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Know Your Muppet – Morgan Stanley Examined!


Our first candidate is Morgan Stanley or MS as in MS-13.

Morgan Stanley is a large investment bank with assets of $895.4b as of 31 Dec 19. The thing that sets Morgan Stanley apart from other banks such as JP Morgan or Citigroup is that MS has a much smaller consumer loans footprint. Its main clients are large companies, hedge funds, money professionals and rich people. Perhaps the most important set of clients are money people, who manage retirement funds for good blue collar Americans like Teachers. I think this will be an important point to keep in mind. Wall Street has always been a treacherous place and retirement plans promising a return above the Government bond yield usually blow up spectacularly but don’t expect Wall Street to shoulder the loss.

So to understand Morgan Stanley, we have to understand two parts of their business: the Institutional Securities business, or IS as in Islamic State,  and the Wealth Management business or WM. We also have to be able to differentiate from what is called the Banking Book and the Trading Book. I know it hurts, but I’ll try to make it very simple.

The Banking Book can be understood as the loans the bank intends to keep. The bank makes money by earning a higher interest on the banking book than what it pays to obtain the funds to “support” those loans. So the right first question to ask is, what kind of loans are on MS banking book. As of Dec 19, MS had about $130.7b of loans on its banking book. The main components are Corporate Loans – $59.3b, Consumer, mostly security margin loans of $31.7b, Residential Real Estate loans of $30.2b, and Commercial Real Estate loans of $9.9b. 

Morgan Stanley’s $260B exposure explained. Click on the picture to get the details.

So far, so good.

The interesting thing that lawmakers and readers may get confused is even though MS loans are at $130.7b, there is another figure called Credit Exposures of $262.0b, a number approximately double the loans number. So what this really means in an oversimplified way is that, in theory, if all MS customers were to draw on all their facilities at the same time, and MS did nothing to stop it, then MS loan number will balloon to $262.0b. So quite logically, the difference of $120.1b is actually called the undrawn or “commitment” part. (Small note: if you add $130.7b to $120.1b you will be slightly short of $262.0b. The difference of $11.3b refers to loans on the trading book, which we will come to shortly). This concept will be extremely important when we discuss JP Morgan.

With the United States facing the equivalent of the Great Depression, Members of Congress will ask, will the banks come begging for cash after their billion dollar bonuses and thumbing their noses to Main Street? 

Many may still remember how Morgan Stanley came desperately close to failing at the last financial crisis and only a $10B lifeline from Mitsubishi UFJ saved the bank from becoming the next Lehman Brothers. So did Morgan Stanley learn anything?

The answer actually is ‘Yes’. Of all the muppets/banks we profile, MS actually earns the Kermit the Frog rating. To say, it gets the best. 

For hedging its entire loan portfolio and having a strong equity tier, Morgan Stanley gets the best possible muppet rating

The things to note about MS is that the bank is ultra well capitalized. It had a total capital of $82.8b, of which Common Equity Tier 1 ($64.7b). Capital is like a shock absorber and Common Equity Tier 1 or CET1 is the best shock absorber around. (Of course, MS just made a rather ill-timed decision to buy E*Trade recently for $15b, but its still ultra strong)

The second thing to note is that MS is a “serial hedger”, which is a good thing. MS bought $236b of Credit Default Swaps to protect its portfolio. Its not about having some insight into the Coronavirus, MS actually has being doing for a long time, as they were probably scarred by the financial crisis.

Morgan Stanley literally hedged their entire loan portfolio. That insurance is worth billions right now.

Ok, that leads to this whole thing about what a Credit Default Swap is. The Member of Congress explanation: its insurance. So rightfully, people will think won’t all this insurance cost MS some serious cash? The answer is yeah, from recording an asset of $1.3b at the end of Dec 18 when markets were going mad with fear, MS had to record a liability of $2.3b at the end of Dec 19 when the markets were going mad with greed. So this difference of $3.7b was the cost MS had to “pay” to keep itself ultra protected.

Of course, the question still remains, which muppets were on the other side of this insurance deal? Who were the guys happy to take the $3.7b and then end up on the hook for the $236b. 

The answer is we don’t know right now, but they will sure come knocking on Congress door really soon.

So that is the skinny of the MS story for Members of Congress. MS is almost immune to the financial crisis because the Fed will bailout whoever sold them all the insurance. That is perhaps why MS could confidently state that on its DFAST stress test, which was mandated by the Dodd Franks Act, MS will only lose $2.2b on its loans most of it due to its insurance.

Now a couple of things to note here. The first question is this entire “insurance cost” of $3.7b. One question would be why did it “cost” MS $3.7b for 2019 when the markets ended really good? Logically, shouldn’t insurance get cheaper when everybody is promising sunny skies and get more expensive when we are facing the end of the world, again.

That is a right question to ask and it is important for Members of Congress to have a little understanding of how these CDS or Credit Insurance work, because this will be a big part of this year’s edition of the Great Financial Meltdown. To put it simply, Credit Insurance is a game between two parties (or muppets) that gets reset periodically, let’s call it a year for argument’s sake. So for argument sake let’s say that MS entered into these contracts at the end of 2017 to insure $260b of its loans and to make things concrete, let’s say that the “credit spread”, or really the cost of the insurance was 100 basis points or 1%. So what this means is that MS agrees to sort of pay the other muppet 1% of $260b or $2.6b for its insurance, but in reality that does not happen and we will explain why shortly when we understand this concept called ‘mark to market‘. 

So now, lets roll forward 1 year to the end of 2018 when the markets had gone crazy because Jerome Powell had not rolled over to their liking and the entire US China Trade War thingy. The cost now has shot up to 2%, but MS had entered into a contract paying 1%. So MS sort of gained 1% or 100 basis points in value and the other muppet had to “sort of pay” the 1%. That is why at the end of 2018, MS recorded an economic gain, or an asset of $1.4b. 

Now roll forward 1 year to the end of 2019 when the trade war was over, America won, Jerome Powell and the Fed had rolled over, the Dow was reaching new highs and crazy people actually believed that WeWork was worth more than $0. The cost of insurance has plummeted, and it only costs 50 basis points or 0.5% for the same insurance. MS now lost the spread of 1.5%, being the difference of the cost of 2% at the end of 2018 and the current cost of 0.5%. So MS records a liability, or an economic loss, of $2.3b. So from an economic gain of $1.4b, MS now has an economic loss of $2.3b, a reversal of $3.7b. That is sufficient for today’s exposure on CDS, we will develop on this as we feature other muppets. But the key point to note is that MS always bought insurance, they did not try to time things, they probably never wanted to suffer the same fate they suffered in 2008.

So for 1,400 words we have covered $130b of MS portfolios, which surprisingly 14.5% of its portfolio. So try to get more economical on the remainder of the $764.7b of its assets, which we will cover in 800 words.

So to do that, we need to look at the trading book for MS, which was $355.9b or 39.7% of its assets as of Dec 19. A good question is what is a trading book and how is it different from the banking book and should this bother Members of Congress.

To understand that we need to understand two things: VAR and the Bank’s VAR Police.

VAR or Value At Risk means quite simply, how much the minimum the bank could lose each day on a really bad day, or to be more exact the worst 5 days out of a 100. The number changes depends on what kind of risk the bank takes and how crazy things are out there. For MS, the VAR ranged from $33M to $55M for 2019. The model that measures a bank’s VAR needs to be approved by the Federal Reserve.

Let’s get a bit more detailed over her. So there were approximately 222 trading days and did MS actually lose $33M on any single day? The answer is no and that is because the whole idea of having a VAR is not to breach it – in fact if MS states that if its VAR gets breached more than 21x a year, they would throw out the model. And the task of ensuring that the “cowboy traders” do not try to take on excessive risk falls on the bank’s VAR police, or its Market Risk Managers. 

This is an important point to understand. 

A financial institution’s trading book cannot be effectively supervised by the Federal Reserve because it could change day by day or even within the day. A bank could start the day having a certain position and end the day taking complete opposite positions – that is the essence of trading. The task of the Federal Reserve is to ensure that the bank’s VAR models have some sort of validity and that the Management of the bank ensure that the VAR police supervise the cowboy traders and not the other way around. VAR police must be given the authority to pull over a speeding trader, give him a caution or kick him out of the office if he misbehaves again.

The Banks VAR police are supposed to stop offenders so the tax payers don’t end up bailing them out.

However, too often in some financial institution, the cowboy traders determine how much compensation the VAR police which renders the entire control meaningless. These things usually ends up in the Treasury Secretary taking the knee in front of the Speaker of the House Representatives begging for more taxpayer money to bailout these muppets.

So to wrap things up, lets see what kind of risk MS had on its trading book at the end of 31 Dec 19.

MS Trading Book as of 31 Dec 19

So on its $355.9b trading book on 31 Dec 19, we think of it in terms of VAR Risk.

MS had about $26M of Interest rate and credit spread risk, $11M of Equity Price risk, $10M of Foreign Exchange Risk and $10M of commodity price risk, for a total of VAR $57M. MS claimed that things don’t move altogether at the same time so claimed a $27M VAR credit and stated that its trading book VAR was $30M. So it means, for 5 days in 100, MS could lose at the minimum $30M, but these occurrences are so rare  that it can only happen at most 22 times in a year before it throws out the model. To put in perspective, MS claims that the minimum it could lose on the 5 worst days out of a 100 was at least $30M on a portfolio of $355.4b, or less than 0.08%. Sounds crazy, but in 2019, it did not even register a single day when that $30M limit was exceeded.

So if you have come all the way here and are disappointed that you have yet to find that smoking gun to hammer the bank CEOs, fret not. Morgan Stanley run a good shop, but there will be other muppets who ran a loose amoral house and we will equip Members of Congress with the right information to give those CEOs a good ol’ grilling.

But for extra credit, we can reveal some more salacious parts of MS portfolio. However, don’t get your hopes up because MS has hedged its entire credit portfolio, they ran a tight shop, or that what it seems on the DFAST and their 10K.

  • MS Commercial Real Estate exposure (aka offices, malls and factories) as of end 2019 was $12.0b, comprising $9.8b on its banking book and $2.0b. Commercial Real Estate will feature heavily in this year’s financial crisis due to that monstrosity called WeWork.
WeWork will hit US Commercial Real Estate real hard when it goes under. MS however was not the muppet which lent it $1.8b. (Hint: Think Vampire Squid)
  • MS “sponsored” Special Purpose Vehicles of $189.1b, where its total exposure was $29.0 billion. This includes $11b of exposures to CDOs , remember that stuff.
  • MS warehouse lending facilities was $29.7b. This refers to financing MS provides to other Real Estate Investment Trusts which are the epicentre of this year’s disaster.
  • Get familiar with these names: MTOB or Municipal Tender Option Bonds. We will cover this in another segment, but MS exposure to unconsolidated / outsourced MTOBs was $4.7b in derivative assets. 


This is the first in a series about large US Financial Institutions so as to give the required understanding to exercise their oversight for the benefit of the American people*
Sorry I lied. I want to educate Members of Congress so that give those bank CEOs a good ol’ kicking for the common man out there. 

War to follow after Coronavirus

Coming to a TV near you: Naval war this fall

On the 30th Mar 2020, The Rembau Times made a startling prediction that once the Coronavirus, or #CCPVirus, dies down, the world will have to prepare for yet another issue: an armed military conflict between the United States and China over Taiwan.

From our point of view, the path to war has already been cast in stone. If one characterized the view Congress had over China as being negative in 2019, currently this view is probably downright hostile and China is seen as a hostile threat that needs to be dealt with. After all, Dr Fauci, the physician pivotal to the Trump administration’s response to the Coronavirus has cautioned Americans  that the final death toll from the Coronavirus to be in the hundreds of thousands range. This figure is comparable in magnitude to the the 300,000 American lives lost in World War 2. America will undoubtably demand a response.

America will demand a response to the lives lost due to the Coronavirus

The path to war starts on the steps of the Capitol in Washington DC.

The TAIPEI act, or S.1678 / HR. 4754 Taiwan Allies Protection and Enhancement Act (2019) which has been signed into law will probably be the catalyst for the confrontation . There are other legislation making its way through the cloakrooms of Congress , which further recognises  Taiwan’s status as an independent country, a move Beijing has deemed as a redline that should not be crossed . Other European nations are expected to make similar formal declarations attesting to Taiwan’s independence, shattering the myth one China, or 1China diplomatic smokescreen the Chinese Government has demanded that nations adopt in order to keep the People’s Liberation Army in their barracks.

President Xi will see a short war with Taiwan as a way to re-establish himself.

But of course the path to war has less to do with nations seeing past a diplomatic smoke and mirror act, but more to do with why almost all wars start in the first place: The Preservation of Power. And in China, this means President Xi Jinping’s grip on absolute power in China, which is weakening day by day as the country faces up to the reality that an economic disaster is at the door and there is little the Chinese Government can do to prevent it. The Coronavirus has shattered China’s export oriented economy, meaning that factories will start laying of millions of workers, creating massive social unrest that could cause the collapse of Xi’s government.

Faced with a collapsing economy, being shut out of the world’s major markets, the President Xi will roll his final dice in his efforts to remain as China’s equivalent of Chairman Mao : A military confrontation with Taiwan or even with the US in the Straits of Taiwan. President Xi will argue that the unrest is not a part of any issue specific to himself but rather threatens the fate of the Chinese Communist Party. If readers don’t understand this, the Peoples Liberation Army swears their oath of alligience first to the Communist party, and the nation of China is somewhere in the background. So in order to perpetuate the legitimacy of the party, President Xi will argue that some sort of mass wave of nationalistic fervour will be demanded, something wars usually create at its onset.

If you think that the Pentagon is not currently actively preparing for this, think again.

A short 21 day conflict between the United States and China in 2020 will follow shortly
Picture Credits: Public Radio International

The Trump White House will actually jump at this opportunity. As current polls go, President Trump will be a one-term President. He gambled on the stock market and the economy, the former with the Dow at 22,000 gives an indication of some eventual recovery; the economic indicators on the other hand gives readings not even conceivable in any of the doom and gloom scenarios banking regulators conceive in their annual stress test exercises.

Let that sink in for a moment. The Fed, the ECB and the Bank of England have never come out with a stress scenario which mimics the current conditions we face now with the world being shutdown over the Coronavirus (#CCPVirus). The readings we get are off the charts, and given the likely loan defaults, destruction in demand and so forth, the chances of a recovery before November don’t look so good.  And President Trump will not fancy losing giving up power to President Joe Biden : it ranks second to worst to President Trump’s worst fear of giving up power to President Obama, which the US Constitution happens to forbid.  So a war between the US and China is in both the interests of the occupants of the White House and the Forbidden City.

You have been warned by the Rembau Times, the only organisation that predicted Trump, predicted Brexit, predicted the Malaysian General Election, predicted the collapse of the new Malaysian Government and now predicts this.

How to contain the Coronavirus

Credits: Nature Magazine

As the global coronavirus epidemic grips the world, governments are at a loss over how to contain the virus stopping short of issuing nationwide lockdown orders which can cripple the economy and create significant mental health issues to an over stressed health care network.

The key in our strategy focuses on the big issues, which is

  1. Creating on demand secondary healthcare facilities
  2. Using dynamic real-time risk based assessment of Covid-19 and other pandemics that will emerge

3. Autonomous cars to ferry people with self-isolating cubicles

4.  Mass temperature screening checkpoints


  1. Creating on demand secondary healthcare facilities

We now have assembly-lines that can take raw a metal skeleton and produce a car or truck at the end of the assembly line. The question is why can’t turnkey healthcare facilities, that are configured to deal with an epidemic be designed in such a manner? The issue is that of specialization : a healthcare facility is usually designed to handle multiple possible care pathways which require a rather cell-based service delivery as opposed to a production line.  And this has worked well in the past when the service is highly personalized and care giver to patient ratios are within the limits of the entire healthcare system. But in the case of the Coronavirus epidemic, a mere increase of 250,000 active cases, which represents less than 0.0005% of the total developed world (assumed to be 500m population) has the entire system in a flux.

The answer: The Government, perhaps the US, should get the major players, namely the car companies (like GM), the airplane manufactures (like the Boeing),  the tech giants (like Apple), the medical device manufacturers, the civil engineers, the hospital designers and the care providers,  to come out with a blueprint design of a production line orientated hospital unit that can be shipped out and rolled on demand. I think the US has shown in the past during wartime crisis that the capacity for innovation is outstanding and the US does boast some of the best “out of the box” thinkers as well.  Basically the parameters of a solution are (a) structural integrity by limiting loads on all points so that a hospital can be assembled without the need for time-consuming earthworks, (b) reducing the patient to caregiver ratio through automation, remote technology and (c) ensuring modularity so that the space can be expanded and contracted on-demand. There are probably many other factors as well as medico-legal implications which could be expanded upon. However, the Constitution is created by man and can be changed by the representatives of men as the situation requires.

The use case is massive: Hospitals that spring up in the middle of now-where to dynamically cater to a health emergency and then shut down when the emergency is over.

The alternate state is a system that is crippled which benefits no one.

2. Dynamic realtime assessment of Covid-19 (and the next Covid until countries which allow the exploitation of wild animals are not ejected from the world’s financial system).

In a scenario like what we face today, the function of an individual acquiring an infection is related is a factor of how many people the individual interacted with over a period of time. So for argument’s sake, suppose an individual is able to go about his or hers daily life within a limited circle, necessarily all things being equal, that individual presents less of a risk of being a potential ‘spreader’ of a virus than another individual who interacts with many other people.  And in any basis risk assessment protocol, groups which are of a higher risk warrant a higher level of risk assessment, perhaps regularly checking in to a specially designed booth for an assessment than groups which are not. This is where wearable technologies can come into play. If groups were to have their wearable on their wrists at all times when outdoors, the tech gadget could record interactions with others through some communication protocol.  In the event that someone in the group they interacted with acquires an infection, the contact trace can be done immediately.

Aside from the ethical implications (the alternative is total lockdown), there are some criminal justice implications as well. For example, a person more likely to commit a crime will probably not wear the wearable so this would require some sort of law enforcement technology that will allow an officer to immediately identify such individuals like an afterburner to a heat-seeking missile.

I think item 3 – Autonomous vehicles and item 4 are quire self explanatory and need not require further elaboration from a humble news outlet.

The key idea that lawmakers and industry should consider are these startling facts. The current rate of active people diagnosed with Covid-19 is about 400,000 globally and the world has gone into meltdown. Solutions need to be developed and be shelf ready to deploy as and when the political climate allows it.

(Apologies for the awful php errors. 
Hopefully the host has provided an SSL Connection)

An incompetent Government is thrown out.

We saw this 14 months ago

On December 21, 2018, The Rembau Times officially withdrew support for Pakatan Harapan and made a prediction that UMNO will be back in power within 24 months. At that time, many sneered and said that we were ‘smoking something’ or crazy.

Today we are proven correct as Tan Sri Muhiyiddin Yassin is appointed as the 8th Prime Minister on the back of an UMNO -PAS coalition. Even writing about PH is a waste of time as PH never followed any of our advice. However, for the sake of closure on PH, we will spend about 10 mins to pen our thoughts on why PH government fell and why there is 0 chance right now of any hope of PH returning to power.

The main issues

  1. Seafield temple issue

PH fell because it was clearly obvious to everybody that by the end of 2019, the PH Government had lost the support of the rakyat.

PH could not even defend seats which they had won with a strong majority as the Malay electorate completely shunned PH.  The reason – Seafield Temple issue. PH did not follow our advice to sack a) Waytha and his gang, b) the DAP EXCO member (Ganabatirau) who came up with a stupid statement, c) enforce the rule of law.

 2.  The Economy

PH completely messed up the economy from the first day. The decision to abolish GST was stupid as it deprived the Government of an important source of revenue and at the same time, the imposition of new taxes resulted in prices remaining high due to ‘price stickiness’.  This is basic economics. Furthermore, PH never seriously courted the important fund managers who could have contributed to portfolio inflows. Their Economics team fought with foreign fund managers when they should instead of answered in a diplomatic way and did many roadshows. None of these things happened, the Ringgit never recovered and the economy went down. This issue caused PH to even lose their core Chinese support as shown in the defeat PH suffered in Johor. I give Guan Eng and his team an ‘F’ for the economy. Johari Abdul Ghani, the ex-Minister of Finance 2 would have run circles around them!  Even Najib would have done better!

3. Infighting within PKR

The infighting within PKR was a direct contributing factor. PKR MPs could not even understand the most basic fact in politics, which is if an election was called today, PH will lose flat out. Their support has been eroded but the YBs with their oversized egos could not see this. PKR infighting however is nothing new, but the people got sick and tired with it.

4. Losing the civil service

PH lost the civil service quite early on with DAP’s extremely hostile attitude. Remember how SPAD was closed down by Minister Anthony Loke? A very unwise move to make so early into the administration. Furthermore, PH came in like a conquering regime, so eager to appoint their Special Duty officers who then behaved like they owned the ‘Government’

Well, the civil service need not worry about that anymore.

5. ZERO Tactical Intelligence

PH Government had virtually ZERO tactical intelligence. By tactical intelligence, we mean how the Government conducts itself so that it is perceived favorably by the rakyat. A Government that is tactically intelligent knows what to message to the rakyat , when to keep on message and when to change the message.  I think the only message I can remember from the PH Government is that Malaysia has a RM 1 Trillion debt problem and that the source of humanity’s pain is Najib! They may even blamed the coronavirus on Najib too if they had the chance. Their messages were disjointed and ineffective.

There never was an effort to to form a centralized Governments Communication HQ to co-ordinate between all the various diverse parties. DAP MPs like Ramkarpal were always quick to hammer their Prime Minister in social media so people had the impression that Tun was walking a tightrope. How stupid can that be. For 60 years, DAP behaved like the opposition and when they finally became the Government, they still behaved like the Opposition.

Well since they like behaving like the Opposition so much, they can continue to do that as His Majesty’s Loyal Opposition.

6. Incompetent Cabinet

The PH Cabinet was mostly incompetent. From ‘Flying Car’ Ministers to Ministers avoiding Parliamentary duties. The only Cabinet Minister that deserves some respect is the ex Minister of Health, Dr Dzul, who happens to hold a PhD from Imperial College. His intelligence was clear when he enforced the smoking ban on restaurants. That was smart.

7. Tun Dr Mahathir

He should have stepped down last year. There was a window of opportunity to hand over the Government to Dato Seri Anwar in February 2019 after the stunning defeat at the Cameron Highlands by-election. But he wanted the KSM medal.

Anyway, as we said 2 years ago, failure to solve the Pastor Koh case would mean that this government would fall. And so it did.

Enough time wasted on PH.

Update: 01 Mar 2020

To recap, we predicted that Tun Dr Mahathir would become PM in 2017, and he became PM in 2018. We predicted that the PH Government would fall within 2 years in Dec 2018, and it collapsed in Feb 2020. So now comes yet another prediction :

Bossku will be back in Sri Perdana!

When the dust finally settles, Najib will be re-established as Prime Minister.

Time frame: 1 year. 


UK General Election – Arise Commissar Corbyn

Commissar Corbyn set to be named as UK's next Prime Minister. Credits: Money Week

The UK Election is coming soon and the stakes would appear very high. If Jeremy Corbyn becomes Prime Minister, the some investors are afraid that the FTSE and the pound could crash by 10%.

Having done the maths, The Rembau Times is now coming with the bold prediction that Labour will form a coalition Government with SNP, sending Jeremby Corybn to 10 Downing Streer as the incoming Prime Minister of the UK.

(Note: To those unfamiliar with UK politics this is considered as likely as Malaysia beating France to win the World Cup. If any pollster predicts a Corbyn as PM scenario, he will likely be fired for suspicion of being drunk on the job.)

We repeat this is totally against all opinion polls that are predicting a Conservative victory. If you follow the experts, it means Rembau Times is dead wrong!

This stunning turn of events would probably shock the financial markets on Friday.


Eventhough Corybn is universally hated by the British public, the UK election this Thursday will turn on something uniquely British – the Weather.

Based on current estimates, the following is the weather forecast during election day.

Winds of up to 100mph are expected to batter the UK with yellow warnings now put in place. More stormy weather is coming – and it will be joined by heavy rain and freezing temperatures on election day on Thursday. The Met Office has put the warnings in place for most of Scotland and the north of England for Tuesday.

This will deter “Old Folks” (50 and above) from going out to vote which will severely affect the Conservative vote count in the toss up parliamentary constituencies. If the weather was not a factor, Boris Johnson’s conservatives would win the election outright with a 10 seat majority.

However, with the weather playing a factor, the turnout for the old folks will be disproportionately lower than accounted for, leaving Labour to triumph in key voting areas on a reduced count.

Our final count has

  • Labour – 289 seats
  • SNP  – 41 seats
  • Conservatives – 302 seats
  • DUP – 10 seats
  • Sinn Fein – 7 seats

Labour to form a coalition Government with SNP, DUP and Sinn Fein, for a total of 347 seats, 22 seats higher than required to form a majority. The impact on this on FTSE could be quite massive, as many investors are very afraid of Jeremy Corbyn

The full seat by seat prediction is over here.

两个王国的浪漫 (English Translation Follows)


30年前,一位仁慈的国王收回了一大块土地,这块土地已经被一群外国土匪夺走了100年。 那时,这个国王负责另一个王国,这个王国大得多,需要他的注意。 所以他任命了一群太监监督土地,直到他重新整合土地到他的王国的时候.

然而,太监是奸诈的,充满了愚蠢。 他们缺乏管理土地人民的判断力和智慧,并且总是与生活在土地上的富有的官僚们站在一起。 每当人们抱怨时,太监都表明他们的不公平方式也是国王对待他的其他臣民的方式,但这是一个谎言。 随着太监和官僚们变得富有,人们变得贫穷,愤怒,开始怨恨国王。

有一天,太监喝醉了,出了一个让很多人不高兴的裁决。 当土地的人听到这个消息时,他们非常生气,开始抗议。 但太监不停地说,这是国王的意志,人们将不得不接受它,而他们变得更加醉酒和疯狂。 日后的一天,人们似乎抱怨,但奸诈的太监只是做了愚蠢的笑话,并没有注意。

在那之后不久,一些曾试图与太监辩论的村里的孩子正在走回自己的家,当一个腐败的官员,秘密放出一包狂犬来袭击贫穷的村民。 许多人被严重咬伤,其中包括小孩子。 当村长问太监为什么不早点解决疯狗的问题时,太监耸了耸肩说:”我们不能拍摄狗,因为这些狗还在摇尾巴,所以他们的意思是他们只是想玩。”


他们记得,当他们在以前的土匪下时,疯狗被关在笼子里。 尽管以前的强盗允许这些疯狗在土地上,他们只允许这些狗咬其他狗,在斗狗比赛。 这是非法的,但容忍。 然而,今天他们不仅不满这个愚蠢的法律,他们还必须与疯狗问题抗衡。

你认为村民在那之后做了什么? 结束阶段1.


Romance of Two Kingdoms

30 years ago, a benevolent king received back a great piece of land which had been lost for 100 years to a group of foreign bandits. At that time, this king was in charge of another kingdom, which was far bigger and need much of his attention. So he appointed a group of eunuchs to oversee the land until the time was right for him to reintegrate the land to his kingdom.

However, the eunuchs were treacherous and filled with stupidity. They lacked the judgement and wisdom to administer the people of the land and always sided with the rich mandarins who lived in the land. Whenever the people complained, the eunuchs made it appear that their unfair ways was also the same way how the king treated his other subjects, but that was a lie. As the eunuchs and the mandarins grew rich, the people grew poor, angry and began to resent the king.

One day, one of the eunuchs got very drunk and in their drunken state came out with a ruling that upset a lot of people.  When the people of the land heard about this, they were very angry and started to protest. But the eunuch kept on saying that this was the will of the king and the people will just have to accept it , while they became even more drunk and crazy.  Day after the day, the people appeared to complain but the treacherous eunuch just made silly jokes and paid no attention. 

Not long after that, some of the village children who had tried to reason with the eunuch were walking back to their home when a corrupt official, secretly released a pack of rabid dogs to attack the poor villagers. Many were badly bitten, which included little children. 

When the village head asked the eunuchs why they had not taken care of the mad dog problem sooner, the eunuchs shrugged their shoulders and said: ‘We cannot shoot the dogs because these dogs are still wagging their tails, so they mean they just want to play.”

The villagers got very angry when they saw their children crying after being bitten all over their body. 

They remembered that when they were under the previous bandits, mad dogs were kept in cages. Even though the previous bandit allowed these mad dogs on the land, they only allowed these dogs to bite other dogs, in dog fighting contests. This was illegal but tolerated. However, today not only are they upset with this stupid law, they also have to contend with the mad dog problem. 

What do you think the villagers did after that? The End – Phase 1.

The Rembau Times is not pro-China or anti-China, we are anti-violence and anti-stupidity.

3 years ago, China’s Foreign Minister , Wang Yi lectured a Canadian reporter who asked a question during a joint press conference with the Canadian Foreign Minister on the actions concerning booksellers in Hong Kong who were abducted and taken to China. 

3 years ago a Canadian reporter was asking questions about the booksellers. Today, its the United States Congress.

Listening to that press conference, we agree with the point that China is currently the world’s second largest economy and has managed to lift 400 million people out of poverty – a great achievement. 

Questions are now being asked by the United States Congress, who have much more power than a reporter.

However, 3 years later, China is now not facing the prickly question of a reporter but the United States Congress and the White House.  Even though US is deeply divided the “Protect Hong Kong act” will become law in the United States in 2 weeks and specifically mentions in Section 17 the names Gui Minhai, Lee Bo, Lam Wing-kee, Lui Bo, or Cheung Chi-ping.  

Moreover, China has no friends in Washington DC, only politicians who hate China and those who hate China even more.  Those who are in charge of Hong Kong’s policy have miscalculated badly.

The question to ask is not whether China can fight the United States or not, because that is an emotional question and the answer is whatever the outcome, there will be many shattered bones, everywhere.  One question is where will these bones emerge?

In New York? In London? Or in Wanchai? In Kowloon?In Taipei? In Shenzhen?

The question to ask is why did China hire a bunch of stupid drunken eunuchs to be in charge of Hong Kong and create this problem in the first place.  Who was stupid enough to think that in today’s day and age , you can release a bunch of gangsters into a metro station, beat people and then go and pretend that everything is ok. Don’t they know that this will surely get shown on every TV not only in Hong Kong but throughout the world.

That is a question only China can answer.

In the meantime, resolution HR 3289 comes up for a vote next week. 

Note: The Rembau Times predicted Donald Trump’s election in 2016 over here and the Malaysian General Election of 2018 over here.  Two days ago, we predicted that if things remain as it is in Hong Kong, there will be a chaos. We hope we are wrong.

Sack Carrie Lam! Appoint Michael Tien ! Save Hong Kong from disaster!

Hong Kong – We provide the answers


On the 31st of March 2019, the Civil Rights Human Front (CRHF), a platform for 50 Hong Kong pro-democracy groups, marched from Southorn Playground in Wan Chai to the Central Government Complex in Admiralty to protest against the Hong Kong Extradition bill.

This is how it started some time back.

6 months later, Hong Kong is facing a question that has never been answered since its cessation to the British in 1842, – a 177 year old question that the Rembau Times will answer today, and that question is will this end be a typhoon that blows away, a Tiananmen style  crackdown or with the Independence of Hong Kong.

In order to understand the Hong Kong situation, we have to choose the right lens in order to see what the total sum of all actions points to. There are two possible lenses to use

Option A This is a protest for greater democracy that will die out as the Umbrella Movement in 2014. It will end when the economic cost becomes unbearable for ordinary Hong Kongers and the country slips into a deep recession.

Option B This is the initial stage before a revolutionary movement for Independence of Hong Kong which will end either like the Hungarian Revolution of 1956  or the French Revolution of 1789 or the American Revolution of 1776.

The gang attack in Yuen Long station in Jul 2019 was funded by corrupt businessmen trying to curry favour with China.

To answer this question, we need to consider the 2019 protest against the 2014 Umbrella protest which lasted 80 days and has been largely forgotten. From The Rembau Times point of view, there are several big differences between the 2019 Movement and the 2014 Movement, which makes the situation at least much more severe than it was in 2014

The biggest difference are

Hong Kong independence may be on the agenda for the 2020 US Presidential elections if things don’t resolve soon.
  • There is an unofficial Anthem for the movement which legitimises it as a struggle for independence
  • An active militia has been formed and is gaining training experience
  • Violence is employed and a stated objective to disrupt Hong Kong’s normal activities
  • Objective of the movement is to escalate the situation to take it to its logical conclusion 

Adoption of an unofficial anthem

Hong Kong protest movement has an unofficial national anthem. See link here.

The movement has created the unofficial anthem – “Glory to Hong Kong”, which is quickly gaining widespread adoption among the segment of  Hong Kong population who see this movement as something bigger than just a protest. This anthem unifies the movement and propels it further, giving them the identity which is Hong Kong is not a part of China, but Hong Kong is a country on its own. At the same time, this also causes the supporters of this movement to reject all symbols of China’s current sovereignty over Hong Kong.


The Militia

Hong Kong’s protest militia are drawn from the youth and gaining experience in their encounters with the police.

A militia is a military force raised from the population. Over the last 6 months we have seen protesters transform from wearing ordinary clothes to wearing protective gear, much like a “ragtag” army. The trigger for this was no doubt the incident in Yuen Long on the 21 July 2019, where group of thugs attacked unarmed protesters in the Yuen Long MTR station.  

Those who don the protest gear are mostly youths, probably in the 18 to 23 category, a similar age category for those who signed onto the American militia under George Washington Esquire, as he was referred to by the British, but General George Washington as he was referred to by the colonies. 


The Violence 

The violence will not go down as it is key towards taking the movement to its logical conclusion.

Why are the protestors violent? Why do they smash down buildings and vandalise ATMs? 

The answer: the need for chaos. This idea was actually explored by researchers who tried to explain why people share hostile political rumors. However, in the case of transforming a protest to a resistance movement, violence seeks to achieve several objectives, namely to increase the cost of staying neutral, undermine the status quo and create anarchy.

Redefining the Existing Power Structure

Pro Beijing lawmakers are not able to connect with the public to deescalate the situation.

To people who are disenfranchised, or non-stakeholders , violence expresses the underlying latent emotion of being pushed down in an unequal economic system. Another effect of violence is that it increases the media coverage, which then draws more people into the question. By a simple law of probability and mathematics, the more people are drawn to choose between two sides, the greater the number of latent supporters the movement will engender.  The question is not whether 5 million Hong Kongers are against the movement and 2 million Hong Kongers are for the movement – the question really is whether the movement can draw a critical mass of hardcore loyalists to take the movement to its intended conclusion.

Current HK Government decision is “behind the curve” and is easily anticipated by the movement.

The question what the Hong Kong Government should ask is what is this number and whether the movement has achieved this number? Does the movement have 5,000 hardcore loyalists or 50,000 hardcore loyalists? A hardcore loyalist is defined as one who has been involved in more than 3 protests and who dons the uniform.  The Rembau Times estimates that the current at risk population of becoming hardcore loyalist is at least 15% of Hong Kong’s population, or about a 1 million people (those 18 to 29 years). To achieve the critical mass of 50,000 requires 5% or 1 in 20 to sign on to the cause. The violence against the police also trains those in the movement to transform from being civilians to a militia, with improvements in logistics and organisation capability. My estimate is that if 10% of the target group become hardcore loyalists, then the movement will continue to its intended conclusion

The parallels to the American Revolution is there if people actually bother to look

The worst outcome for the protesters is that if people stay un-bothered. Violence makes people come to a decision, either to support or to oppose. Remember at the time of the American revolution, most New Yorkers were very happy to be living comfortably as a British colony. But George Washington managed to gain critical mass of volunteers, who were derided by the British Military command under the Howe brothers as a ragtag army,  but 200 years later is the most powerful military power in the world.



With all the following questions answered, we can now answer this question – what are the objectives of the movement? If one thinks about the question hard enough, the question itself becomes an absurd question. For one, in the 21st century hyper-connected world, a movement may have diverse groups with a differing scale of objectives. Some in the movement want greater democracy, some are anarchists, some want to fight for independence. Each sub-group coordinates through technology to achieve its objective, but the Government, Beijing and the United States Congress will see things from the most visually compelling pictures. Media swarm at the more violent protests because it sells, and this creates a self reinforcing chain of events. 

Let us consider this a bit more critically. The question is not a financial economic question, whether Hong Kong will enter a recession, see massive flight of capital and a sell-off in the property and capital markets. That is a given because the movement has attained critical mass.

The question now is what is next.

We give two answers – the status quo and if the Standing Committee of the Chinese Communist Party agrees to follow the Rembau Times advice.


Status Quo


The protest taken to its logical conclusion is a dangerous situation.

Under the status quo, Mrs Carrie Lam continues to function as the Chief Executive of Hong Kong. As the movement has already reached critical mass, animosity towards Beijing increases and Hong Kongers start to yearn for independence. Rational cost benefit questions are thrown out of the window, the protests becomes more violent and the attacks become more pointed towards humiliating visible symbols of China’s claim over Hong Kong. Public anger in China over these actions leads the Chinese leadership to intervene and the Peoples Liberation Army is sent into the streets of Wan Chai. The skirmish turns more violent, Hong Kong is destroyed as an international financial centre and up to 100 people are killed. 


This would probably happen at around January 2020, about the same time Elizabeth Warren takes a commanding lead in the Democratic nomination and openly declares that if elected President of the United States, she will support Hong Kong’s independence. There is exactly 115 days from today to the Iowa Democratic Caucus. China is now facing the threat of a military conflict with the United States and an unprecedented economic disaster.

Rembau Times Proposal

Michael Tien is probably the only few lawmakers who can have some idea to change the situation

Usually decision making within Chinese communist structure is that those who have the right answer but are not in power will keep quiet until the one in power is completely exposed as being incompetent and removed. Hence, there is little consideration for unorthodox out of the box thinking. By relying on orthodoxy, China may be making the same mistake Japan did in establishing the Manchuko government in 1932.

If China does not want the Hong Kong issue to escalate to the level we have described, which is very probable given our view of the situation, China needs to act now.

Number one, ask Carrie Lam to resign and hire somebody like Michael Tien as the Chief Executive. One of the first things that new Chief Executive, should do is to declare a weekend of mourning over the 8 suicides that have happened so far. During that event he should speak carefully about what has happened so far and outline the human cost that has taken place so far. The thugs responsible for the Yuen Long protest also needs to be arrested and tried. The new CEO must hit the ground running with a lot of intensity, essentially creating a mini explosion.

(Note: Of course, he should have the right advisers who can make him appear more appealing to the people of Hong Kong)

There are many moving parts to this but the idea is a similar idea in how you combat a well oil fire – you light an explosion at the base and the resulting draft sucks out all the oxygen and kills the fire.


Marcus Rashford, Kelvin Tay ,Tony Pua and the Great Deficit debate

YB Tony Pua slammed Kelvin Tay as being biased.

Lately, I have been following the “Rants and Bants” YouTube channel, which is a social media channel dedicated to Manchester United.  In the wake of Manchester United’s 4 – 0 thrashing at Everton,  the commentators did not disappoint those who sought to experience schadenfreude at the expense of the egos of the so called Manchester United stars as they lambasted people like Marcus Rashford as being “simply not good enough” to be United’s No 9.

Rants and Bants is a no holds barred Youtube channel that slams under performing Manchester United stars.

However, there was an interesting debate surrounding whether or not it was sufficient for players to run around and cover every blade of grass to exclude them from any criticism should the results go the other way. In this regard, the commentator Rants had an interesting point.

Rashford is a frequent target of Rants and Bants


Rants’ point was that it does not matter if Marcus Rashford runs around for 90 minutes like “a headless chicken” because what he is interested in is in the end product. Could he hold the ball up? Could he make an attempt on goal? Could he play in Lukaku? Did he score?  Rants went on to make a comparison between Barcelona, who make the ball work for them and some Manchester United forwards, who seem to run around with little effect. And that would include Alexis Sanchez, Manchester United’s most highly paid star who does a fair bit of running but to no effect.

Well, what does this have to do with the topic at hand? Its all about critics, and when they are right, and when they are right, even when they are wrong.

Last week, UBS Global Investment Wealth’s Regional Chief Investment Officer, Kelvin Tay, let rip on the Malaysia economy during an interview session with Bloomberg TV. In it he suggested two negative factors, namely

  1. Malaysia had a Current Account Deficit which was 3.5% of GDP
  2. Abolition of GST would make the country more dependent on oil revenue, which could disappoint if Brent prices fall below $70 per barrel.
YB Tony Pua, adviser to the Finance Ministry, slammed Mr Tay as being biased.

Immediately, YB Tony Pua, the advisor to the Finance Ministry questioned the credentials of Mr Tay, akin to putting him in the same category as a “kangkung economist” when he correctly pointed out that Malaysia’s Current Account was not in deficit and Mr Tay had mistaken the Budget Deficit for the Current Account Deficit.  This criticism was supported by fellow Oxbridge graduate, Deputy Minister Dr. Ong Kian Ming.  The error was glaring, and you did not need a Cambridge Masters graduate and an Oxford economics graduate to point out, but it does help the Malaysian Cabinet that we do have such “brains trust” at our disposal.

This error was finally admitted by UBS themselves, who conceded that Mr Tay had made mistakes and regrets any misunderstanding that may have arose.

Round 1 – Malaysia Bahru.

But here is where the Manchester United analogy comes in.  Mr. Pua and Dr. Ong were right in defending Malaysia and pointing out the interviewer’s mistake with respect to confusing the Budget Deficit with the Current Account Deficit, but that does not mean a thing in terms of actually contributing to Malaysia’s growth – specifically, in attracting attracting portfolio investment into the country, which would improve our weakening Balance of Payments. Like Marcus Rashford, they ran a lot, won a freekick outside the area courtesy of UBS, but did they score?

Round 2 – The Rembau Times sheds light

Now, The Rembau Times is not completely sold on the idea that Mr. Tay was entirely wrong. He was wrong in terms of the using the wrong term but taken in context, everybody knew what we was talking about. And that is that Government revenues will fall below its lofty expectations  this year which would could cause the Government to incur a larger than expected fiscal deficit.

Let’s examine the first argument, which is the abolition of GST would result in an increased reliance in Oil revenue from Petronas and contribute to a larger Federal Deficit.

Based on the following, the Government’s estimated fiscal revenue for 2019 is RM 262 billion (ish). In 2017, GST contributed RM 44.3 billion in terms of revenue, in 2019, the Government estimates 0 dollars. However, the total revenue is expected to increase massively from RM 220.4 billion in 2017 to RM 262 billion. That is an increase of RM 42 billion.

So, what gives? We start with a reduction of RM 44.3 billion in revenue and end up with a higher revenue of RM 42 billion. That is a swing of RM 86 billion!

The sources are as follows

  • Increase in Sales tax of RM 13 billion and service tax of RM 8 billion, totalling RM 21 billion
  • Increase in Non-Tax revenue of RM 42 billion, from RM 39.5 billion in 2017 to RM 81.7 billion in 2019.

It is this increase in non-tax revenue, aka dividends received from Petronas, which supports Mr Tay’s argument that the Government revenues will be more “oil dependent”, but which we will qualify further.

Number one, the Government expects to receive RM 56.3 billion in 2019 from its investment stake in non-financial institutions (aka Petronas), up from RM 29.3 billion in 2018 and RM 17.9 billion in 2017. That is more than a 90% increase year-on-year and more than a 200% increase from 2017. The “delta” on this amount alone compared to 2017, when GST was fully in place amounts to RM 38.4 billion, which is comparable to the GST revenue forgone. Petronas themselves have said that they were confident that they could pay an RM 54 billion dividend, comprising of a regular dividend of RM 24 billion and a special dividend of RM 30 billion.

In 2018, Petronas EBIDTA  (Earnings Before Income Depreciation Tax and Amortisation) was RM 116.5 billion, on the back of the following production stats

  • LNG Sales Volume –  28.94 million tonnes
  • Natural gas sales – 2,777 mmscfd
  • Crude production – 777 kboe/d
  • Condensate – 173 kboe/d

If we were to fast forward to today, the key question is whether or not  this RM 54 billion is sustainable. By Petronas own statement, they seem to imply that the RM 30 billion is a “one off” dividend, and they probably have good reason to be a bit more circumspect.

Here is where I have a big issue. Mr Tay was slightly off in identifying the price of Brent as being a source of risk to Malaysia, it actually is the spot price of Liquefied Natural Gas (“LNG”).

Several days ago, TheStar reported something that was very concerning. If Petronas moves to spot pricing from index linked pricing, this means bad news as the spot price for LNG is currently very weak.

Based on export data, the total export value for LNG in 2018 was RM 40.1 billion, which was from 24.347 million tonnes of export. (This number will be slightly lower from Petronas LNG sales volume because of Petronas includes sales from international segment which do not count in Malaysia’s exports).  This translates to about  RM 1,649 per MT of LNG, or about USD 410 per MT. This works out to a price of USD$ 7.9 per MMBtu, lets call it USD $8 per MMBtu.

The risk today is that LNG’s current spot price is only about $5 per MMBtu, so if Petronas were forced by their buyers to switch to spot based pricing, based on a benchmark like Singapore’s LNG as opposed to Brent pricing, we are looking at a revenue shortfall of USD $3 per MMBtu or about USD $4.2 billion.  If prices collapse to USD $3, which it could as a whole host of LNG supply hits the market, Petronas is looking revenue shortfall of about USD $7.3 billion.  Unfortunately, LNG prices are probably going to collapse because there is just a massive explosion in supply, which could put a bigger pressure on Malaysia precisely at the time when there is a greater reliance on the National Oil Company to plug the gap due to the GST.  So Mr Kelvin Tay is may have misfired in terms of using the wrong terms, but he is spot on in terms of raising a risk that has not been adequately addressed by our Cabinet ministers and their advisers.


I share Mr Tay’s concern on the budget projections. Unfortunately this so called “people’s budget” did not really work to shore up Pakatan Harapan’s support, primarily because of a misallocation of resources – trying to pay up on the GST refund in one go when they should have spread it over several years. But I do hope that Pakatan Harapan does well on the economy, however merely shooting the messengers of bad news does not really cut in today’s world.

Apple – Reinventing the whale

Credits: ZDnet

On 02 January 2019, after the close of business, Apple shocked the investing world when it announced  that it was expecting a worse than forecast results for its December year end quarter. During Apple’s  November 2018  earnings call, the company  had forecast sales of between $89 – $93 billion, or $91 billion as its midpoint, which is frequently used by traders to determine whether or not the company “beat” or “missed” revenue expectations. The midpoint represented a 3% increase in the preceding year’s sales for that quarter.

It later announced on 02 Jan 19  that it revised its sales estimates downwards to $84 billion, $5 billion below lowest estimate of $89 billion and $7 billion below its midpoint estimate. Percentage wise, this was -5.6% below its lowest estimate and -7.7% below its midpoint sales estimate. Its shares shed $15 that day, closing at $142. On paper, that represented a loss of about 10% or $72 billion.

In his letter to shareholders, Apple CEO Tim Cook blamed the decline in sales due to the following factors – (1) slowdown in demand in China, (2) earlier shipments of its top selling premium smartphones that placed the sales in the preceding quarter and (3) the strong US dollar.

Subsequently, on its earning call on Jan 29 2019, Apple gave guidance that the sales for the Jan – Mar ‘19 quarter would come in between $55 billion – $59 billion, with a midpoint of $57 billion. At $57 billion, sales would be -6.7% below its previous year’s sales for the same quarter of $61.1 billion. At the lower end of $55 billion for the quarter ended in Mar ‘19, this would be -10% below its sales for the quarter ended in Mar ‘18. Gross margin was estimated at 37 – 38%.

However, Apple shareholders who did not sell on that fateful day in January were actually rewarded because Apple shares gained a whopping $48, or about  $229 billion in market value over the next several weeks. It closed trading on Friday at the price of $190. To give you some perspective, in 3 months Apple increased its market capitalisation by an amount equivalent to the entire market capitalisation of Citigroup and Caterpillar combined. The current market capitalisation of Apple is $896 billion.

Part of this reason was that Apple engaged in a massive media blitz to promote an important corporate event that took place last Monday on March 25, 2019.  Many investors were wondering what was it that Apple was going to announce and decided to buy the shares to avoid the Fear Of Missing Out (FOMO) , in case it was something truly special that would send the shares to the stratosphere. Some speculated that it will be a massive new media service, a new product or something that will dazzle the imagination. Few dared to bet against Apple for fear that Apple bull investors will be so taken up by this new service that the stock will zoom ahead to over  $200.

Oprah Winfrey will create original content for Apple new service – tv+. But her endorsement did not manage to save Weight Watchers, a stock of about $1.5 billion market cap. Will she be able to save Apple?

So the event last Monday came and went. There was Steven Spielberg and more importantly, there was Oprah Winfrey.  This was the reaction by one CNBC reporter:

    • Apple has been talking up the importance of services to its business on earnings calls for the last two years.
    • Monday is supposed to be the big coming-out party for new services that would drive this strategy, but Apple does not announce pricing for many of them, including video.
    • The entire event feels rushed and incomplete.

Monday’s event was supposed to be the big coming-out party for this services vision.

But if Apple v.3 is going to change the way investors value Apple, they’ll need more answers than Cook gave Monday. Apple was so sparse on key details around its video and news services that it felt like Apple had rushed the event or was waiting on a critical deal that never came through.

Apple introduced Apple TV+, its subscription video service for original programs, and showcased a handful of series starring Jennifer Aniston, Kumail Nanjiani and Oprah Winfrey.”

See link here:


In one word : underwhelming.

The only logical reaction to such a letdown would be to hit the sell button. Aggressively and repeatedly.  On that day, Apple shares did tumble about $7 to $186, but it regained to $188. This was done on a volume of 50 million shares. However after that day, when you would expect to see a more violent reaction, Apple shares were extremely stable and over the week it was very clear to everybody in the market that Apple had a major support at $188. By support,  it means that if the price went below $188, then there will be huge buy orders to bring the price back above $188. By Friday this support level moved up slightly to $188.6.

For example, on 27 Mar ‘19 (last Wednesday), the Dow Jones and the Nasdaq sold aggressively during the morning session, with the Nasday down 90 points at one time. Big tech companies like Microsoft sold down consistent with a volatile session but Apple stock did not budge below the $188 barrier for a long time. When it finally broke below $188, the joy of the short sellers was short lived as the shares pulled back almost immediately i.e within an hour.

When we look at the short sales, it becomes clearer. Short sellers profit when the share price goes down. On Monday to Wednesday, the average short sale volume was about 9.7 million shares. On Thursday to Friday, it dropped to 4.5 million shares.

The reason I think is due to this major $188 support level. What this means is that there is a “big” buy order at $188 per share, big enough to absorb millions shares worth billions of dollars. The order is probably at least $10 to $15 billion in size, which could support about a volume of 70 million shares. Even worse for the short seller is that if the initial support is breached, a new buying order  could be triggered that will push the price back up. Only a  mad person would dare pick a fight against a stock backed by such strong support levels.

 This reminds me of the case of the London Whale, a JP Morgan credit trader in the UK who traded aggressively and made others afraid to bet against him. In the case of the London whale it worked for some time, until it didn’t and JP Morgan ended up with a $6.2 billion loss. Actually JP Morgan was lucky,  if things went sour the bank could have gone underwater.

So who could this be?

It is probably not Warren Buffet, one of the largest shareholders in Apple because he had deemed the price at about $171 to be its fair value. And Buffet did mention that Berkshire has  no interest in increasing its stake in Apple.

Well, the biggest suspect should probably be Apple itself. Apple is notorious for using its vast cash reserves to buy back its shares. Let’s give an idea how big it could be.

In the quarter ended Dec 31, 2019 Apple repurchased $8.9 billion of its stock. If you think that is a big number, consider that in its Annual Report issued a quarter earlier, Apple could still repurchase $70.9 billion of its stock under its buyback program. This means that Apple entered the Jan to Mar 19 quarter with enough “ammunition” to repurchase $62 billion of its stock. And in case if you were wondering, yes – Apple has net  cash (that means cash minus debt) of $130 billion. So it could easily put in a buy order of lets say $20 to $30 billion at a certain price point and still have room to spare.

However, there is a catch to this and it goes back to the 3 reasons cited in Tim Cook’s letter to shareholders on 02nd Jan 2019, warning them of worse than expected results.

(1) Slowdown in demand in China,

(2) Earlier shipments of its top selling premium smartphones that placed the sales in the preceding quarter and

(3) The strong US dollar.

Unfortunately for Apple, factor (1) and factor (2) has gone worse over the quarter.

Slowdown in demand in China

The slowdown in demand in China is not only due to saturation of smartphones but Chinese consumers actively deciding to support Huawei in retaliation to perceived US injustice towards the Huawei CFO.  This means that American brands like Apple would be punished severely as it will be considered “bad manners” to be seen with an Apple iPhone in a society known for its nationalistic views.

Earlier shipments of its top selling premium smartphone

This is also bad for Apple as its premium iPhone, the iPhone X would now be considered 2 quarters “old” and not as new as the latest releases from Huawei and Samsung.


To that, we may even add to other factors

Slowdown of demand in Europe and Slowdown in demand in the United States.

In the US, consumer confidence took a hit in February and the overall imports decreased in Jan. This is not good for Apple, as even though Apple is a US firm, the iPhone is actually manufactured in China, which means that it will count towards imports to the US.

This perhaps makes the entire rationale for the rushed Mar 25 event more logical. Apple may have known that it could post worse than expected financial results for the Jan – Mar ‘19 quarter due to the slowdown in iPhone sales. The only way was to try to get the market to think that Apple was now a services company or a media company or a media – services company so that it won’t get punished by the stock market. It also put in a massive support level at $188 to discourage short sellers from entering into positions.

Well all of this is conjecture right now, but we will see over the next several days. If Apple does not come out with any statement next week, then it is safe to assume that sales was between the estimates made, or in the worst case only slightly off. If not, then we may see this:-

Apple shares could tumble by 20% if sales are below $52 billion. Our estimate is sales of about $51 billion and gross margin at about 33%.

What causes a recession?

Note: Everything was turning red except for gold. That is not a fluke but people run to gold when there is a stress

Economists loosely define a recession as 2 consecutive quarters of negative GDP growth. The last time this happened was during the Global Financial Crisis in 2008 – 2009.

The question that always perplexed me is why do recessions occur in the first place? Why can’t everything just go on as before.

The general answer is that in times of economic boom, capital aka money is invested in ventures that in the end turn up to be poor decisions.  In the 2008 – 2009 crisis, the asset was US housing which became a deep criss due to poor risk management practices by Anglo banks. But that is for another day.

But surely many would say people would have learnt their lessons, right? Err..crypto currencies anyone?

But even though the Bitcoin crash may have caused maybe $100 – $200 billion of losses, it’s no where big enough to cause a recession. But we are actually very close to a global recession this year and following are the reasons why. Also remember that foreign funds have been selling out of Malaysia so these guys may know something.


The first reason is to understand that the major economies, namely China, Japan and Europe are slowing down, more so for China, which had been considered at one time as a source of economic growth. Germany and Japan are probably already in a recession as of late March 2019 due to  slumping industrial production.

For China, the “fuel” that could cause a severe economic recession is the unbelievable amount of non central government  debt in the country, which is estimated at US$30 trillion.  To understand this problem deeper,  Chinese banks regularly sell off their Non Performing Loans (“NPL”) to Asset Management Companies so that their balance sheet looks better than it actually is. This year, these Asset Management Companies themselves cannot absorb any more bad debt as they are under capitalised which will cause the NPL  in Chinese banks to spike up.

To the Rembau Times,  China is currently in a much much  worse situation than the US was in just prior to the Global Financial Crisis. 

Figures released by the China Banking and Insurance Regulatory Commission (CBIRC) on Friday point to an NPL ratio of 1.89% at the end of last year, with the total NPL’s of commercial banks standing at 2 trillion yuan, unchanged form the third quarter.

“Special mention loans” – or loans considered at risk of becoming non-performing, hit 3.4 trillion yuan as of the end of 2018, compromising 3.16% of all lending by Chinese commercial banks.

– Non-performing Loan Ratio of Chinese Banks Hits Decade-long High (

If the trillions of debt is the fuel, the match is Trump’s trade war that could push many companies over the edge. Currently, there is a wave of defaults by corporate and local government  borrowers in China. The Chinese banking system is under stress and could topple if Trump goes ahead to raise tariffs to 25%. This is because that will cause a collapse in the Chinese stock market, and maybe bond market as well, which will affect loans made by banks against shares and the shadow banking system.


This is very important news

Ok  this is a piece of news you should know about which is over the past year, the Hong Kong government has spending several billions to defend the currency. If this number starts to increase to $20 or $30 billion then you may see there is the beginning of a massive speculative attack. If speculators can crash the Hong Kong dollar, whose economy is already beginning to face the effects of a slowdown in China and weak property prices,  they could trigger a 1997 style crisis. Pay attention to this news as this can be very important.


Next week  will be very crucial as the British parliament votes on Theresa May’s Brexit deal. This risk had been ignored ever since the results of the Brexit referendum caused losses on the world’s capital markets in 2016. If the British parliament rejects Theresa May’s deal the stock market could sell off worldwide.  At the same time we have the next round of US China negotiations , which could create negative headlines as China has hardened their position since the last meeting.  We have said that we do not expect a deal as we cannot see the Chinese government backing down to the US so easily since they accept as truth that Trump will not dare to affect the US stock market.

Why sell jets to Taiwan unless you want to have a “no deal”. Trump’s moves to grow closer to North Korea shows that he is going to fight China.

After that  we have manufacturing and trade data coming out in first week April. So if things go wrong over the next 2 weeks,  we could see about 8 days of continued losses on the US stock market. And we have questions on Boeing which may remain unanswered.

Now that is the mystery that people need to understand. All it takes is 8 to 10 days of continued  selling on the US stock market to throw the world into a recession.  This is because that will affect US consumer sentiment which could send things overboard as we are very close to the edge. For example the Dow Jones slumped about 3,000 points in December over 2 weeks so that could happen again, but if we get 2 weeks of negative news continously.


Currently about half of all investment grade bonds are currently rated BBB, the lowest investment rating grade possible.  If  we get downgrades of some bonds to below investment grade then there could be pressure in the debt market as people exit these bonds at terrible prices. This will cause losses which will contribute to more volatility in the stock market.  So far rating agencies have yet to start to cut ratings aggressively,  they will probably wait until the company defaults or enters bankruptcy process before they act. This risk is not yet evident but we will keep monitoring for this.

So these are some things to bear in mind. I think that we will see some big losses on the stock market followed by a little rebound. I personally think the real crash will happen  from July  2019 as the Chinese economy explodes. But since first quarter results are getting terrible, the smart money may decide to disappear earlier as there is little chance of continued gravity defying upward momentum.