Commandments for the individual investor
Benjamin Graham, the father of value investing. Graham’s own books are investment classics. Securities Analysis (first published in 1934) and The Intelligent Investor (first published in 1949) continue to sell steadily. In addition to this legacy, he has permanently influenced many successful investors, including Warren Buffett, the wealthiest man in America; William Ruane, founder of the super-successful Sequoia Fund; and well-known investor Walter Schloss. Ben was a prophet in a very specialized but important realm of life. He preached commandments that any investor can use as stars when navigating the vast and mysterious seas of the investment world. An individual investor, who is not under pressure to shoot comets across the heavens but would like to earn a smart and substantial return, especially can benefit from Ben’s guidance. In greatly simplified terms, here are the 14 points Graham most consistently delivered in his writing and speaking. Some of the counsel is technical, but much of it is aimed at adopting the right attitude:
1. Be an investor, not a speculator
“Let us define the speculator as one who seeks to profit from market movements, without primary regard to intrinsic values; the prudent stock investor is one who (a) buys only at prices amply supported by underlying value and (b) determinedly reduces his stock holdings when the market enters the speculative phase of a sustained advance.”
Speculation, Ben insisted, had its place in the securities markets, but a speculator must do more research and tracking of investments and be prepared for losses if they come.
2. Know the asking price
Multiply the company’s share price by the number of company total shares (undiluted) outstanding. Ask yourself, if I bought the whole company would it be worth this much money?
3. Rake the market for bargains
Graham is best known for using his “net current asset value” (NCAV) rule to decide if the company was worth its market price.
To get the NCAV of a company, subtract all liabilities, including short-term debt and preferred stock, from current assets. By purchasing stocks below the NCAV, the investor buys a bargain because nothing at all is paid for the fixed assets of the company. The 1988 research of Professor Joseph D. Vu shows that buying stocks immediately after their price drop below the NCAV per share and selling two years afterward provides an excess return of more than 24 percent.
Yet even Ben recognized that NCAV stocks are increasingly difficult to find, and when one is located, this measure is only a starting point in the evaluation. “If the investor has occasion to be fearful of the future of such a company,” he explained, “it is perfectly logical for him to obey his fears and pass on from that enterprise to some other security about which he is not so fearful.”
Modern disciples of Graham look for hidden value in additional ways, but still probe the question, “what is this company actually worth?” Buffett modifies the Graham formula by looking at the quality of the business itself. Other apostles use the amount of cash flow generated by the company, the reliability and quality of dividends and other factors.
4. Buy the formula
Ben devised another simple formula to tell if a stock is underpriced. The concept has been tested in many different markets and still works.
It takes into account the company’s earnings per share (E), its expected earnings growth rate (R) and the current yield on AAA rated corporate bonds (Y).
The intrinsic value of a stock equals:
E(2R + 8.5) x Y/4
The number 8.5, Ben believed, was the appropriate price/to/earnings multiple for a company with static growth. P/E ratios have risen, but a conservative investor still will use a low multiplier. At the time this formula was printed, 4.4 percent was the average bond yield, or the Y factor.
5. Regard corporate figures with suspicion
It is a company’s future earnings that will drive its share price higher, but estimates are based on current numbers, of which an investor must be wary. Even with more stringent rules, current earnings can be manipulated by creative accountancy. An investor is urged to pay special attention to reserves, accounting changes and footnotes when reading company documents. As for estimates of future earnings, anything from false expectations to unexpected world events can repaint the picture. Nevertheless, an investor has to do the best evaluation possible and then go with the results.
6. Don’t stress out
Realize that you are unlikely to hit the precise “intrinsic value” of a stock or a stock market right on the mark. A margin of safety provides peace of mind. “Use an old Graham and Dodd guideline that you can’t be that precise about a simple value,” suggested Professor Roger Murray. "Give yourself a band of 20 percent above or below, and say, “that is the range of fair value.”
7. Don’t sweat the math
Ben, who loved mathematics, said so himself: “In 44 years of Wall Street experience and study, I have never seen dependable calculations made about common stock values, or related investment policies, that went beyond simple arithmetic or the most elementary algebra. Whenever calculus is brought in, or higher algebra, you could take it as a warning signal that the operator was trying to substitute theory for experience, and usually also to give speculation the deceptive guise of investment.”
8. Diversify, rule #1
“My basic rule,” Graham said, “is that the investor should always have a minimum of 25 percent in bonds or bond equivalents, and another minimum of 25 percent in common stocks. He can divide the other 50 percent between the two, according to the varying stock and bond prices.” This is ho-hum advice to anyone in a hurry to get rich, but it helps preserve capital. Remember, earnings cannot compound on money that has evaporated.
Using this rule, an investor would sell stocks when stock prices are high and buy bonds. When the stock market declines, the investor would sell bonds and buy bargain stocks. At all times, however, he or she would hold the minimum 25 percent of the assets either in stocks or bonds — retaining particularly those that offer some contrarian advantage.
As a rule of thumb, an investor should back away from the stock market when the earnings per share on leading indices (such as the Dow Jones Industrial Average or the Standard & Poor’s composite index) is less than the yield on high-quality bonds. When the reverse is true, lean toward bonds.
9. Diversify, rule #2
An investor should have a large number of securities in his or her portfolio, if necessary, with a relatively small number of shares of each stock. While investors such as Buffett may have fewer than a dozen or so carefully chosen companies, Graham usually held 75 or more stocks at any given time. Ben suggested that individual investors try to have at least 30 different holdings, even if it is necessary to buy odd lots. The least expensive way for an individual investor to buy odd lots is through a company’s dividend reinvestment program (DRP).
10. When in doubt, stick to quality
Companies with good earnings, solid dividend histories, low debts and reasonable price/to/earnings ratios serve best. “Investors do not make mistakes, or bad mistakes, in buying good stocks at fair prices,” Ben said. “They make their serious mistakes by buying poor stocks, particularly the ones that are pushed for various reasons. And sometimes — in fact, very frequently — they make mistakes by buying good stocks in the upper reaches of bull markets.”
11. Dividends as a clue
A long record of paying dividends, as long as 20 years, shows that a company has substance and is a limited risk. Chancy growth stocks seldom pay dividends. Furthermore, Ben contended that no dividends or a niggardly dividend policy harms investors in two ways. Not only are shareholders deprived of income from their investment, but when comparable companies are studied, the one with the lower dividend consistently sells for a lower share price. “I believe that Wall Street experience shows clearly that the best treatment for stockholders,” Ben said, “is the payment to them of fair and reasonable dividends in relation to the company’s earnings and in relation to the true value of the security, as measured by any ordinary tests based on earning power or assets.”
12. Defend your shareholder rights
“I want to say a word about disgruntled shareholders,” Ben said. “In my humble opinion, not enough of them are disgruntled. And one of the great troubles with Wall Street is that it cannot distinguish between a mere troublemaker or “strike suitor” in corporate affairs and a stockholder with a legitimate complaint that deserves attention from his management and from his fellow stockholders.” If you object to a dividend policy, executive compensation package or golden parachutes, organize a sharcholder’s offensive.
13. Be Patient
“... every investor should be prepared financially and psychologically for the possibility of poor short-term results. For example, in the 1973-1974 decline the investor would have lost money on paper, but if he’d held on and stuck with the approach, he would have recouped in 1975-1976 and gotten his 15 percent average return for the five-year period.”
14. Think for yourself
Don’t follow the crowd. “There are two requirements for success in Wall Street,” Ben once said. “One, you have to think correctly; and secondly, you have to think independently.”
Finally, continue to search for better ways to ensure safety and maximize growth. Do not ever stop thinking.
Source: http://sify.com/finance/equity/fullstory.php?id=13418474
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Okay, maybe a little harsh but tomorrow is Thursday, the first day of 2009 and my fancy isn’t even the least bit tickled with the four major releases opening tomorrow. They are; Bolt, Marley & Me, The Tale of Despraux and Yes Man. On second thoughts I might see Yes Man just because of the delightful Zoey Deschanel and Murray from Flight of the Concords. But I’d have to be bloody despraux to see a film about a mouse that goes to rescue a princess from rats. In my eyes no animated film on mice and rats can beat Ratouille. Ever. Bolt on the other hand looks like it’s overcrowded with painfully likable characters which are clichés stolen from every other animated movie ever made. And finally, Owen Wilson and Jennifer Aniston have a puppy that repairs their fractured relationship in Marley & Me. Vomit anyone? If the trailer is anything to go by then the best acting in that god-awful film is done by the dog who even has better hair than Wilson. I think I’ll read a book this week and instead count the days until the advance screenings of Milk.
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Originally I wanted to compile a list of my favourite films of 2008, given the year is drawing to a close. However, I kept getting frustrated with the number of apparently good movies I haven’t seen. Instead I’ve thrown together a list of some very interesting films that for one reason or another have slipped under most peoples radar. A few mentioned might not necessarily make my list of best films of `08 but they’re still worthy for a host of other reasons. All of these titles you can pick up on DVD at your local rental store. Enjoy!
Southland Tales There aren’t many people who can forget Richard Kelly’s debut film Donnie Darko. Majority of them are still trying to work out what actually happened besides the fact Jack Gynehall’s character got laid in the final half. Therefore there was understandably a lot of buzz about his follow up film Southland Tales. In the seven years since Kelly made Donnie Darko it has become a cult and critical hit and the hype surrounding this recent work was equally as positive, especially when it got accepted in to Cannes. The critics creating that hype soon turned in to a vicious mob after what was called “one of the most disastrous screenings at Cannes ever and one of the worst films ever selected”. For an idea of how bad it went, think the fictious screening of Medellin in Entourage, Season 4. Yes it was that bad. People booed and got rowdy before storming out of the theatre. Regardless, I was keen to see it as it had a pretty intriguing cast comprised of random actors from all over the shop. After two and a bit hours of watching Southland Tales I am utterly and completely confused. In fact, three days later I’m still not sure what it was about. But I know this – I liked it. For some strange reason beyond all my comprehension I enjoyed it. Kelly drew some fantastic performances out of his mixed bag cast considering he chose actors that he thought were underrated and whom he wanted to perform really different performances from their usual roles. The stars include Sarah Michelle Gellar, Dwayne `The Rock’ Johnson, Sean William Scott, Justin Timberlake, Amy Poelher, Mandy Moore and Bai Ling just to name a few. And, very surprisingly, they’re all good! Especially Sean William Scott and Justin Timberlake. Conceptually I think the film is pretty brilliant. Yes, it’s very confusing but you really have to hold out until the end. Not that by the end you understand the film any more but it’s best to try and sort through the puzzle in its entirety. Stylistically I think Kelly is having a bit of a wank and has got carried away with his own special effects budget and what he sees as cleverness with the camera. This film has its flaws, no doubt. But it also has it’s merits which I think more than out weigh the negatives. In fact, this futuristic world on its way to the apocalypse was a little scary because it reminded me so much of our current situation. Plus you also see a car screw another car in a creative CGI display and that alone is worth your time. See this. Gone Baby GoneAn absolute classic if I ever saw one. Who knew Ben Affleck had the potential to direct, write and produce in such an exceptional manner? Okay we knew he had the balls after his writing debut with BFF Matt Damon won them an Oscar for Good Will Hunting but Gone Baby Gone is beyond and better than that. The camera work is great and Affleck directs his cast and crew very well. But the real clincher here is the story. Affleck is so masterful in his direction and writing that he leads the audience one way and then all of a sudden you’re thrown in to a completely different situation darker and more difficult than before. This is the kind of film that once you see it, you don’t forget it and it truly makes you question your personal morals and ethics. The Academy made a massive oversight in not selected this film as a contender for best picture. One of my favourite films period. Sukiayaki Western Django A swashbuckling ride with big guns, big explosions and a big cameo from Quentin Tarantino. Takashi Miike (a director who makes a ridiculously large amount of films each year) throws everything at you in this exploitive action romp which is slightly kooky and a tad bit fun. Body of Lies One of the most underrated movies of the year, Russel Crowe and Leonardo Dicaprio face of in this tense spy-thriller which had me biting my nails the whole way. The story is complex, the locations are mind blowing and in true Ridley Scott fashion the camera work/techniques are exceptionally innovative. The story centres on CIA agent Roger Ferris played by Dicaprio who uncovers a lead on a major terrorist leader suspected to be operating out of Jordan. Crowe is his CIA supervisor and the thing that really completes Body of Lies is seeing these two superb actors throw stellar performances at each other. You must see this. Teeth Brilliant, unsettling and hilarious are perhaps three words I’d use to describe this little gem of a black comedy. Or is it? It’s hard to define as a black comedy when there are definitely elements of horror. But whatever genre you want to throw it in Teeth is just a little bit awesome. In a nutshell Teeth is about a teenage virgin named Dawn who discovers, through a series of unfortunate incidents, she has teeth in her vagina. Yes, that’s right I said teeth in her vadge (a phenomenon popular in mythology in civilisations throughout the world know as vagina dentata). And if you think she’s unlucky wait to you see the how the handful of douches that try to pop her cherry end up. Lets just say there are certain scenes that the male audience may find . .er . . .uncomfortable. An indie film with a cast of unknowns, you can tell lead actress Jess Weixler is going to be a star. I loved how the director mocks how Hollywood has made showing female genitalia in films taboo and the sex scenes are shown from both the man AND the women’s perspective (for once). But what I truly adore is once you put the shocking concept of the film aside, Teeth is essentially about a young women who comes to accept her flaws and use them to her advantage. Who would have thought a film about a fang filled giny could present a strong message on female empowerment? RocknRolla Undoubtedly one of my favourite films of the year! But despite the impressive cast RocknRolla didn’t seem to attract much of an audience. After a few colossal failures RocknRolla is a return to form for Guy Ritchie and my favourite film of his to date. “What?! But nothing can be better than Snatch or Lock, Stock and Two Smoking Barrels” I hear you say. Oh but it is. At least for me personally anyway. A shade lighter than his previous gangster flicks RocknRolla is funny, fast paced and packed to the brim with action. The ensemble cast ticks all the performance boxes with Toby Kebbell delivering an absolutely smashing performance as drug-addicted rocker Johnny. Plus the jerking exchange between Thandie Newton and Gerard Butler is one of the best dance scenes I’ve seen since Uma Thurman and John Travolta in Pulp Fiction. We Own the Night 2008 hasn’t been a great year for Mark Wahlberg film wise. His show Entourage has continued its roaring success and in his personal life fiancée Rhea Durham popped out another son for him. But for some reason the films he has starred in haven’t bode well with critics despite his stellar performances. We Own the Night was the exception. Applauded by critics for the superb camera work and dark, thrilling atmosphere created by writer/director James Gray, We Own the Night was accepted in to the Cannes Film Festival and received a standing ovation after it screened. The problem was, no one saw this movie. Okay, that’s a lie. There were some people who saw it but frankly all nine of us are going to have trouble spreading the good word about this film. The script and concept is superb and the acting is nothing short of brilliant. Mark Wahlberg and Joaquin Phoenix play brothers on different sides of the law who team up to protect their families from the Russian mafia. Gray, Wahlberg and Phoenix worked together in The Yards which was another critical success and clearly the trio work well considering the quality films they produce. Wahlberg and Phoneix also took on the major task of producing the film. We Own the Night will have you on the edge of your seat as it’s suspenseful, smart and beautifully shot. Wahlberg is the stand out in a role which is quite different to anything he has played before and Eva Mendes is smokin’. But the real star here is James Gray who in my books has cemented himself as one of the most notable up and coming film makers. With previous semi-classics such as Two Lovers, Little Odessa, The Yards and now We Own The Night, Gray is shaping up to be the next Martin Scorcese. And the man is only in his early 40s! Hot damn. Redacted Legendary director Brian De Palm of Scarface and The Untouchables fame stepped outside his comfort zone to make this fictional drama which won the Silver Lion at the Venice Film Festival for best director. Redacted is a montage of stories about U.S. soldiers fighting in the Iraq conflict, focusing on the modern forms of media covering the war and is designed to make you feel like you’re actually there with the soldiers. This film is truly unique compared to everything else De Palma has done in his career which spans almost half a century. It’s raw, fast paced and you can tell you’re in the hands of a veteran director. I think the Redacted tag line does a better job of describing the film than I can - “Truth is the first casualty of war”. Be Kind RewindAnother notable mention is Be Kind Rewind starring Jack Black and Mos Def . Although it lacked the budget and special effects of some of the other comedies released this year, Be Kind Rewind had more heart than all of them put together and featured some of the best spoofs of Hollywood classics Rocky, King Kong and Ghostbusters. Mos Def has rarely been seen in a comedy but his performance is so natural it’s clear he has a real knack for this genre. Be Kind Rewind can be a bit slow in parts but in others it’s hilarious and more authentic than any other comedy of the year. Best line? “You know you’re in love with someone when you have an imaginary conversation with them for more than 20 minutes a day”. Stop-Loss Another film about soldiers in the war in Iraq by none other than super-lesbian Kimberley Peirce of Boys Don’t Cry acclaim. After having a massive break from making movies after her exceptional debut mentioned above, Peirce wrote and directed this heart wrenching masterpiece of a film with one of the hottest young casts around. Starring Ryan Philippe, Channing Tatum, Aussie lass Abbie Cornish and Movie Mazzupial favourite Joseph-Gordon Levitt the performances are, to say the least, mind blowing. I kid you not, I had shivers from the delivery and conviction these actors brought to the roles. Peirce wrote the film after her brother became a victim of the Stop-Loss phenomenon which is a loop hole created by the American government forcing some soldiers to return to the war zone after they have already completed their initial tour. I read a review from one critic who described Stop-Loss as “the first truly brilliant film of the year”. I would have to agree, a truly brilliant film. Savages I’ll try and keep this brief because I already covered this film extensively in August but Savages is that rare kind of a movie that has the ability to connect with each of us on some level. Laura Linney and Phillip Seymour Hoffman star as dysfunctional siblings Wendy and John Savage who are forced to confront the issues in their own lives when they to try looking after their father who has recently been diagnosed with dementia. Yet another black comedy to add to the list and I’m sure there’s a fair few people who have seen this due to Laura Linney’s Oscar nomination for the role but this film is so affecting I had to include it anyway. How She Move It’s easy to understand why no one wanted to watch another dance movie in `08 after such atrocious efforts like Step Up 2 The Streets and Make It Happen (my front runner for the worst film of the year). Essentially that’s what How She Move is; a dance film. But there’s a difference. Unlike the dozens of bubblegum pieces that fill this genre, the movie is authentic and sheds light on a genuine, not fictional, underground movement of step dancing. It’s not filled with the lofty, predictable storylines of other dance movies instead it looks at the gritty ghetto filled with sex, drugs, death and darkness. It examines family relationships in the face of losing a loved one to heroin and it looks at the failing education system for lower-class black Americans. Plus there are some wicked cool dance scenes. On the whole, How She Move will leave you feeling like you saw something substantial rather than just another popcorn dance movie. Despite being an official selection at the Sundance Film Festival where it was the surprise hit of the event, How She Move failed to make a dent at the global box office particularly in Australia. Don’t let that stop you. Not Quite Hollywood Maybe the best Aussie film of the year and definitely the best documentary Not Quite Hollywood is an exciting debut for director Mark Hartley. The doco delves deep in to the world of Ozploitation cinema, popular in the 70s and 80s which is a hybrid of one of my favourite genres; exploitation cinema. A fascinating look at an undocumented portion of Australian film history it also features interviews from the likes of Quentin Tarantino, Jamie-Lee Curtis and Dennis Hopper. To read more see my August post titled Rude, crude and totally attractive. In Bruges Funny and oh so dark at the same time. In Bruges is about two hit men who are forced in to hiding after a hit goes horribly, horribly wrong. Colin Farrell is superb as a tormented hitman struggling to come to terms with what he has done and Brendan Gleeson is just as brilliant as Farrell’s mentor. Ralph Fiennes rounds up the solid performances as their boss and keep an eye out for the funniest dwarf, correction, ‘small person’ incorporated in to an action comedy. The humour is abrupt and black with some of the best one liners in a movie this year. One of my favouritest, favouritest, favouritest flicks of `08 and hopefully more people have seen this then I give them credit for.
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Hot damn, I wish I did! And no, I don’t mean the kind that comes out of a cows teat. I’m talking about the new film from super-awesome Gus Van Sant titled Milk which is getting all sorts of praise for great acting and superb direction. A true story, Milk is based on California's first openly gay elected official, Harvey Milk, a San Francisco supervisor who was assassinated along with Mayor George Moscone. Not only is this directed by one of my top six favourite directors (Sant) it stars one of my favourite actors (Sean Penn) in the title role. Penn is backed up by a superb supporting cast with Josh Brolin, Emile Hirsch and James Franco in another strong career move. I’ve seen the trailer no less than six times at the movies and it blows my mind every view. The link below will take you to said trailer of brilliance - www.youtube.com/watch?v=WW0lQrWn5VI I’d heard a little bit about this story thanks to the copious amount of gay friends I have and the movie looks absolutely brilliant from the 2 minutes and 35 seconds I’ve seen. From those who have seen Milk they’re tipping it to take out all five major categories at the coming Oscars including; best picture, best director, best actor in a lead role, best supporting actor and best original screenplay. Win or loose I’m pumped to see this asap. Milk is released January 2009 in Australia, probably at selected cinemas so keep your eyes peeled.
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Blogged the other day: More On The Flip-Flops Of Proposed Dividends.
Instead of relying on what's posted on our local news media, Divided over dividend payout, let's look at what was posted on Bursa Malaysia itself.
Here is Tanah Emas on 22nd December 2008: TANAMAS - REASONS FOR THE REJECTION OF THE PAYMENT OF FIRST AND FINAL DIVIDEND
- Further to Listing's Circular No.L/Q : 52128 of 2008, the Board of Directors of TECB had announced that the major shareholders, who are also the Directors of the Company have rejected the recommendation on the payment of First and Final Single Tier Dividend of 5 sen per share for the financial year ended 30 June 2008 to the shareholders.
This is due to: a) the recent economic downturn and drastic drop in Crude Palm Oil price; and b) the Company needs to conserve cash for its operations and business expansion opportunities.
As such, the previous announcements dated 27 November 2008 and 1 December 2008 pertaining to the dates of dividend entitlement and book closure are no longer applicable.
This was Tanah Emas announcement on the 27th November: First and Final Dividend It even had an ex-date announced for the payment of the dividends!! Yup I kid you not! Did it state anywhere in that announcement that the dividends needs approval from shareholders? Now this would be rather misleading for a less than average investor, yes?The dividends were proposed on August 28th. PROPOSED FIRST AND FINAL SINGLE TIER DIVIDEND OF RM0.05 PER SHARE FOR THE YEAR ENDED 30 JUNE 2008 This was TanahEmas quarterly earnings announced on the same date. Quarterly rpt on consolidated results for the financial period ended 30/6/2008 This was how much Tanah Emas has in its piggy bank.
16.317 million was all it had in its piggy bank.
A 5 sen per share dividend would amount to RM10.998 million!
Not a whole lot left after paying this dividend yes?
And this is how much Tanah Emas has in its borrowings.
And as stated in the earlier posting, More On The Flip-Flops Of Proposed Dividends.
- Yes, can't they THINK before shooting their mouths off that they are going to reward their shareholders with dividends?
Is it so difficult to THINK?
Was it hard to see back in August that the world is in an economic crisis? Was it hard to see that the dividends SHOULD NEVER HAVE BEEN PROPOSED in the first place?
Here is Chin Well's announcement on Christmas Eve: CHINWEL - REJECTION OF THE PAYMENT OF A FIRST AND FINAL TAX EXEMPT DIVIDEND Note also that Chin Well too had announced when the dividends would go-ex: First and Final Dividend And like Tanah Emas, the dividend was mooted and mentioned back in August too: Quarterly rpt on consolidated results for the financial period ended 30/6/2008 And like Tanah Emas, Chin Well's cash balances were rather low and saddled with high debts! A cash balance of only 11.9 million versus total net borrowings of 175.3 million showed clearly that Chin Well's balance sheet wasn't in the best of financial health.
And yes, I am baffled why Chin Well chose to make that dividend announcement back in August 2008!
Let's see a dividend of 6 sen would equate to 8.175 million.
Surely Chin Well should not have proposed such a dividend payout!
And again I repeat what I posted the other day: More On The Flip-Flops Of Proposed Dividends.
- Yes, can't they THINK before shooting their mouths off that they are going to reward their shareholders with dividends?
Is it so difficult to THINK?
Was it hard to see back in August that the world is in an economic crisis? Was it hard to see that the dividends SHOULD NEVER HAVE BEEN PROPOSED in the first place?
The fact that they did announced their dividends and the fact that they are now flip-flopping on its dividends shows exactly how unprofessional they are! Rather embarrassing event for corporate Malaysia!
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Highlighted the other day: Chin Well Cancels Dividends
On today's Star Business, there's a long article from Erral Oh, Divided over dividend payout
- Saturday December 27, 2008
Divided over dividend payout By ERROL OH
At AGMs earlier this week, the majority shareholders of oil palm grower Tanah Emas Corp Bhd and nuts and bolts maker Chin Well Holdings Bhd voted against the payment of dividends declared earlier. The shareholders, who are also directors, cited deteriorating industry and economic conditions and the need to hold on to cash. Did they do the right thing? C.S. TAN and ERROL OH look at both sides of the coin.
Change of heart should have been made known earlier
By Errol Oh
THERE are a couple of things about the recent developments at Tanah Emas Corp Bhd (Tanahmas) and Chin Well Holdings Bhd that are undisputable. First, no different from any other shareholder, the majority shareholders have every right to vote for or against the dividend resolutions.
In fact, by saying nay to the dividends, they are denying themselves a fair bit of income.
Second, the reasons given for the majority shareholders’ rejection of the resolutions are solid. We are indeed in the middle of a global economic slowdown and a commodity slump, and RM11mil (in the case of Tanahmas) and RM8.2mil (Chin Well) in cash will certainly come in handy when things get rougher.
However, there are some other aspects that are open to debate. There is the question of timing. At what point did the majority shareholders decide that they it was best for the companies not to distribute the dividends?
The two companies separately declared the dividends in August.
In late November, both companies issued their respective AGM notices, which indicated that the resolutions for the dividend payments will be tabled at the meetings. The notices of book closure, setting out the relevant dates for the distributions, also came out at the same time.
The minority shareholders couldn’t have possibly seen anything out of the ordinary. It was all routine stuff so far.
Then came the AGMs – Dec 22 for Tanahmas and Dec 23 for Chin Well. That was when the majority shareholders showed their hands. It’s absurd to think that they showed up at the meeting still undecided on which way they would vote. The decision to halt the dividends would have been made much earlier.
A probable catalyst was the turbulence in the world economy and the stock market in October. If that’s so, why not communicate to the market the change of heart and the intent to shoot down the dividend resolutions?
Under Bursa Malaysia’s listing requirements, a company can’t alter the dividend entitlement once the dividend has been declared. So, it was not an option to withdraw the resolution.
Still, the majority shareholders could have earned some goodwill by immediately signalling what it had planned to do at the AGMs. People do not like to feel that they might have been misled. Nor do they fancy finding out so abruptly that the dividends they were counting on are not to be.
Bear in mind that the majority shareholders have representatives on the board of directors, including those in an executive capacity.
This is precisely the type of situation that provokes questions about the wisdom of majority shareholders having a big say in a company’s management. When do they act as majority shareholders and when do they act as stewards?
Sure, there’s a fine balance between rewarding shareholders and safeguarding a company’s interests. But there’s also the delicate task of managing shareholder expectations.
The flip-flop has cast unflattering light on the other directors. Did they have prior knowledge of the majority shareholders’ intention to nix the dividend proposals? If they did, aren’t they obliged to announce it? If they didn’t, they knew no more than the minority shareholders, and that’s hardly comforting.
Proposal not castin stone untilapproval at AGM
By C.S. Tan
CHIN Well Holdings Bhd proposed a first and final tax-exempt dividend of 3 sen a share in August.
Two months later, the financial world changed in such a way that even those who do not follow it every day noticed it.
Stock markets plunged everywhere, making the news on front pages.
The markets mirrored the conviction of investors that the global economy would get a lot worse before it could get better.
In October, the Dow Jones Industrial Average fell 14% to below the psychological level of 10,000 while the Kuala Lumpur Composite Index fell 15% in that month. Since then, weak data has come out from companies, industries and economies in all the developed countries.
It explains the series of cancellations of proposals from purchases of commercial properties to takeovers and also to dividends.
Institutional investors and analysts expect companies to maintain their ordinary dividends while special dividends can be discontinued.
That, however, should apply only to “normal conditions.” Investors should expect that companies are likely to cut their dividends at this time.
Blue chip companies hesitate to do so for fear of a sell-off in their shares should they cut their dividends, but between that and ensuring they survive the recession, long-term survival should have priority.
So far, only two lower tiered companies have cancelled their dividend proposals and both did so at their AGMs last week.
Plantation company Tanah Emas Corp Bhd did so on Monday, followed by nuts and bolts manufacturer Chin Well on Wednesday.
The rejection of their proposed dividends came as a surprise to the market in terms of the manner and abruptness in which it was done.
The dividend proposal was valid from August and September, and probably into October as well. If Chin Well had withdrawn its proposal last month, it would still have been seen as an abrupt about-turn.
But it may have taken Chin Well these two months to review its operating and financial position since October, and its board may not have met until just before the AGM. Boards generally meet just four or five times a year, not monthly.
The rejection of the dividend proposal at the AGM may have been timely and the appropriate manner in which to do it. The board’s dividend proposal is not cast in stone, until shareholders approve it at the AGM. It is cast in stone after that. Once it is approved, the company must pay the dividend.
Hence, it was not wrong in the timeliness of the vote of the major shareholders to reject the dividend proposal.
Some of them are also directors who proposed the dividend in the first place, but they know the current business conditions more than the minority shareholders.
As the company put it, global conditions changed for the worse, commodity prices have dropped and there is also a “substantial drop” in the demand for its products. Commodity prices would refer to steel prices which affect the company’s product prices and thus its profit margins.
The company also has quite a lot of bank debt – about RM230mil – and its priority is rightly to ensure it survives this severe cycle. Furthermore, cash retained in the company still belongs to shareholders.
The majority view is that business conditions will be even worse early next year. Investors should expect more “surprises” of cancellations or cuts in dividends in the months ahead.
Companies that have yet to propose dividends would avoid the embarrassment of withdrawing it.
I certainly do not agree with what CS Tan is saying here. Yes, the reason to withdraw the dividends is probably valid for both companies. Both these stocks are rather not in the best of financial health and given the current business economics worldwide, it's of course prudent that they withdraw their dividends. However, what has happened is simply appalling. As a listed entity, it's simply appalling to see the lack of professionalism in both companies. Why can't they THINK before announcing the proposed dividends? Yes, can't they THINK before shooting their mouths off that they are going to reward their shareholders with dividends? Is it so difficult to THINK? Was it hard to see back in August that the world is in an economic crisis? Was it hard to see that the dividends SHOULD NEVER HAVE BEEN PROPOSED in the first place? To flip-flop in such a manner shows how lacking the management mentality in both listed companies! EXTREMELY UNPROFESSIONAL! And now that both companies have done such flip-flops on the proposed dividends, which sane investor would dare to invest in their companies?
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Here's a wonderful posting by Jesse: A Question Worth Considering for the New Year...
- What is at the heart of the US financial crisis?
Is it that the US has been precipitously cut off from some foreign source of funding? Has there been an oil embargo, a supply shock imposed such as the one that triggered the financial crisis of the 1970's? Are the problems caused by some external change, some actor outside the system?
I think most will say the answer is 'no.'
The problems are internal to the US, to its financial system.
So, how would you fix a system that has broken from an internal flaw in this way?
Try more of the same, business as usual, apply fresh debt to a failed system based on a growing pyramid of debt without making any substantial changes?
The US financial system, the housing, equity and Treasury markets, are all Ponzi schemes, with the need for a constantly increasing source of fresh money to keep going. That funding is new debt, new dollars based on nothing produced, just the trust and confidence of the participants.
Would you fix the Madoff Ponzi scheme by giving Bernie more money, public money, to keep his payments flowing to his 'investors?'
I think most of us would say, no, no more money.
But what is the difference between that and what Paulson and Bernanke are doing today? Is there a graceful exit strategy? Have any serious reforms or changes been made or even proposed? Has there even been a frank disclosure and discussion of exactly what happened, and what is continuing to happen, beyond blaming the victims?
No. The key participants in the Ponzi scheme are continuing to take their gains out, in dividends and bonuses, front running the final collapse and admission that "its all gone, we're bankrupt."
Think about it.
What would you do if it is a Ponzi scheme, teetering on the edge?
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I was bemused when I read the following article yesterday on Hai-O: Hai-O sales rise on lower petrol prices
Firstly the company's financial controller Hew Von Kin talks about the current company's prospects.
- PETALING JAYA: Hai-O Enterprise Bhd says consumer sentiment improved in November, thanks to lower petrol prices.
“October was our weakest month in the second quarter but sales showed improvement last month as the Government started to reduce petrol prices and consumers geared up for the festive season,” financial controller Hew Von Kin told StarBiz.
- “We expect the wholesale and retail divisions to weaken after Chinese New Year while the MLM division is likely to stay resilient as people seek part-time jobs to supplement their income,” he said, adding that new MLM memberships would offset the slower spending next year.
Hai-O launched a series of healthcare supplement products last weekend, which have received positive response so far.
“We plan to launch a range of skincare products in the first quarter of next year. We have already secured the approvals and are currently working on the packaging and design,” Hew said.
Then the following passage caught my attention. - Last week, Hai-O reported a stronger net profit of RM10.9mil for the second quarter ended Oct 31, or almost 20% higher than the previous corresponding period of RM9.1mil.
Revenue jumped to RM87.3mil from RM80.5mil a year ago, thanks to higher contribution from the wholesale and MLM divisions. For the first half year, net profit was RM24.5mil on revenue of RM200.2mil.
On a quarterly basis, second-quarter net profit was lower by 20% from the first quarter’s net earnings of RM13.6mil.
In the filing to Bursa Malaysia, the company said the weaker quarter-on-quarter results were due to smaller contribution from MLM.
However, the retail business achieved better sales in the second quarter from the first, thanks to members’ sales promotions and higher margins from its house brand products.
Hai-O’s internal growth target for the financial year ending April 30, 2009 was to achieve 5% in sales, it said.
I always dislike such comments. Yes, on a yearly same quarter comparison, Hai-O numbers looked great but there is drastic weakness in when compared on a q-q basis for the past few quarters.
As posted in Review of HaiO's Latest Quarterly Earnings
- Which means, if one looks at the very immediate picture, HaiO's earnings are deteriorating at an extremely tremendous pace. The last three quarters, its earnings has went from 18.942 million to 13.602 million to only 10.889 million!
For me, I am bemused at the financial controller. Why didn't he mention or discuss on why Hai-O's earnings has been worsening each quarter?
And that 5% growth rate. That statement as a stand alone was grossly inaccurate. Truth is, Hai-O had stated CLEARLY that they are forced to reduce their growth rate from 20% to a mere 5%!
As stated in its own earnings notes.
- Due to the current global financial turmoil and weak market condition, the Company had revised downward its growth rate from 20% to 5% as mentioned above. However, the Company will strive for better performance in this challenging environment and work towards higher growth rate.
For a company who was projecting almost 20% growth and being forced to revise downwards to a mere 5% due to weak market condition, totally differs that saying a company is forecasting a 5% growth. For as a stand alone, it does not tell the whole story! And the article ends by saying. - OSK Investment Bank, in a report, said next quarter’s performance would stay strong driven by the retail division, which would benefit from the Chinese New Year celebrations next month.
“Hai-O’s attractive incentives will continue to drive the expansion of its MLM network and help the group to expand into new markets, like Indonesia, which will kick-start in March,” OSK said.
Hai-O is cash-rich with a war chest of almost RM48mil and generates good dividend yield of about 13%.
Again I am bemused. Yes, Hai-O currently has a war chest about 48 million. However, let's be more accurate here! This war chest is getting smaller, yes?!!!!!! As posted earlier in my posting, Review of HaiO's Latest Quarterly Earnings Last quarter, it had cash equivalents of 60.326 million. It's now only 48 million!
Now that depicts a totally different picture, doesn't it?
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MERRY CHRISTMAS EVERYONE! Sorry I haven’t been writing much lately but I’ve been busy doing the festive rounds and visiting family and friends all over the shop. I hope you all have a jolly day with your loved ones and remember the true meaning of Christmas: Santa’s birthday. If you feel like watching a holiday movie this Christmas I recommend an absolutely beautiful French film I saw last night called C.R.A.Z.Y.
The title stands for names of the five main children in the film which is directed by Jean-Marc Vallee and based on the experiences of co-writer Francois Boulay growing up. In a nutshell C.R.A.Z.Y follows Zac (pictured below as an adult in the film) from childhood when he is born on Christmas day in to a family with four very different brothers. The movie becomes more complex as his sexuality begins to surface as a child and he and his parents struggle to come to terms with his orientation throughout in to adolescence and adulthood. Yes, it’s a movie about Christmas and homosexuality all rolled in to one but that doesn’t make it any less brilliant! It is a beautiful, gut-wrenching film which explores sexuality, religion and family relationships in a way I have never experienced before. Please see this film, originally released in 2006, because it’s superb in every way. Note: Alternatively if you’re after a bit of fluff Love Actually is always good for you (and you and you and you).
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Published on Star Biz: Chin Well cancels dividend
- Wednesday December 24, 2008
Chin Well cancels dividend
The company says it wants to conserve cash
PETALING JAYA: Bolts and nuts maker Chin Well Holding Bhd yesterday became the second company in as many days to scrap plans to pay dividends to shareholders this year, citing the need to conserve cash amid the worsening global economic situation.
The stock hit a 5½-year low of 65 sen yesterday before bouncing back to end the day up two sen at 73 sen. Turnover was thin, with 61,000 shares changing hands. The stock has fallen 34% year-to-date.
“The shareholders of the company had unanimously approved all resolutions (at the AGM) yesterday except for the resolution on the first and final dividend of 6% (or three sen per share) for year ended June 30, 2008 (FY08),’’ Chin Well told Bursa Malaysia yesterday.
Penang-based Chin Well made a net profit of RM27.25mil, or 10.03 sen per share, in FY08. It had on Nov 28 said it would pay a dividend of three sen per share to shareholders next month.
The book closure announcement was no longer applicable, the company said yesterday.
Chin Well’s main shareholders, who are also executive directors of the company, cited worsening global economic conditions, falling commodity prices and substantial drop in demand for the group’s products, as well as the need to “conserve and save on the group’s cashflow” as reasons to reject the dividend payout proposal.
On Monday, palm oil planter Tanah Emas Corp Bhd’s main shareholders rejected plans to return part of the company’s profit as dividends to shareholders.
I cannot believe what I am reading here. Doesn't Chin Well knows that cancellation of a proposed dividend is utterly sinful in the minds of investors? No sane investor would want to invest in your company if your company flip flops on decisions such as dividends!
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Are you a trader who has not much success in the stock market?
Have you bought and read tons of books and yet cannot find any success?
Here's a recommended reading article by Dr. Brett. Can I Trade for a Living? The Quest for Trading Success (do read in full and not only the following highlighted passage)
- The missing element? Skill development. Training. A systematic program of learning that emphasizes pattern recognition, an understanding of market movement across time frames, intermarket relationships, sound execution of trade ideas, and risk management.
Mindset is critical in sustaining motivation, interest, and focus during the learning curve, and mindset is crucial in the consistent application of one's skills. The wrong frame of mind and emotional/cognitive/physical state can disrupt the best of skills, but the best of mental outlooks cannot substitute for developed skills. No positive mindframe and "method that suited me" can provide competencies--in any performance field.
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Rather embarrassing yet again for AirAsia.
Blogged yesterday: AirAsia Merger With Qantas's Jetstar?
- The talks are still in preliminary stages and it is learnt that AirAsia’s boss Datuk Seri Tony Fernandes and Qantas new chief executive officer Alan Joyce have been mulling over it. They last talked on the issue last week, a source said. ( see AirAsia-Jetstar merger brewing )
Today, Business Times rebroadcasts the following news posted on Bloomberg: Jetstar denies merger plan with AirAsia - SINGAPORE: Jetstar Asia Airways Pte Ltd, the Singapore-based budget carrier backed by Qantas Airways Ltd, denied a report saying it was in talks with AirAsia Bhd (5099) on a possible combination.
There is "no discussion on any merger", Jetstar chief executive officer Chong Phit Lian said in an e-mail reply to Bloomberg queries. The two are working on commercial arrangements, such as transferring passengers between each others' flights when delays occur, she added.
AirAsia, Southeast Asia's biggest discount airline, and Jetstar may be in exploratory talks on a possible merger, a Malaysian newspaper reported yesterday, citing people it didn't identify.
Sepang, Malaysia-based AirAsia's chief executive officer Datuk Seri Tony Fernandes didn't answer calls to his mobile phone or reply to an e-mail seeking comment.
AirAsia closed half a sen lower at 92.5 sen in Kuala Lumpur trading, after earlier rising as much as 2.2 per cent. The shares have declined 43 per cent this year. Jetstar is closely held, with Qantas owning the largest stake. - Bloomberg LOL! Didn't answer any calls?Don't you get the feeling that lately AirAsia is trying desperately to talk itself up in the media?There was the audacious plan to privatise itself but what was more daring, a GO takeover price was boldly announced! ( Is it wrong to speculate that perhaps AirAsia was trying to create a support for its stock price?)And now a merger with Jetstar? Now who is that source mentioned by Star Biz in its article AirAsia-Jetstar merger brewingYes who?Did the source simply created this merger story to drive up the stock price?Don't we want to see the end of this nonsensical 'according to sources' type of reporting here in Malaysia?
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Yes, why is Maybulk so active in the share market?
Caught the following announcement on Bursa Malaysia: Dealings in quoted securities pursuant to Paragraph 9.21 of the Listing Requirements
- Malaysian Bulk Carriers Berhad ("MBC” or "the Company”) wishes to announce that the MBC Group has, for the period from 31 January 2008 to 22 December 2008, purchased quoted securities from the open market. These purchases have exceeded 5% of MBC's latest audited consolidated net assets ("NA") as at 31 December 2007, details of which are set out below:-
1. The aggregate purchases for the period from 31 January 2008 to 22 December 2008 amount to RM91.38 million. This represents 5.15% of NA;
2. The total cost of all investments in quoted securities as at 22 December 2008 is RM143.80 million;
3. The total book value of all investments in quoted securities as at 22 December 2008 is RM122.12 million;
4. The market value of all investments as at 22 December 2008 is RM122.93 million; and
5. There were sales of quoted securities during the current financial year and the losses on disposal amounted to RM11.23 million.
This announcement is dated 23 December 2008.
Fact from 31 January 2008 to 22 December 2008, Maybulk purchased shares amounting to RM91.38 million. Aren't you shocked at what it is doing?Don't you think that the amount is way too much?Someone once mentioned that Maybulk's management is highly 'reputable'. Well that the fact that Maybulk chose NOT to disclose what they bought and the fact that they bought more than 5% of its total Net Assets as of its audited accounts as at 31st Dec 2007 places a massive question mark over the management. Won't you agree?And honestly, what does the management of the company thinks they are? Is Maybulk a securities trading firm? Does the management reckons that they are super traders or super investors? Well, the fact that they loss some rm 11.23 million speaks volumes about their stock market skills!Seriously, don't you reckon that Maybulk should stop this? Look they aren't good, are they? And if so, why dabble in the share market?Does Maybulk have so much money to lose in the share market?And if you are a minority shareholder, do you honestly like what you see? Aren't you appalled by all this?
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Published on Star Biz: AirAsia-Jetstar merger brewing
- PETALING JAYA: Something may be in the air between Qantas Airways Ltd and AirAsia Bhd. If things work out, a merger between AirAsia and the Australian carrier’s units Jetstar and JetstarAsia may be in the offing.
The talks are still in preliminary stages and it is learnt that AirAsia’s boss Datuk Seri Tony Fernandes and Qantas new chief executive officer Alan Joyce have been mulling over it. They last talked on the issue last week, a source said.
I stopped reading after that. How's this for yet another irresponsible reporting? Who is that 'a source'? Am I wrong to question if the source is even real? Am I wrong to question if this is yet another ploy to use the media to support AirAsia share price? Why I am so sceptical? Well, can I be blamed after AirAsia's recent buyout fiasco? See recent postings on the recent GO fiasco: Did Tune Air Said It Was Thinking Of Making a GO for Air Asia? , Air Asia Now Remains TIGHT-LIPPED On It's Privatisation Plan Details! , Huh? AirAsia Buyout Still An Option????? and Tune Air Says Unable To Secure Financing
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Over the weekend, New York Times ran the following article: White House Philosophy Stoked Mortgage Bonfire
The following is a passage of what was written..
- Eight years after arriving in Washington vowing to spread the dream of homeownership, Mr. Bush is leaving office, as he himself said recently, “faced with the prospect of a global meltdown” with roots in the housing sector he so ardently championed.
There are plenty of culprits, like lenders who peddled easy credit, consumers who took on mortgages they could not afford and Wall Street chieftains who loaded up on mortgage-backed securities without regard to the risk.
But the story of how we got here is partly one of Mr. Bush’s own making, according to a review of his tenure that included interviews with dozens of current and former administration officials.
From his earliest days in office, Mr. Bush paired his belief that Americans do best when they own their own home with his conviction that markets do best when let alone.
He pushed hard to expand homeownership, especially among minorities, an initiative that dovetailed with his ambition to expand the Republican tent — and with the business interests of some of his biggest donors. But his housing policies and hands-off approach to regulation encouraged lax lending standards.
Mr. Bush did foresee the danger posed by Fannie Mae and Freddie Mac, the government-sponsored mortgage finance giants. The president spent years pushing a recalcitrant Congress to toughen regulation of the companies, but was unwilling to compromise when his former Treasury secretary wanted to cut a deal. And the regulator Mr. Bush chose to oversee them — an old prep school buddy — pronounced the companies sound even as they headed toward insolvency.
As early as 2006, top advisers to Mr. Bush dismissed warnings from people inside and outside the White House that housing prices were inflated and that a foreclosure crisis was looming. And when the economy deteriorated, Mr. Bush and his team misdiagnosed the reasons and scope of the downturn; as recently as February, for example, Mr. Bush was still calling it a “rough patch.”
The result was a series of piecemeal policy prescriptions that lagged behind the escalating crisis.
“There is no question we did not recognize the severity of the problems,” said Al Hubbard, Mr. Bush’s former chief economics adviser, who left the White House in December 2007. “Had we, we would have attacked them.”
Looking back, Keith B. Hennessey, Mr. Bush’s current chief economics adviser, says he and his colleagues did the best they could “with the information we had at the time.” But Mr. Hennessey did say he regretted that the administration did not pay more heed to the dangers of easy lending practices. And both Mr. Paulson and his predecessor, John W. Snow, say the housing push went too far.
“The Bush administration took a lot of pride that homeownership had reached historic highs,” Mr. Snow said in an interview. “But what we forgot in the process was that it has to be done in the context of people being able to afford their house. We now realize there was a high cost.”
For much of the Bush presidency, the White House was preoccupied by terrorism and war; on the economic front, its pressing concerns were cutting taxes and privatizing Social Security. The housing market was a bright spot: ever-rising home values kept the economy humming, as owners drew down on their equity to buy consumer goods and pack their children off to college.
Lawrence B. Lindsey, Mr. Bush’s first chief economics adviser, said there was little impetus to raise alarms about the proliferation of easy credit that was helping Mr. Bush meet housing goals.
“No one wanted to stop that bubble,” Mr. Lindsey said. “It would have conflicted with the president’s own policies.”
And the George Bush's White House has issued a stinging attack against New York Times and branded them for irresponsible reporting! Yup, totally unreal. And here is what George Bush's White House had to say: Statement by the Press Secretary on Irresponsible Reporting by New York Times - Most people can accept that a news story recounting recent events will be reliant on '20-20 hindsight'. Today's front-page New York Times story relies on hindsight with blinders on and one eye closed.
The Times' 'reporting' in this story amounted to finding selected quotes to support a story the reporters fully intended to write from the onset, while disregarding anything that didn't fit their point of view. To prove the point, when they filed their story, NYT reporters were completely unfamiliar with the President's prime time address to the nation where he laid out in detail all of the causes of the housing and financial crises. For example, the President highlighted a factor that economists agree on: that the most significant factor leading to the housing crisis was cheap money flowing into the U.S. from the rest of the world, so that there was no natural restraint on flush lenders to push loans on Americans in risky ways. This flow of funds into the U.S. was unprecedented. And because it was unprecedented, the conditions it created presented unprecedented questions for policymakers.
In his address the President also explained in detail the failure of financial institutions to perform normal and necessary due diligence in creating, buying and selling new financial products -- a problem that almost no one saw as it was happening.
That the NYT ignored such an important economic speech to the American people and the complex causes of the crises is gross negligence.
The Times story frequently repeats a charge by the Administration's critics: a 'laissez faire' attitude toward regulation. We make no apology for understanding the concept of regulatory balance. That is, regulation should be stringent enough to protect the greater public good and safety but not overly strong so that it unnecessarily inhibits innovation, creativity and productivity gains that are the sole source of increasing Americans' standards of living. But while repeating this charge, the reporters gave glancing attention to the fact that it was this Administration that pushed for strengthened regulation and oversight, greater transparency, and housing reform.
The story also gives kid glove treatment to Congress. While the Administration was pushing for more transparent lending rules and strengthening oversight and supervision of Fannie and Freddie, Congress for years blocked attempts at stronger regulation and blocked reform of the Federal Housing Administration. Democratic leaders brazenly encouraged Fannie and Freddie to loosen lending standards and instead encouraged the housing GSEs to play a larger and larger role in the housing market -- even while explicitly acknowledging the rising risks. And while the story notes the political contributions of some banks to Republicans, it neglects that political contributions from Fannie Mae and Freddie Mac overwhelmingly supported Democratic officials -- in particular the chairmen of the banking committees. In fact, even in the midst of what by then was a housing crisis, it took Congress nearly a full year to pass specific legislation called for by the President in the summer of 2007, especially legislation to reform oversight of Fannie Mae and Freddie Mac. There are many more reporting failures in this story -- failure to consider the impact of monetary policy; ignoring the regional nature of housing markets; and ignoring the Bush Administration's historic proposal to overhaul the nation's regulatory system, for example. But then a review of these issues would wave complicated the reporters' myopic point of view that only Bush Administration policies could possibly be responsible for the housing and finance crises.
Huh? Am I reading it correctly? Cheap money flowing into the US? - -- a problem that almost no one saw as it was happening
Yet another ?????????? Goodness me, I seriously cannot believe what I am reading here. Just what are they talking about?
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