Econ data: week 51 & 52

• US weekly initial claims fall to 492k (better, 575k), prior 586k
• Consumer confidence index fall to 38.0 (worse, 45.5), prior 44.7 Nothing special this week

Typically, stock market will fall on Jan, which will give us another opportunity to buy & hold. Let's see.

Auto industry:

It is still under the cloud, as Toyota warns it will have operating loss in 09; On the other hand, GM & Chrysler received total of $17.4B from US government will give a little relief to the industry, unemployment rate as well as the economy. However, further support is needed. Thanks to oil price fall, at least it won't make the new car sales to get worse. The industry can also defer their project/plan on fuel efficient/bio-energy investigation and development. Of course, to Green party, that is not a good news.

Econ data: 08 week 50

• US cut its target interest rate by 75 bps to 0.25% historical low, after that, US government need to use other method to boost the economy. However, mortgage rate in US did not fall.
• US new weekly jobless claims fall to 554k (better than expect, 575k)
• US Dec Philadelphia Fed index -32.9 (better, -40)
• OPEC agreed to cut oil supply by 2.2M barrels per day, but oil price has dropped below $34.
• China cut interest rate by 27 bps to 2.25% (deposit rate) and 5.31% (mortgage rate)

I think oil price should start rebound, but given that the cost of oil production is fixed, so unless it rebound above US50/bbl in short period of time, oil stock's rebound will not be huge. (Technical speaking, the rebound has already completed).
But it is time to consider buying oil companies for long term.
Out of all oil companies, buy those with and with larger refinery business will be much safer.

Corp info: China Mobile Nov 08

Nov 08 new subscribers 6.9M, fall from Oct 07's 7.2M and up from Nov 07 by 5.4%, slow down, and looks like the competition concern is finally kicking off. Stock price already reflect those concerns, so need to look at dec 08 and jan 09's information before i can make further estimation.

Corp info: China Life Nov 08

Nov MTD premium up 16% and YTD up 53%; Trend MTD premium growth keep dropping from Jul's 99% to 94% in Aug, 53% Sep, 42% Oct and 16% Nov. Still look reasonable to me, because its agents are not selling based on commission but by salary and bonus. If they met their quota earlier, they will try to stop selling and leave everything till next year.

Econ data: 08 week 49

• US Nov pending home sales down 0.7% (better than expect -3%)
• US new weekly jobless claim up to 573k (worse, 525k) , 26 years highest, but it is kind of expected, so no surprise;
• US Nov CPP rise 0.1% (same, 0.1%), no deflation
• US Nov PPI down 2.2% (worse, 2.0%)
• US Nov retail sales down 1.8% (better, -2.0%) and ex-auto down 1.6%;
• China Nov CPP up 2.4% PPI up 5.6%, further slow down but i think China's economy is ok;
  Bank of Canada cut interest by 75 bps to 1.5%, but bank's prime interest only cut 50 bps to 3.5%, further interest rate cut will hurt banks interest margin;

Google 3q08 results

It is a company provide free online search engine service with a market share of 70%.
Inc stmt: 3Q08 revenue up 37% vs prior yr, operating income up 31%, profit up 28% and EPS up 27%.

Bal sht: Google has $8.4B cash and with no debt at all (which is great), total assets contains 19% of intangible asset & goodwill. During these years, Google is so aggressive in acquisition and merger activities. With closed to $5B goodwill, it means Google purchased companies with a price higher than what the book value worth.

Risk: 1) Bad economy usually hurt advertisement industry, 2) Competition from Yahoo & Microsoft 3) low cost for advertisers and internet users to switch from one online search engine to another; 4) stock compensation plan looks consistent too high compare to other companies. 5) new product such as Google phone may have lower profit margin

Opportunity: 1) if bad economy trigger the advertiser to switch from traditional media to online search engine/website, then the online advertisement should do far better than historical co-relation between economy & industry advertisement income; 2) new product development, even may lower profit margin, but further diversify the product segments looks health to company's future growth

Current price $315, 08 fwd P/W ratio about 19.2. If the coming 6 years profit growth is 25%, 24%, 23%, 22%, 21%, 20%, then EPS as of 2014 will be $55.4, assume future growth of 18%, Google's stock price should be able to rise to $1000 by the end of 2014.

Of course, a more realistic target value will be $480 based on 11.5% discount rate.

Econ data: 08 week 48

USA has confirmed a recession and down turn started from Aug 07 and recession has continued for 16 months so far, it will be the longest recession (but very slight so far) other than great depression. However, recession confirmation is a extremely difficult task, its starting date usually require # of revised and changes. Also, this time, it doesn't follow the tradition way (2 consistent quarters with negative GDP increase) to confirm a recession (as i shared b4, it doesn't have to follow the tradition way).

However, the tradition way do give us some insight about when this economic mess will end. In the past 30 years, USA has experienced 6 recessions, the GDP growth only show 2 quarters in negative position. That means, if recession was started in Jun /Jul 08 (based on tradition way), one should be able to confirm it will end at around Mar or Jun 09 based on historically pattern. Once again, head back to the "real" recession period started from Aug 07, the recession period this time will be around 19 months to 22 months.

Please don't be mislead by my comment and thinking the end of recession = recover = huge gain in stock market. It just means it is a start of recovery and how long the recovery will take is an unknown. The worst scenario is a extremely slow GDP growth in the coming 10 -20 years like Japan. Hopefully, it won't happen.

• US Nov ISM manufacturer index down to 34.2 (worse than expect 36.2);
• US Nov ISM service index down to 37.3 (worse, 42.0)
• US 3Q wages up 2.8% vs prior yr from -2.6% in Q2, but lower than historical average of 3.6%.
• US latest weekly jobless claim down to 509k (better, 540k) but continue jobless claim rise to 4.09M, highest since 1982 (to be fair, today USA's workforce is 50% more than 1982, so it is in fact still better than 1982) • US Nov cut 533k job (worse, - 335k) and unemployment rate rise to 6.7% or 7.3M in total (better, 6.8%)
• Canada 3Q GDP up 1.3% vs prior yr (better, 0.9%), but 4Q forecast is not good;
• Canada Nov cut 71k job (worse, - 25k) and unemployment rate rise to 6.3%
• Europe ECB cut interest rate from 3.25% to 2.5%;

There is another worry about deflation. In my opinion, it is less likely to happen. Yes, oil price and food price fall more than 50% from peak, but it doesn't fall too much compare to prior year. Also, core inflation is calculated excluding oil and food price. Other than home price (which has already fall 17%), retail, electronic, utility, telecom cost will not decrease too much to cause a deflation.

Market:
It is once again interesting to see how the market interpret the job cut. Investors hope the unemployment result will force the globe government to have additional intervention to boost economy.

In fact, the unemployment results look funny: how can job cut higher than expect by 200k while unemployment rate 0.1% lower than expect? Those 2 results are not consistent to each other. As one should remember in Oct job cut of 240k and cause a rise in unemployment rate from 6.1% to 6.5%. Why 535k job cut only cause a rise of another 0.2%?

There are 2 reasons: 1) people who get lead off gave up to looking for a new job; 2) cuz to define a person is "unemployment", that person has to look for jobs for 4 consistent week. Therefore, we should expect the unemployment rate to catch up in Dec. It should rise to at least 7.1-7.2% (even if there is no more job cut, you wish!!)

So if the equity market walks along with economic data, then the market will fall in Jan 09. Again, this is just my reasonable guess only.

TD Bank 4q08 results

Although i said i don't care any bank other than TD & Royal Bank, I still did an analysis and compare all the bank in Canada's 08 annual results (highlighted means the best among the 5):

	TD	BMO	CM	BNS	RY
net income	-4.1%	-7.2%	-162%	-22.4%	-17.1%
total equity	12.5%	12.3%	-21.7%	7.2%	-5.8%
EPS	-11.4%	-8.5%	-163.3%	-24.6%	-19.6%
BV	25.8%	13.2%	-11.7%	8.5%	-16.4%
Return on Equity	14.4%	13.0%	-19.4%	16.7%	18.0%
Net interest margin	1.9%	1.6%	1.5%	1.8%	1.4%
Fee / Tol Rev	41.8%	50.2%	-40.2%	35.0%	56.6%
Cost / Revenue	56.4%	65.5%	63.2%	64.9%	63.1%
Tier 1 Capital	9.8%	9.4%	10.5%	9.3%	9.0%
bad debt ratio	0.5%	0.6%	0.2%	0.2%	1.0%
current price as of 12/4/08	41.92	34.05	46.18	32.26	37.17
P/E	8.56	9.06	(7.84)	10.51	10.90
P/B	1.14	1.06	1.57	1.70	0.79
The Best in Sector	7.00	1.00	1.00	1.00	3.00

You can see why I am only interesting in TD & Royal bank now, cuz they are the best, with 7 "best" and 3 "best" among sector.
(Please note, CIBC has 10.5% Tier 1 capital higher than TD's 9.8%, but mainly due to capital injection, so it doesn't deserve to be the best).

In Dec 09, just 5 days, Bank sector fall 9.5%.
In normal day, price is very attractive, but because there is highly uncertainty involve for Canada's economy and the real estate market. That's why i said i will buy if it fall 20%. TD will be my top choice, but other than that, I won't just you to buy any other one includes Royal Bank.

Manulife 4q08 results

MFC forecasted it will loss $1.5B in 4Q08 due to lower of equity market. This brings the 2008 full year net income down from $4B to $1.1B or down 72.5% (EPS will down to $0.77). Finally, the financial result tie to what I expect to be reasonable (still a little higher, 4Q loss may go up to $2.0B instead of $1.5B in my opinion.)

Since my previous target value has already took into account of the 4Q loss by assuming its 2008 net income less dividend equal to zero. No assumption will be changed.

However, Manulife plan to raise $2.1B capital and borrow $2B from banks to maintain its AAA credit rating. Do so; it will dilute the share value of the existing shareholders by 7% or YTD average of 1.75%. So I will readjust my target value from CA$32 to CA$31. Given CA$20.0 per shares, it is still good buy.

Econ data: 08 week 47

We will have the latest USA employment data by Friday. Job position is expected to cut 300k and unemployment rate expected to rise to 6.8%.
Analyst expect Canada will cut interest rate further by another 50 bps in early Dec & USA will cut to 0.5% from 1% on Dec 16th (i may be wrong about the date).
I think at least 25 bps is necessary.
Situation in Thailand should not affect or at least won't make the economy go worse. Feel sorry about the political situation there and the HKG Christian's death. Also disappointed about HKG government's slow reaction. Let's pray for Thailand and the global economy to recover or at least reach the bottom sooner rather than later.

• US 3Q GDP revised from -0.3% to -0.5% (still better than expect, -0.7%), latest expectation GDP will fall 2.8% in 4Q08 and fall 0.9% in 1Q09.
• US durable good order fall 6.2% (worse, -2.5%)
• US Oct personal income rise 0.3% vs Sep (better, +0.1%)
• US weekly jobless claim fall 14k to 529k (better, 537k)
• US Oct new house sales fall 5.3% vs Sep, drop to 433k (worse, 450k) and inventory rise to 11.1 month from 10.9 month in Sep.
• US Sep home price fall 17.4% vs prior year
• US weekly mortgage application rise 1.5%, still too low, need to see the trend of improvement
• China cut target lending rate by 108 bps to 5.58%, saving rate down to 2.52%. Good for economy, especially real estate and utility sector, will increase bank / insurance companies' potential revenue, but may have negative impact to long term investment spread
  Europe Oct unemployment rate hit 7.7% vs Sep 7.6%

Econ data: 08 week 46

- USA Weekly new jobless claim rise to 516k, 7 yr highest (worse than expect, 484k), continue jobless claim rise to 3.9M (worse, 3.85M)
- USA Oct retail sales drop 2.8% (worse, -2.65%)
- China Oct CPI (inflation) fall to 4.0%, give room to cut interest rate further

Corp info: Berkshire Hathaway 3q08 result

- Premium dropped mainly due to $7.4B non-recurring retroactive reinsurance agreement with Equities made in 07 and not in 08, exclude this non-recurring issue, revenue up 0.4% vs 3q07 instead of 8% drop.
- Its fixed maturity securities asset balance looks great, do not have any material impairment charge (like other bankers or insurers)
- Other than Goldman Sach & GE, in Oct, Warren purchased $4.4B of 11.45% sub-notes & $2.1B preferred stocks of Wrigley (M&M chocolate and Eclipse gum)

Wal-Mart 3q08 results

- Report strong sales up 9.4% vs 3q07, mainly driven by international market, but US division do have 7.1% up. Outlook fall on bad global economy and strong US$ will offset the international sales growth
- Strong profit up 11.2%, gross margin up from 5.10% to 5.54%, which shows a great cost management for a worldwide department store when the commodity price up that much during the year
- Wal-Mart is the world's largest retail store with strong sales in tough market situation, and one of the Dow Jone component stock's price continue to rise in 2008;
- It is good to hold, but from a value prospective, i think there are lots of under value stocks better than Wal-Mart;

Corp info: HSBC 3q08 results

- It did not publish any financial statement for 3Q, just some highlight, Tier 1 capital remain strong at 8.9% in 3q08 (8.8% in 2q08 & 9.3% in 4q07);
- It is the largest bank in the world, the 1st one to disclose issue on sub prime mortgage, 1st one to fund its CDS pool. It has a pretty global diversify asset portfolio.
- HK$80 or US$51.3 seems attractive, main concern is whether it can keep the growth in market such as Middle East, Hong Kong & China at the same time minimize / stop its loss in America & Europe.

Econ data: 08 week 45

- USA unemployment rate rise from 6.1% in Sep to 6.5% in Oct (worse than expectation, 6.3%)
- USA job creation in Oct is -240k (worse, -200k)- USA weekly jobless claim rise to $481k (worse, $478k) while continue jobless claim reach $3.84M (worse, $3.75M)
- BoE cut interest rate by 150 bps to 3.0% and ECB cut 50 bps to 3.25% (good)
- China announce it will increase government spending / cut tax in total of RMB$400B to boost up economy. Emphasis mainly on construction, therefore, I don't think it will trigger a huge rise in equity market, but for sure it will keep China GDP above 8% in the coming 2 years.

Berkshire Hathaway 3q08 results

Finl data: 3q08 revenue fall 8% (mainly on insurance premium), profit fall 77% mainly due to fall in gain / loss on investment (it sold Petro China in 3q07 which recognized a huge gain of $2B) and $2.2B loss in derivative on equity index put option (sell position). During the period, its cash flow position fall by $14B, excluding huge acquisition in 08, it actually up $3B, net cash flow as of Sep 30, 08 is $33B which equal to 27.5% of total equity or 11.7% of total asset.

Issue: total equity only fall 0.5%, once again, Warren Buffet managed its portfolio well to loss 0.5% only in 2008 while S&P 500 has already dropped by 34% as of Sep 30, 08. According to Warren, he thinks the current equity market situation is good to acquire/invest even though he is not able to catch the lowest point. In Oct, Warren invested $5B in Goldman Sech at $115 & $3B in General Electric at $22.5 with 10% special dividend each. However, those 2 stocks are underwater now trading at $75 & $17.81. (Historically, if a person follow exactly of what Warren's buy/hold/sell within 6 months, that person will have an average of 20% return per year in the past 50 years - compare to 26% of what Warren making.)

Comment: price per book fall to historical lowest 1.34, very attractive from a value prospective. Given a 1.9 times historical price / book, it should worth $4900.

Corp info: Shoppers Durg Mart 3q08 results

Finl data: 3Q08 remain strong, sales up 9.8% compare to 3q07, net income up 15.6%. Mainly due to total store square feet rise 12.6% and gross margin improved from 10.7% to 11.2%.

Issues: More capital spending in future if Shopper would like to keep up the growing momentum under the economy difficult situation. On the other hand, it continue to have the dominate position for drug store in Canada. Plus job creation, profit growth in health sector remain healthy at this stage compare to all other sectors.

Comment: Based on estimate 08 EPS $2.61, current price seem a quite higher compare to US drug store such as CVS Caremark or Walgreen. Therefore, from a value investing prospective, it only worth $34per share. If I add growth as one of the evaluation factor, it should worth $57.42 based on historical P/E ratio.

Manulife 3q08 results

Finl data: 3Q result did better than I thought, without new share issue, shareholders equity continue to rise, instead of fall. Seg fund assets balance (the one I worry the most) only fall from 175B in 3Q07 to 166B 3Q08, 5.1% drop. Premium continue to rise by 20%.

Issues: I still wondering why the seg fund asset did not drop. Further investigation need to be done on 4Q result. I think it will have a loss in Q4, which may wash out all its profit completely for the year. In 08, it already put up $600M additional reserve on seg fund due to market movement, but I still think that is too little.

Comment: therefore, based on 1.5 times its 07 embedded value $21.85 (assume all growth in 08 will offset with dividend), target value should be CAD$32.8.

Econ Data: 08 week 44

- USA GDP fall 0.3% in 3q08 vs 3q07, driven by 3.1% fall in consumer spending. Finally became negative (better than expect, -0.5%);
- ISM manufacture index fall lowest to 38.9 (worse, 42), 26 years lowest
- Auto sales drop like crazy, GM sales fall 45% in Oct due to tighter credit approval, let's see how the overall auto sales do today;
- 3 months USD LIBOR fall 16.5 bps to 2.85%, good
- LIBOR-OIS Spread (way to determine the health of the credit market, anywhere between 2% to 2.5% means healthy) narrowed 16 bps to 2.23%, good
- Oil price continue to fall from USD$73/bbl to USD $63/bbl, good to lower inflation, not good for Canada's export
- I still think oil price will rise back to US$100/bbl (demand did not drop and will not drop too much plus US$ may once again fall after interest rate cut & after the credit crisis became stable - cuz lots of settlement is in US$, it trigger the huge rise in Oct.)

Some analyst forecast a deeper fall in consumer spending & GDP in 4q. If 4Q GDP keep as a negative figure, then everyone will able to confirm that USA is really within a recession.

Market info:
Thank God!! Last week is "hello-win" or "Halleluiah" or "thanks giving" week (whatever you want to call) to equity market. All rise!!! (From last week Monday's closed to this week Monday/Tuesday's closed)

- HKG equity market, rise from the lowest 10,676 to 14,384, +35%
- China SSE Comp index rise from 1,664 to 1,706, +2.5%
- USA S&P 500 rise from 840 to 966, +15%
- Canada TSX from 8,537 to 9,721, +14%
- UK FTSE 100 from 3,665 to 4,443, +21%

However, if compare to Sep 30, globe market still fall 19% on weighted average in USD$ :<
Once again, USA is the trouble maker, but for some reason it is also the one who get the least impact (at least in equity market), why? I don't know !!

Petro Canada 3q08 results

Profit up 73%, EPS up 76% mainly due to oil price rise trigger a huge return in its upstream business (even it makes downstream business fall). Its Edmonton's refinery plant will start up in 4q08, but cost expenditure may rise more than expect, also, its Fort Hill oil sand project will cost a lot more than expect, therefore, Petro Canada has decided to fall back and re-visit the growing plan.
Once again,CA$60 is my target value and i did not plan to change.

Economic Data: 08 week 42

1. Some expect US will hold interest rate on Oct 25 and Canada will cut another 25 bps or even 50 bps tomorrow;
2. Overnight LIBOR rate drop further to 1.51%, good sight of the clam down on the credit market.
3. Coca Cola profit up 15%
4. OPEC is expected to cut oil supply (as what i wrote on 07/11/08 when oil close to its peak at 07/15/08), i think oil price has touch bottom at US$70/barrel (at least close), may not rise back to US$100 right away, as you know US$ is pretty strong now.5. Consumer confidence index fall from 70.5 in Sep to 57.
5 in Oct, 26 years greatest fall, but in fact, it is consistent with Aug, so i think it is bad but reasonable to me, remember, USA is already in recession.

I think credit crisis is over, now investors is waiting for corporate earnings & cooperate forecast to see how deep the impact of such credit crisis. If earnings are bad and forecast are bad, the equity market may fall further, if they looks reasonable, they won't fall but continue to fluctuate until strong economic data trend comes and interest rate rise, then the market will move up.

Corp info: China Life 3q08 results

LFC did not issue 3q08 results yet. But here is what i expect: premium up 57% compare to 3q07 (given), invested asset up 1.3% compare to 4q07, total equity drop 27% compare to 4q07 and 10% compare to 2q08. Book value drop to RMB $5.29. It is almost impossible to determine net income for an insurance company in any time, plus it is irrelevant in the calculation of its value, so i won't bother to do that, however, i think China Life will have no profit or a small loss in 3q08 qtd, 3q08 ytd may earn RMB$15-16B, again, profit is meaningless.

Corp review: China Mobile 3q08 results

3q08 ytd profit up 38% compare to 3q07; above the analysts' 34% and my expectation of 36%. (ARPU drop from $84 in 2q08 to $83 in 3q08, same to expectation); typically, China Mobile's 1Q & 3Q profits are lower than 2Q & 4Q's. In 4Q, I think the earning per share will be QTD RMB$1.76 and YTD RMB$5.89.