Monday, May 25, 2015

1MDB's Cash Crunch.

The next nine years are crucial for fund, as its obligations are estimated at some RM40 billion.

THE recipe for the downfall of any company is taking on short-term debt to fulfil long-term projects. This is what symptomises 1Malaysia Development Bhd’s (1MDB) ills, which needs some RM40bil in the next nine years to meet its debt obligations.

The increasing limelight that the fund has come under – not only from politicians but also from the man in the street – does not help its case either.

The tipping point for 1MDB to be a topic of discussion among the kampung folk is Lembaga Tabung Haji’s (LTH) purchase of a parcel of land in the Tun Razak Exchange (TRX) that is to be developed by 1MDB for RM188.5mil.

The momentum increased when a video of Umno deputy president Tan Sri Muhyiddin Yassin telling members in a closed-door party function that the 1MDB issue had to be resolved now and that the board and management must be replaced emerged.

It is easy to fathom why the debt-laden 1MDB issue has to be resolved quickly. The fund has taken loans from banks and the capital market to purchase assets, including independent power producers, while failing to generate sufficient cashflow.

1MDB has cashflow problems, something that even Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah has admitted to. This has raised questions on the company’s ability to meet its debt obligations of RM42bil.

Estimates based on publicly available data and current market prices have put its annual interest payment cost at RM1.4bil a year between 2016 and 2022.

What is even more worrying is the massive principal bullet payments of RM13bil in 2022, RM10.9bil in 2023 and RM1bil in 2024.

Altogether, 1MDB has debt and interest commitments of about RM14.5bil in 2022 and another RM11.7bil in 2023, assuming bullet repayments of the principal at the maturity of its loans.

This year, 1MDB has obligations of RM5bil to meet, and the bulk of it is in the form of a US-dollar term loan amounting to US$975mil (RM3.5bil) that matures on Aug 31.

“But we have to bear in mind that some of the debt can be refinanced if 1MDB’s credit standing improves,” says a banker.

Nevertheless, the next nine years will be crucial for 1MDB. Adding on to the burden is that the bulk of the liabilities are in US dollar-denominated bonds and notes. Based on the notes in the latest annual report, 1MDB has been using money raised for development projects to meet its debt obligations, including the servicing of interest.

For instance, according to its financial report, 1MDB has redeemed US$2.3bil in segregated portfolio company in Cayman Islands and has received US$1.2bil, with the remaining redemption of US$1.23bil to have been received last November.

The company said the US$1.2bil has been utilised for debt interest payment, working capital and payments to Aabar Investments PJSC to extinguish the options agreement.

Similarly, a portion of the money utilised for the development of TRX has been used to settle debt obligations.

On March 19, 2013, 1MDB Global Investments Ltd, a subsidiary company, issued debt papers worth US$3bil, with the money to have been used as capital to develop TRX jointly with Abu Dhabi Malaysia Investment Co Ltd.

According to the 2014 accounts that were signed off by Deloitte, a portion of the proceeds amounting to US$1.5bil had been placed in various investment portfolios under the custody of a licensed financial institution with good credit ratings.

“In 2014, the remaining net proceeds had been utilised by the company for working capital and debt repayment purposes,” 1MDB said in the report.

According to the 2014 annual report, the finance cost for its debts in 2014 stood at RM2.39bil while in 2013, it was RM1.61bil.

The cashflow situation of 1MDB has prompted lenders to recall their debts due from the Government-sponsored fund earlier than scheduled.

Towards this end, a consortium of banks in Singapore led by Deutsche Bank has asked for the repayment of the US$975mil loan months ahead of its due date.

According to the report, the lenders were jittery after doubts arose on the collateral of the loan held in a foreign bank based in Singapore.

“The Singapore office has come under pressure from Deutsche Bank Global. It has bigger issues such as the situation in Greece to worry about and does not want to be bogged down with too many problems,” says an executive.

What is even more disturbing is that the Government has revealed that 1MDB does not have cash in the Singapore bank but assets.

Ahmad Husni did not elaborate on the form of assets 1MDB had, but stressed that the savings were in the form of “units”.

He added that the units were backed by sovereign wealth funds and that the Government hoped to repatriate those funds as soon as possible.

The 1MDB fiasco is also beginning to drag down the auditors who have given it a clean bill of health since its inception in 2009.

The Public Accounts Committee (PAC) chairman Datuk Nur Jazlan Mohamed says the auditors seem to have applied the lower end of the auditing standards in arriving at their unqualified opinion of the accounts.

“I am going to focus on a few major accounting principles in the preparation of the accounts, which seem to have been applied with the lower end of the auditing standards, which high-risk and high-economic-impact government-linked companies (GLCs) like 1MDB should not use in the preparation of accounts,” he says (see separate story on the PAC).

Independent economist Lee Heng Guie says the sooner the issues surrounding 1MDB are resolved, the better. It will provide assertion from the Government on how to address the lingering uncertainly involving 1MDB amid all the negative perception.

“To a certain extent, the market and the economy will be somewhat dampened,” he tells StarBizWeek.

He says the Government needs a more proactive approach in handling 1MDB’s issues and cannot let it continue to drag. Its accountability is at stake.

Putting things in perspective, Lee says an RM42bil debt is a huge amount in terms of gross domestic product exposure.

He hopes that everything can be resolved soon, as there will be implications on the Government’s credibility, given that 1MDB is a company under the Finance Ministry.

“There will be fiscal implications to the Government if 1MDB were to need further injections,” he says, adding that hopefully, there would be no more future injections from what the Government had already given the fund.

On the bright side, Lee says it is good that the Government is reportedly working on restructuring 1MDB and presenting the proposal to the Cabinet next week.

Reminiscent of Renong?

The problems of 1MDB today remind one of the collapse of Renong Bhd in 2001. The conglomerate had assets but lacked cashflow. It funded long-term projects with short-term funding. Renong had debts of more than RM20bil in the late-1990s. There was also an RM3.2bil put option that its major shareholder, Tan Sri Halim Saad, had to fulfill. Halim claimed he had wanted to fulfil the option and could have got Renong out of the debt quagmire but was not allowed to do so.

Eventually, Khazanah Nasional Bhd took over Renong. It spent some RM5.2bil in that exercise.

The reason was that the Government could not afford the collapse of Renong, which would have impacted the banking system. Likewise, a default in 1MDB would trigger a cross-default of its loans and also impact the credit rating of the Government.

“This is why a committee comprising the likes of Ahmad Husni is looking into resolving 1MDB’s problems,” says an official.

1MDB’s present predicament is due to over-paying for the power assets it had acquired from the Genting Group and the Tanjong Group in 2012. The fund has also come under scrutiny for acquiring 260 acres of land in Penang for RM1.38bil in April 2013. The fund’s strategy of raising money in the country and putting it outside with foreign fund managers also does not help. A delay in the listing of its energy arm, Edra Global Energy Bhd, is not helping matters either.

Although 1MDB has assets in TRX and Bandar Malaysia, these will take time to be monetised. In this respect, 1MDB said it would sell land development rights and/or enter into profit-sharing joint ventures with regards to TRX and Bandar Malaysia.

But who will be the takers?

In a meeting of GLCs two weeks ago in Putrajaya, the GLCs were told of opportunities in TRX.

But the question is: Which GLC would put in money after seeing what LTH is going through?

Although 1MDB’s assets outstrip its liabilities, its financials are unsustainable due to the debt obligations. Hence, this has forced the hand of the Government to step in and resolve the problem.

Ahmad Husni says he is in the midst of completing a report on 1MDB’s restructuring plan, which would be submitted to the Cabinet next week.

Furthermore, Prokhas Sdn Bhd, the in-house restructuring outfit of the Finance Ministry, has been tasked to help 1MDB deal with its cashflow problems tied to its debt obligations.

This certainly should not surprise anyone.

Friday, April 17, 2015

Minister admits 1MDB debt burdensome, Putrajaya to stop all new loans.

Datuk Seri Abdul Wahid Omar admitted that the Ministry of Finance's strategic investment fund 1Malaysia Development Bhd (1MDB) is a burden, given its failure to generate cash flow against its huge debts.

The minister in the prime minister's department said that 1MDB had taken loans from banks and the capital market to purchase assets, but failed to raise cash flow, causing it to be unsustainable.

Wahid said 1MDB had expanded by taking loans from banks and the capital market which they had used to purchase assets, including IPPs, causing their debt to rise to RM42 billion as of March 2014.

"So you can imagine the quantum; it is very high and tough," he said at a forum in Petaling Jaya last night.

Responding to questions posed by the audience, Wahid said that as long as the assets were not able to generate cash flow, 1MDB will fail to be sustainable.

"Unless it can generate cash flow, it will not be sustainable," he said.

He added that the debt is expected to have an impact on 1MDB and that three strategic steps have been taken to address the problems.

"They have taken strategic steps to re-evaluate the business model and structure, and three decisions have been taken," he said.

According to Wahid, these included halting all forms of new loans, focussing on the two main projects, namely the Tun Razak Exchange (TRX) and Bandar Malaysia, and to ensure the initial public offering of IPP Edra Energy can take place soon.

"These are the strategic steps that have been identified," he added.

Criticism has been mounting over 1MDB, which was established in 2009 and has chalked up debts of up to RM42 billion.

This led to Prime Minister Datuk Seri Najib Razak ordering the Auditor-General to "independently verify 1MDB's accounts", with the findings to be submitted to the Public Accounts Committee (PAC). – April 17, 2015.

Monday, July 28, 2014

Stock Trader Who Called Three Crashes Sees 20% Collapse

MIAMI (MarketWatch) — Mark Cook, a veteran investor included in Jack Schwager’s best-selling book, “Stock Market Wizards,” and the winner of the 1992 U.S. Investing Championship with a 563% return, believes the U.S. market is in trouble.
The primary indicator that Cook uses is the “Cook Cumulative Tick,” a proprietary measure he created in 1986 that uses the NYSE Tick in conjunction with stock prices. His indicator alerted him to the 1987, 2000, and 2007 crashes. The indicator also helped to identify the beginning of a bull market in the first quarter of April 2009, when the CCT unexpectedly went up, turning Cook into a bull.
What does Cook see now?
“There have been only two instances when the NYSE Tick and stock prices diverged radically, and that was in the first quarter of 2000 and the third quarter of 2007. The third time was April of 2014,” Cook says.
In simple terms, as stock prices have gone higher, the NYSE Tick has moved lower. This divergence is an extremely negative signal, which is why Cook believes the market is losing energy.
In fact, the Tick is showing a bear market, which seems impossible considering how high the market is rising.
“The Tick readings I am seeing (-1100 and -1200) is like an accelerator on the floor that is pressed for an indefinite amount of time,” Cook says. “Eventually the motor will run out of gas. Now, anything that comes out of left field will create a strain on the market.” Since the CCT is a leading indicator, prices have to catch up with the negative Tick readings.
“Think of a dam that has small cracks that are imperceptible to the eye,” he says. “Finally, the dam gives way. Eventually, prices will go south, and the Tick numbers will be horrific.”
Cook is also concerned that the market is acting abnormally. “It’s like being in the Twilight Zone, he says. “Imagine going outside when it’s raining and getting sunburned. That’s the environment we’re in right now.”
Unfortunately, Cook can’t say when this vulnerable market will crack. “The CCT is similar to the new-high, new-low indicator,” he explains. “As the market goes higher, fewer stocks make new highs. Some people might say it’s ‘different this time,’ but it’s never is. Could the market go higher? Yes, it could, but the extension of time will create an even greater divergence that has to be snapped back together.”
Cook predicts that within 12 months, the market will suffer a 20% or greater pullback. Says Cook: “It may take months and months for the correction to develop. I don’t look at how low the market drops, but how it rallies. I will look for lower highs and lower lows. Every rally aborts before the previous high, and every decline penetrates and accelerates below the previous low.” 
One of the reasons that Cook has survived as a trader for so long is his credo: “There is always a way to make money.”
For Cook, that means being flexible enough to change strategies and take a 180-degree turn. “The scenarios we will see in the future will be totally different than what is now,” he says. “You will have to navigate differently. It’s like going through a jungle that ends and becomes a desert. There is only one constant, and that is change.”
In fact, Cook excels in volatile markets. “I’m amazed that we have gone over two years without a double-digit correction,” he says. “Without volatility, you get a complacent environment like we have now, which can lead to devastation. You can’t stay at these complacent levels forever. When there is a correction, it will be very severe.”
Cook says that when volatility gets light (like it is now), traders and investors give up. “A lack of volatility is not good for the market,” he says. “Low volatility begets thinness, and that begets low volume, which equals greater risk.” One day, he adds, volatility will return, and so will the traders.
Another key to Cook’s success is his ability to correctly assess probabilities. Right now, he sees a greater than 75% probability of a major correction, but this could unfold over a long period. Says Cook: “The probability of us going up 5% from here is possible, but there’s a higher probability of us going down 20%.”
Cook also is not a big fan of the Fed’s policies. “The Fed is creating abnormalities which creates stress on the markets, similar to a pendulum swinging. I believe the honeymoon is over for Yellen from this point forward. The magnifying glass will be on her. Typically, within 12 months of a new Fed chairperson, the market gets more volatile.”
Cook knows there will be a catalyst that will “burst a hole in the ship, which is already taking on water, even though stock prices haven’t reflected that. The cannonball that will finally sink it will come from a source that we can’t see. But when the cannonball hits a ship that is already partially flooded, it will sink a lot quicker. I’m not sure the Fed is quick enough or flexible enough to head off a disaster.”
Looking forward, Cook says he wants to see if the S&P 500 is lower in July after the backdrop of a better economy, low interest rates, positive earnings, and a lower unemployment rate. If July is down, that would confirm the significant divergence.
“The tape looks exceptionally tired and heavy,” Cook says. “I see a huge divergence between the weak internals of the Tick and the rising stock prices. The divergence is as wide as the Grand Canyon. It’s incredible.”

Sunday, February 24, 2013

UMNO's Art Of Deal? Eat Your Heart Out Donald! Article provided by this website.

This is an extended article I received via e mail from a friend. I would like to share the story with my readers.

Mahathir Mohamad awarded the Double Tracking Project to MMC-Gamuda on 21st October 2003, just nine days before he stepped down as Prime Minister. On 1st November 2003, Abdullah Ahmad Badawi, fondly known as Pak Lah, took over as Prime Minister. The first thing that Pak Lah did when he took over as Prime Minister was to cancel Mahathir’s pet projects. The Crooked Bridge to Singapore was one and the Double Tracking Project was the other, which Pak Lah shelved the following month in December 2003.

Mahathir was furious. He had spent more than a year from mid-2002 to late 2003 discussing with Pak Lah as to what he can and cannot do once he took over as Prime Minister. Whether Pak Lah just forgot or whether he did a dirty on Dr Mahathir is not too clear. But the long and short of it, Pak Lah did everything he promised he would not do. And cancelling Mahathir’s pet projects was clearly one of the do-not-do's.

Actually, Pak Lah had a great dislike for Syed Mokhtar Al-Bukhary who had shunned him when he was the Deputy Prime Minister. Hence, within just a month of taking over as Prime Minister, Pak Lah did the unthinkable. He cancelled the Double Tracking Project, the Crooked Bridge Project, and all those other projects that Mahathir had given to his cronies. Did anyone not bother to tell Pak Lah that one just does not slaughter sacred cows, in particular Mahathir’s sacred cows?

Pak Lah explained that the government’s ‘poor finances’ did not permit such grandiose projects -- hence the need to cancel them. This caused Mahathir to flip. It gave the impression that Mahathir’s mismanagement has bled the country’s finances dry -- hence there is no more money. It also gave the impression that Mahathir’s projects are a total waste of money -- hence the need to cancel them. In short, Mahathir is a bungling idiot.

Try as he may, Syed Mokhtar could not get Pak Lah to agree to revive the Double Tracking Project. By 2006, Syed Mokhtar became very desperate. To get the project, he had already paid out commissions and under-table-money to various parties during Mahathir’s time. Syed Mokhtar realised that the only way to get this project back on track would be to work through the back door.

Syed Mokhtar asked the CEO of Gamuda, Lin Yun Ling, to approach Seow Lun Hoo to mastermind the penetration of Pak Lah’s inner circle. That was how Seow first involved Khairy Jamaludin, Pak Lah’s son-in-law, and later Shah Hakim, the close associate of Kamaluddin, Pak Lah’s son. And by a wave of the magical wand of Shah Hakim and Kamaluddin Badawi, the project began to be revived.

All these facts have now been revealed in court when Seow and Shah Hakim admitted that they “provided technical expertise and networking capabilities to help revive the once-shelved RM12.4 billion double-tracking railway project….It was through our efforts that the project was revived.”

The ‘networking capabilities’ and revival efforts included opening doors for Lin to present the revival ideas to then Minister-in-Charge of the Economic Planning Unit (EPU), Effendi Norwawi. Effendi initially told Lin that given Pak Lah’s grim description of the country’s finances it would be difficult for the government to be seen as reviving it from government funding. Effendi, the Sarawak financial wizard, then created this fanciful term for Lin to use when presenting the proposal to the government as a way in getting the project revived -- Private Finance Initiatives (PFI).

The idea was: the private sector can include all their additional financial costs and risks into the PFI proposal to make the project costs higher. Effendi also advised that after approval has been obtained, the PFI project could then revert to a design-and-build project fully shouldered by the government. And that was exactly how MMC-Gamuda cheated the Malaysian public into believing that the PFI projects were fully funded by the private sector whereas in the end the taxpayers would be footing the bill.

For his wonderful advice and support, Effendi also asked Lin to sponsor his new wife’s hobby in extravagant stage productions. That explained how Effendi’s wife, Tiara Jacqueline, could have the finances to mount the most glamorous and expensive Malay stage play to date -- Puteri Gunung Ledang. Lin and Syed Mokhtar were also made to sponsor Pak Lah’s wife’s pet project in the Pride Foundation and Endon Award for Performing Arts Excellence scholarship fund.

You see, Pak Lah, his family, and his friends in the cabinet, wanted to teach Syed Mokhtar and his sidekick, Lin, a good lesson for shunning them during Mahathir’s time. So they were going to make MMC-Gamuda pay for every single one of their whimsical pleasures.

In truth, what Pak Lah did was not new. The same thing had been done during Mahathir’s time by appeasing Siti Hasmah. And now, all the corporate giants in the country are outdoing each other to appease Najib’s wife, Rosmah Mansor. The mainstream media will give prominence to the generous donations by these corporate giants to Rosmah’s pet project, Permata. What is unseen is that they also donate more generously to Rosmah’s fetish for Hermes Birkin handbags and jewellery.

The story would be incomplete without explaining that the Chairman of the Cabinet Committee on Infrastructure at that time was, coincidentally, Najib himself. Najib endorsed the revival of the project because Syed Mokhtar had agreed for Najib’s brothers to also take huge cuts in various parts of this revived project.

Nazim Razak (Jim) was the architect who will design the various railway stations, Nazir Razak (Jay) of CIMB will be the merchant banker for the PFI, Nizam Razak will be providing financial and share advisory, while Najib’s job is to approve its revival. That is why the Plaintiff’s company is called NR Sistem, which are the initials of the Razak band of brothers.

So why the quarrel now if everyone in Umno and the Umno cronies were going to benefit? Shah Hakim had a deep distrust for Syed Mokhtar. So he had convinced Effendi that the project should be divided into two parts – the Infrastructure Works to be awarded directly to MGJV for RM10 billion and the Systems Work for RM2.38 billion which will be given to a contractor of the government’s choice. The Systems Work was supposed to be sub-contracted by MGJV to NR Sistem.

When Syed Mokhtar realised that the 30% margin that the Shah Hakim group was going to make from the RM2.38 billion System Work contract amounted to RM600 million, Syed Mokhtar got upset. He complained to Mahathir about how Pak Lah had cancelled the project and forced him to use the services of Shah Hakim who will now make RM600 million ‘atas angin’. Mahathir advised Syed Mokhtar to stall signing any contract with NR Sistem for the Systems Work.

At that time, Najib decided to play the neutral game in the open confrontation between Dr Mahathir and Pak Lah. As far as Najib was concerned, he had already secured all the contracts for his brothers. Mahathir was still very powerful and his attacks could damage Najib’s political career. On the other hand, if Mahathir’s vicious attacks against Pak Lah succeeded, Najib could unseat Pak Lah as the PM without having to challenge him as Umno President.

That was why, in 2007, Mahathir mounted vicious attacks against Pak Lah and mocked him about being Mr Clean. Meantime, Syed Mokhtar directed Lin to force Seow and Shah Hakim to accept a reduced profit margin RM360 million instead of RM600 million.

This infuriated Shah Hakim and Kamaluddin because they thought they had already agreed to the 30% margin, which was equivalent to RM600 million. That money was needed not just for them personally but also to fund Pak Lah’s 2008 elections campaign.

Syed Mokhtar held back the money and refused to give Pak Lah what he needed for the 12th general election campaign. Mahathir had advised Syed Mokhtar to hang on and not to commit to any figure as Mahathir wanted Pak Lah to perform badly in the election and subsequently be ousted.

The only way someone can become Prime Minister in this country is by paying huge sums of money to supporters to vote them into the hot seat. Without funds, Pak Lah could not pay for votes and was ousted.

Without enough funds, Mahathir’s plan became a reality. BN and Umno fared poorly in the March 2008 GE -- which was regarded as Pak Lah losing not just the elections but also losing face as well when Bumiputera businessmen whom had benefitted from Umno’s patronage dare renege on their promise of providing funding.

This was worrisome to the Umno inner circle. The March 2008 GE was regarded as Pak Lah’s personal defeat and Mahathir unleashed the Umno warlords to cry for Pak Lah’s blood.

Post-March 2008, it was imminent that Pak Lah would have to give way to Najib. Syed Mokhtar, being the shrewd businessman that he is, then directed Lin not to sign anything with Shah Hakim’s NR Sistem – even for the agreed price of RM360 million -- as Pak Lah could no longer pose any threat to the project.

Syed Mokhtar’s mentor, Mahathir, also wanted to ridicule Pak Lah’s son, Kamaludidn, and his son-in-law, Khairy Jamaludin (that they are nothing without Abdullah Badawi in power). Syed Mokhtar also wanted Kamaludin and Shah Hakim to beg him for the RM360 million that Lin had promised them.

Syed Mokhtar never intended to pay Kamaluddin and Shah Hakim the RM600 million nor the 33% or RM3.3 billion from the RM10 billion Infrastructure Works. All in all, Syed Mokhtar earned RM3.7 billion from the combined value of RM12.4 billion for the Double Tracking Rail Project.

That is why Scomi has been side-lined from most government businesses and projects. Kamaluddin Badawi and Shah Hakim were then forced to sue MMC – Gamuda and expose in court that this is how BN/Umno raise funds for the elections.

This explains Najib’s Economic Transformation Plan where the government will again undertake gargantuan projects on the pretext of injecting a revival of the economy. In truth, it is just further acts of plundering the nation.

Just imagine how much money Syed Mokhtar will make from the KL MRT Project, which is valued at RM50 billion. Umno cronies expect a margin of 30%. That would be a cool RM15 billion!

Now, add that to the recent KIDEX project awarded to companies owned by Umno Lawyer, Hafarizam Harun, and former Chief Justice, Zaki Azmi. Consider also the sale of the 26 kilometre Kuala Lumpur-Putrajaya Highway, better known as the Maju Expressway (MEX), to EP Manufacturing Berhad for RM 1.7 billion -- where the original construction cost of RM976.6 million was by way of a government grant, i.e. taxpayers’ money.

Include the NFC scandal and the 1Malaysia Development Berhad’s suspicious purchase of tycoon Ananda Krishan’s power business at RM8 billion. All this is proof that UMNO is desperately raising funds for the election as well as plundering the nation in a big way one last time. All the UMNO top guns are filling up their pockets as they realise that BN is doomed.

This is how Umno operates. It is Umno culture. They will milk the country until the country is dry. Malaysia will soon become the next Greece if we do not kick out UMNO. So, whichever prime minister you have, it will still be the same until you get rid of UMNO. But what is also untold is that all these will have to be paid by hiking the project costs many-folds and it is the country and the public that will pay for such highly inflated costs.

This is how Umno does business and controls the award of Government tenders. Projects are awarded, then shelved, then revived at a much higher cost, then given a new name or rebranded, and then passed back to the government to shoulder. It also reveals the huge profit margins that are made to line the pockets of the Umno cronies using the tax payer’s money and our EPF contributions.

How long more are Malaysians going to tolerate these dirty parasites?

Monday, February 11, 2013

Happy Chinese New Year 2013

Happy Chinese New Year

Saturday, August 18, 2012

Selamat Hari Raya Aidilfitri.



Friday, July 27, 2012

Nokia May Launch Windows 8 Smartphones in Sep: Report

Nokia is likely to launch two smartphones based on Windows 8 in September, Eastern Morning Herald said in a report. According to the report, Nokia will hold an event on September 5 to showcase two Windows Phone 8 handsets, supposed to named Lumia 910 and Lumia 920.

The launch would give Nokia a one-month window when it would be the only phone maker to offer Windows 8 phones. Earlier, Financial Times reported that Nokia has already entered into negotiations with European operators about forming an exclusive partnership to launch Windows 8 phones.

This would be a departure for Nokia in its marketing strategy which has relied on distributing phones across all sales channels after a launch.

Wednesday, March 14, 2012

Bull Market for Dow Jones? Investors Aren't So Sure.

By David Berman

For a raging bull market, things sure are quiet out there.

The Dow Jones industrial average notched its fifth straight gain on Tuesday, re-conquering the 13,000-point level and hitting its highest level since December, 2007. The tech-heavy Nasdaq composite index blasted above 3,000 and is now at its highest level since 2000.

These are impressive milestones, to be sure. But a striking number of investors are giving the good times a wide berth.

According to Bloomberg News, recent U.S. stock trading volume has fallen to its lowest level since at least 2008, suggesting there might be a lack of conviction among many investors.

Daily moves within the market also seem muted by recent standards. Tuesday's 1.7-per-cent gain by the Dow represents its second-biggest jump of the year, but would hardly have caused eyebrows to flutter last year.

Meanwhile, the CBOE volatility index is reflecting a state of complacency. The so-called “fear gauge,” which tends to reflect investor anxiety, has pretty much fallen asleep. It fell below 14 early on Tuesday, close to a five-year low and a sharp dive from a level of 45 as recently as October.

If no one is fearful, few are excited either. Stock market strategists, normally a bullish breed, remain cautious in their targets for the S&P 500 and continue to recommend a relatively defensive asset mix, on average.

Many factors are driving stock market gains, including a rebound in financial stocks. U.S. banks jumped on Tuesday after JPMorgan Chase & Co. (JPM) and Bank of America Corp. (BAC) passed the Federal Reserve's stress tests of their ability to withstand financial shocks.

The economic backdrop also looks promising. U.S. retail sales rose 1.1 per cent in February, impressing observers who noted that it could drive first-quarter economic growth estimates higher.

“A pickup in ‘core' sales [that exclude things like cars and gasoline] would suggest that consumer spending growth is entering a more broad-based, self-sustainable phase of the recovery,” Chris Jones, an economist at Toronto-Dominion Bank, said in a note.

And on Friday, the Labor Department reported a solid gain in U.S. payrolls for February, which supported the view that the country's employment situation is also making headway.

The U.S. Federal Reserve Board acknowledged the improving economic conditions in its monetary policy statement on Tuesday, giving investors the best of both worlds: The economy is getting better but the central bank says it will continue to stimulate it anyway with ultra-low interest rates through 2014.

So why haven't markets been swept up in a wave of euphoria that would be reflected in rising trading volumes?

Bearish observers argue that U.S. economic improvements, while impressive, are lagging indicators that don't say much about what's coming. Lakshman Achuthan, co-founder of the Economic Cycle Research Institute in New York and one of the more accurate economic forecasters in recent years, is among the skeptics who argue that leading indicators continue to point to an oncoming recession.

As well, Europe remains a wild card, and not only because its own recession is looming.

Greece has secured another bailout and avoided a messy default on its debt obligations, but few observers believe that Europe's sovereign-debt crisis has been solved.

The yield on Spain's government bonds remains high, indicating continuing nervousness about the country's ability to rein in its deficits without sinking into a deeper economic hole.

As for the stock market's recent milestones, there's a catch: The S&P 500 doubled from its bear market lows in 2009 until last April, but has since gained a mere 3 per cent after overcoming last year's steep correction.

Low trading volumes suggest that many investors have concluded that while there's no reason to flee the market, there's no reason to embrace it either. They believe the market's big gains are in the past, not the future.