Yesterday, I have revised my market outlook from a bearish stance to a bullish trading stance due to the action taken by Fed and the central banks of Canada, Switzerland, Japan, and the UK to boost liquidity to the credit market. This is achieved through the lowering of the pricing on existing temporary US dollar liquidity swap arrangements, and to establish temporary bilateral liquidity swap arrangements. There is a good article in Clusterstock entitled "Understanding the Impication of the Fed Swap Lines". Another angle is given by Fed President Bullard in an interview with Bloomberg (here).
By itself, the action of these central banks would not solve the problem of sovereign debts in Europe. However, there are some signs that the core European nations- Germany & France- may have finally come to a consensus on how to tackle the problem.
Germany and France would embark on some "stability pact", wherein they would agree to strict fiscal rules, preventing overspending and over-indebtedness.The "stability pact" would include an overhaul the EU Treaty with proposed changes that aimed at increasing fiscal coordination across the Euro zone and enforcing rules on deficit & debts levels. Once this new fiscal compact is in place, the ECB is expected to intervene by buying bonds of troubled euro zone states or cut interest rates. I personally feel that this plan may have a good chance of stabilizing the European sovereign debts crisis. This could be a game changer, if approved & adopted by all the Euro zones states. For more reading, check out the following articles:
Hi Alex, I would like to ask you about this because I think you are the right person to answer. I own CBIP and noticed on 29/11/11 'PROPOSED INCREASE IN THE AUTHORISED SHARE CAPITAL OF CBIP FROM RM100,000,000 COMPRISING 200,000,000 SHARES TO RM500,000,000 COMPRISING 1,000,000,000 SHARES (“PROPOSED INCREASE IN AUTHORISED SHARE CAPITAL”)'.
ReplyDeleteMy question is, currently shared issued by CBIP is around 140,000,000. So with the proposal to increase the shares number to 1,000,000,000 will my stock value diluted to roughly 1/7 of its current value, meaning my stock will lose its value (in terms of eps), and I will lose money?
Thanks for your time.
With the huge amount of sovereign debts in EU and around 15 trillion of debts in USA, whatever moves taken by the so-called experts either from FED or World banks will not significantly reduce the actual debts but instead postponing the solutions at a later date which no doubt will make the situations cloudier and scarry in days to come.
ReplyDeleteHi Blog Master
ReplyDeleteThe proposed increase in the authorised capital is to facilitate the bonus issue, etc. You should just zoom into the bonus issue. Basically, bonus issue does not increase the value of a stock but the share price would increase because people desire more shares. However, this is not far-fetched or hard to fathom. You may see it in real life where two halves of a roast duck cost more than one whole roast duck! You can explain the real life example in a logical manner but in stock investment, it is a bit hard to explain why 2000 shares of Company A after a 1-for-1 Bonus Issue should be worth more than 1000 shares of Company A prior to a 1-for-1 Bonus Issue.
Hi leslieroycarter
ReplyDeleteI agree that the problem of sovereign debts in advance countries, be it the US or the Euro zone, is hard to solve. My post should have been entitled "Temporary Solution to stabilize the Euro zone" because the problem in Europe will take a long time to work out.
Alex,
ReplyDeleteNeed your advice on the MMode stock whether the calculation below made sense.
Base on PE : 8
Forecast accumulate EPS : 9sen
TP : PE X EPS = 8 X 9 = 72sen
TQ
Hi Cheer,
ReplyDeleteYour calculation is correct.
Based on my rough projection, MMode may hit a high of RM0.55-0.60. It broke to the upside of an expanding triangle at RM0.32. However, its immediate resistance is its all-time high of RM0.48 recorded in end 2004.
Thanks, that's clarify everything. Thanks.
ReplyDelete