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Wednesday, November 30, 2011

Another Asian wake-up call

04:45 AM Nov 30, 2011
by Stephen S. Roach

For the second time in three years, global economic recovery is at risk. In 2008, it was all about the subprime crisis made in America. Today, it is the sovereign-debt crisis made in Europe. The alarm bells should be ringing loud and clear across Asia - an export-led region that cannot afford to ignore repeated shocks to its two largest sources of external demand.

Indeed, both of these shocks will have long-lasting repercussions. In the United States, the American consumer (who still accounts for 71 per cent of US GDP) remains in the wrenching throes of a Japanese-like balance-sheet recession.

In the 15 quarters since the beginning of 2008, real consumer spending has increased at an anemic 0.4 per cent average annual rate. Never before has America, the world's biggest consumer, been so weak for so long.

Until US households make greater progress in reducing excessive debt loads and rebuilding personal savings - a process that could take many more years if it continues at its recent snail-like pace - a balance-sheet-constrained US economy will remain hobbled by exceedingly slow growth.

A comparable outcome is likely in Europe. Even under the now seemingly heroic assumption that the euro zone will survive, the outlook for the European economy is bleak. The crisis-torn peripheral economies - Greece, Ireland, Portugal, Italy, and even Spain - are already in recession. And economic growth is threatened in the once-solid core of Germany and France, with leading indicators - especially sharply declining German orders data - flashing ominous signs of incipient weakness.

Moreover, with fiscal austerity likely to restrain aggregate demand in the years ahead, and with capital-short banks likely to curtail lending - a serious problem for Europe's bank-centric system of credit intermediation - a pan-European recession seems inevitable. The European Commission recently slashed this year's GDP growth forecast to 0.5 per cent - teetering on the brink of outright recession. The risks of further cuts to the official outlook are high and rising.

It is difficult to see how Asia can remain an oasis of prosperity in such a tough global climate. Yet denial is deep, and momentum is seductive. After all, Asia has been on such a roll in recent years that far too many believe that the region can shrug off almost anything that the rest of the world dishes out.

If only it were that easy. If anything, Asia's vulnerability to external shocks has intensified. On the eve of the Great Recession of 2008-2009, exports had soared to a record 44 per cent of combined GDP for Asia's emerging markets - fully 10 percentage points higher than the export share prevailing during Asia's own crisis in 1997-1998.

So, while post-crisis Asia focused in the 2000's on repairing the financial vulnerabilities that had wreaked such havoc - namely, by amassing huge foreign-exchange reserves, turning current-account deficits into surpluses, and reducing its out-size exposure to short-term capital inflows - it failed to rebalance its economy's macro structure. In fact, Asia became more reliant on exports and external demand for economic growth.

As a result, when the shock of 2008-2009 hit, every economy in the region either experienced a sharp slowdown or fell into outright recession. A similar outcome cannot be ruled out in the months ahead. After tumbling sharply in 2008-2009, the export share of emerging Asia is back up to its earlier high of around 44 per cent of GDP - leaving the region just as exposed to an external-demand shock today as it was heading into the subprime crisis three years ago.

China - long the engine of the all-powerful Asian growth machine - typifies Asia's potential vulnerability to such shocks from the developed economies. Indeed, Europe and the US, combined, accounted for fully 38 per cent of total Chinese exports in 2010 - easily its two largest foreign markets.

The recent data leaves little doubt that Asia is now starting to feel the impact of the latest global shock. As was the case three years ago, China is leading the way, with annual export growth plummeting in October 2011, to 16 per cent, from 31 per cent in October 2010 - and likely to slow further in coming months.

In Hong Kong, exports actually contracted by 3 per cent in September - the first year-on-year decline in 23 months. Similar trends are evident in sharply decelerating exports in Korea and Taiwan. Even in India - long thought to be among Asia's most shock-resistant economies - annual export growth plunged from 44 per cent in August to just 11 per cent in October.

As was true three years ago, many hope for an Asian "decoupling" - that this high-flying region will be immune to global shocks. But, with GDP growth now slowing across Asia, that hope appears to be wishful thinking.

The good news is that a powerful investment-led impetus should partly offset declining export growth and allow Asia's landing to be soft rather than hard. All bets would be off, however, in the event of a euro zone break-up and a full-blown European implosion.

This is Asia's second wake-up call in three years, and this time the region needs to take the warning seriously. With the US, and now Europe, facing long roads to recovery, Asia's emerging economies can no longer afford to count on solid growth in external demand from the advanced countries to sustain economic development.

Unless they want to settle for slower growth, lagging labour absorption, and heightened risk of social instability, they must move aggressively to shift focus to the region's own 3.5 billion consumers. The need for a consumer-led Asian rebalancing has never been greater.

Stephen S Roach, non-executive chairman of Morgan Stanley Asia, is a member of the faculty of Yale University and the author of The Next Asia.

Saturday, November 26, 2011

Understanding investment strategies

by Benedict Koh
Nov 26, 2011

In the third of a four-part series on financial planning for different life stages, we turn our attention to investment for working adults.

Investment is a critical component of personal financial planning. It requires you to postpone current consumption and invest savings in investment instruments to grow your wealth. Through investments, you are accumulating the necessary financial resources to finance your future goals such as purchasing assets (car or house) or financing your children's education.

Furthermore, with increased life expectancies, the average person is expected to spend close to 20 years of his life in retirement. This implies that you will need substantial savings to support a comfortable retirement. It is, therefore, crucial that you start saving early and regularly, and investing these savings while you are gainfully employed.

Investment strategies for growing savings

The key drivers of wealth creation are: The initial amount of capital for investment, return earned on various instruments and holding period of investment, as illustrated in Table 1. What is obvious from these three investment strategies is that for wealth accumulation to take place, individuals must: A) invest sufficient amounts of savings during their working years; b) invest as early as possible; and c) invest in high-yield instruments.

The results in Table 1 may tempt you to invest only in high-return investment instruments, but beware that such instruments come with a high risk. This means that there is a chance that you may lose part or all of your capital from such risky investments.

The appropriate choice of investment instruments depends on both your goals as well as your risk appetite. Only if you have an appetite for risk and can afford to take losses should you invest in high-risk investments. For example, elderly investors who have school-going dependants and are near retirement should avoid high-risk investment instruments.

Asset allocation

Inexperienced investors often look for a single successful investment to grow their wealth. These are the ones who wished that they were able to identify stocks such as Google or Microsoft which saw their initial public offering (IPO) prices appreciate multiple times over.

Such strategy of betting on one stock or investment is highly risky and not recommended. Finance researchers tell us that a key determinant of returns from investments is asset allocation, which refers to the mix of asset classes that you select in your portfolio. These assets can include deposits, bonds, equities, properties; and other alternative assets such as commodities, hedge funds, structured products, etc.

Asset allocation is a form of diversification since deposits and bonds are not highly correlated with equity and properties. By including lowly correlated asset classes in your portfolio, your investment risk can be reduced significantly.

Your asset allocation should also vary with age. As you age, your risk appetite tends to diminish, which in turn affects your asset allocation. For example, investors who are in their 20s and have no dependants may aim to grow their wealth as quickly as possible. Consequently, they may wish to invest a higher proportion of their savings in stocks.

As they move into their 30s and 40s, they should be more prudent and shift more of their investments into high yield corporate bonds and money market funds. Table 2 shows some possible asset allocations for investors in different age groups.

Besides age, asset allocation also depends on the risk appetite or risk tolerance of the investor. If you are very risk-averse, then you should invest a substantial portion of your savings in low-risk instruments such as deposits and bonds. On the other hand, if you are able to take more risk, then consider investing more of your savings in equities or equity-linked instruments such as unit trusts, commodities and hedge funds.

Since investors have different goals, financial circumstances as well as risk appetite, they must engage financial advisers to perform fact finding, needs analysis and risk profiling before customising an asset allocation that suits them.

Consistent saving and investing requires a lot of discipline. Therefore, it is important to learn such virtues at a young age and continue with this habit well into adulthood. The earlier you start saving and investing, the more likely you will succeed in growing your wealth.

Sound and prudent investing allows you to enjoy the standard of living that you desire. Seldom do people attain their goals and desired standards of living through luck. They must commit their savings to investment to achieve them.

Another reward of sound investment is the accumulation of substantial wealth to cushion you against financial disasters. Should you be struck with prolonged illness or experience retrenchment, your accumulated wealth will tide you over such challenging episodes in your life.

Most importantly, you would have accumulated a significant nest egg for retirement. This will allow you to enjoy your golden years without the distress of having financial problems.

Dr Benedict Koh is a professor of finance and the director of the Centre for Silver Security at Singapore Management University. This article is drawn from Personal Investments by Benedict Koh and Fong Wai Mun (1st Edition, Prentice Hall 2011).

The Reit myth busted

Saturday, 26 November 2011

Whatever Reits pay out in dividends, they will take back a few years later in the form of rights issues



THE high yields of real estate investment trusts (Reits) are tempting. And indeed, they have been touted as a relatively safe and stable instrument to own if one is looking for a steady stream of income. As such, many investors see Reits as a good asset class to have in one's retirement accounts.

But you know what? That Reits are good income-yielding instruments is but a myth. The thing is, whatever they pay out in dividends, they will take back - all and more - a few years later in the form of rights issues.

Here's what I found. Of the 17 Reits which have a listing history of at least four years on the Singapore Exchange, only three have not had any cash calls or secondary equity raising. The remaining 13 have had cash calls, and many had raised cash multiple times. One had a few rounds of private placement of new units which diluted the stake of existing unitholders somewhat.

For many of these Reits, the cash called back far exceeded the cash received. So, the myth of Reits as almost comparable to a fixed income instrument is really busted.

Take CapitaMall Trust (CMT) which was listed in July 2002. Assuming that Ms Retiree bought one lot or 1,000 units at the initial public offering (IPO) for a total sum of $960. For the whole of 2003, she received $57 in dividends. However in that year, CMT also had a one-for-10 rights issue. To subscribe for her entitlement, Ms Retiree would have to cough out $107.

In 2004, she would received $89 for the total number of CMT units she owned. That year, CMT had another rights issue, also one-for-10. The exercise price was higher at $1.62. To subscribe, Ms Retiree would have to fork out $178.

In 2005, CMT again had another fund raising exercise via rights issue. Ms R would pocket $124 in dividends but in that same year, had to return $282 back to the Reit.

In the next three years - 2006 to 2008 - Ms Retiree felt rich and happy. She merrily banked in her quarterly distributions which amounted to $404 for her holdings of CMT. Her one lot, after three rights issues, had grown to 1,331 units.

In the following year, another $175 was distributed. But CMT wasn't going to let Ms R be happy for long. It launched a big one - a 9-for10 rights issue. To fully subscribe for her entitlement, Ms R had to empty her bank account of a whopping $982.

And you know what, the cash call came in March 2009, when the Straits Times Index fell below 1,600 points, and many retirees were dismayed to see their investment portfolios plunge by half or more. Many fret if they would have enough left in the pot to sustain their lifestyle. Having to cough up more money for a Reit was the last thing that they wanted to do!

Negative cash flow

And here's the final tally. Since its IPO until today, a holder of one lot of CMT would have received $1,264 in cash distributions. However, in all, he or she had to return $1,549 back to the Reit so as to subscribe to their entitlement of new issues. That's a net outflow of $284 per lot.

It's the same story with K-Reit Asia, Capitacommercial Trust, Frasers Commercial Trust, Mapletree Logistics, First Reit, Lippo Malls Indo Retail Trust, AIMS AMP CAP and Saizen REIT in that what was taken back from investors was more than what was given out.

K-Reit has been one of the most aggressive fund raising Reits. Had you started with just one lot when it was listed in April 2006, you would have to dish out $8,399 to subscribe to your rights issue. Distributions amounted to $1,110, resulting in a net outflow of $7,289.

For Reits with at least four years of track record, only Fraser Centrepoint, Parkway Life and CapitaRetail China have not had any cash calls.

Instead of a rights issue, Suntec Reit raised funds by issuing new units to some institutional investors at a slight discount. Existing unitholders don't have to cough out additional cash, but they would have their share of earnings diluted somewhat.

Misalignment of interests

Reits are managed by managers, and managers are paid based on the size of the portfolio that they manage. So the incentive is for the managers to continue to raise money and expand the portfolio size. Sometimes this is not done in the best interest of unitholders.

The most recent controversy was over K-Reit's purchase of Ocean Financial Centre (OFC) from its sponsor Keppel Land. K-Reit has launched a 17-for-20 rights issue to pay for the purchase which was deemed by the market to be expensive at a time of uncertain outlook and when office rental is expected to ease.

BT reader Bobby Jayaraman argued that rather than be compensated based on factors such as the value of assets, net property income and acquisition fees, Reit managers should be paid based on a combination of growth in distribution per unit and market valuation of the Reit.

'If Reit managers were paid on the basis of distribution per unit and market valuation growth, would K-Reit have bulldozed its way through the OFC acquisition like they have done?

'The day K-Reit announced the OFC acquisition, its stock price fell close to 10 per cent and has continued sliding. Yet, its Reit manager will take home significantly increased management fees while shareholders would have lost a good chunk of their capital even as they bear significantly more risk in the form of higher leverage and potential property devaluations given the uncertain environment,' he wrote to BT.

Misalignment of interests aside, there

But while Reits may not be the perfect income yielding instrument that they are made out to be, they have proven their capacity for capital appreciation. Relative to the capital ploughed in, CapitaMall Trust has rewarded its unitholders with a return of 127 per cent. Most Reits have yielded positive total returns.

Instead of buying Reits for yields, some savvy investors only buy them when they see those with good quality assets trade at sharp discounts to their book value. For example in the first half of 2009, CMT was trading at 50 per cent its book value. Today, it is not as cheap. At $1.755, CMT is now trading at 13 per cent premium to its net asset value of $1.55.

Hence, valuation metrics which apply to a typical asset heavy stock would apply to Reits as well.- BT

Friday, November 25, 2011

A decade on, REITs remain a mystery

25 November 2011
Colin Tan

It has been a decade since real estate investment trusts (REITs) made their appearance on the Singapore bourse, but it appears many investors are still grappling to understand this asset class.

The REIT sector hit the headlines recently when K-REIT Asia's plans to buy 87.5 per cent of Ocean Financial Centre (OFC) and raise S$976 million through a rights issue to fund part of the cost was approved despite howls of protest by minority shareholders.

K-REIT Asia had earlier announced it would pay some S$1.57 billion to buy parent company Keppel Land's entire stake in the OFC office building. Keppel Land will book a net gain of about S$492.7 million from the sale.

It would be fair to say that the controversy would not have erupted if the once optimistic market sentiment in the office sector had not suddenly turned cold. Dissenting shareholders had questioned the historic high price paid for the purchase - especially at a time when the economy is slowing down.

The prime Grade A office building in Raffles Place has a tenure of 999 years and 850 years remaining on the lease. However, Keppel Land is selling its stake with only a 99-year lease. Excluding rental support from Keppel Land, the estimated sale price of OFC works out to S$2,380 per sq ft.

Leaving aside the equally contentious issue of independence for the time being, it must be said that REIT managers have mostly had to acquire their properties on the higher side of valuations if only because it is the only way they can get the owners to sell it to them.

A REIT can get a property on the cheap only when the owner is ignorant of its true market value or if it is a forced sale - many investors still do not realise this. At the same time, the REIT manager can only justify the acquisition to shareholders if it is yield-accretive. Otherwise, the REIT is better off not doing anything.

So, a spot of financial engineering is required to get it to be so. This will buy the REIT manager some time to get the asset to perform to expectations or for the market to turn around and justify the values. In a rising market, this is not a problem.

Otherwise, for the acquisition to be yield-accretive, the REIT will have to buy a property of lower quality or one with higher risk because such properties have higher yields.

As more properties in Singapore are acquired by the REITs, there will be fewer available on the market. As such, the asking price by the remaining landlords can only get higher. Given more time, it will become clear, if it is not so now, that the current model is not sustainable in the long run.

REITs are often presented as defensive plays as it relies on revenues generated from income-producing properties held in its portfolio. While it may be so in more mature economies, the situation is different in Singapore.

In mature economies, a typical portfolio of properties in a REIT is a lot more stable. The leases are longer, which means the payout is much more consistent. In Singapore, most REITs are on the acquisition trail and their portfolios are always expanding.

This may have to do with the existing reward structure - the payoff is better with acquisitions than getting the existing assets to perform better. Is this what the Monetary Authority of Singapore (MAS) intended when it drew up the regulatory framework for REITs?

There may be better justification for a hands-off approach in the early days when the industry was in its fledging stages and when the MAS needed to build up the industry.

However, as the recent K-REIT Asia controversy has highlighted, it may be time for further regulation, especially in the areas of independence and avoidance of conflict of interests.

Many times in the past, I had prodded journalists to look further into certain REIT issues but all have declined, citing a lack of understanding of the subject matter.

Also, as pointed out by one reader, most REIT unitholders are not sophisticated enough to look after their own interests because of their lack of understanding. Even a representative of an institutional fund I spoke to immediately after the K-REIT controversy erupted showed a lack of understanding of the issues. They simply trust the management to do the right thing.

Colin Tan is head of research and consultancy at Chesterton Suntec International.

Hawker centres and REITs: An inflation face-off?

25 November 2011
Tan Chin Keong

The Government has recently decided to restart a building programme for hawker centres - an icon of local food culture that is often neglected as a property asset class.

These mass market spaces house food stalls that serve up the true taste of Singapore. There are 112 hawker centres today, the last one having been built in 1985. After 26 years, the plan to build 10 new such establishments in the next decade is a welcome move.

But this is not simply because of the growing trend of Singaporeans eating out. Some Government officials have argued that hawker centres could also help contain inflation. Consumer prices in Singapore have been on the rise since late 2009 and the inflation rate recorded last month was 5.4 per cent - the fifth straight month that the reading has topped 5 per cent. With about 6,000 licensed hawkers selling cheap cooked food around housing estates today, there is a strong case for such an argument.

Anecdotal evidence suggests that hawker stalls in mature housing estates such as Toa Payoh have held food prices steady for many years. A bowl of fish ball noodles at a stall I have been going to has cost a affordable S$2.50 for the last few years. This is likely because many hawker stalls enjoy rental subsidies from the Government.

In Parliament early this year, then Environment and Water Resources Minister Yaacob Ibrahim said about half of the 6,258 cooked food stalls in hawker centres had been subsidised. The subsidised rent for a hawker stall ranges between S$160 and S$320 a month, considerably less than the market range of S$275 to S$2,900, he said.

With more hawker centres in the pipeline and assuming no changes in the Government's subsidy policy, stall owners' rental costs are unlikely to see substantial increases. Thus, the construction of new hawker centres could very well lead to more affordable dining choices and contain inflation in Singapore.

Or could it?

Another property asset class - real estate investment trusts (REITS) - could have the unintended opposite effect of boosting inflation in Singapore. A typical REIT owns one or a pool of properties out of which rental income is distributed as dividends to shareholders. Since the first REIT was introduced in Singapore in 2002, the sector has become an increasingly popular asset class among investors due to its tax-efficient status and high dividend yields.

There are now more than 20 listed REITs in Singapore owning a variety of properties they have built or acquired. Due to their focus on delivering superior shareholder returns - as well as pressure from their investors and the analyst community - Singapore REITs have generally been proactive and efficient in raising the rental rates of their investment properties whenever market conditions allow.

For example, some of the retail REITs track their tenants' sales turnover on a monthly basis and the REIT managers would thus know who can afford to pay higher rental rates when the tenancy contract comes up for renegotiation.

The growth of retail REITs has also resulted in a larger supply of shopping mall space being concentrated in the hands of a few large REITs. Naturally, these REITs have better bargaining power against their tenants during rental rate negotiations.

One retail REIT, for example, was able to increase its rental rates by an estimated 25 per cent from 2003 to last year, significantly higher than the average 11 per cent increase in non-REIT suburban retail rental over the same period.

In short, higher REIT dividends come at the expense of higher rental costs for the tenants. This in turn filters through to higher product prices and, ultimately, higher inflation. However, we cannot blame REITs for raising rents given the pressure they face from investors and analysts such as myself to deliver higher shareholder returns.

Thus, the next time I pay a higher price for a shirt or a pair of shoes in a REIT-operated mall, I should compensate by dining at my usual hawker centre more frequently.

Tan Chin Keong is an analyst at UBS Wealth Management Research.

Tuesday, November 22, 2011

MAS weighs in on Reit sector debate

Published November 22, 2011


(SINGAPORE) The Monetary Authority of Singapore (MAS) may offer more regulatory guidance to the real estate investment trust (Reit) industry in efforts to boost corporate governance standards, it said yesterday.

MAS did not highlight specific companies but was responding to criticism that current rules governing the Reit sector fail to protect the interests of minority shareholders.

Central to this brewing debate is the $1.57 billion sale of Keppel Land's entire stake in Ocean Financial Centre to K-Reit Asia - a plan that was criticised by shareholders for both the timing and price. The deal was approved but through a show of hands at the shareholders' meeting - a voting system that the Singapore Exchange (SGX) is proposing to ban.

Under a show-of-hands system, each person gets a single vote regardless of the number of shares he holds. The alternative of poll voting gives each shareholder voting rights according to the size of his shareholding.

'The current code on collective investment schemes under MAS, which regulates Reits, is not robust enough to prevent unscrupulous Reits from taking advantage of minority shareholders,' said reader Bobby Jayaraman in a letter to The Business Times on Nov 16.

'The major culprit is the incentive system for Reits, which does not always align with shareholder interests,' he added.

Rather that be compensated based on factors such as the value of assets, net property income and acquisition fees, Reit managers should be paid based on a combination of growth in distribution per unit and market valuation of the Reit, said Mr Jayaraman.

In response, MAS director of communications Angelina Fernandez said in a letter: 'MAS will consider issuing further guidance to the industry as part of our ongoing effort to enhance corporate governance in Reits and other listed entities.'

The regulator reminded companies and boards to uphold high corporate governance standards. 'Corporate governance rules and guidelines cannot envisage all possible circumstances,' Ms Fernandez said.

'When observing such rules and guidelines, companies and their boards must always bear in mind the interests of shareholders or unitholders; and not take an overly technical approach,' she added.

MAS highlighted current rules that are in place to safeguard investor interest when it comes to interested party transactions. For example, transactions that represent at least 5 per cent of the Reit's net asset value are subject to voting by independent unitholders, and two independent valuations have to be obtained - one for the Reit manager, and another for the sponsor.

Limits are also set on the sale and purchase prices, and acquisition fees paid to the manager are in the form of units that can be sold only after a year. - BT

Wednesday, November 16, 2011

Can Noble convince investors it is back on track?

Published November 16, 2011


REPORTS that Noble Group is talking to former Goldman Sachs Asia-Pacific co-president Yusuf Alireza to head the company, as well as a share buyback undertaken by the group on Monday, appear to have done little to lift market confidence in the company. And there are very good reasons why investors are wary, given the double whammy it delivered last week.

On Thursday, the commodities trader surprised investors by reporting a third-quarter loss of US$17.5 million - its first quarterly loss in 14 years. It then dropped another bombshell: that the man it placed in the position of chief executive as recently as January last year had decided to step down.

The market's response to the two shocks was swift and furious. Noble's shares fell 26.5 per cent on Friday, wiping $2.8 billion off its market value. And it hasn't recovered by much since its great fall. At yesterday's closing price of $1.195, the stock has recovered just 1.5 cents from last Friday's close of $1.18.

Market talk has it that what really got investors jittery was the resignation of Ricardo Leiman from the CEO post, which comes at a time when management stability is key, given the tumultuous global economic environment, the quarter of losses, and that Noble is trying to hive off its agriculture assets for a separate listing - which it says is still on track.

Noble must have known this, and this may also be why it has very quickly engaged in talks with a big gun to lead the company. But it will take more than just talks, or even the hiring of Mr Alireza or another individual as CEO, to convince investors that the company is back on track.

This is because Noble has seen a string of key management departures since founder Richard Elman decided it was time to hand over the reins of the business almost two years ago and take a back seat in the organisation.

After vacating the CEO position for Mr Leiman, the founding father of Noble stepped down as executive chairman in September last year and was replaced by Tobias Brown - previously a non-executive chairman of the company. The position of chairman emeritus was then created for Mr Elman.

Mr Brown lasted just two months as executive chairman. In an announcement to the Singapore Exchange, Noble said that his resignation arose from 'the practical realities of running Noble with both an executive chairman and a CEO'.

Noble then said that it will 'identify a suitable candidate as a new non-executive chairman'. In the meantime, Mr Elman would assume that role - which he holds to this day.

Then in January this year, two months after Mr Brown's departure, Noble's long-time chief financial officer Stephen Marzo resigned.

What Noble needs to prove now, therefore, is that it can hire the right people to form its management team and also keep them. The company is now back at square one in trying to find a successor to the 71-year-old Mr Elman, who is now also interim CEO. What he needs to do right now is to ensure that a cohesive and strong team is formed quickly that can lead Noble in the years - and not just months - to come.

And given the perception that he is not one to readily delegate responsibility - as the changes within Noble's top ranks suggest - perhaps the greatest favour Mr Elman can do for the company is also to really do what he said he would: take the back seat as Noble goes forward. - BT

Tuesday, November 15, 2011

Don't let Reits be the next wave of governance lapses

Published November 15, 2011


SINGAPORE boasts of a thriving real estate investment trust or Reit sector, but recent events have served another reminder that beneath the glowing surface, there are some key fundamental concerns.

K-Reit Asia, last week, pushed through its plan to buy 87.5 per cent of Ocean Financial Centre (OFC), and raise some $976 million through a rights issue to fund part of the cost. It had earlier announced that it would pay some $1.57 billion to buy parent company Keppel Land's entire stake in the OFC office building. Keppel Land will see a net gain of about $492.7 million from the sale.

Put before shareholders for their approval at an extraordinary general meeting (EGM), the proposal ran into howls of protest. Shareholders questioned the stiff price and timing of the deal, at a time when the economy is facing a slowdown. Shareholders noted that while the prime Grade A office building in Raffles Place has a tenure of 999 years with 850 years remaining on the lease, KepLand is selling its stake with only a 99-year lease. Others questioned why K-Reit is paying its manager (which is owned by KepLand) an acquisition fee - even though it is buying the asset from its parent company. There were also rumblings about the independence of the manager.

In a nutshell, the EGM brought to the fore two key issues relating to Reits here that corporate governance advocates have been highlighting for some time: sponsor groups offloading assets to their Reits on terms that seem disadvantageous to the Reits, as well as the apparent lack of independence of the Reits. K-Reit chairman Tsui Kai Chong's comment that 'Our father organisation, Keppel Land, is only willing to sell it (OFC) to us for 99 years', says it all. And the fact that both resolutions - to buy the OFC stake and for the rights issue - were passed with a show of hands, after a bid by institutional investor to vote by poll was denied, simply drives home the point.

This isn't the first time - and probably it won't be the last - that issues like these arise at a Reit. For some time now, there has been growing disquiet among corporate watchers about weaknesses in the corporate governance structures in Singapore Reits.

Earlier this year, a review of Asia-Pacific Reit markets by the CFA Institute produced less-than-assuring results. Looking at the governance of Reits in Singapore, Australia, Hong Kong and Japan, the institute in its report called strongly for Reit managers to be independent. In the current most common scenario, the Reit sponsor wholly owns the Reit manager, and also holds a large stake in the Reit.

And even before the latest K-Reit development, cases of sponsors selling properties to Reits have triggered concerns about conflict of interest, and unitholders have often questioned the purchase of these assets and how they were priced. The CFA Institute said that to better protect ordinary unitholders, most directors on the boards of Reit managers should be independent of management, sponsors and substantial unitholders. This should be made law, rather than just a best-practice guide. There is also the need to have more transparent structures to pay Reit managers and to tie these more closely to performance, and indeed to require all Reits to hold annual meetings for unitholders.

Reits are often presented as defensive plays, and given their yield structures, there is some truth in this. But it would be unfortunate if investors buy into Reits for their relative safety just to have their interests as minorities undermined by weak corporate governance structures. If nothing is done, the Reit sector could be where the next wave of governance lapses emerge, and that would be a pity for a sector that has done quite well so far. - BT

BRAIN CHEMISTRY AND YOU: Love, Crying, Stress, Depression, and Dark Days

by Erik the Red
Thu, November 15, 2007 - 11:19 AM

Since my last blog I have discovered a whole new plethora of information about our brains and the nervous system. I am discovering things that will help promote longer life, and a healthy brain, but also about why we cry, why we love, and why stress is so destructive.

In this blog I will answer a few questions:
Why do we cry?
What is love and how do we bond with others?
Why is sleep is so important and how is connected with stress?
What is stress and why must we avoid it?
Why do we feel depressed during the dark winter months and how can we avoid it?
Also, I want to introduce some very interesting substances that could play a very important role in a healthy brain…. But that will be in the next blog.

There are three types of tears:
1) Basal tears keep our eyes lubricated, dust free, fight bacteria, and provide nutrients for the eye
 2) Reflex tears are a reaction to irritants to help flush them out of the eye.
3) Psychic tears (emotional tears) are a reaction to emotional stress, depression or physical pain.

Interestingly, the psychic tears have high levels of protein, the hormone Prolocatin, and Manganese. The body releases these tears during times of stress and it is believed that these tears are a way of detoxifying the body and also adjusting hormonal levels.

PROLACTIN is a peptide hormone (a bond of several amino acids or proteins) that is release during breastfeeding to stimulate production of breast milk, and is similar to the neurotransmitter OXYTOCIN which creates a feeling of bonding with others. Prolactin provides the body with Sexual gratification after orgasm, and represses the effect of dopamine, responsible for sexual arousal. (Note: this is why you might feel sleepy after an orgasm and you have a suddenly low libido).

High levels of Prolactin are responsible for impotence and loss of libido.
Prolactin decreases the normal levels of sex hormones – estrogen in women and testosterone in men.

So… if we cry we are releasing Prolactin which would lead to an increase in Dopamines. This is why we feel so good after a good cry since Dopamines make us feel good, give us confidence and increased motor skills and performance. It would also suggest that releasing prolactin would increase estrogen and testosterone. Crying is only a way to rebalance ourselves…. So if you need to cry, don’t hold back!

Like Prolactin, Oxytocin is released in by the stimulation of the nipples in women, and with orgasm in both men and women. Oxytocin is involved in social recognition and bonding, and might be involved in the formation of trust between people. It creates the insperable bond between a mother and her child during breastfeeding.

People who are open or more trusting with others or who make bonding friendship more readily are likely to have higher levels of Oxytocin.

It is believed that MDMA also releases Oxytocin and is responsible for the feeling of bonding, empathy, and trust people get with others while on MDMA.

Oxytocin has been known to affect the brain by regulating circadian rhythm such as a person's body temperature, activity level, and wakefulness.

The following is condensed from WIKIPEDIA:
Oxytocin’s hormonal actions:
-Letdown reflex – in lactating (breastfeeding) mothers, oxytocin acts at the mammary glands, causing milk to be 'let down' into a collecting chamber, from where it can be extracted by sucking at the nipple.

-Uterine contraction – important for cervical dilation before birth and causes contractions during the second and third stages of labor.

-Oxytocin is secreted into the blood at orgasm – in both males and females. In males, oxytocin may facilitate sperm transport in ejaculation.

Actions of oxytocin within the brain:
-Sexual arousal. Oxytocin injected into the cerebrospinal fluid causes spontaneous erections in rats, reflecting actions in the hypothalamus and spinal cord.

-Bonding. In the Prairie Vole, oxytocin released into the brain of the female during sexual activity is important for forming a monogamous pair bond with her sexual partner. Vasopressin appears to have a similar effect in males In people, plasma concentrations of oxytocin have been reported to be higher amongst people who claim to be falling in love. Oxytocin has a role in social behaviors in many species, and so it seems likely that it has similar roles in humans.

-Autism. A 1998 study found significantly lower levels of oxytocin in blood plasma of autistic children. A 2003 study found a decrease in autism spectrum repetitive behaviors when oxytocin was administered intravenously. A 2007 study reported that oxytocin helped autistic adults retain the ability to evaluate the emotional significance of speech intonation.

-Maternal behavior. Sheep and rat females given oxytocin antagonists after giving birth do not exhibit typical maternal behavior. By contrast, virgin female sheep show maternal behavior towards foreign lambs upon cerebrospinal fluid infusion of oxytocin, which they would not do otherwise.

-Increasing trust and reducing fear. In a risky investment game, experimental subjects given nasally administered oxytocin displayed "the highest level of trust" twice as often as the control group. Subjects who were told that they were interacting with a computer showed no such reaction, leading to the conclusion that oxytocin was not merely affecting risk-aversion. Nasally administered oxytocin has also been reported to reduce fear, possibly by inhibiting the amygdala (which is thought to be responsible for fear responses). There is no conclusive evidence for access of oxytocin to the brain through intranasal administration, however.

-According to some studies in animals, oxytocin inhibits the development of tolerance to various addictive drugs (opiates, cocaine, alcohol) and reduces withdrawal symptoms.

-Certain learning and memory functions are impaired by centrally administered oxytocin.

-The illicit party drug MDMA (ecstasy) may increase feelings of love, empathy and connection to others by stimulating oxytocin activity via activation of serotonin 5HT1A receptors, if initial studies in animals apply to humans.

-end of Wikipedia extraction-
My own thoughts… is there a connection between Oxytocin and Prolactin which are both released with breastfeeding and orgasm? Is Prolactin somehow connected with feelings of love and empathy?

It is interesting that Prolactin and Dopamines are in balance. If these levels are higher then this would mean our dopamine levels would be lower. If we are in love, and we feel our hearts are “open”, is this why we feel less secure, since Dopamines are related to confidence and strength?

Estrogen breaks down Dopamines. This would mean that women would have higher levels of Prolactin and possibly Oxytocin. Is this why women, in general, are more empathic and caring? If men have more dopamines, is this where the “male” characterisic of strength and confidence comes in? Since Men have a much greater potential for addiction, is this because they have lower levels of Oxytocin which inhibits development of tolerance to addictive drugs?

It is this balance between Prolactin/Oxytocin and Dopamines where we see the balance between the Ying and the Yang, the Male and the Female.

Ultimately we are striving for balance, to feel strong and confident, yet emotional and caring.

When we cry, perhaps our body is trying to find balance. If women have higher levels of Prolactin, then they would be prone to crying more often than men. Since Estrogen breaks down Dopamines, this would potentially lead to the hormonal imbalance women get during menstruation and pre-menstruation.

Before I can conclude this, I need to find out what the connection is between Prolactin and Oxytocin. If anyone wants to do some research and get back to me, that would be great.

To know more about PEA read Alexander and Ann Shulgin's "The Phenthylamines I've Known and Loved: a chemical love story"

I recommend reading an excellent article, which I linked to below, on the pathology of love and its connection with PEA. Here are some excerpts and you can read the whole:

“The unpalatable truth is that falling in love is, in some ways, indistinguishable from a severe pathology. Behavior changes are reminiscent of psychosis and, biochemically speaking, passionate love closely imitates substance abuse. Appearing in the BBC series Body Hits on December 4, 2002 Dr. John Marsden, the head of the British National Addiction Center, said that love is addictive, akin to cocaine and speed. Sex is a "booby trap", intended to bind the partners long enough to bond.

The BBC summed it up succinctly and sensationally: "Events occurring in the brain when we are in love have similarities with mental illness".
 Falling in love involves the enhanced secretion of b-Phenylethylamine (PEA, or the "love chemical") in the first 2 to 4 years of the relationship. (Note from Erik: I have heard other studies that show PEA lasts for 6 months to 3 years in a new relationship)
 This natural drug creates a euphoric high and helps obscure the failings and shortcomings of the potential mate. Such oblivion - perceiving only the spouse's good sides while discarding their bad ones - is pathology akin to the primitive psychological defense mechanism known as "splitting".
 The activity of a host of neurotransmitters - such as Dopamine, Norepinephrine, and Serotonin - is heightened (or in the case of Serotonin, lowered) in both paramours. Yet, such irregularities are also associated with Obsessive-Compulsive Disorder (OCD) and depression.”

Chocolate has very high levels of PEA, but it is broken down in the stomach by Monoamine Oxidase B (MAO-B). If one were to consume a MAO-B inhibitor such as Deprenyl (which I will talk about later), chocolate would become psychoactive.

Melatonin is what makes us sleepy. It’s onset usually comes as the sky darkens. The retina picks up light/dark patterns and sends a signal to our pineal gland to start producing Melatonin.

Melatonin is created by converting Serotonin, the neurotransmitter responsible for the feeling of well-being and happiness. The darker it is, the more Serotonin is converted into Melotonin. Thus, in the winter months when we have less light, more Serotonin is converted into Melatonin which makes us feel depressed and sluggish…. This is SAD (Seasonal Affective Disorder). On a bright, sunny day, this is why you can feel happy.

The change of seasons will also affect our circadian rhythm which is essential for human health.

While levels of Melatonin (the most powerful anti-oxidant) are high while we are sleeping, the levels of Cortisol are very low.

Cortisol is a corticosteroid hormone produced by the adrenal cortex (in the adrenal gland). It is a vital hormone that is often referred to as the "stress hormone" as it is involved in the response to stress. It increases blood pressure, blood sugar levels and has an immunosuppressive action

Cortisol is activated with sunlight and is at its highest levels in the early morning. It is Cortisol that gets us up and moving.
 Cortisol is also released during times of stress which has been observed in connection with clinical depression, psychological stress, and such physiological stressors as hypoglycemia, illness, fever, trauma, surgery, fear, pain, physical exertion or extremes of temperature.
 Effects of prolonged Cortisol release (from Wikipedia):
-Prolonged cortisol secretion causes hyperglycemia.
-It can weaken the activity of the immune system . Cortisol prevents proliferation of T-cells.
 -It lowers bone formation thus favoring development of osteoporosis in the long term. Cortisol moves potassium into cells in exchange for an equal number of sodium ions. This can cause a major problem with the hyperkalemia of metabolic shock from surgery.
 -It may help to create memories when exposure is short-term; this is the proposed mechanism for storage of flash bulb memories. However, long-term exposure to cortisol results in damage to cells in the hippocampus. This damage results in impaired learning.
 -It increases blood pressure by increasing the sensitivity of the vasculature to epinephrine and norepinephrine. In the absence of cortisol, widespread vasodilation occurs.
 -It increases the effectiveness of Dopamines, Norepinephrine, and Epinephrine.
-It has anti-inflammatory effects by reducing histamine secretion and stabilizing lysosomal membranes. The stabilization of lysosomal membranes prevents their rupture, thereby preventing damage to healthy tissues.
 -Reduces Serotonin levels in the brain by inducing the breakdown of Serotonin’s precursor Typtophan.
 -Reduces GABA levels (anti-anxiety neurotransmitter) by inducing the breakdown of GABA’s precursor Glutamate.
 -Increased Cortisol levels are the leading factor in Insomnia.
So… if you don’t get enough sleep you don’t produce enough Melatonin which is a powerful anti-oxidant. You also end up producing more Cortisol which causes immune deficiency and results in Insomnia, depression, and anxiety.

-Try to get regular hours of sleep.
-Try Melatonin supplements to help you get back to your regular sleep patterns.
-Avoid stressful activity: try to avoid stressful work, try not to worry so much, think positively (Don’t Worry, Be Happy).
 -During the winter months, use a full spectrum lamp during the day and extend it’s use for 12 hours.
 -At night before bed, dim the lights to allow for the onset of Melatonin.
-Make sure you sleep with no presence of light…in a darkened room or using a mask.

IN THE NEXT EDITION OF BRAIN CHEMISTRY AND YOUR MOOD: Nootropics that will help extend your life, make you stay younger, and improve brain functioning!!

Tuesday, November 8, 2011

SGX stuck in a rut?

Jonathan Kwok
Straits Times, Singapore
8 November 2011

Critics have been grumbling that Singapore's share market is stagnating and that volume growth has been slowing down. Are their complaints justified, and have the Singapore Exchange's strategies been effective? Jonathan Kwok investigates.

THE pickup in trading volumes on the local market last month provided some cheer to remisiers and shareholders of the Singapore Exchange (SGX).

Last Wednesday, the local bourse operator said average daily trading turnover last month was $1.38 billion, up a touch from September's $1.36 billion.

But there are still vocal critics that argue that the local bourse is stagnating. Among them are some remisiers, whose rice bowls depend on executing trades for small-time investors and getting a cut of the commission.

'These past few months were slightly better, but during July this year my income was one of the lowest ever,' said one UOB Kay Hian remisier who has been in the business for 17 years.

'There was one month in 2008, during the crisis period, when my income was even lower, but that's about it. I can't think of any lower month,' added the remisier, who declined to be named.

The recent market volatility has been a mixed bag in terms of volumes. While volumes peaked in August at the outset of the latest market turmoil, they have slowed since then as investors slid to the sidelines due to battered sentiment.

'Volumes suffer in a protracted recession when market interest peters out,' observed CIMB recently, while DBS Vickers noted that 'trading volumes and value are subdued before clear signs of recovery are visible'.

The larger, structural problem lies in the longer- term trend, however, as the growth of trading volumes has not been as fast as in some other markets. Hong Kong, often regarded as Singapore's closest direct competitor as a financial centre, has seen its volumes spike much more in the past several years.

In 2003, as the region battled the Sars crisis, Singapore's average daily turnover was $593 million, and this average has grown to $1.56 billion so far this year, less than three times the 2003 figure.

In Hong Kong, some HK$10.3 billion (S$1.7 billion) of shares changed hands daily in 2003, and this has increased to HK$72.8 billion - about seven times the 2003 figure.

The total market capitalisation of firms with primary listings in Singapore is about US$550 billion (S$700 billion) now, some 240 per cent of the value at end 2003. Hong Kong's market capitalisation, at US$2.47 trillion, is about 350 per cent of the value at end 2003.

Hong Kong's trump card - China
'THE quick side of the story is that Hong Kong has China as its hinterland,' said Professor Joseph Cherian, director of the Centre for Asset Management Research and Investments at the National University of Singapore Business School. A lot of the large Chinese firms, such as the state-owned enterprises, have listed in Hong Kong, he added.

The SGX has also tried to attract China firms. This strategy met with initial success, with interest in these S-chips peaking in 2006 and 2007. But the 2008 financial crisis unveiled shocking corporate governance failures in some of these firms, scaring off investors.

'It's the blatantness of the S-chip frauds that has grabbed the headlines. They fell out of favour so quickly,' said former 'IPO king' Peter Choo Chee Kong, who has organised the listing of many S-chips.

Now, there are no China- based companies on Singapore's benchmark Straits Times Index. The largest Schips, Yangzijiang Shipbuilding, Cosco and Yanlord Land, have market values of between $2 billion and $4 billion.

By contrast, Hong Kong's Hang Seng Index boasts many China companies, ranging from banks to telecom
and energy players, with many of them being state-owned enterprises. Their market values can exceed HK$2
trillion, as in the case of energy giant PetroChina.

Hong Kong is also considered a deeper, more liquid market than Singapore. 'Hong Kong has institutions and banks, and large securities companies, which Singapore has as well,' said Prof Cherian. 'It's the mainland Chinese retail investors playing the Hong Kong market that make the difference.‘

Mr Choo said 'there's just a buzz in Hong Kong'. 'When you board a taxi there, the radio will be on and on the channel, the retail players will be calling in and asking about stock issues.‘ He said: 'This cannot be heard in Singapore, maybe the experts here are more concerned about whether they are breaking any laws in promoting a stock.‘

The UOB Kay Hian remisier noted that since the day he joined the business, the percentage of Singaporeans buying shares has been lower than the corresponding ratio for Hong Kong.

SGX efforts: Hits and misses
THE SGX's efforts to boost its business in recent years has met with mixed results, say observers.
One of its larger successes has been the growth of institutional and proprietary trading - where institutions like banks use their own money to take bets in the market.

The exchange does not classify its volumes according to whether they come from large players or retail

But observers say the large punters have been making up for much of the volume growth in recent years - at least from 2008 onwards.

The proportion of traded contracts worth more than $1.5 million was 35 per cent in December 2008. Last
month, it had grown to 42 per cent, indicating that large players are making up a greater share of the

Based on patterns such as the growth of market data and membership fees, Phillip Securities analyst
Magdalene Choong argues that institutional and proprietary trading have been driving SGX volumes since last year at least.

'These past two years, a lot more financial firms - wealth management companies, hedge funds - have been
setting up as well, and they could have been driving up the SGX volumes,' she said.

To aid the growth of proprietary trading, the SGX - which already had a very fast trading platform - upgraded its system to be the world's fastest. The platform was launched in August and it is still too early to judge its success.

There is a chicken and egg question regarding the lack of retail participation. Did the SGX step in to attract large players when it could see that its market was not growing much, or is retail participation petering out because they feel they cannot compete against the large players and their high-speed computer programmes?

Observers say the jury is still out on this issue, though there have been complaints from retail players over ultra-quick trading giving the big players an advantage.

Other successes of the SGX include attracting foreign firms to list here, with 40 per cent of the market being made up of overseas listings.

In this respect it has led Hong Kong, which only early last year allowed listings by foreign companies.

But there have been misses and failures in the SGX's strategy as well. A proposed merger with Australia's ASX - which would have boosted liquidity and listings - fell through earlier this year due to political opposition Down Under.

The much-heralded introduction of the American depositary receipts of Chinese firms in October last year has not garnered much trading interest. And the scrapping of the 90-minute lunch break to extend trading hours, implemented in August, has not yet significantly lifted daily volumes.

But Ms Choong considers that the SGX is getting more hits than misses with its strategies. 'It is maintaining its strength while seeking new revenues elsewhere. Even when the market crashes, there is still income from sources like market data fees.' The SGX is also focusing more on other income sources to add on to its securities income, including commodities, index products and retail bonds.

Tough road for remisiers
THE SGX said in November 2009 that it wanted to add another 1,000 remisiers to the nearly 3,000-strong profession at that time. It has already achieved this, with the exchange saying there are now about 4,400 remisiers.

But some existing and past remisiers say it is not all good for them. 'Last time, we didn't need one billion shares for total market trades, and we already got good income. Now, even with one billion, trading is still quiet for most of the remisiers. A lot of this is us doing our own trades, and proprietary traders,' said the UOB Kay Hian broker.

He added that commission rates dropped in 2000, and have fallen further with the advent of online trading, as more investors do their trades online. 'A lot of us old-timers can't leave, we have been here too long...

But more of the new entrants leave after a while.‘ One former remisier told The Straits Times that he found it tough, with his client base 'not good enough', and that it is hard to find new clients. The ex-remisier, who declined to be named, quit the profession in May, having joined in July 2009. He is now a full-time proprietary trader.

Sunday, November 6, 2011

Six rules from world-class investors

Making money through investment involves a strategy based on a set of rules.

Sun, Nov 06, 2011

Billionaires didn't become billionaires overnight.

For those who became rich by investing, says most would agree that "making money in the market comes with a steadfast strategy that is built around a set of rules".

In a recent article in Forbes, they found six world class investors who shared their investing rules.

Dennis Gartman
Dennis Gartman, who publishes The Gartman Letter - a daily commentary of global capital markets delivered to hedge funds, brokerage firms, mutual funds, and grain and trading firms around the world every morning - says: "Be patient with winning trades; be enormously impatient with losing trades. Remember it is quite possible to make large sums trading/investing if we are 'right' only 30% of the time, as long as our losses are small and our profits are large."

So, don't sell at the first sign of profit, and make sure that you don't let a losing trade get away. Losing a little is ok, losing a lot of money is not.

Warren Buffett
Warren Buffett, undoubtedly one of the most successful investors of all time, says: "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."

Therefore, he would want you to evaluate the quality of the company first, before considering its price. Don't expect a great company to sell for a low price; "bargain bin" companies will sell at a bargain bin price, and will give you equivalent results.

Bill Gross
Bill Gross, who owns one of the largest bond funds in the world, PIMCO funds, says: "Do you really like a particular stock? Put 10% or so of your portfolio on it. Make the idea count. Good [investment] ideas should not be diversified away into meaningless oblivion."

Here, he talks about diversifying your portfolio. Be cautioned, however, that this strategy also runs the risk of diminishing your profits when one of your picks makes a big move while other names don't.

Prince Alwaleed Bin Talal
Well-known in the Saudi investing world, he founded the Kingdom Holding Company. He once said, "We're getting hurt, but I'm a long-term investor."

And apply to him it did. Prior to the 2008 financial crisis, he held a sizable stake in Citigroup, and his real estate investments in India lost considerable value after the 2009 recession.

But instead of selling, he held on, which is what many of the really good investors have done to get rich. Take a long view of your position by holding the stock for a long period of time, taking large events out of consideration and collecting dividends in the meantime.

According to the Forbes article, it is ok to trade short- and medium-term, but the bulk of your portfolio should be in long-term holdings.

Carl Icahn
Carl Icahn, a private equity investor and modern day corporate raider, has made his fair share of enemies over the years.

He says, "You learn in this business … If you want a friend, get a dog."

What this is saying is, when investing, don't act based on a tip from a friend. Rather, do your own research based on facts obtained from trusted sources. While you can consider other people's advice, this should not be the only reason why you'll invest your money on a particular stock.

Carlos Slim
One of the richest men in the world says, "I am convinced that all this poverty in Mexico and in Latin America, like it's happening in China is the opportunity to grow. It's an opportunity for investment".

His quote reflects the mindset of the best investors. They are forward-thinking, "investing now for what will happen later", according to Forbes.

So instead of jumping on the bandwagon of the hottest stock now, be on the lookout for the next big thing while making sure your portfolio is anchored with great companies that have a good long track record.

Lee Kuan Yew: Have a purpose driven life and finish well

Lee Kuan Yew On Getting the Best out of Life

“The human being needs a challenge, and my advice to every person in Singapore and elsewhere: Keep yourself interested, have a challenge. If you’re not interested in the world and the world is not interested in you, the biggest punishment a man can receive is total isolation in a dungeon, black and complete withdrawal of all stimuli, that’s real torture.”

MY CONCERN today is, what is it I can tell you which can add to your knowledge about aging and what aging societies can do.

You know more about this subject than I do. A lot of it is out in the media, Internet and books. So I thought the best way would be to take a personal standpoint and tell you how I approach this question of aging.

If I cast my mind back, I can see turning points in my physical and mental health. You know, when you’re young, I didn’t bother, assumed good health was God-given and would always be there.

When I was about 57 that was – I was about 34, we were competing in elections, and I was really fond of drinking beer and smoking. And after the election campaign, in Victoria Memorial Hall – we had won the election, the City Council election – I couldn’t thank the voters because I had lost my voice. I’d been smoking furiously. I’d take a packet of 10 to deceive myself, but I’d run through the packet just sitting on the stage, watching the crowd, getting the feeling, the mood before I speak.

In other words, there were three speeches a night. Three speeches a night, 30 cigarettes, a lot of beer after that, and the voice was gone. I remember I had a case in Kuching, Sarawak . So I took the flight and I felt awful. I had to make up my mind whether I was going to be an effective campaigner and a lawyer, in which case I cannot destroy my voice, and I can’t go on.

So I stopped smoking. It was a tremendous deprivation because I was addicted to it. And I used to wake up dreaming…the nightmare was I resumed smoking.

But I made a choice and said, if I continue this, I will not be able to do my job. I didn’t know anything about cancer of the throat, or oesophagus or the lungs, etc. But it turned out it had many other deleterious effects. Strangely enough after that, I became very allergic, hyper-allergic to smoking, so much so that I would plead with my Cabinet ministers not to smoke in the Cabinet room. You want to smoke, please go out, because I am allergic.

Then one day I was at the home of my colleague, Mr Rajaratnam, meeting foreign correspondents including some from the London Times and they took a picture of me and I had a big belly like that (puts his hands in front of his belly), a beer belly. I felt no, no, this will not do. So I started playing more golf, hit hundreds of balls on the practice tee. But this didn’t go down. There was only one way it could go down: consume less, burn up more.

Another turning point came in 1976, after the general election – I was feeling tired. I was breathing deeply at the Istana, on the lawns.

My daughter, who at that time just graduating as a doctor, said: ‘What are you trying to do?’ I said: ‘I feel an effort to breathe in more oxygen.’ She said: ‘Don’t play golf. Run. Aerobics..’ So she gave me a book , quite a famous book and, then, very current in America on how you score aerobic points swimming, running, whatever it is, cycling.

I looked at it sceptically. I wasn’t very keen on running. I was keen on golf. So I said, ‘Let’s try’. So in-between golf shots while playing on my own, sometimes nine holes at the Istana, I would try and walk fast between shots. Then I began to run between shots. And I felt better. After a while, I said: ‘Okay, after my golf, I run.’ And after a few years, I said: ‘Golf takes so long. The running takes 15 minutes. Let’s cut out the golf and let’s run.’

I think the most important thing in aging is you got to understand yourself. And the knowledge now is all there. When I was growing up, the knowledge wasn’t there. I had to get the knowledge from friends, from doctors.

But perhaps the most important bit of knowledge that the doctor gave me was one day, when I said: ‘Look, I’m feeling slower and sluggish.’ So he gave me a medical encyclopaedia and he turned the pages to aging. I read it up and it was illuminating. A lot of it was difficult jargon but I just skimmed through to get the gist of it.

As you grow, you reach 20, 21, 22, 23, 24, 25 and then, thereafter, you are on a gradual slope down physically. Mentally, you carry on and on and on until I don’t know what age, but mathematicians will tell you that they know their best output is when they’re in their 20s and 30s when your mental energy is powerful and you haven’t lost many neurons. That’s what they tell me.

So, as you acquire more knowledge, you then craft a programme for yourself to maximise what you have. It’s just common sense. I never planned to live till 85 or 84.! I just didn’t think about it. I said: ‘Well, my mother died when she was 74, she had a stroke.. My father died when he was 94.’

But I saw him, and he lived a long life, well, maybe it was his DNA. But more than that, he swam every day and he kept himself busy.. He was working for the Shell company. He was in charge, he was a superintendent of an oil depot.

When he retired, he started becoming a salesman. So people used to tell me: ‘Your father is selling watches at BP de Silva.’ My father was then living with me. But it kept him busy. He had that routine: He meets people, he sells watches, he buys and sells all kinds of semi-precious stones, he circulates coins. And he keeps going. But at 87, 88, he fell, going down the steps from his room to the dining room, broke his arm, three months incapacitated.

Thereafter, he couldn’t go back to swimming. Then he became wheelchair-bound. Then it became a problem because my house was constructed that way. So my brother – who’s a doctor and had a flat (one-level) house – took him in. And he lived on till 94. But towards the end, he had gradual loss of mental powers.

So my calculations, I’m somewhere between 74 and 94. And I’ve reached the halfway point now. But have I? Well, 1996 when I was 73, I was cycling and I felt tightening on the neck. Oh, I must retire today. So I stopped. Next day, I returned to the bicycle. After five minutes it became worse. So I said, no, no, this is something serious, it’s got to do with the blood vessels. Rung up my doctor, who said, ‘Come tomorrow’. Went tomorrow, he checked me, and said: ‘Come back tomorrow for an angiogram.’

I said: ‘What’s that ?’ He said: ‘We’ll pump something in and we’ll see whether the coronary arteries are cleared or blocked.’ I was going to go home. But an MP who was a cardiologist happened to be around, so he came in and said: ‘What are you doing here?’ I said: ‘I’ve got this.’ He said: ‘Don’t go home. You stay here tonight. I’ve sent patients home and they never came back. Just stay here. They’ll put you on the monitor. They’ll watch your heart. And if anything, an emergency arises, they will take you straight to the theatre. You go home. You’ve got no such monitor. You may never come back.’

So I stayed there. Pumped in the dye, yes it was blocked, the left circumflex, not the critical, lead one. So that’s lucky for me. Two weeks later, I was walking around, I felt it’s coming back. Yes it has come back, it had occluded. So this time they said: ‘We’ll put in a stent.’

I’m one of the first few in Singapore to have the stent, so it was a brand new operation. Fortunately, the man who invented the stent was out here selling his stent. He was from San Jose, La Jolla something or the other. So my doctor got hold of him and he supervised the operation. He said put the stent in. My doctor did the operation, he just watched it all and then that’s that. That was before all this problem about lining the stent to make sure that it doesn’t occlude and create a disturbance.

So at each stage, I learnt something more about myself and I stored that. I said: ‘Oh, this is now a danger point.’ So all right, cut out fats, change diet, went to see a specialist in Boston , Massachusetts General Hospital . He said: ‘Take statins.’ I said: ‘What’s that?’ He said: ‘(They) help to reduce your cholesterol.’ My doctors were concerned. They said: ‘You don’t need it. Your cholesterol levels are okay.’ Two years later, more medical evidence came out. So the doctors said: ‘Take statins.’

Had there been no angioplasty, had I not known that something was up and I cycled on, I might have gone at 74 like my mother. So I missed that decline. So next deadline: my father’s fall at 87.

I’m very careful now because sometimes when I turn around too fast, I feel as if I’m going to get off balance. So my daughter, a neurologist, she took me to the NNI, there’s this nerve conduction test, put electrodes here and there.

The transmission of the messages between the feet and the brain has slowed down. So all the exercise, everything, effort put in, I’m fit, I swim, I cycle. But I can’t prevent this losing of conductivity of the nerves and this transmission. So just go slow.

So when I climb up the steps, I have no problem. When I go down the steps, I need to be sure that I’ve got something I can hang on to, just in case. So it’s a constant process of adjustment.

But I think the most important single lesson I learnt in life was that if you isolate yourself, you’re done for. The human being is a social animal – he needs stimuli, he needs to meet people, to catch up with the world.

I don’t much like travel but I travel very frequently despite the jetlag, because I get to meet people of great interest to me, who will help me in my work as chairman of our GIC. So I know, I’m on several boards of banks, international advisory boards of banks, of oil companies and so on. And I meet them and I get to understand what’s happening in the world, what has changed since I was here one month ago, one year ago.

I go to India , I go to China. And that stimuli brings me to the world of today. I’m not living in the world, when I was active, more active 20, 30 years ago. So I tell my wife. She woke up late today. I said: ‘Never mind, you come along by 12 o’clock. I go first.’

If you sit back – because part of the ending part of the encyclopaedia which I read was very depressing – as you get old, you withdraw from everything and then all you will have is your bedroom and the photographs and the furniture that you know, and that’s your world. So if you’ve got to go to hospital, the doctor advises you to bring some photographs so that you’ll know you’re not lost in a different world, that this is like your bedroom.

I’m determined that I will not, as long as I can, to be reduced, to have my horizons closed on me like that. It is the stimuli, it is the constant interaction with people across the world that keeps me aware and alive to what’s going on and what we can do to adjust to this different world.

In other words, you must have an interest in life. If you believe that at 55, you’re retiring, you’re going to read books, play golf and drink wine, then I think you’re done for. So statistically they will show you that all the people who retire and lead sedentary lives, the pensioners die off very quickly.

So we now have a social problem with medical sciences, new procedures, new drugs, many more people are going to live long lives..

If the mindset is that when I reach retirement age 62, I’m old, I can’t work anymore, I don’t have to work, I just sit back, now is the time I’ll enjoy life, I think you’re making the biggest mistake of your life. After one month, or after two months, even if you go traveling with nothing to do, with no purpose in life, you will just degrade, you’ll go to seed.

The human being needs a challenge, and my advice to every person in Singapore and elsewhere: Keep yourself interested, have a challenge. If you’re not interested in the world and the world is not interested in you, the biggest punishment a man can receive is total isolation in a dungeon, black and complete withdrawal of all stimuli, that’s real torture.

So when I read that people believe, Singaporeans say: ‘Oh, 62 I’m retiring.’ I say to them: ‘You really want to die quickly?’ If you want to see sunrise tomorrow or sunset, you must have a reason, you must have the stimuli to keep going..’

"Have a purpose driven life and finish well, my friends."

Friday, November 4, 2011

Bosses send foreign workers to gamble

The Straits Times
Nov 4, 2011
special report

Workers share in casino winnings, but if they lose too much, they pay

By Elizabeth Soh

A HARD day's work for Bangladeshi construction worker Salim used to mean toiling under the burning sun.

But nowadays, at least once a week, he finds himself assigned to a very different kind of 'job' - playing the jackpot machines in the cool air-conditioned comfort of Resorts World Sentosa.

The 29-year-old is one of a number of foreign employees being sent to the casino to gamble on behalf of their employers to feed their own habit, a Straits Times investigation has found.

Five bosses - some with exclusion orders against them - told The Straits Times that they have been handing workers cash, notebooks and mobile phones, then dispatching them to the casino.

They claimed to know several other employers doing the same thing.

The 'proxy gamblers', dressed mostly in company polo T-shirts and jeans, get a cut of the winnings, but if they lose too much, their pay is docked.

This arrangement allows employers who are barred due to their own excessive gambling a vicarious way to indulge their habit.

The others say it is a way to maximise their chances of winning at the slot machines or roulette tables.

Five foreign workers The Straits Times found gambling at Resorts World Sentosa on a Friday said they were not forced to do it, and were enjoying themselves. The casino's air-conditioned, carpeted halls certainly were a welcome change from sweating in the hot sun.

Instead of welding steel sheets together, Salim walked around the jackpot machines, looking for the right place to spend his $500. His aim was to find machines that had not paid out in a while.

'Boss says to find those with less win, more money,' said Salim, as he scribbled down the amounts.

Next, he proceeded to the roulette table, where he placed bets on four of his employer's favourite 'lucky numbers'. He was with his colleague and fellow countryman Rajib, 32, who has been gambling longer and is entrusted with $800.

Both men had been given strict instructions to write down every bet they made, and their losses and wins. They get 10 per cent of anything they win, but if they lose more than $500, the entire loss is cut from their pay.

The pair work together to make sure that they do not get carried away at certain jackpot machines and meet every two hours to update their boss, subcontractor Edmund Ng, 59, who runs a cabinet and furniture business.

Another proxy gambler, cabinet-maker Ishan, 35, said: 'Boss says, lose too much, unlucky, change machine. Sometimes, we play too long, forget how much we lose, after that then got trouble.'

The Straits Times spoke to five sub-contractors who regularly send their workers to gamble. They said they knew of at least 15 others doing the same. All said they did not force the workers to go to the casino. Three have exclusion orders taken out by family members.

The sub-contractors each send two workers at around 10am. The men take lunch and tea breaks, buying sandwiches or rice dishes from the casino eateries. They do not leave until their employers pick them up at around 10pm, or sometimes as late as midnight.

Mr Eric Leong, 56, sends three workers to the casino once or twice a week.

'I see it as diversifying my chances of winning money,' he said. 'If I play, it's one person. Two persons play, it's twice the chances.'

Mr Leong, who is barred, said that he spends equal amounts betting on horse races, soccer games, and buying lottery tickets. He and his fellow sub-contractors avoid suspicion by getting their workers covered with medical certificates for the days spent at the casino.

'If the manpower officials question me, I will just say my worker is ill and sneaked off to gamble - what can they say?' said Mr Leong, whose company handles minor renovation work such as laminating floors and painting.

The employers said they pick intelligent workers who have been with them for at least three years and whom they trust. The men are given ready answers in case they are questioned.

'If the casino people ask me, why so much money, I say, pay day today,' said Ishan, who is given $700 per trip. 'If they ask, how come I can come to casino on week day, I say (day) off because project finished already.'

To avoid arousing suspicion, they are told not to linger in the free drinks area or cheer when they win.

'We tell them to look neat and tidy so the casino staff don't take special notice of them,' said Mr Wee A. K, 63, who runs a small furniture company.

The employers check the men's pockets and bags at the start and end of the day out at the casino to make sure they are not hiding cash.

The day The Straits Times met them, Salim and Rajib were at the casino from 10am to 8pm. Rajib lost $495. Salim looked downcast at the end of the day, but did not want to say if he lost money.

Salim, who has a wife and two young children to support in Bangladesh, insisted that the arrangement is worthwhile on the whole.

'Sometimes, in casino, I one day can win $700,' he said. 'Every month I earn only $1,000. You tell me, which one is better?'

Migrant rights activists condemned the employers' actions.

'It's very wrong. The men are willing to work at the jobs they were hired for and they should be able to do that work and get paid for it, not used for anything else,' said Mr John Gee, president of migrant workers' rights group Transient Workers Count Too.

'They have no choice but to do as their bosses say and they come away worse off. It is illegal deployment and it is unethical.'

Gambling counsellors said the bosses were putting their workers at risk of becoming gambling addicts.

'When they go into casinos it's not just the gambling - the whole atmosphere, they might be enjoying it and want to go back to forget about their problems and the hardship they are facing,' said consultant psychiatrist Tan Hwee Sim.

'They are a high-risk group - the margins are small and they can easily get carried away, fall into debt, and they have no family support to help guide them away from it.'


'If I win big, maybe I can go home'

WHEN a Bangladeshi painter arrived in Singapore five years ago, he had hoped to save enough money to go home for good three years later.

His plans, however, were foiled when he had to pay for his mother-in-law's medical expenses as she battled cancer. Then he had to build a house for his wife and three children, and settle debts owed to relatives back in his village.

So when the painter, who wanted to be called Rajib, was offered a chance by his boss about a year ago to try his luck at the Resorts World casino, he grabbed the offer.

He said his employer sends him to the casino once or twice a week and gives him $800 each time to gamble. He plays mostly at jackpot machines or at blackjack and roulette tables.

If he wins, he gets a 10 per cent cut and usually a tip of another 5 per cent from his boss.

If he loses more than $500, the whole sum is deducted from his monthly pay of about $1,200. If he loses less than $500, the boss will absorb the loss.

'If I win big a few times, maybe I can go home for a long time to see my children, wife and house,' said Rajib who has worked for the same employer for the past five years.

But he let on that he has lost so much that he has not been able to send any money home for half a year. Asked why he did not stop gambling, his sheepish reply was that he could not control himself.

He insisted that he had not been forced or persuaded by his boss to gamble. He described his boss as a good man who helped him pay his family's medical bills and had kept his word at giving him his share of the winnings.

But Rajib has taken his interest in gambling a step further. On his days off, he goes to the Marina Bay Sands casino on his own.

Asked whether his colleagues at his dormitory get jealous because he goes to the casino instead of toiling at a construction site, he said they do scold him for gambling as he is a Muslim.

'But I don't care. Wait until I win big, then I go home first and they'll still be here,' he added with a laugh.



'I'm giving my men a chance to get rich'

LIKE many other investors, businessman Edmund Ng believes that 'money grows money'.

But Mr Ng, 59, says his 'investments' are the foreign employees he sends to gamble on his behalf at the Resorts World Sentosa (RWS) casino.

The father of three described the process as 'creative' and 'multiplying my chances' of making money.

'To me, everything in life is a gamble and a game of chance. Some people put their money in shares, stocks; I choose to put mine in casinos. What's the difference?' said Mr Ng, whoruns a small business manufacturing hardwood furniture, and employs 15 foreign workers.

He also dabbles in other kinds of gambling, especially soccer betting and lottery tickets. He estimates that he spends about $20,000 a month on gambling.

He told The Straits Times that he was one of the first employers to start sending foreign workers to the casino, and that he had 'trained them well'.

'My men don't just walk around and behave like hooligans. They are neatly dressed and they don't make noise like other workers who go and make trouble when they lose,' he said.

He usually sends two men, and gives them $500 and $800 to gamble with respectively. To avoid suspicion from casino staff, he picks them up in his Mercedes-Benz later on.

Like other employers, he gives them a cut of between 10 per cent and 15 per cent of the winnings, and docks their pay if they lose more than a maximum sum.

'That way they will not lose too much for fear that they will lose their salary.' said Mr Ng, who added that he had at least 10 friends, fellow businessmen, who did the same thing.

'I also teach them how to back off when they are on a losing streak, or bet more when they feel their chances are good. All these things are also life skills.'

Mr Ng did not feel that he was exploiting his workers, saying instead that he was giving them a chance to get rich that they would not usually be able to afford.

'I don't think I am abusing my position as an employer,' he said. 'Anyway, it is much easier to gamble at the casino than sweat in the sun.'

Thursday, November 3, 2011

DBS High Notes case ends as investors lose appeal

Published November 3, 2011

Court of Appeal upholds High Court's ruling that DBS owes investors nothing


(SINGAPORE) The 213 investors who brought a lawsuit against DBS Bank over its DBS High Notes 5 product have lost their case before the Court of Appeal, along with the possibility of reclaiming their investment.

The Court of Appeal yesterday issued its written judgment, upholding the High Court's decision in December 2010 that the bank owes the investors nothing.

This closes a claim that has been ongoing for more than two years - and ends the hopes of the investors who collectively lost some $18 million when the structured product unravelled with the collapse of Lehman Brothers in September 2008.

'In view of our decision in this appeal, we think it apposite and timely to remind the general public that, under the law of contract, a person who signs a contract which is set out in a language he is not familiar with or whose terms he may not understand is nonetheless bound by the terms of that contract,' the Court of Appeal said in its judgment.

Twenty-one investors, represented by Siraj Omar of Premier Law LLC, had sued the bank on behalf of 192 others in July 2009, arguing that the DBS High Notes 5 were void at the time they were issued.

One of the conditions of the notes was that none of the eight reference entities - of which Lehman was one - would default in the notes' 51/2-year lifetime. If they did, DBS Bank would redeem the investors' investments, that is, pay them back, based on a certain method of calculation.

After Lehman collapsed, DBS Bank decided that the repayment amount - termed the credit event redemption amount (CERA) - was zero.

The investors argued that, in the DBS High Notes 5 pricing statement, the calculation of the CERA had been defined differently in four separate instances. They said that this inconsistency made a material term of the contract - the repayment amount - uncertain, rendering the notes void for uncertainty.

The High Court judge, Lee Seiu Kin, had agreed with the arguments put forth by DBS Bank, represented by Senior Counsel Davinder Singh and Una Khng of Drew & Napier, that there was no uncertainty about how the CERA was to be calculated; Justice Lee said the third definition in the pricing statement - which provided a detailed equation - was expressly designated as the prevailing one, and that the payout to the investors should be zero as laid out in that definition.

The investors appealed against that decision in March, saying they had 'faith in the court system'.

The Court of Appeal heard their arguments and found that there were inconsistencies between the four definitions of CERA in the DBS High Notes pricing statement. It, therefore, decided to look at the definition laid out in the product's reference notes - and found that the definition there was the same as the third CERA description in the pricing statement.

'The result was that owing to Lehman's bankruptcy, the CERA payable to HN5 holders on their investment was indeed zero,' the Court of Appeal ruled.

'For the reasons given above, we agree with the (High Court) judge that the HN5 contract is not void for uncertainty. Accordingly, we dismiss the appeal with costs and the usual consequential orders,' it added.

About 9,900 people here lost most, if not all, of their investments totalling about $520 million in Lehman-linked products, such as the DBS High Notes, Minibonds, Merrill Lynch Jubilee Series 3 LinkEarner Notes and Morgan Stanley Pinnacle Series 9 and 10 Notes, distributed by DBS and other financial institutions.

Wednesday, November 2, 2011

Darkest before the dawn

Published November 2, 2011


What are equity markets pricing? And what does that mean for investors?


RECENT months have seen global investors go from being a fairly positive group to one that is overly nervous - even panicky, some might say. Since their April highs, most markets have experienced significant falls and a number have declined by more than 20 per cent, heading into bear market territory. So the question is: What are investors worried about and what are they pricing into equity markets?

There are three parts to the answer. The first concern is that the fiscal crisis in Europe is spreading and could cause a global banking meltdown similar to what was seen in 2008. Second, the lack of progress in lowering unemployment in the United States may result in a double-dip recession there.

And finally, there are growing concerns that China is slowing down and could experience a hard landing. All of these issues are related and the fear is that one, if not all, of these events could drive the global economy into a recession and affect corporate earnings.

The International Monetary Fund (IMF) has recently raised concerns about the headwinds facing the global economy. In its most recent review, it downgraded the outlook for most economies, but still expects the global economy to grow at around 4 per cent in 2011/12. Even in the US, where the consensus growth forecast has been reduced by an average of one per cent, the numbers are still positive. This aligns with the view of Citi economists, who do not believe we are headed for a recession, but do acknowledge that growth is slowing.

Looking beyond the problems in Europe and the US, China has also been an area of concern for many investors. Monetary tightening since the beginning of this year to fight inflation and curbs to arrest rising property prices have raised fears of a hard landing for China's economy. Recent data on inflation, which continues to remain elevated, and continued upside pressure on property prices may see this tight monetary policy persist to the end of this year.

More importantly, there are major fears that the large infusion of credit over the past few years could lead to a dramatic rise in bad debts, especially from local government entities.

Against this backdrop, and with continued poor manufacturing and consumer confidence data globally, equities are reflecting investor nervousness about a sharp retreat in corporate profitability. Indeed, Purchasing Managers Index (PMI) data from the US and Europe has shown them recently fall below 50, suggesting the manufacturing sectors there are contracting.

This is reflected in equity market valuations which are now discounting a significant falloff in earnings next year. Yes, analyst earnings revisions have had their weakest five weeks and while earnings downgrades have yet to show clear signs of easing up, they are not worsening either (see Chart 1).

Currently, Citi analysts forecast 2 per cent global earnings per share (EPS) growth in 2012 - well below the consensus of 13 per cent but well above the 25 per cent contraction that we think is currently priced in.

Even when we look at historical price-to-book values (P/BV), markets currently are down to attractive levels but not yet at the levels we saw back in 2008. For example, global equities as measured by the MSCI World Index are currently trading at roughly 1.5x P/BV - 25 per cent higher than the low seen at the depths of the last bear market (see Chart 2).

So where does this leave the investor? Short term, we are going to have to deal with the market volatility. Issues - especially those regarding the European sovereign debt problems - will need to be resolved before investor confidence stabilises. Even then, there are many other concerns that will continue to affect sentiment and market uncertainties. But for longer-term investors, value is showing up and they should view this weakness as an opportunity to look for companies with good balance sheets that are paying decent dividends. Ultimately, investors need to balance returns with risk and be broadly diversified.

The writer is director and senior investment strategist, Asia Pacific at Citi Private Bank

Disclaimer: Opinions expressed herein should be regarded solely as general market commentary, and may change without prior notice. Past performance is no guarantee of future results