Government bond Markets Part 2 of 3: Shaw Capital Management Newsletter

Shaw Capital Management Korea February Newsletter:  Article two of three - Bond markets in mainland Europe have also fallen back towards year-end. There are signs of a modest improvement in the background economic situation in the euro-zone; and this seems to be persuading the European Central Bank to withdraw some of the liquidity measures that it introduced to counter the recession as part of a general tightening of monetary policy that might soon include higher short-term interest rates.

Shaw Capital Management Korea February Newsletter:  Article two of three - But a more serious immediate consideration for the markets has been the decision by some of the rating agencies to downgrade the credit rating of Greek government bonds, and to warn that other periphery member countries of the euro-zone have been placed on “credit watch” and might suffer the same fate. Investors have responded by widening the yield spreads between the bonds of member countries, and by pushing the overall level of yields higher. The markets appear to be expecting that the process will continue. The Fed appears to agree with this more optimistic view, arguing that economic activity is continuing to pick up, and that the deterioration in the labour market is abating. For weaknesses elsewhere.

Shaw Capital Management Korea February Newsletter:  Article two of three - There is also a fear that the contraction that is occurring in banking lending, and in the money supply, may be leading to another credit crunch this year that could extend the economic slowdown. Bank loans to businesses were 1.9% lower in November 2009 than in same month in 2008, and M3 money supply was 0.2% lower, and has been shrinking now for several months. Since an expansion in banking lending was a major plank in the European Central Bank’s efforts to combat the recession, this latest evidence of a contraction is a major policy failure, and should be persuading the ECB to move very slowly in dismantling its emergency measures; but all the evidence suggests that it is preparing to act. The latest meeting of its governing council left short-term interest rates and overall monetary policy unchanged; but subsequently the bank chairman argued that some of the existing liquidity measures were no longer needed and would be gradually replaced. This was a disappointment for bond investors, not only because such action might be premature and extend the recession, but also because some of the funds that had been made available had been used to support government bond issues.

Shaw Capital Management Korea February Newsletter:  Article two of three - However the more serious consideration was the downgrade of Greece’s credit rating, and the threat that other member countries of the euro-zone might receive similar treatment because of the increased risk of defaults. Bond issues in the zone reached the equivalent of $1350 billion in 2009, and are likely to exceed that figure this year, with Greece alone needing to sell $83 billion, and likely to try to rely on overseas investors for at least half the funds.

Article part two of three.

Shaw Capital Management Korea - Investment Innovation & Excellence.  We provide the information; insight and expertise that you need to make the right investment choices. Shaw Capital Management based in Korea typically offers its clients such services as asset allocation and portfolio design; traditional and non-traditional manager review and selection; portfolio implementation; portfolio monitoring and consolidated performance reporting; and other wealth management services, including estate, tax, trust and insurance planning, asset custody, closely held business issues associated with the establishment or expansion of a family office, the formation of family investment partnerships or LLCs, philanthropy, family dynamics and inter-generation issues, etc.

Every investor will achieve better long-term risk-adjusted results by working with a true open architecture advisor.

Government bond Markets: Shaw Capital Management February Newsletter

Government bond markets have ended 2009 on a very disappointing note. A further improvement in sentiment about the prospects for the global economic recovery, and indications that some central banks might be preparing to introduce early “exit strategies” from the measures that had been introduced to counter the recession, have been important factors in producing a more cautious attitude amongst bond investors. But a further significant consideration towards year-end has been the fear of possible defaults on sovereign debts after the decision by Dubai World, a government-owned company, to seek a moratorium on the servicing of its debts, and the downgrade in the credit rating of Greece because of its deteriorating fiscal situation.

Shaw Capital Management Korea February Newsletter: There was always the risk that the funding requirements resulting from recent policies, and particularly from the measures to counter the latest recession, would prove to be a massive burden for the global bond markets, and this has now proved to be the case. The Dubai government appears to have been rescued by help from Abu Dhabi; but it is still not clear whether there will be help for Greece and other periphery countries of the euro-zone that are in difficulties, and doubts have also been expressed about countries outside the euro-zone, including the UK, if central banks do not implement “exit strategies” carefully, and credible plans to reduce the massive fiscal deficits are not introduced fairly quickly.

Shaw Capital Management Korea February Newsletter: There was always the risk that the funding requirements resulting from recent policies would prove to be a massive burden for the global bond markets.

These doubts have already led to a significant widening of yield spreads on bonds of member countries of the euro-zone, with Greek bond yields now more than 2.5% higher than German bond yields; and even 10-year yields on US bonds and UK gilts have risen to the 4% level as investors have reduced their exposure.

Shaw Capital Management Korea February Newsletter: Our position on the prospects for the bond markets remains unchanged. We still expect that the recovery in the global economy will only develop at a very slow pace, and that “exit strategies” will only be introduced very gradually. The background situation will therefore continue to provide some support for bond markets.

But the timescale for the implementation of “exit strategies” is shortening; and the massive fiscal deficits are already placing great strains on the markets. The fears of defaults on sovereign debt may well be an overreaction; we expect, for example, that the weaker members of the eurozone will receive support from the stronger members to prevent defaults; but higher bond yields appear unavoidable. Prospects for all the major bond markets are therefore very unattractive.

Shaw Capital Management Korea February Newsletter: The performance of the US economy remains a critical factor in assessing those prospects, and the latest evidence has become more positive. The growth rate in the third quarter of the year has been revised down again; but since then there has been a lower-than-expected fall in non-farm payrolls, and an improvement in consumer sentiment that is reflected in a reasonable level of retail sales in the run-up to Christmas. Weaknesses remain, especially in manufacturing, and new house sales fell sharply in November; but a growth rate around 2% is expected this year. The Fed appears to agree with this more optimistic view, arguing in the statement after the latest meeting of its Open Market Committee that economic activity is continuing to pick up, and that the deterioration in the labour market is abating; but it is remaining very cautious. Interest rates are likely to be at low levels “for an extended period”, and the quantitative easing programme has been maintained, although some of the emergency liquidity measures will be withdrawn. It is clearly anxious to avoid doing anything that might harm the economic recovery. This should continue to provide some support for the bond market, even though the Fed will no longer be buying Treasuries and other corporate bonds; but it does appear that this will not be enough to offset the effects of the massive fiscal deficit, which is expected to reach $1.5 trillion this year, and to remain high well into the future.

Shaw Capital Management Korea February Newsletter: Debt issuance rose to over $2 trillion in 2009 to finance this deficit, and to replace maturing bonds; and the latest decision to take advantage of the unexpected windfall from the repayment of bank bail-out funds that are no longer needed to provide new resources for job creation is a clear indication that there are no plans to take early action to reduce the deficit.

It is not surprising therefore that bond investors have been reducing their exposure to the market, and that the yield curve has continued to steepen. In the absence of any change in policy, this process is likely to continue, and push overall yield levels even higher.

Article one of three.

Shaw Capital Management Korea - Investment Innovation & Excellence.  We provide the information; insight and expertise that you need to make the right investment choices. Shaw Capital Management based in Korea typically offers its clients such services as asset allocation and portfolio design; traditional and non-traditional manager review and selection; portfolio implementation; portfolio monitoring and consolidated performance reporting; and other wealth management services, including estate, tax, trust and insurance planning, asset custody, closely held business issues associated with the establishment or expansion of a family office, the formation of family investment partnerships or LLCs, philanthropy, family dynamics and inter-generation issues, etc.

Every investor will achieve better long-term risk-adjusted results by working with a true open architecture advisor.

Shaw Capital Management February Newsletter: Government bond Markets 3 of 3

Shaw Capital Management Korea February Newsletter:  Article three of three - The markets are assuming that the more powerful members of the eurozone will support the weaker members in order to prevent defaults that might threaten the single currency structure; but the yield spreads have widened considerably to reflect the increased risks. Our tentative view is that the markets will “muddle through”, and that defaults will be avoided; but higher overall yield levels seem unavoidable. Prospects in these markets are therefore very unattractive. The gilt edged market has also come under pressure over the past month; short-term yields have remained basically unchanged, but there have been increases in medium and longer-term yields that has produced a much steeper yield curve.

Shaw Capital Management Korea February Newsletter:  Article three of three - There has been evidence of a modest improvement in the economic background; and the Bank of England is proving to be a stabilising influence at a difficult time; but a very disappointing Pre-Budget Report has indicated that there will be no attempt to address the problems of the huge fiscal deficit until after the election. Our tentative view is that the markets will “muddle through”, and that defaults will be avoided; but higher overall yield levels seem unavoidable. Prospects in these markets are therefore very unattractive. Funding pressures will therefore continued to increase; and so, although there does not appear to be any real danger that the UK might join the list of countries that could default on their sovereign debts, annual debt issues in excess of £200 billion cannot continue for long if this is to be avoided. It is no surprise therefore that investors have reacted by reducing their exposure to the market.

Shaw Capital Management Korea February Newsletter:  Article three of three - There is still some doubt whether the UK economy has moved out of recession. The pace of contraction in the third quarter of the year has been slightly reduced, and since then the pace of job losses has declined, and consumer spending has held up fairly well. But business investment and manufacturing activity remains weak, and so there may have been no overall improvement in the final quarter of last year. The Bank of England has therefore kept short-term interest rates at 0.5%, and maintained its quantitative easing programme, and this has provided support for the market, since the bank has been a major buyer of gilts in recent months.

Shaw Capital Management Korea February Newsletter:  Article three of three - However it has not been enough to prevent a very adverse reaction to the Pre-Budget Report from the UK Chancellor. The market did not really expect any significant action on the deficit ahead of the forth-coming general election; but was still surprised by the apparent lack of realism. The government is prepared to allow the deficit to continue to accumulate, and is relying on the gilt edged market to provide the funds to finance that deficit in the hope that this will enable it to win the election, and has produced no real indications of how the deficit might be reduced even after the election is over. It is not surprising therefore that investors have reacted by reducing exposure, that 10-year yields have risen to 4% and longer-term yields to 4.5%, and that there are even suggestions that the country could face a capital flight and a full-blown debt crisis in the coming months. We do not share these extreme views; but clearly the prospects for the market are very unattractive, and higher yields appear unavoidable. Investors have reacted by reducing exposure... and there are even suggestions that the country could face a capital flight and a fullblown debt crisis in the coming months.

Shaw Capital Management Korea February Newsletter:  Article three of three - The Japanese bond market is basically unchanged over the past month; but there are fears that present yield levels are unsustainable. A sharp reduction in the growth estimate for the third quarter of last year, and weaknesses since then have raised the possibility of a move back into recession and a further period of deflation. The government has reacted by launching its fourth fiscal rescue package since the economic crisis began last year. It amounts to the equivalent of a further $81 billion to be spent in the regions and on subsidies for consumer durables, and is expected to lift the debt issuance this year to a record $835 billion, despite the indications that bond investors may be becoming increasingly unwilling to finance such a high level of new bonds, and the warning from the IMF that the government is risking a significant increase in debt funding costs. Since overseas involvement in the bond market is at a very low level, such a development is unlikely to affect bond markets elsewhere directly; but it could be a warning to other countries of the dangers of placing too much pressure on their own markets.

Shaw Capital Management Korea - Investment Innovation & Excellence.  We provide the information, insight and expertise that you need to make the right investment choices. Shaw Capital Management based in Korea typically offers its clients such services as asset allocation and portfolio design; traditional and non-traditional manager review and selection; portfolio implementation; portfolio monitoring and consolidated performance reporting; and other wealth management services, including estate, tax, trust and insurance planning, asset custody, closely held business issues associated with the establishment or expansion of a family office, the formation of family investment partnerships or LLCs, philanthropy, family dynamics and inter-generation issues, etc.

Every investor will achieve better long-term risk-adjusted results by working with a true open architecture advisor.

Shaw Capital Management News: Washington Waxes Brazilian

Brazil provides us with an example of a rapidly developing, energy-hungry economy in the Western Hemisphere, where biofuel is a fact of life. Biofuel is also an investment imperative for energy investors and companies that want to make money in Brazil. As an important part of the #3 economy in the Americas, ethanol can't be ignored by the United States.

(Sugar) Ethanol as a Global Commodity; Focus on Cosan Ltd. (NYSE: CZZ) Cosan is entering into a joint venture with an oil giant that could be worth $12 billion, and its happy beginning to 2010 signals a renewal of interest in ethanol and entrance of some unlikely participants into biofuels. Cosan, a Brazilian company that processes more sugar than anyone else in the world, is now joining with Royal Dutch Shell (NYSE: RDS), the #2 oil producer in Europe.

Shell is paying Cosan $1.625 billion for half of its core assets. As part of the joint venture that will emerge, Shell is also taking on Cosan's debt and opening up 2,740 Shell service stations to Cosan's sweet, green fuel. Shell will also give Cosan two small Brazilian companies … Codexis and Iogen … where Shell has been investing in ethanol. Cosan is entering into a joint venture with an oil giant that could be worth $12 billion, and...signals a renewal of interest in ethanol and entrance of some unlikely participants into biofuels.

Shaw Capital Management Korea News:  Cosan stands to gain big from an efficient system of turning agricultural leftovers into fuel in its own right. Of all the money and knowledge changing hands, one part is most important: By gaining access to Shell's distribution system, Cosan will have the luxury of ramping up production without

worrying if there will be buyers.

Shell wants to fertilize Cosan's cane-based business. Cosan output now has to grow from 2 billion liters per year up to the 3 billion that will be needed to satisfy a total 4,500 fuel stations in Brazil. From there, it's up to 4 and 5 billion liters annually and on to making ethanol a global commodity. You'd be hard pressed to tell the difference between Shell and Cosan's statements on this joint venture if you removed a couple of words. Very simply, each company wants access to the other's expertise. "Cosan represents the best entry to sustainable biofuels in the market... the best entry of scale," Shell's Mark Williams said in London. In Sao Paulo, Cosan Chairman Rubens Ometto said the tie-up is intended to be "the step forward that was lacking, in spite of all our efforts, to make ethanol a global commodity." Shell's 45,000 stations around the world will pump biofuel to vehicles that can run on gasoline, ethanol, or a mixture of the two.

Shaw Capital Management Korea News:  Low prices also help, as evidenced in Brazil where flex-fuel vehicles now account for 90% of new cars and truck sales. Shell's 45,000 stations around the world will pump biofuel to vehicles that can run on gasoline, ethanol, or a mixture of the two (Brazil mandates that all gasoline have at least a 20% ethanol component). As it stands, Brazilians are the end users of the vast majority of the ethanol that their country produces (about 25 billion liters annually). And you wouldn't know it from most of the media, but ethanol is more than just an automotive matter...

Shaw Capital Management, Korea - Investment Innovation & Excellence.  We provide the information, insight and expertise that you need to make the right investment choices. Shaw Capital Management Korea typically offers its clients such services as asset allocation and portfolio design; traditional and non-traditional manager review and selection; portfolio implementation; portfolio monitoring and consolidated performance reporting; and other wealth management services, including estate, tax, trust and insurance planning, asset custody, closely held business issues associated with the establishment or expansion of a family office, the formation of family investment partnerships or LLCs, philanthropy, family dynamics and inter-generation issues, etc.

Shaw Capital Management News: Flex-Fuel Power Plants Now Opening in Brazil

On January 19th 2010, the first ethanol-fired power plant whirred into action in Brazil. National oil company Petrobras (NYSE: PBR) and American systems giant General Electric (NYSE: GE) pitched in resources to turn an existing 87 MW plant into a flex-fuel power station that can alternate between natural gas and ethanol (which are both considered alternative fuels, even though only one is renewable).

GE wants to see how its turbines can be adapted to work in flex-fuel plants in Brazil and in developed countries like Japan, where clean-burning power plants are gaining momentum.

Brazil's water-dependent hydroelectric infrastructure teeters during the dry season in places where natural gas isn't easily accessible. It just so happen that wind power peaks at the opposite time of the year as the water in running rivers that drives dam-based generation.

Ethanol and wind could supplant natural gas as the primary alternative source of electricity generation during the dry season in Brazil and President Luiz Inacio Lula da Silva said in the Brazilian press that Brazil could be selfsufficient in natural gas after several pre-salt (read: incredibly deep) offshore fossil fuel pockets are tapped.

That capacity is at least five years away. Ethanol is there now, and after wind power auctions started last December, 773 wind turbines will be turning across Brazil by 2012.

Shaw Capital Management Korea News: Shell, Petrobras, GE, and Cosan will surely push hard to get the government in Brasilia to initiate a nationwide "ethanol electricity" campaign to ensure that oil and automotive fuel aren't the key determinants of sugar ethanol's success.

As in so many other areas of the world, those communities that are now underserved by fossil fuels can benefit most from such clean energy advances.

The US Administration completed its revised Renewable Fuels Standard (RFS2). RFS2 will move towards a national goal of 26 billion gallons of biofuel production by 2022.

At Shaw Capital Management we give you the information and insight you need to make the right investment choices. We look forward to working with you and being the open architects of your financial well being.

Shaw Capital Management Korea - Investment Innovation & Excellence.  We provide the information, insight and expertise that you need to make the right investment choices. Shaw Capital Management Korea typically offers its clients such services as asset allocation and portfolio design; traditional and non-traditional manager review and selection; portfolio implementation; portfolio monitoring and consolidated performance reporting; and other wealth management services, including estate, tax, trust and insurance planning, asset custody, closely held business issues associated with the establishment or expansion of a family office, the formation of family investment partnerships or LLCs, philanthropy, family dynamics and inter-generation issues, etc.

Every investor will achieve better long-term risk-adjusted results by working with a true open architecture advisor.

Our philosophy is simple: almost every investor will achieve better long-term risk-adjusted results by working with a true open architecture advisor.

Before Shaw Capital Management Korea  launched the open architecture revolution, investors had to make the unhappy choice between selecting an advisor who was independent, but unsophisticated (the traditional pension and endowment consulting firms), or selecting an advisor who was sophisticated but had conflicting interests (global banks, trust companies, money management firms).

Focus on Plutonic Power Corporation (TSX:PCC) Shaw Capital Management News

Plutonic Power Corporation develops environmentally friendly run-of river hydro projects in British Columbia.

Now before we get into the specifics on this one, let's first answer the question: What is run-of-river hydro?

Plutonic defines it quite well, stating that run-of-river projects do not actually require any damming of water. Instead, some of the water in a river is diverted and sent into a pipe called a penstock.

This penstock feeds the water downhill to a generating station. The natural force of gravity creates the energy required to spin the turbines that in turn generate electricity. The water leaves the generating station and is returned to the river without altering the existing flow or water levels.

All of Plutonic's component specifications and construction methods are consistent with providing the least amount of environmental and visual impacts. In fact, in a comparison of environmental impacts, the Ontario Power Authority shows run-of-river hydro to have less of an impact than solar and wind. And of course it rates much better than oil and coal. “In a comparison of environmental impacts, the Ontario Power Authority shows run-ofriver hydro to have less of an impact than solar and wind. And of course it rates much better than oil and coal.”

Shaw Capital Management Korea News:  Operations. Plutonic Power is in the process of building out a number of run-of-river hydro projects in Canada. The first to go online will be the East Toba and Montrose project, which is expected to begin operations later in 2010.

The combined installed capacity of this one will be 196 megawatts. All the electricity to be generated from this project will be sold to BC Hydro under a 35-year sales contract.

In the third quarter 2009, 74 percent of the project's plant construction was completed, and 73 percent of the penstock was completed. 79 percent of the construction of the transmission line was completed.

Shaw Capital Management Korea News: Other projects include: Upper Toba Valley Project (3 facilities). Estimated installed capacity of 166.3 megawatts when completed. Bute Inlet Project (17 facilities). Estimated installed capacity of 1,030 megawatts when completed. Freda Creek Project (1 facility). Estimated installed capacity of 35 megawatts when completed.

The BC Hydro Connection. In June, 2008, BC Hydro launched a Clean Power Call to develop new energy operations. A Request for Proposals followed for projects using proven technologies, such as hydro, wind, solar and geothermal.

This Clean Power Call aligned BC Hydro with the BC Energy Plan which calls for 90 percent of electricity in the province to come from clean or renewable sources and for all new electricity generation projects to have zero net greenhouse gas emissions.

The intent here for BC Hydro is to successfully negotiate power purchase agreements with those chosen from a long list of proposals. … Plutonic is on this list.

And on November 19, 2009, Plutonic Power received notification from By Hydro that the Bute Inlet and Upper Toba Valley Projects will be approved. These projects were proposed jointly with GE Energy Financial Services.

The GE Connection.  In August of 2006, Plutonic Power granted GE Energy Financial Services the exclusive right to make a $100 million equity investment and provide $400 million in debt financing for its East Toba River and Montrose project. In return for the equity investment, GE gets a 49 percent equity stake and 60 percent economic interest in the project. Now by the time BC Hydro issued its request for proposals, GE had given an equity contribution of about $79.3 million and extended about another $71.3 million credit for the East Toba River and Montrose project.

GE also formed a join venture with Plutonic last June 2009 to purchase an uncompleted 144-megawatt wind project in northeast BC. This is the largest wind power project under construction in British Columbia. Given British Columbia's recent announcement that it's going to establish a ‘Green Energy Advisory Task Force’ to help advance the Province's climate, Plutonic Power is in a good position. While Plutonic is knows for run-of-river hydro, this deal allows the company to further develop green assets in Canada. The purchase of this wind project was completed on December 11, 2009. Given British Columbia's recent announcement (November 2, 2009) that it's going to establish a ‘Green Energy Advisory Task Force’ to help advance the Province's climate, to reduce greenhouse gas emissions and build a greener economy, Plutonic Power is in a good position.

Shaw Capital Management Korea - Investment Innovation & Excellence.  We provide the information, insight and expertise that you need to make the right investment choices. Shaw Capital Management Korea typically offers its clients such services as asset allocation and portfolio design; traditional and non-traditional manager review and selection; portfolio implementation; portfolio monitoring and consolidated performance reporting; and other wealth management services, including estate, tax, trust and insurance planning, asset custody, closely held business issues associated with the establishment or expansion of a family office, the formation of family investment partnerships or LLCs, philanthropy, family dynamics and inter-generation issues, etc.

Every investor will achieve better long-term risk-adjusted results by working with a true open architecture advisor.

Shaw Capital Management and Financing - Freight Bill Factoring to Fund Your Need

Using Freight Bill Factoring to Fund Your Transportation Company by Marco Terry.

Most transportation company owners have to constantly juggle responsibilities. They have to handle vehicle repairs, driver payments, insurance payments, office expenses and more importantly - collecting invoices. Collections can be source of problems for many transportation companies (or freight brokerages) since most clients pay their invoices in 30 to 60 days . Few can afford to wait that long.

Shaw Capital Management and Financing provide same-day-funding. We can help you meet your cashflow needs immediately without entering into a long term factoring relationship. The money you get for the freight bills we purchase is payment in full. Shaw Capital helps you to avoid costly mistakes, online scam, fraud and other identity theft transactions before you knew it.

One way to handle slow payment is to try and negotiate a quick pay - basically asking your clients to pay quickly. Some will do it. Others won't, or at least will only offer it if you give them a discount. Although they are not always reliable, negotiating a quick pay can be beneficial in most cases.

Shaw Capital Management and Financing offer a complete line of factoring services, purchase order funding, asset based financing, accounts receivable management, and other related financial services.

If quick pays won't work, your best alternative is to secure business financing to ensure you always have funds on hand to cover business expenses. This can be difficult for most owners since institutions require that all applications have stellar credit, assets that can be held as collateral and many years of experience. This will rule out business loans as an alternative for most small and midsized trucking companies. However, this is not necessarily a big problem since a business loan is not always the solution to this problem.

For many, freight bill factoring will be the better alternative. Freight factoring, as it is commonly known, can provide the equivalent of a quick pay by using an intermediary. The intermediary, called a factoring company, advances you funds against your freight bill. The transaction is settled once your client pays the invoice in full.

One of the advantages of freight factoring is that it provides predictable cash flow, enabling you to comfortably handle your business expenses. It eliminates having to worry about when your clients will pay.

To qualify for freight factoring you need to work with credit worthy clients. Also, your company needs to be free of liens, judgments and other encumbrances. Because of this, freight bill factoring is an ideal solution for small and growing trucking companies and freight brokers.

Shaw Capital Management and Financing offer funding for a wide range of industries and flexible funding requirements that most businesses can easily qualify for.