SEC takes aim at abusive short sales again

WASHINGTON - New rules governing the conduct of people who profit from stock declines were issued by the U.S. Securities and Exchange on Wednesday as shares of major financial institutions plummeted on fears of a global credit crunch.

The three SEC rules cover shares of all publicly traded companies and follow a brief emergency rule this summer that was aimed at curbing abusive naked short selling in 19 major financial stocks.

Under a measure that takes effect Thursday, short sellers and their broker dealers must deliver securities by the close of business on the settlement date, three days after the sale.

The SEC's action comes after two turbulent days in which investment bank Lehman Brothers Holdings filed for bankruptcy and U.S. authorities organized an $85 billion rescue plan for insurer American International Group.

CNBC television reported the SEC was meeting on Thursday to consider further action on short selling after heavy lobbying from the two major remaining investment banks, Goldman Sachs and Morgan Stanley, as well as from New York Democratic Sens. Charles Schumer and Hillary Clinton.

A source briefed on the matter said the commission met this afternoon to discuss the new rules. It was not clear whether the SEC would take further action.

Broker-dealers failing to comply with the new delivery requirement will be prohibited from further short sales in the same security unless the shares are pre-borrowed.

"It is a game changer," said Doug Kass, who heads hedge fund Seabreeze Partners Management Inc, who has delivered double-digit returns this year by selling stocks short, including those in ailing mortgage companies.

Columbia Law School professor John Coffee said the rules were a far bolder step than the SEC was willing to take last week. "Lehman and AIG seem to have given (the SEC) religion on this topic," he said.

The SEC also immediately adopted a rule that deems it fraudulent for customers to deceive broker-dealers about the intention or ability to deliver securities in time for settlement.

Kass said that may push out some players who have recently piled into betting that stock prices will fall.

A third rule requires option market makers to deliver securities by settlement date.

"These several actions today make it crystal clear that the SEC has zero tolerance for abusive naked short selling," SEC Chairman Christopher Cox said in a statement.

The SEC had been under pressure to broadly crack down on manipulative trading. In particular, the American Bankers Association, which represents banks of all sizes, had been lobbying banking regulators to lean on the SEC.

Broker-dealers and the investment community scrambled to understand how the new rules would work.

"It is going to be impossible to comply with the new rules because no one has seen them," said Michael Trocchio, a lawyer at Bingham McCutchen LLP who advises broker-dealers on compliance issues.

Short sellers arrange to borrow shares they consider overvalued and sell them in hopes of making a profit when the price drops. It is a legitimate form of trading that can prevent stocks from being overvalued, but often blamed when a company's shares fall.

A "naked" short sale occurs when an investor sells stock that has not yet been borrowed.

Broker-dealers will sometimes accidentally fail to deliver stock to investors who have arranged to borrow it. If this is done intentionally, it is already illegal.

In July, amid sharp market declines, the SEC issued a temporary rule to curb illegal naked short selling in 19 major finance stocks, including Lehman Brothers and mortgage finance giants Freddie Mac and Fannie Mae which have since been seized by the government.

The rule ended mid-August and was criticized by hedge funds, short sellers and the broker-dealer community.

Bill Rhodes, president of Rhodes Analytics, was critical of the SEC's new rule concerning deception of broker-dealers.

"They need to be careful how they apply that... an honest investor could end up being caught in that," Rhodes said.

Although effective on Thursday, the SEC will open a 30-day public comment period for the rule on delivery of securities.

Technical glitch disrupts trading on Bursa Derivatives

PETALING JAYA: It was deja vu for Bursa Malaysia Bhd as a “technical glitch” credited for disrupting trading on the stock market barely three months ago re-emerged to delay the opening of the derivatives market yesterday.

Trading resumed in the afternoon after being suspended for the entire morning session.

“The opening of Bursa Malaysia Derivatives was delayed due to a technical problem detected this morning,” the stock exchange operator said in a statement released at 1.15pm yesterday. “The problem has been resolved and the trading timetable of the respective derivative products for the afternoon session remains unchanged.”

Chief executive officer Datuk Yusli Mohamed Yusoff said Bursa Malaysia encountered a system connectivity problem between the derivatives trading engine and all the derivatives brokers’ trading front-end systems.

“After resolving the connectivity problem, the exchange then undertook steps to ensure data integrity,” he said in the statement.

The glitch disrupted trading in crude palm oil futures, the global benchmark for CPO.

Futures broker G.M. Teoh said: “This does not look good in the eyes of the international trading community. Traders everywhere are asking when will Bursa stop using this (technical glitch) excuse.”

Palm oil trader Jim Teh echoed Teoh’s remarks, saying the delayed opening of the derivatives market created a bad impression in the eyes of both local and international investors.

“This is the second time a technical glitch has disrupted trading on Bursa Malaysia; it is ridiculous. It will definitely affect the confidence of local and foreign investors.

“With the technology we have today, this shouldn’t be happening. They (Bursa) should have some kind of back-up to ensure something like this does not happen,” Teh said.

Trading in equities and bonds, meanwhile, was unaffected yesterday.

On July 3, Bursa had to suspend two trading sessions following a computer hard disk failure. The halt fuelled concerns the stock exchange’s system was unreliable. The then chief information officer Yew Kim Keong took responsibility for the trading halt and resigned.

Hedge fund Paulson to weigh buying bank stocks: report

NEW YORK - Paulson & Co, a prominent New York hedge fund, will weigh buying shares or convertible bonds in banks and other financial institutions that need capital, the Financial Times reported on its website on Sunday.

John Paulson, its founder, remained bearish on the economy and the financial sector, but would consider taking positions in the sector as prices fall to his target levels, the paper reported, citing two unnamed investors who were on a Paulson conference call for clients last week.

Paulson is to launch its Recovery fund on October 1, the paper said.

John Paulson cemented his superstar reputation with a historic bet against the housing market that earned him more than $3 billion last year.

The hedge fund could not be reached immediately for comment.

Futures soar after U.S. takes over GSEs

NEW YORK - Stock index futures surged on Sunday, pointing to a sharply higher open when Wall Street opens on Monday, after the U.S. government seized control of troubled mortgage finance companies Fannie Mae and Freddie Mac.

The takeover, the latest move by the government to shore up the slumping housing market, was taken to ward off more global financial market turbulence.

While this is seen a major step to stabilize the financial system, persistent problems stemming from the housing slump will make a sustained rally unlikely, investors said.

"I expect there will be a powerful knee-jerk rally but we won't be heading into a full-blown bull market," said Jim Awad, chairman of W.P. Stewart & Co Ltd in New York.

S&P 500 futures rose 27.8 points and were above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures rose 212 points and Nasdaq 100 futures gained 38 points.

Officials were concerned mounting losses at the two companies, which own or guarantee almost half of the country's $12 trillion in outstanding home mortgage debt, were sapping their vitality and threatening to undermine them at a time other sources of housing finance have largely run dry.

Despite an uncertain long-time outlook, Awad said the federal takeover is still "a positive for the credit market" because many financial companies own debt issued and mortgage securities guaranteed by the two government-sponsored mortgage finance enterprises.

Chinese Stocks Are World's Worst In 2008

China won the most gold at the Olympics, but the country's stock market is in dead last.

After skyrocketing last year, the Shanghai composite has fallen harder than any market worldwide in 2008.

China stock investors and strategists remain bullish in the long term, but a recovery may depend on a global revival.

"The issue going forward is, 'When will equities around the world improve?'" said Donald Straszheim, a China specialist and vice chairman of Roth Capital Partners, an investment banking firm. "When that happens, China will improve, too."

But that hasn't happened yet. The Shanghai composite fell 0.9% on Tuesday to its lowest close since December 2006.

Year to date, the Shanghai index is down 56%. Hong Kong's Hang Seng index is down nearly 25% so far this year. Other China markets are in similar funks.

Sure, markets worldwide are getting hammered. But the Sino setback is more than twice the size of most others.

The rest of the world's worst -- South Korea, India and Russia -- were down "only" 25% to 29% going into Tuesday.

The S&P 500 is off 13% in 2008.

Last year, Shanghai erupted for a 97% gain. Only in hindsight does China look like a bubble that was ripe for popping, Straszheim says.

China's economy is still strong. GDP grew 10.1% in the second quarter vs. a year earlier.

That trumps the U.S. gain of 3.3% annualized, and the outright economic contractions in Japan and the euro zone.

Still, China's growth has slowed for the past four quarters. Evidence suggests a continuation of the trend as a global slowdown and credit crunch take their toll.

China's exports grew 12% in the first five months of 2008 vs. 18% in 2007, according to the World Bank. The rising Chinese currency also makes exports slightly less attractive. The yuan has climbed 6% this year vs. the dollar.

Industrial production also has cooled, though Chinese consumer spending is growing as fast as ever.

Investors fled Chinese equities out of fear of a growing flood of A-class shares, which trade on the mainland. Starting this year, the post-public-offering lockup period for many expires. About 10% of locked up shares become tradable this year. Another 25% unlock next year, Straszheim says.

Also, in the first half of 2008, the government pressed on the brakes to rein in white-hot growth and soaring inflation, says Samantha Ho, manager of the $207 million AIM China Fund. Ho is the investment director of Invesco Hong Kong, the fund's subadviser.

The People's Bank of China in June raised its reserve-rate requirement ratio for banks for the fourth and fifth times this year. The latest 100-basis-point hike took the rate to 17.5%.

"Sentiment increasingly turned negative on the back of the accelerating inflationary pressures, rising energy prices and fears of more global write-downs in the financial sector," Ho told IBD in an e-mail from her office in Hong Kong.

Chinese corporate profits are a classic glass half full or half empty.

Ho notes that recent earnings have been in line with or above consensus views.

She expects 18% profit growth for companies in the MSCI China index. Ho sees 19% growth next year, so long as the global economy does not worsen a lot.

But that's well off the 2007 pace.

"In most sectors, earnings were up 30% to 40%," said Straszheim, a former global chief economist for Merrill Lynch. "This year they'll be lucky to do 15%. That's up. But it still makes for very tough '08 comps."

The sharp sell-off has made more valuations attractive.

Meanwhile, with inflation retreating from decade highs, authorities have turned their attention back to promoting growth. The government is trying to turbocharge key export industries with moves such as boosting tax rebates for the garment and textile sectors.

China is loosening its chokehold on direct foreign investment. As a result, 50 non-Chinese financial firms can now invest directly in A-class shares. In April, regulators tripled the cap on the firms' investments to $30 billion. Ho sees that still-modest ceiling rising further this year.

Chinese officials fear that market volatility could spur social unrest. The government prefers to open the capital market gradually to avoid boom-bust market developments, Ho says.

China's infrastructure spending will help boost growth. On top of already planned buildout projects, Ho sees huge government outlays to remedy recent natural disasters.

Last winter's snowstorm, the worst in 50 years, caused 1.1 trillion yuan ($161.1 billion) in economic losses. Avoiding a repeat will require huge upgrades to transportation and power facilities.

The tab for fixing earthquake-torn Sichuan is estimated at $44 billion.

"Robust economic growth, structural improvements, ongoing corporate restructuring, mergers and acquisitions, as well as asset injections should continue to drive corporate earnings momentum and improve the quality of earnings and assets," Ho said.

Still, for China to rebound, the U.S., Europe and Japan must come out of what Straszheim calls a recession.

"China's rally is probably a 2009 event, not a 2008 event," he said.

Warren Buffett's Best Man

WHILE JASMINE AND wisteria scent the air on Caltech's Pasadena campus, a spillover crowd buzzes in anticipation in a roomy auditorium. Most of the people here are seasoned money managers, and they've come from all over the world to catch sight of something rarer than a Berkshire Hathaway stock split: Charlie Munger, without his famous partner, Warren Buffett.

Munger, 84 and blind in one eye, walks stiffly to the stage. A prestigious physics professor waits to interview him, but once the lanky, thick-bespectacled guest starts blaspheming some favorite targets, the prof rarely gets a word in edgewise. Munger's topic du jour is the spiraling credit crisis: He flings vitriol at bankers, saying they've been selling investors "a hapless mess of super-complexity." The accounting profession has "disgraced itself" with its lax standards, and so has academia. "The idea that we need derivatives is just so much twaddle," he says. Yet despite all this inanity and skullduggery, Munger still sees the investing world as a place where common sense can triumph -- if only because "it isn't so common."

To those who haven't heard of Munger, his musings might not seem particularly significant. But to his fans, they may as well be the Sermon on the Mount. Munger, Buffett's fellow Nebraskan, seems to be everything Buffett isn't -- cranky, reclusive, outwardly pessimistic. That hasn't stopped him from spending more than four decades as Buffett's principal sounding board, co-strategist, bad cop and muse. During their collaboration, Buffett has evolved from a successful but small-time money manager to the world's richest man, with unparalleled global influence -- and in the eyes of some admirers, he wouldn't be where he is without Munger. Indeed, it's difficult to know where Buffett's influence begins and Munger's ends. "Charlie has had a hand in all the major investments and those that they have passed on," says Lou Simpson, chief executive of insurance company Geico, a Buffett-Munger buy. The Oracle himself gives Munger enormous credit for helping Berkshire Hathaway return 21 percent annually for the past 42 years, double the Standard and Poor's 500. "He's my role model," Buffett gushed to SmartMoney.

IN CONTRAST TO THE showman-like Buffett, Munger shuns the spotlight. But he draws a smaller, more fanatical cult that seeks inspiration from his intellectual omnivorousness. "There are few people who consider acquiring knowledge their life's study -- he's an exemplar," says Chris Davis, of the $65 billion Davis Funds. "Buffett will understand something on a micro level," adds hedge fund star Mohnish Pabrai, "but Munger will understand how it fits into the world looking a decade out." Pabrai suggests that if you gave an IQ test to their respective fan clubs, Munger's would beat Buffett's "by quite a few points." Whoever would win, with the market choppy and both partners getting up in years, investing acolytes were eager to catch Munger on one of his rare public appearances -- and we were glad to catch him for an even rarer interview.

Buffett and Munger met at a dinner party in 1959, when Buffett was running a small hedge fund and Munger was an attorney in Los Angeles. The two men hit it off, and today Buffett credits Munger with a profound shift in how he approaches investing. Influenced by the statistics-driven approach of Ben Graham, his Columbia University business professor, Buffett had always sought to buy fair businesses at a great price, while Munger had become a believer in buying great businesses at fair prices. Munger's early influence can be seen in Berkshire Hathaway investments in such powerhouse names as Coca-Cola, Gillette and American Express.

But one of their most important buys together was their first, in 1965: Blue Chip Stamps. Blue Chip sold its stamps to merchants for cash; customers collected the stamps and redeemed them for items like toasters. But as customers were saving, that cash mostly sat around earning interest -- until Buffett and Munger took over. They started using the "float" to buy controlling stakes in companies like See's Candies, Buffalo News and Wesco Financial. (The complexity of the Wesco investment got Buffett and Munger in trouble with the Securities and Exchange Commission, but they emerged relatively unscathed.) Cash from those companies, in turn, gave Buffett the resources to take on large stakes in bigger corporations -- a strategy that helped fuel Berkshire Hathaway's phenomenal returns while building it into a conglomerate with more than $100 billion in annual revenue.

The adage "opposites attract" certainly applies to this partnership, where personality is concerned. Buffett will playfully speak of chicken coops and harems to illustrate his points; Munger likes to quote Cicero and Aristotle. Buffett is a coveted dinner companion; Munger sometimes has the opposite effect: "Our wives would rather not sit next to him," says Peter Kaufman, a friend and the editor of "Poor Charlie's Almanack: The Wit and Widsom of Charles T. Munger." Kaufman explains that Munger may start discoursing on fireflies or some such thing. "Charlie is set to broadcast rather than to receive," he says.

When he spoke with SmartMoney, Munger was relatively humble; he brushed aside the idea that he's the man behind Buffett, allowing only that "my utility was not zero." That utility may be more important than ever if Munger's gloomy outlook turns out to be correct. "Even with the market down, every investment class, on average, is liberally priced," Munger says, and the prospects for good returns are "modest" at best. His formula for success in a tough market (or any market) flies in the face of conventional wisdom: "Load up" by making big bets on the handful of businesses that could be winners. "People say the whole secret of investing is diversification," Munger told Berkshire investors earlier this year, but that idea is "ass-backwards."

When picking winners out of the herd, of course, it helps to have Buffett- or Munger-caliber acumen. Munger insists that involves little more than common sense -- the kind that comes from educating yourself broadly across multiple disciplines. Unlike other investors, Munger says, he and Buffett are careful not to overestimate what they know: "It's a disaster if you don't know the edge of your competency." They work hard at avoiding investing "asininities" and "possess a vast ability to dis-learn" when their assumptions prove false. And they keep enough cash on hand to act quickly -- since good investments don't swim by that often, Munger explains, "you have to be the man standing by a river with a spear." How to recognize those opportunities? That's where omnivorousness comes in. "Learn your gaps, and fill them," he says. "If you get three textbooks on a subject and skim them, it's a good start. That's what I do."

Sadly enough, that's not what most investors do, so it's little wonder that a certain world-weariness is one of Munger's hallmarks in his fifth decade at Buffett's side. "If Aristotle were alive today, he'd be a grumpy old man," Munger sighs, explaining that the Greek philosopher would be seeing the same mistakes made over and over. "Maybe that's some of the problem with me."

The Tao of Charlie Volatile markets. A rough economy. In 43 years of partnership with Buffett, Charlie Munger has seen it all. Five thoughts to help investors in today's environment. Avoid the Middleman Maybe we should think twice about our brokers and mutual funds. Munger says that due to its middling performance and high fees, the money-management industry as a whole "gives no value added" to its customers. "They are croupiers taking profits out of the system." Pick Common Sense Over Math Another knock against the pros? Their obsession with statistical analysis -- "boring gravel sifting," as Munger calls it -- obscures insights about which businesses are poised to succeed. "These people do involved computations, and they're walking right by great boulders of gold." Meanwhile, he and Buffett "just look for no-brainer decisions....We don't leap 7-foot fences." Think Like Ben Franklin Munger believes in educating himself deeply about, well, almost everything, "invading other people's territory" to develop a "mental latticework of theory" to shape his investing decisions. His poster boy for this approach: Ben Franklin. "He was a self-educated man who wandered over vast territory," Munger says. "He recognized that he needed higher math, so he went out and learned algebra....Learn your gaps, and fill them. That's what I do." Sit on Your Assets, if You Can While most investors associate Buffett and Munger with finding good stocks cheap, Munger points out that quality can trump price. "If you buy something because it's undervalued, you have to think about selling it when it approaches your calculation of its intrinsic value," he says. "That's hard. But if you buy a few great companies, then you can sit on your ass. That's a good thing." Make Way for China Munger says that China's competitive advantage over the U.S. is big and growing, but he's sanguine about it. "If the Chinese displace the Mungers, my attitude is 'bon voyage,'" he says. Of America, he adds, "our standing in the commercial world was once ridiculously high. Now it's merely high."

Ospraie's Anderson forced to shut flagship

BOSTON - In the world of palladium, gold and soy beans, hedge-fund manager Dwight Anderson was known as an imposing figure with an appetite for risk.

At 6-foot-3-inches (1.9-metres), Anderson's towering physical presence was long matched by towering returns at his flagship 9-year-old hedge fund, one of several portfolios managed at Ospraie Management LLC, the world's biggest commodities hedge fund firm.

But the 41-year-old investor, whose flagship Ospraie Fund Ltd returned 15 percent a year on average from 2000 to 2007 with $3.8 billion invested at its peak last year, may have attempted to climb too far too fast, say investors in his fund.

Anderson confirmed on Tuesday what had been rumored in the $2 trillion industry for days -- the Ospraie Fund lost 27 percent in August, forcing him to close it with a crippling 39 percent loss for the year.

Anderson, who launched the Ospraie Fund while working for another hedge-fund legend, Paul Tudor Jones of Tudor Investment Corp, joins a growing list of prominent fund managers forced to shut funds or firms amid heavy losses in the last few months.

"After nine years of striving to be a good steward of your capital, I am very sorry for this outcome," he wrote on Tuesday in a letter to investors such as Lehman Brothers, Credit Suisse and smaller endowments.

More details would come on Thursday, he added.

The hedge fund firm still manages other portfolios, including the $1.2 Ospraie Special Opportunities Fund.

Many investors were drawn to Anderson's laser-like focus on the long-overlooked commodities sector where he logged millions of air miles inspecting mines and corn fields around the globe.

Two investors who declined to be identified expressed concern that his 80-person firm's recent expansion might have been too quick at a time when many large investors were making big bets on commodities.

Anderson could not be reached for comment.

His investments, once limited to hard and soft commodities, expanded to include companies active in the sector. His operations also expanded. Ospraie Management's purchase this year of ConAgra Food's commodities trading unit vaulted the company into a new direction, investors said.

"Dwight Anderson was a rare breed and one of only a few people who really focused on commodities and ignored momentum trading in favor of value-based investments," said one investor who asked not to be identified. "But this kind of thing shouldn't happen and I blame it on poor risk management."

At work and at play, Anderson embraced risk, people who know him said.

He acquired a taste for commodities while earning his MBA at the University of North Carolina and quickly moved from a job on JP Morgan's commodities desk into the hedge-fund industry to work with industry icon Julian Robertson's Tiger Management fund, and then to Tudor.

In 2004, with Tudor's help, he started his own New York- based hedge-fund firm, which manages at least three funds.

In his free time he has jumped out of airplanes with skis strapped to his feet and raced ahead of stampeding bulls in Pamplona, according to an acquaintance.

Two years ago, Anderson and his investors got a jolt when souring bets on copper sent the Ospraie Fund tumbling roughly 20 percent. Anderson and his team recovered some ground, paring nearly all losses that year. Separately he shuttered a $250 million fund in 2006.

U.S. Stocks at 25.8 Times Earnings Means Rally Can't Continue

The best already may be over for the U.S. stock market this year.

The Standard & Poor's 500 Index, which had the worst first half since 2002, added 0.2 percent this quarter, the only gain among the world's 10 biggest markets in dollar terms. Shares in the benchmark index for American equity climbed to an average25.8 times reported profits, the highest valuation in five years. The last time that happened, the S&P 500 fell 38 percent.

Money managers at Federated Investors Inc., Russell Investments and Morgan Asset Management, which oversee a combined $600 billion, said the gains won't last because corporate profits will fail to meet analysts' estimates. Wall Street forecasters, who were too optimistic about earnings for the past four quarters, predict income at America's biggest companies will grow by a record 62 percent in the final three months of 2008, according to data compiled by S&P.

``The market is pricing in the expectation of a good quarter, but we just don't see it,'' said Philip Orlando, who helps manage $350 billion as chief equity market strategist at Federated in New York. ``The fundamentals are going to be poor, earnings are going to be bad, and there are going to be more huge writedowns. We think stocks probably need to work 5 to 10 percent lower over the next month or two.''

Analyst estimates were at least 26 percentage points too high since the fourth quarter of 2007 as they failed to anticipate more than $500 billion of subprime-related bank losses and a slowing economy, according to data compiled by S&P and Bloomberg.

Rising Multiples

The S&P 500 slipped 0.7 percent

last week, its second straight retreat, as growth in consumer spending slowed and incomes fell. The index fell 13 percent this year, led by a 27 percent decline in a measure of financial stocks. A combination of rising prices and falling earnings caused S&P 500 valuations to surge more than 20 percent this quarter, the biggest increase of any major market, making them the most expensive since November 2003.

The index's price-earnings ratio rose above 25 three times in the last five decades, data compiled by Bloomberg show. The last was in 2001, during the bear market that followed the bursting of the dot-com bubble. The increase in valuations preceded a plunge that helped erase about half the market value of U.S. companies.

The ratio is being propped up now by analyst forecasts that call for the end of four quarters of slumping profits, the longest streak in seven years.

Discounted Risk

S&P 500 companies will report aggregate earnings of $21.69 a share in the current quarter, a gain of 3.9 percent from a year ago, and $24.62 a share in the final three months of 2008, 62 percent higher than last year's fourth quarter, based on projections compiled by S&P. The earnings reflect estimates for the index, adjusted for each company's weighting.

RidgeWorth Investments' Alan Gayle says prices already discount the risk of a recession, making U.S. equities attractive as profits slow internationally.

Nations sharing the euro may expand 1.5 percent this year, the slowest since 2003, according to the median forecast in a Bloomberg survey of economists. Japan, the world's second-largest economy, will grow 1.05 percent, a six-year low. China, the fastest-growing major economy, may have its smallest expansion in five years.

``The U.S. economy, while not strong, has a greater visibility of the bottom,'' said Gayle, the Richmond, Virginia- based chief investment strategist at RidgeWorth, which oversees $70 billion and went ``overweight'' U.S. stocks a month ago. Outside the U.S., ``the risk factor in the earnings estimates is a little higher than you might see on Wall Street.''

Gap, AK, Lexmark

More than 360 companies in the S&P 500 trade below the average valuation, providing opportunities to investors who pick individual stocks. Gap Inc., the biggest U.S. clothing retailer, AK Steel Holding Corp., the fourth-largest U.S. steelmaker by market value, and Lexmark International Inc., the second-biggest U.S. printer maker, are priced below 15 times earnings, even after reporting income gains of more than 30 percent in the second quarter.

Investment banks are advising clients to buy stocks in anticipation of the earnings rebound. The average forecast of 10 strategists tracked by Bloomberg is for the S&P 500 to rise 14 percent from last week's close to 1,456.50. Thomas Lee, chief U.S. equity strategist at New York-based JPMorgan Chase & Co., said last month that U.S. equities will rise ``much higher'' as profits improve.

Should analysts overstate profits in the second half by the degree they did last quarter, earnings for S&P 500 companies will fall to about $72.17 a share. That would be below the level of 2005, when the S&P 500 was on average 5.9 percent lower than today.

`Fundamental Problems'

The U.S. economy won't support the earnings analysts predict, said Walter ``Bucky'' Hellwig, who oversees $30 billion at Morgan Asset Management in Birmingham, Alabama.

Economists forecast U.S. economic growth will slip to 1.5 percent this year from 2 percent in 2007 as demand for exports wanes, according to a Bloomberg survey.

Exports accounted for all but 0.2 percentage point of the U.S. expansion last quarter, when the economy grew 3.3 percent. The jobless rate rose to 5.7 percent in July, the highest since 2004, and consumer spending increased at the slowest pace in five months, government reports showed.

``Despite this upturn in the stock market, the fundamental problems are still out there,'' Hellwig said. ``Those issues haven't gone away. That would necessitate a ratcheting down of earnings estimates, and that would imply lower stock prices.''

Steinhardt's Doubts

The most bullish profit forecasts are for U.S. financial companies. In the fourth quarter, brokerages and insurers will boost earnings almost fivefold from a year ago, analysts say.

``I don't believe we're through this credit crunch,'' said Stephen Wood, New York-based senior portfolio strategist at Russell Investments, which oversees $213 billion. ``Credit portfolios are beginning to deteriorate. Financials will continue to exert downward pressure on earnings for the balance of 2009.

'' Bank of America Corp., which earned 7 cents a share in the fourth quarter of 2007 after doubling reserves for potential loan losses to $3.3 billion in the period, will make 77 cents next quarter, according to analysts surveyed by Bloomberg. The Charlotte, North Carolina-based lender, the second biggest in the U.S., gained 30 percent this quarter.

Citigroup Inc., the largest U.S. bank, advanced 13 percent. Analysts estimate the New York-based company, which reported $55.1 billion in losses and writedowns, the most of any financial institution, will earn 43 cents a share in the fourth quarter. That compares with a loss of $1.99 a year ago, Citigroup's biggest.

Michael Steinhardt, who returned an average 24 percent a year for almost three decades when he ran his New York-based hedge fund Steinhardt Management Co., said forecasts for an earnings rebound are a false hope.

``My intuition is that they are too early,'' he said. ``In an ordinary cycle, this should be the time to start thinking about buying. This isn't an ordinary cycle.''

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葉大偉親自向《中國報》讀者診斷馬股市未來“運情”。

他受訪時說，綜合指數創下1524點新高后，即進入盤整期，從《東方訣數》角度分析，馬股市7月、8月和9月份將表現慘淡，特別是9月份，將出現新低點。

“9月份馬股將迎來第一個挑戰，綜指能否把關1000點受到考驗，若不幸失守，情況令人擔憂，將陷入780至980點低水平。

“但我認為，綜指不可能跌至800多點，這將違反自然投資生態原則。”

他指出，8月和9月份是買股好時機，投資者宜趁低買入，採用一般的投資策略，即“低價買高價賣”。

明年6月轉強

“馬股將在11月和12月份反彈收高，屬于收拾腹地，並非再掀漲潮。”

葉大偉說，以個人的玄學鑽研功力，可利用《東方訣數》推算馬股未來3至5年的走勢，甚至個別股項的單日表現。

“估計2009年6月份，全球股市將逐步轉強，會出現另一輪牛市漲潮，是不可錯過的買賣時機，好行情將直到2010年初。”

惟他提醒投資者，2010年6月直到年底，全球股市將在毫無預警下掉入“崩盤”走勢，建議投資者趁早套現離場。

股票市場常言“5窮6絕7上吊”，反映股市行情看淡；若葉大偉推算準確，馬股目前的跌勢至少持續至9月份。

葉大偉說，國內投資者劃分3類，即不相信預測週期，著重公司基本面和業績報告、靠貼士過活，及採用西方技術分析或東方玄學測算股市走向。

他坦言，本地甚少投資者接受或熟悉玄學投資法，嚴重缺乏相關知識。

掌握投資金鎖匙

《東方訣數》是一套全面投資技術，涵蓋“密碼”、“實戰”、“管理”和“修為”四大層面。

葉大偉指出，對玄學一竅不通的投資者，只需騰出一天的時間就可掌握《東方訣數》的基本概念和運作。

《東方訣數》投資技術的主要工具是“羅盤”，一旦掌握全套技術，就可在全世界闖江湖，適合測算各類投資產品，包括期貨、股市、原產品及外匯等。

葉大偉形容《東方訣數》猶如一把投資金鎖匙，可開通全球任何一道投資大門，沒有地域限制。

另一面，葉大偉說，自國際原油價格突破每桶145美元（約482.85令吉）后，《東方訣數》分析數據顯示，油價上漲空間明顯增大，年底可能漲升至198美元（約659.34令吉）。

10年週期

他預測，油價99%不衝破200美元（約666令吉）天價，將從近200美元價位至少滑落30%至40%。

另外，他指出，美元指數下跌7年，“7”在玄學和聖經中有重要的地位。

“美元是世界眾多國家的掛鉤貨幣，最近很多國家的貨幣幣值，因美元貶值而顯著升值，但情況或在2008年下半年出現改變。”

“美元指數已跌無可跌，隨時反彈回升，最快將在下半年，最遲2009年初。”

葉大偉說，10年前，索羅斯狙擊亞洲金融體系，導致1997年亞洲陷入金融風暴，打擊各行各業，股市暴跌，使許多華資企業家傾家蕩產、家離子散。

他指出，10后的今天，雖然沒再發生股災，卻因為原產品價格高漲，全球引發通脹憂慮，同樣是經濟困境之一。

堅守8020原則

葉大偉秉持“多算多勝，少算少勝”的投資精神，測算股市下一分鐘起或跌，推算效果驚人。

他說，研究《東方訣數》時，為了證實技術分析的準確性，公開在媒體刊登走勢預測，及預先預測金融市場走勢和即將發生的重大變化，而非“馬后砲”。

“就以美國爆發次級房屋貸款危機為例，2007年7月11日、18日、20日和25日，我們連續幾天在報章刊登小訊息‘7月尾清場，8月始轉勢；10月榴槤跌，某國有大劫’。”

“結果，全球股市于7月29日后暴跌。”

葉大偉指出，雖然預測準確度達95%，但仍以最保守的態度推算，堅持“8020”原則，即80%命中率，20%為市場實際變化率。

“測算結果再準確，也必須緊貼市場脈搏和觀察每一個細微的變化。”

他坦言，研發《東方決數》成功后，曾與股票經紀一同上班，天天到證券行報到，常常5分鐘即賺進400至500令吉。

惟后來覺得大馬投資市場欠缺透明度，隨后把戰場轉移到國際投資市場。

葉大偉簡介

葉大偉自小對中國術數如五行、陰陽、命理、風水、奇門、八卦、像數、九宮等五術玄學都有濃厚興趣，並拜訪許多明師，長期深入研究。

葉畢業于電腦系，1996年求學時期創辦公司，在許多國際展銷會中創下全場最佳銷售量的佳績，成為頂尖銷售商。

可惜1997年暴發亞洲金融風暴，許多大公司週轉失靈倒閉，在這場浩劫中，葉大偉無法倖免，身邊親朋戚友也紛紛因投資股市失利面臨困境。

葉大偉在投資生涯中起起跌跌，后來因緣巧合之下，向另一位師交學習命理玄學，尋找人生答案。

外人眼中，一名商人“淪落”成為一名風水師，實在是慘不忍睹。

事實上，這際遇給他在日后開發《東方訣數》埋下伏筆。

The four horsemen of the market

Heed the sobering investment advice of these veteran money managers

SAN FRANCISCO - As investors, they fly solo. As market observers, they don't lead or follow as much as go their own way. It's tempting to dismiss their Cassandra-like warnings as overly pessimistic and hopelessly out of step, but their track records show that can be a costly mistake.

Jeremy Grantham, Bob Rodriguez, John Hussman and Steve Leuthold are contrarian-minded investors and opinionated commentators who share one thing in common: Those who buy into their funds never know exactly where their money will be parked. It could be emerging markets or alternative energy, high-yield debt or Treasurys. And if these risk-conscious money managers don't see compelling values, they might hedge their portfolios against unruly markets or even stash a good chunk of shareholders' assets in cash until better bargains appear.

You might call them the Four Horsemen of the Market, riding ahead of the predictable approaches and traditional thinking that defines most of the mutual-fund business. While these strategists display individualistic tailoring and design, what they have to say about stock and bond markets and economic conditions should get investors' collective attention.

Jeremy Grantham: 'Officially scared'

Jeremy Grantham is not given to false alarms. The chief investment strategist at GMO, the highly regarded Boston-based manager of institutional and high-net-worth accounts, makes buy and sell decisions with a combination of computerized technical analysis and old-fashioned spadework. But nowadays, his digging for attractively valued stocks is mostly hitting rocks, and that has Grantham deeply concerned.

"The fundamentals have turned out to be worse than I had thought," Grantham said. "My advice would be, don't take any risk."

What he means is that in this market, don't be a hero; live to fight another day. Here's why: Global economic growth is slowing under the weight of increasingly illiquid credit markets and inflationary pressures. Weaker growth slashes corporate earnings, and since stock prices are tied to earnings, the outlook for equities worldwide, as Grantham sees it, is poor to middling.

"I don't consider myself a 'perma-bear,'" Grantham said. "Merely a realist."

It's a grim reality, to be sure. In Grantham's world view, stocks in both developed and emerging markets are "substantially overpriced," with the possible exception of high-quality blue-chip companies that have strong, defensible global franchises.

"I underestimated in almost every way how badly economic and financial fundamentals would turn out," Grantham wrote shareholders in a July letter. "Events must now be disturbing to everyone, and I for one am officially scared!"

One of his biggest fears, he added in an interview, is that "the whole global economy will be weaker than the market expects for quite a considerable time." How long? "I would guess at least two years of sustained disappointment."

Notably, just a few weeks ago Grantham turned negative on his "beloved" emerging markets, which had been a spot-on bullish call. "If the global economy is going to disappoint, the cost of holding them just seemed too high," he said.

Grantham is particularly uneasy about China, a leading engine of world growth that seems to be sputtering. "I worry on behalf of the global economy at the consequences of China stumbling," he said. Without China's robust demand, he added, "the whole level of global imports and exports would start to drop."

Don't hide under the mattress just yet. Grantham points out that many of the world's strongest companies are based in the U.S., which could help the U.S. market's relative performance. Moreover, he said, the weaker global picture will benefit the U.S. dollar, so the American market could turn out to be "a safe haven."

Bob Rodriguez: 'Buyer's strike'

Bob Rodriguez wants to be left alone. The manager of FPA Capital Fund and bond-focused sibling FPA New Income Fund has since June 2003 been on a self-proclaimed "buyer's strike" regarding high-quality bonds with maturities greater than two years.

Rodriguez believed then -- and is even more convinced now -- that longer-term Treasury yields aren't substantial enough to compensate investors for inflation's eroding impact on purchasing power. He wants to get 5% on 10-year Treasurys, which recently yielded 3.8%, before venturing back.

Consequently, Rodriguez continues to focus on "caution and capital preservation," as he explained to fund shareholders in a June letter. More than 40% of Capital Fund, for example, is given to short-term government agency and Treasury notes and cash.

"We will not provide long-term capital to borrowers with unsound and unwise business management practices at unattractive real yields," Rodriguez wrote. That includes the U.S. government, he noted. "We require a higher level of compensation -- i.e. more yield, for these potential risks."

The line in the sand hasn't hurt performance, however. Capital Fund, which is closed to new investors, has gained about 9% over the five years through Aug. 27, matching its midcap-value peers but with much less risk. New Income, meanwhile, is open to new money; it's 4% annualized five-year gain also was achieved with below-average risk.

"He's not naturally the most optimistic person you'll ever chat with," said Christopher Davis, a fund analyst at investment researcher Morningstar Inc. "Even in the best times he's looking for the gray lining in a silver cloud. That's one of the reasons you invest with him."

As for stocks, the value-oriented fund manager was early to embrace the energy sector several years ago and has hung on for the ride. And not surprisingly, Rodriguez steered clear of banks and other financial-services firms even as many of his value-driven counterparts saw bargains.

"By my calculation he adds about two percentage points a year through market timing or varying his exposure" to stocks, said Robin Carpenter, principal of CarpenterAnalytix.com, which develops investment tools for money managers. "That's a big number when it's added on top of the other returns you're getting. Some managers would kill for two extra percent."

Rodriguez declined requests to be interviewed.

John Hussman: 'Stay defensive'

It's tough to put John Hussman in a box. Not that you'd want to. Hussman runs two portfolios: stock-focused Hussman Strategic Growth Fund and bond-centric Hussman Strategic Total Return Fund. Both are run with a careful eye to valuations and broad economic conditions that dictate the degree of market risk that Hussman is willing to accept.

For Hussman nowadays, risk-taking doesn't offer much reward. "We're fully hedged," the fund manager said, meaning that a portfolio won't be affected, positively or negatively, by market gyrations.

The reason? Hussman said he's looking for another shoe to drop once investors recognize that the U.S. has not avoided recession.

"The stock, bond and foreign-exchange markets continue to trade essentially on the theme that the global economy is weakening, but that the U.S. has dodged a recession," Hussman wrote in his weekly market commentary in late August.

Investors' consensus is mistaken, Hussman contends. He said the U.S. is mired in recession, and once investors realize that earnings expectations are overblown, stocks will take another major hit.

"The potential downside could be abrupt, leaving little opportunity to make defensive changes after the fact," Hussman wrote.

While Strategic Growth's hedges insulate it from the market's volatility, Hussman is anything but neutral. The portfolio is fully invested in stocks, and how these selections fare determines the fund's return.

"What drives our fund is the difference in performance between the stocks we own and the indices we use to hedge," Hussman said.

That said, Hussman doesn't expect much from stocks. He predicted that U.S. market returns will average 4%-6% annualized over the next decade, primarily due to weaker corporate earnings. Given that slower-growth view, Hussman dumped most of his exposure to the commodity, industrials and precious-metals sectors, which thrive in expansionist periods, and he's spotted bargains in consumer-related industries such as health-care products and medical devices; one of Strategic Growth's top holdings is Johnson & Johnson.

"A lot of those [consumer] names in my view got too far depressed," Hussman said.

He also sees value in technology stocks, and at the end of June Strategic Growth had meaningful stakes in Amazon.com and Research in Motion Ltd.

Steve Leuthold: 'Pretty positive'

Steve Leuthold has been called a "superbear" for his extreme pessimism about stocks during the bull run of 1998, and more recently a year ago when stock exposure in flagship funds such as Leuthold Core Investment Fund and sibling Asset Allocation Fund barely scraped 30%.

Leuthold is a colorful figure, offering targeted portfolios with catchy names like the bear-market Grizzly Short Fund and the bottom-fishing Undervalued and Unloved Fund.

But Leuthold is straightforward about stock research, and he goes where it tells him. So he didn't balk a couple of weeks ago when the signs all said "buy."

Now Leuthold's allocation-driven portfolios are covering short positions and other hedges and moving from a neutral, 50-50 equity/bond allocation toward 60% stocks -- nearing their 70% maximum threshold.

"Our whole office is surprised," Leuthold said in an interview "This is quite a departure for us. I don't believe I've ever seen such a dynamic change, going from mildly negative through neutral to pretty positive."

Like Hussman, Leuthold is convinced that the U.S. economy is in recession. But he points out that the stock market typically bottoms around the midpoint of the downturn. By his reckoning, the economy entered recession toward the end of 2007, and the extensive valuation criteria he uses tell him there's now light at the end of the tunnel.

"The bottom has been made," Leuthold said. "The economy is going to start showing some positive signs sometime in the first half of 2009."

So he's getting in early, loading up on shares of biotechnology and alternative-energy companies in particular, and keeping a modest amount in oil drillers and natural gas producers.

Enthusiastic stock buying sets Leuthold apart, but it's in keeping with his iconoclastic ways.

"I guess I still am a contrarian," he said.

"He's definitely not your standard money-management personality," added Greg Carlson, a Morningstar fund analyst. "His approach is quite different from the norm. It's his willingness to be bearish that sets him apart."

More volatility seen with hurricane, payrolls

NEW YORK - Wall Street is set for another volatile week after the Labor Day holiday, as investors track the price of oil, key economic data and continued fallout from the credit crisis.

All eyes will be on Hurricane Gustav and its potential to disrupt U.S. Gulf Coast oil production and refining operations on its expected land-hit early in the week. Any new threat to oil production could boost the price of crude and in turn cause stock investors to sell shares on fears that inflation pressure will rise.

Investors will also contend with a barrage of economic data next week, notably the August payrolls report due out on Friday and two reports on U.S. factory activity from the Institute for Supply Management.

But the hurricane will be the main focus at the beginning of the week. On Friday, officials said the storm would build to a dangerous Category 3 hurricane when it hits land.

In the past week, oil prices have surged and retreated on concerns about the storm's path, strength and the readiness of U.S. emergency officials to handle any disruptions.

Crude oil hit $120 on Thursday before settling at $115 on Friday, bolstered by a stronger dollar.

Gustav "will probably be moving the market one way or the other," said John Praveen, chief investment strategist at Prudential International Investments Advisers LLC in Newark, New Jersey. "If it fizzles then it will be a big relief on oil prices."

Also driving the market next week are several government economic reports.

This data comes after the U.S. government said gross domestic product grew at a robust 3.3 percent clip between April and June, above initial estimates of 1.9 percent.

But analysts said the strong showing was largely the result of increased exports.

"If you look at GDP, you're led to believe the economy is solid," said Hugh Johnson, chief investment officer of Johnson Illington Advisor in Albany, New York. "But if you look at the variables -- employment, industrial production and personal income -- the economy does not look solid but weak."

On Friday, all three major indexes fell more than 1 percent and all 30 stocks in the Dow industrials finished in the red.

Economic data added to the market's jitters after a government report showed U.S. personal income fell unexpectedly in July while spending slowed as the effects of a government stimulus package wore off.

An inflation measure hit a 17-year high.

The Dow Jones industrial average closed down 171.47 points, or 1.46 percent, at 11,543.71. The Standard & Poor's 500 Index was down 17.93 points, or 1.38 percent, at 1,282.7. The Nasdaq Composite Index was down 44.12 points, or 1.83 percent, at 2,367.52.

For the month, though, the Dow added 1.5 percent, while the S&P rose 1.3 percent and the Nasdaq gained 1.8 percent.

The August jobs report from the Bureau of Labor Statistics, is also expected to be weak, with an overall decline in non-farm payrolls of 85,000 and no change in the unemployment rate of 5.7 percent for August.

In July, U.S. non-farm payrolls fell for a seventh straight.

Another month of hefty job losses would reinforce those who argue that the economy remains in poor shape, Johnson said.

Market watchers are also awaiting data on U.S. auto and same-store retail sales for clues about consumer spending in the upcoming holiday season, along with the Federal Reserve's Beige Book.

"The markets are extremely volatile and moving according to macroeconomic news quite a bit," said Prudential International Investments' Praveen. "All of this data has the potential to be moving markets."

Investors will also be tracking new developments among financial companies, particularly beleaguered mortgage giants Fannie Mae and Freddie Mac, and Lehman Brothers Holdings Inc, which is shopping its asset management division arm.

Lehman, the fourth-largest U.S. investment bank, is looking for buyers for some $40 billion of commercial mortgages and property on its balance sheet.

Although developments in the race for the White House will not take center stage, analysts said that Wall Street will be watching the Republican National Convention next week for long-term market implications.

Investors will particularly hone in on Sen. John McCain's tax and energy policy, especially following his selection of Alaska Gov. Sarah Palin as his running mate.

"The markets are not going to be happy with an Obama presidency...and McCain is not particularly loved by Wall Street either," said George Schwartz, president at Schwartz Investment Counsel in Bloomfield Hills, Michigan.

But with Palin, "conservatives are going to come out roaring in favor," Schwartz said. "It's going to be a positive influence on economic activity."

Schwartz added that the pairing could impact oil prices, especially if Palin and McCain say they strongly support off-shore drilling.

"That premise of additional supplies is going to further take the speculators out of the market and cause them to put downward pressure," he said.