How an Analyst can interpret the Data

Cheers : Follow the Picture

Efficient market Hypothesis: Zero hedge

Since this chart from the WSJ sums up petty much everything about the "efficient market hypothesis" or whatever it is those wacky Chicago PhD's call their multi-variable, self-similar, Lorenzian "strange attractor" equations that describe human irrationality to the dot, there is little need for commentary : Zero Hedge 

Full article at
http://www.zerohedge.com/news/charting-latest-iteration-moral-hazard

Picture from WSJ attached.

AsianBondsOnline Newsletter (29 August 2011)

To read the full report, data and graphs go to http://www.asianbondsonline.adb.org/newsletters/abowdh20110829.pdf?src=wdh&id=Vd7k9wdkOhnXujvrtQLVzHQl3Ygf9j

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News Highlights - Week of 22 - 26 August 2011

Consumer price inflation in Hong Kong, China quickened to 7.9% year-on-year (y-o-y) in July due to increasing food prices and a low base effect resulting from the timing difference of government's public housing relief measures. Japan's core consumer price index rose slightly in July to 0.1% y-o-y as energy prices increased. Singapore's consumer price inflation accelerated to 5.4% y-o-y in July from 5.2% in June on the back of higher costs for transportation, accommodation, and food. Consumer price inflation in Viet Nam rose to its highest level since December 2008, reaching 23.1% y-o-y in August from 22.2% in July as costs for food surged.

*The Bank of Thailand last week raised its 1-day repurchase rate by another 25 basis points to 3.5%. This was the sixth consecutive rate hike since January. Heightened concerns over inflation outweighed the risks to growth as domestic consumption and investment are expected to remain robust.

*Moody's Investors Service lowered Japan's credit rating to Aa3 from Aa2. The outlook on the ratings is stable. Standard and Poor's affirmed its AAA sovereign credit rating and stable outlook for the Singapore government's long-term debt.

*On 24 August, the Japan Credit Rating Agency (JCR) affirmed Indonesia's ratings for long-term FCY and LCY senior debt at BBB- and BBB, respectively. The outlook for both ratings was stable.

*The People's Bank of China (PBOC) announced the expansion of the existing cross-border trade renminbi settlement program to include the entire country. During the first half of the year, the People's Republic of China's (PRC) total renminbi settlement in cross-border trade increased 13.3 times to reach RMB957.6 billion.

*The Republic of Korea's external debt position rose to USD398.0 billion in June. The country's outstanding household loans grew 8.7% y-o-y in July to reach KRW826 trillion. Finally, the credit default swap (CDS) spread for 5-year FCY-denominated government bonds widened to 149.2 basis points. LCY corporate bond issuance in the Republic of Korea was down 29.5% month-on-month (m-o-m) to KRW8.1 trillion in July. However, the cumulative corporate bond issuance over the January-July period stood at KRW75.1 trillion, which was up 9.3% y-o-y.

*Last week, KT Corporation of the Republic of Korea raised KRW600 billion from a triple-tranche bond sale. In Malaysia, YTL Power International sold MYR2.2 billion worth of 7-year notes with a coupon of 4.35%. In the Philippines, United Coconut Planters Bank issued PHP3.15 billion of LTNCD (long-term negotiable certificates of time deposit), which carry a coupon of 6.0% (payable quarterly) and have a maturity of 5 years and 3 months. Thai property developer Quality Houses raised a total of THB3 billion in bonds. Meanwhile, the State Railway of Thailand issued THB1 billion of 12-year bonds at a coupon of 3.99%.

*Government bond yields fell last week for most tenors in Indonesia, Malaysia, and the Philippines, while yields rose for all tenors in Viet Nam and for most tenors in Hong Kong, China; and Singapore. Yield movements were mixed in the PRC, the Republic of Korea and Thailand. Yield spreads between 2- and 10- year maturities widened in Hong Kong, China; the Republic of Korea; Malaysia; the Philippines; Singapore; and Viet Nam, while spreads narrowed in the rest of emerging East Asian markets.

*WHAT'S NEW: The next edition of the Asia Bond Monitor will be launched on 1 September.

Fw: On Grantham, Weathering the Storm and a Health Tip!

Cheers

---

From: <aditya.rana60@gmail.com>

Date: Sun, 28 Aug 2011 20:28:38 +0800

To: <aditya.rana60@gmail.com>

Subject: On Grantham, Weathering the Storm and a Health Tip!

 

Hi!,

 

August  sure has been a tumultuous month,  with the daily changes in the Dow Jones Industrial Average  over one memorable week in early August  (-635,+430,-520,-424 which  amounts to  daily movement of +/-4.5% in the largest and most liquid stock market in the world!) resembling more of a random walk than  rational responses to changes in fundamentals.  Volatile markets are likely to be with us for a while – as long as government policy uncertainty remains with us in the developed world.  With this uncertain backdrop, I summarise below Jeremy Grantham’s latest quarterly which provides ( as usual) deep insights into the current state of markets and his outlook.

 

-“Can-kicking” to postponing the day of reckoning  is an art form perfected by countries around the world – from Britain’s peace  agreement with Hitler in 1938 to modern day examples of Japan’s lost  decades , Europe over the last 10 years (by failing to rein in the growing uncompetitiveness of the peripheral countries) and finally to the US’s refusal to deal with the housing bubble  earlier.

 

-His prediction in early 2009 of “seven lean years” for the US economy  was somewhat optimistic -   while  some factors have shown modest improvement  other  key factors have failed to keep up with what were pessimistic  expectations. GDP  would have to grow by  4% a year for the next 3.5 years (unrealistic) to close the gap with the 2% projected trend line growth rate of the economy.

 

-The plus side of the “seven  lean years” have been:  the resilience of emerging economies, particularly China and India; the sizes of the Chinese trade surplus and US trade deficit have declined; the US savings rate has increased from 1% to 5%, and,   corporate profits have risen.

 

-The negative side of the “seven lean years” is a long list:  disillusionment with institutions and capitalism has increased,  dampening animal spirits; resources prices are even higher than expected;   fiscal  deficits are higher ; housing prices are lower and could overshoot more  on the downside; personal income growth has been very meagre with gains accruing to corporations and the very rich making the US one of the least egalitarian developed societies;  while private debt is declining modestly  through write-downs and pay-downs of debt, there is no new debt being created to boost consumption which remains anaemic;  economic policy remains caught between half-hearted Keynesian stimulus  and ill-timed “Austrian” cutbacks; if unchecked the  “seven lean years” could rapidly  result in  a dramatic loss of the US’s leadership position, which has been a show piece to the world of entrepreneurial drive, effective government, social leadership and international justice and assistance.

 

-Corporate profits are at their highest levels, while  wage  growth is flat and 16-18%of workforce is either out of a job (9%) , discouraged to look for  a job (4%) or working part-time (5%).  Normally these conditions  would have led to lower revenue growth, but the surge in government debt has allowed corporations to maintain top line growth while reducing costs and thereby increasing profits. This likely to change as government debt falls or its growth decelerates.

 

-In the current environment which is fraught with uncertainty , as he advised last quarter, its best to be cautious and remain cautious for the foreseeable future. Quality stocks have continued to outperform low quality stocks and points towards a classic late bull market rally.

 

-He continues to favour the following asset classes:

-Well-managed forestry and farmland.

-Natural resources, energy, metals and fertilizers over the next 10 years though near term they could be experience sharp declines.

-Quality stocks are priced to provide 4.5-5% real return.

-Emerging market stocks are also likely to provide 4-5%  real return.

-Japanese stocks have the potential to provide double digit real  returns for the next 7 years.

-Other global equity markets range from unattractive to very unattractive. With the S&P fair value being 950.

-Cash will provide the dry powder to take advantage of possibilities.

-Stop press: with the sharp market declines in early August, they became modest buyers for the first time since mid-2009 and own US high quality stocks, emerging markets, Japan, Italy and European growth stocks,  with this portfolio  likely to  return about 6.5% real over the next 7 years.

 

-The main long-term risk continues to be that, after two massive bubbles and reflation programmes, the Fed may be out of ammunition if a serious global double-dip ensues.

 

-This would imply that instead of a sharp recovery in markets, they could  become cheap and stay below long-term averages for a long while as has been the norm historically (pre-Greenspan).  This would wash away a whole generation’s  false expectations, high animal spirits and excessive risk taking. It would also mean high long-term returns from investing at cheap levels – i.e. long-term gain from short-term pain!

 

A brilliant piece which succinctly lays out the risks  as well as the opportunities which the  markets face today. A core equity funds portfolio in US quality stocks, global energy and natural resources, select emerging markets (China, India, Brazil, Russia), Japan, Korea, Singapore  combined with a core bond funds  portfolio (EM and select developed world govt& high grade credits denominated in local currencies, US private mortgages and credits) and a  core portion in cash diversified across several currencies, and finally, gold, should be able to weather the storm ahead and provide decent returns over a 3 -5 year period. The key is to be disciplined in terms of not giving way to temptation to  time the market, or be swayed by market movements,  which inevitably is a recipe for buying high and selling low over time.

 

For those who doubt the positive impact of QE programmes on the markets and the economy i attached a graph which rather vividly demonstrates the relationship between the  commencement and ending of the QE1&2 programmes and the waxing and waning of economic output. Yes, the effect is only temporary (and is not claimed to be otherwise) and can have unintended consequences (higher commodity prices) but it  does work – as the economist  Irving Fisher noted long ago in his classic study of deflations and  depressions in the 19^th and early 20^th centuries.  So if the economy continues to sputter along, or goes into another dip, we are likely to get another dose of QE (later this year?) and further fiscal stimulus (early next year?) as well which will  limit the downside and provide potential for upside.

 

 

 

 

A health tip:

 

I came across a particularly interesting story on how daily mild exercise  can  add to your life expectancy:

 

Exercising for 15 minutes a day adds three years to a person’s life expectancy, according to the first study to show there’s a health benefit from even low levels of physical activity.  In a study involving more than 400,000 people, those who exercised for 90 minutes a week were also 14 percent less likely to have died after eight years than those who were inactive, researchers at Taiwan’s National Health Research Institutes wrote in The Lancet medical journal. Every extra 15 minutes of exercise reduced the risk by a further 4 percent., up to 100 minutes a day, after which there was no additional benefit.

 

So get on with the daily walk/swim/yoga – it’s not that complicated!

 

I will be travelling (again!) over next weekend so the next newsletter will be sent on  September 10.

 

Regards,

 

Aditya

 

 

 

 

 

 

 

Indian Interest Rates Have Overshot - Atyant Capital

via Atyant Capital by rahul on 8/25/11

Reserve Bank of India (RBI) governor Subbarao's decision to hike short term interest rates by 50 basis points on July 26th was a mistake.  Monetary policy operates with a lag.  Many of the earlier interest rate hikes are yet to filter through to economy.

The RBI is trying to fight inflation by raising rates and squeezing out demand.  In the absence of fiscal policy action, the burden of inflation management falls on the RBI.  The RBI is, however, fighting a lost battle.  Interest rate increases are unlikely to be effective in controlling inflation and may in fact exacerbate the situation by choking investment and supply.

India is not one but multiple economies within one.  The starkest difference is between two segments at opposite ends of the spectrum.  One is the credit based urban India and the other is the mostly cash based rural India.

Urban India is choking, crying and gasping for help, but the RBI remains unrelenting in its crusade against inflation.  The numbers have finally started catching up.  Housing sales have plummeted and the real estate sector is in intensive care.  Automobile sales have started declining.  Power and infrastructure investment has come to a standstill.  Loan delinquencies among small and medium businesses are rising at an alarming rate.

Rural India on the other hand is booming.  Food prices have risen and remained high across three full crop cycles for the first time in decades.  The rural employment guarantee scheme has ignited a fire under rural wages.  The monsoon rains have been excellent and India is on track for a record agricultural harvest.  Telecom connectivity has had a transformational effect on rural India.  The demographic boom in rural India has created a positive consumption cycle that has been unprecedented.  This explains why sales of motorcycles and tractors are booming while sales of passenger cars are declining.

For further validation of this trend, look at the ongoing anti-corruption movement being championed by social activist Anna Hazare.  It is exclusively an urban Indian middle-class driven movement.  Rural India is conspicuous by its complete absence and disinterest in the movement.  Urban middle-class India is stuck and frustrated, while rural India has never had it better (albeit from a very low base).  In times past, protests and agitations were primarily rural centric while urban inhabitants went about their lives.

Food is becoming expensive in Indian cities because a lot less is making it to them.  A lot more food is being consumed in villages where it is being produced.  For food availability to improve a lot of investment needs to take place in farming as well as in the distribution supply chain.  High interest rates and policy inaction are not helping the cause.

How India measures inflation is completely flawed.  India's headline wholesale price index is primarily a commodity index.  In a zero interest rate world where all currencies are debasing, commodity price increases are an international phenomenon.

Indians are putting a record amount of their savings into fixed income instruments and bank deposits.  They clearly don't see fixed income instruments giving them negative real yields.  I don't believe that this phenomenon can be explained by money illusion alone.  The fact of the matter is that we are in a world where relative prices shift suddenly and intensively.  Most people recognize this and (rightly so) don't think of it as inflation or erosion in purchasing power.  In India there is no homogenous consumption basket and everyone's effective rate of inflation is different.

I believe that, inflation, the way the Indian government measures it, will remain high and may even accelerate from here as debasement in the developed world kicks off in earnest.  Raising interest rates to rein in this inflation will prove completely ineffective.

GDP growth in India in April-June will print below 8% and it is very likely that by the Oct-Dec quarter GDP growth will fall below 7%.  The RBI needs to stop its interest rate increase cycle and start preparing for reducing interest rates lest it wreck the economy.

Algorithms - how it affects our markets - Kevin Slavin

Kevin talks about algorithms and how it effects our entire world including the equity markets. There are 2,000 physicists on Wall Street now involved in quant/algo/black-box funds. 70% of trades are currently conducted by quants. It can go deadly wrong like the flash crash.

See the full video at

http://www.valuewalk.com/videos-with-text-summary/kevin-slavin-algorithms-shape-world-equity-markets/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+valuewalk%2FtNbc+%28Value+Walk%29

Buffett and Bank of America: Playing Poker with Patsies...it turns out he is making 15% RETURN by Damodaron

Via Musings on Markets by Aswath Damodaran on 8/25/11
‪

Warren Buffet is famously quoted as saying, "If you have been playing poker for half an hour and you still don't know who the patsy is, you're the patsy". Today, we got a glimpse of Buffett playing poker with Bank of America, and at least from my perspective, it seems clear who the patsy in this game is... it is either Bank of America's stockholders or the rest of us who attribute mystical properties (and uncommon ethics) to the Oracle from Omaha...

Read the full article at
http://aswathdamodaran.blogspot.com/2011/08/buffett-and-bank-of-america-poker-and.html

So, let's recap what happened. It has been a rough few months for Bank of America stock, prior to today. The stock price had halved between November and yesterday:

Macro factors (the Euro crisis and the S&P downgrade) did play a role in the price decline but the company had itself to blame as well.  It reported a loss of $8.8 billion for the second quarter of 2011, reflecting payments to settle legal claims related to troubled mortgages.While the stock price decline suggested that the market was increasingly pessimistic about the company's future profitability, the company itself indicated that it was
sufficiently capitalized to make it through these travails. Earlier this month, the company announced that it would lay off 3500 employees and cut costs, but evoked little positive response from the market.

Today, we woke up to the news story that Warren Buffett, white knight extraordinaire, had ridden to the rescue of Bank of America. 
http://on.wsj.com/nUOWBSHere were the terms of the deal:
- Buffett invests $ 5 billion in preferred stock, with a 6% cumulative dividend, redeemable by the company at a 5% premium on face value.
- If Bank of America is unable to pay the preferred dividend, not only do the dividends cumulate but they do so at 8% per annum and the bank is restricted from paying dividends or buying back stock, in the meantime.
- Buffett get options to buy 700 million shares in BofA at $7.14/share, exercisable any time over the next 10 years.
Let's see what Buffett gets out of the deal. Valuing the options with a strike price of $7.14, even using yesterday's low price of $6.40/share, an annualized standard deviation of 50% in the stock price (significantly lower than the 3-year historical standard deviation of 79% and the implied standard deviation in excess of 100% from the option market)  and a ten-year maturity, I estimate a
value of $4.30/option or an overall value of approximately $ 3 billion (700*4.30) for the options. (I know.. I know..  Buffett does not like using the Black-Scholes model for long term options...Perhaps, he sold Bank of America's managers on the idea of using the famous Buffett-Munger long term option value model to derive a value of zero for these options...) Netting the $ 3 billion value of the options out of the $ 5 billion investment in the preferred stock makes it a $ 2 billion investment, on which $ 300 million is being paid in dividends. That works out to an effective dividend yield of 15% on the investment. By exercising his veto power over dividends and stock buybacks, Buffett can ensure that he is always the first person to be paid after debt holders in the firm. To cap it off, Berkshire Hathaway will be able to exclude 70% of the dividends received from Bank of America in computing taxable income (this is the rule with inter-company dividends), when paying taxes next year.   That is an incredibly sweet deal! 
What did Bank of America get out of this deal? Let's look at what it did not get first:
1. It did not get Tier 1 capital (the most stringent measure of bank capital), which includes only common equity, and thus does not get any stronger on that dimension. 2. It gets no tax deductions, since preferred dividends are not tax deductible. So, the $ 300 million in dividends will have to be paid out of after-tax income.3. It risks losing flexibility on dividend policy and stock buybacks, as a consequence of the restrictions imposed on this deal. The only conceivable benefit I see accruing from this transaction to the company is that Buffett has provided some cover for the managers of Bank of America to make two arguments: that the bank is not in immediate financial trouble and that it is, in fact, a well managed bank. I, for one, am not willing to accept Buffett's investment (or his words) as proof of either, and the way the deal is structured is not consistent with any of the arguments I have been hearing all day (from those who think it is good for Bank of America stockholders).
• First, let us assume that the bank is not in financial trouble and that the market has run away with its fears over the last few months. But, why would a bank that is not on the verge of collapse agree to raising capital at an after-tax rate of 15% and give up power over its dividend and buyback policy? And given the extremely generous terms offered to Buffett on this deal, how can this action be viewed as an indicator of good management? • Playing devil's advocate, let's look at the other possibility, which is that the bank has been hiding its problems and is in far worse shape than the rest of us think. If so, perhaps the terms of the deal make sense to Buffett (high risk/high return), but the deal still does not make sense to Bank of America. If the bank is in that much trouble, it should be raising tier 1 capital, and adding $ 300 million in preferred dividends to its required payments each year makes no sense. And, if it is in fact the case that the bank is in a lot more trouble that we thought, how can Buffett in good conscience then claim that BofA is a "strong, well-led company"? Either the terms of deal are way too favorable to Mr. Buffett or he is not being forthright in his description of the company... In either case, this does not pass the smell test.
I know that there are some who are comparing Buffett's deal with Bank of America to his earlier deal with Goldman Sachs. But there is a key difference. The Goldman deal was entered into at the depths of the banking crisis, and in a period where liquidity had dried up, Buffett was providing capital. Even in that case, you could argue that Goldman Sachs paid a hefty price for taking money from Buffett to shore up their standing... Perhaps, this has become Buffett's competitive advantage. Rather than buy and hold under valued companies, which is what he used to do, he focuses on companies that have lost credibility and he sells them his credibility at a hefty price.  I know that Buffett has accumulated a great deal of trust with investors over the decades, but even his stock will run dry at some point in time, especially if he keeps dissembling after each intervention about the company, its management and his own motives.
In summary, is this deal good for Buffett? Absolutely, and I don't begrudge him any money he makes on this deal or the fact that the tax law may work in his favor. Does the deal make sense to Bank of America's stockholders? I don't think so, notwithstanding some of the cheerleading you are hearing from some equity research analysts and the market's positive reaction. Is Bank of America a "strong, well-led" company? Only if you have a very perverse definition of strong and well-led...

Valuation and Recommendation - Paper Products Ltd

For comments/feedback on the model , please email the author at kumar.saraogi@gmail.com

Paper Products Limited (PPL / The Company) - Recommend BUY
At current levels of Rs.77.40 per share, Paper Products Limited seems like a good buy to me. According to my model (attached), the DCF valuation ranges between Rs.91 and Rs.100 depending upon assumptions we make primarily about (a) Working Capital - Inventory, DPO, DSO, (2) CAPEX in FY2014 and 2015.

Since PPL is a dividend paying company, one may consider using DDM - Gordon Growth too but I find it unfair to value the company using this method as the company does not pay out a large part of its earnings as dividends. Further, the retained part of earnings are not all used to make investments in order to support on going activities or expansion to support the growth in revenue and sales. The company regularly invests in financial instruments like Mutual Funds and other schemes as well. I believe the DDM/Gordon Growth model should apply to those companies which have a long history of dividend pay outs, and the amount of dividend would be that part of earnings which is not used or retained to make investments for expansion or continuing operations to support revenue stream. In this case, PPL's valuation is at approximately Rs.27 per share which in my opinion is far below the fair value.

The company's shares may seem overvalued compared to its domestic peers but what we need to consider is that PPL has very little debt in its capital while all the other domestic players are highly leveraged with Essel Propack's Debt-to-Equity being above 1. PPL's EBITDA is a mammoth 171 times Interest Expenses as compared to Indian peers' and AMCOR's at below 8 times the same. Clearly there is less risk associated with PPL than there is with its Indian and international competitors.

RISKS:

Input Costs Escalation: In FY2010, input costs rose sharply due to hike in price of raw materials. Although most of the other materials were volatile within a narrow band, PET Films prices rose by more than 150% due to global shortage of supply following shut-down of few major suppliers' units, delay in capacity additions and diversion of thin films to higher value added thick films for electronics industry. Other key raw materials that saw sharp rise in price were inks, adhesives and solvents. 

Competition, Margins and Pricing power: In absence of long-term contracts with buyers, PPL seems to be on the disadvantageous side of the negotiation table. Adding to that, competition has been increasing with new players entering and capacity additions with existing ones. In such environment, escalation in raw materials prices and other inputs like fuel and energy costs may undermine margins and cash flows. 

Inflation: PPL primarily serves the food processing industry. Due to recent inflation especially in food prices, PPL's customers have become price conscious and initiated cost cuts in their packaging expenses by compromising on packaging quality as well as by putting pressures on packaging suppliers' margins. Additionally they had resorted to reverse auctions, hard negotiations using consultants. 

Regulatory risk / Plastic ban on Food Processing Industry

 

OPPORTUNITIES

India – Economy, infrastructure & Rise in organized retail:  Having been partially insulated from global meltdown, India saw a robust GDP growth of near 8% and is expected to see the same in the coming year. Economic Times - "When larger wheels in a machine start rotating, the smaller ones automatically gain momentum. The same is true of the Indian packaging sector too. Strong growth in sectors like fast moving consumer goods, pharmaceuticals, liquor, cosmetics etc. has had a positive rub off on the packaging industry. Growth in consumer goods and organized retailing mainly drives demand for packaging." -

  Growing in size of middle class population means shifting form traditional grocery shopping and buying habits at the corner grocery store to supermarkets and organized retail outlets. This adds potential to flexible packaging industry as packaging is and will be an important strategy of product placement on the shelves of such supermarkets and stores where customers walk around and try to judge the contents/product by their packaging and/or brand. It is the least we should remember that PPL's customers are some of the leading FMCG brands who occupy shelves at such supermarkets and stores. The FMCG brands are in general bullish on the scope India offers further through infrastructure development in rural areas and underdeveloped towns which means establishment and growth of organized retail in those areas in the coming decade.Government of India - Ministry of Food Processing's Vision 2015: Although we need to discuss the quantifiable benefits of this plan for PPL, at the first thought PPL should directly and indirectly benefit from this initiative subject to GOI's proper execution of this plan.  Under this scheme the Ministry aims to (a) Become the Food Factory of the World, (b) Triple the growth of Food processing industries, (c) Increase the value addition from 20% to 35%, (d) Increase contribution to the world's agri-business from 1.5% to 3%. Further research on the Vision-2015 plan and discussions with the IR/Management of such companies would give us insights into the quantifiable benefits to PPL which may be in the face of Tax exemptions, subsidies, export incentives (kick-backs), minimum pricing power/protection, raw material quotas and rebates, etc. 

STRATEGY AND OPERATIONS:

NASP (New Applications, Structures, Products and Processes): In the long run, moving more business to value added segments, Innovation and new products, exploring new markets are seen as critical to profitable growth. The company's endeavor to renew innovation program will continue to be the cornerstone of PPL's strategy. NASP initiatives which contributed to 27.2% of total 2010 sales would get added thrust in the current year and years to come. Organizational measures to further accelerate the NASP efforts are in place with the CEO directly overseeing the company's innovation programs and strategy. PPL has been expanding its supplier base for critical raw materials and introducing alternative materials for its products as part of the innovation drive. 

Operations: The Company is making efforts to optimize existing capacity utilization and add units to plants that expect growth in their products. They have seen success in measures to cut operating costs and overhead expenses. To enhance capacity utilization, they initiated de-bottlenecking in supply chain and inventory controls. However, efficient management of Working Capital (Inventory, Receivables and Payables) is critical for favorable valuation in the light of rising materials prices. The DCF Model seems highly sensitive to these assumptions/inputs and further discussion with management regarding this would be vital to arriving at the valuation with more accuracy. Further, the valuation is also highly dependent on the company's ability to preserve or dictate sales margins (Cost + Input or Fixed Price) and Raw materials purchase price in the short and medium terms via contracts or expanding supplier base

Charting The Biggest Structural Problem For US Banks, And What TheMarket Expects...

by Tyler Durden on 8/24/11


Sometimes the general public can get confused in attempting to explain the complexities and the inefficiency of the banking sector when one simple chart brings the message home. A chart like that comes from the latest "Eye on the Market" from JPM's Michael Cembalest, who compares total bank deposits ($8.4 trillion), or bank liabilities, and total bank loan (about $2 trillion less) assets, or sources of cash flows that are supposed to fund bank liabilities and generate retained earnings, while the bank performs credit, maturity and risk transformation: a bank's three key functions. As the chart below shows, perhaps the primary reason why the economy is in its current deplorable state, is that instead of lending dollar for dollar to catch up with deposit growth, banks now rely on roughly $1.7 trillion in excess reserves with the Fed, an amount roughly equal to the difference between total deposits and loans, to plug the credibility gap. This also explains why according to Cembalest one of the expectations by the market from Jackson Hole is that IOER will be cut to 0% to promote bank lending, and thus the conversion of reserves into loans (something which the inflationistas out there will tell you is a big risk to a sudden surge in out of control inflation). So how does the Fed's direct intervention in bank balance sheets look like? Here it is

Full article at

http://www.zerohedge.com/news/charting-biggest-structural-problem-us-banks-and-what-market-expects-jackson-hole-version-n1

Downside Hedge Fund Bets On S&P500 Highest Since 2008 | ZeroHedge

by Tyler Durden on 24/08/11


Who says hedge funds are ambivalent about the current market? As of last week, they have not been

more bearish on the S&P since

before Lehman. From SocGen: "Hedge funds have opened the biggest net short positions since early 2008, concentrated on the most liquid segment of the market, i.e. the S&P 500. Meanwhile, positioning on small caps hardly moved (slight increase in net shorts on the Russell 2000). Surprisingly, they actually stuck to their net long positions on Technology (Nasdaq)." As usual, the amusingly named "hedge" funds defy their purported nature (as in, to

hedge), and merely pursue momentum, and should be more appropriately called "career risk" funds as the only variable is doing precisely what everyone else is doing: remember - to get a bonus at the end of the year, you don't have to outrun the market, you just have to outrun the biggest institutional fool out there. "Hedge funds have closed their net short positions on 10-year Treasuries and strongly diminished their net shorts on the long end (30Y), as recession fears have crunched expectations for higher bond yields, and endorsed by the Fed's announcement that it will keep rates low until at least 2013." Hedge fund infatuation with metals continues: "Hedge funds' enthusiasm for gold and platinum remains strong, as indicated by the high net long positions on these metals. Meanwhile, net long positions on base metals (copper) have been strongly reduced. Net long positions on crude oil remain relatively stable, less impressed by the perceived recession threats." Expect to see numerous short covering sprees until the end of the year, even as the market continues it secular decline back to fair value somewhere around 400.

Full article at

http://www.zerohedge.com/news/downside-hedge-fund-bets-sp500-highest-2008

BD