Life-Exchange

Time of reckoning for the euro zone

2011-12-05T12:28:00.001+08:00

..WASHINGTON (Reuters) - Failure by European leaders at their summit this week to fix the fatal flaw in the euro zone, its lack of political union, would risk tremendous market upheaval, a rupture of the common currency and global economic fallout. The world economy already is slowing, leaving it increasingly vulnerable to shocks reverberating from Europe. China cut reserve requirements for banks last week for the first time in three years and its factory sector shrank to levels not seen since February 2009. Brazil also lowered rates for the third time since August. Only the United States has enjoyed a steady stream of improving data. The unemployment level dropped to 8.6 percent in November, the lowest level in 2-½ years, factories expanded and retail spending accelerated, pointing to a slow and gradual pick-up in growth. But Europe casts a pall over everything. So serious are the risks that it could disrupt three years of painful global economic recovery that politicians, central bankers and market strategists are starting to compare the danger of European leaders deadlocking to the collapse of Lehman Bros in September 2008. That shock plunged the world into its deepest recession since the 1930s. "Let us not hide it: Europe may be swept away by the crisis if it doesn't get a grip, if it doesn't change," French President Nicolas Sarkozy said on Thursday. Bank of England Governor Mervyn King warned of a "systemic crisis," adding that "none of us really know" how the euro zone would survive if the crisis explodes into sovereign default. "This is Lehmans, Take Two. Cubed," said Kathleen Gaffney of Loomis Sayles, a part of Natixis Asset Management. Leaders got a peak into the abyss when credit lines froze over the last 10 days after Germany failed in late November to sell all its bonds and yields jumped, not only for heavily indebted Italy and Spain, but also for countries at the very heart of the euro project -- France and Germany. It took five major central banks cutting interest rates on currency lines last Wednesday and extending those lines to restore a measure of calm to financial markets. But the uneasy peace will not last unless Sarkozy and German Chancellor Angela Merkel, who meet on Monday to discuss changes to the EU Treaty, can finalize a fiscal deal that imposes tough budgetary rules on the 17 euro-zone members and then convince all 27 EU leaders on Friday to back the plan. Their summits are littered with a history of half-baked solutions and broken promises. Few have illusions that this one will produce a definitive solution to the euro crisis. But investors want to see the famously fractious European leaders make significant progress and show they are willing to give up some national control over budgets and march toward political union. Though it will be a long and trying road, only then can the future of the decade-old euro zone project be assured. To do less would invite market upheaval, and eventually could lead to bank failures and sovereign default, said Mark Geitler, professor of economics at New York University. "Global recession would likely follow and there would be pressure to break up the euro zone. An unpredictable chain of negative events would then likely follow," Geitler said. Treasury Secretary Timothy Geithner is flying to Europe next week to press the urgency of the matter, meeting politicians from France, Germany, Spain and Italy, as well as the European Central Bank. His assistant secretary for economic policy, Jan Eberly, said a European recession would blight U.S. recovery and is "absolutely a source of concern." BIG BAZOOKA Even if a political deal for fiscal union is struck on Friday, it likely will require EU treaty changes and take many months to implement. Meanwhile, the world economy will remain highly vulnerable to further market stress unless a second step is taken to guarantee solvency of governments and stabilize the European government debt market. There are several ways of taking that second step: The European Central Bank could unleash a massive round of bond buying, dubbed using the "big bazooka." The International Monetary Fund could agree on backstop funding programs for indebted countries that are having trouble tapping bond markets, such as Italy and Spain; or a beefed-up Europe's bailout fund could buy up the debt. The ECB made an important move last week by signaling flexibility if leaders move forward on a fiscal compact. The central bank is widely expected to cut interest rates and expand its liquidity facilities when it meets on Thursday. More focus will be on ECB President Mario Draghi's news conference, where he could expand on the ECB's readiness to act as lender of last resort -- a path urged upon it by the United States and France, but staunchly resisted by Germany on grounds it discourages budget discipline. But if the scaffolding toward a German-led fiscal union can be erected at the EU summit, the ECB may be willing to bend. It also would provide some assurance to investors that the fatal flaw in monetary union will be fixed, averting a cataclysmic end to the euro project and return to Great Recession...

Europe races for debt solution = Euro in danger 1

2011-12-05T12:24:00.001+08:00

PARIS (AP) — European leaders rushed Monday to stop a rampaging debt crisis that threatened to shatter their 12-year-old experiment in a common currency and devastate the world economy as a result.One proposal gaining prominence would have countries cede some control over their budgets to a central European authority. In a measure of how rapidly the peril has grown, that idea would have been unthinkable even three months ago.World stock markets, glimpsing hope that Europe might finally be shocked into stronger action, staged a big rally. The Dow Jones industrial average in New York rose almost 300 points. In France, stocks rose 5 percent, the most in a month.More relevant to the crisis, borrowing costs for European nations stabilized. They had risen alarmingly in recent weeks — in Greece, then in Italy and Spain, then across the continent, including in Germany, the strongest economy in Europe.The yields on benchmark bonds issued by Italy and Germany rose, but only by hundredths of a percentage point. The yield fell 0.1 percentage point on bonds of France, 0.14 points for those of Spain and 0.22 points for Belgium.Allowing a central European authority to have some control over the budgets of sovereign nations would create a fiscal union in Europe in addition to the monetary union of the 17 countries that share the euro currency.Some analysts have said that would be a leap toward creating a United States of Europe. More delicately, it would force the nations of Europe to swallow their national pride, cede some sovereignty and agree to strengthen ties with their neighbors rather than fleeing the euro union during the crisis."The common currency has the problem that the monetary policy is joint, but the fiscal policy is not," Germany's finance minister, Wolfgang Schaeuble, said in a meeting with foreign reporters in Berlin.The monetary union has existed since the euro was created in 1999, but the European Union, which includes the 17 euro nations and 10 others that use their own currencies, has no central authority over taxing and spending.Countries like Ireland, Portugal, Spain, Greece and Italy overspent wildly for years and racked up annual budget deficits that have left them with monstrous debt. Italy holds €1.9 trillion in debt, or 120 percent of the size of its economy.A fiscal union could prevent excessive spending in the future. More important, it would be a step toward addressing today's debt crisis: It could provide cover for the European Central Bank to stage a massive intervention in the European bond market to drive down borrowing costs and keep the debt crisis under control.So far, the ECB has resisted, in part because of concerns that bailing out free-spending countries would only encourage them to do it again, a concept known as moral hazard. Enforced budget discipline would ease those concerns.A fiscal union would also pose a practical problem — how to make such a body democratically accountable.Another option is for the 17 nations in the euro group to sell bonds together, known as eurobonds, to help the countries in the deepest trouble because of debt. Germany has resisted such a plan, because it would raise borrowing costs for it and other nations that have good credit ratings.While Europe buzzed over the possible solutions, finance ministers of the euro nations prepared for a summit beginning Tuesday evening in Brussels, to be joined the following day by ministers from the rest of the European Union.Italy readied an auction of bonds designed to raise €8 billion, or about $10.6 billion, and steeled itself for the high interest rates it will have to pay.In Washington, President Barack Obama huddled with European Union officials, but the White House insisted Europe alone was responsible for fixing its debt problems.Obama said failing to resolve the debt crisis could damage the U.S. economy, which has grown slowly since the end of the recession in June 2009 and still has 9 percent unemployment."If Europe is contracting, or if Europe is having difficulties, then it's much more difficult for us to create good here jobs at home," Obama said at an annual meeting between U.S. and EU officials.Despite signs of possible progress on the debt crisis Monday, the euro has appeared to be in increasing danger the past few weeks. Experts said the currency could fall apart within days without drastic action, with consequences rivaling those of the 2008 financial crisis."Everyone knows that if the eurozone crashes the consequences would be very dramatic and in the race after that there would no winners, just losers," said Finland's finance minister, Jutta Urpilainen.For countries that decided to leave the euro group and return to their own sovereign currency, the conversion would be wrenching.If Germany broke away, for example, its national currency could rise in value quickly because the German economy is stronger than the European economy as a whole. But a stronger German mark would damage the German economy because Germany depends heavily on exports, and it would cost more for everyone else to buy German goods.As for weaker countries that decided to leave, depositors would probably yank money out of their banks, fearing a plummeting currency. Savers in Greece would not want their euros replaced with, say, feeble drachmas.If countries tried to repay their old euro debts with their own currencies, they'd be considered in default and would struggle to sell bonds in global financial markets. Corporations would face the same squeeze.Overall, economists at UBS estimate, a weak country that left the eurozone would see its economy shrink by 50 percent.Currency chaos and defaults by governments and companies would weaken European banks and also cause them to stop lending to each other. Because banks are connected globally, a credit freeze in Europe would spread. As it did in 2008, a credit freeze would cause stock markets to sell off worldwide, and another deep recession would probably follow.Wolfgang Munchau, a columnist for the influential Financial Times newspaper, wrote Monday that the common currency "has 10 days at most" to avoid collapse. He called for decisions on a fiscal union and the creation of a powerful common treasury.Unlike the United States, which has centralized institutions in Washington for raising taxes and spending money, the euro nations have 17 independent treasuries with little oversight from Brussels, the headquarters of the EU.That would change under the fiscal union proposal being aired ahead of another summit of EU leaders that begins Dec. 9. Ten nations in the EU do not use the euro currency, most notably Britain.While not explicitly backing a fiscal union, Germany and France have promised to propose measures that will make the 17 euro countries operate under strict and enforceable rules, so that no single country can wreak continent-wide damage.Already, the Organization for Economic Cooperation and Development, an international group devoted to economic progress, warned that the global economy would be rocky in coming months.In its six-month report Monday, it said the continued failure by EU leaders to stem the debt crisis "could massively escalate economic disruption" and end in "highly devastating outcomes."The latest turmoil came last week, after Germany tried to auction $8 billion worth of its national bonds and could persuade investors to buy only $5.2 billion. It was a sign that even mighty Germany was not immune from the debt crisis.Investors around the world will watch the Italian bond auction Tuesday. If it receives a similarly poor reception, more European countries will be in danger of being locked out of the international bond market.Exactly how a fiscal union would take shape in Europe is an open question.Schaeuble, the German financial minister, said the proposal would require passage only by the 17 countries that use the euro currency. The other 10 countries in the EU, such as Britain, Poland and Sweden, could adopt it if they wanted to.But analysts said such a move would take a long time to come to fruition."We do seem to be moving slowly towards more of a fiscal union but at a pace that may result in all the components being put in place after a complete meltdown of the financial system," said Gary Jenkins, an economist with Evolution Securities.Many think the ECB is the only institution capable of calming frayed market nerves. But Merkel, the German chancellor, has continually dismissed the prospect of a bigger role for the ECB.

Chance of 2012 U.S. recession tops 50 percent: Fed paper

2011-11-15T08:57:00.000+08:00

(Reuters) - The European debt crisis is raising the odds of a U.S. recession, with economic contraction more likely than not by early 2012, according to research from the San Francisco Federal Reserve Bank.

While it is difficult to gauge the odds precisely, an analysis of leading U.S. economic indicators suggests a rising chance of a recession through the end of the year and into early next year, researchers at the regional Fed bank wrote on Monday. The risk of recession recedes after the second half of 2012, they found.

New governments in Greece and Italy, with fresh promises to tackle fiscal problems have in recent days, allayed investor concerns about a near-term sovereign debt default in the euro zone, but Europe's debt crisis is far from resolved. The region is facing its worst hour since World War II, German Chancellor Angela Merkel said on Monday.

Although domestic threats to economic growth in the United States are limited, a shock from abroad could derail a fragile recovery.

The weak U.S. economy is more than usually vulnerable to turbulence beyond its borders, as the unexpectedly severe U.S. effects from Japan's devastating earthquake in March demonstrates, the researchers said.

"A European sovereign debt default may well sink the United States back into recession," wrote Travis Berge, Early Elias and Oscar Jorda in the latest San Francisco Fed Economic Letter. "However, if we navigate the storm through the second half of 2012, it appears that danger will recede rapidly in 2013.

The assessment of recession risk is more dire than that of many private economists. A November 4 Reuters poll of primary dealers shows Wall Street economists see a 30 percent chance of a U.S. recession next year, down from 35.5 percent a month earlier.

Last week the Federal Reserve's influential vice chairwoman Janet Yellen warned on the threat from Europe, saying governments there need to take forceful steps to contain the crisis or risk substantial damage to the United States.

Before taking her post at the Fed Board in Washington, Yellen headed the San Francisco Fed.

Her successor, John Williams, is due to give a major policy speech on Tuesday.

(Reporting by Ann Saphir; Editing by Padraic Cassidy)
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Health Benefits: Cinnamon and Honey

2011-10-14T11:22:00.001+08:00

Honey is the only food on the planet that will not spoil or rot. What it will do is what some call 'turning to sugar'. In reality, honey is always honey. However, when left in a cool dark place for a long time it will "crystallize". When this happens loosen the lid, boil some water and sit the honey container in the hot water, but turn off the heat and let it liquefy naturally. It is then as good as it ever was. Never boil honey or put it in a microwave. This will kill the enzymes in the honey.Cinnamon and Honey Bet the drug companies won't like this one getting around. Facts on Honey and Cinnamon: It is found that a mixture of honey and Cinnamon cures most diseases. Honey is produced in most of the countries of the world. Scientists of today also accept honey as a 'Ram Ban' (very effective) medicine for all kinds of diseases. Honey can be used without side effects for any kind of diseases. Today's science says that even though honey is sweet, when it is taken in the right dosage as a medicine, it does not harm even diabetic patients. Weekly World News, a magazine in Canada, in its issue dated 17 January,1995 has given the following list of diseases that can be cured by honey and cinnamon, as researched by western scientists:

HEART DISEASES: Make a paste of honey and cinnamon powder, apply it on bread instead of jelly and jam and eat it regularly for breakfast. It reduces the cholesterol in the arteries and saves the patient from heart attack. Also, those who have already had an attack, when they do this process daily, they are kept miles away from the next attack. Regular use of the above process relieves loss of breath and strengthens the heart beat. In America and Canada, various nursing homes have treated patients successfully and have found that as one ages the arteries and veins lose their flexibility and get clogged; honey and cinnamon revitalize the arteries and the veins.

WEIGHT LOSS: Daily in the morning one half hour before breakfast and on an empty stomach, and at night before sleeping, drink honey and cinnamon powder boiled in one cup of water. When taken regularly, it reduces the weight of even the most obese person. Also, drinking this mixture regularly does not allow the fat to accumulate in the body even though the person may eat a high calorie diet.

ARTHRITIS: Arthritis patients may take daily (morning and night) one cup of hot water with two tablespoons of honey and one small teaspoon of cinnamon powder. When taken regularly even chronic arthritis can be cured. In a recent research conducted at the Copenhagen University, it was found that when the doctors treated their patients with a mixture of one tablespoon Honey and half teaspoon Cinnamon powder before breakfast, they found that within a week (out of the 200 people so treated) practically 73 patients were totally relieved of pain -- and within a month, most all the patients who could not walk or move around because of arthritis now started walking without pain.

BLADDER INFECTIONS: Take two tablespoons of cinnamon powder and one teaspoon of honey in a glass of lukewarm water and drink it. It destroys the germs in the bladder..

CHOLESTEROL: Two tablespoons of honey and three teaspoons of Cinnamon Powder mixed in 16 ounces of tea water given to a cholesterol patient was found to reduce the level of cholesterol in the blood by 10 percent within two hours. As mentioned for arthritic patients, when taken three times a day, any chronic cholesterol is cured. According to information received in the said Journal, pure honey taken with food daily relieves complaints of cholesterol.

COLDS: Those suffering from common or severe colds should take one tablespoon lukewarm honey with 1/4 spoon cinnamon powder daily for three days. This process will cure most chronic cough, cold, and, clear the sinuses.

UPSET STOMACH: Honey taken with cinnamon powder cures stomach ache and also clears stomach ulcers from its root.

GAS: According to the studies done in India and Japan, it is revealed that when Honey is taken with cinnamon powder the stomach is relieved of gas.

IMMUNE SYSTEM: Daily use of honey and cinnamon powder strengthens the immune system and protects the body from bacterial and viral attacks. Scientists have found that honey has various vitamins and iron in large amounts. Constant use of Honey strengthens the white blood corpuscles (where DNA is contained) to fight bacterial and viral diseases.

INDIGESTION: Cinnamon powder sprinkled on two tablespoons of honey taken before food is eaten relieves acidity and digests the heaviest of meals.

INFLUENZA: A scientist in Spain has proved that honey contains a natural 'Ingredient' which kills the influenza germs and saves the patient from flu.

LONGEVITY: Tea made with honey and cinnamon powder, when taken regularly, arrests the ravages of old age. Use four teaspoons of honey, one teaspoon of cinnamon powder, and three cups of water and boil to make a tea. Drink 1/4 cup, three to four times a day. It keeps the skin fresh and soft and arrests old age. Life spans increase and even a 100 year old will start performing the chores of a 20-year-old..

RASPY OR SORE THROAT: When throat has a tickle or is raspy, take one tablespoon of honey and sip until gone. Repeat every three hours until throat is without symptoms.

PIMPLES: Three tablespoons of honey and one teaspoon of cinnamon powder paste. Apply this paste on the pimples before sleeping and wash it off the next morning with warm water. When done daily for two weeks, it removes all pimples from the root.

SKIN INFECTIONS: Applying honey and cinnamon powder in equal parts on the affected parts cures eczema, ringworm and all types of skin infections.

CANCER: Recent research in Japan and Australia has revealed that advanced cancer of the stomach and bones have been cured successfully. Patients suffering from these kinds of cancer should daily take one tablespoon of honey with one teaspoon of cinnamon powder three times a day for one month .

FATIGUE: Recent studies have shown that the sugar content of honey is more helpful rather than being detrimental to the strength of the body. Senior citizens who take honey and cinnamon powder in equal parts are more alert and flexible. Dr. Milton, who has done research, says that a half tablespoon of honey taken in a glass of water and sprinkled with cinnamon powder, even when the vitality of the body starts to decrease, when taken daily after brushing and in the afternoon at about 3:00 P.M., the vitality of the body increases within a week.

BAD BREATH: People of South America, gargle with one teaspoon of honey and cinnamon powder mixed in hot water first thing in the morning so their breath stays fresh throughout the day.

HEARING LOSS: Daily morning and night honey and cinnamon powder, taken in equal parts restores hearing.

Remember when we were kids? We had toast with real butter and cinnamon sprinkled on it!

You might want to share this information with a friend, kinfolks and loved ones. Everyone needs healthy help information ~ what they do with it is up to them ~ share with your email buddies... They deserve to be healthy too!!!

Gold slumps record $100; stocks edge up

2011-09-24T11:16:00.000+08:00

NEW YORK (Reuters) - Gold prices slumped more than $100 an ounce on Friday, the biggest fall on record in dollar terms, as traders sold to cover losses, while global stocks edged up on expectations the European Central Bank will take new measures to contain the euro zone debt crisis.

Trading was volatile, capping one of the most tumultuous weeks on record for world markets as fear of a Greek default and a gloomy Federal Reserve prognosis for the U.S. economy sparked a sell-off in stocks and commodities and drove investors to the safe-haven U.S. dollar and Treasuries.

A pledge by G20 policy makers that they will calm the global financial system failed to appease investors, who are concerned that authorities are unable to respond effectively to the mounting euro zone debt crisis and sluggish growth in major world economies.

Gold slumped more than 6 percent at one point -- its biggest drop since the financial crisis in 2008 -- to hit its lowest since early August as a slide turned into a free-fall, with weeks of volatility and talk of hedge fund liquidation wrecking its safe-haven status.

"The bull case for gold is on pause for the near term," said Adam Klopfenstein, senior market strategist for precious metals at MF Global in Chicago.

"In the near-term, the flight-to-quality interest in owning gold is also out of the window as people are not interested in buying it even in the face of fears in the economy. Until it stabilizes, I'm staying out of this market."

Spot gold was last at $1,649 an ounce, after falling to a session low under $1,628. At $127 an ounce, the intraday move was the biggest on record in dollar terms.

U.S. stocks ended higher after seesawing between gains and losses, stopping the bleeding after a disastrous four days of selling marred by severe anxiety.

Comments from European Central Bank Governing Council member Ewald Nowotny, who said it might be advisable for the central bank to add more liquidity to European banks helped lift sentiment.

The Dow Jones industrial average ended up 37.65 points, or 0.35 percent, at 10,771.48. The Standard & Poor's 500 Index was up 6.87 points, or 0.61 percent, at 1,136.43. The Nasdaq Composite Index was up 27.56 points, or 1.12 percent, at 2,483.23.

Global stocks as measured by the MSCI All-Country index were up 0.2 percent, after hitting their lowest level since July 2010 at 274.20.

The index is now in bear market territory -- defined as a fall of 20 percent or more from the peak -- having tumbled more than 22 percent from its 2011 high in May.

"Financial markets are sick and tired of the authorities in Europe and in the U.S. twiddling their thumbs and not doing substantive things to solve this crisis of the global economy," said Barton Biggs, managing partner at New York-based Traxis Partners.

The FTSEurofirst 300 index ended up 0.8 percent. Emerging markets stocks slid 1.6 percent.

COMMODITIES ROUT

Liquidity comments from ECB officials and speculation the central bank may cut rates helped sentiment initially, but uncertainty about Greece remained.

Greece denied reports that one option in its debt crisis would be an orderly default with a 50 percent haircut, while Deutsche Bank warned that European banks' write-downs on Greek bonds could exceed 25 percent.

Metals prices plunged across the board. Silver prices posted their biggest drop since 2006. Spot silver was down 15 percent and trading below $35.76 an ounce after hitting a session low of $29.77.

Copper hit $7,115.75, its lowest since August 2010. It was its sharpest weekly decline in nearly three years for the economically sensitive red metal.

U.S. crude fell 66 cents to settle at $79.85 a barrel. London Brent crude fell $1.52 to settle at $103.97.

The euro rose 0.4 percent to $1.3515, rebounding from an eight-month low. The dollar rose 0.5 percent to 76.66 yen and was on track for its best month since May 2010 against a basket of currencies.

U.S. Treasuries prices slipped after a huge rally this week.

Benchmark U.S. 10-year notes were down 1-2/32 in price, with yields rising to 1.84 percent. Prices of 30-year bonds were down 2-1/32, yielding 2.90 percent.

(Additional reporting by Ryan Vlastelica, Steven C. Johnson and Barani Krishnan in New York and Harpreet Bhal in London; Editing by Andrew Hay)

Gold posts biggest drop since 1980 on Fed fears

2011-08-25T10:12:00.001+08:00

By Frank Tang | Reuters

NEW YORK (Reuters) - Gold futures fell more than $100 on Wednesday, one of the steepest falls ever, as strong U.S. economic data and expectations of more Federal Reserve stimulus accelerated profit taking from the safe-haven record high of a day ago.

Selling spiraled out of control as money managers competed to liquidate positions in COMEX futures, which experienced their biggest single-day dollar loss since 1980. Volume looked like a record.

The price of gold bullion is now more than $150 below Tuesday's all time high of $1,911.46 an ounce, downed by intense speculation about whether the Fed will announce new plans to ease monetary policy at a meeting late this week.

Analysts said it was time for gold investors to take money off the table after the rally extended too far, too fast in recent weeks. Bullion rose as much as $400 since July.

"You have a commodity that retail investors, hedge funds and everybody were long, and the technical indicators showed it was overbought. It was just a matter of time before the market starts cracking," said Mihir Dange, COMEX gold options floor trader for Arbitrage LLC.

Spot gold was down 4.1 percent to $1,754.59 an ounce by 3:37 p.m. EDT, off its session low of $1,749.39.

Before gold began recoiling Tuesday from above $1,900, it had risen nearly 9 percent over six sessions.

U.S. gold futures for December delivery settled down $104 at $1,757.30 an ounce. Reuters data showed that is the biggest price drop of the continuous, front-month contract since January 22, 1980, when it tumbled almost $150. On a percentage basis, it was the steepest fall since December 2008, during the financial crisis.

COMEX futures volume topped 430,000 lots, on pace to surpass a record from August 9, preliminary Reuters data showed.

Silver dropped 5.9 percent to $39.34 an ounce.

Gold came under pressure after steadying overnight, after a report showing new orders for U.S. durable goods orders rose 4 percent in July, more than expected and offering hope the ailing economy could dodge a second recession.

Analysts warned of a sharp correction from this month's rally was possible, especially if Friday's central bank meeting at Jackson Hole, Wyoming does not result in a Fed announcement of a third round of government bond buying, or quantitative easing, also known as QE3.

"The correction really should be taking place now, because of all the (bets) on the table," said Ashok Shah, chief investment officer at London & Capital.

"But the journey is not complete until Jackson Hole is done," Shah said. The Fed conference starts on Thursday.

CALL-PUT SPREAD NARROWS, MARGINS EYED

On the options front, the spread between the 25-day implied volatility of COMEX gold and that of put options has narrowed since Monday, a sign that gold option investors were turning bearish.

The CBOE gold volatility index <.GVX> is near at its highest since April 2009.

The CME Group said late Wednesday it would raise maintenance margins for trading COMEX 100-ounce gold futures by 27 percent, after the close of business on Aug 25. The Shanghai Gold Exchange and Hong Kong Mercantile Exchange had raised margins on some of gold contracts this month.

Holdings of the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell by nearly 25 tonnes on Tuesday, their biggest one-day outflow since January 25.

Spot platinum dropped 2.8 percent to $1,805.49 an ounce, and palladium was down 1.5 percent at $745.28 an ounce.

China is the biggest Bubble in History

2011-08-08T19:59:00.000+08:00

YouTube ==> http://www.youtube.com/watch?v=p8E0VzbuP7M&feature=related

Top 10 Guide To Survive Hyperinflation (Beta)

2011-08-08T18:23:00.001+08:00

Youtube => http://www.youtube.com/watch?v=XJQ1DY9Pdlg&feature=related

The Day the Dollar Died

2011-08-08T18:08:00.001+08:00

Youtube => http://www.youtube.com/watch?v=2N8gJSMoOJc&feature=related

Economic Collapse a Mathematical Certainty - Top 5 Places Where Not To Be

2011-08-08T17:35:00.001+08:00

Youtube ==> http://www.youtube.com/watch?v=b3-vwYJiD8g

No double-dip recession but Europe a worry: Greenspan

2011-08-08T09:02:00.002+08:00

WASHINGTON (Reuters) - Former Federal Reserve Chairman Alan Greenspan on Sunday downplayed the risk of a double-dip recession in the United States, saying its domestic economy was in better shape compared to its European peers.

A double-dip recession "depends on Europe, not the United States," Greenspan told NBC television's "Meet the Press." "The United States was actually doing relatively well -- sluggish, but going forward -- until Italy ran into trouble."

The U.S. economy stumbled badly in the first half of 2011 and came dangerously close to contracting in the January-March period, raising fears that the economy was sliding back into recession.

Those fears were calmed somewhat last week when a debt deal was agreed before the August 2 deadline as well as data showing that employers added 117,000 jobs in July. But Standard & Poor's downgrade of the country's top-notch "AAA" credit rating late on Friday to "AA+" could hurt the recovery.

"With all of this bickering going on, the economy is slowing down," Greenspan said. "You can see it in all the data. I don't see a double-dip, but I do see it slowing down."

Europe, which buys a quarter of U.S. exports and houses the operations of many American companies, would determine the course of the U.S. economy's recovery, Greenspan said.

European leaders are struggling to contain a sovereign debt crisis, which has spread to Italy, the euro zone's third-largest economy, and is causing turmoil in global financial markets.

Greenspan said Italy's troubles could contribute to destabilizing the European and U.S. economies.

"When Italy showed signs of significant weakness in selling its bonds ... it created a massive problem within Europe because Italy is a very large country that ... indeed cannot be bailed out," he said. "And that's what's causing our problem."

Greenspan said despite the S&P downgrade, U.S. Treasury bonds, unlike Italian bonds, were still a safe investment.

"This is not an issue of credit rating. The United States can pay any debt it has because it can always print money to do that. There's zero probability of default," he said. "What I think the S&P (downgrade) did was to hit a nerve. ... It's hit the self-esteem of the United States, the psyche. And it's having a much profounder effect than I conceived could happen."

Markets in the Gulf region and in Israel, among the first to trade since the U.S. credit downgrading, tumbled on Sunday amid worries the U.S. downgrade and European debt woes may trigger another global downturn.

Greenspan said the same was likely to happen worldwide when global markets open on Monday.

Investors try to look past panic

2011-08-08T08:56:00.001+08:00

By Rodrigo Campos | Reuters

NEW YORK (Reuters) - Wall Street hit the panic button last week and survived. But the shocks have left investors stranded.

Following its worst week in almost three years, the S&P 500 has fallen into correction territory and year-end forecasts are already being lowered. Safe havens like gold and the Swiss franc rallied.

Economic growth has slowed and budget-cutting legislation recently passed in the U.S. Congress could further dampen economic activity.

That leaves the path uncertain. So what are investors to expect in the weeks ahead?

"In a word, volatility," said Citigroup strategist Jamie Searle.

The CBOE Volatility Index <.VIX>, the market's gauge of anxiety, had its largest daily percentage spike since early 2007 on Thursday.

Another source of worry was thrown into the mix late on Friday when Standard & Poor's stripped the United States of its top-notch triple-A credit rating. In its report on the action, S&P sounded pessimistic that U.S. lawmakers could reach the consensus needed to rein in deficits that were responsible for this ratings cut.

"The long-term implications are daunting," said Jack Ablin, chief investment officer of Harris Private Bank in Chicago. "Short-term, Treasuries remain a premier safe-haven refuge."

The downgrade was seen as compounding uncertainty in Europe, which is facing its own issues related to government debt.

Germany and France on Sunday reiterated their commitment to implementing the decisions of last month's emergency EU summit, in an effort to restore confidence in turbulent financial markets.

The finance ministers of the G7 major powers are "very likely" to hold a conference call later on Sunday to discuss turmoil in the financial markets, according to a British Treasury source, but no details were immediately available.

NO MAGIC FIX SEEN FROM THE FED

Until June, equity investors could count on the Federal Reserve to keep pumping money into the financial system, boosting equity and commodity prices. The $600 billion the Fed used to buy assets in a second round of quantitative easing -- known as QE2 -- flooded markets with cash and helped lower interest rates.

But that is over now.

Following a political showdown in Congress that took the United States to the brink of a debt default amid a bitter battle to rein in spending, few expect more fiscal stimulus. And additional action from the Fed is unlikely after its meeting Tuesday.

"There is certainly not going to be any fiscal stimulus coming, given the debt situation we are in," said Paul Mendelssohn, chief investment strategist of Windham Financial Services in Charlotte, Vermont.

"You've got so much discord and so much dysfunctionality in Washington that (Fed Chairman Ben) Bernanke has to think twice before he does anything."

Fears of another recession have crept back, fed by flagging economic growth and a perceived inability of politicians on both sides of the Atlantic to deal with escalating government debt.

In Europe, a credit crisis that initially hit Ireland, Greece and Portugal escalated and now threatens to engulf Italy, the euro zone's third-largest economy. Bond yields soared last week to highs not seen in more than a decade, worrying investors about Rome's ability to finance -- and balance -- its budget.

During the afternoon of New York's Friday market session, Italy pledged to speed up austerity measures and social reforms in return for European Central Bank help with funding.

The European Central Bank faced a decision on Sunday whether to buy Italian bonds to try to prevent the euro zone debt crisis from widening.

PANIC BEGETS PANIC

Having fallen in nine of the last 10 sessions, the S&P 500 <.SPX> closed the week down 7.2 percent -- its biggest percentage drop since the third week of November 2008.

Selling was broad as average daily volume for the week soared to 11.6 billion shares traded on the New York Stock Exchange, NYSE Amex and Nasdaq. That represents about a 55 percent jump from what was until last week the yearly average of nearly 7.5 billion.

Frantic moves in markets like the ones seen last week go beyond curbing investor confidence. Nervous consumers hold off on spending and corporations do not sell their products and services so earnings do not rise and stock prices fall, creating a vicious cycle.

"We're facing years of markets that will be at times scary and chaotic and that won't be providing the kinds of returns people want to expect from investments," said Rob Arnott, chairman of Research Affiliates in Newport Beach, California, who oversees $80 billion in assets.

"Most people think double-digits in the past was not difficult so, 'I'm going to be conservative and expect 7 to 8 percent.' But that's not what the markets are priced to give you -- it's more like 3 to 5 percent," Arnott said.

Following downgrades to U.S. gross domestic product estimates and weak global figures on factory and services sector activity, hopes for a boom in the second half of the year have evaporated.

"I just don't think 3 percent GDP growth in the second half is anywhere close to realistic at this point," said Keith Davis, a bank analyst and principal at money manager Farr, Miller & Washington in Washington, D.C. "The third quarter is starting off pretty slow, and people are bringing down their numbers."

Credit Suisse equity strategists on Friday cut their year-end estimate for the S&P 500 by 7 percent to 1,350 from 1,450, with 1,400 as the target for year-end 2012.

Contrarian views are nevertheless ready to dismiss the panic and take it as a good time to jump back in.

"The biggest fear in our mind is: 'Is it a self-fulfilling prophecy? Is the market volatility causing people to really pull back?'" said Thomas Villalta, portfolio manager for Jones Villalta Asset Management in Austin, Texas.

"I think you'll see things kind of calm down over the weekend, and I suspect next week will be a better week for the market as people calm down and reassess the situation," he added.

Debt issuers brace for impact from U.S. downgrade

2011-08-08T08:37:00.003+08:00

By Paritosh Bansal and Dan Wilchins | Reuters

NEW YORK (Reuters) - A downgrade of United States' top-tier credit rating has Wall Street scrambling to figure out the knock-on effects for the financial system, from mortgages to banks to markets that rely on U.S. Treasuries for collateral.

The immediate effects of the Standard & Poor's downgrade of the country's AAA credit rating late on Friday are likely to be modest, largely because it was expected and already at least partly discounted, experts said.

Many downplayed the likelihood of the sort of financial contagion experienced when Lehman Brothers went under in September 2008. Few had expected it to have to file for bankruptcy, and few were prepared for the fallout. Money market funds froze, some major commercial banks collapsed, and many major dealers and finance houses teetered on the edge of failure.

But even if that type of scenario is unlikely this time, bankers, lawyers and investors wonder if there could be longer-term consequences of S&P's downgrade, given that U.S. sovereign credit is bedrock to the world financial system.

The analysis is complicated because so many of the potential stress points for the financial system are relatively opaque areas like over-the-counter derivatives markets.

Adding to the difficulties is the concern that the downgrade is only one of the many issues roiling global markets. The European debt crisis is spreading, with Italy and Spain coming under the gun after Greece, and data in recent weeks point to a weaker U.S. economy than many investors had thought and have led to fears of another recession.

"I actually think it is going to end up having more of an impact than some of the news stories are suggesting," said Thomas Stoddard, a senior managing director at Blackstone Group who focuses on financial services investment banking.

"Not having the U.S. as triple-A is just going to pop up in more places and have more frictional costs than people might suspect," Stoddard added.

A number of entities that are key players in the U.S. financial system -- including mortgage finance companies Fannie Mae and Freddie Mac, and securities clearinghouses like the Options Clearing Corp Depository Trust Co -- are likely to be downgraded by Standard & Poor's on Monday.

For Fannie Mae and Freddie Mac, losing their triple-A rating could lift borrowing costs, potentially making mortgages more expensive for consumers and adding to stress in the already unstable U.S. housing market.

Last month, S&P said it may also cut ratings for companies like the Depository Trust Co, which facilitates payment transfers among major banks, and several Federal Home Loan Banks and Farm Credit System Banks.

On Friday evening, when S&P cut the United States' sovereign rating by one notch to "AA-plus," it said it would offer more detail about the ratings for these companies on Monday.

DERIVATIVES MARKETS

Another source of potential stress is derivatives markets, where investors and banks often collateralize their positions using U.S. Treasuries.

If banks start demanding more Treasuries to collateralize the same exposure, investors could be forced to sell assets to come up with extra collateral, causing broader market declines. As long as Treasury yields are at all time lows, that risk seems relatively low, said a hedge fund trader who spoke on condition of anonymity.

Some derivatives transactions may have ratings triggers built into them that unwind the deals if the U.S. is downgraded, the trader said, but he said it is difficult to know how many such transactions are out there.

OCC, the world's largest equity derivatives clearing organization, said on Sunday it has no current plans to adjust its current valuations or haircuts on Treasuries used as collateral.

There are some factors working in markets' favor, analysts noted.

For one thing, major U.S. banks are better capitalized as credit losses have slowed. The U.S. banking system had $1.51 trillion of equity capital at the end of the first quarter, compared with $1.29 trillion in the fourth quarter of 2008. That roughly 17 percent of extra capital is supporting about 3 percent fewer assets than it used to.

If stresses become strong in areas like the repo market, a massive market that banks use to fund securities short-term, dealers are fairly sure the Federal Reserve can jump in to offer support, as it did during the credit crunch, the trader said.

Any impact in the derivatives market will be less than what the pessimists fear, said Michael Holland, founder of asset manager Holland & Co. "I don't expect major disruptions in markets just from the downgrade."

BORROWING COSTS

Borrowing costs for companies with top ratings like Microsoft Corp and Exxon Mobil Corp could drop, because triple-A rated debt may be even more attractive to some investors now, analysts said. Some companies have at times had more available cash on their balance sheets than the U.S. government in recent weeks.

In general, corporate borrowing costs may not rise following the U.S. downgrade. Last week, when many in the market were expecting the U.S. to be downgraded, six U.S. companies issued 30-year bonds, which is unusually long-dated for the corporate market.

Even highly-rated corporate bonds have seen their risk premiums rise in recent sessions, signaling that portfolio managers are still concerned about credit risk. As turmoil in Europe ratchets higher, those risk premiums may rise more. But investors' willingness to buy long-term corporate debt signals some confidence in the sector.

"To a certain extent, corporate debt may look even more attractive, especially cash-rich balance sheet companies with lots of liquidity," said Chip MacDonald, a financial services partner at law firm Jones Day.

STATE FINANCES

States that rely heavily on federal government spending -- such as Virginia and Maryland, which are home to many federal employees and defense contractors -- could suffer if Congress and President Barack Obama slice the federal budget more deeply.

A downgrade of Fannie Mae and Freddie Mac would affect billions of dollars of debt issued by public housing authorities secured by federally guaranteed mortgages.

Hospital credits could be weakened if the federal government slashes programs such as Medicaid -- the health plan for the elderly, poor and disabled that accounts for as much as 30 percent of state spending. Stocks in the health care sector sold off last week, amid fears of declining government support for spending in the sector.

"The degree of dependence on the federal government now becomes a state credit issue," said Philip Fischer a managing principal at eBooleant Consulting, in a recent report.

S&P is also expected to immediately downgrade pre-refunded bonds. When municipal bonds are refunded, investors are typically repaid from Treasuries held in escrow.

Debt issued by AAA-rated universities and colleges with global reputations might rise in price, said Evan Rourke, a portfolio manager, with Eaton Vance, citing Harvard and Princeton as examples.

Indeed, the immediate impact of the downgrade might be muted by the tax-free market's traditional strengths.

"I don't see a tremendous flight out of municipals. You might see credit spreads widening for lower-rated issues but we also think a lot will hold their ratings," Rourke said.

(Reporting by Paritosh Bansal and Dan Wilchins, additional reporting by Joan Gralla, Ben Berkowitz and Ann Saphir; Editing by Marguerita Choy)

That 1937 feeling all over again

2011-08-08T08:33:00.002+08:00

By Emily Kaiser | Reuters

SINGAPORE (Reuters) - Federal Reserve Chairman Ben Bernanke, an expert on the Great Depression, once promised that the central bank would never repeat its 1937 mistake of rushing to tighten monetary policy too soon and prolonging an economic slump.

He has been true to his word, keeping interest rates near zero since late 2008 and more than tripling the size of the Fed's balance sheet to $2.85 trillion. But cutbacks in government spending may end up having a similarly chilling effect on the economy, and there is little Bernanke can do to counter that.

Back in 1937, the U.S. economy had been growing rapidly for three years, thanks in large part to government programs aimed at ending the deep recession that began in 1929.

Then the central bank clamped down hard on lending, and federal government spending dropped 10 percent. The economy contracted again in 1938. The jobless rate soared.

"Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again," Bernanke said back in 2002 at a conference honoring legendary economist Milton Friedman's 90th birthday.

Bernanke convenes the Fed's next policy-setting meeting on Tuesday, facing growing concern that the United States may be slipping into another recession while Europe staggers toward a deeper debt crisis. Standard & Poor's decision on Friday to lower the U.S. credit rating adds yet another element of uncertainty.

His options are limited.

Nigel Gault, chief U.S. economist at IHS Global Insight, said the Fed could promise to keep interest rates near zero or its balance sheet swollen for even longer than investors anticipate. Or it could buy even more U.S. government debt.

"It is hard to see any of these options as 'game changers,'" Gault said. "The Fed would be doing them not because it could be sure they would make a huge difference, but because it would feel the need to do something."

Gault put the odds of another recession at 40 percent.

However, Friday's U.S. employment figures soothed recession fears, showing the economy created 117,000 jobs in July. That was up from a revised 46,000 in June and prior months payrolls were revised up slightly. The unemployment rate slipped to 9.1 percent but mostly because workers dropped out of the labor force.

"While I do not think this sounds the all-clear signal, it does quell some of the conversation that the U.S. is falling back into a recession," said Tom Porcelli, chief U.S. economist at RBC Capital Markets in New York.

"Having said that, there are still plenty of headwinds, like Europe. I am also very encouraged to see the upward revisions to the previous months. This report pulls us back from the ledge a little bit."

HITTING A POTHOLE

Full employment is one of the Fed's prescribed goals, and it is clearly falling short. Government spending cuts are making matters worse. Friday's employment report showed a net loss of 37,000 government jobs last month.

State and local governments with balanced budget rules had little choice but to cut jobs in order to make ends meet. The federal government has no such restriction, but its spending outside of defense fell at a 7.3 percent annual rate in the second quarter, crimping economic growth.

Michael Feroli, an economist with JPMorgan in New York, said he had held out some hope that Congress would approve some form of additional fiscal support in the coming months, but the debt ceiling fight showed lawmakers dead set against that.

"It now looks likely that growth could hit a pothole early next year," Feroli said.

He cut his growth forecast for the first half of 2012 to 2.0 percent from 2.5 percent. At that sluggish pace, the jobless rate won't fall much below 9.0 percent, keeping the Fed on hold until at least the middle of 2013, Feroli said.

Without fiscal help, the Fed will be under greater pressure to find some other way to lift growth. Another round of government bond purchases would no doubt elicit wails of protest from emerging markets, which contend that the Fed's easy money spills into their economies, driving up inflation.

China, whose $1.16 trillion in Treasury holdings are second only to the Fed's, has not been shy about expressing its concern over the state of U.S. public finances and the dollar's slide.

Yang Jiechi, China's foreign minister, said on Friday that Washington should enact "responsible monetary policies" to ensure global economic stability, a thinly veiled reference to the Fed's bond-buying programs.

China releases its monthly economic data this week. The figures are expected to show double-digit gains in industrial output and retail sales, suggesting the country's economic growth remains robust.

Strong growth in China has helped to lift the rest of Asia, outside of Japan, which is still hurting from the March earthquake and tsunami. But all bets are off if conditions worsen significantly in the United States.

"Our view is that the region can 'decouple' from modest slowdowns, and we think the ongoing slowdown qualifies as modest," said TJ Bond, emerging Asia economist at Bank of America-Merrill Lynch in Hong Kong.

"We would start to worry if the U.S. tipped over into recession."

(Editing by Dan Grebler)

Dow falls 512 in steepest decline since '08 crisis

2011-08-05T10:25:00.002+08:00

The Star Online > Business
Published: Friday August 5, 2011 MYT 8:51:00 AM
Updated: Friday August 5, 2011 MYT 10:01:40 AM

NEW YORK: Gripped by fear of a new recession, the stock market suffered its worst day Thursday since the financial crisis in the fall of 2008. The Dow Jones industrial average fell more than 500 points, its ninth-steepest decline.

The sell-off wiped out the Dow's remaining gains for 2011. It put the Dow and broader stock indexes into what investors call a correction - down 10 percent from their highs in the spring.

"We are continuing to be bombarded by worries about the global economy," said Bill Stone, the chief investment strategist for PNC Financial.

Across the financial markets, the day was reminiscent of the wild swings that defined the financial crisis in September and October three years ago. Gold prices briefly hit a record high. Oil fell even more than stocks - 6 percent, or $5.30 a barrel. And frightened investors were so desperate to get into some government bonds that they were willing accept almost no return on their money.

It was the most alarming day yet in the almost uninterrupted selling that has swept Wall Street for two weeks. The Dow has lost more than 1,300 points, or 10.5 percent. By one broad measure kept by Dow Jones, almost $1.9 trillion in market value has disappeared.

For the day, the Dow closed down 512.76 points, at 11,383.68. It was the steepest point decline since Dec. 1, 2008.

Thursday's decline was the ninth-worst by points for the Dow. In percentage terms, the decline of 4.3 percent does not rank among the worst. On Black Monday in 1987, for example, the Dow fell 22 percent.

Two weeks ago, investors appeared worried about the deadlocked negotiations in Washington over raising the ceiling on government debt. As soon as the ceiling was raised, investors focused on the economy, and the selling accelerated.

On Thursday, growing fear about the weakening U.S. economy was joined by concern in Europe that the troubled economies of Italy and Spain might need help from the European Union.

NEW YORK: An electronic board displays trading activity on the floor of the New York Stock Exchange on Thursday, Aug. 4, 2011 in New York. Gripped by fear of another recession, the financial markets suffered their worst day Thursday since the crisis of 2008. The Dow Jones industrial average fell more than 500 points, its ninth-steepest decline ever. (AP Photo/Jin Lee)

The European Union has already given financial assistance to Greece and Ireland, two countries that have struggled to pay their debts. A financial rescue package for Italy or Spain might be more than the group of countries can handle.

Traders also unloaded stocks before Friday's release of the government's unemployment report for July, which is expected to show weak job growth and perhaps a rise in the unemployment rate, which is 9.2 percent.

Together, they produced "a perfect storm of selling," said Ryan Larson, head of U.S. equity trading for RBC Global Asset Management.

Until a week ago, Wall Street had mostly convinced itself that the U.S. economy would improve in the second half of the year. Gas prices were falling, and Japanese factories were resuming production after disruptions from the March earthquake.

Then one report after another began to show that the economy was much weaker than first thought.

Manufacturing is barely growing. The service sector, which covers about 90 percent of the American work force, is growing at the slowest rate in a year and a half. People spent less in June than in May, the first decline since September 2009.

And the overall economy is expanding at the slowest pace since the end of the Great Recession. It grew at an annual rate of just 0.8 percent for the first six months of this year, raising the risk of another recession.

In an indication of how frightened investors are, Bank of New York Mellon said it would start charging large investors to hold their cash because they are depositing so much. The bank's clients include pension funds and large investment houses that are selling stock and need to deposit the proceeds.

Mark Luschini, chief investment strategist for Janney Montgomery Scott, an investment firm in Philadelphia, said his clients saw the move from stocks into cash as "a parking lot to sort things out."

"With the scars of 2008 still fresh," he said, "some clients don't want to miss the chance to pre-empt further damage should it come."

Wells Fargo Advisers, a financial management company in St. Louis, said clients were more nervous.

"I wouldn't say they're totally panicking. But obviously nerves are rattled," said Scott Marcouiller, chief technical market strategist there. "And I think that is simply because of the speed of the decline."

Other market indicators reinforced the risk-averse mood. Gold, which is seen as a safe investment when the stock market is turbulent, set a record price, $1,684.90 an ounce, before falling to finish the day at $1,659. Adjusted for inflation, gold is still far below the record reached in 1980.

The yield on the 10-year Treasury note fell to 2.42 percent, its lowest of the year, and the yield on the 2-year Treasury note hit its lowest ever, 0.265 percent. Bond yields fall when demand for bonds increases.

The yield on the one-month Treasury bill fell to almost nothing - 0.008 percent. Investors were willing to accept paltry returns in exchange for holding investments they believed to be stable.

The sell-off was broad. All 10 industry groups in the Standard & Poor's 500 index fell. Energy companies lost almost 7 percent, materials companies were down 6.6 percent, and industrial companies lost more than 5 percent.

For a time, Kraft Foods was the only stock to rise among the 30 that make up the Dow industrials. Kraft announced Thursday that it would split in two, with one company focusing on snacks and the other groceries. But the selling eventually dragged Kraft under, too, and its stock finished down 52 cents, at $33.78.

Steep stock market losses like the ones of the past two weeks can be self-reinforcing. A drop in stocks erodes household wealth and raises doubts about the economic outlook.

The result can be what economists call a vicious cycle. Stock losses take a toll on consumer confidence and make people more reluctant to spend money. Consumer spending makes up 70 percent of economic output in the United States.

Kevin Cook, senior stock strategist for Zacks Investment Research in Chicago, said investors' worst fears probably won't come true.

"This is not 2008 again," he said. "We don't have a liquidity crisis, we don't have a credit crisis - this is just profit taking."

Cook said he believes the S&P 500, which closed Thursday at 1,200.07, will trade between 1,150 and 1,250 between now and Oct. 1, at least until investors have enough information to determine whether the economy is in recession again.

Even taking into account the recent declines, stocks are still considered to be in an impressive bull market that began March 9, 2009, when the market reached its recession low.

The Dow closed that day at 6,547. Since then, it is up about 74 percent.

One year ago, the Dow closed at 10,680. About a month later, the stock market began a rally that took the Dow almost to 13,000. The catalyst was an announcement by Federal Reserve Chairman Ben Bernanke that the Fed was preparing to launch a program to buy $600 billion in government bonds to keep interest rates low and help stocks rally.

The sell-off now comes at a time when corporate profits are growing. For the S&P 500, a measure called the forward price-to-earnings ratio has fallen to about 12, well below its long-term average of 16. That means that investors who buy now are paying less for each dollar in profits.

Based on what an investor now pays for corporate profits, stocks are now trading at their lowest levels in 20 years, said Tim Courtney, chief investment officer of Burns Advisory Group in Oklahoma City.

But few companies were spared in the sell-off Thursday. Just three of the 500 stocks in the S&P 500 moved higher. General Motors fell 4 percent despite beating analyst estimates for its quarterly earnings. - AP

Here's a look at the Dow's 10 worst days since 1899:

By percent decline:

- Oct. 19, 1987: 22.6 percent, or 508 points

- Oct. 28, 1929: 12.8 percent, or 38 points

- Oct. 29, 1929: 11.7 percent, or 31 points

- Nov. 6, 1929: 9.9 percent, or 26 points

- Dec. 18, 1899: 8.7 percent, or 6 points

- Aug. 12, 1932: 8.4 percent, or 6 points

- March 14, 1907: 8.3 percent, or 7 points

- Oct. 26, 1987: 8 percent, or 157 points

- Oct. 15, 2008: 7.9 percent, or 733 points

- July 21, 1933: 7.8 percent, or 8 points

By points:

- Sept. 29, 2008: 778 points, or 7 percent

- Oct. 15, 2008: 733 points, or 7.9 percent

- Sept. 17, 2001: 685 points, or 7.1 percent

- Dec. 1, 2008: 680 points, or 7.7 percent

- Oct. 9, 2008: 679 points, or 7.3 percent

- April 14, 2000: 618 points, or 5.7 percent

- Oct. 27, 1997: 554 points, or 7.2 percent

- Oct. 22, 2008: 514 points, or 5.7 percent

- Aug. 4, 2011: 513 points, or 4.3 percent

- Aug. 31, 1998: 513 points, or 6.4 percent

Source: Dow Jones Indexes, a division of CME Group Inc.

Meanwhile AP repored from London: Fears that the U.S. economy may be heading back into recession and that Italy and Spain won't be able to deal with their debts battered stocks, the euro and oil prices Thursday.

The selling pressure in stock markets accentuated through the day as investors fretted over the U.S. economic recovery, a day before crucial non-farm payrolls for July, which often set the tone in markets for a week or two after their release.

Investors, already fidgety after the protracted U.S. debt deliberations, and worries that Italy and Spain are getting deeply embroiled in Europe's debt crisis, searched for assets considered safer, such as gold.

"$2.3 trillion of value wiped off equities worldwide over a handful of days and the cost is still rising," said Howard Wheeldon, senior strategist at BGC Partners.

In Europe, most markets shed more than 3 percent of their value.

Of the major markets, France's CAC-40 tumbled 3.9 percent to 3,320.35.

Germany's DAX tumbled 3.4 percent to 6,414.76.

Britain's FTSE 100 index of leading British shares ended 3.4 percent lower at 5,393.14.

Among major stock markets, only Tokyo's Nikkei 225 index actually traded up 0.2 percent to 9,659.18 after the Bank of Japan intervened to sell the yen and buy the dollar.

That drove the dollar above 80 yen Thursday for a brief while from 76.99 late Wednesday. By late afternoon London, the dollar was 2.4 percent firmer at 78.97 yen.

Japanese Finance Minister Yoshihiko Noda said financial authorities decided to intervene in the currency markets because the strong yen could hurt the country's export-dependent economy and slow its efforts to recover from the March 11 earthquake and tsunami.

The dollar had fallen as low as 76.29 yen on Monday. It hit a record post-World War II low of 76.25 yen in the days following the March 11 earthquake and tsunami.

A strong yen is painful for Japan because it reduces the value of foreign earnings for companies like Toyota Motor Corp. and Nintendo Co. and makes Japanese goods more expensive in overseas markets.

The intervention was coupled with monetary policy easing by the central bank's board. The bank expanded an asset purchase program to 50 trillion yen ($638.3 billion) from 40 trillion yen. It also kept its key interest rate in a range of zero to 0.1 percent.

Japan's moves came only a day after the Swiss National Bank intervened to slow a rise in the Swiss franc, another currency perceived as a save-haven at a time investors are fleeing risky assets such as shaky European government bonds.

Investors have been looking for safe havens to park their cash after figures earlier this week pointed to a dangerous slowdown in the U.S. economy at a time when Europe's debt problems appear to be engulfing big economies like Italy and Spain.

Yields on Spanish and Italian bonds stabilized Thursday, still much higher than just a month ago but further away from the 7-percent level generally seen as a nation's breaking point. The yield, or interest rate, of Italian 10-year bonds was 6.19 percent, while its Spanish equivalents were at 6.21 percent.

The rise in the yields of both Italian and Spanish bonds came despite indications that the European Central Bank intervened in the markets to prop up their bonds.

Questions about the bond-buying program, left unused for four months, dominated Trichet's news conference following Thursday's widely anticipated decision to leave the ECB's main interest rate unchanged at 1.5 percent.

Trichet left open the possibility of reopening the bond-purchase program but appeared determined to keep market traders off-balance about the bank's actual intentions.

"I never said it was dormant," he said, adding that the bank would reveal any purchases at the regular Monday disclosure.

"You will see what we do," he said. "If we intervene, we intervene, and we will publish the amount of what we have done."

Elsewhere in Asia, Hong Kong's Hang Seng shed 0.5 percent to 21,884.74 while China's Shanghai Composite Index advanced 0.2 percent to 2,684.04.

South Korea's benchmark Kospi dropped 2.3 percent to 2,018.47.

Worries over the global recovery hit oil prices hard too. Benchmark oil for September delivery was down $3.37 at $88.56 a barrel in electronic trading on the New York Mercantile Exchange.

In Kuala Lumpur Bernama reported that Bursa Malaysia were sharply lower this morning(Friday) after the massive sell-off of shares in Asian markets and overnight Wall Street, dealers said.

Dealers said investors fled equities market in favour of safe haven assets in view of the wide spreading European debt crisis and gloomy global economic outlook. As at 9.12 am, the benchmark FBM KLCI erased 31.73 points to 1,515.16 after opening 16.95 points lower at 1,529.94.

The Finance Index wiped out 347.59 points to 14,413.26, Plantation Index slipped 162.21 points to 7,576.24 and Industrial Index decreased 51.74 points to 2,753.31.

The FBM Emas Index gave up 226.271 points to 10,453.88, FBM Ace Index fell 143.51 points to 4,072.98 and FBM Mid 70 Index eroded 267.31 points to 11,581.19.

Losers outnumbered gainers 580 to 12 with 56 counters unchanged, 851 untraded and 35 others suspended. Turnover stood at 144.7 million shares worth RM175 million.

Actives, Karambunai Corp slipped half-a-sen to 16.5 sen, Sanichi Technology eased 1.5 sen to nine sen, Axiata Group fell two sen to RM5.05 and Malaysia Building Society-warrant 11/16 dropped 4.5 sen to 75.5 sen.

Heavyweights, Maybank lost 18 sen to RM8.67, CIMB dipped 13 sen to RM8.27, Petronas Chemicals slipped 20 sen to RM6.71 and Petronas Gas fell 40 sen to RM12.94. - AP/Bernama

20 Pain Cures in your kitchen

2011-08-01T10:26:00.003+08:00

Make muscle pain a memory with ginger

When Danish researchers asked achy people to jazz up their diets with ginger, it eased muscle and joint pain, swelling and stiffness for up to 63 percent of them within two months. Experts credit ginger's potent compounds called gingerols, which prevent the production of pain-triggering hormones. The study-recommended dose: Add at least 1 teaspoon of dried ginger or 2 teaspoons of chopped ginger to meals daily.

Cure a toothache with cloves

Got a toothache and can't get to the dentist? Gently chewing on a clove can ease tooth pain and gum inflammation for two hours straight, say UCLA researchers. Experts point to a natural compound in cloves called eugenol, a powerful, natural anesthetic. Bonus: Sprinkling a ¼ teaspoon of ground cloves on meals daily may also protect your ticker. Scientists say this simple action helps stabilize blood sugar, plus dampen production of artery-clogging cholesterol in as little as three weeks.

Heal heartburn with cider vinegar

Sip 1 tablespoon of apple cider vinegar mixed with 8 ounces of water before every meal, and experts say you could shut down painful bouts of heartburn in as little as 24 hours. "Cider vinegar is rich in malic and tartaric acids, powerful digestive aids that speed the breakdown of fats and proteins so your stomach can empty quickly, before food washes up into the esophagus, triggering heartburn pain," explains Joseph Brasco, M.D., a gastroenterologist at the Center for Colon and Digestive Diseases in Huntsville, AL.

Erase earaches with garlic

Painful ear infections drive millions of Americans to doctors' offices every year. To cure one fast, just place two drops of warm garlic oil into your aching ear twice daily for five days. This simple treatment can clear up ear infections faster than prescription meds, say experts at the University of New Mexico School of Medicine. Scientists say garlic's active ingredients (germanium, selenium, and sulfur compounds) are naturally toxic to dozens of different pain-causing bacteria. To whip up your own garlic oil gently simmer three cloves of crushed garlic in a half a cup of extra virgin olive oil for two minutes, strain, then refrigerate for up to two weeks, suggests Teresa Graedon, Ph.D., co-author of the book, Best Choices From The People's Pharmacy. For an optimal experience, warm this mix slightly before using so the liquid will feel soothing in your ear canal.

Chase away joint and headache pain with cherries

Latest studies show that at least one in four women is struggling with arthritis, gout or chronic headaches. If you're one of them, a daily bowl of cherries could ease your ache, without the stomach upset so often triggered by today's painkillers, say researchers at East Lansing 's Michigan State University . Their research reveals that anthocyanins, the compounds that give cherries their brilliant red color, are anti-inflammatories 10 times stronger than ibuprofen and aspirin. "Anthocyanins help shut down the powerful enzymes that kick-start tissue inflammation, so they can prevent, as well as treat, many different kinds of pain," explains Muraleedharan Nair, Ph.D., professor of food science at Michigan State University . His advice: Enjoy 20 cherries (fresh, frozen or dried) daily, then continue until your pain disappears.

Fight tummy troubles with fish

Indigestion, irritable bowel syndrome, inflammatory bowel diseases...if your belly always seems to be in an uproar, try munching 18 ounces of fish weekly to ease your misery. Repeated studies show that the fatty acids in fish, called EPA and DHA, can significantly reduce intestinal inflammation, cramping and belly pain and, in some cases, provide as much relief as corticosteroids and other prescription meds. "EPA and DHA are powerful, natural, side effect-free anti-inflammatories, that can dramatically improve the function of the entire gastrointestinal tract," explains biological chemist Barry Sears, Ph.D., president of the Inflammation Research Foundation in Marblehead , MA . For best results, look for oily fish like salmon, sardines, tuna, mackerel, trout and herring.

Prevent PMS with yogurt

Up to 80 percent of women will struggle with premenstrual syndrome and its uncomfortable symptoms, report Yale researchers. The reason: Their nervous systems are sensitive to the ups and downs in estrogen and progesterone that occur naturally every month. But snacking on 2 cups of yogurt a day can slash these symptoms by 48 percent, say researchers at New York 's Columbia University . "Yogurt is rich in calcium, a mineral that naturally calms the nervous system, preventing painful symptoms even when hormones are in flux," explains Mary Jane Minkin, M.D., a professor of gynecology at Yale University .

Tame chronic pain with turmeric

Studies show turmeric, a popular East Indian spice, is actually three times more effective at easing pain than aspirin, ibuprofen or naproxen, plus it can help relieve chronic pain for 50 percent of people struggling with arthritis and even fibromyalgia, according to Cornell researchers. That's because turmeric's active ingredient, curcumin, naturally shuts down cyclooxygenase 2, an enzyme that churns out a stream of pain-producing hormones, explains nutrition researcher Julian Whitaker, M.D. and author of the book, Reversing Diabetes. The study-recommended dose: Sprinkle 1/4 teaspoon of this spice daily onto any rice, poultry, meat or vegetable dish.

End endometrial pain with oats

The ticket to soothing endometriosis pain could be a daily bowl of oatmeal. Endometriosis occurs when little bits of the uterine lining detach and grow outside of the uterus. Experts say these migrating cells can turn menstruation into a misery, causing so much inflammation that they trigger severe cramping during your period, plus a heavy ache that drags on all month long. Fortunately, scientists say opting for a diet rich in oats can help reduce endometrial pain for up to 60 percent of women within six months. That's because oats don't contain gluten, a trouble-making protein that triggers inflammation in many women, making endometriosis difficult to bear, explains Peter Green, M.D., professor of medicine at Colombia University .

Soothe foot pain with salt

Experts say at least six million Americans develop painful ingrown toenails each year. But regularly soaking ingrown nails in warm salt water baths can cure these painful infections within four days, say scientists at California 's Stanford University . The salt in the mix naturally nixes inflammation, plus it's anti-bacterial, so it quickly destroys the germs that cause swelling and pain. Just mix 1 teaspoon of salt into each cup of water, heat to the warmest temperature that you can comfortably stand, and then soak the affected foot area for 20 minutes twice daily, until your infection subsides.

Prevent digestive upsets with pineapple

Got gas? One cup of fresh pineapple daily can cut painful bloating within 72 hours, say researchers at California 's Stanford University . That's because pineapple is natually packed with proteolytic enzymes, digestive aids that help speed the breakdown of pain-causing proteins in the stomach and small intestine, say USDA researchers.

Relax painful muscles with peppermint

Suffering from tight, sore muscles? Stubborn knots can hang around for months if they aren't properly treated, says naturopath Mark Stengler, N.D., author of the book, The Natural Physician's Healing Therapies. His advice: Three times each week, soak in a warm tub scented with 10 drops of peppermint oil. The warm water will relax your muscles, while the peppermint oil will naturally soothe your nerves -- a combo that can ease muscle cramping 25 percent more effectively than over-the-counter painkillers, and cut the frequency of future flare-ups in half, says Stengler.

Give your back some TLC with grapes

Got an achy back? Grapes could be the ticket to a speedy recovery. Recent studies at Ohio State University suggest eating a heaping cup of grapes daily can relax tight blood vessels, significantly improving blood flow to damaged back tissues (and often within three hours of enjoying the first bowl). That's great news because your back's vertebrae and shock-absorbing discs are completely dependent on nearby blood vessels to bring them healing nutrients and oxygen, so improving blood flow is essential for healing damaged back tissue, says Stengler.

Wash away pain injuries with water

Whether it's your feet, your knees or your shoulders that are throbbing, experts at New York 's Manhattan College , say you could kick-start your recovery in one week just by drinking eight 8-ounce glasses of water daily. Why? Experts say water dilutes, and then helps flush out, histamine, a pain-triggering compound produced by injured tissues. "Plus water is a key building block of the cartilage that cushions the ends of your bones, your joints' lubricating fluid, and the soft discs in your spine," adds Susan M. Kleiner, Ph.D., author of the book, The Good Mood Diet. "And when these tissues are well-hydrated, they can move and glide over each other without causing pain." One caveat: Be sure to measure your drinking glasses to find out how large they really are before you start sipping, she says. Today's juice glasses often hold more than 12 ounces, which means five servings could be enough to meet your daily goal.

Heal sinus problems with horseradish

Latest studies show sinusitis is the nation's number one chronic health problem. And this condition doesn't just spur congestion and facial pain, it also makes sufferers six times more likely to feel achy all-over. Horseradish to the rescue! According to German researchers, this eye-watering condiment naturally revs up blood flow to the sinus cavities, helping to open and drain clogged sinuses and heal sinus infections more quickly than decongestant sprays do. The study-recommended dose: One teaspoon twice daily (either on its own, or used as a sandwich or meat topping) until symptoms clear.

Beat bladder infections with blueberries

Eating 1 cup of blueberries daily, whether you opt for them fresh, frozen or in juice form, can cut your risk of a urinary tract infection (UTIs) by 60 percent, according to researchers at New Jersey's Rutgers University. That's because blueberries are loaded with tannins, plant compounds that wrap around problem-causing bacteria in the bladder, so they can't get a toehold and create an infection, explains Amy Howell, Ph.D. a scientist at Rutgers University .

Heal mouth sores with honey

Dab painful canker and cold sores with unpasteurized honey four times daily until these skin woes disappear, and they'll heal 43 percent faster than if you use a prescription cream, say researchers at the Dubai Specialized Medical Center in the United Arab Emirates . Raw honey's natural enzymes zap inflammation, destroy invading viruses and speed the healing of damaged tissues, say the study authors.

Fight breast pain with flax

In one recent study, adding 3 tablespoons of ground flax to their daily diet eased breast soreness for one in three women within 12 weeks. Scientists credit flax's phytoestrogens, natural plant compounds that prevent the estrogen spikes that can trigger breast pain. More good news: You don't have to be a master baker to sneak this healthy seed into your diet. Just sprinkle ground flax on oatmeal, yogurt, applesauce or add it to smoothies and veggie dips.

Cure migraines with coffee

Prone to migraines? Try muscling-up your painkiller with a coffee chaser. Whatever over-the-counter pain med you prefer, researchers at the National Headache Foundation say washing it down with a strong 12- ounce cup of coffee will boost the effectiveness of your medication by 40 percent or more. Experts say caffeine stimulates the stomach lining to absorb painkillers more quickly and more effectively.

Tame leg cramps with tomato juice

At least one in five people regularly struggle with leg cramps. The culprit? Potassium deficiencies, which occur when this mineral is flushed out by diuretics, caffeinated beverages or heavy perspiration during exercise. But sip 10 ounces of potassium-rich tomato juice daily and you'll not only speed your recovery, you'll reduce your risk of painful cramp flare-ups in as little as 10 days, say UCLA researchers.

Health Effects Drinking Honey

2011-08-01T10:20:00.003+08:00

For those who love honey. Whoever thought??

Honey is the only food (liquid) on the planet that will not spoil or rot.
It will do what some call turning to sugar. In reality honey is always honey.
However, when left in a cool dark place for a long time it will do what I rather call "crystallizing".
When this happens I would loosen the lid, boil some water, and let the honey container sit in the hot water,
turn off the heat and let it liquefy. It is then as good as it ever was.
Never boil honey or put it in a microwave. To do so will kill the enzymes in the honey.

CINNAMON AND HONEY
Bet the drug companies won't like this one getting around.
Facts on Honey and Cinnamon: It is found that a mixture of honey and Cinnamon cures most diseases.
Honey is produced in most of the countries of the world.
Scientists today also accept honey as a 'Ram Ban' (very effective) medicine for all kinds of diseases.
Honey can be used without any side effects for any kind of diseases.

Today's science says that even though honey is sweet,
if taken in the right dosage as a medicine, it does not harm diabetic patients.
Weekly World News, a magazine in Canada , in its issue, dated 17 January, 1995
has given the following list of diseases that can be cured by honey and cinnamon as researched by western scientists:

HEART DISEASES:
Make a paste of honey and cinnamon powder, apply on bread, instead of jelly and jam, and eat it regularly for breakfast.
It reduces the cholesterol in the arteries and saves the patient from heart attack.
Also, those who have already had an attack, if they do this process daily, they are kept miles away from the next attack.
Regular use of the above process relieves loss of breath and strengthens the heart beat.
In America and Canada , various nursing homes have treated patients successfully and have found that as you age,
the arteries and veins lose their flexibility and get clogged; honey and cinnamon revitalize the arteries and veins.

ARTHRITIS:
Arthritis patients may take daily, morning and night,
one cup of hot water with two spoons of honey and one small teaspoon of cinnamon powder.
If taken regularly even chronic arthritis can be cured. In a recent research conducted at the Copenhagen University ,
it was found that when the doctors treated their patients with a mixture of
one tablespoon Honey and half teaspoon Cinnamon powder before breakfast, they found that within a week,
out of the 200 people so treated, practically 73 patients were totally relieved of pain, and within a month,
mostly all the patients who could not walk or move around because of arthritis started walking without pain.

BLADDER INFECTIONS:
Take two tablespoons of cinnamon powder and one teaspoon of honey in a glass of lukewarm water and drink it.
It destroys the germs in the bladder.

CHOLESTEROL:
Two tablespoons of honey and three teaspoons of Cinnamon Powder mixed in 16 ounces of tea water,
given to a cholesterolpatient, were found to reduce the level of cholesterol in the blood by 10 percent within two hours
as mentioned for arthritic patients, if taken three times a day, any chronic cholesterol is cured.
According to information received in the said Journal, pure honey taken with food daily relieves complaints of cholesterol.

COLDS:
Those suffering from common or severe colds should take one tablespoon lukewarm honey with 1/4 spoon cinnamon powder daily
for three days. This process will cure most chronic cough, cold, and clear the sinuses.

UPSET STOMACH:
Honey taken with cinnamon powder cures stomach ache and also clears stomach ulcers from the root.

GAS:
According to the studies done in India and Japan ,
it is revealed that if Honey is taken with cinnamon powder the stomach is relieved of gas.

IMMUNE SYSTEM:
Daily use of honey and cinnamon powder strengthens the immune system and protects the body from bacteria and viral attacks.
Scientists have found that honey has various vitamins and iron in large amounts.
Constant use of Honey strengthens the white blood corpuscles to fight bacterial and viral diseases.

INDIGESTION:
Cinnamon powder sprinkled on two tablespoons of honey taken before food relieves acidity and digests the heaviest of meals.

INFLUENZA:
A scientist in Spain has proved that honey contains a natural ' Ingredient' which kills the influenza germs and saves the patient from flu.

LONGEVITY:
Tea made with honey and cinnamon powder, when taken regularly, arrests the ravages of old age.
Take four spoons of honey, one spoon of cinnamon powder, and three cups of water and boil to make like tea.
Drink 1/4 cup, three to four times a day. It keeps the skin fresh and soft and arrests old age.
Life spans also increase and even a 100 year old, starts performing the chores of a 20-year-old.

PIMPLES:
Three tablespoons of honey and one teaspoon of cinnamon powder paste.
Apply this paste on the pimples before sleeping and wash it next morning with warm water. If done daily for two weeks,
it removes pimples from the root.

SKIN INFECTIONS:
Applying honey and cinnamon powder in equal parts on the affected parts cures eczema, ringworm and all types of skin infections.

WEIGHT LOSS:
Daily in the morning one half hour before breakfast on an empty stomach, and at night before sleeping, drink honey and cinnamon
powder boiled in one cup of water. If taken regularly, it reduces the weight of even the most obese person.
Also, drinking this mixture regularly does not allow the fat to accumulate in the body even though the person may eat a high calorie diet.

CANCER:
Recent research in Japan and Australia has revealed that advanced cancer of the stomach and bones have been cured successfully.
Patients suffering from these kinds of cancer should daily take one tablespoon of honey with one teaspoon of cinnamon powder
for one month three times a day.

FATIGUE:
Recent studies have shown that the sugar content of honey is more helpful rather than being detrimental to the strength of the body.
Senior citizens, who take honey and cinnamon powder in equal parts, are more alert and flexible.
Dr. Milton, who has done research, says that a half tablespoon of honey taken in a glass of water and sprinkled with cinnamon powder,
taken daily after brushing and in the afternoon at about 3:00 P.M. when the vitality of the body starts to decrease,
increases the vitality of the body within a week.

BAD BREATH:
People of South America , first thing in the morning,gargle with one teaspoon of honey and cinnamon powder mixed in hot water,
so their breath stays fresh throughout the day.

HEARING LOSS:
Daily morning and night honey and cinnamon powder, taken in equal parts restores hearing. Remember when we were kids?
We had toast with real butter and cinnamon sprinkled on it!

First home scheme: Making it work for all

2011-07-26T11:02:00.002+08:00

Young Malaysians, especially those in the cities, are whining about the unavailability of houses below RM220,000 that they could purchase under the My First Home Scheme.

Back home, their parents and parents-in-law heave a sigh of relief as their children and grandchildren will no longer have to stay in rented houses, apartments or flats.

Besides seeing their children graduate from universities, most parents dream of seeing their children start their own families and have their own homes.

The newly-launched scheme, which comes with 100 per cent financing as the 10 per cent deposit is guaranteed by Cagamas Bhd, is aimed at helping those aged below 35 to own their first house sooner.

Contrary to what some people think, the scheme could prevent a property bubble as it actually dampens speculative activities.

This is because the scheme encourages developers to build residential units costing between RM100,000 and RM220,000.

Given Malaysians aged between 20 and 35 make up about a third of the country's population, and considering the thousands of new job market entrants annually, demand for houses within that range is massive.

So, besides helping first-time house buyers, the scheme also signals developers to build certain types of houses within a certain price range.

In prime areas in the Klang Valley, Penang and Johor, affordable homes may not be available, so the young first-time buyers with a monthly salary of RM3,000 and below have to settle for houses outside the cities.

But think long term. The first homes may be away from urban centres, yet now is the opportunity to buy a house without downpayment, with attractive interest rates and repayment period.

Unless there is severe econo-mic recession or property bubble, the value of houses always goes up.

What one earns now may seem like peanuts. However, five to 10 years down the road, one is likely to move up the career ladder and receive a fatter paycheck.

With a combined income of the spouse and sufficient savings and returns from other investments, one can sell or rent the first home and buy a bigger house in prime areas.

Also remember that the earlier one owns a property, the better it is, as a property is like a hedge against inflation, while the money for rental is channelled for home repayment.

In the meantime, it helps to manage one's finances wisely. Avoid the credit card debt trap and differentiate between "needs" and "wants".

It is perfectly normal if one does not own the latest iPhone or iPad, and the baby need not be dressed in designer clothes.

Statistics from the Credit Counselling and Debt Management Agency (AKPK) shows that majority of Malaysians who are in debt are those between 20 and 40 years old, male, married and those with an annual income of RM24,000.

The government, meanwhile, should do more to improve accessibility as affordable homes are away from the city centres.

The high-income economy may not be fully realised by 2020 if the future generation is stuck servicing home and car loans, spending hours on the road to reach homes situated kilometres away from the workplace, and exhausting their hard-earned money on petrol and car repairs. This is against the backdrop of rising food prices and utility costs.

With efficient and affordable public transportation like train network and feeder buses, the issue of young families staying far from city centres can be addressed.

Property developers can attract more buyers for houses built outside urban centres by incorporating entertainment and recreational facilities targeting young families and Generation Y (Gen Y), those born after 1980.

Developers also need to stop whining about the house price under the scheme as the large group of people aged 35 and below provides a ready market for medium-cost residential units. Besides, developers may have been enjoying handsome margins from high-end residential projects, which are sold like hot cakes to speculative buyers.

In fact, Gen Y, currently the darlings of advertisers, may become developers' blue-eyed buyers.

By : Hamisah Hamid

Source : Business Times

Date Published : 14 March 2011

Property to remain buoyant in 2011

2011-07-26T10:56:00.001+08:00

The property market in Malaysia is expected to remain buoyant next year, seeing a moderate uptrend in prices, in line with economic growth and growing interest among foreigners.

Speakers at a press conference on the Fourth Malaysian Property Summit 2011 here today said, no property bubble is expected in the foreseeable future, due to pent up demand for certain upmarket condo launches.

The Malaysian Property Summit is scheduled to be held on Jan 18, 2011 at the Sime Darby Convention Centre in Kuala Lumpur.

More than 200 participants, including developers, property owners, investors, bankers, financial analysts, economists, and property consultants are expected to attend.

Property consultant and valuer, James Wong said, the sharp increase in prices, is only to be seen in certain landed properties in choice locations with a huge demand for it in Kuala Lumpur and Penang.

James Wong is also the managing director of VPC Alliance (Malaysia) Sdn Bhd and regional chairman of VPC Asia Pacific Limited, a regional grouping of property consultants operating in eight countries.

"With escalating prices of property, one of the challenges for the government is to boost income, and move the country towards a high income economy," he said.

"This can be achieved by providing clear guidelines under the Economic Transformation Programme (ETP), especially on Private Finance Initiatives (PFI), as a majority of the funding under it comes from private initiatives," he told a press conference.

The president of the Association of Valuers, Property Managers, Estate Agents and Property Consultants in the Private Sector, Malaysia (PEPS), Choy Yue Kwong said in 2011, property prices would improve but the office market will remain soft.

"The property market currently is still very buoyant. Market prices are at record new highs. Interest rate is still relatively low," Choy said during the same press conference.

Choy emphasised that the high Asian savings will also cushion against a property bubble.

"It is challenging to own a house with a salary of just only RM4,000 a month. In 1975, a house in the Klang Valley was around RM30,000 and graduates earned about RM700 a month.

"Today, a graduate earns about RM2,000 but a house in the Klang Valley could easily cost RM400,000," he elaborated. Thus, Choy said, owning a house is only possible if the government made an effort to uplift income.

Eric Ooi, managing director of Knight Frank Malaysia, a global residential and commercial property consultancy, said this problem is prevalent in Asian countries.

"Funds and investment money is moving into Asia as the United States and the European economies are still struggling to come out of the doldrums.

"There is a lot of interest from buyers from China who are agressively buying into properties in Australia and Singapore. If these buyers start buying into Malaysian properties, then prices will further escalate," he said.

According to Ooi, there is a lot of interest at present from Singaporean and Hong Kong buyers, for Malaysian properties.

He highlighted that foreigners are looking at the yield in making decisions on property purchases.

"Currently, the Kuala Lumpur property market has a positive yield. Investors also like stability in the country and election results will have an impact on their investment mood," he explained.

He also said another factor to affect the property market is any increase in interest rates as it will impact the repayment of loans.

"However, there are expectations that the interest rate will not increase susbstantially," Choy added.

Source : Bernama

Date Published : 17 December 2010

Developers be warned, China's a tough market

2011-07-26T10:54:00.000+08:00

KUALA LUMPUR: More developers are venturing into China's property market but their investments may be at risk because of red tape and fears of overheating, analysts say.

A MIDF Research analyst said the China market is a tough one to conquer without good connections with local authorities and partners who can deal with changing rules.

He said this could be the reason why the big boys such as Sunrise Bhd, TA Enterprise Bhd, SP Setia Bhd, Berjaya Land Bhd, Selangor Dredging Bhd, Ireka Corp Bhd and PJ Development Holdings Bhd are investing in Canada, Australia, the UK, Singapore and Japan as risk is less.

LBS Bina Group Bhd recently said it aims to launch its maiden property project in Zhuhai, worth RM7.5 billion, in 2012.

The project was mooted more than five years ago and according to a property industry observer, LBS is still having issues with the government.

"Bureaucracy in China is extremely complex, while expansion in the Chinese market represents a significant investment as foreign developers are required to put a 50 per cent deposit on the value of their project with the government.

"And since developers cannot sell their houses until upon completion, they have to fork out money to settle the high interest rates and for keeping stock in the event of unsold properties," said an analyst at OSK Research who is not authorised to speak to the media.

Developers such as Golden Plus Holding Bhd (GPlus) have lost money in China. GPlus' 3 billion yuan housing project in Shanghai, The Royal Garden, had incurred cost and time overruns in the last few years.

The project, which was slated for completion much earlier, now requires two to three more years.

Some other developers who have yet to launch projects planned few years ago include IJM Land Bhd and Sunway Group.

IJM Land has been in talks with various parties for mixed property developments in China's second-tier cities in the last four to five years.

In 2008, IJM Land managing director Datuk Soam Heng Choon said it was planning a RM500 million mixed property project in Changchun.

When contacted recently, Soam told Business Times that IJM Land is aiming to launch the project in 2012, pending approvals.

As for Sunway, it signed in April 2010 a collaboration agreement with Sino-Singapore Tianjin Eco-City Investment and Development Co Ltd to develop a RM5 billion mixed development in Tianjin. The project has not started.

By : Sharen Kaur

Source : Business Times

Date Published : 25 July 2011

Act against illegal banners

2011-07-20T09:32:00.000+08:00

Wednesday July 20, 2011

By FAZLEENA AZIZ
fazleena@thestar.com.my
Photos by BRIAN MOH

DEPUTY Federal Territories and Urban Wellbeing Minister Datuk M. Saravanan is urging the Malaysian Communications and Multimedia Commission (MCMC) to form a unit to disconnect the telephone numbers displayed on illegal stickers and banners in the city.

Saravanan said the MCMC’s role was pertinent as it was one of the best ways to curb this problem that was marring the city’s image.

“Last year we had submitted more than 400 numbers to MCMC but there has not been any feedback on the matter.

Hard to remove: Some of the DBKL officers removing illegal stickers posted on a lamp post in Wangsa Maju.

“These illegal stickers and banners block signboards and road names,” he said.

The Kuala Lumpur City Hall (DBKL) workers have to go around the city every other day to remove them,” he said during an operation to remove the illegal banners and stickers by the local authority yesterday.

About 80 DBKL employees took part in the operation in Desa Setapak, Teratai Mewah and Taman Bunga Raya.

Saravanan said they had to discuss with the minister to come up with a better policy or bylaw on the matter.

Ugly sight: Illegal stickers posted on a telephone booth in Wangsa Maju .

“Legal proceedings usually take time and it will be more effective to disconnect the telephone lines displayed on the illegal stickers.

“I would like to urge non-governmental organisations to carry out more campaigns to curb this problem,” he said.

He added that the DBKL would also bring down worn out flags.

Until June this year, 227,985 illegal stickers had been removed in Cheras, Batu and Bandar Tun Razak.

Last year, 458,811 stickers and banners were removed.

The most number of illegal stickers were found in Bandar Tun Razak followed by Bukit Bintang and Wangsa Maju.

World economy to keep strong but risks abound: Reuters poll

2011-07-18T19:41:00.000+08:00

By Andy Bruce - Reuter

LONDON (Reuters) - The world economy should expand steadily this year and next thanks mainly to prospering emerging powers, a Reuters poll showed, but fiscal troubles lurking in Europe and potentially the United States risk blowing this view apart.

The quarterly survey of more than 350 economists from all over the world showed a dimmer outlook for most of the rich-world Group of Seven economies since the last survey in April.

Only Germany, booming thanks to buoyant exports, is expected to post growth averaging more than 3 percent this year. Elsewhere, fiscal austerity in Europe and growing debt fears have soured analysts' sentiment.

By contrast, emerging powers like China have enjoyed near double-digit annual growth rates since the global recession -- but they face risks of their own, struggling to contain rampant inflation that has accompanied fervent growth.

Economists pointed to the fiscal crisis raging in the euro zone's peripheral countries and the political deadlock in the United States surrounding an increasingly urgent lift to the country's legal debt ceiling as the biggest risks to global economic growth.

"If the (euro zone) debt crisis is mishandled, it's a major threat. But it's a threat comparable to the mishandling of the U.S. sovereign debt crisis. It's six and two threes," said Willem Buiter, chief economist at Citi.

The poll showed the world economy expanding 4.1 percent this year and 4.3 percent next year, little changed from April's survey.

Buiter said that authorities in emerging markets are largely behind the curve in monetary policy, which could leave open the prospect that their boom could become a bubble and then a bust -- but not for a couple of years.

While economists cut their U.S. economic outlook compared with a poll published last month, they still see the United States performing better this year than struggling European peers like Britain, Italy and France.

They saw the U.S. economy growing an average 2.5 percent this year, before picking up to 3.0 percent next year -- comfortably in excess of the sub-2 percent growth rates seen for this year for Europe's G7 members, excluding Germany.

"It was the surge in oil and gasoline prices that hurt the (U.S.) economy the most in the first half, and now that they're down, that should take the weight off," said Mark Zandi, chief economist of Moody's Analytics.

The dimming U.S. outlook has had a knock-on effect for Canadian growth prospects this year, with economists applying a hefty downgrade to their quarterly growth profiles.

DEFAULT?

Still, the focus over the next few months will be averting sovereign defaults in both the euro zone and the United States. While the euro zone question is one of fundamental solvency, most notably in Greece, the U.S. problem is a political one.

Economists remain confident that U.S. lawmakers will reach a deal to raise the government's debt ceiling. All but two of 40 economists polled said a deal would be reached.

"They will squeak something out, but the odds of failure have increased," said Chris Lowe, chief economist for FTN Financial and one of the economists surveyed.

The poll was conducted from Friday to Wednesday and was completed before House Republican leader Eric Cantor said President Barack Obama walked out of a meeting on Wednesday evening, escalating concerns about the negotiations.

Lawmakers disagree over budget deficit reduction measures that are a condition for extending the legal $14.3 trillion borrowing limit -- needed so the U.S. government can fund its commitments next month.

In Europe, Greek Prime Minister George Papandreou said the euro zone and International Monetary Fund must quickly approve a bailout to avoid a collapse of Greece's economic reform plans.

While Germany has recently topped the European -- and G7 -- growth charts, peripheral strugglers like Greece, Ireland, Spain and Italy will drag hard on the euro zone's economic performance.

The 17-nation bloc's economy will probably grow just 0.4 percent per quarter from here until next April. That would be slower than the 0.8 percent rise seen in the first quarter of this year.

Economists in the poll also left their 2011 and 2012 growth forecasts unchanged at 2.0 and 1.7 percent, respectively. By contrast, the German GDP growth outlook for this year and next was 3.4 percent and 1.9 percent.

"Germany's growth will remain above average, by historic and euro zone standards, so long as the euro zone doesn't totally fall apart and leave just a core group of countries remaining," said Timo Klein, an economist at IHS Global Insight.

Unlike Germany, Britain's economy probably struggled to generate meaningful growth in the second quarter and its prospects ahead look likely to be jaded by fierce fiscal austerity measures and high inflation.

JAPAN RECOVERS

Japan's recovery from the March 11 earthquake and tsunami that killed at least 21,000 people looks likely to proceed at a faster pace than thought even last month, helped by a restoration of factory output.

Although Japan, the world's third-largest economy likely contracted for a third straight quarter in April-June, it is likely to emerge from recession this quarter as it shakes off supply constraints more quickly than expected, according to the poll of around 30 economists.

"Automakers are pushing forward production plans and companies are making efforts to limit the impact of summer power shortages on output," said Takumi Tsunoda, senior economist at Shinkin Central Bank Research Institute.

"We expect factory output to normalize in July-September."

(Additional reporting by reporters in London, Toronto, Tokyo, New York, Berlin, Paris and Rome, Editing by Ross Finley, Anna Willard and Leslie Adler)

Why Wall Street doesn't seem worried about default

2011-07-15T09:39:00.001+08:00

Juky 15, 2011

By BERNARD CONDON - AP Business Writers,MATTHEW CRAFT - AP Business Writers | AP – 1 hr 8 mins ago

....NEW YORK (AP) — The CEO of a big bank says a U.S. default could be catastrophic for the economy. The head of the Federal Reserve warns of chaos. And a credit rating agency threatens to take away the country's coveted triple-A status.

The response on Wall Street: So what?

In Washington, the fight over whether to raise the federal debt limit has grown uglier by the day. The White House says the limit must be raised by Aug. 2 or the government won't be able to pay its bills, possibly including U.S. bonds held around the world.

But as the deadline nears, stocks and bonds have barely flinched.

The Dow Jones industrial average fell just 54 points Thursday and stands about where it did at the start of the month. The yield on the 10-year Treasury bond, which usually rises when investors see it as a riskier bet, is considerably lower than earlier this year.

It may seem an odd, even reckless, reaction by investors. But it isn't completely crazy.

Take the ho-hum reaction from the bond market. In theory, investors in U.S. Treasury bonds should demand higher interest payments when there's a greater risk they won't get their money back — in this case, in the event of a default next month.

Instead, the yield on the 10-year Treasury note rose only slightly Thursday, to 2.95 percent. In February, when the U.S. economic recovery seemed stronger and the debt limit was a distant threat, it was 3.74 percent.

But in this market, as in the schoolyard, size wins. The U.S. has $14 trillion in outstanding Treasury bonds. That dwarfs government bonds of any other nation. U.S. debt is held more widely and traded more often than any other government's IOU.

That matters because pensions, private investment funds and central banks the world over want to know that they can buy and sell these holdings fast — what investors call liquidity. During the credit crisis of 2008, investors bought U.S. Treasurys because they were perceived as not only safe but liquid.

"It's very nice that Switzerland is a safe place," says Avi Tiomkin, a hedge fund consultant who holds Treasurys. "But if you're the Russian or Chinese central bank, it's just too small."

Steve Ricchiuto, chief economist at Mizuho Securities, points to another reason the markets are calm: The U.S. may seem a more dangerous place to park your money given its rising debt, but much of the rest of the world isn't faring well, either.

He notes that Europe is trying to contain a debt crisis. Yields on bonds of various countries there have gone up recently. "The U.S. is the best in a bad world," he says, so people have no choice but to invest here.

As for stocks, there's plenty of news — some very good — to distract investors from Washington's problems. U.S. companies are issuing their financial results for the latest quarter, and they're expected to post big profits — up 15 percent, according to a survey by data provider FactSet.

JPMorgan Chase reported profits up 13 percent Thursday, higher than analysts had expected. The stock rose sharply on the news. Earlier in the day, it was that bank's CEO, James Dimon, who warned that a failure by Congress to agree to raise the debt ceiling could mean "catastrophe."

On Wednesday, Moody's Investors Services warned it might take away the United States' top-notch credit rating if it missed even one interest payment on its bonds. In testimony before Congress on Thursday, Federal Reserve Chairman Ben Bernanke said a U.S. default could throw the financial system into "chaos."

The Dow Jones industrial average closed at 12,437, down 0.4 percent. The S&P 500 closed at 1,308, down 0.7 percent.

The United States hit its current $14.3 trillion debt ceiling in May. For a new debt ceiling to last to the end of 2012 would require raising it by about $2.4 trillion.

A default would drive up the cost of government borrowing for years to come. That would translate into higher interest rates for everybody else, making it more expensive for corporations to finance spending projects and for Americans to take out mortgages or other loans.

The bigger fear is that a default could freeze the short-term lending markets that keep money moving throughout the global financial system. Treasurys and other government-backed debt are the most widely used collateral for loans in these markets.

A default and a downgrade of U.S. debt would lower the value of that collateral. Lenders might respond by forcing borrowers to sell other assets to post more collateral. The fallout could resemble what happened when Lehman Brothers collapsed in 2008.

The prospect of such terrible consequences may be exactly the reason investors aren't all that worried.

"There's just too much at stake politically and economically for a deal not to get done," says John Briggs, Treasury strategist at the Royal Bank of Scotland. "It seems hard to believe that any politician would want their name attached to a default of U.S. debt."

Many other investors are assuming the same thing. Tony Crescenzi, market strategist at money manager Pimco, says Wall Street has been expecting a deadline-beating deal since the debt-limit became a subject of debate earlier this year.

No one knows how close Washington can get to the deadline without triggering a sell-off. Sam Yake, a stock analyst at BGB Securities, is confident a deal will be struck. But he says that if enough investors start to worry, the fear could feed on itself.

"In financial markets, you're playing with people's confidence," he says. "If enough people start thinking it's a catastrophe, it could become so."
...

Property trends – where are we heading to?

2011-07-13T23:01:00.000+08:00

Jul 11, 2011

There have been many speculation (and subsequent refuting by various parties) of a property bubble. Year 2009 marked an economic slowdown due to the global financial crisis, while year 2010’s economic recovery was largely boosted by the government’s economic stimulus package.

Some attributed the astronomical price increases in hot areas to the suppressed demand of year 2009. In that year, it was common for developers to offer 5% downpayment and 0% interest until upon completion of a development. Similarly, banks offered attractive rates, where the interest rates were at approximately the high 3% or low 4%.

Escalating prices
2011 came and property investors had to rethink their investment strategies. Prices of properties have surpassed the levels recorded before the crisis and in the first half of 2010 itself, prices of landed houses in some popular areas in the Klang Valley, Penang and Johor have appreciated by 10% to 30%. Bank Negara Malaysia (BNM), in its “Financial Stability and Payment Systems Report 2010”, stated that house prices in selected locations within and surrounding urban areas had increased to four times higher than the national house price index.

BNM has been staying on the pulse of the market’s movements and implemented a loan to value ratio of 70% for third mortgage borrowers. However, crafty property buyers have resorted to using their spouse or relatives’ names when applying for loans. Some have opted to take the commercial route, as the required downpayment is at an average of 80% (as opposed to 70% if the buyer has more than two residential properties currently). Plus, the capital gains and rental yield are relatively higher than residential properties. Hence, some buyers have changed their strategy by investing in commercial properties.

Proceed with caution
In early May 2011, BNM raised the overnight policy rate (OPR) by 25 basis points to 3% and increased the statutory reserve requirement (SRR) by one percentage point to 3%, and as such, banks have raised their base lending rates (BLR) and base financing rates (BFR) by 30 basis points to 6.60% respectively. Banks that offer BLR minus 2%, means that effective interest rates are still below 5%.

However, property investors should look at the slight rate hike with caution. It is imperative that property buyers make decisions based on repayment capability, and also factor in expected rental yields.

New developments continues to mushroom especially in the Klang Valley and Greater Kuala Lumpur and reports have indicated that investors are still very much active, with investors snapping up units during property launches, despite the price increase. Analysts have indicated that it is still too early to measure the impact of current regulations.

Property Investment Convention 2011 (PIC 2011)
If current property trends and regulations are at the top of your mind, join the Property Investment Convention where current topics of interest will be analysed and shared by various speakers.

The convention will mainly be about movement in the property market, the current and future trends based on the MRT, how to purchase as regulations change, how to tweak your strategies in view of the changing regulations, managing your portfolio, diversifying into REITS, and many more.

The speakers include:
- Best-selling author and property investment coach, Milan Doshi
- Location researcher and map maker, Ho Chin Soon
- The master of lead generator and co-author of the first ‘Lease Options’ book in the UK, Vincent Wong
- International property investment trainer and co-founder of Wealth Dragon in the UK, John Lee

The Property Investment Convention is scheduled to be held on 6 and 7 August 2011 at The Gardens Ballroom, Mid Valley City. Register now at www.wealthmasteryacademy.com/starpic.

CPO price on downtrend

2011-07-13T22:42:00.001+08:00

Wednesday July 13, 2011

By HANIM ADNAN
nem@thestar.com.my

Rising production and high inventory putting pressure on commodity

PETALING JAYA: The downward pressure on crude palm oil (CPO) prices continued yesterday amid rising production and an 18-month-high inventory. This has also triggered market talk that the commodity may slip to below RM3,000 per tonne this week.

The Malaysian Palm Oil Board (MPOB) said in its June statistics released on Monday that CPO production had increased to 1.75 million tonnes while end-stocks surged to 2.05 million tonnes despite higher exports at 1.58 million tonnes.

All CPO futures contract closed on a minus territory yesterday, with the third-month benchmark CPO futures for September contract down RM39 to RM3,034 per tonne.

HwangDBS Vickers Research said in its sectoral report yesterday that palm oil exports in the coming months were expected to rise on stock replenishment, some substitution and stronger demand during Ramadan.

However, CPO output is forecast to seasonally ramp up over the same period, boosted by yield recovery and new tree maturities.

“In our estimation, this should raise palm oil end-stock levels through end-August and keep them above two million tonnes until the end of the year.

“We believe CPO prices owe its current resilience to weak soybean crushing margins and expectations of 2% year-on-year drop in the US soybean harvest, which may tighten near-term soybean oil supplies.

“Therefore, CPO price is expected to resume its downtrend in the fourth quarter of this year,” it added.

Malaysian Estate Owners Association president Boon Weng Siew voiced his concern over the current high level of palm oil stocks. “When palm oil stocks rose to two million tonnes in the fourth quarter of 2008, CPO price went down to about RM1,500 per tonne!”

Boon said the Government's B5 (blending of 5% biodiesel with 95% fossil fuel) programme should help the industry to manage the domestic palm oil stocks level.

The programme, which kicked off officially early last month, will be undertaken in stages. It will start with the central region covering Putrajaya, Malacca, Negri Sembilan, Kuala Lumpur and Selangor.

Malaysian Biodiesel Association vice-president U.R. Unnithan told StarBiz recently that 170,000 to 200,000 tonnes of biodiesel were expected to be used in the B5 programme for the central region.

The Government is targeting some 500,000 tonnes of local palm oil stocks to be used for the entire programme.

Meanwhile, despite palm oil stocks rising above the two million tonne mark in June, OSK Research was not overly concerned as “we believe that most of the contributing factors are already known and may have been factored into the decline in palm oil prices from RM3,963 in February to a low of RM3,016 per tonne last week.”

The research outfit also reckoned that inventory might fall back promptly due to supply disruption in the second half of this year.

“With CPO now trading at a significant US$210 per tonne discount to soybean oil, there is plenty of room for palm oil price to move higher when supply disruption materialises in the months ahead,” it said.

Lower industrial production in May a strong sign

2011-07-13T22:35:00.000+08:00

By FINTAN NG

PETALING JAYA: May's lower factory output as measured through the industrial production index (IPI) more or less confirms that economic growth for the second quarter and for the full year will be slower.

Although not unexpected, with the Government already forecasting year-on-year gross domestic product (GDP) growth to be between 5% and 6% this year against 7.2% growth in 2010, external factors should make things all the more challenging and uncertain.

Three of these factors weigh on global GDP growth: China's inflation, which hit a three-year high of 6.4% in June, the stubbornly high jobless rate in the United States and contagion fears in the eurozone.

HSBC Global Research's co-head Asian Economics Frederic Neumann said in a July 10 report that the persistent US high unemployment rate would mean a weaker summer employment outlook.

Less demand: Malaysia’s industrial production, including steel pipes, which fell 5.1% in May, is likely to remain soft although a recovery is expected in the third quarter.

“Asia will feel the chill mostly through exports. In fact, we've recently highlighted that export order growth has continued to slow across the region in June,” he said.

Neumann said stagnating external demand would persist beyond the end of Japanese supply chain disruptions, which was the main cause of Malaysia's drop in factory output.

He said policymakers in the region would still proceed with a gradual and cautious adjustment to interest rates due to inflationary pressure.

This adjustment would have to be balanced against currency appreciation, which would impact exports growth.

“This, as we have long argued, is not simply a lagged effect of rising food and oil prices earlier this year, but reflects an underlying deterioration in the trade-off between inflation and growth in the region,” Neumann added.

He said there was clearly a need to raise key interest rates further despite slower growth in the second quarter because Asia's inflationary pressure was due to excess capacity not being able to cope with demand.

JPMorgan Chase Bank's Singapore-based economist Ong Sin Beng expects industrial production to remain soft though some stabilisation may be expected in the June data before a recovery in the third quarter.

“The main uncertainty is not so much with the direction of the data but with the strength of the recovery and this requires a somewhat firmer final demand footing in the third quarter,” he said in a report.

Ong said while some of the slowing owed to a moderation in final demand in the developed economies, a large part was due to an inventory adjustment following the sharp expansion in production in the first quarter.

“In that context, the second-quarter softness is somewhat similar to the third quarter 2010 slowing, which took three months to reach the trough from the production peak,” he added.

The Statistics Department on Monday released May's IPI figures, which showed factory output declined 5.1% from a year ago, more than the median expectation of a 2.7% fall in a Bloomberg survey. This was also more than double the 2.2% drop recorded in April.

The Government forecasts GDP to grow 5% to 6% this year with most economists expecting GDP to grow around 5.5%. Last year, growth came in at 7.2% year-on-year.

GDP expanded 4.6% for the first quarter with economists expecting second-quarter growth to be slower on weaker external demand.

Keeping interest rates unchanged sensible, priority is growth

2011-07-13T08:49:00.000+08:00

Wednesday July 13, 2011

Keeping interest rates unchanged sensible, priority is growth

Behind the News - By Jagdev Singh Sidhu

THE decision to keep interest rates unchanged last Thursday makes sense after looking at the big decline in industrial production.

The economy has lost quite a bit of momentum and with economists now expecting growth in the second quarter to come in at around 4%, the focus on keeping growth up at the expense of inflation is now the priority of the authorities.

A hint of such intent was spoken of by Bank Negara's monetary policy committee (MPC) when it issued its statement on Thursday.

“The MPC will assess carefully the evolving economic conditions and to the extent that the growth momentum is sustained, further normalisation of monetary conditions will be considered to safeguard price stability,” it said.

The reasoning behind it was, although inflation remained on the upside, the committee felt that while the outlook for growth remained positive, there were heightened uncertainties to economic growth arising from global developments that had created higher downside risks to growth.

Troubles in Greece, the sluggishness of the US economy and the supply chain disruption cause by the earthquake and tsunami in Japan have shaken the external environment growth prospects.

“The OECD composite leading indicators (CLIs) fell 0.23 point to 102.54 points in May (0.14 point drop to 102.78 points in April), marking the second consecutive month-on-month decline and pointing to a possible slowdown in most major economies,” said CIMB Research head of economics Lee Heng Guie in a note.

“The divergent growth rates between advanced and emerging economies remain but are converging.”

Lee noted that a similar slowdown in leading indicators was also seen in Asia where China's CLI declined in May for the fifth month in a row as the monetary tightening measures bit.

The CLI for India, too, was down in May, pointing to a further moderation in economic activity, he said.

While growth is now firmly in Bank Negara's crosshairs, it's not to say tackling inflation has taken a back seat. Bank Negara upped the statutory reserve requirement to 4% to mop up excess liquidity, and possibly relieve inflationary pressure, from the economy.

A higher interest rate would apply more brakes on the economy and even though economists were divided whether the central bank would raise borrowing costs last week, many felt the pause towards normalisation was the right thing to do right now.

The reason for their consternation was the dip in industrial production in May which showed activity at factories, mines and plantation had contracted by 5.1% year-on-year. April's figure was also revised to a contraction of 1.7%.

The culprit for the drop in May was the steep contraction in mining, in particular production of oil and gas which fell by 20.1% year-on-year.

Manufacturing was up marginally but apparently the sector is still feeling the effects of Japan's supply chain disruption.

“The disruption to Japan's industrial activities and global manufacturing supply chain from the natural disaster and nuclear power crisis was short-lived as indicated by the rebound in Japan's PMI (Purchasing Managers Index) to above-50 in May and June after the plunge in March and April,” said Maybank Investment Bank in a note.

“This should lead to improvement in manufacturing activities especially via re-stocking in the E&E (electronics and electrical) and automotive sector. At the same time, for Malaysia, the disruption to the oil and gas activities should be temporary and the consequent rebound in mining activities will add to the expected improvement in manufacturing activities to lift industrial production in the coming months.”

CIMB, too, was positive over the outlook in the second half of the year.

“In our view, growth will sustain but remain uneven given lingering headwinds. The slow and uneven growth in the US, sovereign debt risks in EU and supply chain disruptions in Japan are unlikely to halt global momentum. In particular, Japan's supply chain disruptions will be short-lived,” Lee in the note.

“Although we expect the growth of the global economy to slow somewhat in the first half, it should rebound in the second half.”

With the outlook right now for the economy to rebound in the second half, also aided by a lower base effect from the same period last year, economists expect a rate hike to take place this year over the remaining two meetings once the current growth bumps have been smoothened.

Gold, other metal prices fall as on Chinese rate hikes

2010-10-21T00:11:00.000+08:00

Published: Wednesday October 20, 2010 MYT 7:46:00 AM

NEW YORK: Gold and other metal prices fell Tuesday as China's government announced it will boost interest rates, roiling currency markets and suggesting China might curtail its appetite for raw materials.

Gold for December delivery fell $36.10 to settle at $1,336 an ounce. Silver for December delivery fell 63.3 cents to settle at $23.780 an ounce, while copper fell 9.75 cents to $3.7575 a pound.

China's interest rate hike is intended to control inflation and rapid growth even as other Asian economies move to keep their recoveries on track.

The rate on a one-year loan was raised by 0.25 percentage points to 5.56 percent effective Wednesday, the Chinese central bank said. The one-year rate paid on deposits was raised, also by 0.25 percentage points, to 2.5 percent.

The move made traders sell out of positions in gold, silver and other metals as they anticipated a drop in Chinese demand, said Carlos Sanchez, analyst with CPM Group in New York.

"That was a major factor weighing on asset classes across the board," Sanchez said. "It would suggest there will be reduced demand for raw materials from China."

In other metals contracts, palladium for December delivery dropped $9.65 to $578.45 an ounce. January platinum fell $19.40 to settle at $1,673.60 a pound.

Grain prices also fell.

Corn for December delivery fell 11.25 cents to settle at $5.46 a bushel. Prices for other agricultural futures followed corn lower. Wheat for December delivery fell 18.5 cents to settle at $6.715 a bushel. Soybeans for January delivery fell 3.5 cents to settle at $11.915 a bushel.

Most energy prices fell, led by crude oil.

December crude trading on the New York Mercantile Exchange fell $3.64 to $80.16 a barrel. In November contracts, heating oil fell 8.68 cents to settle at $2.1893 a gallon, while gasoline fell 10.32 cents to $2.0483 a gallon.

Natural gas for November rose 8.2 cents to $3.513 per 1,000 cubic feet. - AP

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June inflation rate rises to highest level since May 2009

2010-07-23T00:19:00.000+08:00

Thursday July 22, 2010
By FINTAN NG
fintan@thestar.com.my

PETALING JAYA: Malaysia’s June inflation rate rose 1.7% to 113.7 from a year ago, reaching the highest level since May 2009 as prices began to normalise from last year’s low base.

The consumer price index (CPI) gained 1.6% in May 2010.

The Statistics Department said in a report that the CPI for June increased 0.2% compared to this May and rose 1.4% for the January to June period compared to the previous corresponding period.

The rise in the CPI was within economists’ expectations and also in line with a Bloomberg survey.

Economists who spoke to StarBiz recently said the CPI was expected to rise gradually although price increases for the year were expected to be moderate.

In June compared to a year ago, the food and non-alcoholic beverages index added 2.7%.

The indices for non-food increased 1.2%, transport gained 1.3%, housing, water, electricity, gas and other fuels added 0.8% while the services index rose 1.7% compared to a year ago.

The health and education indices added 1.6% and 1.8% respectively while the clothing and footwear index saw a 2% decline year-on-year.

The alcoholic beverages and tobacco index was up 3% and the restaurants and hotels index gained 1.8%.

The durable goods index increased 1.1%, the semi-durable good index declined 1.3% while the non-durable goods index rose 2.1%.

For detailed reports and charts from the Statistics Department click here

Commodity and asset prices are up

2010-07-15T23:12:00.003+08:00

The Star Online > Business
Saturday May 22, 2010

WHAT ARE WE TO DO BY TAN SRI LIN SEE-YAN

IN a previous column, I wrote on how ironically the sovereign-risk “shoe” is now on the other foot (“The Kiss of Debt”, Feb 27). Historically, sovereign-risk concerns reflected profligacy in emerging market economies – Russia, Argentina and Pakistan were notable examples. Today, the money printing machines in the United States, Euro-zone, UK and Japan are running overtime to assume the “crown.” We all know there is no such thing as a free lunch. This time, severe crisis took their toll on those with a history of high living and fiscal indiscretion, ignoring reforms in good times. What a difference a generation makes.

The contrast is provided by BRIICs (Brazil, Russia, India, Indonesia & China). A year ago, with their fiscal and financial houses in good order, BRIICs were busy stimulating their economies. Their main worry then was to push for a “fairer global economic order.”

But, one year on, their situation is ironic: they share 3 things – they are big and growing fast, they have inflation, and they have strengthening currencies thrust upon them. These days, their concerns are on rising commodity prices, overheating, asset bubbles and inflation.

Workers dry cocoa beans in Makassar, Indonesia’s South Sulawesi province. Last year, cocoa prices were at a 30-year high. — Reuters
Paradox of a symmetrical recovery

Now more than ever, the Greek tragedy points to gathering risks in the global economic outlook. As of now, global recovery remains anaemic, uneven, and in need of policy support. It is as though the world is still dichotomised but with a big twist. In developed economies, recovery is there but growth remains modest with high unemployment and large fiscal deficits. Having been at the epicentre, sluggish growth in the US can gather strength, but Europe will now come out of recession more slowly.

Of concern is excess global liquidity which will now grow even more, lifting commodity prices, bloating risky assets, and adding to inflationary pressure. Worse, scars of battered consumers remain in the face of strained and stressed fiscal dilemmas.

In emerging economies, especially BRIICs, the picture is amazingly different. Most are in a V-shaped recovery and many approaching normalcy. Asia ex-Japan is slated to grow 8% this year and prospects are for good times to continue. Despite it all, they have recovered with impressive speed.

China persisted and grew by 8.7% in 2009 (13% in ’07); and by the 1Q’10, growth was already back up to 11.9%, prompting concerns of over-heating. India - the more self-contained of the lot, managed 7.2% in ’09 and should comfortably clear 8% this year. As a result, inflation is gathering strength in many parts of Asia ex-Japan and in other BRIICs. Inflation in India is already up 10%; China, 3%; Brazil, 10%; Russia, 8%; Indonesia, 4%. Asset prices have also surged, earning the attention of policymakers especially in China and India. China would do well to keep inflation no higher than 5% in ’10, and India, less than 8%.

Yet, in the lead-up to recession, emerging economies were already becoming increasingly hitched up to the US and European “shopping cart.” Asia’s exports share of output rose to 47% (from 37%) over 10 years pre-crisis. This shows their growing dependence on external demand, not less. When much of this demand disappeared overnight at end ’08, it didn’t take Asia too long to be back exporting again. So much for decoupling. But this time, Asia found options.

Commodity exporters like Brazil, Indonesia, Russia & Australia, and commodity-importers, China, Japan, Europe and South Korea, found opportunities to reinforce one another. Such feed-back loops built greater interdependence. It seems Asia was only unruffled – not shaken, just stirred.

Commodities

Commodities posted in 2009 the biggest annual gains in four decades, led by doubling in copper, sugar and lead prices. Oil prices gained 78%. The S&P Index of 24 raw materials rose 50% in 2009, the highest since at least 1971. Many attribute this rapid price rise to the “super-cycle”, fanned by abundant global liquidity & strong demand from China and India in the face of 20 years of under-investment in raw materials production. The weak US dollar also played a part. Good times ended abruptly with the financial crisis. But the conundrum became more complicated when prices rebounded strongly, lifted by higher production costs and strong economic growth in BRIICs.

Prices of food commodities were also higher. According to experts, the food crisis has moved, from lunch and dinner to breakfast. Among the “breakfast commodities” only milk prices remained low. Last year saw tea prices at all time high; cocoa at 30-year high; sugar, 29-year high; coffee, near 11-year high; and orange juice, highest in 18 months. Sharp increases in these “soft commodity” prices contrast with relatively depressed prices for most agricultural commodities, including wheat, rice, soyabean and corn. Price divergences reflected fundamentals at play. Supply disruptions, not demand, were driving the rally. But longer term, food prices are on a rising trend, driven by compelling fundamentals: years of under-investment because of low prices prior to early 2000s; structural rise in demand because increased population demanded a diet richer in meat; and onslaught of biofuels.

With economic recovery, high food prices are here to stay. Unlike oil and base metals, supply response of agricultural commodities to high prices is speedy: farmers react each planting season. Farmers say there is no better fertiliser than high prices. In 2008, farmers prompt response was aided by good weather; consequently wheat, corn and soyabean output expanded and prices halved!

Until May this year, the Economist’s overall commodity price index was up 22%, with food prices staying quite flat. Industrial commodities had risen 61%, non-food agriculture, 74%, and metals, 56%. The Greece crisis temporarily halted the rising trend. Experts say that over the next 18 months, commodity prices will resume rising with economic recovery, lots of cheap money, and rapid BRIIC growth. Like it or not, high commodity prices will persist.

Asset bubbles

In emerging countries, there is growing concern about too much liquidity (domestic and global) driving asset prices, which can lead to bubbles and inflation. So much so Brazil and Taiwan introduced capital controls to better manage capital inflows. The International Monetary Fund (IMF) had since concluded advanced countries may be responsible for creating bubbles in stock markets in emerging nations: its studies found (i) a positive link between domestic liquidity (money) and stock values; and (ii) an even stronger relationship between stock values and global liquidity (hot money). There is also a strong link between liquidity (money) and house prices in all countries. However, role of foreign money inflows doesn’t appear significant. Hot money has little to do with China’s frothy property market; it’s homemade, it seems.

As someone who knows the going-ons in China, my friend Prof Fan Gang (National Economic Research Institute, Beijing) expressed concern about rising commodity prices and food supply disruptions, even though he views the inflation outlook with limited immediate risk. Consumer prices rose 2.2% in 1Q’10 and 2.8% in April. But real estate prices are more worrisome – land prices more than doubled in 2009 and property prices, up 12.8% in April 2010. China’s massive stimulus plus explosive credit expansion resulted in a 31% rise in money supply in April. Even so, liquidity conditions are expected to remain easy. Simply because balance sheets of consumers and enterprises remain healthy, with prudent leverage, even though more savings have moved into real estate. Most observers regard properties as not yet bubbly.

Even so, Chinese authorities raised banks’ reserve requirements (ratio of deposits kept at central bank) three times to moderate bank lending. Also, directives were issued to calm markets, including prohibiting developers from accepting deposits on uncompleted properties. China is not alone in this. Countries like Canada, Australia, India and Singapore have similar concerns. In emerging economies, central banks readily use non-traditional “macro-prudential tools” to do the job, including credit allocation, arm-twisting (moral suasion), and favouring some with credit and discriminating against others. There is no shortage of ideas to fix property bubbles.

Inflation and the quantity theory of money

Over the past 30 months, the global economy has been subject to two major shocks: (i) the build-up of enormous unutilised capacity. Global output had fallen by 5%-6% since 2008. As expected, inflation in developed nations fell from about 4% in ’08 to less than 1% in ’09. It has since started to act up with rises in commodity prices. IMF still thinks global inflation will remain low in ’10. (ii) But, the crisis also injected enormous amounts of low-cost liquidity (money) into the global system. Fiscal stimuli and quantitative easing (printing money) in the United States, Europe, Japan, China and India together pumped-in liquidity estimated at 4%-5% of global GDP. Isn’t all this money inflationary?

Many are familiar with the Quantity Theory of Money (QTM) – this principle states simply that the general price level will rise in proportion to the increase in supply of money (i.e. cash and bank deposits in private hands). So if money supply rose by (say) 5% last year, inflation is likely to increase by about 5% this year (i.e. with a lag). But Lord Skidelsky (a noted Keynes biographer) reminds us that QTM only works at full employment. If there is unutilised productive capacity, part of the rise in money supply is absorbed to produce new goods and services, instead of spending on existing output. That is non-inflationary.

Furthermore, flooding the economy with lots of central bank money does not necessarily mean private deposits (generated from spending or bank lending) will rise by the same proportion. Japan in the 1990s had lots of money pumped into the economy; yet, money supply rose by only 7%-8%. Hence, the lost decade of no growth and no inflation (even deflation). We see similar trends in recent experience with quantitative easing in the United States and Europe.

The lesson is clear: what matters is not the printing of money but spending it. Once spent, the bundle of paper money is activated to produce goods and services. Any central bank can create money but it can’t ensure money will be spent or loan-out. Private money locked up in banks doesn’t increase the needed money supply; new money simply replaces the old sterilised by recession. So, pump priming should be allowed sufficient time to work through the real economy; first, to use up existing capacity (hence, little or no inflation) and then, build new capacity to propel new growth. That is why any premature exit of fiscal stimuli just damages the recovery process.

We already see results of successful money creation in BRIICs and many others. Asymmetrical recovery demonstrated that, away from the epicentre, emerging economies were able to translate money they print into money spent. At this stage of the growth cycle, presence of significant output gaps means there is little pressure on resources, since firms can readily raise output and look to higher volumes instead of prices. Rising Asia is experiencing the “sweet spot” of the cycle as output and profits rise, while inflation remains under wrap.

As recovery proceeds, monetary policy needs to tighten, removing loose policy settings put into place during recession. Rising interest rates should not constrain the performance of risk assets driven in an improving economy. As I see it, risk of policy error tends to be “too little too late,” erring on the side of policy that is too loose for fear of choking off recovery prematurely, or unsettling markets (and vested interests) ill equipped to handle change.

>Former banker Dr Lin is a Harvard educated economist and a British chartered scientist who now spends time writing, teaching & promoting the public interest. Feedback is most welcome; email: starbizweek@thestar.com.my.

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Commodity and asset prices are up

2010-07-15T23:12:00.001+08:00

Fuel, sugar prices up as subsidy cuts start

2010-07-15T22:43:00.000+08:00

UPDATED @ 08:23:09 PM 15-07-2010July 15,

2010KUALA LUMPUR, July 15 — The Najib administration will begin cutting subsidies tomorrow by raising the prices of petrol, diesel, natural gas and sugar in a move which could see the ruling Barisan Nasional (BN) coalition vulnerable to political challenges and risks.

The government announced tonight that RON95 petrol and diesel prices will go up by five sen a litre. Tomorrow's pump price will be RM1.85 per litre for RON95 and RM1.75 per litre for diesel. Subsidies for RON97 have been removed completely and its price will be subject to market forces.

Natural gas (LPG) will rise by 10 sen per kilogramme to RM1.85.

The price of sugar will also be increased, by 25 sen per kilogramme to RM1.75.

In a statement tonight, Prime Minister Datuk Seri Najib Razak said the move to cut subsidies on fuel and sugar would save the government RM750 million a year.

"The readjustment of fuel and sugar prices are minimal compared to the proposals submitted because the government wants to balance between maintaining the people's interests and the need to manage the country's deficit," he said.

The Malaysian Insider understands that this is the first stage of subsidy cuts and it is expected to be reviewed every six months.

Sources said that subsidies on electricity are also expected to be cut but no decision has been made yet on when that will happen.

By raising prices of fuel and sugar, Prime Minister Datuk Seri Najib Razak is signalling he is prepared to rebuild support for BN and implement economic reforms which could include the eventual introduction of an unpopular Goods and Services Tax (GST) and further market liberalisation.

The government’s reluctance to upset voters had led to reversal of government decisions and reform pullbacks that fuelled talk Najib was readying for a snap election.

Najib’s government was forced to reverse a decision recently to issue a gambling licence to quell mounting public anger.

This came after the GST was called off in February together with a scheduled fuel price hike in May.

The decision to begin spending cuts also suggests Najib has accepted the arguments of Datuk Seri Idris Jala.

Jala, the minister in the prime minister’s department, had controversially predicted Malaysia could be bankrupt by 2019 if it did not begin to cut subsidies for petrol, electricity, food and other staples, which he said cost the country RM74 billion last year.

Najib also recently braced Malaysians for the possibility that the economy could slow down in the second half of the year, in a development which would put his government’s economic growth targets at risk.

The prime minister said the possible slowdown was due to external factors.

Malaysia’s economy grew by an impressive 10.1 per cent in the first quarter of this year, marking two straight quarters of growth and three straight quarters of serious contraction last year.

Malaysia’s FDI rates have fallen faster than other regional players like Singapore and China, and at the same time capital outflows have dampened private domestic investments. Net portfolio and direct investment outflows had reached US$61 billion (RM197 billion) in 2008 and 2009 according to official data.

The government will allocate between RM90 billion and RM91 billion for expenditure in the first two years of the 10th Malaysia Plan (10MP) Najib’s government has set among the key challenges of the 10MP the stimulation of the private sector investments to grow at 12.8 per cent annually or RM115 billion.

It was reported that the country may not be able to achieve the six per cent gross domestic product (GDP) growth target if the 12.8 per cent growth is not achieved within five years.

The man in charge of US$1tril assets warns about stocks

2009-12-28T15:32:00.000+08:00

Published: Monday December 28, 2009 MYT 8:15:00 AM

NEW YORK: Homes are selling at their fastest clip in nearly three years, the unemployment rate is falling and stocks are up 66 percent since their March lows - the best performance since the 1930s. What's not to like?

Plenty, according to Mohamed El-Erian, chief executive of giant bond manager Pimco.

The investor says the recovery may be gaining steam but is no different than a kid who eats too much candy at one of the birthday parties his 6-year-old daughter attends.

"We're on a sugar high," El-Erian says.

"It feels good for a while but is unsustainable."

His point: This burst of economic activity fed by government spending and near-zero interest rates will soon peter out.

As CEO at Newport Beach, Calif.-based Pimco, El-Erian, 51, oversees nearly $1 trillion in assets, more than the gross domestic product of most countries.

So when he talks, people listen.

What he's saying now:

-Stocks will drop 10 percent in the space of three or four weeks, bringing the Standard & Poor's 500 index below 1,000 - though he's not predicting when.

-The unemployment rate will be hovering above 8 percent a year from now.

-U.S. gross domestic product will grow at an average 2 percent or so for years to come - a third slower than we're used to.

El-Erian and his famous partner, Pimco founder Bill Gross, are watched closely because they've made investors a lot of money over the years.

The Pimco Total Return Fund, which at $203 billion is the world's largest mutual fund, has returned an average 7.6 percent annually over 10 years, after fees, versus 6.3 percent for Barclays Capital U.S. Aggregate fixed income index fund.

The hotshots at Pimco have made money by anticipating big moves in the economy and interest rates way before other investors.

In the depths of the financial crisis last year, for instance, Pimco sold some of its Treasury bonds to panicked investors looking for a safe haven and put the proceeds into government-backed mortgages and bank debt - in time to catch the big upswing in prices of those and other riskier securities this year.

Now Pimco is once again changing tack. El-Erian says people are fooling themselves if they think all the bullish data of late means a strong recovery is in the offing.

So he's buying Treasurys and selling riskier stuff.

His bet: Investors will get scared again and want U.S.-guaranteed debt so they know they'll get repaid.

At Total Return, government-related securities, including Treasurys and corporate debt backed by Washington, comprised 48 percent of the fund's holdings in September.

That was up from 9 percent at the beginning of the year.

One of Pimco's newest funds, the Global Multi-Asset Fund, a hybrid stock-bond offering, is 35 percent in equities now, down from 60 percent earlier this year.

Investors betting on stocks or high-yield bonds are likely to be disappointed, El-Erian says.

Markets for those securities are rallying not because people like them but because they hate the puny yields of safer investments like money markets and feel they have no choice but to buy, he says.

He quips that that makes the bull market as likely to last as a forced marriage.

The danger: If stock and junk bond prices start falling, lots of investors are likely to bail, feeding the drop.

Of course, there are plenty of true believers in the bull who are not buying the El-Erian line.

James Paulsen, chief strategist at Wells Capital Management in Minneapolis, with $355 billion under management, has been pounding the table for months to buy stocks.

Just like in the early 1980s, the recovery will take the form of a "V," he says. The reason: Companies have cut inventories and payrolls to the bone, so just a little revenue growth could translate into a bumper crop of profits.

El-Erian says many of the bulls don't appreciate just how much the government props still under the economy are masking its weakness.

Instead of focusing on the fundamentals today, he says, they're looking to the past, expecting a quick economic rebound because that's what's happened before.

We're trained to think the "farther you fall, the higher you'll bounce back," El-Erian says. "We're hostage to the V."

El-Erian says he learned to be open to many different views on the world (and markets) from his father, an Egyptian diplomat who insisted on reading several newspapers everyday, both on the right and the left.

El-Erian had hoped to become a college professor.

But when his father died, he took a job at the International Monetary Fund to support the family.

He rose through the ranks, eventually becoming deputy director.

In 1999 he joined Pimco, where he quickly made a name for himself with some prescient bets on emerging markets.

One of his biggest wins: selling Argentine bonds in 2000 while they were still popular with investors.

When the country defaulted the next year, the emerging markets fund that El-Erian managed returned 28 percent versus negative 1 percent for the Emerging Market Bond Index.

He eventually left to head the group that manages Harvard University's massive endowment, returning to Pimco in January 2008 in time catch the depths of the financial crisis.

El-Erian says we've probably seen the worst of the crisis but consumers, and not just Washington, need to start spending again for the recovery to really take hold.

He doesn't expect that to happen soon. Like in the Great Depression, Americans are saving more and borrowing less - a shift in attitudes toward family finances that Pimco thinks will last a generation.

That, plus the impact of more regulation and higher taxes, El-Erian says, will crimp growth for years to come.

Whatever the merits of that view, Pimco is not exactly knocking the lights out right now. So far this year, the Total Return Fund has returned 14 percent, impressive in normal times but no better than average for similar funds during the rally, according to Morningstar.

The 19.1 percent return for Global Multi-Asset, which El-Erian co-manages, lags two-thirds of its peers.

El-Erian says he sold equities "too early" but is convinced his view on the market will prove correct - even if it strikes many as a tad too pessimistic.

"I'm calling it as I see it," he says. "I'm not optimistic or pessimistic - I'm realistic." - AP

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How to diversify investments during this time of crisis

2009-12-02T21:40:00.000+08:00

Wednesday December 2, 2009

Personal Investing - By Ooi Kok Hwa

AS a result of the financial crisis, even though most commodities have not been performing well, gold has outperformed the conventional asset classes like equity and bond.

This has prompted some investors to consider commodities as one of their investment asset classes. In this article, we will look into how to invest in commodities.

Bruno H. Solnik and Dennis W. McLeavey in their book titled “International Investments” classified commodities in three major categories – agricultural products, energy and metals.

Examples of agricultural products are fibres (wood, cotton), grains (wheat, corn, soybean), food (coffee, cocoa, orange juice) and livestock (cattle, hogs, pork bellies). Energy products can be crude oil, heating oil and natural gas whereas examples of metal products are copper, aluminum, gold, silver and platinum.

The main reason behind investing in commodities is that they have negative correlation with stock and bond returns. This will provide a good way to diversify portfolio risks. Besides, given that commodities are positively co-related to inflation, they can help investors hedge against inflation.

Investors can consider investing directly in commodities or indirectly by buying into futures contracts, bonds indexed on some commodity price as well as stocks of commodity related companies.

Some companies will invest in commodities that are extensively used as raw materials in their production processes. High commodity prices or raw material prices will affect those companies’ performance. However, if they have invested in their raw materials, even though their profitability might be affected by high raw material prices, the gains from their investment in those commodities will offset the losses in their operations.

Some investors will consider buying into commodity futures, such as crude palm oil (CPO) futures as this is one of the easiest and cheapest ways to get exposure to commodities.

However, investors need to understand that futures trading requires a high level of trading skills as most commodity players are well-equipped with the required market information, like total world supply and demand of CPO as well as the weather conditions in those producing countries. Some financial institutions may offer unit trust funds that invest directly in those commodities or indirectly through buying into commodity futures. In the United States, investors can buy into commodities via exchange traded funds (ETF) that are invested in commodities futures.

An ETF is a special type of fund that tracks some market indices and it is traded on a stock market like any common share. Given that the world economy may recover further and oil prices may go beyond US$100 per barrel again, buying into oil or other commodity related ETFs may provide retail investors an alternative to get exposure into commodities.

Since commodity cycles and the general business and stock market cycles are usually different, investing in commodities provides a good way of portfolio diversification.

Besides, investors can consider buying into collateralised futures funds (sometimes they are referred as structured products). A collateralised futures fund is a portfolio that takes a small long position in commodity futures and invests the rest of the money in government securities. Normally, it is capital guaranteed as the yield generated by government securities will be used to cover for the cost incurred for the futures contracts.

Lastly, investors can consider buying into listed companies that are commodity related. In Malaysia, if investors wish to gain from higher CPO prices, they can consider buying into plantation companies.

Given the current gold prices of more than US$1,150 per ounce, some investors are eager to know whether there are any further upsides to the gold prices. Some analysts and fund managers have predicted that the gold prices may go beyond US$1,200 to US$1,300 per ounce. Investors will rush into gold during a financial crisis, like the current financial crunch and the Great Depression in 1929-32, because gold can keep its value during those periods.

We believe that gold is a cyclical product. Even though nobody knows how high the gold prices can go, given that the world economy is showing signs of recovery, the upside potential for gold investing may be limited.

● Ooi Kok Hwa is an investment adviser and managing partner of MRR Consulting.

Related Stories:
Gold price hits another record high
US stocks up, shakes off Dubai crisis scare

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Gold price hits another record high

2009-12-02T21:32:00.000+08:00

Updated: Wednesday December 2, 2009 MYT 10:29:50 AM

NEW YORK: Gold prices breached $1,200 an ounce on Tuesday, rallying as the US dollar fell further against other currencies.

The decline in the dollar pushed other metals to their highest levels in more than a year.

Energy futures also rose.

Following a well-established trend, investors sold the dollar and other safe havens like Treasurys and piled into stocks and commodities.

Demand for riskier assets increased as fears over a possible debt crisis in the Middle Eastern city-state of Dubai eased and investors got more good news on the economic recovery in the U.S.

On the New York Mercantile Exchange, gold for February delivery jumped to a new record of $1,204 an ounce before settling at $1,200.20 an ounce, up $17.90, or 1.5 percent, from Monday's close.

Gold has been on a record-breaking climb over the past few months as the dollar weakens.

The precious metal is seen as a good hedge against a weak dollar and potential inflation because of its stable store of value.

Just over a year ago, gold prices hit a low of around $700.

That was at the height of the financial crisis, when investors were dumping stocks and commodities across the board.

The dollar has weakened steadily this year as low interest rates encourage investors to buy assets other than cash, like stocks and commodities, and potentially reap higher returns.

A weaker greenback also makes commodities, which are priced in dollars, more attractive to investors overseas.

The ICE Futures US dollar index, a popular gauge of the dollar's performance, fell 0.5 percent in afternoon trading Tuesday. Major stock indexes, meanwhile, soared more than 1 percent, including the Dow Jones industrial average, which jumped 127 points to its highest close of the year.

Among the day's data, the Institute for Supply Management said new manufacturing activity grew at a slower pace in November, but new orders rose, an encouraging sign that a pickup could materialize in the coming months.

The National Association of Realtors said its index of sales agreements rose in October to the highest level since March 2006. A separate report said construction spending ticked up, another good sign for the housing market.

Elsewhere on the Nymex, March silver surged 68.5 cents, or 3.7 percent, to $19.21 an ounce.

Earlier, silver rose to $19.30, its highest level since March 2008. Copper futures rose to $3.238, their highest since September 2008, before settling up 5.4 cents at $3.231 a pound.

December platinum rose $26.20 to $1,485.70 an ounce. Palladium rose 5 percent.

Oil prices also got a boost from the weaker dollar, as well as a report showing manufacturing activity in China grew for the ninth straight month.

That stirred hopes that Chinese energy demand could pick up.

Light, sweet crude for January delivery rose $1.09 to settle at $78.37.

Heating oil rose 3.01 cents to $2.078 a gallon, while gasoline gained 3.08 cents to $2.0423 a gallon.

Grain prices fell slightly on the Chicago Board of Trade.

March wheat futures slid 4.75 cents to $5.84 a bushel, while corn for March delivery shed 3 cents to $4.145 a bushel.

January soybeans dipped 1 cent to $10.595 a bushel.

December coffee added 0.75 cent to $1.425 a pound, while December cocoa jumped $101 to $3,315 a ton. - AP

(In Kuala Lumpur the price of gold closed at RM130.51 per gramme today, up RM2.12 from yesterday, Bernama reported.)

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Mier: Malaysia may need third stimulus package

2009-12-02T21:24:00.000+08:00

The Star Online > Business
Wednesday December 2, 2009

KUALA LUMPUR: Malaysia may need a third stimulus package should the US economy go into a relapse next year, according to the Malaysian Institute of Economic Research (Mier).

Executive director Prof Emeritus Datuk Dr Mohamed Ariff said in the event of a double dip recession in the US, Malaysia could use an additional RM8bil to pump prime the economy and “that is something we can afford to have.”

“We may need an additional RM8bil if there is going to be a double dip (recession) in the US and elsewhere,” he told reporters after the Mier National Economic Outlook Conference 2010-2011 yesterday.

He said the government’s spending from the first and second stimulus packages amounted to only RM22bil of the total RM67bil under the packages. “The second stimulus package would have exhausted itself by May,” he said.

The government has so far introduced two stimulus packages totalling RM67bil, with the first package at RM7bil in November last year and the second stimulus package worth RM60bil in March this year to cover a two-year period.

“We may have to brace ourselves for a slightly bigger budget deficit,” Ariff said, adding that the current national debt was small in comparison to what it was before and that of other countries in the region. The government is targeting a budget deficit of 5.6% of gross domestic product (GDP) for next year.

“Our national debt is 42% of GDP, Japan’s is 187%, India’s is 110%. So, by our own and regional standard it is small,” Ariff said, adding that 95% of the government debt was sourced domestically, and only 5% was foreign.

“However, the government needs to be prudent in handling the debt or else the country’s sovereign rating would suffer,” he said.

Meanwhile, the private think tank also expects the country’s economy to contract by -3.3% this year and expand by 3.7% next year, while it concomitantly forecasts GDP growth of 5% for 2011.

“The economy is doing much better than we had anticipated. It is a regional trend,” Ariff said.

“Malaysia needs to grow by 1% in the fourth quarter to register growth better than –3% for the year. But we are still holding on the original forecast of -3.3% and wait to see the fourth quarter results,” he said.

However, he said all indications were that the economy would perform better than Mier’s forecast three months ago.

“The potential (annual) growth rate of the Malaysian economy is 5.5% at this point in time. Until 2011, we see the economy hovering below the potential growth rate,” he said.

Meanwhile, he said the government’s target of 5% growth next year was a tall order and “the PM’s personal target.”

“It is going to be tough. One can engineer that, but at what cost? A 5% growth may mean a bigger budget deficit, much bigger national debt. There is a cost. But what’s the point if you cant sustain it,” he said. He said he expected accommodative policies to be in place throughout 2010.

“The monetary policy will remain relaxed with overnight policy rate of 2%. We don’t expect a revision – upward or downward – in the next 12 months,” he said.

Ariff also said downside risks were still prevalent and might perturb the road to recovery.

“While the worst is over and we are moving to positive growth territory, the future is uncertain. 2010 can be more challenging than this year and there are a lot of landmines to avoid, like asset bubbles, high oil prices and exchange rate risk.

“The recovery we see is still fragile. There is still a 50% chance of a relapse in the first half of next year. The growth we see in most economies is artificial growth engineered by huge fiscal stimulus,” he said.

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Gold hits record high as dollar slides

2009-11-11T23:04:00.001+08:00

LONDON, Nov 11 - Gold rose to record highs above US$1,115 (RM3,791) an ounce on Monday as the dollar slid to 15-month lows, with hopes for a global economic recovery and gains in equity markets boosting the appeal of higher-yielding currencies.

Gold is poised for further gains, analysts said, with the weak dollar helping the metal build on a rally that began last week after the IMF sold 200 tonnes of bullion to India’s central bank, raising the prospect of more official sector buying.

Spot gold hit a high of US$1,117.05 an ounce and was at US$1,115.30 at 0956 GMT versus US$1,105.30 late in New York yesterday. US gold futures for December delivery on the Comex division of the New York Mercantile Exchange rose US$13.30 to US$1,115.80.

“The way gold keeps accelerating away from its previous highs is quite incredible,” said Saxo Bank senior manager Ole Hansen. “Continued momentum is driving prices higher. Whenever we see new highs, we see more momentum buying.”

The dollar index fell a quarter of a percent to a 15-month low of 74.831 and the euro rose to a two-week peak within sight of last month’s 2009 high of just over US$1.5060.

Comments from Dallas Federal Reserve President Richard Fisher yesterday that the dollar’s depreciation has so far been orderly encouraged the market to continue betting against the US currency.

Weakness in the unit boosts gold’s appeal as an alternative asset, and makes dollar-priced commodities cheaper for holders of other currencies.

“Dollar weakness is the main trigger this morning,” said Wolfgang Wrzesniok-Rossbach, head of sales at precious metals house Heraeus.

Gold prices also rose in non-dollar terms. Euro-denominated gold reached its highest since March at €742.87.

Also helping the market was a report that Vietnam’s central bank will allow imports of gold — banned since May last year ? after bullion prices rose sharply in recent days, potentially opening up a new source of demand.

Physical gold demand was relatively slack in Asia, with traders in India — the world’s biggest bullion consumer last year ? keeping to the sidelines as prices rose.

“We did a few deals yesterday, but the market has turned quiet today. Traders are enquiring, but aren’t materialising,” said Pinakin Vyas, chief manager-treasury at IndusInd Bank in Mumbai.

Interest in gold exchange-traded funds also remained soft, with holdings of the largest bullion-backed, New York’s SPDR Gold Trust, unchanged yesterday.

But with the prospect of persistent dollar weakness boosting fund interest in gold and further central bank bullion purchases seen as a real possibility, the outlook for gold prices is seen as rosy.

US investment bank Goldman Sachs said yesterday gold could rise to record highs in a range from US$1,150 to US$1,200 an ounce, driven by falling real interest rates and renewed buying interest by central banks.

Technical analysts at Barclays Capital, who study past price movements to determine future direction, said both gold and dollar charts suggested more gains were on the cards for the precious metal. “Our sights are on US$1,500 in 2010,” they said.

Among other precious metals, spot silver was bid at US$17.53 an ounce against US$17.32, tracking gold higher, while platinum was at US$1,364 an ounce against US$1,349.50 and palladium was at US$335 against US$331.50.

ETF Securities said holdings of its London-based ETFS Physical Platinum exchange-traded commodity rose nearly 10,000 ounces or 2.6 per cent yesterday. — Reuters

Analyst: Another global recession likely in 2010

2009-11-11T22:38:00.002+08:00

Wednesday November 11, 2009

HONG KONG: Albert Edwards, an analyst at French bank Societe Generale who correctly predicted the Asian financial crisis, sees global equity markets at a new low and chances of another global recession in 2010.

Edwards, a prominent equities bear and a long-term critic of the policies of Western central banks, is sceptical of popular opinion that extreme policy responses will safeguard the West against a repeat of Japan’s “lost decade” of the 1990’s.

“People should question the happy clappy nonsense from sellside analysts,” London-based Edwards, a global strategist with SocGen’s Corporate & Investment Banking group, told a media briefing.

“We are not saying that people should not participate in the rallies – that will get you fired as a fund manager – but they should not become too convinced of the recovery,” he said.

Edwards is more worried about Japan in the near term as he expects the world’s second-largest economy to run into difficulty funding itself next year as demand for Japanese government bonds wane and bond yields rise further.

The significance of higher Japanese government bond yields was that it would cause some Japanese investors, who have been investing overseas in search of higher returns, to bring that money back home, he said.

Edwards expected China to go into a recession at some point as cyclicality catches up with the economy, and called people’s excessive faith in growth stories a “sick joke”.

He said while inflation was a concern, deflation was a bigger worry in the near term, at a time when Western and Japanese governments were effectively insolvent.

“If we get an economic downturn next year, when you have got core inflation at half a percent, I think there will be a real deflation panic, a bit like in Japan.”

Edwards picked grains like corn, wheat and soybeans as a more secular bet on China’s growth story over other commodities and their related stocks as these have lagged the broad rally in the markets.

“Equity valuations have been totally ridiculous for the last 10 years but I’m less bearish than I was two years ago because we have had one round of correction,” said Edwards. — Reuters

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Gold at another all time high, commodities rally

2009-10-16T09:29:00.000+08:00

NEW YORK: Commodities rose broadly Wednesday as the dollar tumbled to a fresh 14-month low against other major currencies.
Gold prices soared to a new record high of US$1,072 an ounce in early trading, before giving up 30 cents to settle at $1,064.70 an ounce on the New York Mercantile Exchange on some profit-taking.
Oil prices, meanwhile, rose above $75 a barrel for the first time in a year.
The gains came as the ICE Futures U.S. dollar index, a widely used benchmark of the dollar's movement against other major currencies, tumbled to its lowest point since August 2008.
A weak dollar makes commodities cheaper for foreign buyers.
The dollar has fallen steadily since March as investors become more confident about the economy's prospects for a solid recovery.
Their growing optimism has led them to dump safe-haven assets that have lower returns, like the dollar, in favor of risker investments like stocks and commodities.
Rising commodity prices helped buoy stocks, as did upbeat earnings reports from Intel Corp. and JPMorgan Chase & Co.
The Dow Jones industrials surged more than 150 points in afternoon trading, passing the 10,000 mark for the first time in a year.
Other metals also marked fresh highs. December silver gained 6.8 cents to $17.908 an ounce. Earlier in the session, prices rose to a new 13-month high of $18.175 an ounce.
October platinum added $5.80 to $1,358.60 an ounce after earlier rising to a contract high of $1,359.60.
Among industrial metals, December copper futures rose 5 cents to $2.8445 a pound.
Elsewhere on the Nymex, light, sweet crude for November delivery added $1.03 to settle at $75.18 on the New York Mercantile Exchange.
The last time crude finished above $75 a barrel was exactly one year ago.
Gasoline for November delivery climbed 2.57 cents to settle at $1.8575 a gallon, and heating oil for November delivery added 1.93 cents to settle at $1.9427 a gallon.
Grain prices inched higher on the Chicago Board of Trade. December wheat futures rose 1.75 cents to $5.13 a bushel, while December corn added 1.25 cents to $3.83 a bushel.
November soybeans gained a penny to $9.94 a bushel.
In other trading, cotton, coffee and cocoa prices rose. Sugar and orange juice fell. - AP

Published: Thursday October 15, 2009 MYT 7:54:00 AMUpdated: Thursday October 15, 2009 MYT 8:00:29 AM

In a bad economy, banks trade their way to profits

2009-10-16T09:27:00.001+08:00

By STEVENSON JACOBS, AP Business Writer Stevenson Jacobs, Ap Business Writer Thu Oct 15, 5:37 pm ET

NEW YORK – The big banks are showing they can still make money, even as Main Street struggles — though not from lending, refinancing homes or other bread-and-butter business.
Instead, they're doing what Wall Street does best — betting big on stocks, bonds, commodities and other assets.
Citigroup, the shakiest of the major banks during the financial crisis, reported Thursday it eked out a quarterly profit from trading, despite suffering more losses on consumer loans. Trading also drove big profits at Goldman Sachs and JPMorgan Chase.
That some banks are making money now is a sign of remarkable recovery from the crisis a year ago. But the lopsided business model raises questions about what happens if trading profits fall off and banks are left to rely on more traditional operations.
After all, the economy is still struggling to recover, unemployment is approaching 10 percent and Americans are saving money and trying to pay down debt, not taking on more.
"The good news is that banks are in better shape. The bad news is that they're not making loans to consumers and businesses," said market analyst Edward Yardeni. "That could come back to bite them because these trading gains will only last so long."
Mindful of the problems banks still face, investors reacted cautiously a day after the Dow Jones industrials powered back above 10,000 for the first time in a year. Stocks zigzagged for most of Thursday before ending modestly higher.
For now, trading is pretty much the only way banks can make money. And it's more lucrative because there are fewer competitors, interest rates are near zero and government subsidies have allowed banks to borrow cheaply and invest in assets that offer the highest returns.
Goldman Sachs Group Inc. has benefited more than most. Famed for its trading prowess, the New York investment bank said Thursday that third-quarter earnings swelled to $3.03 billion, more than triple what it made a year ago.
As in past quarters, Goldman leaned heavily on its trading operation — buying and selling stocks, bonds, foreign currencies and commodities like oil and gold — to make money.
"They've been on the mark on the trading side," said Stephen Hagenbuckle, a principle at private equity fund TerraCap Partners.
Goldman's strong showing came a day after JPMorgan Chase & Co. reported its own big profits — $3.59 billion for the quarter. That was even more impressive because, unlike Goldman, JPMorgan has suffered heavy losses on consumer loans like credit cards and mortgages.
But JPMorgan's strong investment banking division is "carrying the burden right now," banking analyst Bert Ely said. "If not for that, they would've lost money."
Goldman's quick recovery allowed it to repay the $10 billion it received in government bailout money. That freed the company from restrictions on employee pay, which is on track to reach record levels.
The company said it set aside $16.7 billion, or nearly half its net revenue, through the first nine months of the year for compensation, which includes salaries, bonuses and related costs.
Citigroup Inc., meanwhile, offered a grim reminder of just how shaky the economy remains.
Helped by trading gains, Citi reported a $101 million profit in the third quarter. But including the $288 million the bank paid out in preferred stock dividends, plus the deal that gave the government a 34 percent stake in the bank, it lost $3.24 billion.
The bank, one of the hardest hit during the recession, said loan losses during the quarter came to $8 billion. That's down from nearly $8.4 billion in the second quarter, but a sign that people are still defaulting in large numbers.
Banks have warned that loan losses would continue into next year. Citigroup CEO Vikram Pandit said improving the bad employment picture would be crucial for turning things around.
"Ultimately it's going to come down to how many jobs are there in the country," Pandit told analysts. "And that is probably the single best driver of trying to figure out what happens on a macro basis."
Experts don't expect the job market to pick up anytime soon, meaning banks could be relying on trading gains for the foreseeable future. While the economy may be out of recession, the unemployment rate isn't expected to peak until the middle of next year.
For now, most big banks "are holding their breath to see what 2010 will mean for retail profits," said Brad Hintz, investment banking analyst at Sanford C. Bernstein & Co. "Will unemployment come down? Will the consumer start spending? No one knows."
___
AP Business Writers Stephen Bernard in New York and Ieva M. Augstums in Charlotte, N.C. contributed to this report.

Malaysia drops to 24 in competitiveness ranking

2009-09-09T21:15:00.001+08:00

Wednesday September 9, 2009

Fall attributed to poor institutional framework, according to WEF report
SINGAPORE: Malaysia’s global competitiveness ranking dropped three positions to 24, according to the World Economic Forum’s (WEF) Global Competitiveness Report for 2009-2010 released yesterday.
The drop essentially was the result of a much poorer assessment of its institutional framework, said the report, which was released ahead of WEF’s annual meeting of the New Champions 2009 in Dalian, China.
The report said every indicator in the area had been exhibiting a downward trend since 2007, causing Malaysia to tumble from 17th to 43rd position in this dimension in just two years.
Switzerland topped the overall ranking of 133 economies, while the United States fell one place to second position, and Asia continued to feature prominently with Singapore at third and Japan at eighth, and Hong Kong, South Korea and Taiwan all in the top 20.
The report also said security was of particular concern in Malaysia with its ranking dropped 25 levels to 85th.
According to the business community, the potential of terrorism (ranked 97th) and crime (ranked 95th) both imposed significant business costs.
Also of concern was the budget deficit, which increased in 2008, amounting to almost 5% of Malaysia’s gross domestic product, it said.
However, Malaysia scored high in most other dimensions, particularly in those factors at the top end of the value chain, namely business sophistication (ranked 24th) and innovation (also ranked 24th).
The report said expectations were high for Malaysia that averaged an impressive 7% growth per year between 1990 and 2000 and a healthy 5% since then.
Mirroring this economic success, Malaysia had featured prominently in the competitiveness rankings ever since its first inclusion in 1994, it said.
“Indeed, it remains the most competitive Stage 2 (efficiency-driven) Country,” it said.
It pointed that in order to maintain its competitive edge, Malaysia now needed to prepare its conversion into a knowledge-based, innovation-driven economy.
“Improving both the quantity and quality of higher education (ranked 41st) and boosting technological readiness (ranked 37th), particularly information and communications technology penetration, would serve this effort well,” it said. — Bernama

ฉ 1995-2009 Star Publications (Malaysia) Bhd (Co No 10894-D)

Singapore ranked easiest country in which to do business

2009-09-09T21:13:00.000+08:00

Published: Wednesday September 9, 2009 MYT 9:17:00 AMUpdated: Wednesday September 9, 2009 MYT 2:24:07 PM

Update includes comments from the director of the report and more details
SINGAPORE: Tiny Rwanda made the biggest strides in becoming business-friendly, an annual ranking by the World Bank said Wednesday, while Singapore retained its crown as the easiest country in which to do business for a fourth year.
Rwanda, the first Sub-Sahara African nation to be named the top reformer since the World Bank began its Doing Business report in 2003, jumped 76 spots to 67 by cutting bureaucratic delays to start a business and sell property, making employment laws more flexible and simplifying tax payment.
Kyrgyzstan, Macedonia and Belarus were also singled out by the bank for making positive changes, as developing economies accounted for two-thirds of the reforms measured by the report from June 2008 to May 2009.
"The tables are turning," said Sylvia Solf, director of the report.
"Now you see more and more reforms happening in low- and lower-middle-income economies."
The report ranks 183 countries based on 10 indicators that measure the time and cost of government requirements in starting, operating and closing a business, trading across borders and paying taxes.
The rankings don't reflect macroeconomic policy, infrastructure, workforce skills or crime rates.
After Singapore, New Zealand ranked second, followed by Hong Kong and the United States.
The top 10 countries were unchanged from the previous report except United Kingdom at five switched places with Denmark at six.
The bank highlighted how the top-ranked countries are increasingly providing business services over the Internet, such as tax payment, property registration, and construction permits.
"Singapore has put a lot of emphasis on implementing e-government initiatives, making everything as transparent, easy and efficient as possible for local businesses," Solf said.
Ireland, Canada, Australia and Norway rounded out the top 10.
The rankings of most large economies were little changed from a year earlier with Japan at 15, Germany at 25, China at 89, and Russia at 120.
Colombia was the highest-ranked Latin American country at 37 while Venezuela, at 177, was the lowest and the only country in the bottom 16 not in Africa, the bank said.
To open a business in Venezuela, it takes 141 days to complete 16 procedures, while in second-ranked New Zealand, it only takes one day for the single procedure, the report said. - AP

Traditional unit trust funds suffer big losses when stock market crashes

2009-09-09T21:08:00.000+08:00

Wednesday September 9, 2009

Personal Investing - By ooi Kok Hwa

AS a result of the sharp stock market crashes in September and October last year, a lot of traditional unit trust funds suffered huge losses last year and early this year.
Even though the performance of those funds has recovered greatly over the past few months, the bad experience has caused some investors, especially those with low risk tolerance, to sell a big portion of their holdings as they felt very uncomfortable with the risks involved.
There are three main approaches in managing a portfolio, namely relative return, absolute return and total return approaches.
Most of the unit trust funds in the market use the relative return approach. Their key objective is to beat the stock market index.
For example, if we are buying normal equity unit trust funds, the key objective is to beat the benchmark index, FTSE Bursa Malaysia KL Composite Index (FBM KLCI).
As long as they are able to beat the FBM KLCI, they will claim that they have already outperformed the market.
For example, if the FBM KLCI plunged by 40% and their fund returns dropped by 30%, as their fund returns dipped less than the KLCI by 10% (40% - 30%), they would claim that their funds outperformed the market by 10% even though their funds still incurred a big loss of 30%.
Investors with low-risk tolerance level would feel very uncomfortable as they have suffered a loss of 30%! As a result, investors with high aversion to losses and fear about market uncertainties may prefer the absolute and total return approaches.
One of the key advantages of using these approaches is that they use cash return as the benchmark.
For example, they can use fixed deposit (FD) returns as the benchmark return. Given that FD cannot provide negative returns, fund managers using these approaches will have to generate positive returns to outperform the FD returns.
Normally, fund managers will set a target return above the cash return.

For example, they may set a target return of 5% above the 12-month FD return. If the 12-month FD return is 2.5%, they need to generate a return of 7.5% (5%+2.5%) each year.
Given that absolute and total return approaches do not need to benchmark against the stock market index, fund managers using these approaches will hold all cash whenever the market experiences big crashes whereas the relative return approach requires the funds to stay invested i.e. may be at least more than 50%.
This explains why traditional unit trust funds, which mainly uses the relative return approach, suffer big losses whenever the stock market crashes as they are required to keep investment at big percentages even though the stock market is heading south.
To them, the biggest risk is to underperform the benchmark index whereas the biggest risk faced by the absolute and total return approaches is losing the capital.
Apart from constantly looking for positive returns, the absolute and total return approaches may use derivative instruments to enhance their returns. They may buy futures to generate higher returns if they feel that the stock market sentiment is bullish and the overall market is on the uptrend.
Besides, they can adopt any investment strategy and invest in any asset classes or any markets to generate positive returns.
Hence, investors may invest in various types of assets, including some alternative investments like exchange-traded funds, commodities and properties or different overseas markets, like the United States, Hong Kong or Singapore.
As a result, the funds’ performance will have low correlation to the overall market movements.
The main difference between the absolute return and total return approaches is that the former may borrow money to invest whereas the latter does not allow gearing.
Besides, for those countries that allow short-selling, the absolute return approach may sell short the market.
Nevertheless, the key risk faced by both approaches is that they may underperform the overall market during a bull market.
Given that they do not have to benchmark to the stock market index, they may be under-invested during a bull market.
As a result, their returns will be lower compared with those traditional unit trusts that adopt the relative return approach.
In short, investors need to understand that investing funds using either the absolute and total return approaches or relative return approach involve risks.
Investors need to understand their own risk tolerance levels before investing in funds using the absolute and total return approaches because they may be investing in some investment instruments that they are not familiar with.
● Ooi Kok Hwa is an investment adviser and managing partner of MRR Consulting.

ฉ 1995-2009 Star Publications (Malaysia) Bhd (Co No 10894-D)

Gold price touches highest mark in 18 months, US$ down

2009-09-09T21:05:00.001+08:00

Wednesday September 9, 2009 MYT 7:54:00 AM

NEW YORK: Gold pushed above the US$1,000 mark Tuesday for the first time since February as hopes for an improving economy fed a broader rally in commodities.
It had risen as high as $1,009.70, the first time it topped $1,000 since early this year and the highest level since mid-March last year.
Gold closed under $950 on Aug. 27.
December silver jumped 22.5 cents to $16.510 an ounce and hit a 13-month high of $16.860.
A weaker dollar also drove prices higher, analysts said.
The gains also came after the Group of 20 leading economies pledged at a weekend meeting in London to maintain higher levels of government spending and low interest rates to help the world's economies recover from recession.
Concerns that a recovery could spark inflationary pressures helped lift prices for gold, which investors often use as a hedge against inflation.
Gold for December delivery rose $3.10 to settle $999.80 an ounce on the New York Mercantile Exchange.
Copper, nickel and zinc also gained.
Benchmark crude rose more than $3 a barrel.
Tom Winmill, portfolio manager of the Midas Fund in New York, contends that the gain in gold is, in part, a show of confidence by investors and not just a guard against the dollar.
He said rising prices for commodities like platinum and oil signal that investors are placing bets on an improvement in the economy.
"Prices are rising for commodities and that's going to carry gold," he said. Winmill said, however, that a weaker dollar eventually could be the biggest force pushing gold higher.
"Ultimately, weakness in the dollar is going to be the thing that is going to underpin a big, big move in gold," he said.
The gains in gold prices follow a rally last week that came as the dollar weakened and as analysts said investors were looking for areas of safety.
A six-month surge in stocks has left the Standard & Poor's 500 index up 50 percent from a 12-year low in early March.
Gains of that size often take years to accumulate, and some investors are worried the stock market is due for a correction.
In other trading, light, sweet crude for October delivery rose $3.08 to settle at $71.10 a barrel on the New York Mercantile Exchange.
Gasoline futures for October delivery rose more than 5.26 cents to $1.8289 a gallon. Heating oil advanced 6.2 cents to $1.7825 a gallon.
Natural gas rose 7.9 cents to $2.807 per 1,000 cubic feet.
Grain prices were mixed on the Chicago Board of Trade.
December wheat futures fell 12.75 cents to $4.59 a bushel.
Corn for December delivery rose 1.25 cents to $3.0750 a bushel.
November soybeans rose 14.5 cents to $9.3650 a bushel.
Other soft commodities, like cotton, cocoa and coffee rose. Orange juice and sugar fell.
Meanwhile United States dollar fell to a low for the year Tuesday as gold prices shot above $1,000 an ounce before giving some ground and investors switched funds into riskier investments.
Commitments from global leaders this weekend to continue underwriting the global recovery helped drive investors away from the "safe haven" dollar and into emerging-market currencies and equities, analysts said.
Published comments from a Chinese government official in a British newspaper knocking the Federal Reserve's policy of buying bonds also drove the dollar lower, said Joseph Trevisani, chief market analyst at FXSolutions.
"The Chinese have serious influence," he said. China is the largest holder of U.S. Treasury securities, and its buying of U.S. debt enables the government to fund its deficit spending.
The 16-nation euro rose as high as $1.4535 in afternoon trading, its highest level this year, from $1.4337 late Monday, before backtracking to $1.4490 in later trading.
The British pound rose to $1.6487 from $1.6335, while the dollar dropped to 92.32 Japanese yen from 92.96 yen.
The dollar index fell as low as 77.05 against a basket of six major world currencies that includes the euro, yen, Canadian dollar, British pound, Swedish krona and Swiss franc.
That's its lowest since last September.
Markets have been rising after finance officials from the Group of 20 leading economies pledged to maintain government spending, low interest rates and expansion of the money supply in order to buck up the global economy.
The ministers met this weekend in London. Those moves could help boost economic activity and liquidity in financial markets, but can weigh on the value of a currency.
The current U.S. rate near zero means investors can earn better returns on their funds in countries with higher yields, such as, for example, Poland, Turkey, Brazil and Australia.
"People are loading up on high-yielders," said Win Thin, senior currency strategist at Brown Brothers Harriman in New York, as they get more optimistic about the global economy's growth outlook.
A report from a United Nations agency released on Monday also called for a reduced role for the dollar as the world's primary reserve currency.
And in an interview published on Sunday, Cheng Siwei, a Chinese official, knocked the Fed's policy of buying bonds as an inflation trigger that will undermine the dollar.
The Federal Reserve has committed to buying up to $300 billion in longterm Treasurys to boost liquidity in financial markets and hold down interest rates.
"Most of our foreign reserves are in U.S. bonds and this is very difficult to change, so we will diversify incremental reserves into euros, yen, and other currencies," the Chinese official said in the interview in the U.K.'s Telegraph newspaper.
China and Russia have been vocal this year about the need to diversify reserves away from the dollar as its value dropped.
Chinese officials have called for the creation of a new global reserve currency by the International Monetary Fund.
Siwei's interview and the U.N. report have "drawn attention back to the fact that we have twin deficits and low interest rates," said Michael Woolfolk, senior currency strategist at Bank of New York Mellon in New York.
That's "simply feeding into current negative dollar sentiment" as sovereign nations gradually sell their U.S. dollars.
There's an assumption that "when Chinese officials speak on this topic they are not doing it without having their remarks vetted by the Chinese government," Trevisani said.
Whether that is true or not, he said, "you assume that there is some warning here."
China, the largest foreign holder of U.S. Treasury securities, trimmed its holdings, to $776.4 billion in June from $801.5 billion in May.
Russia also reduced its holdings 3.7 percent to $119.9 billion in June.
The price of gold, meanwhile, shot past $1,000 an ounce for the first time since February. Gold for December delivery peaked at $1,009.70, the highest since March 2008, on the New York Mercantile Exchange before falling back to settle at $999.80.
Gold is often used as a hedge against inflation and a weak dollar.
Other currencies also climbed against the dollar, especially those in countries which are major exporters of commodities, as oil prices gained more than $2.
A strong economy would use more commodities in factories and transportation.
The New Zealand dollar hit its strongest point since last September at 69.83 U.S. cents, while the Australian dollar peaked at 86.58 U.S. cents, its highest level in more than a year.
The dollar dropped to 1.0807 Canadian dollars from 1.0763 and tumbled to 1.8260 Brazilian reals from 1.8445 reals late Monday.
In other trading, the dollar hit a low for 2009 against the Swiss franc at 1.0428 on Tuesday, down from 1.0597 late Monday.
It later traded at 1.0472 Swiss francs. AP

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Oil touches ten-month high of US$75, then tumbles

2009-08-26T19:05:00.000+08:00

Published: Wednesday August 26, 2009 MYT 7:21:00 AM

HOUSTON: Oil prices fell more than 3 percent Tuesday after a new report from Washington projected a cumulative US$7 trillion U.S. deficit for the next decade.
Prices initially swung higher, briefly touching $75 per barrel for the first time in 10 months on new signals that consumers are feeling a little better about the economy.
Yet lingering questions about when and how fast any recovery might occur led to some volatile markets Tuesday.
Benchmark crude for October delivery fell $2.32 to settle at $72.02 a barrel in trading on the New York Mercantile Exchange.
"Oil still struggles to follow through decisively with an upside breakout," PFGBest Research analyst Phil Flynn said in a note to clients Tuesday.
"Is oil destined to make new highs, or is it just a matter of time before we see a correction of massive proportions?"
The New York-based Conference Board provided a bit of good news when it said its Consumer Confidence index rose to 54.1 from an upwardly revised 47.4 in July.
Economists surveyed by Thomson Reuters had expected a slight increase to 47.5. Still, the index is well below 90, the minimum level associated with a healthy economy. Anything above 100 signals strong growth.
Energy prices have risen sharply this year mostly on the belief that the economy is getting better and demand will rebound soon.
Still, the rules of supply and demand still apply to current prices and on Wednesday, the government will release its weekly report on how much supply we have.
Last week, a surprise drawdown in crude began a rally that ran through Monday, the fourth-consecutive day in which oil prices moved higher.
Despite optimism about recovery from recession, analysts say energy demand remains in the doldrums and seasonally lower demand for gasoline as the summer holidays end will exacerbate that weakness.
"In my view, oil prices will likely give in to the fundamentals in the coming week," said Victor Shum, an energy analyst with consultancy Purvin & Gertz in Singapore.
"Seasonally, oil demand is lower in autumn, so reduced demand in the shoulder season may put further pressure on oil."
U.S. gasoline prices remain pretty much flat as the peak driving season is coming to an end.
The Energy Department late Monday reported that prices at the pump moved lower for the second straight week.
In other Nymex trading, gasoline for September delivery fell 4.21 cents to settle at $2.007 a gallon and heating oil fell 6.75 cents to settle at $1.8559 a gallon.
Natural gas fell 4.1 cents to settle at $2.882 per 1,000 cubic feet.
In London, Brent crude fell $2.44 to settle at $71.82. - AP
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Malaysia GDP shrinks 3.9pc in second quarter

2009-08-26T19:04:00.000+08:00

By Adib Zalkapli
KUALA LUMPUR, Aug 26 – Malaysia’s economy shrank 3.9 per cent in the three-month period to June, an improvement from the first quarter when the country’s gross domestic product contracted 6.2 per cent, according to data released by Bank Negara today.
All economic sectors also recorded improvement with construction, services and services registering positive growth.
“Growth in the construction sector strengthened 2.8 per cent as the industry benefitted from the increased implementation of the stimulus package,” said the central bank Governor Tan Sri Zeti Akhtar Aziz.
The construction sector recorded a 1.1 per cent growth in the first quarter.
The mining and manufacturing sectors continue to shrink but both recorded slower decline.
“There are increasing signs that conditions in the global economy are stabilising,” she said.
“In the major advanced economies, the pace of the decline in economic activity is moderating, while conditions in the international financial markets have broadly improved.
“Going forward, the expectation remains that the domestic economy will improve in the second half of the year, to be supported by a recovery in domestic demand following improvements in labour market conditions, as well as business and consumer sentiments,” said Zeti.
She also said that there will be an upward revision of this year’s GDP forecast to be announced during the tabling of the 2010 budget.
In May, the Prime Minister Datuk Seri Najib Razak announced that the economy would contract between 4 and 5 per cent this year, worse than the original forecast of 1 per cent decline.
He had also predicted three consecutive quarters of negative growth, with a slight improvement for the fourth quarter this year.

World emerging from deep slump but can it last?

2009-08-23T21:22:00.000+08:00

By TOM RAUM, Associated Press Writer Tom Raum, Associated Press Writer Sun Aug 23, 12:00 am ET

WASHINGTON – Turnabouts in European and Asian economies, along with recent gains in the U.S., are raising hopes that that the worldwide recession is drawing to a close. That's not to say the coast is clear.
The brightening outlook in Europe and Asia and the improvement in U.S. credit markets and indicators reflect heavy government stimulus spending. Many analysts question whether the top economies can sustain recoveries after stimulus measures and easy-credit policies have run their course — and in the absence of significant new consumer spending, especially among Americans.
"It's not clear that these economies can continue to move forward without stimulus," said Mark Zandi, chief economist for Moody's Economy.com. "And that's in part why stock markets across the globe are nervous."
It will be difficult for other countries to pull out of recession until the U.S., still one quarter of the world economy, starts growing, he said.
After a frightening free-fall across Europe in late 2008, France and Germany, the continent's two largest economies, reported recently that they had grown slightly in the second quarter of 2009. Other major European countries reported they were still struggling, but with generally improved figures over late 2008 and earlier this year.
China, Japan, Hong Kong, Singapore and South Korea have also reported rebounds as government stimulus efforts across the globe have begun to show results.
Russia, among the hardest hit of major economies as oil prices slumped and many foreign investors fled the country, appeared to be stabilizing.
Meanwhile, in the United States, the Federal Reserve said the world's largest economy appeared to be "leveling out" and many economists see a second-half rebound.
It all adds up to an improving picture ahead of an economic summit next month in Pittsburgh of the world's top 20 industrial and developing economies.
It is the third such meeting of all the major economic players, after one convened by former President George W. Bush in November in Washington, and one held earlier this year in London. It is the first to be held recently as economies appear to be improving.
But until American consumers begin spending again, and so long as jobs are still being lost, the durability of any recovery is questionable. Major retailers reported this week that U.S. consumers are continuing to rein in spending on all but basics.
Despite slight recent improvements in many U.S. economic statistics, many consumers haven't seen a change in their lives.
So many jobs have been lost — nearly seven million since the recession began in December 2007 — that the unemployment rate will remain high long after the economy begins to rebound.
Many out-of-work Americans have lost unemployment and severance benefits and are depleting their savings. Others are saving more and spending less, still shaken from the worst economic downturn since the Great Depression.
"This is going to be the mother of all jobless recoveries," said Allen Sinai, chief global economist for Decision Economics, a consulting firm.
Japan, the world's second-largest economy, grew 0.9 percent in the second quarter, or April to June, compared with the prior quarter as export sales picked up after the country's deepest slump since World War II, the Japanese government reported earlier this week. It was the latest major economy to report upbeat second-quarter results.
Japan's return to growth — thanks to a 6.3 percent uptick in exports along with government stimulus measures — marked the end of a yearlong recession.
But the development, along with recent news that other major economies had resumed economic growth or were stabilizing, did not impress investors as global stock markets sank and then zigzagged amid fears by jittery international investors that the recoveries were not sustainable.
In the United States, the gross domestic product contracted at a 1 percent pace in the April-June quarter, after plunging 6.4 percent in the January-March quarter, the worst in 27 years, and fell by 5.4 percent in the fourth quarter of 2008.
The latest statistics suggested the recession is in its final stages, and some economists believe it may have already ended.
Still, economists are mixed on the pace of recovery. Many barriers clearly stand in the way of a quick rebound.
Noting China's fast bounce — it posted more than 6 percent growth in the first half of 2009 — Peter Morici, a business economist at the University of Maryland and a critic of Obama's economic-recovery plans, said: "China has a $400 billion stimulus package, and its economy is firing on all cylinders. President Obama has an $800 billion stimulus but prospects for the U.S. economic recovery are fragile."
Other economists are guardedly optimistic. And Lawrence Summers, the top White House economic adviser, predicts "a substantial return to normalcy" in the coming months.
While acknowledging "we have a long way to go," he notes that most forecasts for GDP growth in the second half of the year are now positive.
"It is reasonable to say that we are in a very different place than we were six months ago; that the sense of free-fall, of vertical decline, has been contained," he told a recent economic forum.
Most economists and analysts seem to agree.

World stocks fall as China market unravels

2009-08-19T18:09:00.000+08:00

By JEREMIAH MARQUEZ, AP Business Writer Jeremiah Marquez, Ap Business Writer 52 mins ago
HONG KONG – World stocks lurched lower Wednesday, with Shanghai's index tumbling as much as 5 percent, as this year's powerful rally started to peter out amid concerns the markets were overheating.
Asia's markets were modestly higher through the morning in lethargic trade before getting whacked, with Europe following them down in early trade. Crude oil prices along with Wall Street futures gave back their early gains.
The drop came on the heels of a steep fall in world markets Monday when investors were spooked by weakness in American consumer spending and losses in Shanghai that seemed to augur an end to the five-month rally that's boosted benchmarks over 50 percent.
China again led Asia lower Wednesday.
Ample liquidity combined with hopes stronger Chinese economic growth will spill over to other countries have helped drive many of the region's markets this year. But investors have grown uneasy of late about tighter government monetary policy that could soak up the easy money.
"We've had a very strong run and people are a little unnerved by what's going on in China, so it seems like a good opportunity to take some money off the table," said Adrian Mowat, chief Asian and emerging market equities strategist at JP Morgan in Hong Kong.
The recent selling could be a good buying opportunity, Mowat said. "For the Asian markets outside China to stabilize a bit, we need to see (Chinese shares) stabilize."
As trading got under way in Europe, Britain's FTSE 100 fell 1.1 percent, Germany's DAX lost 1.5 percent and France's CAC-40 swooned 1 percent.
In Asia, Japan's benchmark Nikkei 225 stock average lost 80.96 points, or 0.8 percent, to 10,204.00.
Hong Kong's Hang Seng shed 1.7 percent to 19,954.23.
Elsewhere, South Korea's Kospi fell 0.3 percent, India's Sensex was 1.3 percent lower and Taiwan's index was flat. Australia's benchmark lost 0.2 percent. Indonesia's market, another investor favorite this year, was down 2.7 percent.
In Shanghai, the main index plunged over 5 percent at one point before closing down 125.30 points, or 4.3 percent, to 2,785.58.
The benchmark has lost nearly 20 percent since Aug. 4 on worries about corporate profits, the strength of China's recovery and possible changes in Beijing's easy credit policy that has helped to fuel the bull run in Chinese stocks this year.
"Investors are afraid there are no fundamentals to support the rally," said Cai Xiang, a Sinolink Securities analyst in the western city of Chengdu.
Overnight in the U.S, stronger-than-expected retail earnings reports and the latest reading on housing sent markets to a higher finish following a bout of heavy selling on Monday.
The Dow rose 82.60, or 0.9 percent, to 9,217.94. The Standard & Poor's 500 index gained 9.94, or 1 percent, to 989.67, while the Nasdaq composite index rose 25.08, or 1.3 percent, to 1,955.92.
In futures trading, Dow futures were down 77 points, or 0.8 percent, at 9,130 and S&P futures lost 9.4, or 1 percent, to 980.20.
Oil prices were unable to hold on their advance in Asia, losing 23 cents to $68.96 a barrel. On Tuesday, the contract gained $2.44 to settle at $69.19.
The dollar fell to 94.32 yen from 94.70 yen, while the euro fell to $1.4102 from $1.4131.
___
AP researcher Bonnie Cao in Beijing contributed to this report.

Slumping Treasury bond prices send stocks lower

2009-05-28T17:38:00.000+08:00

Slumping Treasury bond prices send stocks lower
By TIM PARADIS, AP Business Writer Tim Paradis, Ap Business Writer
Wed May 27, 6:13 pm ET

NEW YORK – The stock market put its rally back on hold as investors worried about rising borrowing costs.

The Dow Jones industrial average fell almost 175 points Wednesday, erasing most of the previous day's rally as a jump in government bond yields fanned concerns that higher interest rates will sap strength from the economy.

A steep drop in the price of the benchmark 10-year Treasury note pushed its yield up to 3.75 percent from 3.55 percent late Tuesday and to the highest level since November. Bond investors were selling on concerns that the huge amount of debt the government is selling to fund its bailout programs will ultimately keep Treasury prices down.

Along with increasing borrowing costs for the government, rising yields on Treasury debt could hamper an economic recovery since they are used as benchmarks for home mortgages and other kinds of loans. Higher mortgage rates could delay a recovery in the battered housing market.

"The equity market is getting worried about the 'green shoots.' I think the deer have nipped off a few and I think a few turned out to be weeds," said Hank Herrmann, chief executive of Waddell & Reed. Herrmann was referring to early positive signs in the economy that Federal Reserve Chairman Ben Bernanke has called "green shoots."

While Wall Street has been rallying for most of the past three months on those early signs of recovery, it has also been vulnerable to unexpected turns such as the jump in Treasury yields.

"Stocks are following bonds," said John Brady, senior vice president of global interest rate products at MF Global. "Will the economy grow and expand vigorously in the face of sustained higher interest rates?"

The Dow lost ground for the fifth time in six days, falling 173.47, or 2.1 percent, to 8,300.02 after rising 196 points on Tuesday. The Standard & Poor's 500 index fell 17.27, or 1.9 percent, to 893.06, and the technology-laden Nasdaq composite index fell 19.35, or 1.1 percent, to 1,731.08.

On Tuesday, stocks soared after an upbeat reading on consumer confidence lifted hopes for an economic rebound later this year.

The Dow is still 26.8 percent above the lows it reached in early March, but 41.4 percent below the record high it hit in October 2007.

The drop in bond prices Wednesday followed a well-received auction of $35 billion in five-year notes and a day ahead of an auction of $26 billion in 7-year notes. All told, the government plans to turn out $101 billion in debt this week.

Some traders fear demand for Treasurys could weaken as the government issues massive amounts of debt to fund its financial and economic rescue programs. The Federal Reserve has said it would buy up to $300 billion in Treasury debt this year as part of its efforts to keep borrowing costs low. But investors are now concerned that the central bank isn't buying as much as some had hoped.

Wednesday's stock market retreat also came as General Motors Corp. said not enough bondholders agreed to swap their debt for company stock, meaning the automaker is almost certainly headed for bankruptcy protection. GM has until Monday to either finish restructuring outside of court or file for Chapter 11. Value in its stock would be wiped out.

GM slid 29 cents, or 20.1 percent, to $1.15.

The prospect of a GM bankruptcy also made it more likely that the company would be plucked from among the 30 stocks that make up the Dow industrials. GM's tumbling stock price has hurt the index as shares fell from as high as $18.18 last June.

Many investors have been expecting GM to enter Chapter 11 for some time, but the reality of it happening could still deal Wall Street a psychological blow.

Some analysts say the market should be able to weather a GM filing. Mark Coffelt, portfolio manager at Empiric Funds, thinks Wall Street's recovery since hitting 12-year lows in early March leaves stocks better suited to shrug off GM's troubles.

"The market has come a long way in a short period. I would expect it to settle out a little bit," he said, predicting more back-and-forth days rather than more big gains in a short period.

Investors on Wednesday also worried about housing and financial stocks.

The National Association of Realtors said sales of previously occupied homes rose from March to April as buyers hunted for bargains. But the 2.9 percent increase in sales came as the number of unsold homes on the market at the end of April rose 9 percent, meaning a 10-month supply at the current sales pace.

Financial stocks fell after the Federal Deposit Insurance Corp. said the number of troubled banks jumped to the highest level in 15 years during the first quarter.

Agricultural products maker Monsanto Co. fell $5.37, or 6.3 percent, to $79.88 after saying it expects to meet the low end of its fiscal 2009 earnings forecast.

Flash-memory maker SanDisk Corp. renewed a licensing agreement with South Korea's Samsung Electronics Co. SanDisk jumped $1.94, or 14.3 percent, to $15.52.

In other trading, the Russell 2000 index of smaller companies fell 10.45, or 2.1 percent, to 489.86.

About two stocks fell for every one that rose on the New York Stock Exchange, where consolidated volume came to 5.5 billion shares, essentially flat with Tuesday.

The dollar was mixed against other major currencies. Gold prices edged higher.

Light, sweet crude rose $1 to settle at $63.45 per barrel on the New York Mercantile Exchange, its highest level since early November.

Overseas, Britain's FTSE 100 rose 0.1 percent, Germany's DAX index rose 0.3 percent, and France's CAC-40 added 0.8 percent. Japan's Nikkei stock average rebounded 1.4 percent.

Can China’s growth save the world?

2009-04-27T11:31:00.001+08:00

Monday April 27, 2009
Hock's View - By Choong Khuat Hock

IN answering the above question, one would have to look at the position of China in the world today.
Although China overtook Germany to become the world’s third largest economy in 2008 and is likely to overtake Japan possibly in 2010, it only accounted for 6.8% of the world economy in 2008.
Large economies like the United States, European Union and Japan, which in total account for 61.1% of the world economy, are in recession. China’s gross domestic product (GDP) slowed down to 6.1% in the first quarter of 2009 from 10.6% inthe first quarter of 2008. Even if China can grow at 8% this year, it would only contribute around 0.5 percentage points to world growth while a contraction of say 3% for the United States, Europe and Japan would subtract around 1.8 percentage points from world growth.
Another way to look at China’s potential impact is to look at its impact on world trade. If a country with a large population and GDP does not trade with the world, its growth or contraction will not impact the economy of other nations. Although, imports and exports are linked, the amount that a country imports impacts directly trade with the exporting nation. It can be seen that the collapse of US imports is the main reason for the plunge in Asian and Malaysian exports.
This results in a vicious cycle of global trade contraction as countries suffering from lower exports will in turn import less raw materials, semi-finished goods and machinery. Eventually, shrinking global trade will also negatively impact US exports.
China has been the largest marginal buyer of commodities like oil, iron and copper, and when it imports less commodities, commodity prices collapse. China is the world’s largest exporter and imports mainly raw materials and some higher end machinery and semi-finished goods.
Chinese imports from the rest of the world have grown over the years but its imports at US$866.2bil in 2008 are still significantly below that of the United States at US$2.1 trillion.
Hence even if the 4 billion renmimbi (RM2.1bil) fiscal stimulus boosts the Chinese economy and hence imports, higher Chinese imports are unlikely to offset a decline in US, German and Japanese imports, which in total amounted to US$3.9 trillion in 2008, which is 4.5 times greater than what China imported. Indeed, Chinese import growth has declined by 25% year-on-year in March 2009.
Based on the above argument, it would appear that China, with a low government debt to GDP of slightly over 20% and reserves of US$2 trillion, may be able to save itself but not the world.
Nevertheless, exports of essential foodstuff to China like vegetable oil should be relatively more resilient compared to raw materials like iron and copper which is more dependent on industrial activity.
Chinese fiscal stimulus alone is insufficient to save the world but will go some way towards stabilising commodity demand and prices. A lot still depends on US consumers who are unfortunately trying to save themselves from drowning in a sea of debt.
With US consumer debt (housing and consumer) at 92% of GDP and with rising unemployment and falling wealth (lower house and stock prices), US consumers will have to deleverage over a long period, perhaps over a decade if the Japanese post-1990 real estate bubble experience is to be taken as an example. That can only mean that imports from Asia are unlikely to recover quickly.

ทChoong Khuat Hock is head of research at Kumpulan Sentiasa Cemerlang Sdn Bhd. Readers’ feedback is welcome. Please email to starbiz@thestar.com.my
ฉ 1995-2009 Star Publications (Malaysia) Bhd (Co No 10894-D)

IMF says recession likely to be long, recovery slow

2009-04-17T08:22:00.001+08:00

WASHINGTON, April 16 — The current global recession is likely to be unusually long and severe and the recovery sluggish because it sprang from a financial crisis, the International Monetary Fund said today.
New IMF analysis shows recessions tied to a financial crisis, like the current one that has its roots in reckless lending for the US housing market, are more difficult to shake because they are often held back by weak demand.
Worse still is that today’s recession combines a financial crisis at the heart of the United States, the world’s largest economy, with a broader global downturn making it unique, the Fund added.
“The analysis suggested that the combination of financial crisis and a globally synchronised downturn is likely to result in an unusually severe and long lasting recession,” the IMF said in chapters of its World Economic Outlook, which is to be released in full on April 22.
It said counter-cyclical policies can help shorten recessions but its impact is limited in the presence of a financial crisis.
Fiscal stimulus can be particularly effective in shortening the life of a recession though not appropriate for countries with high debt levels, it added.
In its most recent forecast, the IMF said the world economy will shrink in 2009 by between 0.5 per cent and 1.0 per cent, the largest contraction since the Great Depression.
With advanced economies all in recession and growth in emerging market economies slowing abruptly, the IMF has urged countries to move quickly to clean up their financial sectors, in particular remove toxic assets from bank balance sheets, which would allow the economy to mend.
The IMF said dealing with the current global recession will require coordinated monetary, fiscal and financial policies.
In the short term, aggressive monetary and fiscal policy measures are needed to support demand.
Still, the IMF said restoring confidence in the financial sector was vital for economic policies to be effective and for recovery to take hold.
Emerging market stress
Turning to emerging economies, the IMF said the current level of financial stress in emerging market countries has already hit peaks seen during the 1997-98 crisis.
It said abrupt slowdowns in capital inflows have typically had dire consequences in these countries. The extent of the spillover from advanced to emerging economies is related to how closely their financial sectors are linked.
Using a new financial stress index, the IMF said current stress levels in advanced economies suggest capital flows to emerging economies, especially flows related to banking, will decline sharply and will recover slowly.
The latest reading from February 2009 shows that the steepest decline — an annual contraction of 17.6 per cent — was recorded in central and eastern Europe, the region hardest hit by the crisis.
Even countries with lower current account and fiscal deficits, and higher foreign reserves, cannot escape financial the spillover from advanced economies, the IMF said.
However, as a recovery takes hold, those with smaller current account and fiscal deficits can make a quicker comeback than those with bigger deficits, it added. — Reuters

How long is this recession journey going to be?

2009-04-15T20:59:00.001+08:00

Wednesday April 15, 2009

How long is this recession journey going to be?

Are we there yet? We may be in uncharted territory as far as the depth of the current economic turmoil is concerned

IF you have children, especially the talking ones and below five years old, this phrase is very common, especially when travelling.

My wife and I recently took our four-year-old daughter for a short break and this was the first time she was on a flight of a little over five hours, although previously we did take her to places of shorter distances by air or road.

It was a day-time flight, meaning she was wide awake throughout the journey. While we did tell her the flight would take over five hours, it is perhaps difficult for a four-year-old to comprehend or understand what five hours mean (although there’s no denying that she can count).

Hence, without fail and little to our surprise, she kept asking us the same question over and over: “Are we there yet?” Of course, we had no choice but to keep reminding her that the flight time was five hours and we would be there in four hours, thereafter it became three hours, two hours and so forth ... until we actually landed!

Now let’s be adults and think about the journey that we are in right now, the recession journey that started in December 2007 (well, at least as far as the National Bureau of Economic Research is concerned) and is now about 17 months old.

The question in everyone’s mind is: How long is this recession journey going to be? By historical standards, the longest journey in living memory for a recession was the 44-month recession period the world endured during the Great Depression of 1929-1932, while the shortest was the six-month period in the US economic contraction in the early 1990s.

The RM64,000 question is of course: “How long will this global recession last?” or in other words, “Are we there yet?”

While for a journey that has a definite time span, like taking a flight to a destination that one knows for certain the expected time of arrival, the current economic turmoil has no “final destination” and no timeline set as we are perhaps now in uncharted territory as far as the depth of the crisis is concerned.

Some investment gurus have called the recent turn of economic data points as confirmation that the worst may be behind us and that it is now time to accumulate stocks and assume higher-risk appetite.

We have observed in the past month a strong and meaningful rally in the global equity markets, to the extent that some are already saying that we are in a bull market (defined as rising 20% from the low).

But make no mistake. If one were to analyse the current market euphoria, this is in fact a third bull market that the Dow has experienced over the past six months and, on every occasion, the Dow had risen more than 20% from the lows. However, weak economic data points and failure of the US banking system saw markets making fresh lows yet again. Is it any different this time?

Some of the rationale for the current market euphoria are based on economic data points that boosted investors’ confidence on two counts.

First and foremost, they beat market expectations and, second, the data points showed that there has been some reversal in either the pace of decline or, better still, they showed that they have improved compared with the preceding month.

My analysis of these data points show that while it is clearly acceptable for investors to rush into equities if the monthly data show that they were better than expected, I am rather baffled as to the market’s reaction to data points that simply showed improvement on a month-to-month basis as it is rather clear that when some of these data points are compared with a year ago, the pace of fall is still large and, for some data points, they are still way below “normalised” levels.

For example, US construction spending showed a 0.9% decline in February compared with the preceding month’s fall of 3.5%.

However, when one compares this with before the start of the recession in December 2007, construction spending is still down by some 15%.

US housing starts too rebounded about 22% in February to 583,000, but when compared with a year earlier, they are still down by a massive 47%!

Other recent data that showed similar trends were the US durable goods order, which rebounded by 3.5% month-on-month in February. However, when compared with the December 2007 level, the number is still down by a massive 26%.

Meanwhile, US consumer confidence remains at near multi-year low (well at least as far as the March 2009 figures are concerned) while the US Purchasing Managers Index (PMI) of the Institute of Supply and Management (ISM) for both the manufacturing and the services sector remains deeply in contraction.

Hence, while we are seeing some sort of rebound in some data points, clearly the low base effect is taking shape nicely for investors to feel good for the moment.

In essence, what matters most are strong and sustainable rebound in consumer confidence as well as a growth in both the US PMI of the ISM indices.

Until and unless we are able to see some of these data points in a convincing manner, we have not taken the recession journey fully and, hence, we are not there yet.

Pankaj C Kumar is chief investment officer at Kurnia Insurans (M) Bhd. Readers’ feedback to this article is welcome. Please e-mail to starbiz@thestar.com.my

US Fed starts bold US$1.2 trillion effort to revive US economy

2009-03-19T11:29:00.001+08:00

The Star Online > Business
Published: Thursday March 19, 2009 MYT 7:37:00 AM
US Fed starts bold US$1.2 trillion effort to revive US economy
WASHINGTON: With the country sinking deeper into recession, the Federal Reserve launched a bold $1.2 trillion effort Wednesday to lower rates on mortgages and other consumer debt, spur spending and revive the economy.
To do so, the Fed will spend up to $300 billion to buy long-term government bonds and an additional $750 billion in mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac.
Fed Chairman Ben Bernanke and his colleagues wrapped a two-day meeting by leaving a key short-term bank lending rate at a record low of between zero and 0.25 percent.
Economists predict the Fed will hold the rate in that zone for the rest of this year and for most - if not all - of next year.
The decision to hold rates near zero was widely expected.
But the Fed's plan to buy government bonds and the sheer amount - $1.2 trillion - of the extra money to be pumped into the U.S. economy was a surprise.
"The Fed is clearly ready, willing and able to be the ATM for the credit markets," said Terry Connelly, dean of Golden Gate University's Ageno School of Business in San Francisco.
Wall Street was buoyed.
The Dow Jones industrial average, which had been down earlier in the day, rose 90.88, or 1.2 percent, to 7,486.58. Broader indicators also gained.
And government bond prices soared.
Heralding a coming drop in mortgage rates, the yield on the benchmark 10-year Treasury note dropped to 2.50 percent from 3.01 percent - the biggest daily drop in percentage points since 1981.
The dollar, meanwhile, fell against other major currencies.
In part, that signaled concern that the Fed's intervention might spur inflation over the long run.
If the credit and financial markets can be stabilized, the recession could end this year, setting the stage for a recovery next year, Bernanke has said in recent weeks.
The Fed chief and his colleagues again pledged to use all available tools to make that happen, and economists expect further steps in the months ahead.
Since the Fed last met in late January, "the economy continues to contract," Fed policymakers observed in a statement they issued Wednesday.
"Job losses, declining equity and housing wealth and tight credit conditions have weighed on consumer sentiment and spending," they said.
The Fed's announcement that it will spend up to $300 billion over the next six months to buy long-term government bonds was something that in January it had hinted it would do.
But some officials had seemed to back off from the idea in recent weeks.
Such action is designed to boost Treasury prices and drive down their rates, as it did Wednesday.
Rates on other kinds of debt are likely to fall as well.
"This is going to help everybody," said Sung Won Sohn, economist at the Martin Smith School of Business at California State University.
"This might help the Fed put Humpty Dumpty back together again."
The last time the Fed set out to influence long-term interest rates was during the 1960s.
The Fed's decision to buy an additional $750 billion in mortgage-backed securities guaranteed by Fannie and Freddie comes on top of $500 billion in such securities it's already buying.
It also will double its purchases of Fannie and Freddie debt to $200 billion.
Since the initial Fannie-Freddie program was announced late last year, mortgage rates have fallen. Rates on 30-year mortgages now average 5.03 percent, down from 6.13 percent a year ago, according to Freddie Mac.
The Fed's decision to expand the program could further reduce rates, analysts said.
"This is not only going to keep mortgage rates low for a long period of time," said Greg McBride, a senior financial analyst at Bankrate.com.
"The mere announcement may produce a honeymoon effect and bring mortgage rates down to even lower levels in the coming days."
The goal behind all the Fed's moves is to spur lending.
More lending would boost spending by consumers and businesses, which would revive the economy.
The Fed also said it would consider expanding another $1 trillion program that's being rolled out this week.
That program aims to boost the availability of consumer loans for autos, education and credit cards, as well as for small businesses.
Where does the Fed get all the money? It prints it.
The Fed's series of radical programs to lend or buy debt has swollen its balance sheet to nearly $2 trillion - from just under $900 billion in September.
Sohn believes the Fed's balance sheet could grow to $5 trillion over the next two years.
The Fed has said it's mindful of the risks of pumping more money into the economy, bailing out financial institutions and leaving a key rate near zero for too long.
There's the potential to plant the seeds for higher inflation, put ever-more taxpayer money at risk and encourage "moral hazard."
That's when companies make high-stakes gambles knowing the government stands ready to rescue them.
The Bank of England last week began buying government bonds from financial institutions as it turned to new ways to help revive Britain's moribund economy.
The Bank of England, like the Fed, already had lowered its key interest rate to a record low of 0.5 percent.
Finance leaders from top economies have discussed coordinating actions from their governments and central banks to provide a more potent punch against the global financial crisis.
The Fed is taking the new steps as the U.S. economy sinks deeper into recession.
Businesses are facing weaker sales prospects as customers in the United States and abroad cut back, the policymakers said.
Still, the Fed said it hoped its actions, the government's bank rescue effort and President Barack Obama's $787 billion stimulus of increased government spending and tax cuts eventually will help revive the economy.
"Although the near-term economic outlook is weak, the committee anticipates that policy actions .... will contribute to a gradual resumption of sustainable economic growth," the Fed said.
But even in this best-case scenario, the nation's unemployment rate - now at quarter-century peak of 8.1 percent - will keep climbing. Some economists think it will hit 10 percent by the end of this year.
The recession, which began in December 2007, already has snatched a net total of 4.4 million jobs and has left 12.5 million searching for work.

Will the stock market rally stick, or vanish?

2009-03-16T01:27:00.001+08:00

Published: Sunday March 15, 2009 MYT 10:10:00 AMUpdated: Sunday March 15, 2009 MYT 10:11:24 AM

NEW YORK (AP) - Investors have seen this before. Since the bear market began in late 2007, the Dow Jones industrial average has fallen into a pattern of huge declines, big gains, and then even larger declines. Four times, the market has rallied only to dissipate.
This past week, the market made a fifth stab at recovery, logging its best performance in months after remarks from bank CEOs and economic data led investors to believe they had gotten too pessimistic.
The Dow Jones industrial average rallied for four straight days from nearly 12-year lows, and gained 597 points, or 9 percent - its best week since November. That followed a two-and-a-half month drop in the Dow of nearly 25 percent.
"People have been worried that we're heading into this abyss," said Tobias Levkovich, Citigroup's chief U.S. equity strategist. "There are signs that that's not the case, and there is some floor somewhere - that we may have overreacted."
But is the worst really over?
There's no formula to figure out if this latest rally will stick. But market analysts are watching closely for signs that the worst might be behind us, and they say some good signs are starting to pop up.
"There are little subtle things that have happened that are good - good enough to see that market is trying to establish a near-term bottom," said John Kosar, market technician and president of Asbury Research in Chicago. "But it's way, way, way too premature to try to make an argument that this is 'The Bottom.' "
Here are five reasons the market may have bottomed, and five reasons to still fear the bear.
FIVE SIGNS THE MARKET MAY HAVE BOTTOMED: PUMPED UP VOLUME
Market analysts say two signs of a bottom are the entrance of big institutional investors, because they hold stocks for the long-term, and high trading volumes during rallies. Check, and check.
Pension funds, mutual funds, and insurance funds began snapping up bargain stocks last week after sitting things out for a while, said Stuart Frankel & Co. president Jeffrey Frankel, who works on the floor of the New York Stock Exchange. And volumes on the New York Stock Exchange on Tuesday, Wednesday and Thursday of last week were about 7 to 8 billion shares - similar to those when stocks plummeted the week before.
THE ECONOMY'S BAD, BUT COULD BE WORSE
The U.S. economy might be horrible, but it's not the Great Depression. Unemployment is at 8.1 percent, and expected to rise above 10 percent, but that's nowhere near the 25 percent level experienced in the 1930s. And today, when people are fired, they can collect unemployment. Conditions are a far cry from shanty towns and bread lines.
Plus, the economy's slide appears to be slowing. U.S. retail sales, after stripping out autos, actually rose 1.6 percent in January and 0.7 percent in February.
ZOMBIE BANKS? NOT QUITE.
Before last week, investors were throwing around the term "zombie banks" to describe the big U.S. banks: Citigroup Inc., Bank of America Corp., JPMorgan Chase & Co. The moniker comes from the insolvent, federally propped-up Japanese banks of the 1990s.
But last week, these three U.S. banks said they have actually been profitable so far this year. They are also borrowing less from the Federal Reserve now. Bank borrowing from the Fed fell to $19.6 billion last week - the lowest level since Lehman Brothers collapsed in September, pointed out Miller Tabak & Co. analyst Tony Crescenzi.
THE COMMODITY BOUNCE
It's counterintuitive, but Americans should be happy oil prices are not falling anymore. After massive price drops alongside stocks over the past several months, crude oil has jumped 16 percent in the past three weeks.
Crude oil and copper - which has risen 17 percent in three weeks - tend to be economic barometers, Kosar said. That is because if the cost of industrial metals and crude oil are rising, it means traders see demand trickling back. Growing demand means increasing industrial production.
MAIN STREET CAPITULATION
Everyone at cocktail parties is talking about how they have moved into cash.
Certainly, the financial crisis proved that Wall Street bigwigs are not all smarter than the rest of us. But it is usually a good time to buy when regular folks are saying they have cashed out.
"A year ago, everybody was at the dinner table talking about returns," Frankel said. "Right now, it's probably a good time to buy, because usually the masses are wrong."
FIVE SIGNS THE MARKET HAS YET TO FIND A BOTTOM: CHRONIC CREDIT WOES
The banks may not be dead, but they are still sick. So are those giant, complicated credit markets. JPMorgan analyst Thomas J. Lee noted that the markets for securities backed by residential and commercial mortgages have recently deteriorated to their worst levels since Lehman Brothers' bankruptcy.
The market needs a plan for these "toxic assets" - either by selling them to private investors, or allowing banks to mark them differently. A failure by the government to deliver such a plan sparked a sell-off last month, and if investors do not get one soon, the market could be in for another tumble. Analysts are not ruling out a Dow drop to 5,000, or an S&P decline to 500.
"We don't believe that the bear market's over yet," said Scott Fullman, director of derivatives investment strategy for WJB Capital Group in New York. Toxic assets "either need to come off the banks' balance sheets, or they need to improve on the banks' balance sheets."
ECONOMIC DROPS ARE JAGGED
Economies, like stock markets, do not decline in a straight line. The recent spate of better-than-expected retail sales data could be merely a short-term blip.
Sandeep Dahiya, a finance professor at Georgetown University's McDonough School of Business, said he wants to see three months of sustained increases in the Conference Board's consumer confidence index. It is currently at the lowest levels since the gauge started in the 1960s.
"Until that happens, I'm not willing to say this thing is behind us," he said.
SHORTS: NOT SWEET
A big chunk of last week's rally was driven by what's known as "short-covering" - when investors buy stocks simply to offset short trades, in which an investor borrows a stock then sells it right away, hoping to buy the same shares back later at a lower price, thus profiting from the decline.
It's difficult to differentiate between short-covering and regular buying, but floor traders last week estimated that between 50 percent and 60 percent of Tuesday's 379-point jump in the Dow was due to short-covering. And a rally driven by short-covering can disappear quickly when a scary headline hits the wires.
FEAR OF THE UNKNOWN
The market fears something wildly unexpected could happen. The Sept. 11, 2001 terrorist attacks threw a wrench in the market's recovery following the bursting of the technology bubble. And an unintended consequence of addressing the Great Depression with protectionism in the 1930s was global trade war, which hampered the U.S. market's recovery.
THE BERNIE MADOFF FACTOR
Even if you did not invest in Bernard Madoff's fund, you might still be an indirect victim. Trust in the markets took a major hit after his $65 billion Ponzi scheme was revealed last December. It took another blow when R. Allen Stanford's $8 billion scheme came out in February.
Without trust, the stock market cannot rise for long.
"A lot of people have been beaten and wounded, and it's going to take time to recover from that. It's more than wealth - confidence has been rattled," Frankel said.
Before jumping in, "everyone is looking twice," Frankel said.-AP

ฉ 1995-2009 Star Publications (Malaysia) Bhd (Co No 10894-D)

It’s bad but far from Doomsday – Barton Biggs

2009-03-11T19:27:00.001+08:00

MARCH 11 – As recently as a few weeks ago, I was very gloomy about the global economy, bearish about stock markets and deeply depressed about the world in general. I believed there was a 50 per cent chance that the world was facing a long cycle of recession, depression and wealth destruction.
I maintained that the bears believe that the best-case economic scenario is Japan’s agony since the 1990s, and the worst is a replay of the 1930s.
Recent events haven’t brightened the picture. The global economic outlook has deteriorated – the market consensus is now that the angle of descent of not only the US economy, but Europe and the major emerging markets, has steepened.
And even more disconcertingly, President Obama has announced what many investors consider to be a populist redistributionist tax agenda, which increases the tax rate on capital gains and dividends and gives tax reductions and distributions to the middle class and the poor.
Neither event has buoyed investor mood, as witnessed by last week’s stock-market declines.
Despite this, I still believe that there is a 50 per cent probability of a happier outcome. The world is having the most severe recession of the post-war era, and the recovery will be sluggish and plagued by inflation.
Nevertheless, the doomsday scenario of depression and deflation, of the Dow Jones industrial average hitting 5000 and the S&P 500 hitting 500, is farfetched. In fact, markets could be on the brink of a major rally, and the US economy may begin to recover later this year. Here are the reasons why:
1. Powerful medicine. The financial panic and the collapse of the world economy caught the so-called Authorities (i.e., the central banks and the governments of the world) by surprise. They reacted slowly, but nevertheless far faster than the Authorities in the US in the 1930s or Japan in the 1990s.
In both cases, the Authorities were not only tardy, but also made serious policy errors, such as raising tax rates, imposing tariffs and not curing the banking systems. These mistakes are now well understood – the current Fed chairman has written a book on the subject.
This time around – and this is very important – the Authorities have unleashed powerful fiscal and monetary stimuli that are totally unprecedented in size and scope. Interest rates have been dramatically cut everywhere, and every week more countries announce new fiscal-stimulus programs. It takes time for these actions to affect economic activity.
Rate cuts and expansion of the money supply are powerful medicine, but won’t make a difference for at least a year. Fiscal programs are quicker, but also take time to implement.
The actions of the Authorities should begin to boost activity by the late spring, and their uplifting effect will grow as the year progresses. In the United States, the fiscal-stimulus program is expected to add 4 percentage points to real GDP growth in both the second and third quarters of this year.
In other words, the world economy should begin to level out and improve as time goes on. We are not in a hopeless death spiral as the bears say.
2. Markets already assume the worst. World stock markets have been falling since 2000 and, adjusted for inflation, are down 60 to 70 per cent. The sorry state of the world economy is front-page news.
Therefore, it stands to reason that the bad news is extremely well known and must be pretty thoroughly priced into the markets. Treasury bonds have vastly outperformed stocks for 10 years, and the relationship between the two is back to the level of the early 1980s, which was a fabulous buying opportunity for stocks; recall that 1982 was the takeoff point for the greatest bull market in history.
Bear in mind that for the entire 20th century, a turbulent 100 years, the annual real (after inflation) return for stocks in the US was 6.9 per cent, versus 1.8 per cent for Treasury bonds.
In Sweden the relevant figures were 8.2 per cent per year versus 2.3 per cent for bonds; in Germany, 3.7 per cent versus minus 2.3 per cent; and in Japan, 5 per cent versus 1.6 per cent.
Why would you want to be a lender to the US government rather than an owner of real assets or the means of production at a moment when the government is printing more paper than at any time in its history? Rolling more money off the printing presses always eventually means higher inflation and interest rates, which is of course bad for bonds.
3. Stocks are on sale. Depending on your frame of reference, stocks are either cheap or very cheap, in absolute terms as well as versus inflation and interest rates.
In America, the price-to-earnings ratio of the S&P 500 when it is calculated on a market-capitalisation-weighted basis is about nine times already depressed earnings. At the height of the bubble in 2000 that ratio was close to 20 times, and at the peak of the recovery in the fall of 2007, it was around 15.
In addition, the dividend yield on stocks in both the US and Europe is higher than that on government bonds.
Over the long run, the ratio of a company’s stock price to its book value (a measure of the retained earnings of a company), and the ratio of its stock price to sales, have been the best predictors of performance, and they show exceptional value at the moment. Buy low, sell high!
4. Pessimism is pervasive. Sentiment is just incredibly depressed. I have never seen anything like it, not even in 1974 when the outlook was very grim indeed. Back then, America had just lost a war in Vietnam and nearly impeached a president, it was suffering hyperinflation and a recession, and its cities were on fire.
Still, the gloom wasn’t at the levels that we are seeing today. Money-market cash is equivalent to 43 per cent of the total capitalisation of US stocks, an all-time high. The return on cash is zero! Hedge funds hold more cash than ever before. Private-equity funds are literally being given away because their owners don’t want the risk. All of it shows how bearish everyone is.
Over 40 years, my experience has been that when everyone is bearish, it’s invariably right to be gradually buying. Being a contrarian works. The bottom of a stock-market cycle, by definition, has to be the point of maximum bearishness. The news doesn’t have to be good for prices to rally; it just has to be less bad than what has already been factored into the market.
Already there are some glimmers of hope. In the oil-consuming countries, the huge drop in oil prices is similar to a massive tax cut. The fall in consumption is beginning to level out. Inventories have been reduced to levels so low that production will have to be increased even to meet the current depressed level of demand.
The Japanese car companies have announced assembly-line increases, and in the United States, auto-dealer and home-builder surveys have looked up. Last week, the purchasing-managers index (PMI) in China rose for the third consecutive month. JPMorgan’s global-manufacturing PMI posted a second consecutive gain in February, and its new-orders index has turned and is rising.
These indexes are still in recession territory, but the rate of change has turned up. US house prices are still falling, and mortgage foreclosures are rising.
However, the affordability of housing has soared and existing home sales are rising. The Obama administration is proposing major mortgage-term restructuring.
The final antidote to despair was captured by Bernard Baruch in his 1932 foreword to a reprint of Charles Mackay’s classic book “Extraordinary Popular Delusions and the Madness of Crowds.”
“If in the lamentable era of New Economics that preceded the crash of 1929, primitive investors had only chanted to themselves ‘two plus two still equals four,’ then the disaster might have been averted,” wrote Baruch.
Similarly, he said, amid the gloom that had descended by 1932, “when many begin to wonder if declines would never halt, the appropriate abracadabra may be: ‘They always did’.” And they always will. – Newsweek

World Bank says global economy will shrink in 2009

2009-03-09T17:49:00.001+08:00

Published: Monday March 9, 2009 MYT 7:45:00 AM

NEW YORK: The World Bank said Sunday that the global economy will shrink this year for the first time since World War II and that the global financial crisis will make it tougher for poor and developing nations to access needed financing.
Trade is forecast to fall to its lowest point in 80 years in 2009, as economic hardship ripples across the globe, the bank said.
The most drastic trade slowdowns are expected in East Asia, where growth had been robust, the bank said in a paper prepared for a meeting of finance ministers and central bank officials next week.
The impact on the poorest countries will be severe, the bank said, predicting that a group of 129 countries face a shortfall of $270 to $700 billion this year.
The bank, which offers low-interest loans and grants to developing nations, warned international financial institutions will not be able to cover even the low end of that estimate.
Only one-quarter of those vulnerable countries will be able to ease the economic downturn through job creation or "safety net" programs, the bank said.
The ramifications of the growing financial crisis on the world's poorest nations will likely remain for some time, the bank said.
Because richer nations are borrowing more, developing nations are being squeezed out and many financial organizations that have provided financing to lower-income countries "have virtually disappeared."
Developing countries that are still able to get credit will face higher borrowing costs and lower cash flow which will lead to weaker investment and slower growth, the bank said.
To ease the burden on developing nations, the bank urged cooperation from developed nations, global institutions and the private sector.
"We need to react in real time to a growing crisis that is hurting people in developing countries," World Bank Group President Robert B. Zoellick said.
"This global crisis needs a global solution and preventing an economic catastrophe in developing countries is important for global efforts to overcome this crisis. We need investments in safety nets, infrastructure, and small and medium size companies to create jobs and to avoid social and political unrest."
Developed countries should spend some of their billions in stimulus funds in poorer nations to ease the burden on those countries, World Bank Chief Economist and Senior Vice President Justin Yifu Lin said.
"Clearly, fiscal resources do have to be injected in rich countries that are at the epicenter of the crisis, but channeling infrastructure investment to the developing world where it can release bottlenecks to growth and quickly restore demand can have an even bigger bang for the buck and should be a key element to recovery," Lin said.

ฉ 1995-2009 Star Publications (Malaysia) Bhd (Co No 10894-D)

Malaysia may face full-blown recession

2009-03-04T18:37:00.000+08:00

Wednesday March 4, 2009
By K.C LAW

KUALA LUMPUR: There is a 50% chance Malaysia will fall into a “full-blown” recession this year, said Malaysian Institute of Economic Research (MIER) executive director Prof Datuk Mohamed Ariff Abdul Kareem.
“Technical recession is almost certain. The 1.3% (real gross domestic product (GDP) forecast in January) is considered optimistic. In fact, I think the best-case scenario will be 0.5% growth this year.
“We forecast the first half year will have negative growth but hopefully the second half will show some positive figure, which will give us 0.5% growth,” he said, adding that MIER would review again the GDP as a lot of development has taken place since the last forecast. Speaking after a seminar organised by Rahim & Co, Ariff said Malaysia’s economy might remain sluggish for a long time.
“My fear is that we may be stuck there for sometime. Contraction may not be sharp but long,” he said, adding that it could take three years (2012) before the local economy returned to normalcy.

He expected the fiscal deficit to increase to more than 6% of GDP if the second stimulus package was RM30bil, which is about 4% of GDP. Financing the deficit budget was not a problem as there was a lot of liquidity in the local financial market, which funds 93% of the government deficit.
However, he said it was “not about how much you spend, it is how you spend that matters.”
“It is about confidence and confidence depends on transparency. People want to know where the money comes from and where it’s going. Unfortunately, transparency is low in Malaysia.
“A fiscal package may only cushion impact but cannot neutralise it. But without any stimulus package, it will be worse,” he said. Meanwhile, Ariff projected the ringgit would take at least four years to reach 2.8 against the US dollar, a level which he considered equilibrium.
He said the greenback continued to be artificially strong now because central banks worldwide were continuing to fund the US deficit, and thus increasing the demand for the dollar.
In the meantime, the ringgit would remain weak and volatile, but unlikely to cross 3.8 against the dollar, Ariff said.

ฉ 1995-2009 Star Publications (Malaysia) Bhd (Co No 10894-D)

The Depression word: Will recession become something worse?

2009-03-03T10:07:00.000+08:00

By TOM RAUM and DANIEL WAGNER, Associated Press Writers Tom Raum And Daniel Wagner, Associated Press Writers Mon Mar 2, 3:28 pm ET

WASHINGTON – A Depression doesn't have to be Great — bread lines, rampant unemployment, a wipeout in the stock market. The economy can sink into a milder depression, the kind spelled with a lowercase "d."
And it may be happening now.
The trouble is, unlike recessions, which are easy to define, there are no firm rules for what makes a depression. Everyone at least seems to agree there hasn't been one since the epic hardship of the 1930s.
But with each new hard-times headline, most recently an alarming economic contraction of 6.2 percent in the fourth quarter, it seems more likely that the next depression is on its way.
"We're probably in a depression now. But it's not going to be acknowledged until years go by. Because you have to see it behind you," said Peter Morici, a business professor at the University of Maryland.
No one disputes that the current economic downturn qualifies as a recession. Recessions have two handy definitions, both in effect now — two straight quarters of economic contraction, or when the National Bureau of Economic Research makes the call.
Declaring a depression is much trickier.
By one definition, it's a downturn of three years or more with a 10 percent drop in economic output and unemployment above 10 percent. The current downturn doesn't qualify yet: 15 months old, that 6.2 percent drop in output and 7.6 percent unemployment.
Another definition says a depression is a sustained recession during which the populace has to dispose of tangible assets to pay for everyday living. For some families, that's happening now.
Morici says a depression is a recession that "does not self-correct" because of fundamental structural problems in the economy, such as broken banks or a huge trade deficit.
Or maybe a depression is whatever corporate America says it is. Tony James, president of private equity firm Blackstone, called this downturn a depression during an earnings conference call last week.
The Great Depression retains the heavyweight crown. Unemployment peaked at more than 25 percent. From 1929 to 1933, the economy shrank 27 percent. The stock market lost 90 percent of its value from boom to bust.
And while last year in the stock market was the worst since 1931, the Dow Jones industrials would have to fall about 5,000 more points to approach what happened in the Depression.
Few economists expect this downturn will be the sequel. But nobody knows for sure, and nobody can say when or whether the downturn may deepen from a recession to a depression.
In his prime-time address to Congress last week, President Barack Obama acknowledged "difficult and trying times" but sought to rally the nation with an upbeat vow that "we will rebuild, we will recover."
The next day, Federal Reserve Chairman Ben Bernanke told the House Financial Services Committee that the "recession is serious, financial conditions remain difficult." He held out a best-case hope that it might end later this year, with "full recovery" in two to three years.
Despite the tempered optimism, the economic outlook remains grim. Consumer confidence has fallen off the table, stocks are at 12-year lows, layoffs come by the tens of thousands, and credit remains tight.
The current downturn has many of the 1930s characteristics, including being primed by big stock market and real estate booms that turned to busts, said Allen Sinai, founder of Boston-area consulting firm Decision Economics.
Policymakers and economists note there are safeguards in place that weren't there in the 1930s: deposit insurance, unemployment insurance and an ability by the government to hurl trillions of dollars at the problem, even if it means printing money.
Before the 1930s, any serious economic downturn was called a depression. The term "recession" didn't come into common use until "depression" became burdened by memories of the 1930s, said Robert McElvaine, a history professor at Millsaps College in Jackson, Miss.
"When the economy collapsed again in 1937, they didn't want to call that a new depression, and that's when recession was first used," he said. "People also use 'downward blip.' Alan Greenspan once called it a 'sideways waffle.'"
Most postwar U.S. recessions have come after the Fed has increased interest rates to cool down rapid economic growth and inflation. Later, the Fed lowers rates and helps restart the economy, with the housing and auto sectors — both sensitive to interest rates — leading the way.
This time is different: As Senate Banking Committee Chairman Chris Dodd, D-Conn., said, "Our housing and auto sectors are leading us not out of recession, but into it."
What's more, the Fed no longer has the ability to kick-start recovery by lowering interest rates. The central bank has already effectively lowered the short-term rates it controls to zero.
And there are no guarantees the massive economic stimulus package and series of bank bailouts will stave off a nightmare recession, or worse.
"It is certainly plausible that the kinds of policy measures that have been good enough to tame the business cycle are no longer adequate in a fast-moving, highly leveraged, highly networked economy," said Anirvan Banerji of the Economic Cycle Research Institute.
Today's economic indicators don't project a depression. But Banerji is cautious. Economic data in 1929 didn't show that the stock market crash was about to lead to years of economic misery, either.
"It did not look like the kind of plunge that would be a depression until after the recession began," Banerji said. "The Great Depression didn't start out as a depression. It started out as a recession."
The depression that consumed most of the 1870s and followed something called the Panic of 1873 makes a better comparison to what's happening now, said Scott Nelson, a history professor at the College of William and Mary.
Financial markets had become centrally located by the 1870s, notably in London. And nations had not yet enacted the protectionist trade policies that were in place by the 1930s.
The results were not exactly promising. Gangs of orphans roamed city streets as men moved west to pursue cattle industry jobs. Widows struggled to make money by serving unlicensed liquor. Thousands of workers, many Civil War veterans, became transients.
The downturn lasted more than five years, according to the economic research bureau — four times as long as what the United States has endured so far in this downturn.
Today's recession is already longer than all but two of the downturns since World War II. But for now, public officials are being extremely cautious about the D-word. Alfred Kahn, a top economic adviser to President Carter, learned that lesson in 1978 when he warned that rampaging inflation might lead to a recession or even "deep depression."
When presidential aides asked him to use another term, Kahn promised he'd come up with something completely different.
"We're in danger," he said, "of having the worst banana in 45 years."

Dow below 6,800; lowest close since ’97

2009-03-03T09:27:00.000+08:00

NEW YOR, March 3 – Investor worries about the economy in general, and financial companies in particular, continued to erode the markets on Monday as the Dow Jones industrial average fell below 7,000 for first time since October 1997.
“It’s pretty despondent everywhere,” said Dwyfor Evans, a strategist at State Street Global Markets in Hong Kong. “Okay, there are signs that some of the leading indicators have stabilised to some extent, but it’s at a very, very low level, and we’re not seeing corporate investment picking up, or consumers starting to spend again – in other words, the traditional mechanisms by which economies come out of a recession are absent at this time.”
At the close, the Dow was down 299.64 points, or 4.2 per cent to 6,763.29, while the Standard & Poor’s 500-stock index declined 34.27 points or 4.6 per cent , to 700.82. The Nasdaq fell 3.9 per cent or 54.99 points to 1,322.85.
Investors expressed concern about the ability of banks to raise more capital, after the British bank, HSBC Holdings, offered new shares at a substantial discount. HSBC Holdings, the global British bank, fell 18.7 per cent after the bank said it would seek to raise nearly $18 billion in capital from shareholders and shut down its American consumer lending business.
Washington also agreed on Monday to provide another $30 billion to the insurance giant, American International Group, which also reported a $61.7 billion loss. On Friday, Washington took a larger stake in Citigroup, reducing the value of shareholders’ stock.
“Another day, another 200 points,” David Dietze, chief investment strategist at Point View Financial Services, said, comparing the daily markets to water torture.
The decision by many companies to trim dividends – one of the remaining incentives for owning stocks – was contributing to the sell-off, Dietze said.
Earlier Monday, the large regional bank PNC Financial Services Group cut its dividend 85 per cent and the International Paper Company cut its by 90 per cent. Last week, General Electric cut its dividend 68 per cent , and JPMorgan Chase reduced its dividend 87 per cent.
Looking ahead, he said: “All eyes are on that Friday unemployment report.”
“We could be in for a shocker,” he said. Economists expect a loss of 675,000 jobs in February, following a decline of 598,000 in January. The unemployment rate is expected to rise to 8 per cent , from 7.6 per cent.
The declines on Monday were across the board, led by the banking and basic materials sector.
Citigroup was down 17.9 per cent while Bank of America down 7.9 per cent. JPMorgan Chase declined 6.2 per cent. The S&P financial sector was down 5.8 per cent overall.
BNP Paribas fell 8.3 per cent , Royal Bank of Scotland fell 2.5 per cent and UBS fell 10.6 per cent in Europe, while Mitsubishi UFJ fell 6.9 per cent and Mizuho Financial Group 3.7 per cent in Tokyo.
Shares of A.I.G. were 7.2 per cent higher on the strength of the latest government assistance.
Dietze said that investors were also concerned about the message that they were hearing from governments. In Europe, over the weekend, stronger countries refused to come to the aid of smaller, struggling governments.
And out of Washington, he said, the message continues to be inconsistent.
The Senate has delayed confirmation of some members of the administration’s economic team, and the government has yet to value the toxic mortgage assets it has accepted from financial institutions.
“As bad as things are, they can still get worse, and get a lot worse,” Bill Strazzullo, chief market strategist for Bell Curve Trading, told The Associated Press. Strazzullo said he believed there was a significant chance the S&P 500 and the Dow will fall back to their 1995 levels of 500 and 5,000, respectively.
The “game-changer,” he told The A.P., will be the housing market and whether it can stabilise.
Crude oil settled at $40.70 a barrel, down $4.06 in New York trading.
Bond prices rose Monday as investors sought safety while the yield on the three-month T-bill fell slightly.
Wall Street followed both Europe and Asia lower. In economic news on Monday, personal spending rose 0.6 per cent in January and incomes rose 0.4 per cent , while construction spending fell 3.3 per cent. Manufacturing contracted in February for the 13th month, but at a slower pace than expected.
The Dow Jones Euro Stoxx 50 index, a barometer of euro zone blue chips, was down 4.7 per cent , while the FTSE 100 index in London dropped 5.3 per cent. The CAC 40 in Paris fell 4.4 per cent and the DAX in Frankfurt fell 3.4 per cent.
Currencies across Eastern Europe plunged Monday after European Union leaders rejected a huge rescue package for its newest members. Officials in Brussels rejected suggestions that the foreign exchange markets were reacting to decisions made at a summit meeting Sunday, where leaders agreed only to consider any bailouts on a case-by-case basis.
The monetary affairs commissioner Joaquín Almunia told reporters in Brussels that the European Union was providing a huge amount of support to its eastern members. But he conceded more may be needed for some countries.
Still, bank analysts and traders were unimpressed, as reflected in sharp currency market drops.
“The EU again has proven it is unable to manage a coordinated response to the crisis,” Commerzbank analysts wrote in a note Monday. “The problems arising in Eastern Europe will put further pressure on the euro.”
The Tokyo benchmark Nikkei 225 stock average fell 3.8 per cent , while the S&P/ASX 200 in Sydney shed 2.8 per cent. The Hang Seng index in Hong Kong dropped 3.9 per cent.
The TSX in Toronto dropped 5.9 per cent after the government reported that Canada’s economy shrank in the fourth quarter for the first time since 1991. Statistics Canada said on Monday the economy contracted at an annualised rate of 3.4 per cent in the quarter, the worst performance since the first quarter of 1991.
Economic data and company earnings in recent weeks have eroded hopes that a gradual recovery would start to materialize during the second half of the year. If, as seems increasingly likely, a tangible recovery will not come until 2010 at the earliest, Evans said, “that means corporate earnings will remain extremely soft for quite some time.”
“And that in turn means it’s pretty clear that there is more value to be had in safe havens like bonds than in equities,” he added.
Economic data from Europe added to the dismal atmosphere in the market.
The Markit euro zone manufacturing purchasing managers’ index sank in February to a record low of 33.5 from 34.4 in January.
On Monday, the Japan Automobile Dealers Association said in a statement that auto sales in February declined 32.4 per cent , the seventh consecutive monthly decline.
Japan last week reported that exports in January declined by nearly half from a year ago, while South Korea on Monday released data for February – the first in the region to issue data for that month – showing a 17 per cent plunge in exports. – NYT

Oil falls below $39 as investors eye US earnings

2009-01-12T21:08:00.002+08:00

By JAKE NEUBACHER, Associated Press Writer Jake Neubacher, Associated Press

VIENNA, Austria – Oil prices fell Monday on concerns over global economic growth, with key U.S. corporate earnings results expected to give a new reading on crude demand in the world's largest consuming nation.

Economic worries outweighed factors that would normally boost the market — Mideast tensions, signs that OPEC was implementing large-scale production cuts and the Gazprom-Ukraine gas dispute.

Light, sweet crude for February delivery was down $2.03 to $38.80 a barrel by midday in Europe in electronic trading on the New York Mercantile Exchange. The contract on Friday fell 87 cents to settle at $40.83.

Steel producer Alcoa, chip maker Intel and biotech company Genentech are expected to report fourth quarter results this week, providing investors with a gauge of how deep the current recession may be.

"Given that we're likely to see quite a few rather poor fourth quarter earnings reports, downward pressure will continue to be exerted on oil," said Victor Shum, an energy analyst with consultancy Purvin & Gertz in Singapore. "Worries about the macroeconomic outlook will continue to constrain oil."

Although still far away from their Dec. 19 closing of $33.87, oil prices fell 17 percent last week, weighed by fears that rising U.S. unemployment will undermine crude demand.

The Labor Department said Friday that employers slashed 524,000 jobs in December and 2.6 million jobs for all of 2008. The nation's unemployment rate jumped to 7.2 percent, the highest since 1993.

"It seems that demand worries continue to dominate market psychology and not even the tensions in the Middle East, OPEC production cuts or the gas row between Russia and Ukraine were able to pull up prices." said Vienna's JBC Energy in a research note.

Still, those bearish factors were expected to keep further price erosion in check.
"We have these other factors that will support oil," Shum said. "Most likely, we won't see a big downward spiral despite the poor earnings reports."

Prices of futures contracts for later this year suggest investors expect oil to recover. The March contract trades near $46 a barrel while the April contract trades above $49.

"The expectation is that pricing will regain strength, and it's not a question of if but when," Shum said.

In other Nymex trading, gasoline and heating oil futures slid by more than 3 cents to $1.08 and $1.45 a gallon, while natural gas for February delivery remained steady at $5.52 per 1,000 cubic feet.

In London, February Brent crude fell $1.86 to $42.56 a barrel on the ICE Futures exchange.

___
Associated Press writer Alex Kennedy contributed to this report from Singapore.

Oil Below US$40 for 1st Time Since 2004

2008-12-18T09:12:00.001+08:00

The Star Online > Business
Published: Thursday December 18, 2008 MYT 7:57:00 AM

Oil tumbles below US$40 for first time since 2004

PHOENIX: Oil prices tumbled below $40 for the first time since the summer of 2004 Wednesday despite an announcement from OPEC of a record production cut of 2.2 million barrels a day.

Markets had already priced in a vastly reduced flow of oil and traders focused instead on troubling economic data that points to a long and severe recession.
Light, sweet crude for January delivery tumbled 8 percent, or $3.54, to settle at $40.06 on the New York Mercantile Exchange.

Benchmark crude prices fell as low as $39.88, a price last seen in July 2004.
"There's just so much oil in inventory out there right now,'' said Michael Lynch, president of Strategic Energy & Economic Research.
"Nobody wants to buy this stuff.''
Crude prices have fallen so low, producers have leased supertankers to store the oil at sea, hoping that oil will rebound.

U.S. gasoline inventories continued to rise, the government reported, providing further evidence of a major pullback by American motorists.
Demand for gasoline over the four weeks ended Dec. 12 was 2.7 percent lower than a year earlier.

OPEC had already announced cuts totaling 2 million barrels earlier this year, also with little effect.

The unprecedented production cuts and the market reaction show just how fast energy demand has fallen during the worst economic downturn in at least a generation.
"You've got a commodity that people are buying less of because they can't afford to buy more,'' said Phil Flynn, an analyst at Alaron Trading Corp.
"People are fearful. They have a lack of confidence in the economy. They're closing their factories.''

Grim economic news radiates out of the U.S., Europe and Asia almost daily as consumers and industries pull back on spending.
The Cooper Tire and Rubber Co. said Wednesday it will cut 1,300 jobs and close a plant in Georgia.

Newell Rubbermaid Inc. is reducing its salaried work force by as much as 10 percent.
The Atlanta-based company slashed its fourth-quarter and full-year profit guidance Wednesday.

In Detroit, General Motors Corp. put the brakes on construction of an engine factory trying to hold on to the cash that it has left.
Meanwhile, the dollar suffered its biggest one-day decline against the euro after the Federal Reserve cut a key lending rate target to historic lows.

That would typically lead more investors into the crude market because oil is bought and sold in dollars and you can get more bang for the buck.
But investors in this harsh economic climate are holding onto their wallets like never before, betting there's not enough global demand to support higher crude prices, said Gene McGillian, an analyst at Tradition Energy.

"Oil prices should be a lot stronger,'' McGillian said.
The last time oil prices dipped below $40 a barrel was July 21, 2004.
Prices settled that day at $40.09, according to Peter Beutel, an oil analyst at Cameron Hanover.
Many analysts believe oil prices will continue falling next year with agencies ranging from the U.S. Department of Energy to the International Energy Agency forecasting weak demand.
IHS Global Insight Chief Economist Nariman Behravesh was among the industry experts forecasting lower prices for oil.

"Oil prices will (easily) fall below $40 per barrel in the next year, and could tumble all the way to $30,'' Behravesh said in a research note.

"With the economic outlook deteriorating by the day, futures markets for commodities have not priced in the full extent of the 'demand destruction' taking place.''
Doubts also remain about the willingness of some OPEC members to adhere to price-boosting production quotas.

"OPEC has lacked credibility for a long time on discipline,'' said Gerard Rigby, energy analyst at Fuel First Consulting in Sydney.

"OPEC is going to have to show they are committed to the cut, that it's not just talk.''
U.S. crude inventories rose slightly last week despite expectations for a drop, while gasoline reserves increased as demand stayed below year-ago levels, according to government data released Wednesday.

Analysts had expected a drop of 900,000 barrels, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.
In London, February Brent crude rose 97 cents to settle at $45.53 a barrel on the ICE Futures exchange.

In other Nymex trading, gasoline futures fell 3.45 cents to settle at $1.0055 a gallon.
Heating oil fell 1.77 cents to $1.4425 a gallon while natural gas for January delivery fell 15.2 cents to settle at $5.619 per 1,000 cubic feet.

Remote Chance Malaysia Will Enter Into Recession

2008-11-06T09:40:00.001+08:00

The Star Online > Business
Thursday November 6, 2008

Remote chance Malaysia will enter recession

KUALA LUMPUR: Like many other nations, Malaysia is dependent on exports to the US for economic growth but the risk of the country going into a recession is quite remote, said Malaysian Rating Corp Bhd (MARC) chief economist Nor Zahidi Alias.
“Malaysia’s direct dependency on the US as a major export destination has steadily declined in recent years,” he said.

However, he noted that Malaysia’s exposure to the US had actually increased, taking into account “indirect exports”, which was why “growth in China is paramount.”

“Whatever we export to China is being repackaged and sent to the US. If you consider all these factors, our exposure to the US has increased,” Nor Zahidi said at the CEO breakfast talk on Current Global Economic Challenges yesterday.

Including indirect exports, Malaysia’s exports to the US constituted 32% of its total exports in 2006, up from 25% in 2000, he added.

Nor Zahidi forecast Malaysia’s gross domestic product growth to moderate to 3.5% next year “based on the US economy contracting by a maximum 1.5% in 2009”.
“If the US economy contracts by more than 2% next year, the forecast would have to be revised,” he said.

The economist said Malaysia’s economic growth next year would be constrained by weakness in private investments as risk aversion heightened among investors.
Both exports and private investment were expected to bear the brunt of the global slowdown, he said.

Meanwhile, MARC chief executive officer Mohd Razlan Mohamed said slower economic activities would have a bearing on corporate bond issuance in 2009.

He estimated corporate bond issuance in 2009 to be in the range of RM25bil to RM30bil.
“The number of foreign entities that sought to issue in the ringgit bond market to capitalise on the lower financing cost, particularly between the second half of last year and the first half of this year, has diminished in the wake of significant spikes in corporate yields.

“The 3-year AAA yield that averaged 4.08% in mid-2007 has moved up to 4.70% by the third quarter of this year,” Razlan noted.

He said the gap between what investors were willing to pay and what they were seeking had created an incompatible situation for bond issuance.

UBS AG Sees Malaysia Achieving Zero Growth Next Year

2008-11-04T10:03:00.002+08:00

Tuesday November 4, 2008

UBS sees zero growth for Malaysia

KUALA LUMPUR: UBS Ltd, a subsidiary of Zurich-based UBS AG, sees Malaysia achieving zero growth next year in view of weakening demand from G7 countries.
Managing director for global economics Paul Donovan said exports growth would be negative for Malaysia.

“Asian governments, including Malaysia, are expected to continue applying fiscal and monetary stimuli to offset slower growth,” he told a media briefing yesterday.

He expects Malaysia to cut the overnight policy rate by 50 basis points to 3% as early as this month in line with monetary measures being taken by governments globally.
Donovan said unemployment in the country would rise gradually to 4% by 2010 in view of the slowdown in exports.

“Although Asia will recover faster than Europe, there’ll not be any above-trend growth until early 2011 while export-driven economies will have to wait for the rest of the world to recover before exports grow again,” he said.

He added that global growth would be slow for the next 18 to 24 months.

“This sort of weak growth normally follows a banking crisis because banks are reluctant to lend due to weak balance sheets while corporate debt, especially in Europe, have risen by 40% in the last four years,” Donovan said.

He said weaker borrowing and consumer spending would continue until the debt-to-income ratio went back to 2002 levels.

“It’ll take time to return to that level and will need a change in policy with lots of interest rate cuts and governments may need to encourage banks to pass on the lower rates to consumers in the form of lower commercial lending rates.”

Import orders by the US would be turning negative in the next few months while car sales there had slowed down, Donovan said, adding: “There will be no way to limit the impact in Asia while China will not be able to replace the lost car sales in the US.”

Among the Organisation for Economic Cooperation and Development (OECD) countries, he said, there would be negative growth next year except for Japan, which would see a slight growth. “Overall, the global economy is experiencing its weakest growth in 25 years,” he said.
The poor performance of most of Asian currencies was due to investors reassessing the fundamentals of growth in the region because the idea that Asia and Europe would decouple from the US economy did not hold true anymore, he said.

“The ban on short selling in the US and Britain had unintended consequences on these currencies because hedge funds had to sell some of their investments to cover short positions in Asia as well as Latin America.”

On a more positive note, Donovan said Malaysia’s inflation rate was set to come down rapidly next year to below 1% due to the lower energy and food prices.

“Semi-skilled labour costs, which are the main driver of food prices, are likely to be relatively stagnant, which means food prices will be lower,” Donovan said.
Statistics show that 80% of food price inflation in OECD countries was driven by semi-skilled labour costs, while in Asia, it was 40% to 60%.

He said crude oil price for next year would average US$60 to US$65 a barrel from US$120 this year.

Downward Pressure On Malaysian Exports Expected

2008-11-03T10:10:00.002+08:00

Monday November 3, 2008

Downward pressure on Malaysian exports expected
By EILEEN HEE

Growth likely to be 3% next year

MORE downward pressure on Malaysia’s export performance is expected due to the current weak global economy and slump in commodity prices, say economists.

Aseambankers Research chief economist Suhaimi Ilias said full-year gross export growth was expected to slow sharply to 3% next year from 10.5% this year.

The plunge in commodity prices, especially the 60% decline in oil and crude palm oil (CPO) prices, since their peak this year, would have a severe impact on Malaysian exports.
Light crude oil was trading at US$63.58 on Friday, down 56.7% from its peak of US$147 per barrel in July while CPO closed at RM1,515, down 66.2% from its March peak of RM4,486 per tonne.

About 75% to 80% of the (16%) export growth in January to August this year came from exports of pure commodities (petroleum, CPO, liquefied natural gas and resource-based products (refined petroleum products, wood and rubber products, chemicals, steel).
He said the impact was already being seen, especially in relation to the fall in commodity prices, as gross exports slowed to 10.6% year-on-year growth in August from the average of 22% year-on-year growth per month between April and July.

He expected import growth to be dragged as well. “With imports of intermediate goods - primarily inputs for the export-based manufacturing sector - accounting for 70%-75% of total imports, we can expect overall import growth to be affected. Moreover, the prospect of slower investment activities will also hit imports of capital goods,” he said.

Suhaimi said since exports growth was declining due to the slowdown in major economies like the US, Europe and Japan - which account for one-third of Malaysia’s exports - the Government should focus on shoring up domestic demand.

“We expect the upcoming Economic Package to address this issue with measures to boost consumer spending and the enlarged public sector spending (Federal Government and GLCs), support key growth sectors/areas like tourism, as well as raising the competitiveness and attractiveness of Malaysia as a foreign direct investment location,” he said.

Meanwhile, MARC chief economist Nor Zahidi Alias said although Malaysia had, to some extent, managed to diversify its exports to ASEAN markets, the anticipated weakness of these economies would eventually affect demand for Malaysia’s products.
Not only was the US economy likely to contract this year, the other major economies including the EU and Japan were on the brink of a recession, he said.

According to estimates by the International Monetery Fund, Malaysia’s total trade exposure, including indirect exposure to the US, measured as exports to the US as a share of Malaysia’s GDP was 31.7% in 2006, as against the direct exposure of 22.7%. For the EU market, total exposure was 25.4% as against 13.8% for direct exports share.

“This will definitely affect demand for Asian products, including Malaysia.
“It is also important to note that in the past one year or so, Malaysia’s export performance had been supported by strong commodity prices, namely from oil and CPO-related products,” he said.

He said the value of these exports might decline especially when commodity prices continue to remain soft.

Meanwhile, imports are expected to shrink as producers tend to be extra cautious about the outlook of external sector in the near-term.

“However, the good news was the falling ringgit against the USD may act as a buffer against a very sharp decline in export performance.

“With the USD expected to continue its uptrend following a continuous flight for safety, the ringgit may not experience a sharp rebound in the near-term. The weakness in ringgit will be a positive factor for exporters,” he said.

Rating Agency Malaysia economist Kristina Fong said that in the first seven months of the year, Malaysia’s gross exports expanded by 17% while imports grew by 9.3% to boost the country’s trade balance by 59% to RM82bil.

“Assuming the pace of growth drops by a quarter for the remaining months due to the more pronounced global economic slowdown, Malaysia’s gross exports for 2008 is projected to expand at a still healthy 11.2% and imports at 8.0%, yielding a sizeable trade balance of more than RM120bil,” he said.

For 2009, Fong said the anticipated downturn in several of the advanced economies, particularly the US, UK and some EU countries, would dampen growth of Malaysian exports and imports significantly, which was forecast at 2-3%.

“Akin to the export slowdown in 2007, GDP growth is expected to sustain at 6.3% due to strong domestic demand, particularly private consumption and investment,” he said.

Great Depression versus now

2008-10-22T10:13:00.002+08:00

The Star Online > Business
By OOI KOK HWA
Wednesday October 22, 2008

Great Depression versus now

As much as there are similarities between the two crises, the damage caused by the current turmoil is likely to be less severe given the swift actions of central banks.

AS a result of the recent financial tsunami, some experts have started to ponder whether we are headed for a depression.

The current credit crunch and the meltdown in some financial institutions were quite similar to what happened during the Great Depression in the 1930s.
In this article we will analyse the reasons behind the 1929 Wall St crash, which kickstarted the Great Depression and compare it to the current situation to identify any signs that a depression is approaching.

Milton Friedman, the leading advocate of monetarism, argued that every great depression had been accompanied or preceded by a monetary collapse.

According to Ben Bernanke, the US Fed chairman, the main reason behind the Great Crash of 1929 was due to the tight monetary policies adopted during that period.

He said the high interest rates back then caused the US economy to fall into a recession that led to the great market crash in October 1929.
As the US dollar was backed by gold, the acute selling of dollars for gold resulted in a run on the dollar.

The Fed continued to increase interest rates in an effort to preserve the value of US dollar.
As a result, high interest rates caused bankruptcies for many companies.
At the peak of the Great Depression, the US unemployment rate hit 25%
To rub salt into the wound, massive withdrawals of cash by panicky depositors were the last straw that brought about the total collapse of financial institutions.
In that period, bank deposits were uninsured and the collapse of the banks caused depositors to lose their savings.

And due to the economic uncertainties, the surviving banks were reluctant to give out new loans.
Another culprit in the 1929 crash was margin financing which caused excessive speculation in the stock market.

Investors needed only to put up 10% capital and borrow the rest from the bank to invest in the stock market.

The collapse of stock prices led to margin calls and further selldowns.
Coming back to the 2008 crash, the banking and credit-market crisis was mainly due to the property boom and subprime bust.

The collapse of subprime loans sparked the credit crunch, which dragged some financial institutions into trouble.

As a result of the securitisation and the creation of innovative financial products like collateralised-debt obligations and credit-default swaps, the collapse of one financial institution had a domino effect, leading to the collapse of other financial institutions.
Now, the pertinent question is whether we are in a long bear market and heading for a depression.

We believe a depression like the one in 1929 may not happen exactly the way it did before.
Given the fast actions taken by central banks around the world, the damage caused by this crisis will be less severe than the one in 1929.

Central banks around the world have been putting in concerted efforts to make sure the global economy will not fall into a depression.

The rescue packages being implemented throughout the world will help stabilise the financial system.

We believe the reduction of interest rates and the increase in money supply will help cushion the impact of the credit crunch.

Besides, deposits placed with most financial institutions are guaranteed by central banks.
Even though the US unemployment rate may rise to 10% from 6.1% currently, it is still far below the peak of 25% hit during the Great Depression.

In the 1929 crash, the Dow Jones Industrial Average took about three years to reach bottom in July 1932 from its peak in September 1929.

From the peak to the trough the Dow lost about 90%.

The Great Depression in the US started in August 1929 and ended only in March 1933.
The stock market started to recover eight months before the US economy ended its depression.
At present, the Dow has already dropped for a year from its peak in October 2007, currently down about 37.5% against its peak of 14,164 points on Oct 9, 2007.

In view of the possible economic recession in most developed countries, we think the Dow will drop further from current levels.

Nevertheless, we believe it will recover much faster and the magnitude of the fall will be far less severe than the one in 1929.

Lastly, we believe the stock market will eventually recover.
At this point, to be more prudent, we may take a “wait and see” approach until things stabilise.

> Ooi Kok Hwa is an investment adviser licensed by Securities Commission and the managing partner of MRR Consulting

Time To Invest In Bond

2008-10-19T23:49:00.001+08:00

The Star Online > Bizweek Saturday October 4, 2008

Malaysian Bond Market

DURING this holiday-shortened week in Malaysia, much has happened in the western countries. In the US, a revised US$700bil rescue package incorporating increase in bank-deposit-insurance limits and tax breaks has been approved by the Senate, and is scheduled to be re-voted by the House of Representatives. Despite the increased possibility of this rescue package being passed, the credit market is getting increasingly jittery. Banks are hesitant to lend to each other, causing spikes in interbank rates which threaten to bring the credit market to a halt.

Warren Buffett summed it up aptly with his statement: “In my adult lifetime I don’t think I’ve ever seen people as fearful, economically, as they are right now ... they are not wrong to be worried.”

With the significant stress in the global credit markets, and the rapidly deteriorating global economic conditions, the Malaysian economy will not be insulated from the turmoil. Falling manufacturing and commodity exports, coupled with slowing domestic consumption due to poor sentiment, mean that we are likely to go through a rough patch in the coming quarters.
In this environment where almost every asset class is falling in value, local bonds especially MGS and high-grade PDS stand out as defensive investments for investors. Cooling inflationary pressure and growing possibility of rate cuts by global central banks mean that not only is unlikely to be raised, but there may be room for rate-cuts going forward. The lack of investment alternatives and improving interest rate outlook provide the upsides for local bonds.
The recent concern of oversupply of MGS following the Government’s revised fiscal deficit target is mitigated by the shrinking PDS issuance pipeline.

Meanwhile, there is still a deep pool of liquidity to underpin the demand for local bonds, with close to RM300bil of excess liquidity in the banking system, and steadily growing pension funds, thanks to our high saving rates. The need to generate real investment return amid the current negative real interest-rate environment should support the buying interest and cap any major downsides of local bonds.

While interest rate and demand & supply conditions bode well for local bonds, the same cannot be said about credit outlook. The impending economic weakness will lead to lower corporate profitability and heightened financial risks €“ two major recipes for higher credit risks. Therefore other than MGS and sovereign-related or supranational credits, investors still need to be very selective on credits in general.

Trading volume is subdued during the week as most market players are away. Nevertheless, the MGS market remains bullish with most benchmark bonds closing 8-10 bps lower. The 3-year benchmark MGS’9/11 contributed bulk of the trades and dipped 10 bps lower to 3.87%, while the 10- and 20-year benchmarks fell 8 and 10 bps to 4.57% and 5.05% respectively. The 5-year benchmark was not traded.

Trading was light in the PDS market, with the bulk of the trades coming from the AAA segment, largely on sovereign-related and supranational credits. Nevertheless, with strong buying interest pushing down MGS and IRS yield curves considerably, credit spreads are now approaching their 5-year highs, raising the prospect of buying interest spilling over to this segment.

MYR Interest Rate Swap

During the week, MYIRS saw better receiving interest on the back of the bullish bond market. As we write, the curve dipped 5-15 bps on week-on-week basis albeit in thin trading. Bullishness in the US bond market on economic concern and expectation of rate cuts supported the local receiving theme as well. We expect to see some volatile movements in MYIRS, tracking bond performance closely in the coming weeks.

US Treasury Market

US Treasuries performed strongly throughout the week as the market was plagued by uncertainties on the US$700bil rescue package. As increasingly the effectiveness of the rescue package is questioned, expectation of rate hikes by the Fed is gaining steam.

The UST yield curve bullish steepened during the week. As at market close on Thursday, yields on the 2 and 5-years UST dropped 48 and 39 bps from last Friday to 1.62% and 2.67% respectively, while the 10 and 30-year UST closed 23 bps and 22 bps lower at 3.63% and 4.15% respectively.

Foreign Exchange Market

Forex movements of late have been largely affected by risk aversion and the US rescue package. During the week, the USD surged against the major currencies on expectation of the approval of the rescue package. We expect more market volatility ahead as nations ponder measures to stabilise the global financial markets.

European currencies fell against the greenback amid growing signs of economic slowdown in Europe. With prospect of recession in the Eurozone and the UK, the outlook for EUR and GBP has turned bearish. We expect a lower trading band of 1.36-1.41 for EUR/USD and 1.74€“1.80 for GBP/USD in the coming weeks.

Yen is firm as risk aversion continues to be the dominant theme. Given the prevailing negative sentiment, USD/JPY is expected to be range-bound within 102€“107 with downside bias.
USD/MYR touched a high of 3.4750 on broad USD strength and the bid tone in the pair will likely persist amid the global financial turmoil. We expect a trading range of 3.4400€“3.4800 in the following week.

Global Economy

Economic data released in the US were largely negative last week. Consumer spending in the US was stagnant in Aug-08, despite a 0.5% m/m gain in personal income as higher income was mainly driven by unemployment insurance and social benefits. In Sept-08, ADP report showed employers cut 8,000 payrolls while Challenger reported a 32.6% y/y increase in job cuts.
Manufacturing activities contracted by the most since 2001 in Sept-08 amid weakened overseas demand. Factory orders fell 4.0% m/m in Aug-08, the most in 2 years. Meanwhile, the housing slump is showing no sign of bottoming, as house prices continued to fall in July-08 by 16-18% y/y.

In Europe, the ECB kept its benchmark interest rate unchanged at 4.25% but signalled the possibility of rate cuts going forward as both growth and inflation were dampened by the credit turmoil.

More pessimistic data were also seen in Asia. In Japan, the Tankan Index showed that large manufacturers turned pessimistic for the first time in 5 years in 3Q08. Japan’s jobless rate rose to a 2-year high of 4.2% in Aug-08. Elsewhere, India and Thailand reported slowing export growth.

CPI readings continued to show cooling price pressures in Asia. In Sept-08, CPI in South Korea and Thailand slowed to 5.1% y/y and 6.0% y/y, from 5.6% and 6.4% a month earlier. Nevertheless, food-price inflation in Thailand was still on an upward trend, increasing 15.7% y/y in Sept-08 vs 14.3% in Aug-08.

For enquiries, please contact:
Ng-juan-hui@ambg.com.my
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Ooi-liang-wu@ambg.com.my
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There will be no new refineries. Oil Moving Up Soon?

2008-10-07T09:04:00.001+08:00

There will be no new refineries by Giuseppe Marconi - 2008/07/23

Oil companies won't be building more refineries, because there won't be enough oil left to refine by the time new refineries could pay for themselves.

There hasn't been a new refinery built in the US since 1976. In 1982, there were 301 operable refineries in the U.S and they produced about 17.9 million barrels of oil per day. Today there are only 149 refineries, and they're producing 17.4 million barrels. This increase in efficiency is impressive but not a miracle. As with everything these outputs are carefully calculated to optimize profitability. Let me explain.

Truth be told, new refineries require tremendous financial commitments which take anywhere from 15 to 25 years to amortize. With record oil prices it would make perfect sense to invest in a few refineries today, except... for the lack of oil to be refined 20 years from now.Trends have predicted that peak oil production, where the production of oil starts to decline, will be reached around 2007-2010. After that, there will be less and less oil to refine no matter where drillers look. In this context, building expensive new refineries does not make a lot of sense as existing ones will be sufficient to process whatever little oil is left. So forget about new refineries, except for a few in the northern midwest to process the heavy oil from Canada.

Crude oil is a finite resource more and more depleted. As such, an increasing demand put on this finite supply necessitates careful management in order to stretch its lifespan and profitability.

CPO falls below key RM2,000 level

2008-10-03T17:49:00.002+08:00

KUALA LUMPUR/SINGAPORE:

Ballooning vegetable oil stocks and fast-declining interest from funds in volatile commodities may hold off a recovery in palm oil prices until next year despite its fall to a level much lower than rival soyoil.

Palm oil's discount to soy oil has more than doubled to US$450 (RM1,553) a tonne in just six months as palm has lost half its value since hitting a historic high in March, triggering market talk that palm might have gone too low too soon and would bounce back.

But analysts said rising output in Malaysia and Indonesia and bumper crops in China and India would boost supplies and reduce export demand. And with a worsening financial crisis, funds are fleeing assets that have seen wide price swings recently.

"Panic has forced funds and investors to sell out palm oil," said Martin Bek-Nielson, executive director of United Plantations Bhd "Cash is now king in an environment when stocks are ballooning, exports are dwindling and the global economy is getting shattered."

Rising use of soyoil to make biodiesel in the United States and concerns over production in Latin America could help soy oil which is down about 13% this year, to claw back some gains to 45-48 cents a pound in coming months.

But palm oil would hover in the RM2,000-RM2,400 a tonne range until the second quarter of next year, when the lean production season will start.
Palm oil, used as a cooking oil and in products from cosmetics to biofuels, has lost 55% since hitting an all-time-high of RM4,486 on March 4. More recently, palm sales have suffered because of defaults.

Sliding palm oil prices have hit shares of Southeast Asia's plantation industry, once most sought after by investors.

Sector bellwethers such as IOI Corp have dived about 47% ever since palm oil prices fell from record highs. Astra Agro Lestari Tbk, Indonesia largest listed planter, has slumped 60%, while Singapore-listed Wilmar International has tumbled almost 40%.
Indonesia and Malaysia, which together account for the bulk of global palm oil production, are expected to produce around 38 million tonnes of the commodity in 2008, around 8%-10% higher than earlier estimates, analysts said.

The expectation of a surge in production comes at a time when appetite for the commodity is waning and top vegetable oil consumers, China and India, are cutting purchases.

This would leave the two countries with tank-bursting stocks of more than five million tonnes by December, the highest ever.

India, the world's second-largest edible oil importer after China, is looking forward to a bumper harvest from summer-sown crops. China is awash with palm oil supplies, with state reserves expected to last until the end of the year.

"A solid soybean crop is coming in full stream," said BV Mehta, executive director of the Solvent Extractors' Association of India. "We will see decline in palm oil demand from November."
India's soybean output is likely to reach a record 12 million tonnes this year, while China is expected to produce a record soybean crop of nearly 18 million tonnes.

China, Europe and other countries normally reduce their intake of palm oil in winter months because the tropical product solidifies in cold temperatures.

"If you look at the figures, palm oil end-stock will shoot, to five million tonnes, we have never seen something like this," said S Paramalingam, executive director of Malaysian brokerage Pelindung Bestari. "The bigger concern now is the drop in exports, October will be equally bad, as September." Exports of Malaysian palm oil products for September slumped by nearly a fifth to around 1.2 million tonnes, data from cargo surveyor SGS showed.

Biofuels, responsible for lifting palm oil out of obscurity a few years ago, are not likely to lend support in the near term.

Even though palm prices have dropped to a point that it makes economic sense to burn it either in a vehicle or a generator, margins are still too low to propel any large scale conversion.
Palm-based methyl ester or biodiesel is quoted around US$790 a tonne in Malaysia, while gas oil -- against which the biodiesel competes -- is selling at US$815 a tonne in neighbouring Singapore.

In addition, a lack of government mandates for blending in Malaysia will prevent investors from reviving their business plans.

"You can't just jump into the biodiesel business just because crude oil prices are falling, it's too volatile for comfort," said Velayuthan Tan, chief executive of IJM Plantations, which has deferred construction of its 90,000 tonne plant indefinitely.

"We prefer to be cautious because Malaysia has made no decisive move to implement the biodiesel policy."

And if the crisis on Wall Street leads to a recession, leading to weak energy consumption, biofuels will take a backseat and won't be a top priority for governments and investors.

"Governments are continuously looking for the right mix of variables such as high oil prices and ample feedstock supplies," said Nathan Mahalingam, managing director of Australia-listed Mission Biofuels "We had this for a time but now oil could be falling faster and palm biodiesel may get unattractive."

Soybean oil, which competes with palm oil, is also not expected to pull up palm as it is enjoying a premium for its increasing use in making biodiesel and output woes.

"In Brazil, they are experiencing severe shortage of moisture and in Argentina you have the drought," said MR Chandran, a vegetable oil industry analyst. "Soyoil is getting a better price also because more of soyoil is getting used in biodiesel."

Unlike soyoil, the share of palm oil in producing biofuels is relatively smaller at less than 5% of global output of 40 million tonnes. In the United States, more than 20% of the soyoil produced is turned into biodiesel. -- Reuters

Short Story for Teaching Time Management

2008-09-23T11:31:00.002+08:00

A Beautiful Story I came across on Time Management and Setting Priorities.

A professor stood before his class and had some items in front of him. When class began, wordlessly he picked up a large empty jar and proceeded to fill it with rocks right tothe top, rocks about 2" diameter. He then asked the students if the jar was full? They agreed that it was.

So the professor then picked up a box of pebbles and poured them in to thejar. He shook the jar lightly. The pebbles, of course, rolled into the open areas between the rocks. Thestudents laughed. He asked his students again if the jar was full? They agreed that yes, itwas.

The professor then picked up a box of sand and poured it into the jar. Ofcourse, the sand filled up everything else.

"Now," said the professor, "I want you to recognize that this is your life.

The rocks are the important things - your family, your partner, your health, your children -anything that is so important to you that if it were lost, you would be nearly destroyed. The pebbles are the other things in life that matter, but on a smallerscale.

The pebbles represent things like your job, house, or car.

The sand is everything else, the "small stuff." "If you put the sand or the pebbles into the jar first, there is no room forthe rocks. The same goes for your life. If you spend all your energy and time on the small stuff, material things, you will never have room for the things that are truly most important.

Pay attention to the things that are Important in your life and spend time on the Important. Some of the Important's are:

Spend time with your Family.
Spend time with your People.
Spend time for your Customers.
Play with your children.
Take time to get medical checkups.
Take your partner out once a while.
Take time to renew yourself.
Find time for maintainance.
Spend time on Preventing than on Solving Problems
***** Take care of the rocks first - the things that really matter.
**** Set your priorities, the rest is just pebbles and sand.

Believe in yourself, know what you want, and make it happen! Whatever your mind can conceive and believe, it can achieve ~ Napoleon Hill ~

Oil up US$25 a barrel, biggest one-day gain ever

2008-09-23T11:28:00.001+08:00

Tuesday September 23, 2008 MYT 9:34:55 AM

Oil up US$25 a barrel, biggest one-day gain ever

NEW YORK: Oil prices briefly spiked more than $25 a barrel Monday, shattering the record for the biggest one-day gain as unease about the U.S. government's US$700 billion bailout plan pummeled the dollar and spurred investors to buy safe-haven assets.
An expiring crude contract added fuel to the frenzied rally.
Light, sweet crude for October delivery jumped as much as $25.45 to $130 a barrel on the New York Mercantile Exchange before falling back to settle at $120.92, up $16.37.
The contract expired at the end of the day, adding to the volatility as traders rushed to cover positions; the October price began accelerating sharply in the last hour of regular trading, a common occurrence when a contract is about to go off the board.
Still, the rally, which shattered crude's previous one-day price jump of $10.75, set June 6, showed the intensity of emotion in the market.
The Nymex temporarily halted electronic crude oil trading after prices breached the $10 daily trading limit.
Trading resumed seconds later after the daily limit was increased.
The November crude contract, which became the front-month contract at the end of Monday's session, settled at $109.37, up $6.62, still a very sharp gain.
The severity of the price move shocked veteran market participants and prompted the U.S. Commodity Futures Trading Commission to launch an investigation into whether illegal manipulation was to blame.
Acting CFTC Chairman Walter Lukken said the agency's surveillance and enforcement staff was analyzing the price spike "to ensure that no one is taking advantage of the current stresses facing our financial marketplace for their own manipulative gain.''
Phil Flynn, analyst and oil trader with Alaron Trading Corp. in Chicago, said the late-session surge in oil appeared to be the result of a large investment fund scrambling to cover their short positions, or bets that prices would fall.
"When people sense that someone is short, it's like blood on the streets. It just accelerates the rally,'' Flynn said.
In other trading, gold prices shot up more than $44.30 to settle at $909 an ounce, and other safe-haven commodities also rallied, underscoring investors' uncertainly about the direction of the economy and their fear of more turmoil ahead.
"We're off to the races again,'' said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Ill.
"There's a renewed scramble for commodities because of a general weakness in the dollar.''
Crude has gained about $30 in a dramatic four-day rally that has at least temporarily halted oil's steep two-month slide below $100.
At this rate, crude is within striking distance of its all-time record of $147.27, reached in July.
Oil's sharp gains came as energy traders grappled with the implications of the government's proposed initiative to stem the U.S. financial crisis by absorbing billions of dollars of banks' bad mortgage-related securities.
Anxiety over the plan also sent stocks sharply lower Monday; the credit markets were calmer than they were last week, but still showing the effects of investors' nervousness.
Investors fear that the government will have to dramatically ramp up borrowing to pay for the mammoth rescue effort, an inflationary move that could further devalue the dollar and trigger another wave of safe-haven buying in investments like commodities.
"They're going to have to continue auctioning off a whole lot of Treasurys to finance these projects, so the dollar is going to suffer,'' said Matt Zeman, head trader at LaSalle Futures in Chicago.
"Right now it's fear and anxiety driving people who want tangible assets.''
The 15-nation euro rose to $1.4824 in afternoon trading, up from the $1.4470 on Friday.
A weak greenback was a catalyst for the commodities boom of the past year, and analysts said large investment funds were expected to pour money back into the sector.
"That trade was very successful in past so if the dollar keeps weakening, a lot people are going to want to own hard assets like crude,'' said Andrew Lebow, senior vice president and broker at MF Global in New York.
But there is still much uncertainty about what impact the U.S. rescue plan will have on energy demand.
Oil's run-up near $150 a barrel in July and a weak U.S. economy has forced Americans to cut back on their driving and led business to scale down operations.
Though U.S. gasoline prices have eased from record levels above $4 a gallon ($1 per liter), they remain expensive, and more softening in the economy would likely further curtail energy use in the world's thirstiest consumer.
Given the dire economic outlook, some analysts questioned whether oil prices would keep rising.
"We've already seen that the world can't afford oil at these prices. If it keeps going up, demand will drop off again,'' Flynn said.
However, he cautioned that oil's future direction hinged on the outcome of the government bailout plan and its effect on the U.S. economy.
"If the dollar keeps getting whacked and everybody panics, then we are going up again,'' he said.
U.S. congressional leaders endorsed the plan's main thrust, saying passage might occur in a matter of days.
But they also want independent oversight, protections for homeowners and constraints on excessive executive compensation, House Speaker Nancy Pelosi said Sunday.
Treasury Secretary Henry Paulson pushed lawmakers, who received the package on Saturday, to approve the proposal as soon as possible.
The Federal Reserve also announced late Sunday it granted a request by investment banks Goldman Sachs and Morgan Stanley to change their status to bank holding companies, a move that will allow the two institutions to open commercial banking subsidiaries, greatly bolstering their resources.
In other Nymex trading, heating oil futures rose 14.52 cents to settle at $3.043 a gallon, while gasoline futures rose 10.41 cents to settle at $2.7038 a gallon.
Natural gas futures rose 9.5 cents to settle at $7.943 per 1,000 cubic feet.
In London, November Brent crude rose $6.43 to settle at $106.04 a barrel on the ICE Futures exchange. - AP

My 18 hours under the ISA

2008-09-16T12:01:00.008+08:00

Malaysia Terrorist Law Used To Protect Journalist?... read more. Judge It !!! Do you want this happend to you & family? Show your disapproval, Click here to vote againts it.

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The Star Online > Nation Tuesday September 16, 2008

My 18 hours under the ISA

By TAN HOON CHENG

WHILE enjoying my yew char koay (fried dough stick), I was worried about the show-cause letter issued to Sin Chew Daily, and anxious about the days ahead for my newspaper.
Suddenly, a group of plainclothes policemen appeared in front of my gate. A woman police officer started to identify who they were and the purpose of their visit. She was also the only one in uniform.

She told me I had to follow them to the police station. I said would not open the gate unless they had a warrant of arrest.

I immediately rang the legal adviser of our company and my direct superior to seek their advice. Later, the woman officer told me they were arresting me under the Internal Security Act (ISA) and therefore a warrant was not required. Upon hearing that, I immediately prepared for the worst.

I had to act calm, comforting my parents and reassuring them that my colleagues would be waiting for me at the police station to render assistance. When I was taken away, my parents reacted strongly and they kept on asking the police to accord me proper treatment.
I was brought to the Seberang Prai Tengah district police station. I was placed in a cold room while waiting for the police to begin their paperwork.

I was accompanied by a woman officer who seemed to be shivering because of the low room temperature. To break the silence, I initiated a conversation. She told me: “You seem to be very calm.”

I told her: “I am arrested under the Internal Security Act and even though I am scared, I have to face this reality. But I am worried about my parents, friends and relatives, they must be very worried about me.”

To be frank, I was very cool-headed. I believed there must be a lot of people out there supporting me and giving me the strength I needed. So, I had to stay strong for them.
The police recorded all my personal belongings which were later taken away from me. After that, I was considered ready to be sent to the police contingent headquarters in Penang.
When I was brought out of the police station, I realised a lot of my media colleagues, representatives from different parties and groups were already waiting outside the police station to show their support.

Seeing this, I was deeply touched, I could no longer hold back my tears.
When the police car arrived at the entrance, my superior, Puah Eu Peng, our Northern Region Manager, tried to stop the car with his body and to slow it down.

He knocked at the window, to make sure I was in the car and gestured to show his support. I instantly wiped off my tears.

After taking my thumbprints, I was given dinner and arranged to spend my night in remand. I did not know that people had gathered outside the station to show their support.
I requested the woman officer to keep the lights on. She told me not to worry, she would not switch off the lights.

The police also informed me I would meet my parents at 8am tomorrow morning. I spent a very long time, thinking of everything that I had to tell my parents.

I lost touch with the outside world and since it was my only opportunity, I had cherish it. To clearly explain everything to my parents.

After clearing my mind, I tried to sleep on a wooden bed with the company of mosquitoes and the noise of water dripping. I had no idea what tomorrow held for me, but I knew I had to be in perfect condition to handle everything.

I have never suffered from insomnia but this very night, I finally experienced it.
Deep down in my heart, I know those who cared about me would also be experiencing the same and my heart ached thinking about that.

When I was about to wash up at 6am, the woman officer passed me clothes brought by my parents. I was surprised; everything was new, the toiletries, T-shirts, shorts, panties.
I later discovered that the “parents” the police officer was referring to were a bunch of colleagues. While waiting outside the Penang police contingent headquarters, they had prepared them for me.

They were uncertain when I would be released, but told themselves they had to get these items ready in the shortest time possible.

I met my parents and said goodbye.

The police informed me they would bring me to the Bukit Aman police headquarters in Kuala Lumpur. My heart sank. I told myself this was the beginning of it, I must brace myself for everything.

I was eventually brought to the Perak police headquarters in Ipoh. After a brief interrogation session, I was brought back to Penang police headquarters again.
I was interrogated further. I told myself to keep my mind clear, I must tell them the truth, and respond appropriately.

After the interrogation, I was brought to see another higher-ranked officer, he told me: “We can both go home now!” Both of us turned to the clock on the wall. The time was 2.25pm.

These were my 18 hours under the ISA. I have gone through a lot.

After being released, I received a lot of messages, telephone calls and bouquets.
My colleagues in the press, representatives from political parties, society leaders, schoolmates, classmates, friends and relatives visited me at home. Of course, not forgetting the readers and members of the public who called up or visited Sin Chew Daily’s office in Penang or the head office in Petaling Jaya.

To all of them, I express my deepest gratitude. During those 18 hours, which was filled with a lot of uncertainties, I felt there was some unknown strength that supported me through it all.
I knew it must be from you all, those whom I knew or have not met!

I realise our journey is still full with challenges and obstacles, so we have to continue with the same righteous spirit and courage that we have all shown this time! Our society needs this spirit. To build a better tomorrow.

I have finally been freed, but I hope Teresa Kok and Raja Petra Kamarudin and all those detainees under the ISA can be released as soon as possible.

If the authorities think they have broken the law, they should be brought to a court of law to stand transparent and fair trials.

This article is reproduced, with permission, from http://www.mysinchew.com/.
© 1995-2008 Star Publications (Malaysia) Bhd (Co No 10894-D)

Oil closes below $100 for first time in 6 months

2008-09-16T10:46:00.002+08:00

Oil closes below $100 for first time in 6 months

By STEVENSON JACOBS, AP Business WriterMon Sep 15, 4:58 PM ET

Oil prices closed below $100 a barrel for the first time in six months Monday, tumbling in another dramatic sell-off as the demise of Lehman Brothers and the sale of Merrill Lynch deepened worries about the U.S. economy.
Crude prices shed more than $5 a barrel and have now given up virtually all their gains for the year, extending a steep, two-month slide from record levels above $147 a barrel.
Oil's pullback also came as early signs suggested that Hurricane Ike delivered less damage than feared to the Gulf Coast energy oil and gas infrastructure. But pump prices jumped above $4 a gallon in parts of the country as a precautionary shutdown of Gulf refineries caused gasoline shortages.
The latest sell-off in oil began Sunday and accelerated Monday as traders digested a day of dramatic upheaval on Wall Street: Lehman Brothers Holdings Inc., a 158-year-old investment bank, filed for bankruptcy after failing to find a buyer and Merrill Lynch & Co. agreed to be bought out by Bank of America Corp.
Lehman, Merrill and other big institutional investors were major participants in the commodities boom of the past year, helping push the price of oil, precious metals and grains to historic highs until a slowing global economy helped bring a halt to the rally.
Analysts said investors feared that the upheaval in the financial sector could trigger another round of commodities liquidation — especially with Lehman likely to unwind its holdings. Other investors may also unload commodities, fearing that the deepening economic crisis will further reduce demand for energy and raw materials futures.
"I think this is giving the bulls further reason to exit the market," said Stephen Schork, an oil analyst and trader in Villanova, Pa., who said the pullback could reflect selling by Lehman or possibly a hedge fund struggling to raise capital. "When you see price drops of this size, it reeks of someone being in trouble."
Light, sweet crude for October delivery fell $5.47 to settle at $95.71 a barrel on the New York Mercantile Exchange — oil's first settlement under $100 since March 4. Earlier, prices dipped to $94.13, the lowest trading level in seven months. The sell-off gained momentum in aftermarket trading as prices fell more than $6.50.
Crude has fallen more than $50 — or 35 percent — from its all-time trading record of $147.27 reached July 11 as a global economic slowdown continues to weigh on demand for energy.
Other commodities traded mixed Monday, with energy futures down but gold, silver and most grains trading higher.
Investors were also awaiting damage assessments to Gulf energy infrastructure after Ike's passage.
U.S. officials said Sunday that Ike destroyed at least 10 oil and gas platforms and damaged pipelines in the Gulf of Mexico. But that represents only a small portion of the 3,800 production platforms in the Gulf and pales in comparison to the catastrophic damage to energy infrastructure doled out by Hurricanes Katrina and Rita three years ago.
"Fears of widespread refinery damage have been allayed considerably and a number of facilities are coming back up in a timely fashion," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Ill.
Still, power outages along the Gulf Coast were slowing efforts to restart some refineries. Meanwhile, virtually all oil production in the Gulf and about 94 percent of natural gas output remained shut-in Monday, according to the U.S. Minerals Management Service.
The shutdown of Gulf refineries sent wholesale gasoline prices spiking last week and pushed pump prices back above $4 a gallon in South Carolina, Alabama, Georgia and other states. Gasoline shortages were reported in Maryland, Virginia and North Carolina.
On Monday, a gallon of regular rose half a penny overnight to a new national average of $3.842 — up 16.7 cents from Friday, according to auto club AAA, the Oil Price Information Service and Wright Express.
Tom Kloza, publisher and chief oil analyst at the Oil Price Information Service in Wall, N.J., said supply shortages caused by Ike and Hurricane Gustav should last at least another two weeks.
"That means we're looking at close to $4 a gallon for the rest of September," Kloza said. "People are going to observe more of this disconnect where retail prices move higher even though crude oil is trading below $100 a barrel."
Also adding to the selling pressure Monday was a slightly stronger dollar. A rising greenback encourages investors to unload commodities bought as a hedge against inflation or weakness in the U.S. currency.
Oil fell despite reports that militants have launched another attack Nigeria's oil infrastructure in a third day of violence.
In other Nymex trading, heating oil futures fell 14.79 cents to settle at $2.7912 a gallon, while gasoline prices dropped 20.82 cents to settle at $2.5614 a gallon. Natural gas for October delivery rose about a penny to settle at $7.374 per 1,000 cubic feet.
In London, October Brent crude fell $5.20 to settle at $92.38 a barrel on the ICE Futures exchange.
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Associated Press Writers Louise Watt in London and Alex Kennedy in Singapore contributed to this report.
Copyright © 2008 The Associated Press. All rights reserved. The information contained in the AP News report may not be published, broadcast, rewritten or redistributed without the prior written authority of The Associated Press.

How To List A Property At D-Choice Properties

2008-08-27T10:24:00.006+08:00

Click Here ==> How To List A Property/Ads At D-Choice Properties Website?

MAN

2008-08-14T21:19:00.003+08:00

One of the more successful international trading companies is 3M. It is one of 30 companies in the Dow Jones Industrial Average and is also a component of the Standard & Poor's 500 Index. 3M’s sales for 2007 touched US$24.462 billion while its net income was US$4.096 billion. 3M used to be called Minnesota Mining and Minerals before its name was shortened to 3M.

3M’s success is in its training program. It is said to have the best training module for its salesmen and it is also said there is nothing a 3M salesman can’t sell. For example, the salesmen are taught, to successfully close a sale, you must sell to the MAN. MAN here means: Means, Authority and Need. The person making that decision to buy must have the means (money or budget), authority (power to make that decision to buy) and need (they require the item you are trying to sell). If one of these three ingredients is missing then you will never be able to close the sale.

So, if you are a salesman and you want to successfully close that sale, go look for the MAN. Only the person who has the three ingredients of the MAN will make, or be able to make, that decision whether to buy from you or not.

Raja Petra Kamarudin's 3M="Money Motivates Man (man as in humankind rather than gender description)". Yes, money is the greatest motivator of man. Nevertheless, there are also other motivators; sex and power. However, once you have money, then these others can come easily and naturally.

Ever wondered why wealth, power and sex always seem to come together? In fact, you can exchange one for the other. If you have money you can buy power or if you have power you can make money. And sex can also be used as a ‘commodity’ to ‘sell’ for money and power -- or, if you have money and/or power, you can buy sex easily.

Commodities slowdown could last months, longer

2008-08-10T15:05:00.002+08:00

Sunday August 10, 2008 MYT 9:15:09 AM

NEW YORK (AP): The commodities boom that just weeks ago looked unstoppable may have finally burned itself out.

Sudden plunges in the price of everything from crude to copper and cotton suggest commodities soared too high, too fast _ and analysts expect even steeper declines in the months ahead as the U.S. economic slowdown spreads overseas and saps demand for energy, construction supplies and consumer goods.

Though commodities could swing higher again if the U.S. economy bounces back or world oil supplies suddenly become scarce, experts consider neither scenario appears likely for several months or longer.

"The downward pace still has a way to go,'' said Edward Meir, senior commodities analyst at MF Global in New York. "People are now coming around to the fact that growth is slowing, both in the U.S. and overseas, so demand for commodities will decline.''

At least some of the falling prices in commodities trading pits are likely to filter back down to consumers. Lower oil prices make it cheaper to ship food around the globe, and ease the burden on consumers when they fill their gas tanks and heat their homes. Falling prices for corn and soybeans should also have some impact on what shoppers pay in the supermarket.

Highlighting the spiral, the Jefferies-Reuters CRB index, a global commodities benchmark, plunged 10 percent in July, its biggest monthly drop since 1980, when the U.S. was in a recession.

"There was a commodities bubble and it has burst,'' said James Cordier, president of Tampa, Florida-based trading firms Liberty Trading Group and OptionSellers.com.

The stark change in sentiment marks a stunning turnaround for the once-sizzling commodities sector, which only months ago seemed on a relentless march higher amid a global scramble for natural resources and a weak dollar that made them cheaper to overseas buyers. No longer.

In a sign of just how much the euphoria has faded, investors who thronged futures markets earlier this year seeking juicy, double-digit returns now can't sell gold, silver and cocoa futures fast enough. Gold, for example, is now selling for $864 an ounce _ down from a record of $1,038.60 an ounce on March 17 _ and lately has been falling $10 or more a day.

"Everybody is scrambling to get out of the ship before the guy next to them,'' said Nathan Golz, a commodities researcher at Wachovia Securities in St. Louis. "It's amazing how fast commodities have become the last place people want to have their money.''

Davide Accomazzo, managing director of trading at Los Angeles-based Cervino Capital Management, said his firm doesn't see good buying opportunities in commodities "for at least the next three to nine months.''

"The conditions just aren't right,'' said Accomazzo, whose firm trades options on metals, natural gas and soft commodities.

The downturn in commodities gained momentum after crude began tumbling last month, dragging down precious metals, grains and other commodities as traders raced to dump positions. Oil has lost about $32, or 21 percent, from its record high of $147.27 a barrel hit last month, as $4-a-gallon ($1.05 a liter) gasoline forced many Americans to abandon fuel-guzzling SUVs and skip vacations.

As the busy U.S. driving season enters its last month, oil market speculators have shifted their investment strategy and are now shorting crude _ or betting prices will fall _ for the first time in 17 months.

"It looks like the bulls have run out of ammo,'' said Stephen Schork, analyst and oil trader in Villanova, Pennsylvania. "With poor demand prospects ahead ... there's not a lot of reason to be buying commodities right now.''

And here's another reason: Many commodities investors who got burned buying into the rally just before it turned likely won't have the stomach to get back in anytime soon, analysts say.

"I don't see them with their scorched fingers coming back into the market. That money is gone for a while,'' said Cordier, who said a "herd mentality'' pushed a wave of first-time commodities investors into the market, including some large fund managers who had never experience a boom in futures prices.

So what could bring commodities back up? Analysts say the biggest factor is the ailing U.S. economy. If growth picks up, unemployment falls and consumers start spending again, demand for energy, building materials and other goods will increase, straining world supplies again.

"But we're not expecting that to happen for at least a few quarters,'' said Cordier.

China could also be a catalyst. The country has restricted driving and closed factories to reduce pollution during this month's Beijing Olympics, and some people expect a bump in demand for gasoline, coal and other material once the Games finish.

Others say the same thing that sparked the boom will likely spur its revival: Burgeoning population growth and rising income levels in developing countries that will eventually add to pressure on world supplies of food, fuel and other goods.

Jon Nadler, a precious metals analyst with Kitco Bullion Dealers Montreal, said commodities could be seeing a pause now, "but the question is how intense is it and how long will it last?''

"People haven't stopped multiplying, so at some point you'd expected prices to go up again,'' he said.
(C) 1995-2008 Star Publications (Malaysia) Bhd (Co No 10894-D)

Oil Drops To US$118 Today

2008-08-06T09:01:00.002+08:00

This eventful day has been fulfilled! Note my previous post (http://life-exchange.blogspot.com/2008/07/is-oil-coming-down.html ) that oil will dropped to this level.

Oil falls as low as $118 on demand concerns
By MADLEN READ, AP Business WriterTue Aug 5, 4:24 PM ET

Oil traders sent crude prices tumbling as low as $118 a barrel Tuesday on the growing belief that a U.S. economic slowdown and high energy costs are curbing consumer demand for gasoline and other petroleum products.

Crude oil finished the day just above $119 a barrel — its lowest settlement price since early May.
Crude's decline is giving Americans more relief at the pump. A gallon of regular gasoline on average fell another penny overnight to $3.871, according to auto club AAA, the Oil Price Information Service and Wright Express. Gas prices have fallen four straight weeks for the first time since December; prices are off 5.9 percent from their July high as U.S. motorists cut back on their driving to save money.

A day after plunging as much as $5 a barrel in a dramatic sell-off, crude continued its downward trend. Gasoline and heating oil prices also fell, while natural gas ended unchanged after Monday's steep drop.

Light, sweet crude for September delivery fell $2.24 to settle at $119.17 a barrel on the New York Mercantile Exchange, the lowest close since May 2. During trading, the contract dipped to $118 — nearly $30 below the trading high of $147.27 reached July 11.
"The market psychology has finally shifted," said Stephen Schork, an analyst and trader in Villanova, Pa., adding that "$4-a-gallon gasoline has clearly killed demand."
Some analysts say oil has the potential to jump back up.

There are many factors that could keep oil from descending further, said Mike Fitzpatrick, vice president of energy and risk management at MF Global LLC. Those include political tensions in Nigeria and the Middle East, the potential for a big hurricane along the Gulf Coast, and global demand that is still growing — just not at the same pace that it had been.

"Even if it seems as though China's economic demand run has slowed some, those changes at the margins still make them a huge consumer of crude products," Fitzpatrick said.
Still, the Federal Reserve, which issued an economic assessment statement along with its decision to keep interest rates stable, said that along with tight credit and the housing contraction, "elevated energy prices are likely to weigh on economic growth over the next few quarters."

The dollar's six-week highs against the euro also contributed to oil's decline Tuesday. The euro fell to $1.5464 from the $1.5587 it bought late in New York trading Monday, making oil and other commodities less attractive to investors seeking a hedge against inflation and dollar weakness.

Natural gas futures finished unchanged at $8.726 per 1,000 cubic feet, after swinging into positive and negative territory during trading. On Monday, natural gas plunged 66.3 cents, or 7 percent, to $8.726 per 1,000 cubic feet, its lowest level in nearly six months. Prices have closed lower in eight of the last 11 sessions and dropped 36 percent from the contract's all-time trading high of $13.752, reached July 2.

The pullback is double the size of crude's recent slide. That has fed speculation on Wall Street that a large hedge fund or something like it may be near collapse and has dumped a vast amount of natural gas contracts to free up cash. Last month, SemGroup LP, based in Tulsa, Okla., folded after losing $2.4 billion in bad bets on oil futures. SemGroup's collapse came amid a massive sell off in the oil market.

"Anytime you get that kind of violent price action in a short amount of time, it reeks of someone big being in trouble," Schork said.

Investors on Tuesday ignored continued tension over Iran's nuclear program. Representatives of the five permanent members of the U.N. Security Council and Germany agreed Monday to seek new sanctions against Iran after the country failed to meet a weekend deadline to respond to an offer intended to defuse the dispute, State Department spokesman Gonzalo Gallegos said.
In other Nymex trading, heating oil futures fell 6.81 cents to settle at $3.2820 a gallon, while gasoline prices dropped 4.38 cents to settle at $2.9564 a gallon.

In London, September Brent crude fell $2.98 to settle at $117.70 a barrel.
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Associated Press writers Stevenson Jacobs in New York, Pablo Gorondi in Budapest, Hungary and Alex Kennedy in Singapore contributed to this report.