Showing posts from October, 2011

Back to Basics

The number one problem for the US and for Western Europe is job creation. There is no bigger problem. The politicians can focus on all sorts of other things: taxing rich people, subsidizing pet projects, bashing China, etc. But, anyone who thinks there is a bigger problem than unemployment is missing the forest for the trees.

How do we get more jobs? That is not a tough question. It is only tough because we are talking about labor. If we asked the identical question about anything else, the answer would be painfully obvious. For some reason, politicians and many economists become completely irrational when asked how to increase the demand for labor. If the same politicians and economists were asked about how to increase the demand for anything else the answer would be immediately forthcoming.

How do you increase the demand for something?

How about making that something more expensive? Would that help?

What about substantially increasing the taxes for people that use that some…

The Anger of the Entitled

Wherever you look these days, there are people demonstrating for their "rights." These "rights" are the right to take money from other people so that the demonstrators can have free this and free that. If education and health care are to be free, who pays? The demonstrators could care less.

Look at Greece. There are daily and massive demonstrations demanding that their failed welfare state continue to support the "entitled." It is always someone else that should pay for all of the things that the "entitled" want. Everything is a fundamental "right" without obligations on the part of the entitled to fund anything. There are no obligations to be imposed on the entitled. After all, they are the entitled.

What about Italy and Spain? Who pays? Their answer is the same as the OWS (Occupy Wall Street) crowd. They payers are "the rich." As if the rich had enough assets to keep all of these entitled folks going on indefinit…

Ho Hum

The European "deal" is mostly a mirage. The only "real" thing that takes place in the deal is the 50% write down of Greek sovereign debt and even that write down only applies to the 60 percent of the debt that is in "private" hands, meaning mainly in the hands of commercial banks.

Buried in this deal is the possibility that CDS (credit default swap) contracts will not be triggered. That is probably a sop to the banks who are on the hook for these contracts, which, among other things, insure Greek sovereign debt. No payoff for those who took out insurance. Who would have thought?

Europe is following the American pattern of reneging on past contracts to foster the illusion that they are solving today's problems. (America continues this pattern with debt forgiveness orchestrated by the White House, invalidating legitimate private sector contracts with the hope of securing more votes for Obama in 2012).

As for the EFSF (European Financial Stability Fund…

Will Thailand flooding with Debts after this?

Oh my god. Another disaster has occurred, and this time is Thailand's turn. Finance Malaysia would like to offer condolences to Thailand for its massive damage caused by floods. This is not an ordinary floods, please read the numbers below then you will know.
worst floods in 50-years!!!more than 300 lives goneaffecting nearly 9,000,000 people

Started weeks ago at upper Thailand, the floods were spreading down to its capital - Bangkok - now. Bangkok has more than 12 million population. The situation can only get worse from here and everyone is fleeing the city, searching for higher grounds and off to vacation. People are snapping up dry foods, fresh waters and daily products, hoping to brace through the difficult periods.
Will Thailand went into recession? With Bangkok being the major engine of the country, many economists are expecting that the strong flooding in Bangkok would severely impact Thailand's GDP growth. Bank of Thailand (BOT) already downgrading their growth forecasts …

Side Issues and Reality

You might wonder why all the talk about greed and Wall Street. Isn't the real issue that the American economy is moribund and that unemployment is at staggeringly high levels? Why is the national debt important? Because it threatens the economic vitality of the future. These are the real issues -- the economy. They are made more real by the simple fact that opportunities for those who are less fortunate always improve with economic growth and always decline with economic stagnation.

Case in point -- today. As much as the Obama folks crow that they support the economically less fortunate, the Obama policies are devastating the poor, minorities and the less fortunate among us. Folks cannot find work. That is the real problem.

It is clear that President Obama will never focus on the economy's real problem -- stagnation and unemployment. He doesn't understand such problems because he has never experienced them and knows no one who has ever experienced these problems. …

Budget 2012: How Does 1% more EPF Affecting YOU?

During the recent Budget 2012 announcement, one of the controversial issue is the increment of 1% contributed by employers to EPF effective 1st January 2012. This will bring the minimum contribution rate by employers to 13% from 12% currently for those earning less than RM5,000 per month.
While employees are welcoming the new rules, many employers are voicing out their concern on the extra burden being bear by them. "This is not fair to us, especially during current scenario where businesses are bracing for more challenging times ahead", says one of the concerned boss. Although there is some sort of tax-relief for employers who contribute more, bosses are still unsatisfied by the new ruling which adds to their fixed costs.
What is the rationale behind? The reason is somewhat very good, that is "to equip Malaysians more retirement funds for their golden age" after recent facts shown that Malaysian generally fully utilized their EPF monies between 3-10 years time after …

New Fund: Public Ittikal Sequel Fund

The Public Ittikal Sequel Fund (PITSEQ) is a Shariah-compliant capital growth fund that invests in a diversified portfolio of index-linked companies, blue chip stocks and companies with growth prospects listed on the Bursa Securities. The fund may also invest in sukuk such as sovereign sukuk, corporate sukuk and Islamic money market instruments to generate returns.

The Fund will focus its investments mainly in the domestic market, capitalising on opportunities arising from Malaysia’s resilient economic growth prospects in the medium-to long-term. Some of the sectors that the Fund may invest in include consumer, industrial, telecommunications and utilities sectors.
How about foreign investment? To achieve increased diversification, the Fund may invest up to 30% of its NAV in selected foreign markets. The foreign markets which the fund may invest in include Singapore, Taiwan, South Korea, Japan, Hong Kong, China, Thailand, Indonesia, Philippines, India, Australia, United States of America …

If Germany Caves

There is always the possibility that Germany will agree to underwrite the sovereign debt problems of the PIIGS countries (Portugal, Italy, Ireland, Greece, Spain). How would that look? Imagine the concept of creating Eurobonds that all of the Eurozone countries stand behind (which would basically put Germany on a hook that they are not currently on) or have the ECB buy $ 2 Trillion of Sovereign debt (which would be pretty much the same thing). What happens then?

If this happens, you have the situation that will, in time, present itself to the US. There will be a massive debt that really cannot ever be paid off other than by simply printing currency and using the currency to continue to fund the debt. That means massive worldwide inflation with the purpose of destroying the "value" of the outstanding sovereign debt. If the inflation does not spiral out of control, this could work. It would be simply another way of defaulting.

Imagine a 10 percent inflation rate worldwide…

YTL Power to be privatized? (Oct 2011)

According to The Edge over the weekend, "rumours are swirling that YTL Group has hired local investment bankers to work on a possible corporate exercise that could result in its restructuring".  YTL Power and YTL Land, whereby YTL Corp has a 51.7% and 57.9% stake in respectively, are said to be targets for privatization or share swap exercises to align the group.

Well, if this is true, it definitely will boost the said target companies share prices. Before jumping to the conclusion, let us get the view from professionals. With that, we have a timely article from RHB Research who touched on this matter as below:

"We believe the likelihood of a privatization is low, as its FY12 PE of 12.8x is not much lower than its 5-year average forward PE of 14.7x. Besides, YTL Power's FY12 PE is similar to the 13x PE used for our end-2012 FBM KLCI 1,385 target."
"Also, we believe it will be very costly to privatize YTL Power. While YTL Power could take on more debt to facil…

The Blame Game

If you buy a residence in the US and live in it, you are in a remarkable situation, especially if you finance the home with a large mortgage. If the value of your home rises, you can sell it tax free (in more than 98 percent of actual home sale situations) and if the value of your home falls, you can, in most states, simply move away and owe nothing. Even better, the government subsidizes the interest expense that you pay on the mortgage by permitting tax deductions for mortgage interest paid.

If you decide to pay off your mortgage early (to take advantage of lower mortgage rates), the government insists that all "conformable" mortgage loans (comformable to GNMA standards, which accounts for more than 90 percent of all US mortgages) provide for no penalty whatsoever to homeowners choosing to refinance their homes (a luxury unheard of in the mortgage market for commercial real estate).

As if that isn't enough, Congress has created two "quasi" government agencie…

RHB Cap and OSK: Largest Investment Bank in the making?

Finally, Bank Negara Malaysia (BNM) gave the green light for RHBCap and OSK to start negotiations on the possible merger yesterday. The approval is valid for 3 months. Indeed, the act by BNM is fast this time, signalling its commitment to consolidate the banking sector. Regional footprint is increasingly crucial for local players to counter the highly competitive domestic landscape. That's why BNM is willing to speed up the process of any merger and acquisitions that may create a regional champions.

The merger of RHB Cap and OSK will proudly creates the largest investment bank at least in Malaysia. Currently, CIMB leading the segment under the leadership of Datuk Nazir Razak. If we recalled back, RHB Securities is very famous during 90s before financial crisis. When we heard about RHB last time, it refers to RHB Securities (not RHB Bank), which is a business under the investment banking arm.
However, everything was changed after the 97 financial crisis, which left RHB with heavy deb…

Background Noise

Occupy Wall Street (OWS) and the President's "jobs plan" have become background noise to the faltering US economy. Far more interesting are the political shenanigans in Europe attempting mission impossible -- trying to keep most of Europe from defaulting. This steady drumbeat of irrelevance beats on as the Western economies slide into the mud.

Capitalism is now so hamstrung in the Western economies that we will soon be trumpeting 8 % unemployment as full employment. Europe is pretty much used to that already. European countries haven't seen four percent unemployment since Queen Victoria's days and they are not likely to see it again in the future. The US is a tag along.

All of our troubles in the Western world stem from one simple consideration: many people have an insatiable desire to be appear to be "good" people. Appearance is the key here. Really helping people is not the plan.

Look at Buffett. He is complaining that people like him don'…

Why Gold Price DROPs lately? (Oct 2011)

During market uncertainties, there are two popular safe assets which is Gold and USD. This explain why the demand for these two assets is great, resulting them to become more valuable while equity market fell. We experienced the said scenario recently and let's see the chart below to gauge the Gold price movements.

"Gold prices collapsed from their August highs in September amid a broad commodity sell-off and despite intensifying concerns over sovereign debt issues in Europe. After exhibiting a remarkable correlation to real rates this year, particularly during the swift August rally, the sharp pullback in gold prices occurred with real rates mostly unchanged."

"Gold prices have now fallen back in line with our 3-month price target. As we expect gold prices will continue to be driven in large measure by the evolution of US real interest rates and with our US economic outlook pointing for continued low levels of US real rates in 2012, we continue to recommend long trad…

4 Interesting Questions on Budget 2012

Well, well, well... The newly announced Budget 2012 seems to be a very holistic one, which covers almost everyone (even the opposition MPs). In the budget, a total of RM232.8 billions was allocated to implement all Government development plans, which include the projects and programs under various plans, focusing on the well-being of the rakyat. But, there are a few interesting questions that Finance Malaysia would like to highlight here.

1) Is it too optimistic? As we all know, the external environment is becoming more challenging once again due to slowdown in US, Europe and Japan (if not double-dip recession). This would definitely impact Malaysia as manufacturing sector still playing a crucial role in our country's growth. While IMF is revising downward the global growth next year, our Government is projecting a 5 - 5.5% growth this year, and 5 - 6% for 2012. I think we should be very happy if Malaysia can grow more than 4.5% for 2011 and 2012.

2) Budget Deficit to come down? Takin…

The Wall Street Protestors

You just knew that it couldn't be confined to Greece. The US has more than its share of folks that feel entitled and now they are congregating daily on Wall Street. Students, having spent four years boozing it up and studying sociology, now wonder where are the jobs?

Corporate greed, huh? Who owns corporations? Workers their pension funds. So, if you can destroy corporations, you are basically destroying the savings and the economic future of the average worker -- union worker, state and local public employee worker, anyone with an IRA. There isn't some rich guy out there that owns Big Oil. The average worker owns Big Oil in his pension fund.

So, we come full circle. The attack on greed is really an attack on the retirement hopes and dreams of the average American. They have been so greedy as to plan for retirement or to work for an employer that provides a pension fund. By all means, lets destroy it in a war on "corporate greed."

We are no lo…

OSK Strategy and Outlook (Oct 2011)

We still feel that there is downside to the KLCI although with non-GLICs supposedly close to maximum cash levels and GLICs supposedly not aggressively supporting the market up till now, further downside maybe somewhat less than our recession market bottom of 1086 points.

With Budget 2012 (to be announced on this Friday 7th Oct) around the corner, OSK has no major expectations of the budget except that it will probably be people friendly and include: No further tightening of regulations with regards to the property sector which should be positive for property stocksNo hike in Brewery Tax which will be positive for Carlsbergy and GuinessA 4.5 - 6.8% hike in Tobacco excise duties which will be mildly negative for BAT and JTIA likely hike in Civil Servants salary as the last hike was in 2008 which will be positive for MBSB

OSK remain defensive for now with expectations of a further drop in the KLCI although they do not see it dropping to our recession bottom of 1086 points. Given the volatil…

New Fund: Hong Leong Hong Kong Equity Optimizer Fund

Finally, there is a new fund from Hong Leong Asset Management (HLAM). The fund is designed to capture the vibrant growth of the Hong Kong capital market. The Hong Kong market has one of the world's leading securities exchange in the Asian region which is one of the fastest growing capital markets by market activity and new listings

Hong Kong, dubbed as Asia's most liquid exchange, acts as a key platform in the internalization of the Renminbi (RMB) currency. This allows investors to participate in the RMB appreciation potential via investments in equities and bonds.
The new Hong Leong Hong Kong Equity Optimizer Fund, being a growth fund, will invest primarily in equities and equity-related securities that are listed on the Hong Kong Exchange. Meanwhile, the balance may be invested in domestic and Hong Kong fixed income securities.

To achieve its investment objective, the Fund adopts an actively managed investment strategy which may include investment in common stock and depository…

Growing Slowly

The US economy is not going to get much worse. It will improve. But, it won't be like the economy in past years. Why?

Unemployment is here to stay and especially for those in the bottom half of the skill pool. The future will have a permanent unemployed part of the American population. The unemployed will survive by various "safety nets" funded by government. It is hard to see how they will ever be legally employable again in any great numbers.

The absence of work opportunities for the unemployed suggests that their children will be disadvantaged as well, since useful employment will not be a day-to-day feature of these households. The US will have a perpetual underclass, basically created by government fiat.

For the upper middle income and the rich, the "new economy" will seem much as before. Using "outsourcing" and technology, the wealthiest part of America will find a way to get by without the unskilled labor force that once had a home in th…

RHB: Market Outlook & Strategy 4Q2011

Titled "Perilous Crossroads; Challenging Times Ahead" RHB Research painted a not so rosy 4Q2011 outlook for KLCI. Undeniably, our market are in for a turbulent times and we do not know how the year will be ended. Bear or Bull market?

Below is the excerpt from the said report:
~ The US economic recovery has slowed to a crawl, while Europe is not just lurching from one crisis to another, it is lurching into a new one before the previous one is solved. There is growing risk that sustained weak confidence could exert downward pressure on demand and business activity worldwide.

~ Nevertheless, "double-dip" recession can still be avoided if political leaders get their acts together fast enough to contain the debt crises and avert a contagion given that global trade has not fallen off the cliff.
~ On the home front, we expect the Government to speed up the implementation of the Economic Transformation Programme, which coupled with resilient consumer spending, will provide som…