Coming back to the basics

In this article from the Financial Times, the chief of the JPMorgan Chase has announced uninviting prospects in the year ahead.  Mr Dimon has predicted deterioration of the economy in 2009, with the rising worry that shares on both sides of the Atlantic will have fallen, that banks might need more capitalization and consumer retail will sag further. JPMorgan, which has fared better than its rivals, has just reached break-even in its 4th quarter results.

Mr Dimon has told the FT that JPMorgan was prepared for an expected deterioration in consumer-oriented businesses but added that if things were to get worse than expected it would have to cut costs again.  He further added that the bursting of the credit bubble would force the banking industry to refocus on its traditional businesses of advising on deals and lending to companies and individuals.

With the current state of affairs, more and more industries are going back to the fundamentals of economic principles.  We at Assetton have always believed in the value of REAL PHYSICAL INVESTMENTS that follow REAL ECONOMIC PRINCIPLES that yield REAL SUSTAINABLE RETURNS.   We offer the best wine, art and land investments that will give you the safest and timeless investment vehicles that ensure no such deterioration that banks and indices report these days.

Satyam Computer Services scandal/Why you should look farther than the stock market

One of the biggest software companies in India, Satyam Computer Services, reports a case of fraud that involved overstating financial statements, showing hugely inflated profits and fictitious assets in the hope of hiding a poor performance. In his letter, Mr Raju said Satyam’s accounts in the quarter ended last September included a cash pile of Rs53.61bn ($1.2bn), of which 94% was “fictitious”.

Among other anomalies, the group’s operating margin was inflated to 24% of revenue compared with an actual figure of 3%, due to mis-stated revenue and profit figures, Mr Raju said. The company had rigged its results over a succession of quarters to show a large operating profit margin, in the range of 20%, versus the actual margin in the September quarter of just 3%.

Satyam’s clients ranged from Unilever and Nestlé to Cisco, GE, Sony and, until recently, the World Bank. Satyam was audited by PwC and was the first Indian company to list on three international stock exchanges – Mumbai, New York and Amsterdam – yet the fraud went unnoticed for years. The fraud is India’s biggest corporate scandal since the early 1990s and its first high-profile casualty since the start of the global financial crisis, with many labelling it the “Indian Enron”.

The news sent shares on India’s stock markets tumbling. And it’s effects are not only immediate but far-ranging: While its revelation will ring alarm bells for hundreds of Fortune 500 companies across the world that entrust their most critical data and computer systems to Indian outsourcing companies and threatens to damage the country’s reputation as a place to do business, the scandal also raises questions over how outsourcing companies are regulated and audited around the world. PwC could face a problematic start of the year as Satyam is listed in the US, where there are legal precedents for auditors held accountable.

The stock market is highly volatile these days and we can hope that such news of financial overstatement will be exposed in the climate of asset liquidation and institutions filing under Chapter 11.

The stock market has always been volatile. In fact, referring to the graph below (click the image to have a clearer version), the stock market price as embodied by major stock indices, exhibits variation that is not only unpredictable but also random in itself. The randomness can be attributed to its susceptibility to news, rumors, political instability and mass panic. The recent Satyam hoo-hah serves to demonstrate the effect such a scandal can have to the stock market; The Mumbai exchange’s benchmark Sensex index fell 7% as shares in Satyam plummeted nearly 80%.

We at Assetton believe in the importance of economic fundamentals and clear-cut rational principles. Our investment-grade wines, contemporary pieces of art from the Baron of Batik, and bankable lands in Canada follow real economic principles. You can be sure that the intrinsic value of these assets is not inflated by tampered financial statement.

Source: Financial Times, Wikipedia, Bloomberg

LAND INVESTMENT: Canada

For hundreds of years, vast fortunes have been made in land. It can often be purchased extremely cheaply, and with little or no effort at all it can bring a return that is multiple times its original investment cost. There are more benefits –

• Buying land is usually a good deal compared to buying developed real estate.
• Purchasing land offers flexibility for the buyer. Depending on area zoning, land can be used for multiple purposes and have higher potential value.
• When you invest in land versus rental properties, there is no need for one to devote time, money, and effort to the maintenance of property or attracting and keeping a steady stream of reliable tenants.
• Returns on real estate investments in land can be substantial if you do your homework and invest where the demand is high or will be high in the near future. For instance, appreciation is almost guaranteed when land is purchased on the outskirts of a city in the path of development and held until the city develops outwards.
• The market for second homes and vacation homes is booming, and buying a lot or land is the first step to building a second home for investment, pleasure, or retirement. When new developments open, there are often good deals for early buyers who invest in lots before construction begins.

In Asia, land investment has been increasingly popular. Because land is fundamentally considered indestructible, there’s no depreciation allowed for tax purposes. Investors can potentially achieve annual net returns of as high as 20 per cent on their investments when the raw land obtains development approvals and they exit their investments in five years or less.

Land investment is especially attractive to those who have a medium to long-time horizon and with already sufficient savings to satisfy their liquidity needs. A good diversifying asset to complement the traditional asset classes of equities, fixed income, cash or cash equivalents, one should form at most a small component of an investor’s portfolio, say, 5 to 10 per cent on land.

The most promising are those with good location. Investors should apply similar standards of reviewing real estate investments to a land banking investment. Investing in raw land brings its best return when the land lies along a path or near an area of expanding economic growth and prosperity. Increases in land value are always dependent upon the land’s future use, economic growth, and demographics, which all boil down simply to the fundamental laws of supply and demand.

Consumers have to be mindful that those who had invested in land banking projects had benefited from the bull run in various asset classes over the five years to 2007. Hence, some projects marketed could have delivered high returns. Such projects rode on the appreciation of the Canadian dollar and the real estate sector. For instance, the Canadian dollar has appreciated about 50 per cent against the US dollar since 2003.

Another advantage of land banking is that it is a medium- to long-term investment, so consumers may be able to avoid the constant worrying they experience when they invest in financial markets.

Assetton provides the opportunity for you to invest in the prime land in Alberta, Canada. Alberta has shown tremendous popularity with investors, business and job-seekers. Assetton and its team researches, evaluates and purchases developable land that is in the direct path of urban growth. We ensure all necessary steps are taken to protect and yield the highest rate of return for our investors. Our exceptional price point and opportunity have made investing in developable land easy and exciting for every investor.

Source:
Smart Investor, Straits Times, Financial Web