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
Latest business news from AP-Wire
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ฉ 1995-2009 Star Publications (Malaysia) Bhd (Co No 10894-D)
Monday, December 28, 2009
Wednesday, December 2, 2009
How to diversify investments during this time of crisis
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
--------------------------------------------------------------------------------
ฉ 1995-2009 Star Publications (Malaysia) Bhd (Co No 10894-D)
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
--------------------------------------------------------------------------------
ฉ 1995-2009 Star Publications (Malaysia) Bhd (Co No 10894-D)
Gold price hits another record high
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.)
Latest NYSE, NASDAQ and other business news, from AP-Wire
For latest Bursa Malaysia indices, charts and other information click here
New York Stock Exchange: http://www.nyse.com
Nasdaq Stock Market: http://www.nasdaq.com
For Tokyo Stock Exchange click here
Related Stories:
How to diversify investments during this time of crisis
--------------------------------------------------------------------------------
ฉ 1995-2009 Star Publications (Malaysia) Bhd (Co No 10894-D)
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.)
Latest NYSE, NASDAQ and other business news, from AP-Wire
For latest Bursa Malaysia indices, charts and other information click here
New York Stock Exchange: http://www.nyse.com
Nasdaq Stock Market: http://www.nasdaq.com
For Tokyo Stock Exchange click here
Related Stories:
How to diversify investments during this time of crisis
--------------------------------------------------------------------------------
ฉ 1995-2009 Star Publications (Malaysia) Bhd (Co No 10894-D)
Mier: Malaysia may need third stimulus package
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.
For more MIER reports click here
--------------------------------------------------------------------------------
ฉ 1995-2009 Star Publications (Malaysia) Bhd (Co No 10894-D)
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.
For more MIER reports click here
--------------------------------------------------------------------------------
ฉ 1995-2009 Star Publications (Malaysia) Bhd (Co No 10894-D)
Wednesday, November 11, 2009
Gold hits record high as dollar slides
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
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
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
Latest business news from AP-Wire
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ฉ 1995-2009 Star Publications (Malaysia) Bhd (Co No 10894-D)
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
Latest business news from AP-Wire
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ฉ 1995-2009 Star Publications (Malaysia) Bhd (Co No 10894-D)
Friday, October 16, 2009
Gold at another all time high, commodities rally
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
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
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.
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.
Wednesday, September 9, 2009
Malaysia drops to 24 in competitiveness ranking
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)
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
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
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
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)
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
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
ฉ 1995-2009 Star Publications (Malaysia) Bhd (Co No 10894-D)
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
ฉ 1995-2009 Star Publications (Malaysia) Bhd (Co No 10894-D)
Wednesday, August 26, 2009
Oil touches ten-month high of US$75, then tumbles
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
Latest NYSE, NASDAQ and other business news, from AP-Wire
For latest Bursa Malaysia indices, charts and other information click hereNew York Stock Exchange: http://www.nyse.com
Nasdaq Stock Market: http://www.nasdaq.com
For Tokyo Stock Exchange click here
ฉ 1995-2009 Star Publications (Malaysia) Bhd (Co No 10894-D)
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
Latest NYSE, NASDAQ and other business news, from AP-Wire
For latest Bursa Malaysia indices, charts and other information click hereNew York Stock Exchange: http://www.nyse.com
Nasdaq Stock Market: http://www.nasdaq.com
For Tokyo Stock Exchange click here
ฉ 1995-2009 Star Publications (Malaysia) Bhd (Co No 10894-D)
Malaysia GDP shrinks 3.9pc in second quarter
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.
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.
Sunday, August 23, 2009
World emerging from deep slump but can it last?
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.
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.
Wednesday, August 19, 2009
World stocks fall as China market unravels
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.
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.
Thursday, May 28, 2009
Slumping Treasury bond prices send stocks lower
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.
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.
Monday, April 27, 2009
Can China’s growth save the world?
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)
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)
Friday, April 17, 2009
IMF says recession likely to be long, recovery slow
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
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
Wednesday, April 15, 2009
How long is this recession journey going to be?
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
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
Thursday, March 19, 2009
US Fed starts bold US$1.2 trillion effort to revive US economy
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.
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.
Monday, March 16, 2009
Will the stock market rally stick, or vanish?
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)
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)
Wednesday, March 11, 2009
It’s bad but far from Doomsday – Barton Biggs
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
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
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