Juky 15, 2011
By BERNARD CONDON - AP Business Writers,MATTHEW CRAFT - AP Business Writers | AP – 1 hr 8 mins ago
....NEW YORK (AP) — The CEO of a big bank says a U.S. default could be catastrophic for the economy. The head of the Federal Reserve warns of chaos. And a credit rating agency threatens to take away the country's coveted triple-A status.
The response on Wall Street: So what?
In Washington, the fight over whether to raise the federal debt limit has grown uglier by the day. The White House says the limit must be raised by Aug. 2 or the government won't be able to pay its bills, possibly including U.S. bonds held around the world.
But as the deadline nears, stocks and bonds have barely flinched.
The Dow Jones industrial average fell just 54 points Thursday and stands about where it did at the start of the month. The yield on the 10-year Treasury bond, which usually rises when investors see it as a riskier bet, is considerably lower than earlier this year.
It may seem an odd, even reckless, reaction by investors. But it isn't completely crazy.
Take the ho-hum reaction from the bond market. In theory, investors in U.S. Treasury bonds should demand higher interest payments when there's a greater risk they won't get their money back — in this case, in the event of a default next month.
Instead, the yield on the 10-year Treasury note rose only slightly Thursday, to 2.95 percent. In February, when the U.S. economic recovery seemed stronger and the debt limit was a distant threat, it was 3.74 percent.
But in this market, as in the schoolyard, size wins. The U.S. has $14 trillion in outstanding Treasury bonds. That dwarfs government bonds of any other nation. U.S. debt is held more widely and traded more often than any other government's IOU.
That matters because pensions, private investment funds and central banks the world over want to know that they can buy and sell these holdings fast — what investors call liquidity. During the credit crisis of 2008, investors bought U.S. Treasurys because they were perceived as not only safe but liquid.
"It's very nice that Switzerland is a safe place," says Avi Tiomkin, a hedge fund consultant who holds Treasurys. "But if you're the Russian or Chinese central bank, it's just too small."
Steve Ricchiuto, chief economist at Mizuho Securities, points to another reason the markets are calm: The U.S. may seem a more dangerous place to park your money given its rising debt, but much of the rest of the world isn't faring well, either.
He notes that Europe is trying to contain a debt crisis. Yields on bonds of various countries there have gone up recently. "The U.S. is the best in a bad world," he says, so people have no choice but to invest here.
As for stocks, there's plenty of news — some very good — to distract investors from Washington's problems. U.S. companies are issuing their financial results for the latest quarter, and they're expected to post big profits — up 15 percent, according to a survey by data provider FactSet.
JPMorgan Chase reported profits up 13 percent Thursday, higher than analysts had expected. The stock rose sharply on the news. Earlier in the day, it was that bank's CEO, James Dimon, who warned that a failure by Congress to agree to raise the debt ceiling could mean "catastrophe."
On Wednesday, Moody's Investors Services warned it might take away the United States' top-notch credit rating if it missed even one interest payment on its bonds. In testimony before Congress on Thursday, Federal Reserve Chairman Ben Bernanke said a U.S. default could throw the financial system into "chaos."
The Dow Jones industrial average closed at 12,437, down 0.4 percent. The S&P 500 closed at 1,308, down 0.7 percent.
The United States hit its current $14.3 trillion debt ceiling in May. For a new debt ceiling to last to the end of 2012 would require raising it by about $2.4 trillion.
A default would drive up the cost of government borrowing for years to come. That would translate into higher interest rates for everybody else, making it more expensive for corporations to finance spending projects and for Americans to take out mortgages or other loans.
The bigger fear is that a default could freeze the short-term lending markets that keep money moving throughout the global financial system. Treasurys and other government-backed debt are the most widely used collateral for loans in these markets.
A default and a downgrade of U.S. debt would lower the value of that collateral. Lenders might respond by forcing borrowers to sell other assets to post more collateral. The fallout could resemble what happened when Lehman Brothers collapsed in 2008.
The prospect of such terrible consequences may be exactly the reason investors aren't all that worried.
"There's just too much at stake politically and economically for a deal not to get done," says John Briggs, Treasury strategist at the Royal Bank of Scotland. "It seems hard to believe that any politician would want their name attached to a default of U.S. debt."
Many other investors are assuming the same thing. Tony Crescenzi, market strategist at money manager Pimco, says Wall Street has been expecting a deadline-beating deal since the debt-limit became a subject of debate earlier this year.
No one knows how close Washington can get to the deadline without triggering a sell-off. Sam Yake, a stock analyst at BGB Securities, is confident a deal will be struck. But he says that if enough investors start to worry, the fear could feed on itself.
"In financial markets, you're playing with people's confidence," he says. "If enough people start thinking it's a catastrophe, it could become so."
...
Friday, July 15, 2011
Wednesday, July 13, 2011
Property trends – where are we heading to?
Jul 11, 2011
There have been many speculation (and subsequent refuting by various parties) of a property bubble. Year 2009 marked an economic slowdown due to the global financial crisis, while year 2010’s economic recovery was largely boosted by the government’s economic stimulus package.
Some attributed the astronomical price increases in hot areas to the suppressed demand of year 2009. In that year, it was common for developers to offer 5% downpayment and 0% interest until upon completion of a development. Similarly, banks offered attractive rates, where the interest rates were at approximately the high 3% or low 4%.
Escalating prices
2011 came and property investors had to rethink their investment strategies. Prices of properties have surpassed the levels recorded before the crisis and in the first half of 2010 itself, prices of landed houses in some popular areas in the Klang Valley, Penang and Johor have appreciated by 10% to 30%. Bank Negara Malaysia (BNM), in its “Financial Stability and Payment Systems Report 2010”, stated that house prices in selected locations within and surrounding urban areas had increased to four times higher than the national house price index.
BNM has been staying on the pulse of the market’s movements and implemented a loan to value ratio of 70% for third mortgage borrowers. However, crafty property buyers have resorted to using their spouse or relatives’ names when applying for loans. Some have opted to take the commercial route, as the required downpayment is at an average of 80% (as opposed to 70% if the buyer has more than two residential properties currently). Plus, the capital gains and rental yield are relatively higher than residential properties. Hence, some buyers have changed their strategy by investing in commercial properties.
Proceed with caution
In early May 2011, BNM raised the overnight policy rate (OPR) by 25 basis points to 3% and increased the statutory reserve requirement (SRR) by one percentage point to 3%, and as such, banks have raised their base lending rates (BLR) and base financing rates (BFR) by 30 basis points to 6.60% respectively. Banks that offer BLR minus 2%, means that effective interest rates are still below 5%.
However, property investors should look at the slight rate hike with caution. It is imperative that property buyers make decisions based on repayment capability, and also factor in expected rental yields.
New developments continues to mushroom especially in the Klang Valley and Greater Kuala Lumpur and reports have indicated that investors are still very much active, with investors snapping up units during property launches, despite the price increase. Analysts have indicated that it is still too early to measure the impact of current regulations.
Property Investment Convention 2011 (PIC 2011)
If current property trends and regulations are at the top of your mind, join the Property Investment Convention where current topics of interest will be analysed and shared by various speakers.
The convention will mainly be about movement in the property market, the current and future trends based on the MRT, how to purchase as regulations change, how to tweak your strategies in view of the changing regulations, managing your portfolio, diversifying into REITS, and many more.
The speakers include:
- Best-selling author and property investment coach, Milan Doshi
- Location researcher and map maker, Ho Chin Soon
- The master of lead generator and co-author of the first ‘Lease Options’ book in the UK, Vincent Wong
- International property investment trainer and co-founder of Wealth Dragon in the UK, John Lee
The Property Investment Convention is scheduled to be held on 6 and 7 August 2011 at The Gardens Ballroom, Mid Valley City. Register now at www.wealthmasteryacademy.com/starpic.
There have been many speculation (and subsequent refuting by various parties) of a property bubble. Year 2009 marked an economic slowdown due to the global financial crisis, while year 2010’s economic recovery was largely boosted by the government’s economic stimulus package.
Some attributed the astronomical price increases in hot areas to the suppressed demand of year 2009. In that year, it was common for developers to offer 5% downpayment and 0% interest until upon completion of a development. Similarly, banks offered attractive rates, where the interest rates were at approximately the high 3% or low 4%.
Escalating prices
2011 came and property investors had to rethink their investment strategies. Prices of properties have surpassed the levels recorded before the crisis and in the first half of 2010 itself, prices of landed houses in some popular areas in the Klang Valley, Penang and Johor have appreciated by 10% to 30%. Bank Negara Malaysia (BNM), in its “Financial Stability and Payment Systems Report 2010”, stated that house prices in selected locations within and surrounding urban areas had increased to four times higher than the national house price index.
BNM has been staying on the pulse of the market’s movements and implemented a loan to value ratio of 70% for third mortgage borrowers. However, crafty property buyers have resorted to using their spouse or relatives’ names when applying for loans. Some have opted to take the commercial route, as the required downpayment is at an average of 80% (as opposed to 70% if the buyer has more than two residential properties currently). Plus, the capital gains and rental yield are relatively higher than residential properties. Hence, some buyers have changed their strategy by investing in commercial properties.
Proceed with caution
In early May 2011, BNM raised the overnight policy rate (OPR) by 25 basis points to 3% and increased the statutory reserve requirement (SRR) by one percentage point to 3%, and as such, banks have raised their base lending rates (BLR) and base financing rates (BFR) by 30 basis points to 6.60% respectively. Banks that offer BLR minus 2%, means that effective interest rates are still below 5%.
However, property investors should look at the slight rate hike with caution. It is imperative that property buyers make decisions based on repayment capability, and also factor in expected rental yields.
New developments continues to mushroom especially in the Klang Valley and Greater Kuala Lumpur and reports have indicated that investors are still very much active, with investors snapping up units during property launches, despite the price increase. Analysts have indicated that it is still too early to measure the impact of current regulations.
Property Investment Convention 2011 (PIC 2011)
If current property trends and regulations are at the top of your mind, join the Property Investment Convention where current topics of interest will be analysed and shared by various speakers.
The convention will mainly be about movement in the property market, the current and future trends based on the MRT, how to purchase as regulations change, how to tweak your strategies in view of the changing regulations, managing your portfolio, diversifying into REITS, and many more.
The speakers include:
- Best-selling author and property investment coach, Milan Doshi
- Location researcher and map maker, Ho Chin Soon
- The master of lead generator and co-author of the first ‘Lease Options’ book in the UK, Vincent Wong
- International property investment trainer and co-founder of Wealth Dragon in the UK, John Lee
The Property Investment Convention is scheduled to be held on 6 and 7 August 2011 at The Gardens Ballroom, Mid Valley City. Register now at www.wealthmasteryacademy.com/starpic.
CPO price on downtrend
Wednesday July 13, 2011
By HANIM ADNAN
nem@thestar.com.my
Rising production and high inventory putting pressure on commodity
PETALING JAYA: The downward pressure on crude palm oil (CPO) prices continued yesterday amid rising production and an 18-month-high inventory. This has also triggered market talk that the commodity may slip to below RM3,000 per tonne this week.
The Malaysian Palm Oil Board (MPOB) said in its June statistics released on Monday that CPO production had increased to 1.75 million tonnes while end-stocks surged to 2.05 million tonnes despite higher exports at 1.58 million tonnes.
All CPO futures contract closed on a minus territory yesterday, with the third-month benchmark CPO futures for September contract down RM39 to RM3,034 per tonne.
HwangDBS Vickers Research said in its sectoral report yesterday that palm oil exports in the coming months were expected to rise on stock replenishment, some substitution and stronger demand during Ramadan.
However, CPO output is forecast to seasonally ramp up over the same period, boosted by yield recovery and new tree maturities.
“In our estimation, this should raise palm oil end-stock levels through end-August and keep them above two million tonnes until the end of the year.
“We believe CPO prices owe its current resilience to weak soybean crushing margins and expectations of 2% year-on-year drop in the US soybean harvest, which may tighten near-term soybean oil supplies.
“Therefore, CPO price is expected to resume its downtrend in the fourth quarter of this year,” it added.
Malaysian Estate Owners Association president Boon Weng Siew voiced his concern over the current high level of palm oil stocks. “When palm oil stocks rose to two million tonnes in the fourth quarter of 2008, CPO price went down to about RM1,500 per tonne!”
Boon said the Government's B5 (blending of 5% biodiesel with 95% fossil fuel) programme should help the industry to manage the domestic palm oil stocks level.
The programme, which kicked off officially early last month, will be undertaken in stages. It will start with the central region covering Putrajaya, Malacca, Negri Sembilan, Kuala Lumpur and Selangor.
Malaysian Biodiesel Association vice-president U.R. Unnithan told StarBiz recently that 170,000 to 200,000 tonnes of biodiesel were expected to be used in the B5 programme for the central region.
The Government is targeting some 500,000 tonnes of local palm oil stocks to be used for the entire programme.
Meanwhile, despite palm oil stocks rising above the two million tonne mark in June, OSK Research was not overly concerned as “we believe that most of the contributing factors are already known and may have been factored into the decline in palm oil prices from RM3,963 in February to a low of RM3,016 per tonne last week.”
The research outfit also reckoned that inventory might fall back promptly due to supply disruption in the second half of this year.
“With CPO now trading at a significant US$210 per tonne discount to soybean oil, there is plenty of room for palm oil price to move higher when supply disruption materialises in the months ahead,” it said.
By HANIM ADNAN
nem@thestar.com.my
Rising production and high inventory putting pressure on commodity
PETALING JAYA: The downward pressure on crude palm oil (CPO) prices continued yesterday amid rising production and an 18-month-high inventory. This has also triggered market talk that the commodity may slip to below RM3,000 per tonne this week.
The Malaysian Palm Oil Board (MPOB) said in its June statistics released on Monday that CPO production had increased to 1.75 million tonnes while end-stocks surged to 2.05 million tonnes despite higher exports at 1.58 million tonnes.
All CPO futures contract closed on a minus territory yesterday, with the third-month benchmark CPO futures for September contract down RM39 to RM3,034 per tonne.
HwangDBS Vickers Research said in its sectoral report yesterday that palm oil exports in the coming months were expected to rise on stock replenishment, some substitution and stronger demand during Ramadan.
However, CPO output is forecast to seasonally ramp up over the same period, boosted by yield recovery and new tree maturities.
“In our estimation, this should raise palm oil end-stock levels through end-August and keep them above two million tonnes until the end of the year.
“We believe CPO prices owe its current resilience to weak soybean crushing margins and expectations of 2% year-on-year drop in the US soybean harvest, which may tighten near-term soybean oil supplies.
“Therefore, CPO price is expected to resume its downtrend in the fourth quarter of this year,” it added.
Malaysian Estate Owners Association president Boon Weng Siew voiced his concern over the current high level of palm oil stocks. “When palm oil stocks rose to two million tonnes in the fourth quarter of 2008, CPO price went down to about RM1,500 per tonne!”
Boon said the Government's B5 (blending of 5% biodiesel with 95% fossil fuel) programme should help the industry to manage the domestic palm oil stocks level.
The programme, which kicked off officially early last month, will be undertaken in stages. It will start with the central region covering Putrajaya, Malacca, Negri Sembilan, Kuala Lumpur and Selangor.
Malaysian Biodiesel Association vice-president U.R. Unnithan told StarBiz recently that 170,000 to 200,000 tonnes of biodiesel were expected to be used in the B5 programme for the central region.
The Government is targeting some 500,000 tonnes of local palm oil stocks to be used for the entire programme.
Meanwhile, despite palm oil stocks rising above the two million tonne mark in June, OSK Research was not overly concerned as “we believe that most of the contributing factors are already known and may have been factored into the decline in palm oil prices from RM3,963 in February to a low of RM3,016 per tonne last week.”
The research outfit also reckoned that inventory might fall back promptly due to supply disruption in the second half of this year.
“With CPO now trading at a significant US$210 per tonne discount to soybean oil, there is plenty of room for palm oil price to move higher when supply disruption materialises in the months ahead,” it said.
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