Japan's debt issue and Saizen REIT.

On 15 Feb, a reader, Robin Lim commented, "I read yr comments about saizen and they are good. But i hv always been concerned about japan's debt/gdp. An article in Forbes Feb issue p62 "Blowup" explained it well. Be careful about Japanese property, because it can be a Greece."

When I returned to Singapore on 17 Feb, I responded, "Japan does have a debt problem but we have to remember that Japan is not only a borrower, it is also a lender. Japan is the second largest lender to the USA. China is of course the largest.


"I have not read the article in Forbes but did they look at debt as a percentage of GDP only? Another way of looking at this is debt per capita. In this respect, Greece is number one in the world at US$ 27,746. USA is 11th at US$ 11,094. Japan does not even come close."

Apparently, Japan is now the largest holder of US Treasury debt as China cut back its exposure in December 2009.  This was revealed last Tuesday by the US Treasury Dept.



This is one factor which sets Japan apart from Greece.  Japan is also a lender, not just a borrower.  When we look at debt, it is important not to just look at gross debt (ie. the total amount borrowed), we should look at net debt which takes into consideration the borrower's status as a lender.  Japan is one of the largest creditor nations in the world.

Also, as Japan is home to many renowned MNCs, a more accurate picture of Japanese debt situation should compare its net debt to GNP, instead of GDP.  Japanese MNCs repatriate earnings from their global operations back to Japan and GNP is a much bigger figure than GDP.

Interestingly, much of Japan's debt is in local hands.  Less than 10% of Japanese debt is funded by foreign bodies.  This is largely due to the fact that the Japanese people have been such big savers.  In contrast, American national debt is, to a large extent, in foreign hands.

Having said all these, I am not glossing over Japan's debt issue which still has to be dealt with.  Borrowings have to be repaid.  An ageing population puts into question the sustainability of Japan's national debt as well. 

There are some difficult decisions which the government must make and as Japan is still the largest economy in Asia, we should all be very concerned whether any progress is made over time.

I am not a politician or some big shot in a global organisation like the Asian Development Bank or the World Bank.  There is nothing I could do about this, obviously.  The question which might be on your mind now is, "How will this affect Saizen REIT?"

I do not see the debt situation in Japan becoming unmanageable in the next few years.  As the Japanese population ages over the next decade, they will start cashing out of government bonds.  The Japanese government might have to sell US Treasury debt gradually then unless it is able to trim expenditure in a meaningful way or get its economy to grow more robustly in time.  As you can imagine, all these will most likely not happen in, say, one or two years.  It's going to take far longer. 

Saizen REIT is still a most compelling buy in the near term and is still most attractive as a high yielding passive income generator over the next few years.

Saizen REIT: Long-term BUY

A nice and cool Sunday morning.  Woke up early, did the laundry, had a drink and surfed the net for news as usual.  When I visited Next Insight, I got a nice surprise.  Saizen REIT, which has not attracted any analyst coverage in a long time, received coverage from NRA Capital. 

Regular visitors to my blog would know that I am still actively accumulating units in Saizen REIT.  I have written extensively about the REIT and I have also received readers' comments in affirmation as well as cautionary advice.

Even though I believe that my FA of the REIT is thorough and my continuing accumulation of units in the REIT is sensible, it is, dare I say, bracing to hear from more professional quarters.

I remember saying that even if the YK Shintoku portfolio suffers foreclosure, Saizen REIT is still a buy as it would still be severely undervalued.  That is why when a friend told me that his father does not like the management's seemingly cavalier attitude towards this matter, I told him that it is not a big issue and that the management has good reasons to be less worried about it.

"Assuming a conservative stance and based on the assumption that the JPY7.25b CMBS loan encumbered with JPY9.10b worth of assets will be foreclosed eventually, using DDM, we value Saizen at 24.5 Scts (previously 24.3 Scts) and arrive at a target price of 17.0 S cts as previously, maintaining our discount to valuation of 30%." 

"News flow of new credit access is expected to lift valuations to 32.3Scts and a target price of 22.5Scts (based on the same 30% discount rate), providing catalyst for further upward re-rating of Saizen."

Written by Angeline Phua (NRA Capital) .
SAIZEN REIT: Fair value 17 c, long-term buy , please read it here.

Just like my earlier investments in Healthway Medical and some other companies before I started this blog, I believe that accumulating shares in good companies before everyone else is interested in them is one of the best ways to greater capital gains. Well, in the case of Saizen REIT, we are accumulating units.  Good luck to fellow unitholders and have a good Sunday.


Related posts:
Buy Japanese real-estate.
Passive income with high yields: Saizen REIT.
Saizen REIT's quarterly report.

Money management: Needs and wants.

I first learned about needs and wants more than twenty years ago in an Economics class when I was a Junior College student.  During the class, a female classmate told an irritating guy that he needed medication and asked if he wanted some.  That made the distinction between needs and wants very clear to us all and we had a good laugh.

There will always be things out there to buy in the modern world.  The question to ask is always whether we need these or we want these.  The question seems innocent enough at first glance.  However, one person's needs might be another person's wants. Do I hear some readers going, "Huh?"

Human beings have various needs for survival.  In my mind, at the most basic, we need air, water, food, shelter and clothing.  Some might say that the last item is debatable and it might be a want that has become a need due to the evolution of human society which invented the notion of modesty.  Here we start to see a blurring in the line separating needs and wants.  However, we should have an idea of what are needs and what are wants for us to do a good job of managing our money.

Recently, I was asked how much of my income do I save.  Off the top of my head, I said I probably save about 80% of my annual income and that received some incredulous expletives.  Is it possible?  Yes, it is.  How could we achieve this?  It is through a combination of increasing our income and reducing our expenses.  This post is about the latter.

In business, we very often hear how efforts are being put into increasing revenue.  Rarely do we hear how efforts are being put into decreasing costs.  Somehow, increasing revenue is more glamorous than decreasing costs.  It is when times are bad that businesses start decreasing costs in the hope of preserving their bottomline.  

I believe that cost control must always be an important consideration in business. Costs should always be kept low, in good times and bad.  This is especially true when we are looking at fixed costs or costs which cannot be adjusted downwards in the short run, at least not without incurring some kind of penalty or monetary loss.

Similarly, in our personal finances, if we keep our living expenses low, we do not have to worry during bad times if our income level takes a dip or, indeed, disappears over a period of time.  We would have ample reserves to see us through.  In the world of business, these are called retained earnings.

Making money is an important skill in modern society but managing money is an equally important skill and, very often, neglected.  We can make a lot of money but we can easily squander it all through mismanagement or, indeed, no management.

Do you believe me if I tell you I know of someone who made $10k a month but spent it all, habitually? Seemingly flying high, he had a really rough landing with a few broken bones thrown in when the wind was taken away from under his wings.

So, what we have to do is to have quite clearly in our minds what are needs to us and what are wants.  We should cut back on our expenditure on wants.  Sounds simple enough, doesn't it?  Maybe not.

As mentioned earlier in this post, the definitions of needs and wants can be quite subjective.  We need transportation but do we need to have a car?  For a businessman, he probably needs a car.  Or, indeed, do we need to take a bus if the destination is only a few stops away?  For an old granny, it's probably a need.  Defining our needs and wants, this is the tough bit and I leave it to you.

Assuming we manage to sort out our needs and wants, what's next?  Once we have amassed some "retained earnings", look at how to put them to good use.  It's time to increase our income.  A company that is sitting on a lot of cash and not doing anything with it is doing its shareholders a grave injustice.  Similarly, just keeping all our wealth as cash in a bank account is doing ourselves a great disservice.  That's another subject and if you are interested enough, you might want to read a couple of my earlier posts below.  Have a good weekend and I will talk to you again soon.

Related posts:
Grow your wealth and beat inflation.
Bungee jumping, anyone?
To queue for $1 parking fee redemption.

STI shows relative strength

The STI exhibited relative strength today, declining 0.44%, even as the HSE crashed 2.59%.  Closing at 2,757.14 keeps the STI within its uptrend channel.

Genting SP held its ground amid a high volume sell off which pushed its price to touch an intra day low of 90c.  Closing at 94c, it's only 1c lower than yesterday's close.  The decline's rapid pace has been thwarted for now.  Almost a black hammer, there is a chance of a rebound next week for this counter.  Resistance is at $1.01, provided by the 38.2% Fibo line.  I see a stronger resistance at $1.04, a candlestick support turned resistance.  It is also the 50% Fibo line.  Any such rebound is an opportunity to reduce exposure.

AusGroup has a black candle day.  The good news is that it happened with much reduced volume.  MACD has formed a bullish crossover but being still below zero, positive momentum has not returned.  MFI has turned down which shows a slowing of buying momentum.

On the weekly chart, we have an inverted white hammer which suggests a probability of price closing higher next week.  The bugbear?  Volume is very low and this does not make any upmove in price sustainable.  A continuing rebound would allow stale bulls to reduce exposure and is likely to meet with resistance for this reason.  The weekly chart confirms that the target of 64c I have identified for AusGroup in the event of a continuing rebound is plausible.  Any long position in AusGroup taken this week is a punt at best.

With the continuing decline today, Golden Agriculture's price action has formed a lower high at 57c.  However, the pullback is on relatively lower volume which leads to a reasonable suggestion that any decline will not be severe.  Having said this, the lack of buying momentum could see the counter drifting lower.  Critical support remains at 50c thereabouts.  It will most likely hold as the rising 100dMA reaches 49c today.  I continue to like the company's fundamentals and will accumulate at supports.