency should the decline worsen.
Will this derail the active local equity market? My view is no. The current run is not that dependent on the influx of foreign funds. There has been a willingness for local investors to parlay liquidity to stocks as they take money off the property side. 

Tuesday, July 30, 2013

S&M Show Podcast

Topics: SONA-W vs CLIQ-W; Jaguh Kampungs, the Malaysian listed companies' reluctance to go regional or global.

Song Pick: The Rainbow Connection by Kermit the Frog

Market Weakness Brought On By Fitch's Downgrade

To me, its a "tell me something we don't already know". It is a knee jerk thingee, if ringgit weakens some more, our exporters will love Fitch even more.

Maybank Investment Bank has this hot off the press research op:

Fitch downgraded Malaysia's sovereign credit rating outlook to "negative" from "stable", although the existing high investment-grade ratings of "A-" on long-term foreign debt and "A" on long-term local debt are maintained.  It cited - and we quote - "that prospects for budgetary reform and fiscal consolidation to address weaknesses in the public finances have worsened since the government's weak showing in the May 2013 general elections".
This comes as no surprise to us.  Some of our clients may recall from previous presentations / meetings - especially those who raised to me the issue of / question on Malaysia's fiscal deficit and govt debt - that I mentioned the risk of the big-3 rating agencies - Moody's, S&P, Fitch - starting to at least downgrade our sovereign credit rating outlook to "negative" from "stable" after the 13th General Election (GE13) if there is no clear indications from the Government on fiscal reforms regarding subsidies (subsidy rationalisation programme suspended since mid-2011), taxes (GST deferred since the most recent plan to introduce in 2007) and government spending (there was another request for extra spending of over MYR12b by the Government via supplementary budget earlier this month).
Equity market down, RM/USD weakens, 10-Yr Govt bond yield rise.  FBMKLCI started the day further in the red.  RM/USD decisively breaks past 3.20 level, approaching 3.25 level early today.  10-year sovereign bond yield is closing on 4% mark.  The above rating news probably add to the cautious-to-weak sentiment in the financial and currency markets, ahead of the FOMC meeting this evening, squaring/clearing of positions before next week's long holidays for local festivity, and amid Malaysia's deteriorating trade / current account balance.  
S&P next?  We are also made to understand that the S&P team will be in Malaysia in September 2013 for the rating review exercise.
Government will be under pressure to act.  We now expect Budget 2014 to be unveiled at the Parliement on 25 Oct 2013 to provide clarity on the fiscal policy issues and direction.  For that matter, we now expect for there to be at least a modest adjustment in fuel prices before end of this year as a start to show commitment and political will to undertake fiscal reforms, to be followed by potential revisions in other energy subsidies (gas, electricity) early next year.  However, the introduction of GST is not expected in 2014, but more of a 2015 story.

Here, Now, Before, Used To ... The Temporariness Of Life

This posting by Tom Hussey reveals so much about so many things. The main takeaway for me is not just to look at someone and not give due what he/she has been through.

young man old man images

Reflections: Portraits of the Elderly as They Once Were

My eye recently got pulled towards “Reflections”. A photo series by Tom Hussey, where he portrays the elderly as they reflect on their younger selves in the mirror. This is a wonderfully done series that gives you pause to think, about the passage of time and the lives we are living.

 Reflections: Portraits of the Elderly as They Once Were
 Reflections: Portraits of the Elderly as They Once Were
 Reflections: Portraits of the Elderly as They Once Were
 Reflections: Portraits of the Elderly as They Once Were
 Reflections: Portraits of the Elderly as They Once Were
 Reflections: Portraits of the Elderly as They Once Were
 Reflections: Portraits of the Elderly as They Once Were
 Reflections: Portraits of the Elderly as They Once Were
 Reflections: Portraits of the Elderly as They Once Were
 Reflections: Portraits of the Elderly as They Once Were

Monday, July 29, 2013

Why I Like Instacom

Readers of this blog would be familiar with my liking for Instacom. Instacom Group Berhad, a company which is principally providing support services to the telco industry and recently made its debut on the Ace Market of Bursa Malaysia (via the RTO of I-Power Berhad) in October 2012 may well be on its way to a possible Main Market transfer. The company acts as a contractor to install equipment for network equipment providers for the telcos. In addition to the aforesaid bread and butter business, it differentiates its business model with the other tier one boys mainly via its build and lease tower segment. In the longer run, upon having sufficient number of towers with recurrent income, the group may consider putting this segment of assets into a REIT – again a very common feature in overseas markets.

Following the recent announcement of the free 1 for 2 warrants, that exercise should be nearing approval and completion to go ex soon. Today is also an interesting day with RHB launching its 30 Jewels for smaller caps.

Their Top 5 picks include Tambun, Brahims, Instakom, Well Call and Cahaya Mata Sarawak.

Furthermore, the implementation of the LTE network means more towers will be built, especially for the new players which were recently awarded the spectrum. This only means there are more jobs in the pipeline for players like Instacom, which will enhance its future earnings.

On 20 May 2013, Instacom announces that the company had received and accepted a Letter of Award for the supply, installation, testing and commissioning of telecommunication network and infrastructure and engineering works in Sarawak. The value of this project to Instacom is RM205 million, which is 
expected to contribute strongly to the company’s earnings and net assets for financial years ending 2013 to 2015. 

This development follows on the heels of the company’s sterling Q1 results announced on 14 May 2013 when it posted revenue of RM30.210 million and profit before tax of RM6.828 million, marking significant respective increases of RM29.350 million and RM9.895 million against the previous corresponding period.

Disclaimer: The content on this site is provided as general information only and should not be taken as investment advice. All site content, shall not be construed as a recommendation to buy or sell any security or financial instrument. The ideas expressed are solely the opinions of the author. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.

All Quiet On The .... Front

We cannot really call ourselves the Western front, nor can we call it the Eastern front ... so what can we call it ... khatulistiwa front??

Everyone is a bit puzzled why the market went so dead despite the index breaching 1800 last week .. well, I guess you need some asshole to tell you that the bulk of monies have gone two ways, one is to subscribe for the Ranhill IPO which went nowhere but you cannot get your monies back so soon. Two, all of us are selling what we can to be cashed up to buy SONA warrants this morning.

The secretive thing is that all investors are busy selling down other shares to be cashed up for SONA ... its like a secret things which has bogged the market down for the past 3 trading days but nobody is willing to talk about it.

Its funny how we all think we can do this secretly ... there is nothing that can dissuade us from buying SONA. It is empirically a better SPAC than Hibiscus or CLIQ. Hibiscus spent the first 3 months in the wilderness, then all hell broke loose ... the warrants which could have been gotten at 15 sen shot up together with the mother share... before long the warrants were at 1.00.

Then we have CLIQ, people got a little more bullish after seeing how Hibiscus performed. It only stayed below 20 sen (the warrant) for a couple of days and then just zoomed to 50 sen ... even after all the euphoria the warrant is still around 40 sen, and they still have not announced any QA.

Dollar for dollar, SONA is better than both of these SPACs put together, personalities wise.  So whats going to happen today???

Thankfully, the cornerstone investors are not under moratorium, if not we will only have 150m odd shares and warrants on display. As it is, at least we will see 900m shares and warrants being available for trading.

Following CLIQ, it looks like people will be exuberant .... I hope warrants will trade below 25 sen. The mother share will dip below 50 sen for sure, maybe 45 sen as the IPO holders and cornerstone investors are looking at a clean 20% gain.

What I am fearing is to see the mother share at 45 sen and the warrant at 35 sen, which would be ridiculous ... let's see if we can all make some money here.

Thursday, July 25, 2013

Something To Munch On

Reviews |

Are Organic Foods Safer or Healthier Than Conventional Alternatives?A Systematic Review

Crystal Smith-Spangler, MD, MS; Margaret L. Brandeau, PhD; Grace E. Hunter, BA; J. Clay Bavinger, BA; Maren Pearson, BS; Paul J. Eschbach; Vandana Sundaram, MPH; Hau Liu, MD, MS, MBA, MPH; Patricia Schirmer, MD; Christopher Stave, MLS; Ingram Olkin, PhD; and Dena M. Bravata, MD, MS
Ann Intern Med. 2012;157(5):348-366. doi:10.7326/0003-4819-157-5-201209040-00007
Text Size: A A A
This article has been corrected. The original version (PDF) is appended to this article as a supplement.
Background: The health benefits of organic foods are unclear.
Purpose: To review evidence comparing the health effects of organic and conventional foods.
Data Sources: MEDLINE (January 1966 to May 2011), EMBASE, CAB Direct, Agricola, TOXNET, Cochrane Library (January 1966 to May 2009), and bibliographies of retrieved articles.
Study Selection: English-language reports of comparisons of organically and conventionally grown food or of populations consuming these foods.
Data Extraction: 2 independent investigators extracted data on methods, health outcomes, and nutrient and contaminant levels.
Data Synthesis: 17 studies in humans and 223 studies of nutrient and contaminant levels in foods met inclusion criteria. Only 3 of the human studies examined clinical outcomes, finding no significant differences between populations by food type for allergic outcomes (eczema, wheeze, atopic sensitization) or symptomatic Campylobacter infection. Two studies reported significantly lower urinary pesticide levels among children consuming organic versus conventional diets, but studies of biomarker and nutrient levels in serum, urine, breast milk, and semen in adults did not identify clinically meaningful differences. All estimates of differences in nutrient and contaminant levels in foods were highly heterogeneous except for the estimate for phosphorus; phosphorus levels were significantly higher than in conventional produce, although this difference is not clinically significant. The risk for contamination with detectable pesticide residues was lower among organic than conventional produce (risk difference, 30% [CI, −37% to −23%]), but differences in risk for exceeding maximum allowed limits were small. Escherichia coli contamination risk did not differ between organic and conventional produce. Bacterial contamination of retail chicken and pork was common but unrelated to farming method. However, the risk for isolating bacteria resistant to 3 or more antibiotics was higher in conventional than in organic chicken and pork (risk difference, 33% [CI, 21% to 45%]).
Limitation: Studies were heterogeneous and limited in number, and publication bias may be present.
Conclusion: The published literature lacks strong evidence that organic foods are significantly more nutritious than conventional foods. Consumption of organic foods may reduce exposure to pesticide residues and antibiotic-resistant bacteria.
Primary Funding Source: None.

If The Beatles Did Not Exist

The adage about people only remember the winners, those who came in second or third do not get enough credit. In the world of modern music (i.e. stuff churned out popularly over the last 100 years), we can debate it to death but The Beatles would probably come out tops again and again. So much so that their music and the band members (even the pathetic Ringo Starr) are always revered no end.

If The Beatles did not exist ... who do you think will take over that mantelpiece? Its a great topic for bar talk. It is also very good to bring up the achievements of the runner ups ... many whom we will casually write off or be forgotten even though their contributions were just as enormous.

The Beatles had a different sound, its not like Presley's rock n roll (basically a white man doing a black man singing rock n roll, and tons of charisma). It also helped enormously that they came out of UK to conquer the US of A. Fair to say, the best progressive sounds almost inevitably came from the UK over the past 40 years, except for the period where Seattle contributed enormously.

So, who would we be lauding if there were no Beatles?

Top of my list would be The Beach Boys, the lacked the pull of The Beatles largely because they did not really conquer the rest of the world like The Beatles. They were categorised as beach-Californian-happy-go-lucky music, but OMG the immense talents of Brian Wilson rivaled Lennon-McCartney for sure. Just listen to the melodies and lyrics of these two songs. The inter layered melodies, harmonies and instrumentation all guided to a crescendo.

We can name tons of hits which many do not even know were The Beach Boys but when put together its massive: Help Me Rhonda, Surfin USA, Wouldn't It Be Nice, Don't Worry Baby, I Get Around, California Girls, ... the exquisitely beautiful God Only Knows.

The Beach Boys had a reunion tour last year and even stopped in Singapore, not much fuss was made, but can you imagine if The Beatles had a reunion tour today ... why the huge difference ... to me The Beach boys were sooo good too but now they are widely perceived as just another great rock and roll outfit of the past ... sigh. Much like how everybody under-rates how important Rush is to rock music history and evolution. (Probably cause they are Canadians). Next to The Beach Boys, other worthy contenders would have been The Monkees, CCR and The Hollies ... though I wasn't around to hear them, I am not that old but to be around in the 60s would have been wild with the emergence of such musical talents.

What's you pick ...

Wednesday, July 24, 2013

Rebuttal By Mr. Koon

As mentioned by Mr. Koon, some of the comments by readers to his article on JT were downright rudeand insolent. You can state your points, there are always a buyer and a seller in a stock - then explain when you are a buyer and why you are a seller, its not an ego thing. When someone tries to share, how you behave tells us a lot more about your warped mentality.

Jaya Tiasa is my best bet
Koon Yew Yin, 25th July 2013

As you all know, the KLCI is striking the historical high and investors have to be more careful in their stock selection. You should be a net seller and do not buy any share unless it is really undervalued. Do not take unnecessary risk.  

The last time I wrote about Jaya Tiasa to Dali as my friend and he posted it on 6thJuly 2013 on his blog which attracted many commentaries, some are rude and senseless. That is why I feel obliged to write this piece. Time will tell who is right.

In my last article, I said that my family members had accumulated 23 million JT shares and I was not asking you to buy to support the share price. Since then we have bought some more and we now have a total of about 34 million shares.

My reason for writing this is to satisfy my own ego which is my greatest weakness. Another reason is to do some charity by teaching you how to make money from the stock market. In fact, almost all my wealth is from the stock market. For example, I made a fairly big sum from TWS and TWSP and many of you can recall that I also wrote to recommend you to buy. Of course many did not believe me. Those who have bought must be laughing.  

I am not a professional analyst and I have nothing to gain if you buy or not. I am aware that I will have no place to hide if you buy it at the current price level of around Rm 2.10 and lose some money.

There are so many criteria for stock selection. Most professional analysts consider the current earning is most important because it is so difficult to predict the future. That is why they are not interested to buy JT now as it is not showing much profit because most of the palms are young. I prefer to accumulate slowly when Fund Managers are not buying.

     Reasons to own Jaya Tiasa shares
1.     Jaya Tiasa’s major business is timber and plywood. After cutting down the timber, they started planting oil palms in 2002 aggressively. They have planted about 62,000 ha. The average age of their palms are about 5/6 years old. That is why the company is not showing much profit and professional fund managers are not interested. As a result the price has been depressed for almost one year. The current price has formed a base and it is safe to buy it.  See below price chart:


2.     If you look at the FFB production / palm age chart below, you can see there will be sustainable FFB production growth over the next 10 years. Among all the criteria for stock selection, sustainable production/profit growth prospect is the most important. When the palm is 4 years old it can produce 7.7 tons of FFB per ha and when it is 10 years old it can produce 27.2 tons. That means it has a production growth rate of about 3.5 times in 6 years. What business can offer you such growth rate?

That is why most of the older plantation companies are cash rich. The younger companies, like JT has to use their cash for the construction of mills and expand their plantation area.    

3.     The whole plantation sector is so depressed due to its prolong weak CPO price. Like any commodity cpo price will recover. If you look at the 5 years price chart below, you can imagine that it will sooner or later recover. Always buy when people are fearful!  

4.     Palm oil is largely grown in Indonesia and Malaysia. Fortunately it cannot be grown in China, India and US or EU. Due to continuous population and economic growth, there will be increasing demand for eatable oil. There is absolutely no good reason why soya bean oil is selling at a higher price than palm oil when it is proven that it is not superior to palm oil. Please read my recent article on the Fight the Smear Campaign against Palm Oil.

5.     As reported, the price of timber and plywood has increased by about 50% due to the Japanese demand for the reconstruction of the damages caused by the recent tsunami. I will move a resolution in the coming AGM to list the company’s timber business. I believe all shareholders will support my proposed resolution. This will benefit JT shareholders. For example IOI Corp is listing their Property business and IOI Corp shareholder will be given one IOI Property share for every three IOI Corp shares held. 

6.     As shown in the last annual report, most of the largest top 30 shareholders were financial institutions. The 30th largest shareholder was CIMSEC nominees (Asing) Sdn Bhd Bank of Singapore Limited for Profit Centre Asset Management Limited holding 5,639,916 shares. They all know the company has sustainable profit growth. This is reassuring to me and all serious investors.

7.     The total issued shares is 974 million X Rm 2.10 = Rm 2,045 million plus about Rm 500 million bank loan= Rm 2,545 million divided by 62, 000 ha planted area = Rm 41,000 per ha which is comparatively cheap without considering their timber and plywood businesses. The EV per ha for many of the famous plantation companies is more than Rm 100,000 per ha.   

Conclusion: This share is good for serious long term investors. It has sustainable profit growth prospect for the next many years which is the most important criteria for stock selection. It is not meant for day traders. 

S&M Show Podcast

When is a stock a buy. What is over-owned or under-owned.

Song pick:  The grand talents of Elvis Presley meshed with the minimal talents of mixing by JXL.

Monday, July 22, 2013

After A Long Leave Of Absence.

I have not been able to post anything for quite a while now.
It has been extremely busy and just keeping up with the weekly newsletter has been a challenge.
Let me quote from some of the newsletters that I had written in the last few months:

On June 5, I started to close all short positions and sent this email:
:Starting to close 50% of all positions (Except WEAT & CORN)

Then we long XIV around $20.50-$21 range.

On June 9, I wrote:
From a pattern standpoint, the pull back was corrective and with our short-term momentum work hitting oversold levels I have increasing evidence that Friday’s bullish reversal represents my anticipated June minor low. I would still see this as the basis for another bounce/rally into deeper June, anticipating a retest of the May high at 1670 to best case 1700.

XIV did well and continued to go higher. However, around June 19, the indices failed to clear 1650 and the correction resumed. Our resident troll started to send abusive emails but I said the following:
The stock market is ruled by fear and greed.
We are no exception.
We are mostly out of the market except for XIV and now that the indices have broken the earlier low, the momentum has shifted to the downside. However the downside is limited to SPX 1565-70 which will be enough to generate tons of short interest before the bounce.
I expect to see another bounce soon at which point we will close our XIV.
For now, do not give in to fear and panic.
Gold and silver has reached my downside price target but the cycles have not bottomed yet.
All in all, it is fishing time, and do not give in to fear or panic nor to greed.
Have a great weekend folks.

On June 30 I wrote the following:
  •    From a daily trade point of view, I think we have seen the bounce and the correction will continue till 1st half of July. If 1560 is taken out in SPX, the next stop is 1535 and then 1510. But I am not fully sure whether 1560 will be taken out or not and hence I am hesitant to take a short trade here.

  • From a weekly perspective, I am fairly certain that we will see another rally to new high of around 1710 by 1st half of August.

  • On July 11, I wrote:

    Yes, the low came in early.
    For those of us who cannot wait and must have something going, here are two items worth going long with:
    SLB:  with a sell stop at $ 74.00
    XOM: with a sell stop at $ 89.60

    The target for upside moved a little bit. SPX can go upto 1740.

    Now the XIV is at $25.78 (I had sold 50% of XIV at a loss of about a buck), SLB is at $84.80 and XOM is at $94.83 and I have advised subscribers to book profit.

    How is that for hitting the ball, Mr. Troll?

    We are still waiting for the cycle bottom of gold and silver and waiting to short treasuries. We are mostly in cash and I am asking readers to raise as much cash as possible and be patient.

    Do not be greedy like the Troll nor be a spineless snake.
    If you want to be on the right side of the market, you can join the readership and subscribe by donating $99 per month by clicking the "Donate" button.
    However, I do not trade very much and wait for the right opportunity with a very long term outlook. I am not a day trader nor do I care for the short term moves. I am looking forward to what is going to happen in few months, not in few days. So if you have a short term outlook, you will be wasting your time and money. If you do not have the patience and want to buy or sell always, the talking heads in TV will be a better bet. I am not looking to become a mass market newsletter writer nor am I looking to become rich by selling subscription.

    Thanks for reading this post and good luck investing everyone.

    Sunday, July 21, 2013

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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