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Showing posts from 2011

Happy New Year

Bad policies are not enough to derail the most powerful economic engine the world has ever seen -- the US economy.

Here is where we are headed in 2012:

Higher stocks prices, lower bond prices.

A slowly expanding economy -- roughly 2 percent. Because of the way GDP is measured, the reported numbers will bounce around, but should average about 2 percent for 2012 as a whole.

China will stumble but recover. Bad government policy will be overcome by the hard work and entrepreneurial spirit of ordinary Chinese. China will continue to be on a roll.

Europe will sink further into the abyss. The failure to rationalize sovereign debt problems (meaning the failure to begin some managed default process) will mean negative economic growth in Europe for 2012. At the end of the day, it will turn out that Europe is less important than everyone thinks. Except for very isolated situations, Europe as an economic entity has been moribund for a generation. That situation will only become more obvious in …

Another Economist Off The Rails

Laura d'Andrea Tyson has now joined the chorus of academic economists spouting economic nonsense. (Although Tyson is more a politico and a professional board sitter these days and is definitely one of the 1%).

Tyson has a piece in today's NYTimes attacking the Wyden-Ryan proposal to reform medicare that would move medicare more into the free market. Tyson notes that the cost of medicare, in the past ten years (and especially in the last three years) has grown more slowly than private insurance. That is an absurd comparison.

Medicare grows by whatever it's budget is and that's that. Private insurance is beset by changes in state legislation (and virtually every state has dramatically altered it's health insurance rules making them more expensive by mandate) in the past ten years. Tyson also seems relatively unconcerned that medicare has a $ 66 Trillion unfunded liability into the future while private insurance has a zero unfunded liability into the future.

Tyson…

Gold and Investment

Most thoughtful observers realize that the US and the major Western economies are going to have significant inflation at some point. It is unlikely that politicians will ever deal forthrightly with the entitlement issues and the only thing left is to monetize the debt -- print money -- and hope that rampant inflation will destroy the value of the outstanding sovereign debt. An interesting future.

The conclusion that some draw is that gold (and perhaps other precious metals) should thrive in a world of out-of-control inflation and the absence of a safe haven asset. It is an appealing idea and gold has done well in recent years, until recent months.

But, how do you value gold? or silver? Normally things have some alternative use. But the prices of gold and silver are way beyond any alternative use value. Gold could trade anywhere -- up or down. There is no way of establishing a value for gold.

Should gold be a part of a diversified portfolio? No. But gold mining companies should…

Kenanga Research 2012 Economic Outlook

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The year 0f 2011 saw a confluence of mishaps, with the MENA unrest, Japan disaster, US debt ceiling scare and Eurozone's can of worms. We believe that it is very unlikely that 2012 will contain more uncertainties than 2011. After the convergence of these "Black Swan" events, there is also a lot of divergence in the recovery, making it difficult to coordinate economic policy.
Firstly, there is a 2 speed-global recovery as developing economies, particularly Asia, is outperforming the West.Secondly, within Europe itself, there is a lot of divergence in how each country is coping with the crisis. Only Germany, Sweden and Switzerland have so far returned to pre-crisis growth levels; whilst Greece, Portugal and Ireland are clearly outliers in terms of demand growth.Finally, there is a lot of mixed recovery in Japan as well, where companies with capital of at least 1bn yen are back to nearly full capacity production as early as May. However, companies with capital between 10m an…

Professor Cochrane and Dodd-Frank

Professor John Cochrane of the University of Chicago opines today on the implementation of "too big to fail" in the Dodd-Frank legislation in the Wall Street Journal. As Professor Cochrane notes, the Dodd-Frank structure has nothing to do with the problems that beset the financial industry in the 2008 collapse but instead empowers arbitrary control of the US financial institutions by an unelected bureaucracy, accountable to no one.

Cochrane, correctly, redirects our attention to the stifling impact the Dodd-Frank "reforms" are having on our financial system and, as a result, on our economy. Economic stagnation by design. That's the Dodd-Frank regime.

The spirit of Dodd-Frank has breathed life into an anti-lending campaign by bank regulators the past two years. The result -- a bifurcation in the lending market. For those who don't need credit, it is available in abundance. For those who need credit, it is prohibited by the activities of the regulators. …

CIMB: Domestic Drivers to steady the ship in 2012

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CIMB research remain cautious on Malaysia's growth outlook for 2012 as several factors will put the brakes on growth - slower export growth due to the fragile western economies as well as slower consumption and investment growth due to heightened uncertainty and volatile financial markets. The implementation of ETP and stimulus measures cannot take up all the slack left by weak exports.
Slowing growth, rising risks We expect GDP growth to slow to 3.8% in 2012 from an estimated 5% in 2011. The factors that shape the prognosis are:
continuing weak global growth, pressured by volatile financial markets and Europe's sovereign debt worries;a downturn in Malaysia's export cycle;an expected slowing of consumption and investment due to worries over economic conditions
What to expect in 2012? While not forecasting a global recession, a combination of fiscal tightening and a potential bigger financial shock from the debt crisis are expected to result in weaker global growth in 2012.

Limit…

More Goofball Economics

Today's NY Times has yet another economist in action. Nancy Folbre, whose byline in today's blog puts her at University of Massachusetts as an "economics professor," argues that "...most ordinary people understand that the incentives built into the global capitalist system tend to reward some very bad behaviors." She then goes on to list things like "dumping waste products into the environment" and other capitalistic ills.

That would suggest that where there is no capitalism, there must be no real environmental damage. Is she kidding? The non-capitalist countries lead the league in environmental pollution. Try breathing the air in a typical non-capitalist country. I guess Professor Folbre doesn't travel much.

So, what does Professor Folbre recommend? She cites "calls for changes to articles of incorporation that would allow companies to pursue social missions without fear of shareholder litigation." What a great idea! Who wo…

HwangDBS: Volatility will continue in 2012

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Global Overview
The market will continue to be challenging and it is tough to make a judgment call at this juncture. News and headlines rather than fundamentals will continue to drive markets and as such, volatility will continue into 2012 largely driven by the lack of clarity with regards to the Eurozone debt crisis, the US debt problem compounded by slowing growth in the US economy. There is no quick fix or immediate resolution to these issues as the problems plaguing developed economies are deep rooted fundamental issues such as mounting debt, low growth and high unemployment.

In the case of the European Union, the fragmented economic and political governance of their common monetary union is working against them as leaders struggle to find an equitable solution to giving aid to highly indebted countries in the South of Europe such as Greece, Spain, Italy and Portugal, without overburdening financially stronger countries such as Germany and France. And for the US, their economy has n…

More Nonsense from Academic Economists

Peter Diamond (MIT) and Emmanuel Saez (Berkeley) recently published an article in The Journal of Economic Perspectives (Fall 2011 issue) entitled: "The Case for a Progressive Tax: From Basic Research to Public Policy." This article exhibits the total absurdity of modern academic economic research.

The point of the article is to show the "scientific" case for progressive taxes. Their conclusion: the highest marginal income tax rates should approach 80 percent! That is the conclusion of Diamond-Saez so-called science.

Here are a few of the assumptions in this "science:"

1. "Because the government values redistribution, the social marginal value of consumption to top bracket taxpayers ...can be ignored..."

Transalation: rich people don't value income at all so they won't miss it if it is taxed away. (Note this is an assumption!) You might wonder how Diamond and Saez know what "the government values" (or what that expression even …

The Poverty of "Economics"

An article in this morning's NYTimes by Catherine Rampell outlines the minimum wage increases that are coming on the 1st of January in eight states. As if lower income employees don't have enough problems this Christmas season, leave it to politicians (and economists) to make their lives worse.

The minimum wage increases will take place in Arizona, Colorado, Florida, Montana, Ohio, Oregon, Vermont and Washington. Note that some of these states are controlled by Republicans, some by Democrats. This is bi-partisan mischief.

Imagine that these same states passed a law saying that a gallon of milk can't be sold for less than $ 10 per gallon. Would dozens of economists step forward with studies showing that milk consumption would be unaffected by this kind of law? Would there be a bi-partisan consensus that a minimum price of milk is a good idea and would promote milk drinking? But, precisely this kind of absurd reasoning is brought forward to defend minimum wage laws (and …

Another "Rip Van Winkle Year"

In 1987, the Dow Jones Industrial Average began and ended the year in the neighborhood of 2200. In July it topped out above 2700 and hit a low of 1700 in October. A lot of sound and fury to end unchanged!

It looks like we have a repeat performance this year. After the big rally in the first half of the year and the huge slump at the end of the summer, the Dow and the S&P are within a day's rally of being unchanged on the year. Not bad given all the bad news and disappointments.

Look for a big rally in 2012. 2011 isn't over yet, but it certainly seems to be about to finish about where it began, if not better.

Europe is a mess. US government policy is a mess. But, business is getting better and profits are improving. If you're looking for a job and you are in the bottom half of the nation's skill set, you're still in trouble and things aren't going to improve much for you in 2012. But, for the highly paid and for government employees, next year looks pr…

Republicans Blink and Cave -- Once Again

Extending the two percent payroll tax holiday is bad policy. The Republican House's rejection of the Senate bill was the right thing to do. Now, for purely political reasons, they are reversing course. Big mistake.

If, at the end of the day, Republicans can't show more backbone than this, then the future is not bright. Obama, even with no constructive policies (he has lots of destructive one) will coast to re-election if the public sees Republicans as lacking principles. Capitulating on the two month payroll tax holiday is not a good sign.

Malaysia Financial Sector Blueprint 2011 - 2020

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Bank Negara Malaysia today released the new Financial Sector Blueprint. Themed "Strengthening Our Future", the Blueprint charts the future direction of the financial system over the next ten years.
The growth of the financial system should be ultimately anchored to the growth in the real sector. Based on the rate of growth of the economy projected for the next decade, the financial sector is envisaged to expand to six times of GDP in 2020 from 4.3 times of GDP currently. Meanwhile, the contribution of the financial services sector to nominal GDP is expected to grow from 8.6% of nominal GDP to between 10 and 12% by 2020. 


Recognising the increasingly complex linkages, both between the various components of the financial system and the greater international connectivity and regional financial integration, the Blueprint moves away from the sector-based approach of the previous Financial Sector Masterplan (FSMP).

There are 9 focus areas under the Blueprint to further advance financ…

What Explains Corzine? Really?

Who would have thought: a former top dog of Goldman Sachs betting the ranch on Spanish and Italian sovereign debt. Really?

This is one for the behavioral finance boys. Hubris is the only real explanation. You would have to believe that you are the smartest man in the world and that there is virtually no possibility that you could be wrong. Then, away you go! Load up on junky sovereign debt and show the world!

Is this were a movie script, no one would buy it. It's too ridiculous.

But, happen it did. Not only that, Mr. Corzine appeared before Congressional committees and tritely explained that he knew nothing at all about how his company, MF Global, was meeting the daily margin calls (all repo transactions are marked to market daily). But, of course, Corzine did not know anything about that. He bought 6.5 billion in bonds and didn't give a thought to what the necessary cash position was that would be necessary to sustain that position as it collapsed in the market place. …

The Payroll "Tax Cut"

Is reducing the payroll tax for one year by 2 percentage points a good idea? Normally, I think reducing any tax is a good idea. Why feed the beast?

But, don't forget the real issues are: 1) economic stagnation; 2) size and reach of government; 3) the growing national debt. A temporary drop in the payroll tax doesn't do much about any of these issues. So, what good is it really?

It's interesting that the politicos have seized on this debate as a big deal. In truth, whether or not the payroll tax is temporarily reduced by an amount of this magnitude is mostly political theater.

The big Obama concession in this drama is the Senate Democrats retreat from the millionaire surtax. The millionaire surtax is a completely absurd idea that moves us away from the resolving the three problems cited above.

Name me a millionaire who cares what the tax rate is. Millionaires can simply readjust their assets (or better yet just take out loans) and avoid taxable income at their pleasure…

New Fund: Public Islamic Savings Fund

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The Public Islamic Savings Fund (PISVF) is  an Islamic equity fund that seeks to provide income over the medium to long-term period by investing in a diversified portfolio of primarily Shariah-compliant Malaysian stocks which offer or have the potential to offer attractive dividend yields. PISVF may also invest in Shariah-compliant growth or recovery stocks that have the potential to eventually adopt a dividend payout policy.


As the Fund focuses its investments mainly in the domestic market, PISVF offers investors an opportunity to capitalise on Malaysia’s resilient economic growth prospects in the medium to long-term. The performance of selected Shariah-compliant sectors of the Malaysian economy is expected to remain supported by sustained consumer and investment spending over the longer term.
To achieve increased diversification, the Fund may also invest up to 30% of its net asset value (NAV) in selected foreign markets which include  Singapore, Taiwan, South Korea, Japan, Hong Kong, …

Visions of Sugar Plums

One more week and Santa comes cruising our way. What will be in his stocking and what does the New Year portend?

The good news for many Americans is that the US economy is not falling off the cliff. Even the coming debacle in Europe will not prevent the American economy from a slow and steady climb out of the abyss.

Bad economic policy has throttled the American and western economies in ways that the Asian economies haven't yet learned (they will learn in time). But even bad policy can't completely eliminate economic growth, if some remnants of capitalism remain.

So, the future is bright for Asia and the future is bright for most of the under-developed world. The advanced economies have mortgaged their futures, so the lights will dim for the coming generations in the western economies. At the end of the day, someone has to work, someone has to save, someone has to hire people. This is a message that the western world has forgotten, but the underdeveloped world has not.

Ther…

How did Singapore's Cooling Measures Impact Malaysia's Property Sector? (Dec 2011)

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On 7th Dec 2011, the Singapore government announced that it would impose an Additional Buyer's Stamp Duty (ABSD) to moderate investment demand for private residential property and promote a more stable and sustainable market. This is needed in view of the stubbornly high inflation rate in Singapore amidst the slowing demand from developed markets. For those who don't know, inflation rate in Singapore was mainly contributed by surging property prices.

The ABSD was effective 8 Dec 2011. After the announcement, property-related stocks slumped last week, following by a slump in banking stocks because of an expected slower housing loan growth. The latest measures are a near-term negative for property developers with an anticipated trend in lower average selling prices and transactional volumes, which will hurt profitability. Nevertheless, most large-cap property developers in Singapore are relatively well diversified, not just across sectors (industrial and commercial), but also geo…

New Fund: ASM Syariah Capital Protected Sector Linked Fund

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ASM Investment Services Bhd had recently launched its latest fund called "ASM Syariah Capital Protected Sector Linked Fund". It is a close-ended fund with limited subscription period and a maturity of 3 years.

For this Fund, it aim to provide investors with capital protection upon the maturity of the Fund as well as to give investors potential returns higher than the rate of return of the 12-month Kuala Lumpur Islamic Reference Rates (KLIRR), being the selected Fund’s performance benchmark.
Please read on for more information...

To achieve the capital protection objective, the Fund will invest not less than 88% of the Fund’s Net Asset Value (NAV) in 3-year Islamic Negotiable Instruments of Deposits (INIDs) issued by several premier financial institutions in Malaysia. This will potentially protect investors capital, including a sales charge payable by investors.
To realize the potential return objective, the fund will invest up to 12% of the Fund’s NAV in quality Shariah-complian…

OSK Strategy and Outlook (Dec 2011)

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Essentially, with the uncertainties in Europe continuing amid a potential global slowdown in the economy, we will continue to see market volatility in the next few months. As such, we continue to advise investors to be patient and focus on Defensive counters, while looking out for opportunities to Trade. We continue to advocate Buying into Weakness when the KLCI falls towards the 1,300-pt level, focusing on Banks, O&G and Construction stocks while we advocate Selling into Strength on the same three sectors when the market rallies towards 1,500 pts.

Festive Cheer in December?
While we remain fairly defensive over the mid term, December may still be a bright spot amid the gloom. There is still a possibility of the traditional year-end rally and the just announced joint effort by various central banks, including the US Federal Reserve, the European Central Bank, the Bank of Japan, the Bank of England, the Swiss National Bank and the Bank of Canada to provide liquidity may just convince…

RHBRI's Stock Watch (December 2011)

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In contrast, the better-than-expected results of Maybank came mainly from lower-than-expected credit cost and minority interest charged, partly offset by weaker-than-expected non-interest income. In addition, the change in accounting treatment for the recognition of profit equalisation reserve also helped lift earnings.

The stronger-than-expected revenue growth of DiGi, on the other hand, came from stronger data and prepaid voice, aided by festivities, as well as improvement in consensus, were above our forecast on account of better-than-expected EBITDA margins on the back of lower other operating costs and supplies & materials expenses, as well as lower effective tax rate.
During the quarter, BAT experienced stronger-than-expected industry volume growth, while earnings of Genting Plantations were boosted by stronger-than-expected increase in FFB production.
The Under-performers... Sector-wise, earnings of the semiconductor, building materials, construction, motor, transportation, oil…

The end of Europe’s liquidity crisis? (Dec 2011)

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Well, many people already bored with the on-going Europe debt crisis, and subsequently liquidity crisis. This is like what we have seen in 2008 when Lehman Brothers collapses, which drags down the whole financial systems globally through liquidity crisis. The different is between company and country. Maybe some of us doesn't know how this chain effects rattles the global markets. So, let us start here.
The root of the problem plaguing the market right now is Europe debt crisis, where Greece and few other European countries were highly in debts. They just simply cannot generate enough revenue (taxes) to support the economy itself. So, they resorted to seek for funding via borrowing by issuing sovereign bonds to finance their day to day operations. However, the debt is piling up intensively after 2008 global financial crisis until recently. Because the government does not have money, their bonds may go into default. So, they were forced to borrow some more, but with higher interest t…