Why money printing does not lead to a debasement of currency

I just read a very interesting blog post by Dali on the debasement of currency caused by all the money printing. 

My initial conclusion back in 2010 at the inception of these printing was the same.. it's going to be as inflationary as in Germany post WW1. However 5 years following the first QE, there's still no inflation..  then I came across some smart economist pointing out that all these extra money is basically absorbed by the bank in increase reserve.. it make sense, if the money printing were to be inflationary - the effect should have been apparent almost immediately.

I put forward an alternate view to why money printing is not inflationary.

An alternate view

Econ 101 taught us printing of money lead to increase supply which will lead to a debasement of the currency.

HOWEVER

- Quantitative easing is merely a form of monetary policy that increases LIQUIDITY in the banking system.

- Liquidity of the banking system is separate and distinct from credit growth and availability. The monetary policy can only influence the PRICE of the lending.

How monetary transmission mechanism work in reality

- Despite the printing of money in the last few years by the treasury, money supply have been relatively stable and inflation in check.

- The main determinant of credit growth is RISK APPETITE: whether banks want to lend and whether companies/consumer want to borrow. Companies are hoarding a record amount of cash.

- According to Bernanke, the objective of QE is to maintain low long term interest rate

 

Bernanke August 2010 speech

- A byproduct of this low rate is a gradual healing of household balance sheet in the US and of the government itself

- Reality is that quantitative easing merely swaps bank reserves for US treasury

Interesting read:

1) http://www.voxeu.org/article/central-bank-reserve-creation-era-negative-money-multipliers
2) http://www.federalreserve.gov/pubs/feds/2010/201041/201041pap.pdf

Boustead REIT privatisation

Interesting news about the privatisation of Boustead REIT, I've written about it previously here.

Based on the announcement,Boustead Plantation Berhad had offered RM 2.1 for each unit of the REIT. This represent a premium over the NAV and the recent trading price.

Considering the direction of the CPO price going forward, it's not a bad deal for the unitholder. However - it's not easy to find a replacement for such a conservative dividend paymaster to replace Boustead Reit it one's portfolio.

The way the REIT is structured, there is minimal downside risk to the dividend due to the presence of the fixed rent portion in the rent formula.

I am guessing with the soft CPO price, the power to be in Boustead group figure it's costing them too much to be paying rent to the individual unitholder. They are better off terminating the lease agreement and taking the plantation asset in house, financed through debt alone.

Like I mentioned earlier in my last post - I don't have very much of these REIT left, yet I can't justify selling them as I am not too sure what to replace them with. Despite this, the premium proposed represent about 2 year's worth of dividend yield for the REIT, as such I MAY consider supporting the proposal. But I really should look harder at some replacement candidate.

To all other unitholder - what's your view? And if you accept the offer - what would you replace the REIT with?

Herbalife - closed my position with 86% gain in 7 months.

I went long on HLF on Dec 28th publicly in my 2nd blog post.

My entry price was below USD 28.

Last night I exited the counter at USD 52.09.

In less than 7 month the position was up USD 24.09 or 86%.

I think the stock still have upside to it, but I think there's alot of volatility to this counter. I may be looking to enter a trading position from time to time as it does not appear that FTC will be shutting them down anytime soon.

China Stationary - how to value this company?

From a traditional valuation matrix, China Stationary is screaming value value value! But for the "China" factor.. it should be worth a hell of alot more.

Based on its 2012 audited account and its Q1 2013 result announcement, I see a few very attractive point about the company:

1) Strong net operational cashflow generation 
Approximately RM291 million in FY 2012 [and RM79 million in Q1 2013 (RM316M annualised)] against RM33million in investing cashflow giving it approximately RM258 million in free cash flow per annum..

2) Strong balance sheet... 
Its audited cash balance at 31 December 2012 is approximately RM 944 million against total liability of approximately RM110 million, giving a net cash position of RM 834 million. There's also various receivable, inventory, fixed asset.. but for the purpose of this exercise I've assumed no recoverable value from these assets.

3) Dividend 
Based on its short track record listed on Bursa, they've been paying regular dividend... 0.018 interim dividend was granted back in October 2012 and another 0.016 will be approved as final dividend.. giving a total dividend of 0.034, which is a yield of approximately 9.7% based on the current price of approximately 0.35.

These dividend are paid out of operational cashflow.

4) Earning yield
Based on 2012 audited account, the company generated approximately RM232million of profit. Based on current price of RM0.35, the PE is less than 1.9X.

5) Discount against IPO price.
It was listed back in Feb 2012 at RM0.95 which is approximately 4.75X historic PE. Current price is only 0.35.

6) Active purchase by major shareholder in open market.
There have also been a series of purchase by its major shareholder from the open market.. however this is also a downside, based on 2011 annual report, the free float of the share is way below 30%....


Conclusion - I don't generally like companies with poor corporate governance issue. But just like how you can overpay for a good company, there should be a price where a lousy company can be a good buy. Well that's the theory anyway, I have bought a little bit of this counter but with a very experimental mindset to this investment.

It's so cheap I can't understand it.

YTLP buyback -update

Following my last post on YTLP buyback, the company have continued to be active in the market to buyback its share.

Its cumulative net outstanding treasury share as of 30 May 2013 is 166,347,745 shares.

On 9/5/2013 - the company have approximately 137,324,245 treasury share outstanding representing approximately 1.86% of the total outstanding share.

This represent an additional buyback of 29,023,500 shares from the open market. Assuming at an average price of RM1.51, the buyback is worth RM43,825,485 this month.

Today's announcement.

Weida - Q4 2013 announcement

Following my post on Weida back in February 2013 the share price have been pretty unexciting until the past 2 weeks following the general election result when it finally broke 1.40 to trade around 1.70.

Anyway, getting back to the fundamental.. the company have just announced its Q4 2013 result and I believe it is looking very solid.

After receiving the proceed from the disposal of its plantation land, the company is now sitting on a cash balance of RM264 million, it's market cap is approximately RM 225million as of closing today.

It's net asset is RM2.74 and current closing price is RM1.71, giving a PB of 0.62

Earning from continuing operation is approximately RM20 million, giving it a PE of approximately 11X.

Actually I was expecting more cash proceed from the disposal, having looked at the circular again I am not really sure where I missed out. Per the circular, the expected gain on disposal is RM120+million, however I can only find a RM60million gain on the 12 months P&L. Something doesn't seem consistent with the equity account presented in the circular against the current quarter announcement..
But the mistake is probably mine.

Nevertheless, given the company's upcoming venture into property development and its solid foundation in its current business, I think Weida is a decent inclusion in my portfolio at this stage. I will look to par down some stake somewhere around RM2.50 (0.9 to PB/15XPE)..

YTLP's 4G push - a perspective from its CEO.

Great article in The Edge today shedding some light on the 4G's push by YTLP.

Basically the rollout delay is a calculated one due to limited ecosystem for devices operating in the 2.6Ghz spectrum (iPhone operate on 1.8gHz spectrum).

China and India have indicated that they will operate on the 2.6gHz spectrum but they have not started auctioning the spectrum.

Interestingly the CEO was quoted to have said that they are ready to deploy LTE on its WiMAX network. My hope as an investor is that their WiMax network is LTE ready without another round of heavy capital expenditure.