Showing posts from January, 2012

So, Who Is the Free Market Candidate?

Who among the various candidates, Democratic or Republican, truly believes that economic scarcity is best solved by free markets? Indeed!

It is not clear that any of the candidates now running for the Republican nomination, other than Ron Paul, have any real faith in free market solutions to the problems of economic scarcity. No one is really proposing returning to free market principles. The battle ground seems much narrower -- personal and business tax rates, minor amendations to Obamacare, support for the Keystone project -- but not much else really.

The most likely outcome is a Romney candidacy. As much as that will be presented as the free market alternative to President Obama, in truth there is not much daylight between Romney and Obama. Neither seem to understand the fundamental economic malaise of modern America, nor to understand the root cause. One way you can tell that neither "get it" is the constant China-bashing that comes from the White House and the campa…

BNM Further Liberalisation on Forex (Jan 2012)

As part of continuous efforts by Bank Negara Malaysia to enhance competitiveness in the economy and to develop the domestic financial markets, Bank Negara Malaysia wishes to announce the following liberalisation measures, with effect from 31 January 2012:

To further spur the domestic foreign exchange market through greater product innovation, licensed onshore banks are permitted to trade foreign currency against another foreign currency with a resident.To further deepen the domestic interest rate derivatives market, a licensed onshore bank is allowed to offer ringgit-denominated interest rate derivatives to a non-bank non-resident.Towards enhancing the asset liability management of residents, flexibility is permitted for a resident to convert their existing ringgit or foreign currency debt obligation into a debt obligation of another foreign currency.

The above measures which are in line with the broad thrust of the Financial Sector Blueprint will contribute towards increasing the liqu…

Obama Is Right on Tuition Levels

In his State of the Union address last week, the President put forth an idea that is a long time in coming. Federal government aid should be curtailed to schools whose tuition is going through the roof and redirected toward schools who are running a tight ship. Amen.

In the past, the answer to the surging costs of higher education was to throw more money at higher education through more federal dollars and increasing loan availability to students. All this did was feed the beast and have universities searching for ways to toss money down ratholes. Meanwhile, millions of our college graduates are now saddled with debts that they have no hope of ever coming out from under. All of this to fatten the ever bloated monstrosity that is known as higher education.

Higher education is one of the few areas of American life, where there has been no serious change in technology implementation. Most schools still run their classroom in the same old way -- blackboard, chalk and someone droning o…

Any Hidden Agenda Behind the Sales of POS and PROTON?

Lately, there was a slew of divestment by Khazanah Nasional Bhd (Investment arm of Malaysia Government). And, the most recent one was the divestment of Proton stakes to DRB-Hicom. But, the strange part was DRB-Hicom was the winning bidder for Khazanah's stake in POS Malaysia last year too.

Questions have been pouring in to Finance Malaysia regarding this issue, such as, are there any linkages between the two national deals? Other than DRB-Hicom, there was none other better suitors? As such, we would like to give our opinion on this matter. (Just for your reading pleasure)
You have the Questions, We have the Answers First, both POS and Proton were considered as "sunset" companies in their respective industry. Both were not managed well and fallen from their glamorous days. Just as many investors written them off from investment radar, DRB-Hicom comes into the picture. Frankly speaking, the only asset both companies have was Government's backing.

While POS has the monopoly…

The New Normal in the Obama Economy

Peter Whoriskey's article in today's Washington Post gives a brief summary of the "Obama Recovery" and it's not pretty. The slowest economic recovery in post World War II history has left the economy, even at this late date, with 6 million fewer jobs than it had before Obama took office. This after the most incredible expansion in federal spending and the national debt in American history. Quite a record!

The article shows who are the winners and who are the losers. The winners are businesses, who no longer intend to carry the albatross of the American worker. Loaded up with government mandates, rights, privileges, benefits, and lawyers, the American worker is a luxury that American businesses are determined to wean themselves away from.

"Businesses are swiftly investing in equipment and software. Those investments were up 5 percent in the last quarter of 2011 and 16 percent the quarter before that...."

As for the middle class that Obama claims to be…

The Obama Plan to Lower Tax Revenues

The so-called "Buffett-Rule," which would impose a minimum tax on incomes above $ 1 million, would guarantee lower tax revenues for the US Treasury. Folks with high income would simply choose to lower their taxable income. That is a fairly simple thing to do and always happens when you raise tax rates on wealthy citizens. Short of confiscating folk's wealth, something Obama may get around to eventually, raising tax rates just encourages tax lawyers and leverage (the wealthy borrow more to live and let their assets grow unrealized...that solves the problem of lowering your taxable income without affecting your lifestyle).

Meanwhile, as tax revenues collapse, the Obama folks will find a way to tack on a tax increase for the middle class to offset the revenue loss from rich folks. This is always the route that tax rate increase advocates end up taking. The result: the middle class gets soaked with more taxation, while the no-nothings revel in the irrelevant higher rate…

More Politics from Obama

The state of the union speech revealed a complete lack of interest in the absence of growth in the US economy on the part of the President. This means that lower income folks can expect their misery to continue as long as this President remains in office.

Instead the President launched a variety of attacks against his coffee-house enemies -- "the rich." As Buffett knows, apparently better than Obama, the tax rate is completely irrelevant to the truly wealthy. The truly wealthy can arrange things so that they have zero income for tax purposes, so who cares whether the tax rate is 30 percent or 100 percent. 30 percent of zero is zero. That's math that the President and his crew don't seem to understand.

But, it all sounds good I guess, to the uninformed. There is no question that this is class warfare and shows a President of the United States several shades to the left of the most socialist leaders in Europe. Whether Obama gets his way on all of this economic …

Podesta Needs a Reality Check

The op-ed in today's Wall Street Journal co-authored by John Podesta, life long Democratic Party strategist, suggests that the "clean energy" industry is soon to reduce America's dependence on foreign oil. That is so absurd as to be laughable.

One supposes that this article was trotted out to defend the indefensible -- the Obama decision not to give the go-ahead to the Keystone pipeline project that would have permitted the US to tap Canada as an oil source instead of Syria.

There is no "clean energy" industry out there, either in the US or China, that has any potential to reduce America's or anyone else' dependence on fossil fuels. To pretend that there is, is irresponsible.

Whatever there may or may not be to a "clean energy" industry is far into the distant future and will only come into existence when the free market wills it so. Governments will just continue to waste taxpayer money. Does anyone really think wasting money on the Soly…

Republicans In the Mud

It is hard to see either Mitt Romney or Newt Gingrich emerging with much of a claim to lead a major political party campaign after the absurd performance in Tampa tonight. Instead of discussing the economy and the important campaign issues, the main spotlight was on who was the biggest devil in the room. The President must have enjoyed this debate.

State and Local Pension Reform

As everyone by now must know, state and local defined benefit pension funds are broke and are not sustainable in their present form. So, what should be done?

Most states are creating Rube Goldberg machines to "reform" their state pension systems. Virginia is a good example. The proposals by the McDonnell Administration recently unveiled have the potential to make a bad system even worse.

What should state pension funds look like?

If you lump defined benefit pension funds in with social security, it is easy to see the overall problem -- the absence of saving. Social security is a net dis-saver (that's really the meaning of the "social security trust fund") and defined benefit systems have the effect of encouraging state workers to dramatically reduce their personal savings because of the expectation of future benefits. The result is that the national savings rate plummets effectively to zero (except for the savings done by the wealthy and by the corporate sect…

CLSA Feng Shui Index 2012

In conjunction with the coming Chinese New Year, Finance Malaysia would like to bring to you another popular research report - funny and interesting - by CLSA. This year is called "Water Dragon" year. Is it a good or bad dragon? What does water means to this dragon? And most importantly, what's the predictions of markets from the angle of feng shui?

Prediction pattern patent pending Past performance, as the tiny type whispers, is no guarantee of future behavior. After all, it may be no guarantee, but it's pretty much all we've got to go on. No matter how mathematically marvelous the model, how impossibly rational the behavior or how serial the killer instinct, not too far beyond the smirk and mirrors, precedent is invariably at play.

That the past is present in the future is fundamental to feng shui forecasting, which is why we slipped on the archaeological geomancy fancy-pants and took the pith helmets to pore over the charted remains of the most recent Wyrms Past …

Credit Suisse's 2012 Malaysia Outlook

After looking into all those research reports on 2012 market outlook by local securities or research houses, it's time for foreign research houses. In this series of 2012 outlook, we kick start with Credit Suisse's report, in which a section of it was written specifically on Malaysia. And, below is the excerpt from it.

Malaysia’s GDP growth to outperform its regional peers'? Real GDP growth expanded 5.8% yoy in Q3, led by strong private consumption (7.4% yoy) and fixed investment (6.1% yoy), and a surge in government consumption (21.8% yoy). On a seasonally adjusted basis, we estimate that GDP expanded 4.6% qoq annualized in Q3, stronger than that of Korea, Thailand, Singapore, the  Philippines, Hong Kong, and Taiwan. Malaysia remains highly exposed to a sharp slowdown in the developed world, but, on a relative basis, we think its domestic demand will hold up better than that of the other small open economies in the region. We expect private consumption growth to remain robu…

Check Out Iceland

Faced with a banking system that was broke, Iceland simply let their major banks fail. This happened three years ago as the US and Western Europe were busily fashioning government rescue plans. No rescue plan for Iceland! Nope!

They just let them fail.

So, what happened? Did their civilization end? No. Iceland today is the one of the fastest growing countries on the globe. Business is booming, unemployment has cratered, and good times are back. This, in just three short years after Iceland let nature take its course. (A pattern very similar to what happened in Asia after the 1997 collapse of Asian financial institutions).

This story is laid out in detail in today's Washington Post in an article by Brady Dennis with the fetching title: "Could US and Europe Learn a Thing or Two from Iceland's Financial Collapse?"

All of those who say that the TARP and other government bailouts were essential should take note of what happened when governments stepped aside (which do…

Romney Is The Only Adult in the Room

The debate in South Carolina last night revealed what everyone has long known and no one has been willing to say: Romney is the only truly viable candidate that the Republicans have. Gingrich and Perry have revealed themselves as attack dogs against capitalism, Santorum has a non-sensical tax plan that would create a distinction in tax law between manufacturing companies and all other companies, and Ron Paul is delightfully irrelevant. That leaves only Romney, who, admittedly from his resume, is Obama-lite.

It is interesting irony that in the day of the tea party, there is no real conservative alternative to Mitt Romney. Romney will be the Republican nominee. It is time for the other guys to admit reality and head home.

Annual Strategy 2012 by TA Securities

2011 had triggered a wave of unwanted chain effects, which would not languish but resonate further into 1H12. While Japan is recovering from the worst ever tsunami and nuclear disaster, and oil prices stabilized after the unrest in the Middle East, conditions in Europe are expected to worsen before stabilizing.

Global Economy – Risk Factors Extending into 2012
Positive news flows on drastic measures to restore confidence in Europe and maintain the credit ratings of core economies could boost market sentiment in early 1Q12 and push the index to test the all‐time high of 1,597. However, the reality check on the implication of European austerity measures and rising market risk premium due to the 13th General Election (GE) could push the index around 1,200 levels in 1H12 based on a minus two standard deviation from its last decade’s historical mean of 16.6x.

A revival should ensue in the following months due to oversold conditions and anticipation of a subsequent recovery in Eurozone economy…

S&P Downgrade Is Not News

The S&P downgrade is simply a public statement of what everyone already knows -- Eurozone debt is unsustainable. That France was included in the downgrade should surprise no one. Sooner or later the French government will be forced to absorb the balance sheets of the major French banks. The French are in as much trouble as everyone else.

Really important news will come when sovereign debt auctions begin to falter. That will happen. That will be the beginning of the end.

Far better is to face reality now and begin the "workout" process. But, politicians are loath to face reality on their own watch. So, don't look for anything good on the European sovereign debt front anytime soon.

But, the markets surely know all of this.

Capitalism Under Siege

What do Warren Buffett and Newt Gingrich have in common? Actually, quite a lot. They both relish being in the spotlight and both dote on the sound of their own voice. Now, they have both joined the Rick Perry choir denouncing private equity as some kind of evil pursuit. Strange since all three -- Perry, Gingrich, and Buffett -- have all benefitted financially in a big way from private equity activities (or it's equivalents).

What next? Why not condemn LaBron James since his existence, no doubt, led to a basketball player losing his job.

Where does this absurdity end?

It's beginning to look like Romney may be an attractive candidate, if only because only he (and Ron Paul) seem to favor capitalism over the alternatives.

Unbelievable 1Malaysia Amanah Rakyat Scheme?

Did you watch TV news just now? There is a good news for Malaysian who are looking for higher saving rate for their monies. Yes. I am talking about the fresh from oven 1Malaysia Amanah Rakyat scheme. The scheme was launched by Prime Minister, which aimed at helping those with a monthly household income of RM3,000 and below.

Unlike the previous series, the new scheme was a hybrid of a unit trust investment and loan product, capable of generating a consistent cash flow or monthly income. It will be made available from Jan 30. But, the best part is it comes with a Guaranteed return. Unbelievable?
The limit is RM5,000 and it can be bought through savings or investment loans from selected financial institutions, such as Maybank, CIMB, RHB and BSN. Investors would get a guaranteed RM134 monthly and for those who borrow, they only need to pay RM84 a month and still get RM50 in profit.
Too Good to be TRUE? Let's us calculate the return on investment. If investors fork out RM5,000 themselves t…

Maybank 2012 Outlook & Issues: Tilt to Safety

2012 will be another volatile year, we expect, tracking closely headline news from abroad given unresolved macro conditions brought forth from 2011: high debts but low growth at the eurozone and US. Confidence continues to wane on a resolution to the debt crisis which is negative on sentiment and will destabilize growth.

We maintain our 2012 year-end KLCI target of 1,500 pts based on one standard deviation below mean on expectation of turbulence still at the external markets impacting sentiment and global growth. At the home front, it will be a year with potentially two major elections: an early 13th general elections (13GE) andUMNO party elections for the top posts in 4Q 2012, where the elected party president will helm the country’s premiership positionAir Pockets Ahead?
That eurozone’s debt crisis has stayed unresolved means that there is still default risk. We expect higher bouts of volatility in 1H 2012 where much of the PIIGS and US government bonds will mature. Other risks are pot…

Conservative Economists' Foolishness

Today's Wall Street Journal shows that right wing economists are no better than their left wing brethren at separating economics from politics. Professor Robert Barro of Harvard University and the conservative Hoover Institution of Stanford University opines today for the Wall Street Journal that the Euro should be abandoned and outlines a gradual policy to convert the Euro back into the original currencies of the countries presently in the Eurozone.

Why does Barro reach this remarkable conclusion? "In light of the ongoing fiscal and currency crisis -- which is leaning strongly toward a centralized political entity that will likely be even more unpopular than the common currency -- I would suggest it would be better to reverse course and eliminate the Euro." Politics is the reason!

So, toss aside the enormous benefits of a single currency union simply because of the "ongoing fiscal and currency crisis." Nowhere does Barro propose any economic solution to the …

The Drag from Minimum Wage Laws

When the economy is struggling to create new jobs and pull itself back up by its bootstraps, it is not helpful to have laws that make it illegal to create jobs. Minimum wage laws are exactly those kinds of laws. Someone who would like to make $ 6 per hour, rather than remain among the unemployed cannot legally do so anywhere in the United States. In San Francisco, it is not legal to take a job that pays $ 10 per hour! In many states, it is illegal to take a job making $ 9 per hour. It is also unlawful to offer anyone a job at these various rates in these various localities. That is what minimum wage legislation mandates.

What these laws are saying is that until the economy has made a dramatic recovery, those of our citizens at the bottom of the pile will have the boot heel of big government on their necks. Once unemployment rates are small and the boom is on, if that day ever comes again, then and only then can folks at the bottom of the talent pool have the legal right to work.…

RHB 2012 Market Outlook & Strategy: Another Challenging Year Ahead

As we head into 2012, a lot of uncertainty remains. On the external front, the euro-debt crisis remains unresolved despite five major attempts to stabilise it. Meanwhile, the economic conditions in the Eurozone are deteriorating rapidly with major indicators pointing to the region entering a recession. A deeper-than-expected recession in the Eurozone would leave few countries unscathed.

In particular, the US economy, which is still in low gear, will likely be severely impacted, while China may also be in for a more severe downturn as effects of potential policy easing will take time to filter down to the real economy.

Slower Eonomic Growth Envisaged For 2012?

The Malaysian economy will not be spared and will likely experience slowing export growth, though this will be cushioned by resilient domestic demand given the progress in the implementation of the Economic Transformation Programme. We expect the country’s economic growth to slow down more significantly to 3.6% in 2012, from +5.0% e…

200,000 New Jobs -- Nothing New Here

The unemployment report this morning showed the unemployment rate is down to 8.5 percent. This is being celebrated by the Obama Administration as stupendously good news.

Well, it's not bad news. It's just more of the same -- a slow, sluggish economic recovery consistent with 2 percent GDP growth continues to trudge along.

The only reason the unemployment rate is down to 8.5 percent, is that so many people (and this is the only real record that Obama has been able to set) have simply given up looking for work and have disappeared from both the numerator and denominator that makes up the unemployment rate. That's why Congress periodically extends unemployment benefits (also an Obama Administration record).

A good month would be 350,000 plus jobs. That's not going to happen with this Administration in the driving seat.

Another Academic Economist in Action

Today's example of absurd economics coming from academia is Professor Uwe Reinhardt's blog post in this morning's NY Times entitled "What Price Pluralism in Health Insurance?"

It is really hard to believe that Professor Reinhardt put pen to paper with this nonsense. Here is his argument: In the US, people have a tough time figuring out which health insurance plan to buy because there is such a diversity of plans. No such problem exists in some European countries through the simple expedient of requiring everyone to purchase identical plans. "Premium shopping among insurers is easy, because the standard benefit package is common to all."

Why not apply this logic to cars, television sets, fitness centers, etc? If the government would simply mandate that only one type of car, only one type of television set, only one type of fitness center, etc, can exist, think how easy it would be for consumers to comparison shop! Consumers would no longer have to mak…

The Biggest Myth About The Euro

You hear it all the time. "They created a monetary union without a fiscal union." What complete nonsense that is. There is absolutely no need for a fiscal union in the Eurozone.

Those who push this notion: 1) completely ignore the US experience where, at least at the national level, there is a monetary union and fiscal union and, nonetheless, sovereign US debt is spiraling out of control; 2) if there was a "fiscal union," things would be far worse due to logrolling and moral hazard problems.

What is missing in the Eurozone is that those who owe money should sit down with their creditors and work out a repayment schedule that involves a substantial foregiveness of principal -- a partial (or perhaps nearly complete) default. Each country is and should be on its own.

If country A is profligate and spends money it doesn't have and if someone is foolish enough to lend them the money to do that, then why should country B be involved at all. Country B may have liv…

OSK 2012 Outlook: Be Nimble in the "Way of the Market"

OSK have a Neutral outlook on the Malaysian market going into 2012 as the combination of uncertain growth outlook in the US and Asia coupled with a possible recession in Europe cloud the prospects for strong earnings growth locally. While Malaysia is likely to avoid slipping into recession, the deficit reduction exercises undertaken by Eurozone economies may well tip their slow growing economies into a recession.

In any case, for Malaysia, OSK see earnings growth slipping to between mid single digits and low double digits, a pale shadow of what it was in 2006, 2007 and 2010 when earnings growth came in between 20 to 30%. Newsflow on developments surrounding the handling of sovereign debt in Europe and US will also likely to lead to volatile markets worldwide. As such, in the short term, we are faced with volatile markets which will likely give way to a dampened economic outlook. OSK advise investors stay cautious into mid 2012 and focus on Defensive sectors such as Consumer, Telco, Hea…