Showing posts from September, 2011

Foreign Funds Dumping Msia Equities? (Sept 2011)

Local market, view as one of the most defensive market in the world, suffering the same fate as regional market this round. The correction which started early of August had actually hit our shores too. Who say we are in a better position when market downturn? No one raised their hands now.

Historically, our local market is very "Dull" if foreigners do not participate here. KLCI shoot up because there is an in-flow of foreign funds into Bursa Malaysia. During that time, we are very joyful and assumed that they're in for long-term (until recently). Don't be "syok-sendiri laa" bro. Investors are here because they want to make profit. After achieving their goals, what would they do? Of course, taking profit (and bring down KLCI) and left our country.
Then, when is the best time to leave? Now or never. In other words, KLCI went up and go down mainly because of foreign funds. Retail investors definitely do not have the power to muscle the markets. Agree?


A New Wrinkle

The latest scheme out of the European political class is the idea of creating an SPV (Special Purpose Vehicle) that will "leverage up" the $ 400 billion fund that had been previously put in place to "stabilize" the sovereign debt crisis. How will this work?

The idea is that you create this SPV (think Fund) and put $ 400 billion into it in the form of equity capital. The SPV then borrows $ 1.2 Trillion from willing bond buyers. That gives you $ 1.6 Trillion to buy up Greek, Spanish, and Italian debt and stave off disaster. So, the theory goes.

So who provides the $ 1.2 trillion in debt capital? That is, who are the willing bond buyers who think investing in a vehicle that buys trash will be a winner? If you thought Wall Street cooked up outrageous schemes, try this one on for size.

This idea will not work. It is not the magic elixir. No one in his right mind would provide the debt financing for this vehicle. The US, no doubt, will volunteer to put money into t…

Mind The Gap

The so-called income gap between rich and poor is growing we are told. The rich are "sharing disproportionately" in the economic gains we are told. What does this mean? Should we do something about it? If so, what should we do?

Imagine, that adopting "Policy A" would double the income of the poorest sixty percent of the population, but, at the same time, quadruple the income of the richest forty percent of the population? Suppose that there was simply no other feasible way to double the income of the poorest sixty percent? Would you favor implementing "Policy A?" After all, "Policy A" increases inequality. The dreaded "income gap" widens under "Policy A."

One way to eliminate income inequality -- eliminate the income gap -- is to force the entire citizenry to live at the edge of starvation. This is, more or less, the experiment that the Soviet Union embarked upon in 1917. How did that turn out? The Soviet Union succe…

Western Debt Crisis: Bursting of Volcano? (Sept 2011)

We cannot deny that we are in for another round of hard times since 2008 global financial crisis. Some experts are saying that we are facing the Great Depression wave coming in the next few months, if no concrete efforts put in by global leaders. Meanwhile, some experts think that opportunities arises again and put off the double-dip recession speculation.

The downgrading of US's AAA rating re-ignite the fears over the sustainability of its sovereign debt. However, please be mindful that US rating remains extremely sound and reflecting a very low risk of default in the long term, still. USD remain the preferred and most widely traded currency in the foreseeable future, and there is no reason to worry about.
Sovereign Risk scaring investors away? Meanwhile, in Eurozone, the situation remains very complex and greater political will is needed to maintain Euro as regional currency. Between Eurozone breaking up and resolving the situation, which one is easier? Of course, the economic and …

If You Want Jobs, The Micro Environment Must Change

The regulatory and litigation environment virtually guarantees that job growth in the US will be anemic for years to come. No macro activities (or short term tax gimmicks) will change the employment picture.

The truth is: employers are scared to expand payrolls. They don't want to get sued; they don't want to take on future health care and retirement liabilities that are limitless; they don't want to deal with all of the extra costs that government has imposed on employers. The motives for all of this employee protection were no doubt noble.

The latest wrinkle is that Obama's "Job's Plan" permits the unemployed to sue a business that has the temerity to hire someone who already has a job elsewhere instead of hiring an unemployed person. Laws like that make employers leave the playing field. Who wants to hire anyone when the very act of taking on a new hire can trigger litigation that can put you out of business? Why can't the Obama folks get thi…

So, Why the Selloff?

Other than Obama's new(?) tax plan to tax "millionaires and billionaires," there wasn't much news to point to for an explanation of the nearly 8 percent drop in world equity markets from Tuesday at 2 PM until Thursday afternoon's market close.

Greece is old news and so is the weakness in the American economy. Nothing new on this front was announced prior to the selloff.

The equity markets seem to be stuck in a very wide trading range since early August. If so, the market probably rallies from here. My own guess continues to be that this is buying time for long term investors. This is not a time to be exiting equity markets, but a time to be planting a large foot into these markets.

It is scary. Government policies in western countries have been so absurd for so long that one despairs that things can ever be turned around. But, they can be and, I think, will be. Most Eurozone countries are going to default on their debt and a number of high-profile European b…

The Obama Tax Plan

Obama will announce his new tax plan today -- more than $ 1.5 trillion in new taxes. Even a Democratically-controlled Congress wouldn't pass something like this in the middle of a recession. You have to wonder if Obama really cares at all. He is wasting everyone's time with proposals like this. He should go back to Martha's Vineyard.

It Won't Be Long Now

Goodbye Greece. We are getting into the fourth quarter on the Greece situation. The Germans are increasingly unlikely to continue the bailout game for domestic political reasons. Ditto for Greece. The Greeks are more likely to roll back their existing "austerity" measures than enact new ones. The game is just about over. Default is coming soon.

Then we look to Spain and Italy and watch that story unfold in much the same manner.

As If Things Weren't Bad Enough

Here comes the President -- one more time: "Tax the Millionaires and Billionaires." Same ole, same ole.

Hidden in his tax-the-rich proposal is the virtual elimination of the current municipal bond market, because the Obama proposal essentially eliminates tax exempt interest on municipal bonds. That should help our cities and states!

If the Obama package could pass, it would nail the coffin shut on any future American economic progress. We would become the new Japan with no real prospect for economic growth in the next half century. (That may happen anyway. Obama has done a lot of damage already).

Fortunately, no one is listening to Obama anymore and new taxes are not in the cards with a Republican House of Representatives.

All Obama signifies with the package to be released on Monday is his irrelevance. He doesn't understand the private sector, he doesn't understand the dynamics of the entitlement programs, and he doesn't seem to care anyway.

He's still h…

J.P. Morgan's Equity Strategy (Sept 2011)

On Sept 7, J.P.Morgan came out a report titled "Global Markets Outlook and Strategy". Here, we would like to share the equity strategy written, which we think is the most sought after reference for investors to strategize during this uncertain times. Below is the excerpt from the said report:
"We believe perceptions of a US recession will continue to weigh on equity markets and we thus keep a low amount of risk in our equity portfolio and reduce beta to negative."

"The most likely positive catalyst for equity markets in the near term lies with US economic data. This is not happening yet. Our US Economic Activity Surprises Index remains in negative territory, where it has been for 5 straight months (Chart 1). We need to see this index moving to positive territory, and US economic data surprising on the upside, for equity markets to sustain a recovery."
2 reasons why Under-performance The August market slump saw emerging market (EM) equities and small caps unde…

Geithner and "Catastrophic"

Tim Geithner is an embarassment. He spent Friday in Poland lecturing European leaders on the necessity to increase the bailout fund for the bankrupt states of Greece, Spain, and Italy. According to Geithner, failure to expand the bailout fund and, implicitly, to let Greece (and Spain and Italy) to balloon their national debts to even greater heights, would be "catastrophic." Great idea! Add to the debts of Greece, Spain, and Italy! That's a novel way to solve the European debt crisis -- make it bigger.

Well, Geithner might respond, that's what we did in the US and look how wonderfully things are going there!

This is what happens when politicians think they can solve problems. They make the problems much bigger. This way when things collapse down the road, they won't be around to face the music. Europe will eventually implode. Geithner just doesn't want it to happen on his watch.

Unfortunately for the US, we are on "his watch" and the results ar…

Geithner Selling His Failed Ideas to Europe

Tim Geithner will be in Poland tomorrow to sell his failed US 2008 program to Europe. Heck, maybe it will work this time. It certainly didn't work in the US, unless you think our situation is a good outcome.

All these folks can ever say is that it would been worse. Really? What makes you think that? Letting nature take its course without government interference has worked in every other situation. Only when the government intervenes to "fix things" such as the 1930s in the US and 1990s in Japan,and now the US in the Obama era, have economies failed to recover.

Europe is so far gone, it won't matter anyway. All Geither will be able to do is make certain that when the defaults start, Germany and France can be added to the list, because they are the ones that will have to underwrite this stupidity.

Oh, by the way, the Federal Reserve is stepping up too. That means the US, which is reeling from massive indebtedness, is now adding to its own woes by helping to backs…

A Clueless White House

The White House released the following statement on Wednesday (Amy Brundage, White House spokesman):

"As the president has consistently said, he does not believe that Social Security is a driver of our near and medium term deficits."

How can the President of the United States be this misinformed on perhaps the most important issue facing the country?

Geithner to the Rescue

Tim Geithner wasted a little more taxpayer money -- why not? -- going to Europe this week to have an important meeting with Germany's Angela Merkel to "convince" her how important it is that the Greek situation be contained. You really have to wonder about Tim Geithner. Does he really believe Greece is not going to default? How disconnected is this guy from reality? He still thinks his stimulus plan worked?

The lack of understanding of Economics in this White House is without parallel in American history. This White House not only doesn't know what to do, it doesn't even look like they care about whether the economy recovers or not. The so-called "Jobs Plan" is little more than transfer payments to Obama allies paid for, he says, by taxing "millionaires and billionaires," which apparently includes everyone who makes over $ 200,000 per year.

The sad fact is the folks below the median income are hit hardest by this White House. Those with …

New Fund: PB Asia Emerging Growth Fund

Ignoring the volatile and not-so-positive market currently, Public Mutual Bhd launched 3 funds in a row on 6th Sept 2011 to fill investors appetite. They were PB Asia Emerging Growth Fund, PB Bond Fund, and PB Sukuk Fund. Here, we will be only highlighting the equity fund.

PB Asia Emerging Growth Fund seeks to achieve capital growth over the medium to long-term period by primarily investing in the securities of emerging small to medium-sized companies in domestic and regional markets. The fund generally maintains equity exposures within a range of 70% to 98% against its NAV. The balance of the fund's NAV may be invested in domestic and foreign fixed income securities and money market instruments.
Investment Strategy Generally, companies with reasonable earnings growth prospect are selected. In identifying such companies, the fund relies on fundamental research where financial health, industry prospects, management quality and past track record of the companies are considered. Althoug…

Europe -- A Case Study in Why Government Is Not The Answer

So, where are we now in fixing the Greek debt crisis. Greek government debt maturing in March of 2012 is trading in the open market at 55 cents on the dollar, according to today's Wall Street Journal. The yield on two year Greek debt is now 75 percent, on 10 year paper 20 percent. So, the default has really already occurred. The fiscal deficit for Greece through the first eight months of the year is 22 percent higher than last year. Meanwhile, real GDP is likely to drop 10 percent this year as compared to a fall of 5 percent last year. So, where does it end? -- where it should have ended two years ago when Greek sovereign debt was a lot lower and European banks were in far, far better shape.

This impending disaster is a direct result of government policy. Merkel and Sarkozy in cahoots with the ECB (European Central Bank) have served up the myth that somehow they could avert a Greek default through politics. We now see the results of their efforts -- economic disaster for G…

Why and Why Not Telco pass through the 6% service tax?

Since the very first second the announcement was made, every quarters are fuming on the extra burden they should bare if it goes through. Here, it involves everyone in Malaysia, even foreign workers who are mostly prepaid subscribers. On this topic, Finance Malaysia has some words to say.

In this modern world, mobile phones has become a necessity to us. Some may say: "I can sleep without pillow, or lost my wallet, but I cannot separate from my mobile phone". As such, does it mean that telcos can held you "ransom" on using their services? Since this is called "service tax", did telcos do their part in providing the good services (if not the best)?
3 Reasons why Telcos should not pass through the 6% service tax?
Coverage is suck in certain areas, still. There are rounds of complaints on line-dropping issues. Yup. They fixed it after that. But, the same old problems come back to haunt consumers after awhile.Customer service is suck. At least, I am using the lar…

The Beginning of The Age of Default

There have been many famous epochs in European history and we are now about to witness the dawn of the latest -- the Age of Default.

Greece is verging on financial collapse (this week) and there is no longer any viable way to prevent that collapse. Whatever they may call it, default is on the way and soon, certainly before the year is out perhaps much sooner.

But, that will just be the beginning, as we move swiftly from country to country throughout the Eurozone. There is some chance, but it is slim, that Germany can itself avoid default. The reason for pessimism on Germany is that Germany will end up absorbing the obligations of its major banks, much as Ireland did two years ago. When the bailer bails out too many bailees, then the bailer needs a bailer. Who will bail out Germany?

It will be interesting how this plays out in the US. California, Illinois, and New York have no hope of avoiding bankruptcy. They will, no doubt, appeal to the federal government for relief, which, if g…

Tough Road Ahead for US and Europe

Bad policy has a way of surviving, even though the results of bad policy may be plain for all to see. The US and the Western countries have managed, by government policies (political policies) to destroy the vibrancy of their economies. Perverse incentives and irrational agency costs so pervade these economies that real economic growth of the kind seen in the nineteenth and twentieth century is not likely to ever return.

Many in the Western world applaud the collapse of their own economies. They see economic growth as damaging to the well being of the population. Those who take this view are usually pretty well insulated from the downside of stagnant economic growth. But most of the citizenry are not insulated from that downside. Unemployment and under-employment mostly afflict folks that have no real way to protect themselves. In the US, minorities suffer the most from the collapse of the economy; white college graduates suffer the least.

John Maynard Keynes was, in my opinion, t…

Wasn't Listening to Me....Obviously

I was sorely disappointed that the President did not follow my advice in Thursday night's speech and offer up the repeal of his entire first two and a half years in office. I guess there wasn't much chance of that after all.

What he did was promise to push for more of the same measures that have stifled economic recovery in the US and he seemed truly unaware of the real reasons that the economy is adrift. So, at least, you can say one thing for the man -- he is consistent and (intellectually) deaf.

So, what's the future look like. If the pundits are right that folks are souring on the tea party, then the future cannot be very good. The main agenda for the tea party is rolling back the size and scope of government and tackling our national debt problems. If that is truly out of favor, then we will eventually be making the kind of headlines that Greece is making, without any savior (Germany) as a prospective bailor.

In the short run, though, what happens with the economy? …

How to invest during HIGH Inflation era? (Sept 2011)

What is the main risk for Asian economy? None other than Inflation. Across the region, fast-growing countries such as Singapore, Indonesia, India and China are reporting faster than expected price increases in tandem with their economic success.

To fight inflation, many countries already carried out their tools of tightening. We have Singapore who fights imported inflation via stronger currency. Meanwhile, other countries are going for the traditional way of hiking interest rate and increasing bank reserve requirement since last year. At first, Bank Negara Malaysia called it as "normalization", but it seems to be "containerization" going forward to contain inflation.
Who's fault?
There are 2 causes for the problem, which I categorized them into international and national. Among the international contributing factors were: Loose monetary policies practiced by US and Europe, who slashes interest rate to almost zero and carried out large scale of asset purchases. Yet,…

My Advice to the President

Dear President Obama:

Your decision to request that the EPA suspend its new regulations on ozone that could have easily cost another one million jobs is a good one. Build on it. In your speech on the 8th of September, make the ozone regulation suspension the start of something big.

Announce that you are now suspending all new regulations that are the result of Dodd-Frank, Obamacare, the 2009 Credit Card reform act, new NLRB rules such as the Boeing-South Carolina fiasco. Further, you are suggesting that Congress impose limits on lawsuits against business when the businesses themselves are not at fault (but their employees might be). You are further going to request that Congress suspend minimum wage laws and family leave act provisions until unemployment sinks below six percent. Finally, you are going to ask Congress to exempt all companies with less than $ 50 billion market capitalization from the absurd provisions of Sarbanes-Oxley.

It is okay to say that all of these onerous thin…

More Lawsuits By The Obama Team

FHFA is now suing the major banks for subprime lending problems. Just what the economy needs. Why not just pass a law saying that no one but rich people can take out mortgage loans? That would accomplish the same agenda as this lawsuit by FHFA. I guess the Obama folks still don't get it. People other than Obama and Buffett need a chance in this economy. Suing the banks just makes more certain that they won't get that chance.

No Jobs, No Surprise

The jobs report this morning was startling -- no new jobs created in the US economy for the month of August! It seems that Obama was listening this time as he quickly suspended the onerous new ozone rules propagated by his EPA. While suspending the new regulations will not create jobs, it will at least prevent the wholesale destruction of existing jobs. That's a start. The Administration, really for the first time, has halted something that destroys jobs!

Hope springs eternal. Maybe the President is beginning to get a glimmer of why his policies are destroying the American economy. This would be good news indeed.

Should State Government involve in Business?

In Malaysia, we can see a lot of businesses being conducted by state government. Should there be a limit to the extent that state government should involved in? Yes, we know that the state also need money to run their administrations daily operations expenses. But, would it be wise to collect revenue generated by businesses in the state, instead of relying of its own businesses?

Well, doing businesses by state government itself can generate more revenue. This is the case only if the businesses were run successfully and making profits. Otherwise, the businesses' losses were barred by rakyat themselves.
Why we only highlight State Government?
Simply because most of the state government is making losses. In fact, only one state is making profit and still it is highly indebted. By going back to history, we know how that state wrest control of one reputable fast-food chain business, which became its cash-cow now. Then, the money from this cash-cow is spinning around within the group. Is t…