THE INVESTMENT APPROACH OF CALVIN TAN

THE ASIAN FINANCIAL CRISIS (1997 – 1998) – Why It Hit Johor Hardest! BECAUSE OF LEVERAGE (Reposting From Calvin Tan Blog)

calvintaneng
Publish date: Fri, 13 Mar 2020, 10:22 AM
calvintaneng
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Hi Guys,

I have An Investment Approach I which I would like to all.

HE ASIAN FINANCIAL CRISIS (1997 – 1998) – Why It Hit Johor Hardest!

As early as 1995 there were warnings that the  Malaysia Economy is OVERHEATING. What is An Overheating Economy? Let me illustrate by a costly  lesson learnt from experience – or  inexperience.  In 1979 I got my driving license  on the 1st test.  While ferrying children to Church the car stalled.

I started the engine again, droved another hundred feet and the engine dies off again. I repeated this several times till  the engine completely stopped and wouldn’t start anymore.The car was towed to a workshop. The mechanic asked me, “Did you put water into the radiator? “For what use is water, the car only run on petrol?” I protested.  I was a dumb newbie, you see. “Well the water in the radiator is to cool down the engine – to  prevent the engine from Overheating”. “Oh, I see – nobody  ever told me that there is such a thing called engine Overheating.”

There was OVERHEATNG IN MALAYSIAN  ECONOMY – It Reaches  Into Almost All Area Of Economic Activites. The Stock Market – 2nd  Board especially shot up into Big Bubble territory. In Kuala Lumpur,   Mr. Lee of  Lee Motor Company would book 3 batches of 50  Proton cars.  He later sells them  at RM3,000 to RM5,000 marked up Prices For New Protons. The demand is SO HOT for New Protons that the Normal Waiting time is up to 8 months. For some models One Year waiting period.

Why? Because 2 Hand Car Dealers Are Placing Fleet Bookings For All Available New Cars & Cornered the Market. If you want FAST Delivery you  have to pay between RM3k to 5k extra.   For PROTON PERDANA (Top Model)   IT WAS AN EXORBITANT RM10,000! This new phenomena happened in most Major Towns in Malaysia.

Mr. Ho of SP Motor (Kuala Lumpur) brought me to his 1st Floor Office and showed me his newly Renovated Office. The cost –  Rm50,000. He told me it’s All Free. I asked him, “How?”. “Well I won it from playing the Stock Market.” he replied.  Mr. Ho had altogether 9 SP Motor Branches employing 70 workers.

Over In Batu Pahat, Johor  Is  Mr. N  of  N Motor (Name not mentioned.)  In any typical month he sold about 70 cars, averaging RM3,000 profit a car. That’s RM200,000 profit a month. He is the top or among the top rich Car Dealer in Batu Pahat, Johor.

Not contented, he expanded into the sale of reconditioned Mercedes from Japan. As for Capital he had full borrowing rights.  There is Floor Stocking Facility whereby if a Car is Worth RM100,000, you can borrow up to 90% (RM90,000).

With the RM90K you can buy another car at RM90k and borrow another RM81k , then you can use the same borrowed money to repeat the same process again and again.  In Johor State, especially Johor Baru, Car Dealers borrow up to their nose (so to say) in their business venture.

THEY ARE VERY HIGHLY LEVERAGED. With RM1 Million Cash A Car Dealer Can Stock Cars Worth RM10 Millions – RM15 Millions (Almost All On Borrowed Money!)  Since the people of Johor are more highly geared than KL or Penang, when the Asian Financial Crisis Hits, It Hit Johor the Hardest.

Most Car Dealers Also Own Multiple Properties. All on Borrowed Money. This is Really Overheating In these GO- GO YEARS!  These went on merrily, merrily until –

THE ASIAN FINANCIAL CRISIS HIT LIKE A FINANCIAL TORNADO!!

THERE IS NO WHERE TO HIDE AT ALL!

THE RINGGIT COLLAPSED  FROM US$1 to RM2.40 to US$1 to RM4.50 (A Crash of 80%). On July 2nd 1997  George Soros attacked the Thai Bath and contagion spread to the Ringgit, The Korean Won, the Indonesia Rupiah & a lesser effect The Sing dollar.

Someone in KL went to the Bank to exchange some ringgit for her children studying oversea. The Bank Officer told her that the ringgit has crashed and the cause was by a man named Soros.  SOROS sounded like SOR LOW (in Cantonese)  meaning “Stupid or Mad fellow”. “How can a stupid or mad person caused the ringgit to loose so much of its value.” she protested.

George Soros, who broke the bank of England is one of the smartest currency traders in the world. He sold the yen on hearing Abenomics. He sold his gold holdings just before it crashed below US1400.  He is calling  for a Short on the Aussie Dollar. And he may well be right again this round. His timing is impeccable.

If this is true, then avoid buying  Aussie Properties or Assets or even Aussie dollars at this time.  They might go Into A FREE FALL. On a recent visit to Perth in 2010 people are asking around A$1,500,000 for a 6,000 sg ft bungalow in Perth – up 10 times since the last recession. At this juncture, it is a high risk to buy anything Australia – be it property or currency.

Coming back to The Asian Financial Crisis. With the Crash of The Ringgit, the Stock Market followed. It went down All the Way From A Height of 1332 points to a low of 262 points (A Drop of 81%). Then The Housing Bubble Burst! And property prices fell, rental also fell.

Over in Singapore we just sold our HDB Flat and scouting around for a place to rent.  A proud lady told us that her 5 room HDB Flat tenancy is S$1,600 a month- take it or leave it. Then my wife called, “We found a place in HUME PARK 1, Bukit Timah going for S$1,500 a month. It has a huge swimming pool with 2 free car parks. Next year in 1999 the rental was further reduced to S$1,300! (It was previously tenanted to an european expat for S$3,000}

With The 80% Collapse of the Ringgit Value, the 81% Collapse of KLSE Index the Collapse of Property Prices Begin In Earnest.  Then  Followed by a 70% Collapse in Car Prices (How do you know? I was a Car Dealer for 20 years).  There is really no where to hide. If you keep money in property, property prices crashed by up  to 80%.

If your keep your money in cash, ringgit devalued by 80% If you buy shares (you might have lost 81%). What about cars?  Car prices also crashed by a huge margin.  Before the crisis a PEUGEOT 505SR is worth RM40,000. After the crisis prices have fallen to a low of RM12,000 –  a crash of 70%!

LIKE A SWEEPING FINANCIAL TORNADO DEVASTATION IS EVERY WHERE!

Mr. Lee, Mr. Ho & Mr. N disappeared and went into hiding. Let me relate that we might learn and not repeat their mistakes.

Mr. Lee’s 2nd Hand Car Business was badly affected. At least he is able to clear his remaing stock. But he said EON Factory will not reimburse him  the 50 or more new cars which he  had paid booking fees. At this time when no one is buying any new cars it is better to forgo the deposits. Since his capital is borrowed he gone into hiding.

Mr. Ho of SP MOTOR  speculated in the Stock Market. When the Stock Market crashed he wanted to sell his cars and told me to give value. Cars purchased at RM50k had outstanding loan of RM35K.

Since actual market value had fallen below RM30k, no dealer will buy his cars. Only banks will repossess  them  then auction them off and sue him for the outstanding balance.

As for his shops the banks have stopped or reduced lending. As a last resort he went to the loan sharks.  Finally the shops were force sold to the Ah Longs (Loan sharks) at their terms. I was curious and went to see these loan sharks.

To my surprise they look like any ordinary  business men. I thought they might look menacing or have horns on their head. Never, never borrow from loan sharks – with the multiplication of interest upon interest you can never extricate yourself from them. In the end Mr. Ho fled and went into hiding.

Over in Batu Pahat Mr. N, too,  went to the loan sharks. Since the loan syndicate saw his Mercedes in his showroom they gladly lend him money at the monthly rate of 6% interest  (Monthly 6% not yearly 6%,  mind you) . As he borrowed more and more hundred thousand each time interest rate was raised to 8% a month.

Finally when interest rate was raised to 10% per month he told the loan shark he might one day run away. They didn’t believe him.  They saw the Cars in his showroom but did not know that everything – cars, office and all are charged to the bank. Finally the inevitable end of the end game arrived. Without leaving a word to his staff or family Mr. N disappeared.

THE ASIAN FINANCIAL CRISIS WENT ON WITHOUT MERCY.

At many Used Car Dealership Bank  Officers Took Charge Over The Sale Of Every Car; while the Used Car Bosses sat watching in despair.  All the Inventory Sold are insufficient to cover the losses. You see,  in economic term they all All Under Water. The Value of Everything – houses and cars have Fallen below loan margin.

Compounded with these problems people are spreading rumour that some banks might fail.  MAYBANK Share price crashed to a low of RM2.50 (From over RM20 to Rm 2.50 – A Crash of Almost 90%!)

And Anwar Ibrahim being the finance minister then, wanted to go to the IMF. With so much uncertainty, panic & fear Dr. Mahathir implemented Capital Control & resisted IMF.  Instantly the bleeding stopped. Stock Market stopped falling & slowly recovered.

INDONESIA & KOREA WENT TO THE IMF FOR HELP

Even with the Help of IMF Suharto Fell. The impoverised Indonesians could not survive below One  US dollar a day.  Many plundered the rich Chinese. Seeing this the S’PORE GOVT gave RM5 Billion aid to Indonesia.  Many Korean Assets were sold at Fire Sale prices to US Companies. IMF means different things to different people.

  1. For Suharto IMF means  “I Am Fallen”.
  2. For Mahathir: “I Am Fine”
  3. For Anwar, “I Am Fired (Now I Am Fan Sang - As in ham yi fan sang!)
  4. For Korean Company bosses, “I Am Finished”
  5. To poor Indonesians, “I Am Famished”.
  6. To Indonesian Chinese, “I Am Fearful”.
  7. For Singapore Govt, “I Am Friendly”
  8. For Thousands of Business Men, “I Am Failing”
  9. For Those Owing Loan Sharks, “I Am Fleeing””
  10. To countless multitude, “I Am Forsaken”

As For The Americans, they do the Very Opposite of what they advocate.  Through IMF they told Asian Nations to Stop Lending & Raise Interest Rates, Raise taxes, Raise Petrol Prices.

THE US THROUGH QE 1, QE 2 LEND FREE MONEY TO BANKS. INTEREST RATES IS SUPRESSED TO ZERO.

QE or Quantitative Easing or Bond Buying or Money Printing Is The Financial Life Support System  For The  Dying  US  Economy. Without QE the Entire US Banking System & Wall Street Will Collapse. It is the Air that Reflate the US and by proxy The Entire World System Today. Nobody has the Ultimate Answer  as to how  perpetual QE will lead to. What is the final end of the end game in QE?

Since The Future Ahead Is Fraud With Danger, Marc Faber, the wise & witty economist advocate 4 classes of Investments  For Capital Protection:-

  • 25%  In Cash Or Bond (Corporate Bond)
  • 25% In Gold (Keep In Banks Outside USA)
  • 25% In Stock (Preferably in Shares of Thailand, Malaysia & Singapore)
  • 25% In Property Or Real Estate.

This is A Balancing Act Between 2 Things Basically – Deflation & Inflation.

In Times of High Inflation Cash Is Trash. In Times of Deflation or Depression Cash Is KING.  Having CASH & GOLD ON THE ONE HAND AND STOCKS  & PROPERTY ON THE OTHER HAND  will Help To Retain Value. This Allocation Method Shows Return OF Capital More Important Than Return ON Capital.

CALVIN FURTHER COMMENTS ON 13TH MARCH 2020
 
AS WE CAN SEE JOHOR GOT HIT HARDEST BECAUSE OF OVER LEVERAGING
 
SO STOCKS BOUGHT ON HIGH MARGIN WILL SUFFER MARGIN CALL IN A MARKET SELL DOWN
 
THOSE WHO HOLD MARGIN CALLS WILL HAVE HIS PORTFOLIO OF STOCKS BEING SOLD DOWN = IRRESPECTIVE WHETHER THEY ARE GOOD OR BAD STOCKS
 
IN 1997/8 STOCKS LIKE NESTLE WAS RM11.80, PUBLIC BANK 80 SEN (PENNY STOCK) & MAYBANK WAS RM2.50
 
THIS ROUND ALL WILL FALL JUST LIKE OCT 29 1929 WHICH TRIGGERED THE US GREAT DEPRESSION
 
DURING A RECESSION OR DEPRESSION THE DEMAND FOR CONSUMER GOODS WILL SHRINK OR EVAPORATES
 
IN YEAR 1998 KL WAS A DESERTED PLACE WHEN KLSE DROPPED TO 261 POINTS
 
YOU CAN DRIVE ON KL ROADS LIKE A BREEZE THEN AS MANY COMPANIES FAILED AND PEOPLE STAYED AT HOME
 
WHEN CONSUMER DEMAND FIZZLED GOVT INTERVENES BY GIVING OUT PUBLIC INFRAR JOBS LIKE BUILDING HIGHWAY INFRAR & UTILITIES
 
THAT WAS WHY JOHN MAYNARD KEYNES STOCKS DID WELL EVEN DURING GREAT DEPRESSION YEARS
 
NOW MALAYSIA GOVT HAS IMPLEMENTED NFCP 
 
THIS IS A GOOD MOVE TO CREATE JOBS
 
 
BEST REGARDS
 
Calvin Tan Research
Singapore

 

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1 person likes this. Showing 10 of 10 comments

calvintaneng

NOTE:

JOHOR GOT HIT HARDEST THEN BECAUSE OF OVER LEVERAGE

NOW ALL WHO BUY ON MARGIN LOANS MUST BE VERY VERY CAREFUL NOT TO GET WIPED OUT

THOSE WHO INTEND TO TAKE OUT FD TO BUY BARGAINS ALSO MUST BE CAREFUL IN WHAT YOU ARE BUYING

DON'T SIMPLY BUY BECAUSE IF A STOCK FUNDAMENTAL HAS CHANGED IT WILL STILL FALL AND FALL LIKE FALLING KNIVES

STAY VERY SAFE IN TSUNAMI SHELTERED INVESTMENTS

2020-03-13 10:25

Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥

Poor calvin

Bullish in stock at the wrong time

Asset allocation was increased from 5% to 15%

Sold 8 properties to invest into equity in 2019

Now badly caught in the downturn.

Gruesome stocks all have gone down by 40% to 80%.

2020-03-13 10:29

stockraider

Remember netx your safe heaven loh...!!

WORLD MARKET SCREWED UP NEVER MIND...!!

Amazing...!! Amazing....!!

Netx top klse gainer today with 50% gain loh....!!


NETX IS HERE TO SAVE U LOH.....!!


Posted by stockraider > Mar 13, 2020 10:02 AM | Report Abuse X

Netx strong at 1.5 sen steady loh....!!

U look at Nestle down Rm 14.00 loh....!!

Posted by Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥ > Mar 13, 2020 10:27 AM | Report Abuse

Poor calvin and his sidekick raider,

Badly caught in this down market.

Bullish in stock at the wrong time 2019

2020-03-13 10:32

calvintaneng

HAHAHA

I MADE RM1 MILLIONS

NOW LOSING BACK 40% VERY OK

STILL MAKING RM600K

YOUR SI-FOOL PHILIP LOST RM11 MILLIONS IN PETCHEM

PETCHEM WHICH END PRODUCTS IS FOR CONSUMERS & YOUR POOR PADINI WILL BE HIT HARD (BETTER SELL BOTH & BUY NFCP GOVT FUNDED STOCKS)

See

https://www.history.com/news/life-for-the-average-family-during-the-great-depression

2020-03-13 10:33

calvintaneng

For johochew zelan and shoot up benalec both will get wiped out

People forgot ekran went limit down 7 times before delisting

2020-03-13 12:45

calvintaneng

Stay in the safest tsunami sheltered stocks that are Cash rich like Netx, Opcom redtone, success, awc and T7 global

2020-03-13 12:46

calvintaneng

Since private consumer demand collapsed Both Ql and Dlady will crash

During bad times people buy less good or just survive on very basic stuff

2020-03-13 12:48

calvintaneng

Petchem and padini will be worst hit as they are consumer discretionary

Consumer stables are good which are necessary for survival

Consumer discretionary which are optional will crash for lack of demand

2020-03-13 12:49

calvintaneng

If market collapse into deeper crisis even the banks will fail

More than 10,000 US banks failed during the great depression

2020-03-13 12:50

calvintaneng

When private sector no longer able to provide jobs Govt must step in by implementing Public Works that give jobs

Now Nfcp is very important because it is publicly funded

Mcmc has made fiberisation a utility

2020-03-13 16:32

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