Showing posts from January, 2013

Rick Santelli Has It Right

"We are now Europe!"  So said Rick Santelli on CNBC yesterday, as he responded to the negative GDP growth announcement for 4th quarter 2012.  Santelli is right.  We are now having the same silly discussions that go on routinely in Europe.  We now think that somehow, someway the central bank can do something that makes it all better.  And that somehow, someway, with sovereign debt exploding off into infinity, we can continue to spend and borrow our way to prosperity.  It can't be done.

Economists have routinely become apologists for absurd economic policy, both in Europe and in the US.  They often advocate raising minimum wages to increase employment.  They have been in the forefront of advocacy for Obama policies that have brought the US economic recovery to its knees.  Thank goodness for Santelli.  He correctly notes that US sovereign debt problems are approaching Greek levels.

There was a time when US capitalism was the envy of the world.  That time has passed.  We are n…

State of Denial

The Obama Administration continues to trumpet the illusion that the economy is doing well.  It isn't, Today's 4th quarter GDP numbers point to a declining GDP, not a growing GDP.  The Obama enthusiasts in the media quickly found things within the report to like -- what else could they do?  But, the undeniable fact is the economy is going nowhere.

If it were only the tax increases.  But, there is so much more.  Obamacare is kicking in and the EPA is clamping down hard on the economy.   Meanwhile, Dodd-Frank implementation is destroying credit availability.  The combination of all these things seems to get the Obama folks where they want to be -- the destruction of the American economic engine.  They are succeeding.  This morning's numbers bear testament.  Stay tuned.

NEW Aberdeen Islamic Funds

Aberdeen Islamic Asset Management Sdn Bhd has recently launched two shariah unit trust funds for the Malaysian market, the Aberdeen Islamic Malaysia Equity fund and the Aberdeen Islamic World Equity fund. The new funds are the company's 1st shariah retail products in Malaysia - and the 1st from a foreign fund manager under the special scheme - and come almost 8 years its parent company Aberdeen Asset Management Sdn Bhd was established to manage assets in Malaysia for institutions and corporate investors.

Malaysia: Turning promise into profit
Malaysia has long been rich in promise - rich because of its abundant natural resources, physical infrastructure and educated workforce. However it has not always maximize its advantages. In recent years that has changed as the country streamlines priorities. There is more emphasis now on efficiency, the private sector has a greater say across industries and more value is being created for shareholders. This enterprise is taking Malaysian compan…

The Managed Economy

There seems to be some euphoria surrounding the Obama White House that the economy may finally be on track.  The stock market's behavior this month is a glowing chorus of approval, according to many observers.  Perhaps, the economy can be managed after all.  Perhaps, taxes and health care costs don't really matter after all.  Perhaps, the collapse of Europe is irrelevant.  Perhaps....

The cold reality, though, is that the numbers on the ground are still pitiful and have the potential to get worse.  What little pulse the economy has is now an occasion for celebration in the White House.  Strange.  The American economy has historically provided 3 to 4 percent economic growth as the American middle class became the envy of the world.

Yes, the middle class has greatly improved its economic position over the last three decades.  Only if employee benefits are left out of the calculation, which now amount to over 30 percent of employee compensation, can we reach the conclusion that the…

Optimism Abounds

The stock market has thundered forward since the turn of the year.  Unemployment claims are near their twelve month low and even California thinks it sees balanced budgets ahead in their future.  So, are we there yet?

Unfortunately, nothing has really changed.  Let's begin with California.  California, New York and Illinois face an almost immediate crisis with their pension systems.  These problems are far, far larger in magnitude than their total annual spending budget for everything else they do.  And, the clock is ticking.  These problems don't get better every day; they get worse. 

California, like New York and Illinois, believe that higher tax rates have no effect on economic behavior.  They are wrong.  Thus, the revenue projections these states are expecting from higher tax rates are an illusion.  Even without pension funding issues, these states are on a straight line to some form of bankruptcy, even if the day of reckoning is not (yet) known with certainty. These states …

So Much for the National Debt

Obama's inauguration speech yesterday makes it pretty clear.  He has no intention of discussing ways to lower the deficit and begin to tackle our national debt problems.  Quite the reverse!  Obama has more spending, taxing and regulating plans ahead for the next four years.  As if the economy wasn't bad enough, Obama is planning more anti-capitalism moves.

You wonder if his advisers have any idea what the implications are for the economy of all of this.  There was always the chance that a Republican House would block the most extreme measures, but that is becoming increasingly unlikely as Republicans tack feverishly in Obama's political direction.

Given Europe's situation, which is far, far worse than the pundits are saying, the economic outlook for the US is pretty bleak.  The best that can be hoped for is more slow growth and stagnant employment.  That is the very best that one can hope for!  The worst is that the economy could begin to slip into recession mode.  While…

CLSA Malaysia Politics Market Strategy

There is no better time to blog about this post. After the plunge of KLCI yesterday, citing election risk, we came across an interesting research report by CLSA. As such, we would like to take this opportunity to share with you.

An unexpected opposition Pakatan Rakyat (PR) coalition victory in the impending 13th General Election (13GE) would spark a broad sell-off in Ringgit assets. Changes of government are not uncommon in ASEAN. Looking at the experience of Indonesia, Thailand and the Philippines over the last decade, parliamentary control has seen significant shifts and governance has been possible despite the lack of a parliamentary majority. However, Malaysia has never experienced a change in government, meaning any change will come as a shock and with a host of uncertainties.

From an equity and debt market perspective, Malaysia has always enjoyed a political premium for the stability in governance and policy-setting stemming from majority control of parliament. The immedia…

Republicans Go Over the Cliff

Too often, Democrats get blamed for our national debt problems and the economic stagnation that has come to characterize the US economy.  Republicans deserve their share of the blame.

Who provided the votes necessary to escape considering our debt problems at the start of this year?  Speaker Boehner violated the "Hastert Rule" and let the Senate bill come up for a vote which raised taxes.  48 Republicans then voted for the bill.  A solid victory for Obama.  A solid defeat for the American taxpayer.  And, who engineered this?  Republicans.  Ditto for the emergency pork bill that passed the House last week.  Once again, with Boehner's concurrence, Republicans provided the necessary votes to pass this abomination as well.

Yesterday, Republicans announced unilateral pre-emptory capitulation before the White House by pledging to extend the debt ceiling for three months in exchange for the usual -- nothing.

What is the difference between a Republican majority in the House of Repr…

The New Wall Street

Better-than-expected results were common for the major money-center banks that reported earnings this week.  The announcement of these "good results" were accompanied by more layoff notices from every large bank.  Wall Street continues to downsize as the rest of the economy remains in hunker-down mode.

We are gradually becoming accustomed to accepting economic stagnation as the new normal.  Reminiscent of the 1970s,  Americans are becoming used to sluggish job prospects, sluggish income and wealth growth, and massive and continuing unemployment.  All of this is now described, by the president's coterie of supporters in the media, as an improving economy.  This is not an improving economy so much as a different economy.

The place to be is somewhere in the government or quasi-government sector.  You can make high six figure incomes at a relaxed pace in the upper echelons of most large universities.  Even better, you probably aren't at risk of being laid off.  But, if you…

TA 2013 Malaysia Outlook: Ride the Volatility

By TA Securities,
We believe 1H13 will be a choppy period and election concerns could drag down the FBM KLCI by 8% to 10% in the period before market rebounds in the 2H13. The impetus for revival will mainly hinge on the end of election overhang and strong domestic demand.

Sustained monetary easing on the back of low inflationary pressure and attempts to reduce budget deficits by cutting subsidies and channeling the savings to productive ventures are positive despite the short-term impact on earnings. Overall, domestic economy will play an integral role in sustaining confidence in domestic equities next year in the absence of any overwhelming micro drivers.

Corporate earnings for 9M12 were less robust and we forecast full year earnings growth for the FBM KLCI to be 9.4% only. Chances of a strong revival in the immediate-term are minimal based on external sentiment and dwindling demand in key export markets. Our earnings growth forecast of 8% and 8.4% for CY13 and CY14 is not compelling v…

What's Wrong for an Economist to Predict the Upcoming Election?

I am writing this post during midnight after I came across a report saying that Bank Islam chief economist suspended after predicting that opposition will win the upcoming election. As usual, Finance Malaysia would NOT include political elements in its blog post. And, we would like to stress here again, that we are discussing this topic WITHOUT any political elements. Then, what are we talking here?

I knew that I could not sleep if I didn't speak up for En. Azrul Anwar. We are not here to defend anyone, neither to offend any parties. But, we should open up our mind, and accept other opinions with open heart. In this matter, the said bank is losing its credibility and reputation by suspending one of its key staff --- just because of his prediction. Why can't he speak freely? Will the bank lose its banking license because of this?
Does he answer the question wrongly? NO... It's a prediction only, there is no right or wrong here.

Everyone knew that …

Fitch Warns on Us and Spain

Today, the Fitch rating agency warned of possible downgrades to two countries who look increasingly similar to one another -- the US and Spain.  Neither country seems to have much hope of averting a fiscal collapse within a generation.  The leadership of both countries have thus far refused to acknowledge their cataclysmic debt problems and seem to be intent on pursuing the path to modern Greece.

We Are A Deadbeat Nation!

The President said today "we are not a deadbeat nation."  He's wrong.  The US government has made promises to our future citizens that are impossible to keep.  Obama knows it and we know it.  Making breast-beating utterances like the one Obama made today is, at best, disengenous.

The Obama "Ostrich" policy continues.

Make It Illegal to Offer a Job -- Raise the Minimum Wage

State after state is in the process of increasing the minimum wage and there is now a renewed call to raise the federal minimum wage.

What is a minimum wage law?  It is a law that makes it illegal to offer a prospective employee a job.  The idea is that outlawing job creation creates jobs.  That seems to be how Governor Cuomo sees it in his push for a minimum wage hike.

If this is such a great job creation idea, why not go whole hog.  Raise the minimum wage to $ 500 per hour.  Then, no job will pay less than the amount necessary to live in luxury.  Gone will be poverty at this wage rate.

Even some economists have argued that increasing the minimum wage creates jobs.  If that is so, why don't we subject them to a minimum wage?  Why not say that no one can be an economist unless he is paid $ 10,000 per hour?  That should solve their problem.

Maybe there are other ways we can dream up to lock up employers who offer people jobs.  That should get the economy going.

Understanding Exchange Traded Bond and Sukuk (ETBS)

Today, Malaysia achieve its first milestone in Exchange Traded Sukuk, following the launching of RM300million sukuk by DanaInfra Nasional Bhd. This is the first sukuk for retail investors. When we mention about retail investors, which refer to public, are we ready for this kind of new investment? We should better understand first before jumping onto the ship...

In short, ETBS refers to Exchanged Traded Bond and Sukuk. Generally, bonds/sukuk have always been seen as an asset class to hedge when markets are bearish and a means to develop a steady income over many years. But in the past, these was only accessible to high net worth and institutional investors. Now, with ETBS, all investors can have access to the bond/sukuk market with ease, via the stock market.
What are ETBS ? ETBS are fixed income securities, also known as bonds or sukuk (syariah compliant bond), that are listed and traded on the stock market. ETBS are issued either by companies or governments (the issuer) to raise funds f…

"Can't Afford More Protracted Slowdowns..."

So says the President.  According to the President: "We still need to do more...."   Praising what is the most abysmal job creation record in a recovery in American history, Obama cited 2 million new jobs last year.  Reagan had more than 1 million new jobs in a single month during the much deeper recession in 1981-1982.  But, Reagan was touting tax cuts while Obama is touting tax increases.

As the US debt spirals out of control -- it may already be unfixable -- the President pushes for more spending and more debt.  He seems to have a plan.  Bankrupting the US seems to be where the President would like to take us.  It is far too late to believe that he is unaware of the level of the debt and the level of the deficits.  He knows that we are on track to reach $ 22 trillion in debt before he leaves office with an economy stuck in the mud.  He is aware of all of that.  Our debt to GDP ratio will equal that of Greece when Obama leaves office.

Obama is also aware that within less tha…

Forecasts for 2013

Welcome to 2013.  Where are we headed?

1) Stagnation in the US economy and in the Eurozone.  Western Europe will remain in recession territory in 2013.  There is no reason for much improvement.  The picture in the US will deteriorate.  Improving housing and growth in the energy sector will not be enough to keep the American economic engine going.  Unfriendly government policy in the US -- higher taxes, increased regulation, implementation of Obamacare, demonizing rhetoric from the Obama White House -- mean the economy is most likely to slip back into recession territory.

2) Markets --  stock markets, ending in the negative (but not disastrous), and terrible bond markets (disastrous) should be the pattern for 2013.  Improving housing markets and home prices during most of 2013.  Pattern should be similar to the economic trajectory of the US in the 1970s and for pretty much the same reasons.

3) Continued economic growth in the Asian periphery that surrounds China.  The only blight on an ov…

A Test of the Perfect Foresight Assumption

Economists typically assume that individuals and business have "perfect foresight."  What this means is that people "optimally" forecast the future based upon what they know now.  Of course, there are many random events that one cannot know now.  But, one thing everyone knows now is that the average US taxpayer is on the hook for nearly $ 60,000 in sovereign US debt.  That number will climb to over $ 100,000 by Obama's last year in office.

What this means is that the average American is under-water financially and the situation is rapidly getting much worse.  Under perfect foresight, Americans will perceive their weakened financial position brought on by the Obama excesses and will dramatically curtail their spending.  Businesses, likewise, will pull in their horns.  This is the prediction of "perfect foresight" economics, an assumption typically used in economic modeling.

The "crowding out" of investment spending by massive government deficit…

Obama Wins; USA Loses

As the Wall Street Journal spells out in some detail this morning, all Americans face major tax increases in 2013, including the middle class.  These tax increases don't include substantial increases in health care insurance costs for both employers and employees.  Funding the Obama agenda is expensive.  Republicans have given them a blank check by permitting Speaker Boehner to schedule a vote on the McConnell-Biden compromise.

Results are what matter and the truth is the Republicans did not have the courage of their convictions.  Once again, they let the country down.  Boehner should be removed as Speaker, but he won't be.  Maybe the only answer is to vote the Democrats back into control of the House, so that there can be a loyal opposition instead of a "me-too" Republican leadership. 

The McConnell-Biden deal increases the deficit, dramatically increases taxes, and rewards Hollywood producers and the money-losing wind energy business.   How could Obama not like that …

Vote No on the McConnell-Biden Deal!

Eric Cantor has come out against the M-B deal.  Three cheers.

What the House should do is what it historically always has done.  Legislate.  Amend this M-B deal.  Put in real spending cuts.  Ignore the tax rate issue for now, so that issues don't get confused.  Get rid of the wind energy tax credits and all of the other nonsense that the Democrats have tossed in.  Get to $ 1.6 trillion in real spending cuts or vote no.

This is the best time to conduct this fight.  Democrats may regain the House and then what?  They can do whatever they want. 

The time to fight for the country's solvency is right now.  We have the leverage now.  We will not have it if we cave here.

Going over the cliff is better than the M-B deal.  No question.  Any Republican who votes yes on this bill, as it is, should draw a primary opponent in 2014.  McConnell should definitely draw a primary opponent for agreeing to this.  Every Republican Senator who voted for this should draw a primary opponent.

All Tax Increases, No Spending Cuts

This is "balanced?"  The so-called compromise to prevent going over the fiscal cliff is all about increasing taxes. There are absolutely no spending cuts in this plan.  This is a pure Democratic plan. McConnell should be ashamed of himself.  Boehner should not permit a vote on this.

Obama let his views be known.  He said yesterday that this is just the beginning of the tax increases. 

Where are the Republicans?