News: China Comm Cons

News:

中石油<00857.hk>與中 交<01800.hk>在北京簽署戰略合作框架協議。雙方將在成品油、瀝青等石化產品的生產和使用，加油站建設，以及能源基礎設施建設等領 域，已經形成密切的業務鏈關係，長期開展的一些合作為雙方進一步擴大合作奠定基礎

Comments:

Good news, it will improve both CCC's products & services wide and spread in long term. Also, this is long term recurring revenue for the company.

101 Finance: A meaningful financial plan

It is important to put down your short term & long term goals and how much money you need to achieve those goals. So that you will have a road map about where you are going and what you need to do today.A meaningful financial plan can help you to:

1. know how much $$ you need to save in order to realize your goals;
2. Protect & accomplish what is most important to you;
3. Indirectly build up healthy intra or inter-personal relationship;
4. Leave something for the one you love;
5. Improve your financial management;

201 Stock: what history tells you

You want to invest directly in stock market in today's bear market & recession moment?Is that sound crazy, scary and risky?

According to Prof. Jeremy J. Siegel's study in te book "The Future for Investors", if you invest $1.00 in year 1801 to nothing because you believe "cash is the king", in year 2003, you wil leave with $0.07 (with inflation & today's purchasing value).

If you invest in Gold in the same period of time thinking about "Gold, go, let's grow", you will have $1.39 at the end of year 2003.

Invest in GIC, you will get $301;

Invest in Bonds, you will get $1,072;

Invest in Stocks, you will get $597,485.

According to Prof. Jeremy J. Siegel's study: the best investment vehicle with the highest return and with the lowest risk in long run is STOCK market.Believe it or not, it is the safest in long run.

If so, why lots of people loss money in stock market?

How to invest in stock market to lead to net worth growth instead of loss everything?

Continue to read Fortune Mockey and you will find out more.

China Cons Bank 2008 results

Overview
It is the 3th largest bank by total deposit and 2nd largest bank by total net loan in China, with the highest net interest margin among peers (6 banks listed @ HKSE) as of 2007.CCB's 86% income is generated from tradition borrowing business, only 14% genereated from fees. Unlike China Merchant Bank where 40% of its business generated from Pearl River Delta, CCB has a well diversify loan & deposit based among varies region in China.

2008 Result (vs 2007)
1. Operating income up 22.2% to RMB $270B
- Interest income up 25.1% to RMB $356.5B;- Interest expenses up 43.0% to RMB $131.6B;
- Net interest margin up to 3.24% from 3.18%;
- Q: Why is the interest expenses up 43% while the income up only 25.1% & net margin looks flat?
- Net fee income up 22.8% to RMB $38.5B;

2. Reported EPS up 33.3% to RMB $0.40
- Loan provision up significantly by 84.2% to RMB $50.8B and allowance on loan ratio up to 2.91% from 2.72%;
- Operating expenses up only 7.7% to RMB $99.2B, due to non-recurring early retirement expenses get charge in 2007;
- Operating expenses exclude the retirement expenses up 19%, consistent with the income side;
- Tax rate cut to 25% from 33%;3.

Balance Sheet
- Book value up 10.5% to RMB $2.0
- Total deposits up 19.6% to RMB $6.4T
- Total net loans up 15.7% to RMB $3.7T
- That answers the question in section 1, interest expenses up more than income because deposit up more than loanCash flow from operation up 34.3% to RMB $190.9B, that means without loan provision, CCB's results looks great.

Risk
- Loan provision may continue to go up as China economy slow down;
- Net interest margin may continue to go up as government continue interest rate cut;

Comments
CCB will benefit from the $4T China government stimulus plan.The operating income will continue up at a nice pace in 2009 & 2010 as the loan to deposit ratio go up (which will partially offset by the net interest margin down).Buy, fair value HK$6.86.

Econ data: 09 week 13

Market continue to go up with good news on higher than expected home sales and durable goods order. Our next focus will be corporation's 1Q09 results.

Economic Data

• US Feb existing home sales up to 4.72M from 4.49M in Jan (better than expect, 4.45M), one of the sight about the economic recover
• US Feb new home sales up to 337k from 322k in Jan (better, 300k), another sight about the economic recover
• US Feb durable goods orders up +3.4% from -5.2% in Jan (better, -2.5%) good, but continue trend is important to confirm there is a recover in durable goods order. Also, Obama's tax refund will kick off in Apr / May, that means one should look at the trend at least up to Jun/Jul in order to have a more meaningful confirmation.
• US revised 4Q GDP down to -6.3% from -6.2% with 1st draft (better, -6.6%), GDP was peak at 2Q08, therefore, we can assume 1Q09 & 2Q09's GDP will continue go down and l think it will turn positive at 3Q and 4Q for sure. GDP is an important measure of recession, if GDP turn back to positive, we can technically say the economy has pass through the lowest bottom
• US Feb personal income down -0.2% from +0.2% (worse, -0.1%), I think there is something to do with the bonus cut, so far, personal income is still keeping in a nice growing pace compare to other economic data
• US 03/21 initial jobless claim up to 652k from 644k in 03/14 (same, 650k), again, kind of expected with no surprise.
  

201 Stock: Diversification vs Focus

News from Money Magazine:
http://money.cnn.com/2009/03/24/pf/funds/bernstein_diversification.moneymag/index.htm

Diversification reduces your risk because any investment has risk but they won't all go down at once ... right?

In fact, some days they do and just like it fall like hell recently. If so, should we give up the idea of diversification?

Option 1: Invest all in 1 basketWhat if you invest in Japan Nikkei 20 years ago? If you didn't diversify beyond your own market, you would have lost 2.5% a year since then, while stocks worldwide grew 4.9% annually.
Option 2: Quit and keep cashIn long run, a diversify portfolio would still beat Treasury bills.

In conclusion:
Investment wisdom begins with the realization that it's the decades, not the days, that matter. And over the long term, diversification really does protect your portfolio.
William J. Bernstein is co-founder of Efficient Frontier Advisors and the author of "The Four Pillars of Investing" and "A Splendid Exchange."

Bilibala's Comments:

Yes, diversification is a successful method to reduce certain specific risk that happen to one single stock or one particular geographic area at the same time provide a more stable (or less volatile) investment return.

But!!There is a trade off.
It will only provide investors an "average" return in long run with lower risk in short run.
So, is there another way to max return and min risk?

Yes, by doing the following:

1. Study, study, study!!!

• Diversification min risk by quantity and study min risk by quality.
• A complete and detail study on macro economic environment, mega trends and stock analysis will help you to reduce and avoid lots of risk;

2. Less is more

• Concentrate on only a few investments / stocks
• There are only few "A+" students in one class
• Same to stock market, there's only a small % of "A" or "A+" industry and corporation in the world.

3. Let it grow & let it flow in long term

• Forget about "buy low, sell high", only God can guess right all the time;
• Remember to "buy more at low, don't sell high, buy high and keep buying..."

4. Keep transaction cost / management fees / capital gain tax as low as possible

5. Admit mistakes and correct it ASAP, if there is any.

News: Recession? Depression?

News from CNNMoney.com
Is this the worst economy since the Great Depression? And what are the chances of the economy falling into another depression?

The answer to the first question is fairly clear. In most ways that matter to economists and average Americans, this is the worst economic crisis since the Depression.The answer to the second question is not as clear. While the National Bureau of Economic Research officially declares the beginning and end of recessions, nobody does that for depressions.
Still, the general consensus of economists is that another depression is not likely. But the risks are greater than they were only a few months ago.Is this the worst economy since the Great Depression?

Why this recession is so bad
First things first: Even though it may seem obvious to most that this is the worst downturn since the Great Depression, the economy has experienced other serious recessions in the past, particularly in the mid-1970s and early 1980s.

But this recession dwarfs those two for several reasons.

In terms of length, the longest post-Depression economic decline was 16 months, which occurred in both the 1973-75 and 1981-82 recessions. This recession began in December 2007, which means that the current recession will enters its 17th month next Wednesday.

The current recession is also more widespread than any other since the Depression. The Federal Reserve's readings show that 86% of industries have cut back production since November, the most widespread reduction in the 42 years the Fed has tracked this figure.

What's more, every state reported an increase in unemployment this past December, the first time that has happened in the 32 years that records for unemployment in each state have been kept.

"This is important because there's no where you can move to find a job," said Gus Faucher, director of macroeconomics for Moody's Economy.com.

Finally, during the past nine months, the drop in household wealth has been larger since anything on record in the post-World War II period.

Why this won't be another depression
So far during this recession, the nation's gross domestic product, the broadest measure of economic activity, has dropped about 1.7%. Forecasts of experts surveyed by the National Association for Business Economics work out to about a 3.4% decline in GDP over the life of this recession.

To be sure, there already have been some quarters where the drop was much more severe. The government will report its final revision of GDP for the fourth quarter of 2008 and economists are expecting that report to show an annual rate of decline of 6.6%. And some economists think the drop in the first quarter could be even greater.

But measuring the drop in economic activity from top to bottom is the way economists judge how deep a recession is. And a 3.4% drop would be the worst since World War II, and far worse than the average recession in that period.Still, that's a long way from the 26.5% drop in GDP that took place between 1929 and 1933.

One of the main reasons why economists think another depression could be avoided is that it will take more than just a sharp decline in consumer spending and household wealth to spark a depression.

Even though household net worth has fallen a record $11 trillion, or 18%, during the course of this recession so far, the broader economy can weather such a shock.

Historically, stock market crashes and housing bubbles bursting haven't necessarily led to depressions. It takes a variety of economic factors and policy decisions to turn a recession into something even more serious.

"I don't know if you can make a causal link between a loss of wealth and a depression," said Lakshman Achuthan, managing director of Economic Cycle Research Institute.

Learning lessons of the 1930ssignificant policy changes since the 1930s will also cushion the blow somewhat.Unemployment insurance, social security payments, and larger government at the federal, state and local levels all keep money flowing into the economy even as consumers and businesses pull back on their own spending.

"There's a lot more safeguards in place," said Keith Hembre, chief economist at First American Funds.Hembre said the $787 billion stimulus bill passed by Congress in February will also spur more economic activity down the road.

In addition, the Federal Reserve, led by Great Depression expert Ben Bernanke, has pumped trillions of dollars into the economy with new lending programs the central bank has never tried before. That has swelled the supply of money. By way of contrast, the money supply tightened during the Great Depression.

There were many other policy mistakes made in the 1930s that economists say are not being repeated today, including stiff tariffs that killed international trade and government imposed limits on prices and production levels.

Even if Congress imposed "Buy American" provisions in the public works paid for by the stimulus bill, there is no call to move back to the strict protectionism of the 1930s or production and price controls.

"I'd like to think we've learned something, so in terms of policy we're doing better," said Achuthan.

Still, even if the U.S. does not enter another depression, that doesn't make the current economic crisis any less painful for many Americans. Also, few economists are predicting an end to the recession anytime soon.

Hembre said he is worried that the U.S. could be in a period of prolonged economic stagnation similar so the so-called lost-decade that Japan suffered starting in the 1990s. He said continued weakness in housing and high debt levels by households and governments could hold the economy back for some time.

And some economists aren't completely ruling out another depression.

In a paper for the National Bureau of Economic Research last month, Harvard University professors Robert Barro and Jose Ursua put the chance of a minor depression (which they defined as a GDP decline of at least 10%) at about 20% and a 3% chance of a major depression (defined as a GDP drop of at least 25%). Moody's Economy.com is forecasting a 10% chance of a depression.

Bilibala's comments:
I don't think depression will happen, even though many say that card card market and commercial paper market will collapse. I think they will fall, but not collapse, at least based on the economic data as of now.

China Life 2008 results

Overview:
The largest life insurance company in China with approximately 40% market share in 2008 and RMB $1,045B total asset and the largest life insurance company in the world by market capitalization. It has 3 main lines of business: Life, Annuities and Health & Accident. It also operates an asset management company. In 2008, it is developing a new lines of business as an underwriter on fixed security issuance.

2008 Results (vs 2007)
1. Total Revenue down 12.8% to RMB $166.8B
- Total annualized premium (tradition & investment) up 50.3% to RMB $296.6B, that's an awesome result which also inline with the industry average of 48.3%;
- Net earned premium up 20.9% to RMB $134.7B;
- Net investment income & gain down 61.4% to RMB $30.2B mainly due to a) increase in net realized gain of RMB $12.8B and b) increase in HFT equity loss of RMB $26B c) an one time impairment written down in equity of RMB $15.7B. To me, it is kind of expected;

2. Reported EPS down 45.7% to RMB $0.75
- EPS in line with analysts' consensus- Loss ratio down to 66.7% from 68.5%;
- Total expense ratio (excluded deferred income & participating dividend) down to 80.8% from 84.2%.
- Total expense ratio down to 98.4% from 119.3%.
- In income statement prospective, I am glad to see a decrease in expense;
- Tax expenses down 78% to RMB $1.4B due to tax rate cut from 33% to 25% and increased in the portion of non-taxable income adjustment.

3. Balance Sheet
- Total assets up 11.9% to RMB $1,044.8B, LFC net purchased on debt & equity security in 2008 are RMB $96.3B and (RMB $9.9B);
- Investment in equity down 61.5%, RMB $10B or 5.1% due to net proceed which means 56.4% due to mark-to-market. Its 2008 equity performance (56.4%) is better than the market performance of (65.4%) by 9%.
- Long term investment type insurance contacts up 27% or RMB $77.7B to RMB $362.2B and Deferred income also up 54% to RMB $74.5B
-Total Equity and AOCI down 12.1% and 25.7% to RMB $181.6B and RMB $ 85.4B, better than my expectation.
- Embedded value down 4.9% to RMB $240B or RMB $8.49 from RMB $8.94. It is better than analysts' consensus' RMB $8.0. Looks like the smaller decrease is due to decreased in investment return assumption which offset with a decrease in discount rate.

Risk
- Increase competition as bank may aggressively expand into insurance market if regulation relax further in future;
- Increase competition as foreign insurance company may get more market share over time;
- LFC's majority of the 50.3% 2008 premium increase distributed through bank channel.
- Potential interest rate drop will trigger LFC's investment spread to go down

Comments
Buy, fair value HKG $34.95. No change until I review the complete annual report (not yet published).

Petro Canada & Suncor's merge

News from CNN
Suncor Energy Inc, Canada' No. 2 oil company, agreed to buy rival Petro-Canada for about $18.43 billion Canadian ($14.86 billion U.S.) to expand its oil sand reserves and create the country's biggest energy group.

The deal comes after a period of missed earnings targets and project delay at Petro-Canada, and is expected to be completed in the third quarter of 2009.

The all-share offer represents a premium of about 28% to the $29.65 Canadian closing price of Petro-Canada shares on Friday as assuming 484.4 million Petro-Canada shares outstanding as of Dec. 31, 2008.

On completion of the proposed deal, Suncor's existing shareholders will own about 60% and Petro-Canada shareholders will own about 40% of the merged company, the companies said.
Petro-Canada (PCZ) shareholders will receive 1.28 common shares of the merged company for each Petro-Canada share, while Suncor shareholders will get one common share of the merged company for each Suncor (SU) share.

The companies expect to achieve annual operating expenditure reductions of $300 million.
They also expect to achieve annual capital efficiencies of about $1 billion through elimination of redundant spending and targeting capital budgets to high-return, near term projects.

The deal would combine Petro-Canada's extensive retail gasoline and refining business and its international operations with Suncor's extensive operations in the oil sands, where it is the No. 2 producer behind Syncrude Canada Ltd.Petro-Canada delayed its Fort Hills oil sands project last year because of rising costs.

Petro-Canada has also faced pressure to boost the value of its shares, which have lagged rivals because the company's management has failed to boost production and the firm's repeated failures to meet earnings targets.

Its shares have dropped 31% over the past 12 months while Suncor stock is down 35%.

The news confirms a report in the Wall Street Journal which said the two companies were in advanced talks

Bilibala's comments
This is a great time to make some short term profit. I've sold Petro Canada at CA$37.5 today, since the acquisition price is about $38.0.
(I will not blindly keep the "buy & hold" strategy just for "buy & hold". When I see an opportunity to realize 41.5% gains in 1 month. Why not?)

Also, Sunco and Petro Canada still need to wait for approval from federal government, if government rejects their plan, the stock price will drop back. Even it gets approval, the deal is $38.0 and it will have limited room to rise any higher than $38 until the deal has been settled.

In long run, merge is a good way to expand, to save cost and to strengthen ones cash position in a financial crisis environment.
On the other hand, a successful merge must add the strength of the 2 companies and reduce the weakness. Fail to do this, may lead to slow growth in very long term.

China Mobile Feb 09

China Mobile Feb 09 # of new subscribers up 6.75M, down 15.3% compare to Feb 08.

As China's mobile penetration rate rise significantly in 2008 & ran above 50%. the growth rate starts slowing down in 09.

As long as China Mobile can keep its growth pace of the total # of subscribers, 2009 net income should still enjoy a growth of more than 10-15% over the next few years.

China Comm Cons 1H08 results

Overview:
China Communications Constructions is the largest port construction and design company in China , a leading company in road, bridge construction and design, the largest dredging company in China and the 3rd largest in the world. It is also the world's largest container crane manufacturer. Its principally engaged in the construction and design of transportation infrastructure, dredging, port machinery manufacturing and railway construction business. It has business mainly in China, and expanding in Asia, Africa and around the world.

1H08 results:
1. Total reveune up 29.1% to RMB 75.7B
- New Order drop (from RMB 35.8B in 1H07, RMB 41.6B in 2H07) to RMB 32B, increased back to RMB 40.2B in 2H08, still lower than 2007 due to economy slow down;
- Revenue growth by segment as follow:

• Infrastructure Construction up 25.3% to RMB 49.2B, will continue to rise due to RMB 4T sitmulus economic plan which highly focus on construction;
• Infrastructure Design up 14.2% to RMB 3.2B, this is just a by product/service with the 1st one;
• Dredging up 41.3% to RMB 8.7B, may go down due to lower international trade
• Port Machinery Manufacturing up 17.5% to RMB 12.0B, may go down due to lower international trade;
• Others up 498% to RMB 4.0B, that is railway construction, a new business segment for CCC, will continue to rise due to RMB 4T sitmulus economic plan which highly focus on construction;
• Elimination (RMB 1.3B)

2. Reported EPS down 17.1%

- Cost of raw material increase are the main driver of the EPS down as the commodity price rise up in 2008;

- Gross profit margin down from 11.0% to 9.8%, still the highest compare to the peers, by segment as follow:

• Infrastructure Construction down from 7.9% to 7.1%
• Infrastructure Design down from 28.0% to 24.9%
• Dredging down from 17.1% to 13.2%
• Port Machinery Manufacturing down from 14.4% to 14.6%
• Others up from 6.0% to 7.7%

3. Balance Sheet

- Total equity down 6.6% to RMB 50.4B mainly due to other reserves down by 16%. It may drop further in 2H08;

- Long term & short term borrowing up 51% & 60% to RMB 19.1B & RMB 35.0B. As interest rate down, it will reduce CCC's borrowing cost. But debt to equity looks high to me;

Risk:

- Result highly driven by cost of raw material, potential commodity price increase will have significant negative impact to gross margin and net income;

- Competition with China Railway Group (0390) and China Railway Construction (1186);

- Weak global economy and international trade will have negative impact on CC's Dredging and Port Machinery Manufacturing business;

- Highly influenced by govenment's construction policy

Comments:
Buy, with fair value of HKG $12.6.

Berkshire Hathaway's Swiss Deal

Berkshire Hathaway and Swiss Re have finalized the terms of the funding arrangement initially announced on February 5, 2009. Do you want to take a sample look of what Warren Buffett gets into recently with big corporation such as GE, Goldman Sach and Swiss Re? Why is it worry free even if GE and Goldman Sach's stock price fall to $10.00 and $95, way below the price while Buffett sign the contract at $24.0 and $125?

The Swiss Re convertible preferred security in the amount of CHF 3 billion bears fixed interest rate of 12% per annum and has the following additional terms:

• The security is perpetual and has no maturity date or term.
• Swiss Re has the right to defer interest payments. For all interest not paid on an original interest payment date, an additional amount will accrue on delayed or deferred interest at the rate of 15% per annum.
• Swiss Re has the right to pay interest in shares in lieu of cash and such shares will be valued at 95% of the average daily price per share for the five trading days prior to the interest payment date.
• Berkshire has the right to convert into shares starting three years after the issue date. The conversion price will be CHF 25 per share, which was the price of Swiss Re shares at the time the deal was initially announced.
• Berkshire is protected from a number of potentially dilutive events detailed in the terms sheet.
• Swiss Re has the right to repurchase the security on or after the second anniversary date of issue for a 20% premium. Prior to the second anniversary, Swiss Re would have to pay a 40% premium.

Due to mark-to-market, in short term, if you really love to look at it in short term, those deals may have a negative impact in earnings & equity, but in long term, they are awesome.

Of course, the deals with GE & Goldman Sach are not exactly the same as Swiss Re I mentioned from above, but I hope it will give you a better understand on what BRK is investing recently.

Econ data: 09 week 12

This week, the stock market rally further.

According to the news, it is due to:

- Banks (Citi, Bank of America etc) proclaimed that their Jan & Feb 09 results are strong;

Federal Reserve announced on Mar 18 that it will buy up to $300B treasury bill from the market and buy addition mortgage-back-security from financial institutions.

- Better than expect economic data (see below)

- The 2nd announcement trigger the bond interest rate and the US dollar to fall. It will also trigger an inflation in future when the economy start to recovery.

- Internationally, it is not a fair and just method in order to stimulus the economy. Why? At first, US government issue bonds to foreign countries, then it press the button to print more $$ out to buy back the bonds that they issued out. Foreign countries like China which held more than $700B US Bond will suffer a loss due to US dollar drop and reduction in future return when interest rate fall.

Economic Data:

• US Feb building permits up to 547k (better than expect, 547k), prior 531k
• US Feb housing starts up to 583k (better, 450), prior 477k. Good sight, but compare to an average of 1M house start, 583k still looks too low and it may take at least 1 year to recover the # back to average;
• US initial jobless claims on 03/14 down to 646k (better, 655k), prior 658k. Even though the total jobless claim rise further to historical high, I think it is reasonable given the unemployment rate rise to 8.1% and both figures will continue to rise in 09;
• US Feb Core PPI up 0.2% (better, 0.1%), prior 0.4%
• US Feb Core CPI up 0.2% (better, 0.1%), prior 0.1%
  

News: Anti Bonus

News from CNN:
The pitchfork-wielding anti-bonus mob stirred up by American International Group is making for lousy tax policy.

Outraged U.S. legislators are planning punitive taxes on bonuses not just at AIG but at all recipients of government funds. The hot-headed and unfairly retroactive changes could hurt investor confidence, undermine President Barack Obama's credibility and damage the still valuable U.S. finance sector.

AIG (AIG, Fortune 500) has been especially irresponsible, both with its risk-taking during the credit boom and with its handling of its affairs since. Agreeing to extra bonuses and then paying them to employees of its financial products unit after receiving $170 billion-plus in government money - and failing to sufficiently forewarn Congress and others to boot - has rightly riled Americans and their elected representatives.

Plans to tax bonuses at financial institutions that have been bailed out by the U.S. government are the knee-jerk result. The scheme in the House would result in taxes of 90% on bonuses at institutions that have received funds from the government; in the Senate, thinking seems to be 35% levied on the employer, and an extra 35% on the employee.

The bonus tax idea is bad for a range of reasons that senators should consider calmly, even if the House fails to do so. One is that it changes the rules - again - for recipients of government assistance. Government initiatives to kick-start clogged financial markets depend on investors and institutions participating. If they think that the rules of the game are going to change continually, they'll be reluctant.

The tax plans are also retroactive to the beginning of this year. Bankers awarded bonuses for 2008 - and some payouts were both relatively modest and legitimately earned - received them earlier this year, net of prevailing taxes. They may in good faith have spent the cash, invested it or even given it away. Changing the rules now, and demanding a giant additional tax check, really isn't fair.

Even more importantly, there's the longer-term impact on the U.S. financial industry. Wall Street's finest, together with AIG - admittedly a different beast - are now in the doghouse together. But the finance business is in fact one of America's global strengths. The planned taxes are just the kind of thing that will give foreign firms and non-U.S. bankers an edge.

In fact, U.S. institutions may be motivated to pay back funds received under the Treasury's Troubled Asset Relief Program so as to escape the new taxes. That sounds like a silver lining - except that administration officials don't want that yet, for fear that firms will lose the capital cushion against further losses that TARP was designed to provide.

That's just one example of the crossed wires inherent in the latest tax plans. And with so many bigger issues at hand, it's surely the kind of risk to credibility that Congress should make sure it avoids.

Bilibala's comments:
AIG's senior management for sure did not deserve to pay a bonus, regardless of whether the sources of money are coming from the shareholders or the tax players.
On the other hand, is it reasonable, justice and fair to pass the tax law to punish all the executives in the financial institutions (those under the TRAP program)?

Every corporation has their own compensation plan to tie between management teams / employees' performance to the corporate results.

Financial institution's huge net losses are mainly due to invested assets' unrealized loss.In terms of underlying earnings (or profit before impairment / provision), lots of them (include CitiGroup, Bank of America) continue to perform "well" and consistent with 2007's result.

If the bonus package is calculated based on underlying earnings (something a CEO have control & manage over on), lots of them do deserves the bonus payment.

China Mobile 2008 results

Overview:
China Mobile provides a full range of wireless telecom and value added services in China. It has 70% market share and about 457 million subsribers, which makes it the largest wireless operator in the world.

2008 results:
1. Total revenue up 15.5%

• # of subscribers up 23.8% to 457M, the largest customer base in the world;
• min/ppl/mth up 8.2%, match expectation;
• ARPU down 6.7% to $83, match;
• Mobile service revenue up 12.8%, lower (Instead of $309.8B, the actual result is $279.0B. It is my fault, I've adjusted my analysis process to improve the future estimation)
• Value added service income up 23.8%, match;

2. Reported EPS up 29.7% to RMB$5.64

• EBITDA margin down to 52.5%, match expectation;
• EBITDA up 11.7%, lower (mainly due to my mis-estimate from above);
• Net margin up to 27.4%, due to tax rate cut from 33% to 25%;
• Other operating expenses up 24.2% or $30B, lack of disclosure to tell what is this expenses include (it happened every year)
• Not sure how much is the cost due to natural disasters;

3. Balance Sheet

• Further strengthen its cash position from $188B to $219B, up 16%;
• Fixed assets (include the one in progress) up 19% to 363B;
• Total equity up 18%, keeping at nice pace, no AOCI gain nor loss, which gives us a cleaner balance sheet;
• No cash flow statement, can't analysis its performance in terms of cash (that way I can tell whether the other operating expenses is an art or a science);

Risk:

• Face increase competition in environment;
• Unsymmetrical act against CHL's monopoly position in wireless industry;
• CHL's 3G wireless standard TD-SCDMA is not as mature as China Telecom's CDMA & China Unicom's WCDMA;
• Rise on Capital expenditure on 3G;
• ARPU may further reduce since most of the new subscriber are lower income users from rural market
• Slow down in general economic growth

Comments:

Buy, with Fair Value HK$144.62 (down from $147.48 as of 02/25/09)

Bilibala will prepare the revised analysis after CHL announce its March new # of subscribers result in end of Apr 09.

News: Laid off

News from CNN:
As Warren Buffett likes to say, "It's better to be approximately right than precisely wrong." Every CEO should remember those words when confronting the powerful temptation to lay people off.

When you're desperate to save money, calculating the savings from firing staff is easy. But figuring the costs - the real costs - is hard. In fact, you can't do it precisely. So a lot of managers, rather than trying to get the costs approximately right, just assume that they equal the severance costs. That's being precisely wrong, as Buffett would say, and it can get a company in trouble.

Sometimes, of course, layoffs are unavoidable. But before you pull the trigger, consider their true price:

Brand equity costs
Hundreds of companies now state an explicit goal of being an "employer of choice" in their industry or locale. That's a worthy goal in an economy where the war for talent is a long-term fact of life. How badly will a layoff damage your company's brand as an employer - and its ability to attract the best talent?

Top law firms compete ferociously for the best new lawyers, yet many of those firms are laying people off. New York-based Simpson Thacher & Bartlett figured this was the moment to offer associates a chance to take a year off to work on a public service project and get paid $60,000 plus benefits - less than half their normal pay but a lot better than nothing. And it makes the firm much more attractive to the next crop of law school graduates.

Leadership costs
Layoffs greatly increase the chance that you're firing a future company leader. You may never know whom, but the effect is still real. The banking and electric-utility businesses went through severe cutbacks in the 1980s, and executives in both industries have told me that they paid a heavy price 20 years later when they needed experienced, knowledgeable leaders and found only a broad empty space in the ranks.

Morale costs
Even the survivors pay a price. They "will certainly experience some grief. They also fear the loss of their own job," says leadership consultant Wally Bock. Sometimes the effects are worse. Workers who remain after a layoff file dramatically more medical claims, reports a study by Cigna and the American Management Association.

Wall Street costs
Don't count on a layoff announcement to make your stock go up. It might, if you're laying off people because you're combining two companies in a merger, says Bain & Co. But if you're laying off employees strictly as a cost-cutting measure, Wall Street may see the move as a sign of trouble - and send your stock down.

Rehiring costs
The day will come when the economy turns up, and when it does, you'll face the costs and delays of hiring and training new employees. Companies that have held on to their workers will be able to respond far more quickly. Northwest Airlines learned that lesson when it fired hundreds of pilots during tough times in 2007. When business picked up later that year, it had to cancel hundreds of flights because it didn't have enough pilots. The airline scheduled its remaining pilots too aggressively, and at the end of each month many of them had used up their permissible flight hours. The company had to speed up its recall and retraining of laid-off pilots.
Not many companies will avoid layoffs in a recession as bad as this one. Yet some manage. What do they do instead? Toyota (TM) continues to pay people but uses the time for training, education, and public service projects. The city of Atlanta recently cut hours and pay by 10%. FedEx (FDX, Fortune 500) has imposed graduated pay cuts - less for front-line workers, more for managers.

Then there's Aflac (AFL, Fortune 500), which has never had a layoff in its 54 years of existence. Janet Baker, senior VP of corporate learning, told me how that record fuels a virtuous circle: "Everyone understands that we've never had a layoff and is a good steward of our resources to make sure we don't have one."

How much is that worth? How much do layoffs really cost? Just remember that it's a lot - even if you never know precisely.

Bilibala's comments:
As an employee, no one like a laid off (during recession), even if the "good-bye" package looks great. It is hard to find job.
As a CEO, laid off is not just a business decision, but kind of politic.
1. Laid off is the easiest way to show all the shareholders that you are doing something about the poor performance;
2. Laid off will only improve long term cash flow (not short term), so it is a good business plan to show to bankers when a company wants to borrow addition $$ in long run;
3. For a company that was too aggressive in acquisition and expanding in past years, laid off may be a good "keep fit" and "weight loss" solution;

In conclusion, if a company do not have to play political games, do not running out of cash, and if it is not "fat", one should not laid off merely due to poor performance.

China Life Feb 09

China Life's Feb 09 MTD & YTD premium up 5.3% & 12.6% compare to prior year.LFC will announce its 2008 results on Mar 25, 09. According to its earning alert announcement on Jan 09, LFC's profit may fall more than 50% compare to 07.

I will update my analysis on LFC after Mar 25. For now, I will keep LFC's fair value at HK$34.95.

With regarding to Feb's premium, China life insurance sales are highly seasonal compare to other countries. Trend analysis can only be done after Mar & Apr premiums come out.

News: Google

News from CNN:
In retrospect, Google investors should have realized last June that the search giant's era of hyper-growth was over. That's when the company announced that Patrick Pichette, the top operations executive at BCE, parent of Canada's biggest phone company, would be Google's new chief financial officer.

Pichette isn't your typical tech executive: He didn't cut his teeth in Silicon Valley, and his web credentials are thin. No, the far more relevant experience on Pichette's resume was the time he spent heading up a three-year cost-cutting and efficiency drive that reduced operating costs at Bell Canada by $2 billion.

That's right: Google (GOOG, Fortune 500), among the most chaotic, profligate, unfocused, engineering-oriented, and self-proclaimed recession-resistant of organizations, had reached outside the Googleplex for a real business executive and charged him with ensuring that Google's freewheeling culture wouldn't become its own worst enemy.

Call it, in the words of redoubtable analyst Mary Meeker, "Right guy, right time." Just as Google's business has shown unmistakable signs of slowing, Pichette, a 46-year-old Canadian who was a Rhodes scholar and a McKinsey consultant in his younger days, has begun to make his mark.

Since he started as CFO on Aug. 1, Google has shut down numerous projects, facilities, and perks, from the seemingly trivial - an unneeded gourmet cafe at its headquarters, the annual companywide ski trip - to the significant. The latter includes the termination of a major effort called Lively, a virtual-environment product that mimicked Second Life, and the shuttering of a failed acquisition, dMarc Broadcasting, through which Google had attempted to broker radio advertising. In January, Google publicized its first layoffs, the termination of 100 recruiters made redundant because the company has dramatically reined in its hiring.

All this might have happened, of course, without Pichette. Yet as Google confronts a climate in which its once otherworldly growth is merely impressive - revenues grew 18% in its most recent quarter - it has turned to someone ideally suited for the new reality. "Patrick was known for a close attention to details and an ability to drive efficiencies in the organization," says Jonathan Allen, a telecom analyst with RBC Capital Markets in Toronto.

That same attention to detail is turning heads among the analysts and investors who follow Internet companies. In the fourth quarter Google's operating expenditures of $330,000 per employee declined 6% from the year before; capital expenditures declined 46%, to $368 million; and free cash flow jumped 73%, to $1.75 billion. "Investors absolutely appreciated the discipline on expenses," says Tony Ursillo, an analyst with asset manager Loomis Sayles, which holds 450,000 Google shares.

Despite having introduced green eyeshades to Google, Pichette has fit in quickly. An avid outdoorsman - he is known for far-flung fly-fishing expeditions to locales like Russia or the extreme reaches of northern Canada - he bikes to work and took easily to Google's casual vibe. Admirers praise his ability to get along. "He's an extraordinarily clear-sighted operator - almost like an HR person in his ability to read people," says recruiter Martha Josephson of Egon Zehnder International, which placed Pichette at Google. He also astutely knows it's best for a cost cutter to avoid boasting: He declined to comment for this article.

One Pichette fan who appears eager to show his support publicly is CEO Eric Schmidt, who told analyst Meeker at a recent Morgan Stanley investor conference that Pichette is "particularly good at doing business reviews" and that Google is now going through a review process "systematically, business after business."Any other company with a $100 billion market capitalization might be embarrassed to acknowledge that such standard fare was a novel concept. Then again, Google isn't any other company. It can only hope its new CFO helps it stay that way.

Bilibala's comments:

As a company becomes larger and more mature, its sales growth (top line) will slow down.
=> No company can keep growing at 50-100% every year;
In order to extend the company's profit (bottom line) growth, cost management becomes the important driver.

On the other hand, cutting Research & Development cost may hurt a company's future growth.
Google's 90% revenue is coming from its search engine business. Based on Google's annual report, it plans to use 33% of its capital expenditure on new products research. I know 1000s of its new products do not make $$ at all, but as an adventurer, I think it should continue those spending.

So, how to take balance of the two and keep a nice pace for the company's growth? Let's see!!

101 Finance: Create you financial plan

Create you financial plan and stick with it!!

$$ is not and should not be your goal, but it is the tool and solution to achieve your goal.Therefore, when you think about financial goal or investment, the 1st and the most important step is to PLAN!!

"Most peoples are not plan to fail, but fail to plan."

If you don't want to be one of them, you should start planning now, or yesterday (if possible).

Use your pen and paper; write down what you need and when you need it.
If you have spouse or kids, you all should share the thoughts with each other, because some of your goals may require commitment from all the parties and it is a good time to educate your kids to develop their own plans.

News: Toxic Assets & Bank outlook

Here is what Buffett's thought on 1) toxic assets 2) bank industry during the recent interview he had.

Issues on toxic assets:
=> They have not been written down by enough?
=> Or being written down too much?

The interesting thing is that the toxic assets,
if they're priced at market, are probably the best assets the banks has,
because those toxic assets presently are being priced based on
unleveraged buyers buying a fairly speculative asset.
So the returns from this market value are probably
better than almost anything else, assuming
they've got a market-to-market value, you know,
they have the best prospects for return going forward of anything the banks own.
The problems of the banks are overwhelmingly not toxic assets. . .

Issues on bank industry:

=> They are technically insolvent?

=> Or heading towards great profitibility?

The spreads have never been wider.
This is a great time to be in banking, you know,
if you just get past the past and they are getting past the past.
I mean, right now every time a loan is made to somebody to buy a house--
and we're making, you know, making millions of loans--
four and a half million houses will change hands this year
out of a total stock of less than 80 million.
So those people are making good mortgages.
You want those assets on your books and
you get a great spread in putting them on now.
So it's a great time to be in banking, but you do have to get past this past.
But the toxic assets, in my view, you know,
if they've been written down to market,
I'd rather buy those assets from the bank than any other assets they've got.

Believe it or not?

Buffett vs Lots Analysts & Economists in the world

One of the side for sure is totally totally 180 degree wrong!

Who will that be?

Who will you go for?

In the past 50 years, history has proved that Buffett is more correct than anyone else.

Will history repeat itself again or fail this time?

Let's see!!!

(FYI, Berkshire Hathaway has been downgraded from AAA to AA+ by Fitch Rating due to its un-hedge market exposures and potential earning volatility as "inconsistent with stability of an AAA rating company".)

Econ data: 09 week 11

Equity market climb back a lot this week, especially on financial sector.Due to many CEO of big banks came out and proclaimed their companies had a strong Jan and Feb sales, income and capital foundation.

On the other hand, it also reflects some technical rebound from the 12 years' low.From last week's "bottom" to today's peak, Citi up 95%, WFC up 92% and GE up 74%.After such rally, I think it is reasonable to forecast a drop in very short term.If you are a long term investor, it is a chance to buy again!!

Economic Data:
(This week, the data is pretty light)

• US Feb Retail sales ex auto up 0.7% (better, -0.1%), prior up 1.6%. Continue to increasing trend from Jan, which is one of the good sign for economic recovery (only one sign, it may not mean anything);
• US Feb Retail sales down 0.1% (better than expect, down 0.5%), prior up 1.8%. Despite the good sign on retail sales, auto sales continue to go down, if the trends continue, auto industry will be in deep trouble towards bankruptcy. And this is not we would like to see;
• US Jan wholesales inventories down 0.7% (better, down 1.0%), prior down 1.5%;
• US Jan business inventories down 1.1% (better, down 1.0%), prior down 1.6%;
• US initial jobless claim 03/07 up to 654k (worse, 644k), prior 645k;
• Canada Feb unemployment rate up to 7.7%, Feb lose 83k position and up 0.5% from Jan. Kind of expected, no surprise

General Electric being downgraded

Press release from GE:
S&P today announced a single-notch downgrade of General Electric (GE)'s and GECC's long term ratings from AAA to AA+, with an outlook change from "negative" to "stable". The ratings downgrade does not affect GE's and GECC's short term funding ratings of A-1+, which was affirmed by S&P. The action follows a thorough review of GE's portfolio by S&P.

Market reactions:
GE's stock price rise 12.72% to $9.57 because it clear the uncertainty of the company's financial situation.

Bilibala's comments:
Downgrade will have negative impact on GE's long term capital funding and it will also increase its cost of capital, which will trigger a downward adjustment on GE's fair value calculation (at least, that's what I will do.)

I think GE's stock price increase is merely an adjustment/correction from the huge drop down during the previous 2 weeks to a more reasonable level.
Overall, being downgraded is not good news.

News: Google

Another interesting news about Google's community events happened in HKG.Google Map - a service, offer for free, has helped and will help millions of people around the world, especially when you get lost, it will walk with you and walk you through!!

【明報專訊】科技不一定冷冰冰，在Web 2.0時代，網民利用簡單科技，除了上載資訊，更能分享情感。Google舉辦的「畫出『您』想–Google（我的地圖）創作比賽」其中一名得獎者歐智 浩，利用Google地圖的個人化特色，結合GPS科技，記錄了他的58日澳洲 單車之旅，旅途上又因為Google Map和GPS令他碰上不少奇遇。正職繪製地圖的他說，隨着科技進步，地圖不只是地方的紀錄，而是人與地方之間關係的紀錄。

歐智浩去年請 了長假，為的是實現年輕時的理想。他用了58日駕着單車，從悉尼 出發，經墨爾本 、大洋路（Great Ocean Road）、阿德萊德、Nullarbor沙漠到珀斯看日落，全程約5400公里。歐智浩不是單車旅行的先驅，但他運用了職業上的知識，隨身帶着一部衛星 定位儀，每隔5秒自動記錄身處的經緯度，再根據拍照的時間，將照片對照當時的衛星定位，於是旅途上拍下的8000張照片，每一張的拍攝地點一目了然。他再 把其中約180張上載至Google Map的個人地圖，朋友和網民便可分享這一次單車長征。

隨身帶GPS 每5秒記錄位置
歐智浩的職業與地圖有密切關係，對地圖的感受亦特別深，「以往的地圖只記錄地點，但隨着科技進步，今天地圖記錄的是地點與人的關係，大家都可以將非傳統資訊放在地圖裏。其實，每件事發生都有時間、地點，地圖加上文字，便能活生生表現人在該時間、空間的感情」。

最 難忘的經歷發生在荒漠，歐智浩說﹕「那天我準備橫越超過20萬平方公里的Nullarbor荒漠，事前我須準確計算要攜帶多少水，找出最近的旅舍位置。晚 上我躺在地上觀賞漫天星星，憑着Google Map和GPS，得知附近一萬平方公里都沒人住，才發現自己獨享了一萬平方公里的星星」。

澳洲單車長征不是歐智浩的第一個電子地圖作品。曾於攀山拯救隊工作的他，搜集了港歷年郊野公園致命意外事故分佈圖，列出遠足黑點，讓行山人士能夠多加提防，又利用了Google Map作為搜索行山失蹤者的分析等。

下個目標﹕《鹿鼎記》地圖現在，他正努力製作《鹿鼎記》地圖﹕「《鹿鼎記》以清朝為背景，跨越了中國多個地方如揚州、釣魚島等，甚至提及俄羅斯 ，以地圖來講《鹿鼎記》的故事，相信能吸引不愛看書的年輕人閱讀。」明報記者 何雪瑩

Jesus Christ will offer the similar service in your life. HE can walk with you and guide you through your career path and entire road of life. Start reading the bible online, that is your important road map. It is completely free of charge!!For your information. Here is reward winners' master piece:

• 香港幽山美地 120 (Mahler Ka)
• 帶你入東涌踩單車 (SOB Team)
• 日出雪梨，日落柏斯 澳洲單車遊記 (Tommy Au)

I guess, I should design my own too.

Google on Dow Jone?

Google (Nasdaq: GOOG) and Cisco Systems are the top contenders to join the Dow Jones Industrial Average if Citigroup and General Motors are booted off, Reuters reports.
Both Citigroup (NYSE: C) and General Motors (NYSE: GM) are trading below $2 -- although both are nearing that number after substantial gains Tuesday.
Other contenders to join the Dow, which has lost 25 percent of its value this year alone, include Goldman Sachs (NYSE: GS), US Steel (NYSE: X), Visa (NYSE: V) and Apple (Nasdaq: AAPL).
San Jose, Calif.-based Cisco (Nasdaq: CSCO) employs more than 4,000 people in the Raleigh-Durham area.

Bilibala's comment

• All the index funds will buy Google & Cisco and sell Citi & GM;
• Good impact in short term, stock price will rise due to more "buy";
• Bad impact in medium term, stock price will have higher fluctuation, as lesser # of stock supply in the market; also, Google may become a bearish target due to more hedge activities took place on its stock;
• No impact in long term, stock price will always and only follow GOOG's earning per share growth, not the overall market performance.

Warren Buffet's Interview

Interview of Warren Buffett @ CNBC (copied from CNN)

Warren Buffett said Monday the U.S. economy had "fallen off a cliff" but would eventually recover, although a rebound could kindle inflation worse than that experienced in the late 1970s.
Speaking on CNBC television, the 78-year-old billionaire said the country is experiencing a "close to the worst-case" scenario of falling business activity and rising unemployment, causing consumer confidence and spending to tumble.

Buffett called on Democratic and Republican policymakers to set aside partisan differences and unite under the leadership of President Barack Obama to wage an "economic war" that will fix the economy and restore confidence in banking.

He urged policymakers and regulators to communicate their efforts better to the public, though he stopped short of major, specific policy recommendations.

"People are confused and scared," he said. "People can't be worried about banks, and a lot of them are."

Buffett spoke nine days after his insurance and investment company Berkshire Hathaway Inc (BRKB) said quarterly profit fell 96%, largely from losses on derivatives contracts. Berkshire's book value per share fell 9.6% in 2008, the worst year since Buffett took over in 1965.

Recovery could trigger inflation

Buffett said Americans, including himself, did not predict the severity of home price declines, which led to problems with securitizations and other debt whose value depended on home prices continuing to rise, or at least not plummet.

"It was like some kids saying the emperor has no clothes, and then after he says that, he says now that the emperor doesn't have any underwear either," Buffett said. "We want to err on the side next time of not allowing big institutions to get as unchecked on leverage as we have allowed them to do."

Consumers too should reduce their reliance on debt such as credit cards, he said. "I can't make money borrowing money at 18 or 20%," said Buffett. "I'd go broke."

Buffett said the economy was mere hours away from collapse last September when credit markets seized up, Lehman Brothers Holdings Inc went bankrupt and insurer American International Group Inc (AIG, Fortune 500) got its first bailout.

While praising efforts by Federal Reserve Chairman Ben Bernanke and others to stimulate the economy, he said the economy "can't turn around on a dime" and that their efforts could trigger higher inflation once demand rebounds.

"We are certainly doing things that could lead to a lot of inflation," he said. "In economics there is no free lunch."

The stock of Omaha, Neb.-based Berkshire has fallen by half since September. Growth in some units such as auto insurer Geico Corp has been offset by weakness elsewhere, including jewelry retailers that Buffett said have "gotten killed."

Buffett said Berkshire will write less catastrophe insurance this year after investing roughly one-third of its cash in high-yielding securities issued by General Electric Co (GE, Fortune 500) , Goldman Sachs Group Inc (GS, Fortune 500) and other companies.

In morning trading, Berkshire Class A shares were down $795, or 1.1%, at $72,400. Their 52-week high is $147,000, set last Sept. 19, Reuters data show.

'Get back to banking'

Buffett called on banks to "get back to banking" and said an overwhelmingly number would "earn their way out" of the recession, even if stockholders don't go along for the ride.

Saying that "a bank that's going to go broke should be allowed to go broke," Buffett nevertheless added that the "paralysis of confidence" in the sector is "silly" because of safeguards such as deposit insurance.He said Wells Fargo & Co (WFC, Fortune 500) and U.S. Bancorp (USB, Fortune 500), two large Berkshire holdings, should appear "better than ever" three years from now, while the ailing Citigroup Inc, which Berkshire does not own, would probably keep shrinking.

Bank of America Corp (BAC, Fortune 500) Chief Executive Kenneth Lewis, in a Wall Street Journal opinion piece Monday, agreed that the vast majority of banks will survive. Berkshire has reported a small stake in Bank of America stock.

Buffett said he still expects Berkshire's derivatives contracts, whose value depends on where four stock indexes trade a decade and more from now, to be profitable.

Over 10 years, he said, "you will do considerably better owning a group of equities" than U.S. Treasurys.

Buffett also defended his imperfectly timed October opinion piece for The New York Times, where he said he was moving non-Berkshire holdings in his personal account to stocks.

"I stand by the article," he said. "I just wish I had written it a few months later."

Wells Fargo dividend cut

Mar 06, 09 Wells Fargo announce that it will cut dividend from 34 cents to 5 cents. It is the last "giant" to cut dividends. As I mentioned yesterday, I think cutting dividends is a right decision to regain investors' confidence, keep its capital and balance sheet strength (tangible capital ratio will improve by 40 bps).
It will also clear one of the big uncertainty issue for the company as well as the bank sector.

Here's from the CEO's press release:

“This was a very difficult decision but it’s absolutely right for our Company and our shareholders because it will further strengthen our ability to grow market share and to continue our long track record of profitable growth,” said President and CEO John Stumpf. “We will return to a more normalized dividend level as soon as practical. We have among the most loyal shareholders in America – individuals and institutions alike – and we’ve always recognized the value of dividends. Operating results for the first two months of the year are strong. Our ability to grow market share in this environment and to benefit from new business opportunities remains second to none. Our merger with Wachovia is on track and we remain as optimistic as ever about its potential benefits for all our stakeholders.”

Econ data: 09 week 10

Unemployment rate looks bad, and for sure it will continue to climb, but technically, based on the previous 10 times stock market crash history, stock market reach the bottom 9 months ahead unemployment rate reach its peak. If unemployment will reach its peak between 9% to 10% in 2010, then one should likely expect stock market will touch the ground somewhere between now and 2Q09.

Who knows about the future? None!! But who holds the future? Once again we realized that HE is GOD and there is only one GOD - Jesus Christ, who we can put our trust on in anytime , anywhere.

That why Warren Buffett describe today's economy in 2008 Berkshire Hathaway's annual letter to shareholders:

"For God we trust, all others pay cash."

Economic Data:

• US Feb unemployment rate up to 8.1% (worse than expect, 7.9%) prior 7.6%
• US Feb Non-farm job pos cut 651k (same, cut 650k), prior cut 655k. YTD has already lost 1.3M jobs;
• US initial jobless claim down to 639k, (better, 650k), prior 670k;
• US Jan personal income up 0.4% (better, -0.2%), prior -0.2%;
• US Jan pending home sales down 7.7% (worse, down 3.5%), prior up 4.8%. It may due to potential buyers/sellers all pending their trade on Obama's economy plan which published & finalized on the end of Feb;
• US Feb ISM index flat at 35.8 (better, 33.8), prior 35.6;
• US Feb Auto & Truck sales still do not look good at 2.9M & 3.5M, prior 2.9M & 4.0M;

News: dividends

Recently, Investors raise concerns on financial institutions and worry about their expected net income (or capital requirement) will not be sufficient to settle its dividend payout.

• Feb 25, 09 JP Morgan (JPM) is the 1st "giant" to cut its dividends from 38 cents to 5 cents, that will save JPM $5B per year;
• Feb 27, 09 General Electric (GE) cut its dividends from 34 cents to 10 cents, which will save $9B per year;
• Mar 04, 09 US Bancorp (USB) cut dividends by 88% to 5 cents and will save $2.6B;

In my opinion, I think dividend cut in such tough economic environment is understandable and it will also strengthen the company's capital and balance sheet and will reduce the risk of being downgrade. Unless, dividend cut is driven by an expectation of a huge potential loss.
The only "giant" that still did not announce a dividend cut is Wells Fargo (WFC). Stock price keep being pushed down these 2 weeks.

Operationally, I think WFC will make a profit in 1q09 and 2009 that is enough to settle its dividend payment. But if dividend cut can clear the uncertainty & risk that investors putting towards WFC. It is still a smart move to do so.

None of the companies I've mentioned above show any needs of capital injections. At least, not yet.

Berkshire Hathaway 2008 results

Berkshire Hathaway's has $37.1B equity put option contracts in sell position. The company loss $6.8B in 2008 because of this contact. One may concern if the equity market keep dropping, what will be the impact to BRK?

Here is what Buffett said in 2008 annual report:

• We have added modestly to the “equity put” portfolio I described in last year’s report. Some of our contracts come due in 15 years, others in 20. We must make a payment to our counterparty at maturity if the reference index to which the put is tied is then below what it was at the inception of the contract. Neither party can elect to settle early; it’s only the price on the final day that counts.
• To illustrate, we might sell a $1 billion 15-year put contract on the S&P 500 when that index is at, say, 1300. If the index is at 1170 – down 10% – on the day of maturity, we would pay $100 million. If it is above 1300, we owe nothing. For us to lose $1 billion, the index would have to go to zero. In the meantime, the sale of the put would have delivered us a premium – perhaps $100 million to $150 million – that we would be free to invest as we wish.
• Our put contracts total $37.1 billion (at current exchange rates) and are spread among four major indices: the S&P 500 in the U.S., the FTSE 100 in the U.K., the Euro Stoxx 50 in Europe, and the Nikkei 225 in Japan. Our first contract comes due on September 9, 2019 and our last on January 24, 2028. We have received premiums of $4.9 billion, money we have invested. We, meanwhile, have paid nothing, since all expiration dates are far in the future. Nonetheless, we have used Black- Scholes valuation methods to record a yearend liability of $10 billion, an amount that will change on every reporting date. The two financial items – this estimated loss of $10 billion minus the $4.9 billion in premiums we have received – means that we have so far reported a mark-to-market loss of $5.1 billion from these contracts.

I did a worse case scenario based on the following assumption:

• Assume 10% return per year on $4.9B (given that BRK had entered into bond / preferred shares contract with a return of 10-15% per year during 2008 & early 2009)

BRK will loss $$ only if S&P 500 (or the world wide equity market) did not bound back above 461 points in 10-15 years time.
Which is 69% dropped from 1,576 (historical peak) and 35% dropped from 712 (today).

Will this happen? May be. But what is the possibility of this happen?
I think it is unlikely!!

If S&P 500 rise above 1,100 @ 2019, BRK will earn a pre tax income between $11B to 21B on this contract.

	10%	max $37B			worse case
	Interest inc	G/L	Total gain		S&P 500
peak					1,576
2007	245		245		1,069
2008	515	(6,800)	(6,286)		903
2009	566	(14,894)	(14,328)		625
2010	623	9,543	10,165		719
2011	685	2,495	3,180		791
2012	753	2,196	2,949		854
2013	829	1,482	2,311		897
2014	911	(1,556)	(645)		852
2015	1,003	(2,957)	(1,954)		767
2016	1,103	(3,991)	(2,888)		652
2017	1,213	(2,714)	(1,501)		573
2018	1,334	(1,990)	(656)		516
2019	1,468	(896)	572		490
2020	1,615	(851)	764		466
2021	1,776	(162)	1,615		461
2022	1,954	-	1,954		461
2023	2,149		2,149		461
2024	2,364		2,364		461
Tol	21,105	(21,095)	10		461