Malaysian-Bursa Blogs And News

Happy Chinese New Year 2012.

2012-01-22T12:01:00.001+08:00

Microsoft, Nokia Have A Real Chance Of Disrupting The Smartphone Market

2012-01-17T02:31:00.002+08:00

Any heavy smartphone user that has gone to one of the many providers in the US or the UK (AT&T (T), T-Mobile, Vodafone (VOD), etc.) has experienced the cost-benefit dilemma of setting up a new contract with a new phone. Three options usually emerge:

Get an iPhone
Get a Blackberry
Get an Android phone

I am about to explain to you why the rising option 4, get a Windows Phone, is going to become one hell of an option in 2012. In this post we will first look at the problems with options 1, 2, and 3. Then we will look at why option 4 will soon become very viable.

So for the problems with the first 3:

The iPhone. I can sum up this phone in three phrases: great software, great hardware, terrible cost. The price of the phone itself is already, well, let’s just say, high. To me that’s not the main problem. The cost of an iPhone contract that matches a heavy user’s needs is catastrophically high. Obviously a lot of individual users have gotten over this cost, as iPhones are selling like hotcakes, but for business users it’s a different story. Welcome to the worst rates for roaming data on the market, partnered with a phone that eats up data as soon as you turn on the “data roaming” slider to check a quick email or use iMessages. No phone has as many roaming costs horror stories as the iPhone does. No provider offers competitive roaming bundles. In comes the Blackberry.

The Blackberry. It’s too bad that Research in Motion (RIMM) can no longer make good mobile software or hardware, because their networking solutions are excellent. First you have BBM, a service that saw exceptional success for a long time. Then there are Blackberry’s servers and networks that allow carriers to allow unlimited data roaming plans for business users without too many costs. To a business user, being able to read emails, calendars, messages, and browse at all times anywhere completely trumps anything that an iPhone can do. It really is a huge, huge feature. To me this and their excellent security give Rimm the only perks that have allowed it to hold on to so many business users even though it is in decline.

The Android Phone. Some great phones, decent contracts, and good software. I know that there are cheap Android phones, but through what I’ve seen they’re not good phones. Because of the sheer amount of devices that run Android, pretty much any carrier can be used, and monthly costs are pretty good for contracts (see T-Mobile). However, for business users, there is no way of getting unlimited data roaming, so Android will not be stealing all of Rimm’s customers anytime soon. Add to that the fact that many people view the OS and ecosystem as lacking in security (since they are so open) and you have an OS that doesn’t suit everyone, especially not business users. Speaking of ecosystems, Android doesn’t really have one, it’s really just the phones. Google (GOOG) OSs are not popular for computers or tablets. An Android phone will never work as well with a Mac as iPhones do.

What we have then is a problem. There is no device right now that does it all: great cost, good contracts, great software, great security, a large ecosystem, and great hardware. In comes Microsoft (MSFT) with Windows Phone.

The ecosystem. Windows obviously has a HUGE ecosystem, and to its advantage, it pretty much has a monopoly on business users for a lot of computer software. With the release of Windows 8, I think that it will have a great OS for tablets, and it could expand that part of its ecosystem. From the Windows OS to Microsoft Office, this behemoth has it all. Syncing with business programs like Outlook and Office will be easier than on any other device.

The contracts. In this field I would consider Windows Phone to be in a similar place as Android: better than Apple’s (AAPL) iPhone, but worse than the Blackberry.

Software. Windows Phone 7 Mango has already gotten great reviews, and Windows 8 is supposed to be a large step forward when it comes out, so Windows definitely has the software. Add to that its productivity software, especially Microsoft Office, and you really have something great. Another thing that’s impressive is how different the Windows Phone OS is from the others. While Android and iOS are almost identical now, Windows has made an OS that truly simplifies tasks. Everything is reachable from the main UI, instead of having to be accessed through specific apps. One touch sends messages and updates everywhere, another searches for something everywhere, etc.

Security. Because it runs the most heavily virus targeted OS, Windows knows how to deal with malware. It has done it for years. Add in the fact that it runs a more closed ecosystem, more similarly to Apple’s than Google’s, and you have a platform that will be secure.

Hardware. So far this has been a big problem, as most manufacturers have been making sub-par devices for Windows. However, with Nokia’s (NOK) switch to Windows Phone 7, we are starting to see some beautiful, quality devices. See Nokia Lumia 900. That phone covers the high-end.

Low cost. What is truly special about Nokia is how well it delivers cheaper, low-end devices, which will be exclusive to Windows. The Nokia Lumia 710 is leaps better than any Android alternative at its price level (see a neutral review here). It really is a quality phone. No one makes inexpensive devices better than Nokia, and with a cheap Nokia Windows Phone, you are getting premium, unaltered software (many cheap android phones have awful custom and old versions of Android).

So Microsoft really has all of the things that it needs in order to become one of the top 3 players in smartphones. With the “cool factor” that surrounds iPhones and some Android phones fading, if it executes well, Microsoft has a real chance of disrupting the market and taking a large slice of it in the process. Its close ties with Nokia mean that if Microsoft succeeds with Windows Phone 7, so will Nokia, and vice-versa.

So there you have it. I see a “critical point,” or a turnaround, in 2012 for both Nokia and Microsoft, both riding on the success of Windows Phone 7 (although Microsoft’s stock price depends on many other factors). By the end of 2012 Windows Phone’s potential for success will be clear, especially after Windows 8 comes out, but by then it may be too late to grab either of those stocks at a low price. Right now I believe that with Nokia the risk is higher but the reward will be massive if a turnaround occurs, while with Microsoft there is fairly little risk but the reward will be smaller if Windows Phone succeeds, so it all depends on how much risk you’re willing to take.

SELAMAT HARI RAYA HAJI

2011-11-06T11:53:00.000+08:00

"" SELAMAT MENYAMBUT HARI RAYA HAJI ""

Selamat Hari Raya

2011-08-29T08:00:00.000+08:00

Selamat Hari Raya To All the Readers Of

"" Malaysia-Bursa Blogs ""

"" Dow Theory "" Confirms Sell Signal.

2011-08-05T20:00:00.004+08:00

If there were any doubts that stocks have entered corrective mode, the "Dow Theory" is now telling us the market is heading down.

The century-old Dow Theory, a way to analyze market trends and turning points, says both the Dow Jones Industrial Average and Dow Jones Transportation Average need to move in tandem to confirm the trend. On Tuesday, the Dow Theory officially gave a sell signal, as Dow industrials and Dow transports broke decisively through June lows, with the Dow transportation index hitting a 2011 low.

The selling comes as worries about the global economy have rippled through financial markets in recent weeks amid signs of further weakening.

The symbiotic relationship between the two indexes is a clear sign to Dow theorists that the economic message and the market outlook are moving in tandem. The idea is that making goods is one leg of the industrial economy and moving those goods around is the second leg, so their trends should be in sync.

Phil Roth, chief technical market analyst at Miller Tabak & Co., said in a Wednesday note that Dow theorists pointed to several divergent actions early last month. For example, the Dow transports hit an all-time high in early July, but the industrials weren't able to follow suit.

The actions were early indicators that the market's uptrend was due for a reversal, which consequently has taken place over the past few weeks. "A sell signal has been confirmed," Mr. Roth said.

The Dow Jones Industrial Average broke an eight-day skid Wednesday, rising 29.82 points, or 0.3%, to 11896.44. The Dow Jones Transportation Average — a 20-member index of airlines, railroads and trucking companies — turned positive in midafternoon trading, erasing a 1.9% loss, and finished up 0.5%, to 4967.18

Despite the intraday bounce, the index, which includes bellwethers FedEx and United Parcel Service Inc., remains firmly in correction territory, down 12% from its all-time closing high on July 7. For now, market technicians are adjusting their models to reflect the stock-market's swoon.

"New short-term oversold extremes mean probabilities are increasing for a short-term rebound, but a rebound is probably a reflex affair in a medium-term trend that just turned down," Mr. Roth said.

Samsonite Shares Tumble In Hong Kong Debut.

2011-06-16T22:24:00.004+08:00

HONG KONG – Shares of luggage maker Samsonite International S.A. plunged on their first day of trading Thursday, amid waning investor interest in IPOs as global stock markets slide.

Samsonite shares fell as low as 12.96 Hong Kong dollars, or 10.6 percent, from their offer price of HK$14.50. They closed HK$1.12 or 8 percent lower at HK$13.38.

The world's biggest luggage maker is one of a number of foreign companies going public in Hong Kong, drawn by China's strong economic growth and rapidly growing number of consumers.

But Samsonite's listing comes as Hong Kong stocks follow global markets lower, hit by pessimism about the global economy.

The company raised HK$9.73 billion ($1.25 billion) by selling 672.24 million shares, though that amount was less than the $1.5 billion it could have raised because it failed to price the shares at the top end of the proposed price range.

It said the portion of the IPO allocated to big global investors was "moderately oversubscribed." Local Hong Kong retail investors, who play a big part in IPOs, applied for only 1.2 times the number of shares available to them.

Other foreign companies that have listed in Hong Kong this year include Swiss commodities trader Glencore and Macau casino operator MGM China. Italian fashion house Prada and luxury handbag maker Coach also plan listings.

However, other companies, such as Australia mining company Resourcehouse Ltd., have dropped plans to list in Hong Kong.

Samsonite was founded in 1910 in Denver, Colorado and is now incorporated in Luxembourg. The company plans to focus on developing its business in Asia, Chairman Tim Parker said at a listing ceremony at the Hong Kong stock exchange.

"We expect over the next few years to be developing our company extensively in Asia, in our biggest markets in China and India," Parker said. Samsonite also has "a major foothold in South Korea, Japan and many other markets in Asia, so we feel at home here," he said.

Chinese IPOs Facing Some Serious Headwinds.

2011-05-14T10:00:00.002+08:00

How quickly the winds change in the IPO market. Only a couple of weeks ago, Chinese technology and internet stocks were all the rage, heading into last week's much anticipated Renren IPO. Often described as the “Facebook” of China, Renren (RENN) debuted on the NYSE last with a solid, but unspectacular, performance (up 28.6% on the day). This was somewhat of a disappointment when compared to many of the hot Chinese IPOs in the last 12 months (QIHU up 134% on day one, YOKU up 161%, SFUN up 72%, DANG up 86%, and CCIH up 95%).

With the luxury of hindsight, we can now view this as the turning point, from a strong backwind to an increasing headwind. The day after Renren debuted, NetQin Mobile (NQ) had their IPO debut, with an offering described as multiple times over subscribed, and a pricing of $11.50, the high end of the anticipated range. NQ closed the day down 19% (the biggest day one loss of the 2011 IPO year). The stock closed Tuesday at $7.66.

Meanwhile RENN has been in a free fall since last week, and actually broke their IPO priced of $14.00 yesterday morning. Of the top performers listed above, all but SFUN (down 45% from IPO price) are currently still trading above their IPO prices. However, YOKU is the only one of the group that is currently trading above its day one close.

All of this brings us to this week's offerings. Three Chinese IPOs were expected to price this week, Jiayuan.com (DATE), China Zenix Auto (ZX) and Phoenix New Media (FENG). Jiayuan.com is the leading online dating platform in China, and was reportedly multiple times oversubscribed, despite some increasing concern with Chinese IPOs. While there were some rumors yesterday that the DATE IPO was cancelled, it actually was priced at $11.00, the midpoint of the range.

After opening flat, the stock was below issue in midday trading. China Zenix Auto, the largest commercial vehicle wheel manufacturer in China, announced yesterday that the price range of its offering has been cut to $6.00-8.00 from $9.50-11.50. Phoenix New Media was expected last night, and while we will have to wait and see any new developments, we would not be at all surprised to see an delays or reduced term.

Anyone who invests in Chinese IPOs - or Chinese ADSs, in general, for that matter - knows that this current shift in sentiment is all too common. Often it is related to some sort of policy shift in China, concerns of slowing growth, and/or concerns of a bubble. Whatever the current reason (most likely the fact that current valuations were getting well ahead of themselves), the current tide has shifted, and the prudent investor will sit on the sidelines until the winds change. And they will.

Article from Seeking Alpha.com

What The Japanese Quake Means For Stocks?

2011-03-14T23:23:00.003+08:00

Article from the Wall Street Journal

Investors may have to brace themselves for some turmoil in the days and weeks ahead.

The Bank of Japan has promised to inject liquidity into the financial system to prevent a collapse. But the Tokyo stock market nonetheless plunged more than 4% shortly after opening Monday morning, three days after the devastating earthquake.

Many big Japanese investors – insurance companies, banks and other institutions, as well as private households – will need to sell some of their holdings quickly to raise cash.

Meanwhile, most potential buyers of stocks are likely to sit on their hands. Institutional investors fear uncertainty above all else. Few fund managers will brave the "career risk" of a bold bet on Japan at this juncture. And how many private investors are willing to brave the emotional challenge of investing in Tokyo today?

Meanwhile, the markets will be absorbing the economic news. It's likely to be grim.

Thousands, maybe tens of thousands, may be dead. Many more will be homeless. The country has been forced to launch "rolling blackouts" to cope with the loss of nuclear power. Infrastructure has been destroyed. And, as my Dow Jones colleagues Yoshio Takahashi and Hiroyuki Kachi wrote, the quake has hit a broad range of Japan's key industries. Honda, Toyota, Nissan, Sony, Panasonic and Toshiba have all shut factories temporarily in response to the disaster.

"When we talk about natural disasters, we tend to see an initial sharp drop in production... then you tend to have a V-shaped rebound," Michala Marcussen, head of global economics at Societe Generale, told Reuters. "But initially everyone underestimates the damage."

Yet how much should this really shave off the value of shares? The economy will recover, probably faster than many fear. And the economic events of the next few months, or even a year, are less important to the true value of the stock market than investors typically believe.

Research by Ben Inker, chief investment officer at fund firm GMO, found that most of the value of your shares is based on the profits companies are going to earn many years, even decades, into the future. Next quarter's earnings, even next year's earnings, don't matter anywhere near as much as we think.

Some people will point out that the Japanese market slumped by about a quarter in the months after the Kobe earthquake of 1995. And this earthquake was considerably worse.

But there's one big difference.

When the Kobe earthquake hit in 1995, the Japanese stock market was still coming down from the biggest equity bubble of all time. Shares were very expensive, which meant that they were highly vulnerable to any setbacks and there was a long way to fall. On the eve of that earthquake, the market in Tokyo traded on an absolutely absurd 53 times forecast earnings.

Today: Just 13 times.

Other historical analogies offer little guide. We remember that Wall Street plummeted in the immediate aftermath of 9/11. We sometimes forget that it quickly rebounded. Asian markets were able to shrug off the economic impact of the 2004 tsunami pretty quickly.

Even if the Japanese stock market is in for a rocky ride, what about markets here?

You may have to expect at least some effect on Wall Street and elsewhere. Capital markets are global. Japanese institutions liquidating investments to raise cash will be selling in New York and London as well as Tokyo. And some of the same factors will be keeping potential buyers on the sidelines. With all this uncertainty, investors are more likely to want to steer clear. It's human nature.

But how far this earthquake will affect the actual economy of the rest of the world is much harder to gauge. Yes, Japan is the world's third largest economy and a major trading partner. But it doesn't matter quite as much as some may think.

Japan today accounts for a smaller share of the global economy than at any time since the 1970s – 5.8%, according to the International Monetary Fund, compared to 7.5% a decade ago and more than 9% in the early 1990s.

We send just 7% of our exported goods and services to Japan, according to the U.S. Department of Commerce. That's far less than we send to Canada or Mexico, and one-fifth as much as we send to the European Union. The entirety of American exports to Japan account for less than 1% of the total U.S. economy.

Japan's stock market, which twenty years ago was the most valuable in the world, today accounts for a smaller share of global equity values than at any time in decades. On the eve of the Kobe earthquake, it accounted for nearly 30% of world stock market values. Today? Just 7.5%.

For investors, the bigger risk is that, today, world stock markets are already pretty expensive. As we know, that leaves them vulnerable to external shocks or a downturn. Whether Japan sparks one is another matter.

Update, March 13, 11:16 p.m.: This story was updated to reflect the opening of the Tokyo stock market.

KL Bourse's Technical Rebound On Horizon

2011-02-28T07:52:00.002+08:00

2011/02/28 Article from http://www.btimes.com.my/

Investors should still seriously consider accumulating blue chips on weakness, especially those in the banking, consumer, construction, plantation, property and oil & gas sectors, says a head of research.

Stocks suffered another bout of selling which accelerated late last week as investors reduced exposure given concerns escalating tensions in the Arab world, specifically in Libya, will disrupt crude oil supplies which caused prices to spike up above the US$100 (RM305) a barrel mark. Hence, increasing worries rising inflation would stall the global economic recovery.

As a consequence, the blue-chip benchmark FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) gave back 28.29 points, or 1.86 per cent, last week to settle at 1,489.27, a fresh two-month low, with Axiata (-27sen), MISC (-73 sen), KLK (-RM1.82), CIMB (-17sen) and Sime Draby (-18 sen) representing two-thirds of the index's loss. Average daily traded volume and value slowed moderately to 1.73 billion shares and RM2.11 billion respectively, compared to the 1.77 billion shares and RM2.12 billion average the previous week.

Tensions in the Middle East and North Africa (Mena) have rekindled worries about high oil prices exacerbating inflationary pressures and dampening purchasing power that could nip the nascent global economic recovery in the bud. Things went from bad to worse when the unrest spread to Libya, one of the 12 members of the Organisation of Petroleum Exporting Countries (Opec). Libya contributed 5.4 per cent to the oil cartel's crude output of 29.4 million barrels last month. Although Libya's oil output of 1.6 million barrels per day (bpd) is insignificant compared to global supply of 89.6 million bpd, news about attack on its oil facilities led to concerns about prolonged disruptions and possibilities of similar attack on other oil facilities. Concern about unrest spreading to other key oil exporters like Saudi Arabia, Iran and Iraq that contribute about 29 per cent, 13 per cent and 9 per cent to Opec's supply could sustain the volatility in oil prices and global equity markets, including Malaysia's.

While nobody knows for sure how things will evolve, this could be a buying opportunity if the situation in Libya does not prolong and the revolts do not spread. For some investors it pays to be greedy when others are fearful and they may be right. To note, Saudi Arabia has already promised an infusion of US$35 billion in various social benefits to avert a crisis and has pledged to turn on the tap from its 4 million bpd spare capacity to meet any shortfall in global crude oil supply.

Based on January's data there was already an oversupply situation of 2.2 million bpd as demand contracted by 2.9 per cent month-on-month with second biggest consumer like China trying hard to cool its economy. The US, being the biggest consumer, has increased its energy efficiency over the last four decades and is said to be less susceptible to any direct effect from an oil price increase as a jump of US$10 is expected to dampen growth by only 0.2 per cent.

The biggest test now is for global superpowers to come together and exert their influence in solving this crisis and managing inflationary expectations through commitment in releasing their emergency oil reserves, raising interest rates and allowing currency appreciation, among others. The fact that we are almost at the tail-end of the winter season in the Northern Hemisphere could contribute to lower demand as well.

There is no doubt that international trade could be a drag on our economy this year given the uncertain global economic environment but the current favourable employment conditions, ample liquidity and cheap financing opportunities are expected to still lead to a strong domestic demand-spurred growth of 6 per cent in 2011 as private consumption and investments thrive. Further appreciation potential in ringgit could be a dampener on inflation as well. On the back of a still robust economy, favourable commodity prices and corporate earnings growth (the earnings reporting season so far is within expectation and contained less unfavourable outcomes), there are still good reasons to accumulate blue chips in the heavyweight sectors like banking and plantation apart from good small and midcap plays in other sectors like oil and gas, property and automotive.

This week will see the release of important economic indicators like core inflation, non-farm payroll numbers and factory orders in the US while locally the trade numbers will be released on Friday. No major surprises are expected.

Technical outlook

Spot month February KLCI futures contract traded on Bursa Malaysia Derivatives tumbled 33.5 points, or 2.2 per cent, week-on-week to 1,482.5, deteriorating to a 6.77-point discount to the cash index, compared to the minor 1.56-point discount the previous Friday. Long liquidation and panic selling forced the bulls to cut losses on their futures trading positions.

Share prices on Bursa Malaysia recovered from an early sell-off last Monday sparked by concerns over spreading anti-government demonstrations in the Arab world, as investors returned to nibble on blue chips while lower liners extended profit-taking corrections. The FBM KLCI climbed 8.29 points to close at 1,525.85, off a high of 1,527.09.

The local market tumbled the next day, in line with the retreat on key regional markets on profit-taking activities as investors were rattled by the escalating tensions in the Arab world, and sentiment was further weighed down after Moody's Investors Services changed its outlook on Japan's Aa1 sovereign rating to negative from stable on Tuesday. The FBM KLCI lost 12.22 points to close at 1,513.63.

Stocks extended their correction on Wednesday amid worries instability in the Arab world would disrupt oil supply shipments, pushing prices sharply higher to derail a global economic recovery. The FBM KLCI ended 2.52 points lower at 1,511.11. The local market tumbled the following day in line with the region on concern increasing civil strife in Libya will disrupt oil supplies, which sent crude oil prices above the US$100 a barrel mark, and stall the global economic recovery. The FBM KLCI lost 21.24 points, or 1.4 per cent, to close at the day's low of 1,489.87, as losers swarmed gainers 863 to 116 on heavy volume of 2 billion shares worth RM2.62 billion.

The market rebounded on Friday after oil prices retraced to US$97 a barrel overnight from a 29-month high of US$103.4 as the US, Saudi Arabia and International Energy Agency gave an assurance that they can compensate for any disruption to Libyan shipments. However, the local benchmark index lost 0.6 points to close at the day's low of 1,489.27, off an early high of 1,499.44, pressured by falls in Tenaga, Maybank and KLK, as gainers led losers 524 to 300 in cautious trade which totalled 1.39 billion shares worth RM1.79 billion.

The trading range last week expanded to 37.82 points, compared with 27.02 points in the previous week.

The daily slow stochastics trigger line for the FBM KLCI has just dipped below the oversold level following last week's sell-down, which was mirrored by the weekly indicator, suggesting an initial oversold technical condition which could spark a rebound this week. The 14-day Relative Strength Index (RSI) indicator has also dipped to level off with a low reading of 35.47, while the 14-week RSI has declined to a neutral level of 51.1.

Meanwhile, the daily Moving Average Convergence Divergence (MACD) trend indicator signal line registered a further decline, copying weakness on the weekly MACD indicator. The +DI and -DI lines on the 14-day Directional Movement Index (DMI) indicator registered a mild expansion to suggest a developing downtrend.

Conclusion

While trend indicators for the FBM KLCI continued to weaken, initial oversold readings on momentum indicators suggest a technical rebound is likely this week. Moreover, further strength in US stocks last Friday encouraged by stronger economic data and corporate earnings should boost regional sentiment and support recovery early this week. Nonetheless, the rebound upside may be capped if the Libyan situation deteriorates. All in all, investors should still seriously consider accumulating blue chips on weakness, especially those in the banking, consumer, construction, plantation, property and oil & gas sectors, for medium-term gains.

Immediate FBM KLCI resistance is foreseen at 1,511, the 38.2 per cent Fibonacci Retracement (FR) of the rise from the 1,474 low of November 29 2010 to the record high of 1,576.95 of January 6, with subsequent hurdles at 1,525, the 50 per cent FR, followed by 1,537, the 38.2 per cent FR and next at 1,552, the 23.6 per cent FR.

On the downside, it should still defend the significant bottom at the low of 1,490 on February 11, which must hold to prevent further downside risk towards the next significant support from the 1,474 low. This level should hold to prevent a slide further to 1,450, which is the 38.2 per cent FR of the rise from 1,243 low of May last year to the record high of 1,576.95 of 6 January.

America’s 10 Worst Years Start Right Now.

2011-01-05T08:10:00.001+08:00

America’s 10 worst years start right now
Commentary: 2011-2020: Rich get richer, market crashes, empire ends.

SAN LUIS OBISPO, Calif. (MarketWatch) — Dateline December 2020. Let’s look back on the 2011-2020 decade, at what historians call the “Worst Decade in American History.” Totally predictable, totally denied.

Back in January 2011 we made 10 predictions of a chain of events that would reach a critical mass and consume America in a torrent of creative destruction, crippling capitalism and other outmoded institutions, forcing new power players to step out of shadows and assume leadership in a time of extreme crisis.Now we see how they came true.

“The U.S. economy appears to be coming apart at the seams,” Columbia Professor Robert Lieberman warned back then in the Foreign Affairs Journal. “Unemployment remains at nearly 10%, the highest level in almost 30 years. A long trend of “ballooning incomes at the very top and stagnant incomes in the middle and at the bottom. The share of total income going to the top 1% has increased from roughly 8% in the 1960s to more than 20% today. … a level of economic inequality not seen in the United States since the eve of the Great Depression.”

As the decade opened in 2011 we were being conned again, like before the 2008 meltdown — by the same crooks we bailed out. We should have forgotten all Wall Street’s hoopla about a 2011 bull market with the Dow rocketing to 15,000. We should have thought long-term. We knew Wall Street lost an inflation-adjusted 20% of our money the previous decade. We should have known they would lose another 20% by 2020.

The “Gilded Age” bubble from a decade ago ended in a crash worse than 1929, and left us on the brink of a Great Depression 2. We ended up with a decade of increasing battles between the haves and have-nots, where there is no longer room for “compromise” between the two ideologies destroying America from within.

We could have seen that coming, too, as Lieberman warned of class warfare a decade ago: “Income inequality in the United States is higher than in any other advanced industrial democracy … It breeds political polarization, mistrust, and resentment between the haves and the have-nots and tends to distort the workings of a democratic political system in which money increasingly confers political voice and power.”

“The Gap,” the divide, the greed, the entitlements, the hostilities are now so entrenched that “negotiations” are impossible and only a catastrophic 1929-style collapse of our self-destructive capitalism and a descent into economic hell will force America to restructure.

Here’s how we got here over the last 10 years:

2011. Wall Street’s super-rich spend billions to control Washington
Thanks to the conservative takeover of America’s so-called democracy the past three decades, from Reagan to Obama, our activist Supreme Court delivered the coup de grace into America’s psyche in 2010, overturning long-established precedent and giving rich owners of zombie corporations absolute rights of live humans, a decision that would have gotten a failing grade in my constitutional law class at the University of Virginia. It set up Wall Street’s super-rich in 2011 as they advanced their takeover.

2012. Super-Rich gain absolute power over Washington
The bizarre decision, which essentially legalized political bribery, led to billions passing through lobbyists to politicians in all parties, with one goal: A guarantee that all politicians (President, Congress, Fed, regulators and state governments), all adhere to Reaganomics and the ideology that money talks and wealth rules.

As a result, America was no longer a democracy by 2012, not even a plutocracy. Our middle class rapidly spiraled down into third-world status, while the rich get richer and the gap between the richest and the rest widened. Worse, the 2012 presidential race became irrelevant, because money corrupts all in Washington and Obama was already a puppet of America’s super-rich conspiracy.

2013. Pentagon’s WWIII global commodity wars accelerate for 2020 peak
Back during the Bush II presidency, Fortune analyzed a classified Pentagon report that predicted “climate could change radically and fast. That would be the mother of all national security issues.” Billions more people will increase unrest across the world, creating “massive droughts, turning farmland into dust bowls and forests to ashes.”

As a result, “by 2020 there is little doubt that something drastic is happening ... an old pattern could emerge; warfare defining human life,” confronting political leaders everywhere with the reality of our civilization collapsing, even the end of life on the planet. This was the year the hard evidence materialized.

2014. Global population bubble accelerating, wasting commodities
By now it had become clear that America’s Conspiracy of the Super-Rich was draining trillions from middle-class taxpayers. They see global population growth (exploding more than 100 million annually) not as a drain on scarce resources but only as a way to get richer through their obsession with free-market “globalization.”

They ignore the coming 2050 tragedies when global population is 9 billion, dwarfing America’s 400 million, and all are demanding more of the Earth’s limited, non-renewable commodity resources, and demanding payback from America’s long failure to heed warnings of environmentalists like Bill McKibben: “Act now, we’re told, if we want to save the planet from a climate catastrophe. Trouble is, it might be too late. The science is settled, and the damage has already begun.”

2015. Gilded Age globalization implodes America’s Global Empire
Around the time of the Pentagon’s WWIII prediction, historian Kevin Phillips warned in “Wealth & Democracy:’ “Most great nations, at the peak of their economic power, become arrogant and wage great world wars at great cost, wasting vast resources, taking on huge debt, and ultimately burning themselves out.”

Similarly, financial historian Niall Ferguson, author of “Colossus: The Rise and Fall of The American Empire,” warned that we deceive ourselves, thinking “about the political process in seasonal, cyclical terms.” By 2015 most agreed America has was past its peak.

2016. Wall Street capitalism self-destructs, crashes, mass bankruptcies
“But what if history is not cyclical and slow-moving but arrhythmic, asks Ferguson. “What if collapse does not arrive over a number of centuries but comes suddenly,” too rapid to respond in time. Unfortunately, in our blind greed we refuse to hear “Irrational Exuberance” author Robert Shiller’s warning that “we recently lived through two epidemics of excessive financial optimism … are close to a third episode … another meltdown ... another depression.”

Once again, our leaders ignored history. Ignored Jared Diamond’s earlier warning in “Collapse:” “One of the disturbing facts of history is that so many civilizations share a sharp curve of decline. Indeed, a society’s demise may begin only a decade or two after it reaches its peak population, wealth and power.” The 2016 elections changed nothing.

2017. Middle-class revolution: Buffett’s rich class loses, overthrown
The seeds were planted years ago. Warren Buffett saw the revolution coming: “There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.”

By 2017 it had exploded into a new Civil War as all hell broke loose after the 2016 presidential election. The growing income gap popped Wall Street’s bubble for the third time in the 21st century, the economy collapsed, riots spread against another bailout of too-greedy-to-fail Wall Street banks. A class rebellion ignited.

2018. Reaganomics capitalism collapses, Glass-Steagall reinstated
Diamond says he’s a “cautious optimist,” our leaders need “the courage to practice long-term thinking, and make bold, courageous, anticipatory decisions at a time when problems have become perceptible but before they reach crisis proportions.” Deaf, they still fail to act.

The “Crisis of 2018” triggered a cultural revolution, a jarring wake-up call. History warns that most leaders are driven by short-term self-interest not long-term public interests, especially politicians bankrolled by billionaires who can’t see past quarterly earnings, year-end bonuses, the next election. This catastrophe may have finally woken us up.

2019. WWIII commodity wars spread, cost trillions, kill hundreds of millions
Over $30 trillion in federal, state and local debt, plus spending half our budget on the Pentagon’s war machine, finally overwhelmed America’s fiscal policy and the world’s bond markets in 2019.

Unfortunately, the growing number of commodity wars ignited by an accelerating global population and decline in the world’s scarce resources also forced a total rethinking of the balance between spending to contain external threats and a rapid deterioration of social-program needs: employment, retirement, education, health care.

2020. Patriarchy ends: male dominance declines, women leaders rise
Back in 2011 it seemed clear that patriarchy, male dominance world culture, politics and economics throughout history, would collapse all by itself, without women engaging in any direct war, any “battle of the sexes” to defeat men at their own game. But in 2020, women may be our only salvation.

Dr. Jean Bolen, author of “The Millionth Circle” and a leader in organizing the United Nation’s 2015 Conference on Women, challenged women to confront males and put an “end to patriarchy,” because only women can “save the world.” Others like Gloria Feldt, author of “No Excuses: 9 Ways Women Can Change How We Think About Power,” are preparing a new generation of leaders.

Four decades ago my law school class had five women, today across America, women are a majority in most professional schools. Soon they will be called upon.

Why are male leaders failing America in government, business and finance? Jeremy Grantham’s firm GMO manages $96 billion. He predicted the meltdown, said it best in early 2008: American’s leaders are all “impatient ... management types who focus on what they are doing this quarter or this annual budget.”

Real leadership “requires more people with a historical perspective who are more thoughtful and more right-brained ... but we end up with an army of left-brained immediate doers. So it’s more or less guaranteed that every time we get an outlying, obscure event that has never happened before in history, they are always to miss it,” as in 2000, 2008 and again this decade.

Could we change the future?
In post-capitalism, post-patriarchy America, women will emerge from the ashes of “The Worst Decade in American History: 2011-2020.” Women leaders will emerge not just because the males’ short-term brains are sabotaging America’s long-term needs, but because the female brain has naturally evolved for long-term thinking.

Brain research tells us that 75% of men are left-brain short-term thinkers. Conversely, 75% of women tend to have strong right-brain traits: forward-thinkers, more awareness of the future, the big picture, with a strong sense of long-term benefits and consequences, peacemakers.

In future columns we’ll dig more into the role of women as the new leaders in a post-capitalism, post-patriarchy America. But for now, take these 10 predictions seriously, invest wisely, defensively, and don’t be misled by Wall Street’s happy talk

The 7 Biggest Mistakes Fund Investors Make

2010-11-08T11:30:00.004+08:00

(MarketWatch) — There’s a difference between trying to do the right thing and actually getting it done. The biggest mistakes mutual-fund investors make fall right in the middle, where an investor trips over the fine line that separates good investing habits from bad.

In talking to financial experts and fund specialists, as well as reviewing industry statistics about ownership and asset flows, it’s clear that the investing public keeps trying to do the right thing, it just doesn’t always get the best results.

Here are the seven biggest mistakes fund investors make. If they describe the way you have been investing, it might be time to check your portfolio — and your mindset:

1. Chasing returns: Buying what’s been hot makes intuitive sense — you’re riding the express train — but all too often results in disappointment. Ideally, the idea is as simple as “buy low, sell high,” but investors who chase performance typically are late to whatever market sector or investment style is hot. As a result, they buy at high prices, and when the market turns and starts to favor something else, these investors then sell low.

2. Rearview-mirror investing: It’s hard to go forward when you are only looking backwards. This problem is related to performance-chasing. You can’t just buy funds that did reasonably well in the past; you need to invest in parts of the market that are likely to do well going forward. Too many investors know what a fund has done recently but have little idea of the fund’s prospects.

3. Overreliance on rankings and ratings: More than 90% of all new money into mutual funds go to issues that carry Morningstar’s four- and five-star rating. Yet the investment research firm is quick to note that its star system is more “descriptive” than “predictive.”

There is nothing wrong with buying only funds that do well according to stars, numbers or any system, but make sure the fund adds diversification and strategy to your portfolio, rather than bringing only a past that was good enough to earn a top grade,

4. Assuming you can buy and hold a fund forever: Funds change, markets change, people change; what’s appropriate to buy at one point in your life may not be right later. Yet too many investors are married to their funds, hanging on in sickness and health, for richer or poorer, rather than always considering whether they would still buy the fund today. If key buying factors change — everything from the manager, the asset class, costs and track record and ratings — you shouldn’t blindly stay put Read about bad mutual funds and the investors who love them..

5. Failing to understand what the fund does, how it invests or what it buys: When investors are surprised by a fund’s lagging performance, it’s often because they never clearly understood the fund’s objective.

Too many investors can’t explain what their funds do and why. They may know they own a large-cap growth fund or an index fund, and they’ll review the ratings and performance, but when it comes to the nuts and bolts, they don’t know where to start.

For example, a mutual fund is considered “diversified” once it has more than 16 stocks, but it can still be concentrated or focused in a certain market sector. Likewise, investors who buy funds that top the charts don’t necessarily know what those funds did to stand out from the pack.

6. Letting emotions rule: It’s hard to prove a system or stick to a discipline if you make changes on a whim or with every market hiccup. There’s a natural human tendency to let the most recent experiences color judgment; as a result, investors typically give too much significance to current events and expect that trend to continue. Wanting to cash in on those trends or protect against them, they’ll let fear or greed rule the day and invest with emotion rather than intellect.

7. Focus too much on a fund, and not enough on the portfolio: Finding good funds isn’t that hard; putting them together in an effective, low-maintenance, diversified portfolio is a lot more difficult. Too many investors have a collection of funds, rather than a strategic portfolio, where every fund has a role and every new addition is evaluated not just on its own merits, but on what it adds to the big picture.

Owning five or 10 mutual funds does not make an investor diversified if most of those issues reflect one or two asset classes. Investors need more than a “good” fund; they need funds that enhance their holdings, diversify risk, bring additional asset classes into play and help the portfolio achieve their goals over time.

Full Text of PM’s Budget 2011 Speech

2010-10-15T21:52:00.001+08:00

TRANSFORMATION TOWARDS A DEVELOPED AND HIGH-INCOME NATION

Mr. Speaker Sir,

I beg to move the Bill intituled “An Act to apply a sum from the Consolidated Fund for the service of the year 2011 and to appropriate that sum for the service of that year” be read a second time.

INTRODUCTION

1.Praise be to Allah, for enabling me to table the 2011 National Budget. Indeed, this is a significant budget. This Budget is a precursor in our final efforts towards achieving Vision 2020, which is 3,365 days or 9 years, 2 months and 17 days away.

2.On this auspicious Friday, I present a budget that lays the foundation for Malaysia to become an advanced nation. Over the last 18 months, the Government has taken measures to propel the country towards becoming a developed and high-income economy.

3.The 2011 Budget is formulated with firm determination to bring significant changes to the nation’s development and the well-being of the rakyat. This transformation process is holistic, encompassing economic, social and political aspects.

4.The Government upholds the concept of 1Malaysia as the fundamental philosophy in driving the nation’s development path. The Government Transformation Programme or GTP and Economic Transformation Programme or ETP will be a guiding force in this journey. The six National Key Result Areas (NKRA) and the New Economic Model with its eight Strategic Reform Initiatives will be the framework for the nation’s economic transformation. The implementation of the development programmes will be realised through the 10th and 11th Malaysia Plans (10MP and 11MP).

5.The era of “the Government knows best” is over. Therefore, in formulating this Budget, the Government consulted and took into considerations views from various parties comprising the public and private sectors, focus groups, media, 1Malaysia blog as well as lab sessions.

6.I appreciate the contributions of all those involved. This is the strength of 1Malaysia. With these ideas coupled with unrelentless efforts, I am confident that we shall overcome challenges and obstacles. More so, we can free ourselves from the middle-income trap and leap to a higher level of development.

ECONOMIC PERFORMANCE AND CHALLENGES

7.Malaysia has recovered from the global economic recession resulting from proactive measures undertaken by the Government and the successful implementation of two Economic Stimulus Packages amounting to RM67 billion. The effectiveness of these measures is reflected by the 9.5% expansion in gross domestic product (GDP) in the first half of 2010 compared with -5% during the same period last year. The global economy is also expected to recover 4.8% compared with -0.6% in 2009. Likewise, international trade is expected to expand 11.4% compared with -11% in 2009.

8.On the domestic front, key indicators also reflected strong economic growth. The FTSE Bursa Malaysia KLCI surged to 1,496 points on 14 October 2010, the highest since February 2008. Trade performance was encouraging in the first eight months of 2010, with exports increasing 22% and imports 28%, particularly imports of capital goods which rose 18%.

9.The ringgit is among the best performing currencies in the region, strengthening 11% against the US dollar since 31 December 2009 to RM3.0833 on 14 October 2010. Malaysia’s international reserves remained strong at RM310.8 billion or USD100.7 billion on 30 September 2010, sufficient to finance 8.5 months of retained imports and 4.3 times the nation’s short term external debt.

10.In line with these positive developments, the Government revised growth for 2010 to 7% compared with 6% previously. It is significantly higher than -1.7% in 2009. The sterling performance is contributed by the expansion of the manufacturing sector at 10.8%, services 6.5% and construction 4.9%. Private investment expenditure is expected to increase 15.2%, private consumption 6.7% and exports 11.6%.

11.In 2011, the global economy and trade are expected to grow moderately by 4.2% and 7%, respectively. In line with this, the Malaysian economy is expected to expand between 5% and 6%. However, the Government will strive to achieve growth of 6%. Growth will be supported by private investment, expanding 10.2%, private consumption 6.3% and exports 6.7%. The manufacturing sector will continue to spearhead growth, expanding 6.7% and the services sector 5.3%.

12.Income per capita will increase 6.1% to RM28,000 while income in terms of purchasing power parity to USD16,000. These estimates are based on moderate inflation of 2% to 3% and low unemployment rate of 3.5%.

2011 BUDGET STRATEGIES

13.To attain developed nation status, we cannot remain complacent. We must change our mindset. Business is not as usual. Success demands drastic changes, not incremental. It requires a quantum leap. The choice before us is clear. Change is not an option but an imperative. We must change or risk being left behind.

14.We succeeded in transforming Malaysia from an agricultural economy to become among the largest exporters in the world. Therefore, the challenge now is to make a quantum leap to the next stage of development. This is possible with careful planning and clear strategies. Indeed, we shall succeed.

15.The trend of external trade is increasingly challenging, while there is heightened competition to attract foreign investment. The global economic environment is rapidly changing. To rise to these challenges, the private sector must be dynamic, creative and innovative to drive economic growth. They must be bold to undertake risks and seize opportunities. The Government will, in turn, provide a conducive ecosystem to facilitate the private sector activities.

16.The 2011 Budget will emphasise efforts to transform the nation into a developed and high-income economy with inclusive and sustainable development, spearheaded by the private sector as well as focus on the well-being of the rakyat. With the theme “Transformation Towards a Developed and High-Income Nation”, the 2011 Budget will centre on the following four key strategies:

First:Reinvigorating Private Investment;

Second:Intensifying Human Capital Development;

Third:Enhancing Quality of Life of the Rakyat; and

Fourth:Strengthening Public Service Delivery.

FIRST STRATEGY: REINVIGORATING PRIVATE INVESTMENT

17.The Government has been assuming a significant role in driving economic growth since the financial crisis in 1997/98. The time has come for the private sector to resume its role as the engine of growth. In this context, the Government announced and strategised that the 10MP commencing in 2011 will emphasise the role of private sector. In 2011, private investment is estimated to expand 12.5% to RM86 billion. The implementation of the 12 National Key Economic Areas (NKEA) is expected to generate investment exceeding RM1.3 trillion or USD444 billion and create 3.3 million job opportunities. The private sector will finance 92% of the NKEA and the remaining by the Government.

Public-Private Partnership Initiatives

18.The Government will further intensify the Public-Private Partnership (PPP) initiative to enhance private sector involvement in economic activities. The Government will provide allocation as a tipping point for infrastructure support to ensure viability of private sector-led projects. Several PPP projects identified under the 10MP will be implemented in 2011 through private investment of RM12.5 billion. The Government will allocate RM1 billion from the Facilitation Fund. Among the PPP projects are:

First:Construction of highways such as the Ampang-Cheras-Pandan Elevated Highway, Guthrie-Damansara Expressway, Damansara-Petaling Jaya Highway, Pantai Barat-Banting-Taiping Highway, Sungai Dua-Juru Highway and Paroi-Senawang-KLIA Highway;

Second: Construction of a 300-megawatt Combined-Cycle Gas Power Plant in Kimanis, Sabah to increase electricity generation capacity to meet rising demand; and

Third:Development of projects such as the International Islamic University Malaysia Teaching Hospital in Kuantan, Pahang, the Women and Children’s Hospital as well as the Integrated Health Research Institute Complex in Kuala Lumpur.

19.Another PPP project identified is the Academic Medical Centre. This project is a joint venture between Academic Medical Centre Sdn. Bhd. and Johns Hopkins Medicine International as well as Royal College of Surgeons Ireland. This project involves private investment of RM2 billion.

High-Impact Strategic Development

20.Private investment has increased through various strategic high-impact projects. Recently, the 1Malaysia Development Berhad (1MDB) in collaboration with Mubadala Development Company, an investment arm of the Government of Abu Dhabi, agreed to develop the Kuala Lumpur International Financial District (KLIFD) valued at RM26 billion, commencing in 2011. Major international banks and professional financial services firms, including syariah experts will be located in the KLIFD. More importantly, such strategic development will further strengthen Malaysia’s position as the premier international Islamic financial hub. The Government is prepared to consider special incentive packages to attract investors to the KLIFD.

21. The Mass Rapid Transit (MRT) in Greater KL (Klang Valley) will be implemented beginning 2011. This project, with an estimated private investment of RM40 billion, is expected to be fully completed by 2020. Upon completion, the utilisation rate of public transport is expected to increase to at least 40%. This project will provide an efficient and comfortable transport system, reduce travelling time as well as strengthen connectivity in Klang Valley and be integrated with other modes of transportation, including buses and taxis. 22. Another major project is the development of the Malaysian Rubber Board land in Sungai Buloh covering an area of 2,680 acres. The Employees Provident Fund (EPF) will undertake mixed development comprising affordable houses as well as commercial, industrial and infrastructure facilities. The entire development is estimated at RM10 billion and is expected to be completed by 2025.

23.We take pride in our national icon, the Petronas Twin Towers. It signifies the spirit of Malaysia Boleh. Another landmark to be developed by Permodalan Nasional Berhad is Warisan Merdeka, expected to be completed by 2020. This is an integrated development project comprising a 100-storey tower, the tallest in Malaysia. The project will retain Stadium Merdeka and Stadium Negara as national heritage. The total project cost is RM5 billion, with the tower expected to be completed by 2015.

Revitalising Capital Market

24.To support the financial liberalisation policy, the Government will implement bold measures to revitalise the domestic capital market, particularly diversifying investment products, liberalising equity holding requirements and investment limits, providing attractive incentives as well as enhancing cooperation with foreign bourses. Therefore, the following measures will be implemented:

First: Government-Linked Investment Companies (GLICs) will divest their shareholdings in major companies listed on Bursa Malaysia to increase liquidity and trading velocity in the market;

Second:GLICs will be allowed to increase investment in overseas markets to explore opportunities for better returns. For example, the Employees Provident Fund’s (EPF) investment overseas is currently at 7% and will be raised up to 20% of the total assets managed;

Third: Listing of Petronas Chemicals Sdn. Bhd. and Malaysia Marine & Heavy Engineering Sdn. Bhd., subsidiaries of Petronas and MISC, respectively, to offer higher public shareholding this year;

Fourth:Bursa Malaysia will launch sukuk and conventional bonds to meet retail investors’ demand for fixed income instruments in order to boost the bond market;

Fifth: The Securities Commission (SC) will offer three new stock broking licences to eligible local, foreign or joint venture companies to increase retail market participation;

Sixth:The SC will increase the number of Proprietary Day Traders operating in the market; and

Seventh: The SC will facilitate process and procedures for the listing of companies and products, particularly Exchange Traded Funds.

Islamic Capital Market

25.Efforts will be taken to strengthen Malaysia’s position as a premier Islamic capital market. Bursa Malaysia will develop an international board to enable foreign securities to be listed including syariah-compliant products.

26. To further promote innovation in Islamic securities products, the Government proposes that expenses for the issuance of Islamic securities which adopt the principles of Murabahah and Bai’ Bithaman Ajil based on tawarru’ be given tax deduction. This will strengthen Malaysia’s position as the leading sukuk market and promote transactions in Bursa Suq al-Sila, the world’s first syariah-compliant commodity trading platform. The Government proposes that takaful contributions for export credit be given double tax deduction.

Intensifying Venture Capital Industry

27.The venture capital industry plays an important role in contributing towards economic growth, particularly in high technology sectors such as information and communication technology (ICT), biotechnology and the creative industry. For this, the Government will provide Entrepreneurship Enhancement Training Programme to train 500 new technopreneurs and attract more angel investors. Both programmes will be managed by Cradle Fund Sdn. Bhd, an MOF Inc. company. Malaysian Technology Development Corporation (MTDC) will be provided a start-up fund amounting to RM100 million to provide soft loans which allow loan repayments only after the companies generate income. MTDC will also host an International Venture Capital Symposium in 2011 to enable networking and partnering of foreign and local venture capitalists to boost high technology industries.

Bumiputera Property Trust Scheme

28.To ensure meaningful and sustainable participation of Bumiputera, the Bumiputera Property Trust Foundation (BPTF) will provide opportunities for Bumiputera ownership of prime commercial properties in major towns. The BPTF will establish a fund to enable ownership of prime commercial properties in the Klang Valley, through a group ownership scheme. For this, the BPTF will launch a syariah-compliant Bumiputera Property Trust Scheme this year with a size of RM1 billion.

Private Pension Fund 29.To revitalise capital market activities, I wish to announce that the Government will launch a Private Pension Fund in 2011. This Fund will benefit private sector employees and the self-employed. The existing income tax relief of up to RM6,000 for employee’s contributions to the EPF will be extended to the contributions made to the Private Pension Fund, including the self-employed. Employers will also be given tax deduction on contributions made on behalf of their employees. This will provide an option for the rakyat to invest for their old age.

Enhancing Electrical and Electronics Industry

30.The electrical and electronics (E&E) industry remained the largest contributor to exports with 41% or RM228 billion in 2009. However, the E&E industry is still focused on assembling activities. We should leverage on our strengths to develop local E&E companies to compete at the international level. A sum of RM857 million is allocated for local companies to invest in high value-added activities, particularly in Penang and the Kulim High-Tech Park in Kedah.

Propelling Oil, Gas and Energy Industry

31. The oil, gas and energy industry is one of the main contributors to the economy. In 2009, the industry contributed 10.2% to GDP with export revenue amounting to RM56 billion. This industry has the potential to expand, particularly in downstream activities. To achieve this objective, the Government will allocate RM146 million to support the sector. Among the projects to be implemented include the establishment of the Oil Field Services and Equipment Centre in Johor with private investment of RM6 billion over a period of 10 years. To meet the increase in gas demand by industries, Petronas will implement a regasification project with an investment of RM3 billion in Melaka, which will be operational in 2012.

Advancing Green Technology

32. The Government is committed to develop green technology to ensure sustainable development. In this regard, the Government will continue to provide several incentives:

First:Pioneer Status and Investment Tax Allowance for the generation of energy from renewable sources and energy efficiency activities be extended until 31 December 2015;

Second:Import duty and sales tax exemption on equipment for the generation of energy from renewable sources and energy efficiency be extended until 31 December 2012;

Third:Tax exemption on the income derived from trading of Certified Emission Reductions certificate be extended until year of assessment 2012; and

Fourth: Full import duty and 50% excise duty exemption was granted to franchise holders of hybrid cars as well as hybrid an electric motorcycles up to 31 December 2010. To further encourage ownership of hybrid cars, import duty and excise duty exemption will be extended until 31 December 2011 with excise duty to be given full exemption.

33.Malaysia is committed to reducing carbon emission intensity to preserve the environment. For this purpose, the Government will implement among others, the Programme on Blending of Biofuels with Petroleum Diesel (B5 Programme) on a mandatory basis beginning in Putrajaya, Kuala Lumpur, Selangor, Negeri Sembilan and Melaka in June 2011.

34. The Government will also implement the Feed in Tariff (FiT) mechanism under the Renewable Energy (RE) Act, to allow electricity generated from RE by individuals and independent providers to be sold to electricity utility companies.

Invigorating Agriculture Sector

35.The Government allocates RM3.8 billion in 2011 to increase productivity and generate higher returns in the agriculture sector. For this, the following measures will be taken:

First: Develop large-scale integrated Aquaculture Zones in Pitas, Sungai Telaga and Sungai Padas in Sabah as well as Batang Ai and Tanjung Manis in Sarawak that meet standards as well as produce high quality products, with an allocation of RM252 million;

Second: Upgrade the drainage and irrigation system as well as use high quality paddy seeds to enhance productivity in Muda Agricultural Development Area (MADA), Kedah and other areas. For this, RM235 million is allocated;

Third: Encourage farmers participation in high value agriculture activities, including swiftlet nests, aquaculture, seaweeds, ornamental fish as well as herbs and spices with an allocation of RM135 million for basic infrastructure;

Fourth: Foster partnership between small-scale fruit and vegetable farmers with anchor companies through an allocation of RM80 million;

Fifth: Improve the Agriculture College in Kubang Pasu, Kedah by constructing a diagnostic lab involving an allocation of RM70 million;

Sixth: Build an International Centre for Crops of the Future in Semenyih, Selangor with an allocation of RM15.7 million; and

Seventh:Extend income tax deduction incentive for investors and income tax exemption for companies undertaking food production activities for another 5 years until 2015.

Energising Tourism Industry

36. The tourism industry, which generated revenue of RM53 billion in 2009, has the potential to provide more business and employment opportunities as well as further increase the nation’s income. In the 2009 United Nations World Tourism Organisation Report, Malaysia was ranked ninth in the world in terms of tourist arrivals. Efforts will be intensified to attract more foreign tourists by offering innovative tourism packages and products. For this, the Government will implement the following initiatives:

First:Provide infrastructure facilities with an allocation of RM85 million to facilitate construction of hotels and resorts in remote areas with the potential to attract tourists;

Second:Construct several shaded walkways in the KLCC-Bukit Bintang vicinity with an allocation of RM50 million;

Third: Restructure the Department of Civil Aviation to Civil Aviation Authority; and

Fourth:Nexus Karambunai, a renowned resort in Sabah is committed to develop an integrated eco-nature resort, the first in the world, by leveraging on the natural beauty and uniqueness of Karambunai. The RM3 billion project will commence next year. To support the tourism industry, the Government will allocate RM100 million.

37.To promote Malaysia as a shopping haven in Asia by providing branded goods at competitive prices, the Government proposes that import duty on approximately 300 goods preferred by tourists and locals, at 5% to 30% be abolished. Such goods are apparel, handbags, shoes, shampoo, suits, children’s apparel, wallets, hair colourants, golf balls, imitation jewellery, talcum powder, curtains, table cloth, blankets, bed sheets, shirt, undergarments, lingerie, nightwear, perfumes and mosquito netting.

Revitalising Palm Oil and Related Industries

38.Currently, the export revenue from crude palm oil totalled RM37 billion, while that of palm oil related products reached RM13 billion in 2009. The industry has the potential to be developed further in downstream activities to generate higher income for estate owners and smallholders. In efforts to propel the palm oil and related products industry, several measures will be implemented:

First: Enhance productivity by encouraging replanting activity to replace aged trees with high quality new clones, through a fund of RM297 million; and

Second: A sum of RM127 million is allocated to support domestic oleo derivatives companies as well as a sum of RM23.3 million to expand downstream palm oil industries including production of vitamins.

Enhancing Information and Communication Technology

39.The Multimedia Development Corridor enters its third phase in 2011. The focus is on creation of an innovative digital economy to achieve the target of a high-income nation. To enhance the potential of the ICT industry, MY Creative Content Programme will be implemented to encourage the development of local content creation, hosting local content and unlocking new channels for content. This programme involves an allocation of RM119 million.

40.The Government will extend the investment allowance period for the last mile broadband service providers. In addition, import duty and sales tax exemption on broadband equipment are also extended for two years until 2012.

41.Currently, ordinary mobile phones are subject to 10% sales tax but mobile phones with various applications such as internet and personal digital assistant (PDA) are exempted from sales tax. For the purpose of streamlining tax treatment, the Government proposes that sales tax be exempted on all types of mobile phones. Business Services Industry

42.In line with the increasing demand for repair and maintenance of aircraft and helicopters, the Government will promote the development of the business services industry. The Sultan Abdul Aziz Shah Airport, Subang will be developed as a centre for maintenance and overhaul of aircrafts as well as provide specific training to develop experts in this field. The Government will allocate a sum of RM91 million for capacity building in the maintenance, repair and overhaul (MRO) services industry, aerospace and aeronautical engineering training programmes as well as promotion of business outsourcing services.

Corridor and Regional Development

43. Corridor and regional development will be accelerated, focusing on several clusters with specialisation and geographical advantages. Efforts to develop the corridors will focus on joint venture projects between local and foreign investors as well as high-impact industries with competitive edge. For this purpose, the Government allocates RM850 million for infrastructure support.

44.For Iskandar Malaysia, a sum of RM339 million is allocated, including for the construction of highways, development of housing areas as well as providing and improving public transportation services. The amount of investment committed by the private sector as at June 2010 was RM62 billion, surpassing the targeted RM47 billion. Total actual investment up to June 2010 was RM25 billion. The Newcastle University Medicine Malaysia and Chelsea Factory Outlet are expected to be completed in 2011 while Legoland and Marlborough College in 2012.

45.The Northern Corridor Economic Region (NCER) is allocated RM133 million, which includes the development of an Agricultural Products Processing Centre, Tourism Infrastructure and a Biotechnology Incubator Centre. The East Coast Economic Region (ECER) is allocated RM178 million for projects, including Industrial Parks, Water Treatment Plants, development of tourist areas as well as redevelopment of former Pahang Tenggara Development Authority and Jengka Region Development Authority areas.

46.For Sarawak Corridor of Renewable Energy (SCORE), a total of RM93 million is allocated for facilities, including telecommunication, water supplies, airport and roads as well as halal food industrial parks. For the Sabah Development Corridor, a sum of RM110 million is allocated, among others, for palm oil industry cluster projects, agro-industrial precinct and integrated farming centre.

Promoting R&D&C Activity

47. To accelerate the economy towards a high-income nation, research, development and commercialisation (R&D&C) activity will be the platform for enhancing value-added activities across economic sectors. For this, a sum of RM411 million is allocated in 2011 for the R&D&C activities.

48. The Government has established a Special Innovation Unit (UNIK) under the Prime Minister’s Department as a one-stop centre to formulate policies and strategies for a conducive ecosystem to drive innovation. An Act will be formulated to enable UNIK to commercialise R&D findings by universities and research institutions. Several programmes and activities will be designed to enhance innovation, creation and commercialisation of new products. For 2011, a sum of RM71 million is allocated for UNIK.

Reforming Insolvency Law

49.During the recent economic crisis, there were entrepreneurs and individuals who faced financial problems with a number of them declared bankrupt. They were blacklisted and unable to conduct businesses or apply for loans. To assist these individuals, the new Insolvency Act will consolidate the Bankruptcy Act 1967 and Part 10 of the Companies Act 1965, including introduction of provision relating to relief mechanism for companies and individuals with financial problems. The review will also involve amending the current minimum bankruptcy limit of RM30,000.

Advancing Creative Industry

50.The creative industry has great potential for further development to generate national income. This industry encompasses animation, advertising, films, fashion design, crafts and cultural heritage. To fully tap the potential of this industry, the Government will develop a creative industry policy in an integrated manner. A sum of RM200 million is allocated to purchase creative products such as high quality locally-produced films, dramas and documentaries.

51.A strong financial position is crucial to ensure the well-being of the nation. To achieve this objective, the Government proposes that the rate of service tax be increased from 5% to 6%. The Government is confident that this measure will not unduly burden the rakyat as the increase in the tax rate is minimal. Moreover, the services tax is not imposed on all services. In fact, the sales value thresholds for such services are still retained. In tandem with this aspiration, the Government also proposes that service tax be imposed on paid television broadcasting services.

Strengthening Nation’s Financial Position

52.The Government is committed to strengthen the nation’s financial position by increasing revenue collection and ensuring prudent spending. This includes emphasis on value-for-money and value management. For example, measures undertaken include open tender, restricted tender and competition for best design of Government hospitals. The Government will strengthen the revenue collection system by increasing enforcement and audit as well as expanding coverage on all parties that should be paying taxes.

SECOND STRATEGY: INTENSIFYING HUMAN CAPITAL DEVELOPMENT

53. The most important asset of a nation is its human capital. It is proven that a nation without natural resources but which effectively manages its human capital will achieve greater success than a nation that relies on natural resources. Malaysia cannot afford to be too dependent on its depleting natural resources. Although we have successfully managed our natural resources, we have a responsibility to plan human capital development in a sustainable manner, failing which we will not be able to optimise the nation’s potential.

54.A quality, skilled, knowledgeable, creative and innovative human capital is a prerequisite towards achieving a developed and high-income nation. As such, education and training will be restructured and strengthened. For this, a sum of RM29.3 billion is allocated for Ministry of Education, RM10.2 billion for Ministry of Higher Education and RM627 million for Ministry of Human Resource.

Intensifying Efforts to Attract Talent

55.Education is always close to my heart. The Government will not compromise on quality of education. Our children must be equipped with all the prerequisites to compete in the challenging environment.

56.To increase the number of talented and quality workforce in the domestic market, the Government will undertake efforts to attract, motivate and retain talented human capital from within the country and abroad. For this, the Government will establish a Talent Corporation (Talent Corp) under the Prime Minister’s Office in early 2011. Talent Corp will formulate a National Talent Blueprint and develop an expert workforce database as well as collaborate closely with talent networks globally.

Expanding Access to Quality Education

57. The national education system will be revamped to focus on thinking skills, character building, creativity, innovation and competitiveness. For the Ministry of Education, a sum of RM6.4 billion is allocated for development expenditure to build and upgrade schools, hostels, facilities and equipment, as well as uphold the status of the teaching profession. A total of RM213 million is allocated to reward high-performance schools as well as for the remuneration of Principals, Head Teachers and Excellent Teachers.

Strengthening Early Education

58.To nurture children with good values and knowledge, human capital development must begin from childhood. To achieve this, the Government will increase pre-school enrolment rate to a targeted 72% by end-2011 through an additional 1,700 classes, strengthen the curriculum as well as appoint 800 pre-school graduate teachers.

59.The Government also allocates RM111 million for PERMATA programme, including the construction of the second phase of Sekolah PERMATA Pintar School Complex, 32 PERMATA Children Centres (PAPN) and financing operations of 52 completed PAPNs as well as continuing PERMATA Pintar, Seni, Insan and Remaja Programmes.

Strengthening Primary and Secondary Education

60.Every child regardless of race is a national asset and a future leader. Education must be apolitical. Towards this, the Government allocates RM250 million for development expenditure to religious schools, Chinese-type schools, Tamil national schools, missionary schools and Government-assisted schools nationwide.

61.Recognising the importance of Islamic education, the Government will provide assistance per capita for primary and secondary rakyat religious schools with an allocation of RM95 million.

62.To provide competent and quality teachers and instructors to better guide and educate students, the Government allocates RM576 million in the form of scholarships for those wishing to further their studies.

63. A sum of RM213 million is allocated to enhance proficiency in Bahasa Malaysia, strengthen the English Language as well as streamline the Standard Curriculum for Primary Schools (KSSR). In this regard, the Government will recruit 375 native-speaking teachers including from the United Kingdom and Australia to further enhance teaching of English.

Strengthening Higher Education

64.Strengthening institutions of higher learning to be world-class is a key agenda of the Government in view of its significant contribution to the socioeconomic development of the nation. The following measures will be implemented:

First: Increase the number of PhD qualified academic staff to 75% in research universities and to 60% in other public institutions of higher learning with an allocation of RM20 million; and

Second: Improve opportunities for promotion of lecturers in public institutions of higher learning. Lecturers can be considered for promotion to the highest grade of Staff III, II and I as well as conferred Premier Professors without holding administrative positions.

Intensifying Training and Skills Programmes

65.The Government allocates RM60 million to further intensify the Industrial Skill Enhancement Programme in State Skills Development Training Centres. This programme will enhance skills of engineering graduates and technical employees in line with market requirements. A sum of RM220 million is also allocated to ensure graduates from other fields are able to enhance their competence and employability. These include the Professional Certification Programme, Sports Development, Entrepreneurship Development and Graduate Employability Management Scheme. The Government will also allocate a sum of RM50 million to Multimedia Development Corporation to train graduates in ICT to enhance their employability and to meet the demand of the ICT industry.

66.A sum of RM474 million is provided to enhance productivity and skills of non-graduates, including school leavers, youths and workers as there is high demand for skilled workforce in technical fields.

1Malaysia Training Programme

67.The nation requires human capital that continually enhances knowledge through upskilling and reskilling. In this regard, I am pleased to announce the 1Malaysia Training Programme, which will commence in January 2011 with an allocation of RM500 million.

68.The training programme comprises three components. First, a sum of RM200 million is allocated to conduct part-time training in the evenings and weekends in selected training centres nationwide. It will be conducted by Community Colleges, National Youth Training Institutes, Giat Mara Centres and Industrial Training Institutes, utilising the existing facilities. Among courses to be offered in the evenings include language classes in Bahasa Melayu, Mandarin, Tamil, English and Arabic as well as music classes. During the weekends, skills and technical courses will be conducted, including baking, tailoring, spa therapy, mechanical, electrical and welding.

69.Second, the 1Malaysia Training Programme also includes an allocation of RM200 million from the Human Resource Development Fund to be used by companies to fund specific training programmes for their employees. Third, the Ministry of Human Resource will provide RM100 million to enable employees to enhance skills in various technical fields.

Enhancing Employees Productivity

70.In tandem with the increase in productivity, employees should be remunerated with higher salaries and wages to enable them to cope with the rising costs of living. I am pleased to announce the establishment of a National Wage Consultation Council as the main platform for wage determination. The Council will comprise representatives from employers, trade unions, non-unionised employees, Government agencies, academia, NGOs and individuals. The Ministry of Human Resource will be the Secretariat for this Council. 71.The National Wage Consultation Council will determine the rate and mechanism of minimum wage. The basic salary of postmen was raised to RM710 on 1 July 2010 from RM610 per month. With this adjustment, the monthly salary of postmen including fixed allowances increased to RM1,285 from RM1,035. The Government will enforce basic minimum wages for security guards, to between RM500 and RM700 a month depending on location, compared with RM300 and RM400 currently. With this increase, security guards will now enjoy a monthly salary including allowances exceeding RM1,000. The increase will be effective January 2011.

72.The Government will continue to reduce the number of foreign workers by increasing in stages the levy according to sector. It is also mandatory for employers to procure health insurance for their foreign workers.

Expanding Women Participation

73.Women account for half of the population and play a very important role in family and national development. Therefore, the Government recognises the role of women in the nation’s development. To enhance women’s participation in entrepreneurship, the Government allocates RM30 million, among others, to introduce the Single Mother Skill Incubator Programme and the Prime Entrepreneur and Women Activist Award in conjunction with Women’s Day commencing 2011.

74. The Work Regulations (Part-Time Workers) 2010 was enforced by the Government effective 1 October 2010 to encourage the participation of more women as part-time workers. I urge the private sector to hire female part-time workers, particularly those who are married. The Government will also implement a pioneer Small Office Home Office programme to train disabled women in various skills for a period of three months.

75. The Government will provide and re-brand 40 1Malaysia TASKA, managed by the Department of Social Welfare to assist women to obtain quality childcare and early education for their children.

76.The Government is concerned with the career prospects and welfare of female civil servants as they need to take care of their families, particularly newborn babies. To improve the maternity leave facility for female civil servants, the Government will allow flexibility to self-determine fully-paid maternity leave, not exceeding 90 days from the current 60 days. This facility is subject to a total of 300 days of maternity leave throughout the tenure of service.

77.The Government continues to provide opportunities for qualified female civil servants to hold key executive posts. As at end-2009, 30.5% of key posts in the public sector were held by women. I urge the private sector to provide opportunities for more women to hold post at decision-making level, particularly as Board of Directors and Chief Executive Officers.

Developing National Sports

78.The Government will continue to encourage sports research and development, organise more international games, provide facilities and expertise to mould competitive athletes and develop high-performance sports. For sports development and management, a sum of RM365 million is allocated to the Ministry of Youth and Sports. To develop football, the Government will establish a Football Academy in Pahang with an allocation of RM20 million to produce quality and highly skilled football players.

79. I would like to take this opportunity to congratulate all athletes who took part in the 19th Commonwealth Games in New Delhi. I would also like to congratulate the medal winners who have made the nation proud at the international arena. They won 12 gold medals, surpassing the target of 10 gold medals. This is Malaysia’s best achievement in the Commonwealth Games.

THIRD STRATEGY:ENHANCING QUALITY OF LIFE OF THE RAKYAT

80.It is widely accepted that the main role of the Government is to enhance the well-being of the rakyat. Achieving a developed and high-income economy is meaningless if the quality of life of the rakyat deteriorates. In efforts to become a developed and high-income nation, we need to strengthen socioeconomic development in an inclusive manner. It is important to attain a more balanced development and ensuring a better quality of life.

Assisting the Less Fortunate

81.The Government is concerned with the difficulties faced by the less fortunate and will continue to ensure their welfare. In 2011, the Government will allocate RM1.2 billion to the Ministry of Women, Family and Community Development to carry out various welfare and community programmes as follows:

First:Welfare assistance for senior citizens with an allocation of RM166 million. This group is estimated to increase to more than 15% of the total population by 2030;

Second:Children’s assistance programme with an allocation of RM121 million to enable them to receive quality childcare and early education. This programme will benefit 97,000 children;

Third:Assistance programme to benefit 80,000 disabled individuals with an allocation of RM218 million;

Fourth: Excise duty exemption be increased from 50% to 100% on national vehicles purchased by the disabled; and

Fifth:Construction of an intervention centre for the homeless by providing employment opportunities, housing facilities and counselling.

82. Since 2008, the Government provided a rebate on electricity bill payment for monthly consumption of below RM20. The rebate has benefited more than one million consumers nationwide. The Government will continue this rebate programme with an allocation of RM150 million to ease the burden of the low-income group.

83.Currently, tax relief on expenses incurred for parents is limited to medication in clinics and hospitals including treatment in nursing homes as well as dental treatment. In an effort to lessen the cost burden in caring for parents, the Government proposes that the existing tax relief of up to a maximum of RM5,000 be extended to cover other expenses such as day care centre, cost incurred to employ caretakers for parents and other daily needs such as diapers.

Increasing House Ownership

84.The Government empathises with the rakyat’s need to own affordable houses, particularly the poor and low-income group. A sum of RM568 million is provided to build 300 units under Projek Bantuan Perumahan Bandar, 79,000 units under Program Perumahan Rakyat and 8,000 units under Projek Bantuan Rumah Sewa. To assist estate workers to own houses, the Government will provide Skim Pembiayaan Perumahan Kos Rendah with an allocation of RM50 million, managed by Bank Simpanan Nasional. The scheme is open to all Malaysian permanent estate workers to assist them to obtain housing loans with a maximum of RM60,000 for the purchase of low-cost houses at 4% interest rate and a repayment period up to 40 years extending to the second generation.

85.The Government is aware of the difficulties faced by the rakyat, particularly young adults who have just joined the workforce with income less than RM3,000, to own a house. To assist this group, the Government will introduce Skim Rumah Pertamaku through Cagamas Berhad which will provide a guarantee on down payment of 10% for houses below RM220,000. This scheme is for first-time house buyers with household income less than RM3,000 per month. In other words, the house buyers will obtain a 100% loan without having to pay the 10% down payment.

86.In addition, first-time house buyers will also be given stamp duty exemption of 50% on instruments of transfer on a house price not exceeding RM350,000. The Government also proposes that stamp duty exemption of 50% be given on loan agreement instruments to finance such first-time purchase of houses.

Enhancing Quality of Life of Rural Population

87.Efforts to develop rural areas began a long time ago. At the end of Emergency, the Government established the Ministry of Rural and National Development to lead efforts to bring development to rural areas. The Government is still committed to this endeavour although today approximately 60% of the population of Malaysia live in urban centres. In efforts to transform the country towards a developed nation, the Government will not neglect the rural population. Development projects and programmes to improve the quality of life of the rural population will be given priority. A sum of RM6.9 billion is allocated to implement basic infrastructure such as water and electricity supply as well as rural roads. Among the main projects to be implemented are to:

First:Build and upgrade rural roads in Sabah and Sarawak with an allocation of RM2.1 billion and RM696 million in Peninsular Malaysia;

Second:Provide water and electricity supply in rural areas of Sabah with an allocation of RM1.5 billion, Sarawak RM1.2 billion and Peninsular Malaysia RM556 million;

Third:Implement the housing assistance programme to provide comfortable houses for the poor and hardcore poor in rural areas with an allocation of RM300 million. This programme will involve the construction and repair of 12,000 houses nationwide, particularly in Sabah and Sarawak; and

Fourth:Provide Unit Khas Bergerak Jabatan Pendaftaran Negara to facilitate rakyat in the interiors of Sabah, Sarawak and Peninsular, to register for citizenship.

Easing Burden of the Rakyat

88.To increase food production, the Government will allocate RM974 million as price subsidy for paddy, fertilisers and paddy seeds as well as RM230 million for production incentives and increasing paddy yield. The Government will also allocate RM170 million in incentives for fishermen as well as boat owners and workers to increase fish landing.

89.The Government is concerned with the issue of higher prices of goods faced by the rural population, particularly in Sabah and Sarawak as well as selected areas in Peninsular Malaysia due to high transportation costs. To standardise the prices across areas, the Government introduced the Distribution of Essential Goods Programme for goods such as rice, cooking oil, sugar, flour, gas, petrol and diesel in 2010 with an allocation of RM100 million. For 2011, a sum of RM200 million is allocated for the programme.

90.In the Government’s dealings with the rakyat, the prices of retail good is often highlighted. In this context, the Government will establish a “1Malaysia Smart Consumer” portal to help the rakyat keep abreast with price movements of goods in almost 7,000 business premises nationwide. Through this portal, consumers have the option to purchase goods at competitive prices. Consumers can also utilise short messaging services (SMS) to obtain latest information on prices of goods.

91.To strengthen the wholesale and retail sector, the Government will also introduce the Retail Shop Transformation Programme (TUKAR), Automotive Workshop and Community Market projects to upgrade and modernise facilities with an allocation of RM73 million.

92.The assumption that the Government is ignoring small contractors is unfounded. The Government will continue implementation of Projek Penyelenggaraan Aset Awam or better known as PIA/PIAS with an allocation of RM500 million. Among the activities are repairing and upgrading of public amenities, drains, drainages, small bridges and rewiring as well as construction of agriculture and kampung roads. The implementation of these small projects will assist Class F contractors nationwide.

Appreciating Contributions of Community Leaders

93.The Government has always appreciated the role and contributions of community leaders. In line with this, the Government will increase the monthly allowance for the Chairman of Jawatankuasa Kemajuan dan Keselamatan Kampung (JKKK) and Persekutuan (JKKP), Tok Batin, Chairman of JKKK Orang Asli, Chairman of Kampung Baru to RM800 compared with the RM450 currently.

94. To ensure this allowance is enjoyed by all community leaders, this allowance will also be extended to the Ketua Kampung Baru Rangkaian and Ketua Kampung Bagan. The Government will also increase the meeting attendance allowance to all committee members from RM30 to RM50.

95.Effective January 2011, the monthly allowance of Imam will be increased from RM450 to RM750, while the monthly allowance for KAFA teachers will be increased to RM800 compared with the RM500 currently.

Development of Orang Asli and Pribumi

96.As we are aware, Malaysia is made up of multi ethnicity and cultures. We have never discriminated the minority for they are also citizens of the country. Efforts to accelerate the nation to a developed and high-income economy will be implemented inclusively by enhancing the socioeconomic status of Orang Asli and Pribumi. A sum of RM100 million is allocated to implement various programmes, including resolving Orang Asli land rights and border settlement issues as well as formulating a new development model for Orang Asli. In line with this, Jabatan Hal Ehwal Orang Asli will be restructured and strengthened as Jabatan Kemajuan Orang Asli.

Reducing Transport Cost

97.The Government is very concerned with the rising transport cost borne by the rakyat. To alleviate the burden of highway users, I am pleased to inform that the toll rates in four highways owned by PLUS Expressway Berhad will not be raised for the next five years, effective immediately.

Expanding Public Health Services

98.The Government is committed to ensure that access to quality healthcare is available to all rakyat. To achieve this objective, a total of RM15.2 billion is allocated to construct new hospitals, increase the number of doctors and nurses as well as to obtain supplies of medicines and equipment. Since 2009, 51 1Malaysia Clinics are in operation and the Government will provide an additional 25 1Malaysia Clinics. Combating Crime, Securing Safety

99.Public safety is important in creating a safe environment. In the first 9 months of 2010, the street crime index declined 38% while overall crime index declined 16%. In line with this, the Government will allocate RM350 million to implement various programmes to combat crime, including burglary, motorcycle and car thefts as well as promoting safe townships and Voluntary Patrol Scheme in high-risk areas. The Government will establish an additional 25 special courts to expedite prosecution.

Empowering Non-Governmental Organisations

100.The Government appreciates the contribution of civil society in providing services which always been under the purview of the Government. This has to be viewed positively and as a complimentary effort and should be encouraged further. The Government recognises the contribution of Non-Governmental Organisations (NGOs) in overcoming social problems in assisting the less fortunate and providing shelter facility as well as conducting training and generating income.

101.In appreciation, the Government will allocate RM70 million for programmes and activities involving selected NGOs to assist the Government in strengthening family institution and addressing social ills such as baby dumping, mat rempit and gangsterism. The selected NGOs will undertake an integrated programme with Government agencies, particularly in high-risk crime areas to prevent crime at its root cause.

Preservation of Environment

102.To preserve, sustain and protect the environment, the Government will allocate RM1.9 billion to finance environmental preservation projects, including implementing the River of Life Programme and greening of Kuala Lumpur. The Government will also undertake efforts to preserve marine sources and coastal areas including Pantai Siring in Melaka, Pantai Sabak in Kelantan, Teluk Lipat in Terengganu and Rompin in Pahang.

Corporate Social Responsibility

103.Corporate Social Responsibility (CSR) is important in the implementation of community projects. In 2011, Khazanah Nasional Berhad (Khazanah) in collaboration with the Ministry of Education, will establish 10 Trust Schools which will be managed more professionally to ensure students obtain quality education. Apart from the normal Government allocation, the Trust Schools will also receive contributions from Khazanah.

104.To assist children, particularly those from the low-income group excel academically, the 1MDB will provide multi-vitamins for primary school students. It is hoped this programme will enhance the mental development and strengthen the immune system of students.

105. Following a proposal from the youth lab, 1MDB will provide RM20 million to the 1Malaysia Youth Fund. This fund will be utilised to instil the 1Malaysia spirit. In addition, 1MDB will implement 1Malaysia Mobile Clinics with four buses as mobile clinics in collaboration with the Ministry of Health.

FOURTH:STRENGTHENING PUBLIC SERVICE DELIVERY.

106.In steering Malaysia towards a developed nation, the Government, comprising 1.2 million civil servants needs to continuously improve to enhance productivity.

Facilitating Dealings with Government Agencies

107.It is clear that the role of the Government is to facilitate and not frustrate. Dealings with any Government agency should be made easy. The Government will ease private sector dealings with its agencies. Towards this, the MyCoID Gateway initiative utilising the Companies Commission of Malaysia’s single reference number has been implemented. This initiative will be extended to other ministries and agencies.

108.The Government will introduce a point system to facilitate applications for permanent resident status (PR). The application for PR may be submitted after 5 years of residence compared with 10 years previously. With this system, applications for PR will be more transparent, expeditious and objective based on clear criteria.

109.To expedite the process of property registration, the Stamp Act 1949 was amended to enable the Valuation and Property Services Department assess properties after the payment of stamp duty to the Inland Revenue Board. This improvement will reduce the property registration process from 30 days to one day.

Refining Appraisal System

110.Civil servants are an important component in the nation’s effort to realise its vision. Without efficient, effective and dynamic policy formulators, the nation’s vision will remain a dream. In relation to this, in our continuous effort to provide a more responsible, relevant and holistic framework of assessment as well as taking into account the feedback from civil servants, the Government agrees to abolish the Competency Level Assessment or PTK and replace it with a more suitable evaluation system by June 2011, which is acceptable to civil servants.

Appreciating Civil Servant’s Contributions

111.The Government appreciates the contribution and full commitment of civil servants in ensuring the success of Government initiatives including the GTP and the ETP. The Government will:

First:Reduce the burden of civil servants in coping with schooling expenses by providing a Special Financial Assistance amounting to RM500. This assistance will be provided to all civil servants from Grade 54 and below, including contract officers and retirees. The payment will be made in December 2010;

Second:Increase the rate for Funeral Arrangement Assistance to RM3,000 from the current RM1,000 in line with rising funeral expenses. This assistance is also extended to retired civil servants; and

Third:Extend the services of Pegawai Khidmat Singkat (PKS) for an additional period of one year from December 2010. However, Ministries and agencies are not allowed to increase the number of PKS.

112.To facilitate civil servants in owning houses as well as improving the terms and conditions for housing loans, the Government will:

First:Allow the purchase of properties from parents, children and siblings;

Second:Raise the amount of loan from RM10,000 to RM20,000 for additional works on low-cost houses for Support Group II; and

Third:Raising the maximum loan eligibility to RM450,000 compared with RM360,000 currently.

The above improvements to housing loans will be effective 1 January 2011.

2011 BUDGET ALLOCATION

113.The Government is committed towards accelerating the transformation process by ensuring projects and programmes under the 10MP, NKRA and NKEA are implemented successfully. To implement these strategies and measures, I propose an allocation of RM212 billion for the 2011 Budget, which is 2.8% higher than the allocation for 2010. Of this, RM162.8 billion is for Operating Expenditure and RM49.2 billion for Development Expenditure.

114.Under Operating Expenditure, RM45.6 billion is allocated for Emoluments, RM28.2 billion is for Supplies and Services, RM86.4 billion is allocated to Fixed Charges and Grants, and RM1.4 billion is for the Purchase of Assets and RM1.2 billion for Other Expenditures.

115.As for Development Expenditure, a sum of RM28.3 billion is allocated to the economic sector for infrastructure, industrial, agricultural and rural development. A total of RM15.5 billion is allocated to the social sector, including education and training, health, welfare, housing and community development. A sum of RM4.4 billion is allocated for development of the Security Sector, RM955 million for General Administration and RM2 billion Contingencies.

116.Federal Government revenue collection is estimated to increase 2.3% to RM165.8 billion in 2011, compared with RM162.1 billion in 2010. Taking into account the estimated revenue and expenditure, the Federal Government deficit for 2011 is expected to further decline to 5.4% of GDP, compared with 5.6% in 2010.

CONCLUSION

117.The strategies and programmes in this Budget have been designed to meet the aspirations of the rakyat. We want to build a nation where every rakyat will be able to enjoy the benefits of development. We want a Malaysia where everyone can attain success through hard work and perseverance.

118.This Budget has taken into account the needs of the rakyat. This Budget is possible due to the efficient and prudent financial management thus far.

119.My Cabinet members and I share the vision to continue the noble tradition of bringing prosperity to all segments of society. This is not impossible, neither is it wishful thinking. Facts and history have proven that the Government is capable of bringing development.

120.We have successfully transformed the nation from a low-income agriculture-based to a modern middle-income industrial-based economy.

121.We succeeded in increasing the income per capita from USD260 during early independence to more than US$D8,000 today.

122.We have reduced poverty from 60% to 3.8% and are on target to eliminate hardcore poverty as well as succeeded in creating a dynamic middle class.

123.In fact, prudent financial management has enabled us to weather the 1997/1998 financial crisis through firm and unorthodox measures. As a result, criticism has turned to praise and prejudice to admiration. Also, in 2008 the Government took immediate measures to revive the economy by introducing the stimulus packages and mini budget when we were hit by the economy’s tsunami. Again the people were insulated from a difficult time and they only felt minimum impact.

124.Despite challenges, we will not retreat from this noble mission, as truth is in our favour based on our record of excellent performance.

125.We are not dreamers. We are realists. Our success is not mere coincidence but the result of clear and careful planning as well as firm implementation.

126.The Government will not take the easy way out or sacrifice the nation’s long-term interests for short-term popularity. Rest assured, we will not leave a country laden with problems to the future generations.

127.Thus, the rakyat must realise that they and their children’s future is invaluable to be surrendered to irresponsible parties.

128.Indeed, this Budget is the 53rd Budget after Independence tabled by the same Government. Through 53 Budgets, 10 Development Plans, three Outline Perspective Plans and one National Mission, the 2011 Budget is crucial and is the first step towards positioning Malaysia as a developed and high-income economy.

129.We must remember that Malaysia is our blessed homeland where we were born, where we were raised, where we seek opportunities, where we achieve success and here we shall be laid to rest.

130.To Allah, we seek His blessings.

Mr. Speaker Sir,

I beg to propose.

The Calm Before the Stock Market Storm

2010-10-04T19:21:00.003+08:00

It was a relatively calm week as global stock markets for the most part flat-lined in the face of conflicting economic news and statements from the Federal Reserve.

The bulls and bears have largely been at a standoff since mid September, and while nobody can predict the future, I can tell you with some certainty that this stalemate will not continue.

In fact, the longer we remain in this sideways coiling process, the more powerful the breakout will eventually be, either up or down.

This coming week promises to add significant clarity to the future direction of the market and signal the end to the “calm before the stock market storm.”

Make no mistake, the storm is coming.

In the chart of the S&P 500 above we see a number of interesting items.

First off, notice the similarity of the patterns identified as #1 and #2. In July we can see the significant run up to the top circled in item #1, followed by a steep decline into late August, and it’s easy to notice the eerie similarity labeled item #2 with the run up in September to the top we’re currently in, followed by a dotted line indicating the next potential move down to the mid 1000 level or below on the index.

This move would be supported by RSI, labeled #3 and is currently overbought with this market condition confirmed by item #4, the Stochastic, also in overbought territory and looking much like its position in early August before the August decline that quickly dropped nearly 9% from the index’s value.

So it’s quite clear from a quick glance at just one chart that the next tradable move is most probably towards the down side.

The View from 35,000 Feet

The technical story is further confirmed by seasonality which points to October as the month most susceptible to steep declines and crashes while the fundamental picture is murkier.

And always present in today’s post crash world is the not so invisible hand of Dr. Bernanke and his colleagues in the equity and currency markets of the world.

Last week’s fundamental news was mixed with positive numbers coming from the Case/Shiller housing index showing a rise in home prices, a small improvement in the jobs outlook and improvements in the Chicago Purchasing Managers Index and the University of Michigan Consumer Sentiment Index.

On the negative side of the ledger we saw a conflicting drop in Consumer Confidence along with an ominous reading in the ISM report on Friday.

Just to take a closer look at the ISM report, it’s important to understand that it dropped to 54.4 from a previous reading of 56.3 and that readings above 50 indicated economic expansion. While seemingly not a huge decline, the internal components were significantly weaker with particular red lights flashing in the decline in new orders, a slowing of hiring and a significant rise in inventories, all of which precede a slowing economy and declining earnings.

Finally, and perhaps most importantly, the Federal Reserve has practically announced that they’re going to resume “quantitative easing” at the conclusion of their next meeting on November 3rd.

Chairman Bernanke, “Big Ben” as he is affectionately known in the blogosphere, telegraphed his intentions after their meeting on September 30th and this week William Dudley, the President of the New York Federal Reserve said, “Further action is likely to be warranted unless the economic outlook evolves in a way that makes me more confident that we will see better outcomes for both employment and inflation before too long.”

It seems safe to say now that the only questions are, “how much,” “how” and “will it work?” The consensus answers are $500 billion most likely distributed in smaller tranches rather than in the “shock and awe” fashion of last year.

Regarding “will it work?” the answer is “most likely not.”

A much bigger round of easing last year obviously didn’t work or they wouldn’t be starting off on another round now; it didn’t work in Japan and it didn’t work for FDR during The Great Depression. It’s quite likely that much of “QE2” is already priced into the market and that we would see a short term pop in asset values followed by more of the grinding market action we’ve seen all year.

What It All Means

In three words, “more pain ahead.”

We unfortunately have a long road ahead as a country and as investors and try as they might, the best the powers that be can hope to do is kick the can down the road, as the old saying goes.

Herbert Hoover, “the father” of the Great Depression learned this lesson and our current leaders should listen to his voice of experience: “Economic depression cannot be cured by legislative action or executive pronouncement. Economic wounds must be healed by the action of the cells of the economic body – the producers and consumers themselves.”

We will heal but it’s going to take some time and much more pain.

Over the last few weeks we’ve been in the “calm before the storm.” The storm is about to hit and will either take us to higher ground and safety or into a vortex of volatility and asset destruction. Wall Street Sector Selector remains in the “red flag” mode, expecting stormy weather and lower prices ahead.

The Week Ahead

It’s very likely that this week will be pivotal with large scale economic reports on the horizon and the official start of Q3 earnings season.

Gold: Heads You Win, Tails You Win

2010-09-11T17:39:00.002+08:00

If someone came up to you and said that they were going to flip a coin and if heads came up you win and tails came up they lose, you would probably walk away and tell the person to get lost and go try to con someone else.

In terms of gold, though, we are increasingly beginning to hear people argue that gold will rise no matter what happens!

Today we read one article that quoted an analyst as saying "Either a swift economic recovery or further dismal economic performance should bring new buyers into the market." We realize that there are certainly some valid arguments for buying gold, but a comment like this is not one of them.

Now, we wouldn't necessarily go as far as to say that gold is in a bubble. After all, unlike a lot of recent asset bubbles where prices skyrocketed even as supply expanded, the supply of gold is relatively constrained. That being said, arguments presented as a win win regardless of the outcome are usually found closer to the peak of a move than the beginning.

Why The Market Will Keep Falling

2010-08-14T21:03:00.002+08:00

Economic indicators have been on the decline for several weeks now. However, it took until this week for investors to flee from equities. To understand why the market took so long to respond to the souring data you have to understand that a Catalyst is usually required for stocks to begin moving in unison with reality. You also have to understand that a Catalyst is the fourth, but most important, of four keys key to successfully timing a move in the market (or individual stocks for that matter):

1. Understand the environment -- Observing what's happening in your neighborhood can help, but it isn't enough. You need a broad view of what's going on with business and economics, in the U.S. and worldwide. Several objective sources can be found on the Internet.

2. Understand when the government and/or Fed will intervene and if the intervention will help -- When the economy is in danger, the government and/or Fed will inevitably intervene to save the day. If you short the market and an intervention occurs the next day, you’re probably going to lose money.

In this case, my feeling has been that the government wouldn’t do much, because “stimulus” has become a dirty word with the public. With elections looming, nobody in Washington can afford to risk angering the electorate. Thus far, that has proven half-right. Unemployment benefits were on death’s door, but were eventually reinstated. That was a good way of pumping money into the economy without making too many people angry. In addition to this, the Fed has been making some minor moves of its own. This is also a savvy political move, because the public doesn’t generally associate the Fed with a political party.

The bottom line is that intervention remains possible. Keep in mind, almost any intervention will hurt the value of the dollar, but the government and Fed seem perfectly willing to sacrifice the dollar to keep GDP from falling (the definition of “recession”). Also keep in mind that a falling dollar almost always generates higher stock prices.

3. Understand if the market reflects reality -- Most of the time, this is pretty easy. If reality looks bleak and the market hasn’t dropped, something has to give. Either stimulus is on the way or the market is due to roll over. In this case, the government and Fed have both made some moves (as I discussed above), but I don’t think it’s enough. Based on the market’s reaction over the past couple of days, investors seem to agree with my view.

4. Understand the Catalyst -- The market doesn’t always respond to reality in real-time. In fact, experience has shown that it almost never does. Back in November of 1999, there were clear signs that the Internet bubble was bursting. Despite this, the market didn’t peak until March of 2000. If you shorted the market in November of 1999, you could have gone bankrupt -- a harsh reward for being right about what was coming. Similarly, in May of 2007, it was clear to me that the real estate bubble was coming to an end. However, the market churned higher until October, some 5-months later.

Knowing what’s going to happen next is great, but knowing what will make investors act on that reality is what will make you rich.

Most recently, I published a SeekingAlpha article entitled “Which Way Is the Market Going Next?”. In that article, I wrote that the economy was starting to turn south again. I also stated my opinion that the market would start reflecting this reality “very soon”. Over the next week or so, the NASDAQ slid from 2,242 to 2,160...but almost as quickly rebounded, shooting above 2,300. Only in the past couple of days has the market fallen back below 2,242.

Assuming we are now in the midst of a correction, my call took a month to be proven correct. The reason my timing so far off was a misinterpretation of the Catalyst -- the event(s) that would make investors believe (and more importantly, act on) my interpretation of reality. In this case, I felt that investors would simply see the writing on the wall and start selling stocks, despite what I felt was going to be a relatively healthy Q2 earnings season.

That was my mistake. As good earnings rolled in, investors ignored signs of a bleaker future in favor of reports of a brighter past. Then, as earnings season wound down, investors refocused on the economy, but believed that the Fed would come to the rescue at this week’s FOMC meeting.

It was a valid argument, but as it turns out, the Fed's stated plan-of-action proved disappointing. Worse yet, with elections coming in November, the Fed is likely to honor its tradition of maintaining its status quo in the months leading to an election (for fear of being seen as politically biased).

With no more positive Catalysts upon which to cling, investors are left with no choice but to face reality. Thus, the Catalyst for a market decline was born.

In the coming weeks, I believe we’ll see more signs of economic degradation. With earnings season winding down and the Fed meeting behind us, positive Catalysts appear to be exhausted for now. Barring a surprise government or Fed intervention (unless, barring a full fledged crisis), the near-term Catalysts are likely to be negative, lighting the way to further stock market declines.

Article from Seeking Alpha

Why The Market Will Keep Falling

2010-08-14T21:03:00.001+08:00

Article from Seeking Alpha

An Analysis Of The Death Cross Sell Signal

2010-07-15T10:18:00.003+08:00

An Analysis of the Death Cross Sell Signal

Moving averages are used by many traders to identify trends as they smooth out price action and act as key support on the way up, and resistance on the way down. In fact, it is one of the most widely used technical indicators and extremely popular among high frequency traders because it is so clear cut and easy to program. It allows the trader to ride a trend higher and to cut losses short.

The death cross is a popular signal that when used properly can cut massive losses short. The death cross is also popular because many institutional investors use the 50 day moving average as a medium term average and the 200 day as the long term moving average. Basically, the crossover method signals a sell signal when the shorter term moving average crosses the longer term moving average to the downside. A buy signal is identified when the short term moving average crosses the long term average on the upside.

Crossover methods are easy to program into a computer. However, I must warn that one must use additional clues to create a sell signal. There are frequent whipsaws and failures when you use the crossover method in isolation.

Chart reading is an art that requires discipline, experience and study. Crossover methods used exclusively, such as by a computer program, will not produce the same results of an experienced technician who looks for other pieces of evidence to confirm the bearish crossover.

Similarly, back testing the results of the death cross using a computer program will not produce optimal results, since technicians look for additional signs of the breakdown than just the cross. I was recently interviewed by the Toronto Globe and Mail on this topic and explained that one must be aware of this crossover and its implications.

Some believe this signal is nonsense and show back-tested data with computer models. But they do not show the crossovers used in conjunction with other technical signals.

If the crossover signal is confirmed with a head and shoulders breakdown, a cross into new lows, and poor price volume action (which is occurring now), I will patiently wait on the sidelines. I will look for prudent short points when I see a price reversal and as the price comes up to certain resistance. If all these signs are coming together the probability of a whipsaw is significantly reduced.

It is also important to note that a death cross is further confirmed if the 200 day begins sloping downwards after the break. This will act as resistance on the way down.

A look at the death cross of the Dow in January of 2008 showed many of the signs of a market top and trend change. The 200 day which acted as previous support was violated on high volume and was followed by three failed railies at the 50 day moving average before crossing over. If not followed investors would have lost more than 60% of their portfolios.

Now is not the time to look for bargains but to protect your portfolio by selling on any bear rallies. I believe that this rally will be shortly coming to an end and we will continue to trend lower in equities. Use these rallies to prepare for shorting opportunities.

Top Ten Reasons to Be Bearish

2010-06-26T18:46:00.005+08:00

This list tells you why I believe we are in the worst bear market of our collective lifetime.

10. Poor Outlook for Small Businesses – Small businesses make up more than 50% of non-farm GDP, employ about half of the nation’s private sector workforce, and create most of the nation’s new jobs according to the Small Business Administration. For the month of May, the National Federation of Independent Business reported that small business owners had a more negative outlook on job creation, capital expenditure plans, and future sales expectations. Considering that small business owners have more tenuous access to credit and are uncertain about cash outlays for healthcare and unemployment benefits, many are putting growth plans “on hold”. If 50% of GDP and employment remains “on hold”, it points to the strong possibility of a double dip recession and, in turn, another decline in the S&P 500.

9. Cash Outflows Are Trending Poorly – ICI reported that for the week ended June 16, domestic equity mutual funds saw $1.8 billion in outflows for the seventh sequential weekly outflow. Despite net activity of $5.2 billion for 2010 thus far, the first seventeen weeks of the year were comprised of $40.6 billion in inflows while the last seven weeks represented $35.4 billion in outflows. Should this trend continue, it will put managers in an awkward position of having to sell “winners” to meet redemptions due to the low levels of cash on hand. If both of these trends continue, one would have to believe it will have a negative impact on the S&P 500.

8. Tax Cut Expirations – Art Laffer, apparently not one for mincing words, wrote an excellent opinion piece in a recent The Wall Street Journal called, Tax Cuts and the 2011 Economic Collapse. While his title gets at the point rather well, briefly, in summary, Mr. Laffer made the very strong case, in my opinion, for the idea that income and production will be inflated above where it would be otherwise in 2010 since in-the-know individuals and businesses are shifting income, when possible, to 2010 in order to avoid the tax hikes that are coming in 2011. Not only did this happen in 1993 from 1992, but he believes “…this shift in income and demand is a major reason that the economy in 2010 has appeared to be as strong as it has. When we pass the tax boundary of Jan. 1, 2011, [his] best guess is that the train goes off the tracks and we get our worst case nightmare of a severe “double dip” recession.”

7. Deflation – In the most macro-terms possible, and at the risk of being repetitive, until the asset class at the eye of the financial storm – residential housing – heals via stabilized pricing, we are living in a world of deflation. This is reinforced by record low mortgage rates. In more micro-terms, over the last 12 months, the core rate of inflation has risen only 0.9% or well below the 2.0% average annual increase over the past 10 years. In addition, returning to small business owners, 28% reported making price reductions in May, an increase over April, while this price cutting contributed to a high percentage of such owners reporting declining sales. Lastly, the Fed’s extraordinary liquidity efforts of the last two years have led to stagnant money rather than monetary expansion. Should this transform into a true “liquidity trap”, stagflation is the best case scenario but outright deflation is more likely.

6. High Unemployment – 15 million Americans are out of work. Nearly half of those people lost their jobs after December 2007. Private sector hiring appears to be at a standstill with only 41,000 new jobs created in May. 46% of the unemployed have been out of work for more than 6 months or the highest percentage since this record has been kept back in 1946. The real unemployment rate, counting those who have simply stopped looking for a job, is nearly 17%. All in all, a rather bleak picture on the employment situation here in the U.S. and one that will lead consumers to remain on the spending sidelines and especially for houses.

5. Commercial Real Estate “Crash” – Various sources estimate that between $1.3 and $3.5 trillion in commercial loans is coming due in the next 5 years with more of it weighted toward 2012. This could be an ugly event. This is especially true if banks are unwilling or unable to offer new financing to the borrowers since commercial real estate owners will then be put in the awkward position of having to pay for multi-million dollar commercial real estate holdings in cash. While some will be fortunate enough to do so, there are others who will not and this will force mainly small and mid-sized banks, and insurance companies, to write down bad loans and determine what to do with portfolios of commercial real estate in a depressed market. This situation is so grave that chairperson of the Congressional Oversight panel, Elizabeth Warren, said that half of all commercial real estate loans will be underwater by the end of 2010 and the bulk of these loans are concentrated in small- and mid-sized banks. She even went so far as to say that this will devastate small-business lending and create “a downward spiral of economic contraction.”

4. Housing Double Dip – After a year of respite for the U.S. housing market due to the government’s tax credits and MBS purchases, residential housing is set to take another deep dip down. May’s non-government “owned” housing market activity was awful. Housing starts dropped by 10%, permits fell by almost 6%, mortgage applications were down, the homebuilders’ sentiment index dropped, existing home sales fell by 2.2% while new-home sales took a 33% nosedive. However, it is the combination of the S&P/Case-Shiller Index and annual housing starts that demonstrate that the housing market’s direction is down.

While this Tuesday’s CSI release may be to the positive as may be both July and August, the chart at top (click to enlarge) shows that there is a very real chance that pricing could level off where it had been in the late 1990s while housing starts are in unchartered territory having broken multi-decade support of about 1 million starts annually. It is difficult to see how the gravity of either chart can be warded off in the next 5 to 10 years, and thus to understand how the housing market can move in any direction other than down.

3. Financial Institutions Are Tied to the Housing Market – Putting aside the potential implications of the bank-reform bill and any links between U.S. banks and both European banks and sovereign debt, financial institutions are likely to have a tough go at it again. I spoke to a banking analyst yesterday who told me that if the decline in housing is accompanied by a worsening unemployment picture “it will really flow through” to U.S. banks and insurance companies. This “flow through” will show up in two places: (1) security portfolios, and, (2) loan portfolios. Remember the “toxic assets” of 2008? They still exist to the degree that they were not sold off or written down. If the upcoming decline in housing is aggravated by unemployment, it is likely to spur another wave of delinquencies and foreclosures.

This will hit the value of the security portfolios because much of the paper will become “toxic” again due to the non-performing loans layered in the various, and sometimes repackaged, tranches of debt. However, it will also hit the loan portfolios of banks, and this analyst thought this was the real danger, because banks will have to write off a new wave of bad loans and figure out to unload houses in a truly distressed housing market. All of this is why I continue to believe that until the asset class at the eye of the financial crisis heals – housing – we can be assured that the crisis itself is not over.

2. The World’s Unsustainable Borrowing Binge of the Last 30 Years – While not nearly as powerful as Mr. Laffer’s title, it does speak for itself. The private sector, and financial institutions in particular, borrowed in what proved to be an unsustainable manner between 1980 and 2007. “Unsustainable” because active borrowing as measured by the Federal Reserve collapsed in 2009 to -$611 billion from its annual peak of $4.6 trillion in 2007. That is a huge, almost incomprehensible decline in borrowing to have occurred in two years. The U.S. government has attempted to shoulder some of that load by borrowing about $2.9 trillion in the last two years, but it is a nearly impossible task. Should it prove to be more than the U.S.’s balance sheet can handle, it will result in foreign creditors demanding a higher rate of return on Treasurys as is happening in Greece today. This will devastate banks because their fixed-rate assets will be underwater, but more frighteningly, the U.S. dollar will become severely devalued if not collapsed.

1. The Ugliest Chart of All Time – Unless there is an act of God between now and 4 pm EDT this coming Wednesday, the chart of the S&P 500 will be forever altered for the worse. This chart is, of course, the basis for all of my work, or what I have called the Twin Peaks, or the S&P 500’s severe double top with a technical target that is far, far below where the index is today.

And there you have it, the Top Ten Reasons To Be Bearish and why I believe we are in the worst bear market of our collective lifetime.

Article from Seeking Alpha.

John Laughland: Why the Euro Will Fail

2010-06-07T17:41:00.004+08:00

John Laughland: Why the Euro Will Fail

Throughout the history of European integration, its supporters have often used transport metaphors to sell their project.

In the 1960s, Europe was a bicycle which had to keep moving forward for fear of falling over. In the 1980s, Europe was a boat or a train which laggards were in danger of missing.

These metaphors were banal and nonsensical until 1999, when one of them proved to be prophetic. In the euphoria generated by the launch of the single currency, the euro, on Jan.1 of that year, a European official announced that Europe was now “on a freeway which has no exit.”

What he meant, of course, was that Europe wasn’t going back to national currencies. However, he hadn’t thought his metaphor all the way through. A freeway without an exit can lead to only one thing: a very serious car wreck. That is precisely the outcome that horrified European leaders are now being forced to contemplate.

German Chancellor Angela Merkel recently caused panic in the financial markets when she tried to shore up support for her huge bailout plan by warning that “the euro is in danger.”

Other European leaders, especially in France, rushed to correct the damage caused by such German tactlessness, insisting that, on the contrary, all was well. However, the idea that the euro’s days are numbered is becoming increasingly widespread in both the financial markets and the press.

The immediate cause of the crisis in the euro zone has been Greece, which has been teetering on the verge of default for months because it cannot even afford to reschedule its gigantic state debt.

One thinks of Greece as a country full of village squares where elderly men while away the day in the shade. This cliché does indeed reflect the reality of the country where people retire in their 50s after having been paid 14 months’ salary a year.

Greece has one million public servants for a population of 11 million citizens — the same number as in Britain, whose population is nearly six times greater. No wonder they can’t pay their bills.

However, the politics is worse than the economics.

The crisis has poisoned relations between Germany and Greece so badly that German tourists have literally canceled their holidays in Greece out of fear of the hostility to which they knew they would be exposed. The Germans, meanwhile, strongly resent having to tighten their own belts while the Greeks open another bottle of ouzo (a popular drink in Greece).

The multibillion euro bailout has also led to severe ructions between Germany and France, because many in Germany say, albeit under their breath, that the bailout is intended mainly to help French banks, who indeed hold the lion’s share of Greece’s debt.

Meanwhile, the French Finance Minister has complained that the euro is so structured that it necessarily benefits the German economy to the detriment of the other euro states, the implication of which is that the Greek crisis will be reproduced somewhere else soon.

The very thing which was supposed to bring the nations of Europe closer to one another — the euro — is in fact turning out to be a cause of division.

It is these political factors which will decide the euro’s fate. The strings of zeros being handed out to keep the euro zone together may spell economic disaster.

Certainly, large elements of the bailout (especially the May 10 decision by the European Central Bank to start buying government debt, i.e., to monetize it) will almost definitely lead to serious inflation.

On the other hand, what Europe is doing to save the euro is no different from what the United States has done to shore up the American banking system and the economy in general. Perhaps European leaders calculate that their currency will be no weaker than the other frail currencies all over the world.

The decisive factor isn’t the market, but instead the political incoherence of the euro project in the first place – an incoherence which, in my view, dooms the project to eventual collapse.

The euro is built on so many contradictions that it is difficult to keep track of them. It was supposed to de-politicize monetary policy by placing it in the hands of an independent central bank whose only goal was to drive down inflation. Yet it is the very centerpiece and foundation of the most ambitious political project since the creation of the Holy Roman Empire in the year 800, the project of uniting the whole of Europe under a single political and economic regime.

The euro was supposed to be based on strict rules of sound budgetary housekeeping, inspired by the German model. These rules have been constantly violated, including by the Germans who are now pontificating about how important it is to respect them.

The euro was supposed to foster economic growth and stability. It now threatens to push several European economies into a hopeless spiral of deflation and political turbulence.

The euro zone seriously pretends that all its member states are working to reduce their total state debt. In fact, all these states run annual budget deficits, i.e., they spend every year more than they earn.

The Greeks are accused of cooking the books to make it appear that they qualified for membership 10 years ago; yet the same is almost certainly true of Belgium and Italy, founder member states of the European Community whose exclusion from the euro zone is politically unthinkable.

There is a less polite term for these contradictions, and it is “lies.” Perhaps the biggest lie of all is that the euro is a true monetary union.

The European Central Bank fulfills neither of the two key functions generally associated with central banks. It is neither an issuer of currency nor a lender of last resort. Both these functions continue to be carried out by the national central banks, all of which still exist but which act (and decide) together how to run their common monetary policy.

The bank notes reflect this highly de-centralized structure, since each of them bears a secret code, in the form of a letter in the serial number, which indicates its national origin. In technical terms, it would therefore be as easy for the European Monetary Union to break up as it was for Argentina to abandon its dollar peg in 2002.

Even this lie, however, pales in significance against the sheer unreality of the European project as a whole. This project is based on the idea that the whole of politics can be handed over to administration by technocrats, and on the associated idea that nation states can and should be subsumed into an apolitical overarching European order.

Precisely what the Greek crisis has shown is that the national principle cannot be consigned to the dustbin of history. Indeed, to judge by the German and Greek national presses, nation-statehood, and even straightforward nationalism, are alive and well in the euro zone.

It is no exaggeration to say that the Germans think the Greeks are a bunch of lazy thieves and the Greeks think the Germans are a bunch of arrogant Nazis.

To be sure, any nation-state has tensions between its different regions but, when the chips are down, nation states usually pull together. By contrast, when the chips are down in an artificial structure like the euro zone, its component parts generally pull apart.

There is no such thing as an apolitical monetary policy.

On the contrary, just as huge swathes of modern history can be explained in terms of monetary decisions — the history of the French revolution is closely linked to the history of the state debt and the currency, while the history of the 20th century is closely linked to Roosevelt’s decision to forbid the private holding of gold in 1933 — so the fate of the euro will depend on the political see-saw of power between France and Germany.

In 1989, the original impetus behind monetary union was to contain a reunited Germany in an overarching European structure — abandoning the deutsche mark was the price the Federal Republic paid for annexing East Germany.

The newly powerful Germany responded in 1992 by trying to impose its model on the other future euro member states, and for a long time it looked as if it was going to succeed.

A series of “convergence criteria” were laid down and pundits (including me) spent years discussing which few select countries would fulfill them. But the powerful Helmut Kohl left office in 1998 and the decision was taken in 1999 to throw the rules out of the window and to admit all the states which wanted to join. The Greek crisis of 2010 is nothing but a case of chickens coming home to roost.

So the future of the euro lies in German hands.

However, the speculation so far has concentrated exclusively on the possibility that Greece or other Mediterranean states might abandon the euro and devalue. Little attention has focused on another possible scenario, namely that Germany might be the first to go, leaving behind an empty shell.

With popular opinion in Germany riding high against the euro, and with several of the key (German) principles for sound monetary policy having been grossly violated, there is now a definite political and perhaps even a legal case for leaving.

Given that any serious fear of German militarism has long since disappeared from Europe — however much Europeans may resent German economic arrogance — the original raison d’être of the euro itself, as of the European Union as a whole, has largely vanished.

Under such circumstances, it seems absurd to continue with a project concocted in totally different geopolitical circumstances and which, like everything else about the euro, no longer corresponds to any reality whatever.

John Laughland is Director of Studies at the Institute of Democracy and Cooperation in Paris.

BubbleOmics: 10 Predictions for 2010 Reviewed

2010-06-01T00:20:00.003+08:00

Seeing that events move so fast these days … what with high frequency trading and trillion dollar bailouts being produced like rabbits out of a hat, and more discoveries about more creative ways to “fix” an audit or a credit rating being revealed by the second, I’ve decided to put out forecasts every six months.

Thus, I’m updating my January 1, 2010, forecasts (see in italics):

1) S&P 500

It won’t go above 1,300 in 2010 but it won’t go down much until hits at least 1,200, at which point it risks a 15% to 20% reversal that will be relatively short-lived.

It hit 1,200 for a few days, then it went down 13% (closing prices) and 15% intraday -- interesting that 1,200 was about (one of many) Fibonacci numbers. I was expecting it to carry on at least until 1,300 before a reversal; but the question I’m asking myself is whether 13% down is a blip, a reversal or a correction?

My view (a real minority) is that the S&P 500 is 20% or so below its “fundamental” (that’s based on working out what International Valuation Standards calls “other-than-market-value,” which I do using historical correlations between price and nominal GDP and long-term interest rates.

But, and this is the kicker; it’s in the slump that happens after a bubble pop which is when mal-investments made in the bubble get washed out. Typically (in the past) you don’t get big corrections (like over 20%) at that stage of the cycle, and although the drama-queens were all over the place with the recent “crash,” well 13% isn’t exactly Armageddon.

There's no reason to change January's forecast now, as then, it’s a “value-picker’s market.”

2) Oil

Oil will drift sideways between $65 and $85 unless there is an “event” of which the most likely is a war of some sort … it won’t go down below $60.

That is pretty-much what happened so far, and I don’t think it will go down below $65 unless more skeletons are found in the financial closet,. I still think that within a year it could be playing with $90.

3) Gold

The gold market is struggling to understand value and the path ahead is therefore likely to be choppy. This is great for traders to show off their surfing prowess but perhaps a bit risky for “buy and hold.”

My view then and now is that gold is a bubble and that its price is driven by fear. Interestingly, the view I had in January was probably the first accurate prediction I ever made on gold, it went down from $1,200 to about $1,000; then it went back up above $1,200, and like I said, it's great for traders.

With regard to the year ahead, who knows what terrors lie hidden? And who knows what other skeletons are concealed like plastic land-mines by the clever auditors and rating agencies? My view remains that at some point it’s going down to below $800, whether it gets there via $3,000 is anyone’s guess.

4) US House Prices

S&P Case-Shiller 20 City Index will drop 10% from where it was in October 2009 before the end of 2010.

In the New-Year there was talk of a “bounce,” that didn’t happen; and in any case house prices don’t bounce, they go “splat.” I still think there is a little to go down before the bottom, foreclosures are not going away, but then that all depends on how much taxpayer’s money (or the money of future taxpayers) is thrown at overcoming the forces of nature, which is impossible to predict.

5) UK House Prices

There is one more leg down to come, possibly to beat the previous bottom on the Nationwide Index, but this could be delayed by Labour artificially pumping up the economy (by borrowing) so that they can have a good showing at the election.

I was saying last summer that the “bounce” was an illusion, in the short-term that was clearly wrong, I’m a bit mystified by the strength of UK house prices, I suspect that might have something to do with (a) the fact most mortgages are adjustable and (b) the British have been doing a very good job of trashing the value of the pound.

Now that the election is over the next question is whether the New-Boys will continue the peculiarly British tradition of bribing the electorate with high house prices, or whether they will come around to the idea that the complex mix of subsidies for home ownership and restrictions on building that make UK such a nightmare for the poor, is bad economics.

I suspect that because most mortgages in UK are ARM (i.e. linked to short-term interest rates) meant that the necessary adjustment of prices down to an economically sustainable level have been kicked down the road, and will continue to be kicked down the road. As always, it’s hard to predict how far politicians will go selling the birthright of their children to hang on to power.

6) US 10-Year and 30-Year Treasury Yields

By end 2010 the 10-year yield will be at least 5% and the 30-year will be at least 6%.

Last September I was the odd man out saying that yields would rise and they did, a bit. But by December I had started to change my mind (my January prediction was lower than most), and by February I had gone 180 degrees, just in time to be the odd-man out again.

Nowadays even Nassim Taleb has come out of the closet and broken his golden rule “I never make predictions,” and has predicted that US Treasury yields will rocket, this is what he said on February 3rd:

Every single human being should bet US Treasury bonds will decline.

Then the 10-Year was 3.7% now it’s 3.3%. I understand that Nassim has taken up a consultancy position with ACA (the people who took the long-position on the CDO cooked up by Goldman (GS)).

My logic then and now is simply that there is a demand for good quality debt (US Treasuries, suspect as they may be, are the best quality you can buy, at least in any quantity), and since the supply of non-toxic-AAA is limited, and getting more limited now that euro denominated debt is suspect, demand is likely to exceed supply … regardless of whether or not the US Treasury sells $2 trillion more in the next year.

Remember in 2007 the “shadow banks” were creating $2 trillion a year of AAA rated garbage; and the suckers were lining up around the block to buy it.

So long as pension funds and insurance companies are obliged to keep a proportion of assets in investment grade debt, the demand will still be out there. I don’t see yields going up much in the next year, although it’s hard to imagine how they can go down a lot more.

One thing that is predictable though, is that this time next year, there will still be plenty of “economic experts” going on, and on and ... on, about hyperinflation just around the corner (just like this time last year).

7) US Commercial Property

It will bottom in 2010 and the Moody’s index will be up end 2010 on end 2009.

I think that’s right; there are more funds being put together to buy distressed properties, sales are up although the banks are being allowed to practice “forbearance” so there is not much to buy. I think it’s highly unlikely the market will go down much now and that end 2010 will be (slightly) up on end 2009, but it won’t be a “bounce,” just an opportunity for anyone who knows what they are doing (i.e. didn’t get hammered by the downturn), to go back in.

8) Hong Kong Property

This is not a bubble.

Well if it was it still didn’t burst, prices went up and although I would expect prices to be muted if, as looks likely, China starts to cool down. By the way I found a great site for property prices.

9) Dubai Freehold

If you can find something Dubai property is a reasonably good investment now (if you like that sort of thing).

There is no change, although it’s harder to get a bargain than it was nine months ago, then you could buy a “standard” villa on the Palm for $1.8 million, nowadays you would be lucky to find one for less than $2.3 million.

At the more “affordable” end of the market, the increase in inventory is still keeping rents down and will do for some time, although the economy is starting to grow (albeit on two cylinders and from a low base). Still hard to find anything that doesn’t have something wrong with it.

10) Shanghai Stock Exchange

This is not a bubble, it will hit 4,000 before the end of 2010 (up 25% on end 2009), but it could be choppy.

It looks like I got that one completely wrong. Today it’s down over 20% on the end of 2009; and well I did say “choppy”, but perhaps the Big Idea about bubbles is wrong?

The SSE had a big bubble in 2007 (5,900) and it bust down to 1,728 which according to the “Big Idea” should put the “fundamental” at about 3,000 in early 2008. And if China has grown since then well it should be heading up in the direction of 4,000.

OK there are still six months to go but 4,000 looks out of the question from here, although the “Big Idea” says that unless China implodes, and the world stops buying from them, it has to head up towards that number at some point. With regard to when, well that’s what you got your risk premium for.

On reflection, perhaps the part of the Chinese economy that is represented by the SSE is not growing as fast as the official figures say it is. China is effectively two economies (a) the Special Economic Zones who are the backbone of the SSE which generate 80% of China’s exports (b) the hugely inefficient and corrupt part of the economy outside the SEZ which is the part that is (allegedly) having a housing bubble and is the part where much of the Chinese “stimulus” was directed.

The “evidence” of what happened over the past six months is that although mainland China might be booming, the SEZ are not. Which makes sense, they depend on exports, and there is no huge reason to be in an SEZ if you are selling into the mainland.

For the next six months, I think the SSE is going to do whatever the world economy does, i.e. not very exciting, particularly now that European banks have stopped lending to each other; but I don’t think it will go down much.

Article from Seekingalpha.com

The Second Debt Storm.

2010-05-15T00:07:00.004+08:00

Who will bail out the countries that bailed out the world's corporations?

SAN FRANCISCO (MarketWatch) -- The financial crisis never really went away.

The debt mountain that brought down some of the world's biggest banks and dragged the international financial system to the brink of disaster has simply shifted to governments. Now it's threatening countries around the globe -- and, if left unchecked, could rip the very fabric of Europe's economic system and wreck economic recoveries in the U.S., China and Latin America.

The impact on markets has been severe. The euro has slumped more than 12% against the dollar since the sovereign-debt crisis flared in southern Europe. Gold has marched to new highs as investors seek a safe haven and, perhaps most alarming, it is now more expensive to buy insurance against national default than it is to insure against corporate failure.

"The sovereign-debt crisis spun out of control in the past week, and we see no easy way to resolve it," said Madeline Schnapp, director of macroeconomic research at TrimTabs Investment Research.

Some investors and analysts are increasingly concerned that governments may be no more capable of repaying their debts than the banks and insurance companies they saved. And, they warn, if a major country comes close to default, it could trigger a financial meltdown that would eclipse the panic that followed the bankruptcy of Lehman Brothers in 2008.

The world has seen sovereign debt crises before. Latin America, Africa and Asia have all experienced upheavals sparked by excessive debt. These crises were all accompanied by stunted economic growth, inflation and weak stock market returns, which make it even harder to pay off debts. As investors and government officials ponder the current state of affairs, they see ominous signs that the developed world may be facing a similarly bleak future.

"The problem of the western world is that we have too much debt," said Daniel Arbess, who manages the Xerion investment strategy at Perella Weinberg Partners. "Rather than reducing our debt, we've been moving it from one balance sheet to another."

"All we're doing is shifting chairs on the deck of the Titanic," he added.

Europe's bailout

Some governments have started to respond to market pressure, with the U.K. pledging billions of pounds in spending cuts this week. Spain and Portugal also unveiled austerity measures. But the problem is so big that investors remain wary. Check out Portugal's plans.

Stock markets plunged and credit markets shuddered last week on concern Greece and other indebted European countries like Portugal and Spain might default. See the story on market impact.

"What's happened on a corporate level is now happening on a national level. The first nation to experience this is Greece, but other nations will, too," Schnapp said.

To stop Greece's debt troubles turning into a run on the euro and a global stock market rout, the European Union unveiled an unprecedented package of almost $1 trillion in emergency loans, stabilization funds and International Monetary Fund support on Sunday.

In the days that followed, the European Central Bank bought the government debt of Greece and other countries on the periphery of the region's single-currency zone, such as Portugal, Spain, Italy and Ireland, investors said. Such a drastic step has been shunned by the ECB until now. Read about the market response on Monday.

"Temporarily the crisis in terms of liquidity has been averted, but the underlying problem hasn't gone away," Schnapp added. "Giant debt and expenditures by governments are still there." TrimTabs cut its recommendation on U.S. equities to neutral from fully bullish on Sunday, in the wake of the European bailout.

Protection

The sovereign crisis has been brewing for months. For much of the financial crisis, investors worried about financial institutions defaulting, rather than sovereign nations. But that pattern has been upended.

In early February, the cost of insuring against a sovereign default in Western Europe exceeded the price of similar protection against default by North American investment-grade companies. That was the first time this had happened, according to data compiled by Markit from the credit derivatives market.

The move "symbolizes how credit risk has been transformed from corporate to sovereign risk, as the solution to the financial and economic crisis was government intervention," Hans Mikkelsen, credit strategist at Bank of America Merrill Lynch, wrote in a note to investors at the time.

Since then, the cost of insuring against sovereign default in Western Europe has climbed further, hitting a record of 169 basis points on May 7.

The European bailout pushed that down to 120 basis points on Tuesday. But that's still more expensive than default protection on North American corporate debt which cost 100 basis points on Tuesday. (In the credit derivatives market, 100 basis points means it costs $100,000 a year to buy default protection on $10 million of debt for five years).

'100%'

Market Edge: Debt Crisis Enters Second PhaseThe global debt crisis is in its second stage as governments deal with the debt absorbed from the private sector, and record gold prices have been reflecting these worries, according to SCM Advisors strategist Max Bublitz. Laura Mandaro reports.

While much of the concern has focused on Western Europe, unsustainable government debt is a global problem. And it is developed world governments that are accumulating the biggest debts, not emerging market countries -- a big change from previous sovereign crises.

"Looking beyond the immediate crisis in Europe, I am particularly worried about the next stage involving the U.S., the U.K. and Japan," Xerion's Arbess said. Debt to GDP ratios in the world's advanced economies will top 100% in 2014, 35 percentage points higher than where they stood before the financial crisis, the IMF estimated last month.

Three percentage points of this increase came from government bailouts of financial institutions, while 3.5 percentage points was from fiscal stimulus. Another four percentage points has been driven by higher interest on government debt and 9 points came from revenue lost from the global recession, according to the IMF.

"Public finances in the majority of advanced industrial countries are in a worse state today than at any time since the industrial revolution, except for wartime episodes and their immediate aftermath," Willem Buiter, chief economist at Citigroup Inc. /quotes/comstock/13*!c/quotes/nls/c (C 3.92, -0.17, -4.16%) and former member of the Bank of England's Monetary Policy Committee, wrote in a recent note on sovereign risk.

Even though the current epicenter of the crisis is focused on the euro zone, the overall fiscal position of the single currency area is stronger than that of the U.S., the U.K. and Japan, he noted.

"Unless there is a radical change of course by those in charge of fiscal policy in the U.S., Japan and the U.K., these countries' sovereigns too will, sooner (in the case of the U.K.) or later (in the case of Japan and the U.S.) be at risk of being tested by the markets," Buiter said.

Ultimately, these countries face the risk of being "denied access to new and roll-over funding, that is, of being faced with a 'sudden stop,'" he warned.

Economic drag

Once government debt levels approach 100% of GDP, things can get tricky. That's because a lot of a country's income from taxes and other sources has to be spent on interest payments.

John Brynjolfsson, chief investment officer at global macro hedge fund firm Armored Wolf LLC, illustrated the point with a simple example. With debt at 100% of GDP, interest rates at 3% and real economic growth of 3%, all the extra income collected by a country would be used to pay interest on its debt.

If a lot of government debt is owned by foreigners, like the U.S., the money leaves the country rather than being invested in more productive ways. This dents economic growth.

A study published this year by economists Carmen Reinhart and Ken Rogoff found that, over the past two centuries, government debt in excess of 90% of GDP produced economic growth of 1.7% a year on average. That was less than half the growth rate of countries with debt below 30% of GDP.

The Greeks' debts a lesson on corruption

2010-05-03T01:21:00.003+08:00

IF someone wants to get a driving licence or a building permit, all that he or she needs to do is to fill a little envelope with some money and give it to an officer to smoothen the process.

A filled envelope can work wonders: businessmen could win bids for public contracts or hire lowly paid illegal workers. Does this sound familiar? However, this isn't what goes on anywhere near home.

This is about the day-to-day life in Greece, which has slipped to the brink of bankruptcy and is now getting aid from the big brothers in the euro zone. The reason Greece has sunk so deeply into a whopping debt problem is because of its ballooning budget deficit, which is equivalent to 13.6% of its gross domestic product (GDP), although the actual ratio could be higher, according to Eurostat.

Economics textbooks tell us that a country's budget deficit will start yawning when the government spends more than it earns, that is what it collects in tax revenue. But in Greece, even the man in the street who has never studied economics knows the root cause of the debt crisis, which is roiling their country, is corruption plus cronyism.

According to the Wall Street Journal, a Transparency survey shows that last year, 13.5% of Greek households paid bribes of €1,355 (RM6,775) based on last year's exchange rate on average.

In an article titled Tragic Flaw: Graft Feeds Greek Crisis, the newspaper said ordinary citizens handed out cash-filled envelopes to get driver's licences, doctor's appointments and building permits, or to reduce their tax bills.

In the past three years, senior politicians had resigned or been investigated over allegations that included taking bribes for awarding contracts, employing illegal workers and selling overpriced bonds to public pension funds, the report noted.

Cheating the government, especially on taxes, is widespread in Greece. Government procurement bribery and political patronage have bloated the Greek government's spending, and pervasive petty bribery eroded its authority over taxpayers, the newspaper wrote.

“The core of the problem is that we don't have a culture of civic society,” Stavros Katsios, a professor at Greece's Ionian University who specialises in economic crime, was quoted by the journal as saying. “In Greece, complying with the rules is a matter of dishonour. They call you stupid if you follow the rules,” he added.

In 2007, the government was found to have sold billions of euros of overpriced complex securities to public pension funds, resulting in large loss es at the funds. The shortfalls have to be covered by the government, and that widened the budget deficit further.

Economists estimate one quarter of all taxes owed are not paid in Greece. The newspaper quoted a senior government official as saying that if an individual or company owes €10,000 in taxes, they slip €4,000 to the inspector, keep €4,000 and pay €2,000 to the Inland Revenue.

Clearly, it is a classic example of plundering the public coffers. Back home, there is mounting concern about Malaysia's budget deficit after the two stimulus packages to revive the economy. Compared to Greece, Malaysians could probably breathe a sigh of relief that the country is still a long way from where the Greeks are now.

The country's budget deficit swelled to 7.7% of last year's GDP but the ratio is expected to drop to around 5.6%. Malaysia isn't in that alarming stage at all. That said, the debt crisis in Greece should raise alarm bells about the ugly fact that there are some similarities between the situation facing the Greeks and us.

One of the differences is that Malaysians are lucky enough to have oil money to replenish almost half of the country's coffers. Imagine if we were without the oil money, would the country's deficit still be so manageable? Could the government continue running the country the way it is doing today?

At a conference organised by the Associated Chinese Chambers of Commerce and Industry of Malaysia, YTL Corp Bhd's Tan Sri Francis Yeoh told the audience that he didn't need to know the former British Prime Minister Tony Blair to win the bid for Wessex Water.

What about his experience at home? Did it contain a hint which he didn't share with the audience?

Written by Commentary by Kathy Fong (The Edge Daily)

Dow 11,000: What's The Next Move For Investors?

2010-04-25T11:38:00.000+08:00

Published 12th April, 2010.

Dow 11,000: What's the Next Move for Investors?

The Dow Jones Industrial Average closed at 11006 today – its first close above 11000 since Sept. 26, 2008. The index had flirted with the benchmark for days but still reached it at a speed that surprised many economists and analysts and left some investors scratching their heads.

On the way down, 11000 was a pivotal point for the Dow and the broader market – the moment dissecting “before Lehman” and “after.” On the way back up, many market strategists say the number has lost some of its cachet and predictive power.

Now, hitting the market milestone underscores an ongoing debate between those investors who advocate remaining in the stock market and banking on more momentum and those who warn against a pullback on the horizon.

So where do we go from here?

As usual, it depends who you ask. Some analysts caution investors against becoming overly confident and rushing into stocks. They are quick to remind all who will listen that the market often travels out of step with the economy and that Dow 11000 means little to economic fundamentals like the unemployment rate, which remains elevated, and housing prices, which remain depressed.

“It’s basically an artificial milestone that we create for ourselves,” says Karl Mills, the president and chief investment officer for Jurika Mills & Keifer, an investment advisory firm. “It really won’t mean that much other than symbolism – maybe it’ll hit 11000 and settle back.”

Others have a more upbeat perception of Dow 11000 and what it means for the long haul. “Getting back to 11000 is a clear sign of a well-advanced recovery in the market [and] a sign that we may have finally healed from the worst of the financial crisis,” says Jeffrey Kleintop, a chief market strategist for LPL Financial.

The market faces several hurdles. Its first test will be earnings season, which began unofficially today, when aluminum giant and Dow component Alcoa reported its first-quarter results after the close. (Results were in line with analysts' expectations.) Kleintop projects most companies will meet but not overly exceed earnings expectations this season by the margins that investors have priced in over the last several weeks. Although he remains bullish in the long term, he says those results could trigger a near-term pullback in equities of around 5% to 10%.

Another looming pressure on the Dow and the broader market is the suggestion of a shift in monetary policy. If Federal Reserve Chairman Ben Bernanke hints at increasing the federal funds rate, a brief market selloff may follow. The second half of the year could be particularly volatile for stocks as investors struggle to handicap the Fed’s schedule. “The recovery seems to be driven by government stimulus, both monetary and fiscal,” says Doug Roberts, chief investment strategist at Channel Capital Research. “How long does that last and how far can that take you?”

Rather than trying to second-guess broad market enthusiasm, one strategy is to look for particular sectors with more running room. Techs and industrials are drawing some attention from analysts. “There’s real growth and innovation happening in the wireless space,” says Mills, whose company's Counterpoint Select Fund is largely made up of tech holdings. “Data usage is growing each year, [and] they’re not subject to government regulation now unlike banks and health care.” Separately, industrials could continue their run as the economy continues to recover, but a lot of their success hinges on demand for exports from China, says Kleintop.

Investors looking for signals should watch the usual economic indicators but also keeps tabs on other markets. For example, the 10-year Treasury recently reached a 4% yield. Mills calls that benchmark “an indication or symptom of large amounts of debt and that this is a borrowed recovery.” He adds, “There will be a price to pay for that in the form of higher interest rates down the road, which will act as a break on U.S. economic growth.” Investors should also consider that the pace of a full domestic stock market recovery will be influenced by the global markets; should fiscal crises continue within the European Union despite a new loan package for Greece, they’ll likely hamper the growth of U.S. equities.

So how long until Dow 12000? Guesses vary widely, although many analysts put the date somewhere in 2011. Mills says he wouldn’t be shocked if the Dow hits 12000 in the second half of this year – just before another drop.

“Things tend to go further than they should,” he says. “They went too far down and probably go too far up before they correct. They will probably get ahead of themselves.”

How Lou Lucido Let AIG Lose $35 Billion With Goldman Sachs CDOs

2010-04-05T01:01:00.005+08:00

March 31 (Bloomberg) -- Joseph Cassano insisted American International Group Inc. would be fine.

The insurer had quit guaranteeing securities tied to U.S. subprime loans in 2005, before lenders got reckless, the head of AIG’s derivatives unit told investors on Dec. 5, 2007, as home prices plummeted and mortgage losses mounted.

Cassano didn’t mention Lou Lucido, 61, a guitar-playing bond buyer at TCW Group Inc. in Los Angeles with a taste for the Rolling Stones. Throughout 2006 and 2007, Lucido had been buying bundles of subprime loans for an investment pool that AIG was bound by contract to insure against failure.

In one such purchase, 11 months before Cassano, 55, reassured shareholders, Lucido’s team bought $7 million of a mostly subprime bond. They put it in a $1.5 billion fund managed by TCW called Davis Square Funding III Ltd., which was created by Goldman Sachs Group Inc. and registered in the Cayman Islands. A few months later, Lucido bought $3 million more. By May 2008, the bond was worthless.

Without having to ask AIG’s permission, firms such as TCW, hired to oversee funds called collateralized debt obligations, replaced maturing assets with junk that quickly went bad. Managers including Lucido said they didn’t realize how severe the mortgage crash would be and were called upon by CDO contracts to reinvest. At the same time, buying riskier assets could mean bigger paydays.

‘Perverse’ Incentives

“The incentive was perverse,” said Michael Lea, a finance professor at San Diego State University and former chief economist at mortgage giant Freddie Mac. “The fee structure encouraged TCW to put lower-rated bonds into CDOs over time.”

A look at the month-by-month transactions in one CDO -- Davis Square III, named for a difficult-to-navigate section of Somerville, Massachusetts, near Harvard University -- shows how collateral replacements helped drive New York-based AIG to the brink of disaster. The insurer ended up paying $616 million to make up for Davis Square III’s loss in value and more than $35 billion overall, liabilities that helped push it into insolvency in September 2008.

Lucido’s team, following criteria set by Goldman Sachs, changed almost one-third of the collateral in Davis Square III after the CDO’s creation in 2004, according to data compiled by Bloomberg from Moody’s Investors Service reports. The securities were mostly backed by the types of newer loans that are going bad at more than twice the rate of older ones. By November 2008, after U.S. taxpayers rescued AIG with a bailout that later swelled to $182.3 billion, even the highest-rated parts of Davis Square III had lost almost half their value.

‘Standards Fell’

“Mortgage underwriting standards fell so much that replacing a bunch of 2004 bonds with 2006 and 2007 bonds definitely screwed AIG,” said Thomas Adams, a former managing director at bond insurer Ambac Financial Group Inc. and now a partner at New York law firm Paykin Krieg & Adams LLP.

CDOs were at the heart of the financial crisis that sparked the highest U.S. jobless rate in a generation. They were among the largest contributors to the $1.8 trillion of losses at the world’s largest financial firms since the start of 2007, according to data compiled by Bloomberg.

The U.S. Securities and Exchange Commission is investigating how Wall Street banks bet against mortgage-linked securities to profit as their clients took losses, according to people familiar with the matter. As part of its examination of the market, the agency is looking at collateral replacement, said an SEC official with knowledge of the probe who asked not to be identified because he wasn’t authorized to comment.

Collateral Triggers

Replacing good collateral with bad helped erode Davis Square III’s value. Declines in quality added to the cash AIG had to pay to holders of its insurance because its Financial Products division, headed by Cassano, made agreements with banks that included what are called collateral triggers. That was a feature other bond insurers didn’t offer, Adams said.

The triggers kicked in when the value of the CDOs declined or if a rating company downgraded AIG’s creditworthiness. By December 2008, the insurer had paid out more than $35 billion, according to a list of collateral provided by AIG to Congress.

When the Financial Products unit agreed to guarantee certain top-rated CDO pieces, it didn’t envision that assets added later could cause losses, according to a person with knowledge of AIG’s thinking who spoke on condition of anonymity because he wasn’t authorized to comment.

As long as managers adhered to investment criteria outlined in the prospectus, there was little AIG could do, according to Mark Herr, a spokesman for the insurer. Joseph Warin, Cassano’s lawyer, declined to comment.

‘Informed Decisions’

Davis Square III’s 209-page prospectus spelled out the risks for potential investors. “Characteristics” of replacement collateral wouldn’t necessarily be the same as those of existing assets, it said.

It also spelled out Goldman Sachs’s investment guidelines, which allowed as much as half of Davis Square III to be bonds backed by subprime mortgages, given to people with bad or limited credit histories. Among other constraints, TCW needed to meet collateral ratings requirements and maintain a mix of lenders and types of debt.

Lucido and his team followed the guidelines and avoided certain types of mortgages and particular issuers as the home- loan market got dicier, he said in an interview.

“We made informed decisions based on the underwriting criteria at the time and felt we were working toward our investors’ best interests,” he said. Lucido left TCW in December to become executive vice president of DoubleLine Capital LP, a Los Angeles investment firm founded by his former boss, Jeffrey Gundlach.

Maiden Lane III

Erin Freeman, a spokeswoman for TCW, said her firm bought only collateral for Davis Square III that met the guidelines and didn’t allow Goldman Sachs to dictate what to buy. “TCW has managed these assets prudently and in the best interests of investors,” Freeman said.

By December 2008, more than 170 AIG-insured pieces of CDOs, including parts of Davis Square III, had been taken over by a U.S. taxpayer-funded asset pool called Maiden Lane III after the street where the Federal Reserve Bank of New York is located.

Goldman Sachs and TCW’s parent, Paris-based Societe Generale SA, were paid the most before and after the New York Fed reimbursed AIG’s customers in full. Societe Generale got $16.5 billion, more than any other firm. Goldman Sachs was second with $14 billion. Together they accounted for almost half of the payouts.

New York-based Goldman Sachs was the biggest underwriter of CDOs taken over by Maiden Lane III. TCW managed about twice as many CDO assets that ended up in Maiden Lane III as anyone else, according to the AIG list and data compiled by Bloomberg.

Teen Bodybuilder

Among other overseers of AIG-guaranteed CDOs were Ellington Management Group LLC’s Michael Vranos, a former teen Mr. Connecticut bodybuilder who ran the top-ranked mortgage-bond underwriter in the early 1990s, and Michael Barnes, whose Tricadia Capital Management LLC is so secretive that, when asked to discuss CDO reinvestment, said, “We as a policy do not comment on anything.”

That was the thing about CDOs, too. They were secretive. Prospectuses ran hundreds of pages yet often failed to detail a single purchase. What assets they held couldn’t be seen publicly. And they gave banks the chance to repackage risky securities and market them as safe investments, at the same time allowing firms to bet that mortgages would fail.

CDO Tranches

CDOs are investment pools made up of anything that provides a flow of cash. They can contain loans to companies used in leveraged buyouts or securities backed by commercial and residential mortgages, auto loans, credit-card receivables, even pieces of other CDOs.

Underwriters such as Goldman Sachs split CDOs into classes, or tranches, categorizing them by how likely they were to continue paying. The biggest group, called the senior classes, accounted for 93 percent of Davis Square III and got top ratings from Moody’s, according to a September 2004 Fitch Ratings analysis. In exchange for being first under the waterfall of payments, senior-class investors received less interest.

Calyon, a unit of Paris-based Credit Agricole SA, bought most of the senior portion of the CDO, which was insured by AIG. Investors in a smaller tier, known as the mezzanine, were paid a higher rate because they got money only after the senior investors did. The “mezz” pieces made up a little more than 6 percent of Davis Square III and received lower credit ratings.

Equity Stakes

The tiniest slice, less than 1 percent in the case of Davis Square III, was made up of what’s called equity, which wasn’t rated by credit companies. Equity investors were paid only after everyone else. They received a higher return while the going was good because they took the most risk and were the first ones wiped out if borrowers quit paying their mortgages.

While Lucido said he didn’t own a stake in Davis Square III, he said he did have his own money riding on the equity pieces of some CDOs. Goldman Sachs did own an equity stake in Davis Square III, according to Michael DuVally, a spokesman for the firm, who declined to say how much it was. Even so, the bank didn’t try to influence TCW’s investment decisions, DuVally said.

It didn’t have to. TCW was promised 20 percent of what was left over after equity investors got 10 percent returns, according to a Goldman Sachs sales pitch to potential equity investors dated September 2004. That was on top of its fee of 0.10 percent of the CDO’s assets, according to the prospectus.

Trickle Down

Such fees gave managers incentive to move riskier assets into CDOs because the higher returns they produced were likelier to trickle down to equity investors. That was especially true in 2006 and early 2007 when projected earnings on safer securities were dwindling, said Andrey Krakovsky, chief investment officer at New York-based asset manager Tacticus Capital LLC.

As existing collateral shrank because of mortgage prepayments, bond maturities and pay-downs, buying safer securities meant “equity investors would have gotten hammered because there wouldn’t have been enough cash flow for them,” Krakovsky said. He said managers often owned equity pieces of CDOs and earned fees linked to their returns.

Howard Hill, a former Babson Capital Management LLC executive who helped start securitization-related departments at four banks, said CDO managers had little choice but to reinvest in what he called “crappier ‘06, ‘07 production’’ because older, better-quality securities weren’t available.

Abacus Slice

Underwriting standards deteriorated in those years. Cumulative loan losses as a percentage of original balances are expected to be 18.7 percent for subprime mortgages underlying 2005 bonds, 38.4 percent for 2006 bonds and 48.1 percent for 2007 securitizations, according to Moody’s.

‘‘The managers tried their best to be able to keep the thing alive and make money,” Hill said. “The rules were written by the underwriters, weren’t they?” One of Lucido’s earliest purchases for Davis Square III was a $12 million slice of Abacus 2004-1, a CDO created by Goldman Sachs in July 2004 and filled with credit-default swaps, according to the prospectus.

The swaps were side bets that paid off if an investment failed. Goldman Sachs or its customers were essentially using Abacus as a way to short, or bet against, certain mortgage bonds. They would sell the swaps as an investment to customers who took the other side of the bet, believing the mortgage bonds would keep paying. CDOs made up of these side bets and not the actual mortgages were called synthetic CDOs.

Goldman Sachs

By 2007, Goldman Sachs had moved so many securities into Abacus 2004-1 that much of the collateral didn’t exist when the CDO was created, according to data compiled by Moody’s. While AIG insured parts of Abacus deals, Goldman Sachs didn’t change the collateral in the pieces AIG insured, DuVally said.

Other swaps that Goldman Sachs used to bet against subprime mortgages were contained in the $7 million bond that Lucido bought in January 2007, according to the prospectus. The purchase was made a month after Gundlach, TCW’s chief investment officer, told Barron’s it was “silly optimism” to think housing prices had bottomed out.

The bond was known as GSCSF 2006-3GA C after its manager, New York-based GSC Group, whose chief executive officer, Alfred C. Eckert III, was a former Goldman Sachs executive. It paid 0.90 percentage point more than another subprime-backed bond issued the same month with the same rating, according to data compiled by Bloomberg.

‘Toxic’ Resecuritizations

It offered a higher return because it was a resecuritization, a repackaging of securities that bankers used to “shuffle the deck to hide the bad ace,” according to Ann Rutledge, founding principal of R&R Consulting, a structured- finance adviser in New York. The bond was rated A2 by Moody’s, the firm’s sixth-highest rating.

Asset managers typically bought resecuritizations because of their credit ratings and didn’t bother to examine the thousands of mortgages that made up each of the hundreds of bonds in the CDO, according to Rutledge, co-author of “The Analysis of Structured Securities,” published in 2003 by Oxford University Press. “Resecuritization has always been toxic,” Rutledge said.

Between May 2005 and May 2007, Davis Square III’s ownership of pieces of other CDOs rose to 11 percent of its total assets from 8.5 percent, according to data compiled by Moody’s. Over the same period its credit ratings on investments drifted about a quarter of a grade lower, the data show.

‘Deals Go Bad’

“A lot of managers and equity investors were looking for ways to make sure these deals cash-flowed,” said James Frischling, president of NewOak Capital LLC, a New York investment and advisory firm, and former head of CDO groups at two European banks. “That really does explain why seasoned deals go bad,” he said, referring to CDOs that have been around a while.

At the same time TCW bought the GSC bond for Davis Square III, it purchased a $5 million bundle of Alt-A home loans underwritten by Goldman Sachs. Alt-A mortgages were available to borrowers who didn’t show proof of income. That security, GSAA 2007-1 M2, also quit paying, according to Moody’s.

In February and March 2007, after London-based HSBC Holdings Plc, Europe’s biggest bank, announced it was setting aside more money to cover losses on U.S. subprime mortgages, Lucido’s team bought $29.7 million of subprime bonds.

“It’s not that we’re arrogant, or that we’ve got a lot of hubris,” Lucido told the Los Angeles Times in March 2007, “but we think we’ve got the position and the talent in place to be able to analyze and manage through this period.”

Bonded Blues Band

One of TCW’s March 2007 purchases, consisting of loans originated by Option One Mortgage Corp., then a unit of H&R Block Inc., quit paying by the end of October 2008. Between April and May 2007, TCW bought another $48 million of securities for Davis Square III, including three bundles of Alt-A mortgages underwritten by New York-based Morgan Stanley. Two of those bonds have stopped paying.

The asset manager also bought a subprime-mortgage-backed bond called HASC 2007-HE2 2A4, underwritten by HSBC. It was rated Aaa by Moody’s, its top ranking. As of the end of January, 67 percent of the borrowers of mortgages backing the bond were at least two months late with payments, according to data compiled by Bloomberg.

“Unfortunately, things deteriorated in an industry way that went beyond even our worst range of forecasts,” said Lucido, who’s on the dean’s executive board at New York University’s Stern School of Business and who performed with other mortgage-securities executives in the Bonded Blues Band in the 1990s.

Stockton CDO

In June and July 2007, while two Bear Stearns Cos. hedge funds unraveled as a result of subprime-linked investments, Lucido’s team bought a $10 million piece of another mostly subprime-mortgage CDO, Stockton CDO Ltd., underwritten by Brussels-based Fortis Securities LLC. Moody’s gave it a top rating. It failed within a year.

As central banks around the world made emergency loans to financial firms in August 2007 to thaw a freeze in lending triggered by the failure of subprime mortgages, TCW continued to buy bonds backed by risky loans. From July 30 to Oct. 24, it purchased about $50 million of such bonds, according to Moody’s.

Between May 2005 and November 2008, when the New York Fed agreed to buy pieces of Davis Square III, TCW put in about $400 million of assets originated after 2004 that weren’t guaranteed by government-backed companies such as Freddie Mac.

‘Apples to Oranges’

While TCW was adding bonds made up of risky loans, its biggest mutual fund took a more ambivalent approach. TCW Total Return Bond Fund shrank its mortgage holdings not guaranteed by government-sponsored firms to 15.9 percent in July 2007 from 18.8 percent three months earlier, according to company filings.

As early as August 2006, Gundlach was preparing to act on his prediction that U.S. home prices would continue their slide. He announced that TCW was putting together a $1.5 billion fund to invest in bad mortgages. Gundlach wouldn’t comment on Davis Square III and referred questions to Lucido, who said he was hindered from talking because he no longer had access to TCW’s files.

Freeman, the TCW spokeswoman, said the bond fund, which beat 99 percent of competitors over the past five years, catered to individual investors and had different investment objectives than Davis Square III. Any comparison is “apples to oranges,” she said. She praised TCW’s performance in managing Davis Square III.

“Through the worst credit environment in our lifetimes, this CDO is still performing,” she said. “It’s still paying interest to investors, and it hasn’t had any event of default, which is a credit to TCW’s skill in security selection.”

‘High Default Risk’

The CDO’s maturity date is 2039, so any declaration of success is premature, said Rutledge of R&R Consulting. “A man who jumps off a 100-story building can pass the 98th floor and say, ‘So far, so good,’” she said.

Davis Square III continues to deteriorate as more U.S. mortgage borrowers quit paying their monthly bills. Fitch Ratings in February 2009 downgraded the safest class of Davis Square III to CCC, meaning it’s a “high default risk.”

More than $16 billion of CDOs managed by TCW have defaulted, been liquidated or stopped paying some investors, according to RBS Securities Inc.

TCW now finds itself defending Gundlach’s team at the same time it’s suing him for having “no understanding or respect for the obligations of a fiduciary,” according to a complaint filed Jan. 7 in Los Angeles Superior Court.

Sex Toys

In the suit, TCW accuses Gundlach and three other employees of stealing data on 24,000 clients and prospects, as well as proprietary trading information, to start their own firm. Lucido wasn’t named in the TCW complaint.

TCW also said in its complaint that Gundlach, a former company director, kept marijuana and “12 sexual devices, 34 hardcore pornographic magazines, 17 hardcore sexually explicit DVDs and 19 hardcore sexually explicit videocassettes” in his two offices.

Gundlach, now CEO of DoubleLine, denied the allegations that he stole client data or used proprietary information. He countersued in February, claiming TCW owed him as much as $1.25 billion in compensation.

As for the drugs, porn and sex toys, Gundlach said in an interview with Bloomberg Markets in January that they were relics from a closed chapter in his life being used by TCW to damage his reputation. “It’s ancient stuff, like a box in an attic,” he said.

Ellington, Duke

A dispute over replacement collateral landed in New York Supreme Court in 2008. Hamburg-based HSH Nordbank AG, the world’s biggest shipping financier, said in a complaint that UBS AG had been “deliberately selecting inferior quality” assets for a synthetic CDO called North Street 2002-4. Doug Morris, a spokesman for Zurich-based UBS, declined to comment.

Ellington Management, the asset-management firm founded by Vranos in Old Greenwich, Connecticut, was another manager that replaced collateral in CDOs insured by AIG. The firm bought $11.5 million of bonds backed by mortgages originated by Irvine, California-based New Century Financial Corp. at least two months after the subprime lender declared bankruptcy in April 2007, placing them in a CDO called Duke Funding VII.

About $3.4 billion of the CDOs that ended up in Maiden Lane III were managed by Ellington. Their value had fallen by $1.9 billion. Steve Bruce, a spokesman for the firm, declined to comment.

Tricadia Capital

Tricadia Capital, the asset-management affiliate of New York-based Mariner Investment Group, also managed CDOs containing collateral that didn’t exist when they were created. One was TABS 2005-4, which bundled mostly subprime mortgages and was underwritten by Morgan Stanley in January 2006. AIG guaranteed $248.8 million of the CDO, which lost almost three- quarters of its value by the time it was bought by the New York Fed for Maiden Lane III.

Tricadia told investors it might bet against bonds it put into CDOs -- even ones in which it owned equity stakes.

In AIG’s Dec. 5, 2007, presentation, Cassano said the Financial Products unit had conducted “a highly selective review” of investment managers and their incentives and didn’t expect to make any payments on the insurance it wrote on the senior classes of subprime CDOs.

“We are highly confident that we will have no realized losses on these portfolios during the life of these portfolios,” Cassano said. “Vintages within the subprime sector are key, and we do not have a lot of exposure in our portfolio to the ‘06 and ‘07 subprime issuance.’’

AIG underestimated the repercussions caused by asset managers trading collateral after CDOs were issued, said Gene Phillips, director of PF2 Securities Evaluations, an advisory firm in New York. ‘‘As it turns out, the ramifications were quite drastic,’’ Phillips said.

Will U.S. Stocks Continue to Benefit From the Expanding Euro Crisis?

2010-03-26T10:22:00.003+08:00

The euro has fallen to levels last seen in May 2009, trading as low as 133.01. A downgrade of Portugal's sovereign debt from AA to AA- by rating agency Fitch has created new weakness for the eurozone currency, as a solution to the Greek crisis still remains elusive.

The British pound, the Swiss Franc and Swedish Krona all traded down more than a percent at one point on the news. Money continues to flow out of Europe in general, not just the eurozone. This has been going on since early December. The U.S. dollar has been the beneficiary, as have U.S. stocks.

The stock rally since last March has actually had two distinct phases, although this may not be immediately obvious by looking at the charts. Both phases are connected to actions in currencies. The U.S. trade-weighted dollar sold off between March and December 2009 and U.S. stocks rallied strongly during this period.

This pattern has actually been common since the early 2000s. It makes sense because when a currency devalues, stock market caps in that currency need to rise assuming the real value of a company's assets remain unchanged. This drove the first phase of the rally. The driving force then shifted gears in December with capital fleeing Europe and looking for a home elsewhere. A lot of it wound up in dollar-based assets.

The U.S. stock market rally is not healthy, however. The recent rally has been on low volume. Trading volume in the Dow Jones actually peaked last March during the market low and has generally declined since then throughout the entire rally. It's gotten even worse lately.

Declining volume in a trend is a strong technical negative. The VIX, the volatility index for the S&P 500, has gotten as low as 16.17 - and this is very low (it reached the 90 level during the market sell off in 2008). It can go lower though and traded around 10 during the placid days of 2005 and 2006.

The current investment environment is not exactly placid however. The VIX is a contrary indicator and low values are a negative for future stock prices, although it can bottom months before the market falls apart. Moreover, it is not even clear that the VIX has hit bottom.

Precious metal investors should keep in mind that the price of gold and the euro tend to move together. This is also true of oil, but to a lesser extent. The euro has strong chart support in the 1.30 area and very strong support around 1.25, the low during the Credit Crisis.

The trend indicators on the daily chart indicate a new sell off has begun, so a fall to 1.30 is very likely. If that doesn't hold, a test of 1.25 will take place. If the 1.25 level breaks, investors should assume that another major crisis is unfolding in the global financial system and that it could be as bad as the one that occurred in the fall of 2008.

Is Shanghai Property The Next Dubai ?

2010-03-09T17:12:00.004+08:00

Stories of rapidly inflating property prices, loose credit and off-plan speculation sound only too familiar to veterans of the Dubai real estate crash, and yet this is what we hear from Shanghai these days. How long before the Chinese property bubble bursts?

Of course, it is wrong to compare a wealthy, advanced economy like Dubai with an emerging market economy like China with very low salary levels. And yet this also highlights the severity of the problem in Chinese real estate right now.

Shanghai prices.

Shanghai property is presently 50 percent more expensive than in Dubai, and yet per capita income in Dubai is up alongside American levels, and higher for most property buyers who still mainly pay in cash and not debt.

Last year real estate investment in China more than doubled to $156 billion, and residential property prices shot up 68 per cent to $450 per square foot in Shanghai. Sounds very much like Dubai in 2008, before the crash in October of that year.

The Chinese authorities have responded belatedly with restrictions on new lending to property developers and buyers. Yet the risk of withdrawing liquidity from an investment bubble is only too clear. Bubbles burst when liquidity is withdrawn.

As in Dubai, China's real estate and construction sector has become an important motor of domestic economic growth, particularly after the 16 per cent slump in exports last year which comprises around two-fifths of GDP.

It has been driving purchases of everything from cars to home furnishings and building materials. Pull out the real estate boom and Chinese economic growth is going to undergo a huge correction.

Not different this time!

They said it could not happen in Dubai but it did. Is China really going to be any different? Is this not the business cycle at work and human folly magnified by official hubris?

All emerging markets are prone to especially dramatic business cycles. It is partly due to a lack of diversification. It is partly due to a lack of past experience to temper expansion plans. It is also due to corporate and government structures that allow uncontrolled expansion until it is too late.

Is the Shanghai property boom going to end like Dubai? Sure it is. Shanghai has had several violent real estate corrections in the past decade. They all bounced back but this time could be different as the Chinese export machine is severely compromised by a weak global economy.

Source : http://www.seekingalpha.com/

Weighing the Week Ahead: Are You Scared Yet?

2010-02-16T18:33:00.005+08:00

If you find the current market action frightening, you are not alone. There is a bull market in disaster predictions, with a chorus of pundits predicting "another 2008." Sentiment indicators show increasing fear. Improvement in corporate earnings is seen as more evidence that something is wrong. After all, a market that cannot rally on good news is showing weakness.

The chart of the S&P 500 from the last year makes the case for a market that moved too far, too fast. Some see a new bearish leg -- not a correction but a major move to the old lows.

There is another perspective. Conditions are much different from the time of last March's low and also from the October, 2008, post Lehman period. A decline of ten percent or so after a big move is to be expected. Let us look at the S&P 500 with a two-year time frame.

The indicators in the two charts are the same, but the context is dramatically different. The fear from 2008 is ever with us. Patrick J. O'Hare, writing Briefing.com's regular feature, The Big Picture, summarizes it this way:

After the credit crisis of 2008/2009, which clearly presented a systemic risk few portfolios were positioned to deal with, there will be hyper-sensitivity to staying out in front of the next systemic risk.

To this point, consider for a moment how often the word "bubble" is tossed out to explain any uninterrupted rise in asset prices. Before the technology stock crash of 2000, the word "bubble" was rarely invoked in the marketplace, and when it was, it was typically used in association with an exposition on the South Sea Bubble of the early-18th century.

What there is today in the stock market is a bubble in the use of the word bubble.

That is a clever and accurate summary. He might have added that black swans are not found in herds.

Last Week's Action

Let's start with a look at the key data from last week. As usual, I am not trying to be comprehensive, nor am I taking a viewpoint. I will highlight what I found significant.

The Good

The earnings news is petering out for this season, but the general pattern of strength continues. Positive guidance is beating negative guidance by the widest margin in nearly a decade, according to Bespoke Investment Group. This is unusually good news, and eventually it will matter.

Some celebrated the weekly decline in initial claims. This reverses a couple of weeks of poor data. I disagree. The weekly series is just too noisy. Next week's data will be distorted by weather, as will next month's payroll employment data. (The payroll survey is done during the week including the 12th of the month).

The Bad.

The trade balance was a bit worse than expected and inventories a bit lower. The revisions will make the 4th quarter GDP increase lower. The revisions to the initial estimate of GDP come as we get more data. The news is not good, but neither is it some big conspiracy as some maintain.

Regular readers know that I find the University of Michigan sentiment indicator to be important and helpful. This month's reading was lower than expected, and certainly not at the bullish levels of the ISM. This is a helpful indicator for employment and job creation, so the report was bad news.

The bond auctions were weak, with long-term rates moving higher. The ten-year has moved to about 3.7% and corporate spreads have also widened. This is bad for stocks, since corporate bonds are a viable asset allocation alternative.

The news about Greece is certainly a negative. Regardless of the outcome, investors need to worry about the extent of sovereign debt problems in Europe and what it means for the U.S.

Briefly put, there was plenty of negative news.

The Ugly. Volatility! When the market makes major moves lower on little news, and seems dependent on Germany's attitude toward Greece ----- well, that is a problem.

Much of this translated into a stronger dollar. While I have demonstrated that a strong dollar is just fine for stocks in the long run, the current relationship is a strong negative correlation. The hot money sees a pattern like this and it becomes a self-fulfilling prophecy -- at least until it quits working.

The Week Ahead

My focus for next week is on Wednesday. Building permits are a good leading indicator of construction activity. (These cost money and reflect actual plans). Industrial production is also important.

I do not find the "leading" indicators to be very helpful nor am I concerned about the PPI and CPI right now. I do not expect any surprises from the Fed minutes.

The European news and the dollar will continue to be important.

Our Trading Forecast

Our own indicators (see our regular ETF updates for an explanation) continue as bearish, and that was our vote in the weekly Ticker Sense Blogger Sentiment Poll. Here is what we see:

1) Only 13% (down from 67% two weeks ago) of our ETF's have positive ratings. This is extremely weak.

2) The median strength is -22 (down from -15 last week), very negative.

3) 87% (up from 35% two weeks ago) of the sectors are in the "penalty box," showing much higher risk than in recent weeks.

4) Our Index Package has a negative rating. We own SH and DOG, the inverse ETF's for the S&P 500 and the DJIA.

A Helpful Insight

This is a good time for investors to think about long-term needs and goals. There are some simple solutions for those who are afraid of a repeat of 2008.

I had some reader questions after last week's update, wondering whether asset allocation models had triggered. Mine have not. The "correction" is still relatively small when compared to the recent gains.

We watch the asset allocation carefully for clients, and the indicators are closer to a conservative stance, but not there yet and certainly not short.

The average investor can try to do this at home. There are plenty of ideas online. You need to find a good method, continually update your indicators, avoid emotion, and execute the trades in a timely fashion. Few investors can do this, even when trying to follow a "lazy" portfolio. That is one reason why they trail the market by 4 percent a year while top advisors beat the market by solid margins.

Unless you are exceptional on these fronts, you might look for a good financial advisor. If you do, insist on someone who has personal service -- who understands your specific needs, risk tolerance and requirements. If the fees were low enough, and the stock picks were good enough, this would be better than you could do on your own. Over many years, it might be the difference between a comfortable retirement and a few more years of work.

Whatever you do, you should still pay careful attention to your investments. We no longer live in a "buy and hold" world.

Stocks Suffer Worst Drop in More than Eight Months

2010-02-05T13:54:00.003+08:00

Stocks end sharply lower, shedding up to 3% in some cases, and pushing the Dow Jones Industrial Average below 10,000 for the first time since November, though at final settle it stood at 10,002. The 270-point Dow drop is its worst showing in some nine months. Investors were reacting to European debt worries and concern the global recovery may suffer as a result. Commodities fell as the dollar gained against the euro.

Global markets tumbled on concerns about debt levels in Greece, Spain and Portugal. The euro hit a seven-month low against the dollar.

Domestically, the Labor Department triggered selling when it said unemployment claims rose 8,000 to a seasonally adjusted 480,000 last week. Economists had predicted claims would drop to 460,000. It was the fourth increase in the past five weeks, boosting claims to their highest level in two months.

The figures also raised questions about Friday's government report on jobs. It is expected to show employers added a small number of jobs but that the unemployment rate edged up to 10.1% from 10%, according to reports.

On the plus side, the Labor Department recorded a continuing increase in productivity, up by a seasonally adjusted 6.2% in Q4. Analysts had expected a 6% increase, as firms try to do more with fewer workers.

Mining and materials shares tumbled. Worries over the debt struggles of euro-zone countries Greece, Portugal and Spain fueled a flight from stocks to the safe-haven dollar, which hurt commodity prices denominated in the greenback, Reuters said

Faber Says S&P 500 May Drop 20% on Economic, Earnings Prospects

2010-02-03T00:46:00.002+08:00

The Standard & Poor’s 500 Index may retreat 20 percent from a 15-month high because stocks are expensive given prospects for economic and profit growth, Marc Faber said.

The benchmark index for U.S. stocks, which closed at 1,150.23 on Jan. 19, may fall to 920, said Faber, 63, who recommended buying stocks in March, before the biggest rally since the Great Depression. The index surged 70 percent from a 12-year low in March before dropping 5.1 percent to 1,092.17 through yesterday. The S&P 500’s price-earnings ratio had jumped to 25, the highest since 2002, data compiled by Bloomberg show.

“The market has become overbought,” Faber, who publishes the Gloom, Boom and Doom report, said in a phone interview from Switzerland. “There isn’t a meaningful improvement in the economy taking place. The economy may disappoint somewhat in the next few months. The statistics that are being published are very questionable. The economy has stabilized, but isn’t really expanding.”

Consumer spending, which accounts for about 70 percent of the economy, probably increased at a 1.8 percent annual rate in the fourth quarter after rising at a 2.8 percent pace in the previous three months, economists said before a Jan. 29 report from the Commerce Department. The jobless rate held at 10 percent in December, near a 26-year high, the Labor Department said on Jan. 8.

Not That Great

“With unemployment staying at a relatively high level and with the revenue side being weak, I don’t think that corporate profits will be that great in 2010,” Faber said. “Basically, the profits have been boosted by aggressive cost-cutting. The revenue side of corporations is weak.”

A record nine-quarter profit slump for S&P 500 companies is projected to have ended in the fourth quarter with a 73 percent increase in earnings. Sales at the 122 S&P 500 companies that have reported results for the period since Jan. 11 have increased 13 percent, Bloomberg data show.

Faber, who advised investors to buy U.S. stocks on March 9, when the S&P 500 reached its lowest level since 1996, said the gauge may end the year lower than the close on Dec. 31. The index rose 23 percent in 2009, ending the year at 1,115.10. “This year, investors will never achieve returns as high as in 2009,” he said. “Stocks are relatively high compared to the fundamentals.”

Financials, Commodities

While Faber said he cannot predict which industries will be the laggards, he highlighted weakness among financial and commodity-related companies. “Financials have already been quite weak,” Faber said. “It’s kind of a warning sign for the market. They may weaken further, especially the banks. Also commodities-related stocks could weaken somewhat as commodity prices ease.”

The S&P 500 Financials Index rallied 146 percent from a 17- year low in March before dropping 5.2 percent last week as President Barack Obama called for limiting the size and trading activities of financial institutions as a way to reduce risk- taking and prevent another financial crisis. Measures of energy and raw-materials and energy shares in the S&P 500 have retreated more than 1.5 percent in 2010.

Faber correctly predicted in May 2005 that stocks would make little headway that year. The S&P 500 gained 3 percent. He was less prescient in March 2007, when he said the S&P 500 was more likely to fall than rise because the threats of faster inflation and slower growth persisted. The S&P 500 climbed 10 percent between then and its record of 1,565.15 seven months later.

In his interview this week, Faber said that the S&P 500 may rise as high as 1,250 or 1,300 this year before declining again.

“Usually March, April are seasonally strong months,” he said. “We’ll get a rebound. In general, high-quality and large market capitalization stocks are reasonably priced considering you have zero interest-rates. As these markets go down, the high-quality, large-market-cap stocks will go down less than the smaller-cap stocks.”

--Editors: Nick Baker, Michael Regan

Greek Risk Explodes To 327 bps, All Time High As Sovereign Risk Again Front And Center

2010-01-15T19:19:00.002+08:00

Dubai - meet Greece. Apparently credit traders appreciate biblical allusions, as Greek Prime Minister George Papandreou "promised" for the third time today that all is good in the debt-stricken country, claiming there is "no way" the country would leave the euro or seek aid from the IMF.

The ECB's reponse: Greece's draft law on the restructuring of business and professional debts "could have negative impact on market liquidity." Credit's response: Greek CDS surges to an all time high of 327 bps, and the country now represents 24% of SovX risk.

Yet will Greece really be the cause of the latest bubble pop? Earlier Kyle Bass, recapping Dylan Grice's report word for word, noted the increasingly critical situation in Japan, courtesy of its demographic shift, which may soon lead to a funding crisis in the world's second largest economy.

Also note Kyle's observations on why the government is stuck in never equitizing failed financial firms: the trade off - alienating the traditional bond buyers. However, with both China and Japan becoming increasingly second-rate players in US sovereign funding, does this imply the TBTF picture is about to shift, and the next time the financial system collapses, are equities and even sub debt tranches going to be wiped out?

MAS Plans To Raise Right Issue ????????

2009-12-22T21:32:00.003+08:00

NATIONAL carrier Malaysian Airline System Bhd (MAS) plans to raise at least RM2.67 billion from a rights issue to part finance new aircraft, its chief executive said on Tuesday. MAS, controlled by state investment firm Khazanah Nasional, has placed an order for 15 A330s with Airbus, Chief Executive Officer Azmil Zahruddin told a news conference.

Airlines globally have struggled in the past year as the economic crisis sapped demand for travel and trade, and as passengers turn to discount carriers to cut costs.

“We believe this is the best time to order aircraft. The aircraft will come in time when the economy picks up,” Azmil said.

The aircraft, to be delivered from 2011 to 2016, will serve the growing markets of South Asia, China, North Asia, Australia and Middle East, he said.

The MoU signed between MAS and Airbus in Kuala Lumpur on Tuesday has given the Malaysian airline the option to purchase another 10 A330s. The total cost of the 25 aircraft is $5 billion at list prices, said a MAS statement.

Apart from the one-for-one rights offering, Azmil said the airline also plans to raise new debt to fund the purchase, which is aimed at replacing older aircraft. On a separate issue, Azmil said MAS will take over aircraft order of six undelivered A380s from state-owned Penerbangan Malaysia, for RM1.54 billion.

MAS is expected to post a net loss of RM1.2 billion in 2009, according to the estimates of 10 analysts tracked by Thomson Reuters. Prior to the new purchase orders, MAS has firm orders for 35 B737-800 planes, with an option for another 20 B737s, costing a total of $4.2 billion.

Malaysia Airlines shares were halted from trade on Tuesday pending the announcement. The stock closed at RM3.05 on Monday.

REUTERS

Gold's Blood Relatives

2009-11-16T00:27:00.001+08:00

1. "The banks are going to close! Street violence is coming!".

2. Remember those headlines going into Dow 6500? I do. I bought the Dow into those headlines. Of course, I kept up my insurance actions, removing money regularly from the financial system on a weekly basis. Nobody knew what would happen. Would the Dow make a bottom or go into an abyss with the thundering explosion of a thousand trillion dollars of OTC derivatives blowing to smithereens?

The decision was made to use fraud accounting to bury it all and attempt to print money to technically re-price assets, while actually devaluing them. That is a key concept to understand going forward as this crisis accelerates. Raising price of an item and raising the value of it are not necessarily the same thing at all times.

3. We are at a new Dow 6500 crossroads. An even bigger crossroads. This time, it is for the US Dollar. As the world's largest market, major action there brings the greatest debate and the most powerful players. While the global fear level is nowhere near as big as it was at dow6500, the dollars on the line are vastly larger.

4. Will the mighty US dollar stage a rally? Or will it melt down, possibly triggering a global paper currency crisis? Look at the indicators like MACD rolling over. This looks like the chart of an item that is preparing to crash, not rally.

5. The analysts are calling for a huge dollar rally and a stk mkt collapse are generally quite demoralized. The fundster technicians incorrectly identified the rising technical pattern in the Dow as an actual wedge, as opposed to the wedging action that is all it was.

I highlighted this repeatedly in my videos. Few listened. I kept seeing the same wedge drawn over and over. A costly error for those who bet large money on calling the Dow top with this "wedge". I would venture that the banksters kids have a joke about the fundsters with a Dow "wedgie". My bank trader friend told me his prime broker contacts told him a literal sea of fundsters were short the Dow on huge leverage at the recent Dow lows, sure they had the top. He pulled his own short positions. Dow top call number 10 zillion bites the dust.

6. The dollar could rally here. Jim Rogers says he's bought the dollar. My question to those selling commodities here to buy the dollar is alongside Jim "Mighty Man" Rogers is: Do you really think Jim Rogers is net long the dollar? Do you think he's bought more dollars than the commodities he holds as a core position?

The man opened up his bag of peanuts and he's chomping on a few US dollar peanuts. That is all that he is doing. Period. Many in the gold and fund community are already trying to eat the bag, shells and all, in a gorging on the dollar. Many of these players missed the move in gold from 905 or shorted it, and they are compounding one blown trade with another even worse set of tactics, to desperately "make back" their losses.

7. Play the dollar as an insurance trade or a simple counter trend play. Note the key word here is: Play. Not "sell all my gold at the market, it's going down!"

8. The possibility of a strong US dollar rally is very high, yes, but the odds of a dollar collapse followed by a global paper currency crisis, are even higher.

9. Remember when gold moved towards the $1000 marker, towards the neckline of the massive head and shoulders continuation pattern on the gold weekly chart? I said, "There is a 51% chance we go higher. I am long with an ultimate target of $6000 and no amount of possible gold weakness will cause me to take any action on the sell side with my gold positions".

10. When I look at the gold monthly chart, I see a stronger technical situation now than ever! Regardless of any minor trend rally (minor trends last 1-3 weeks in time), my view is the odds of a US dollar collapse are 55%. The odds of a major rally are 45%.

11. This is a time where put options on gold could be a good idea for those who are terrified of a dollar rally. You have solid profits in gold and related items, but the "will gold rise or tank" game being played out there is too much for you mentally. You could "insure" a portion of your gold portfolio for a small cost. If gold goes higher, your further gains should far outweigh the loss on the put options.

12. I personally will not be buying any put options. In fact, I'd rather buy call options here than put options if I was forced to choose one or the other. I will be buying more gold if it declines. All the way to zero in a pyramid formation. The buys growing larger as it declines.

13. There is no "gold top" and I don't care about gold 1100. It's a round number marker and I sold into it with bits of my trading position. End of story. Here's the chart. While the daily chart calls for booking modest profits, the monthly chart is on massive buy signals. Look the TRIX configuration. That is an enormous buy signal. Gold's major technical indicators are triggering buy signals, not sells.

While head and shoulders continuation pattern price targets are generally unreliable, this is one of the greatest examples of this pattern of all time. Targets of 1200-1400 are not unreasonable, just for the move from the head and shoulders. This pattern to me looks like price could soar far beyond that target. What happens now is not so important as insuring that you are in the gold rocket when it parks at moon $1400, on the way to mars $3000.

14. If a substantial decline of size were to commence in gold, well, I would suggest we are nowhere near that point yet. But if it did occur, you have to buy, not sell. We have the banksters, the fundsters, and now the Gold Topsters. My message to the topsters is this: Stop picking your gold nose. Or you will arrive at gold moon 1400 with bits of gold, if any.

15. My suggestion to those looking for real world tactics to manage your emotions and money on the gold rocket right now if you are feeling overwhelmed by both bull and bear pulls, is to focus on what I term "Gold's Blood Relatives".

16. I spoke about corn at length over the week-end. I don't view corn as better than oil or wheat, but I like to talk about one thing at a time so investors understand it, rather than just blabbing, 'oh yeah, corn is the big one, go go go!"

But you tell me, what makes more sense, a madman play to load up on dollars when there is a 55% chance of a global paper currency crisis, or to buy items like corn, one of the world's lowest risk investments, with a near-infinitely smaller chance of going off the board than the dollar? To repeat, I don't favour corn over any other gold-related item. Notice the Bloomberg headline that came out yesterday, right after my write ups. That Bloomberg story shows a stunning picture of what is going on in the Chinese corn market.

17. About 55% of all farms in China are about 3 acres in size. Or less. The six dollar a bushel marker is the corn market line in the sand. If Chinese farmers get less than $6 a bushel, the revenues needed to survive on a farm that is less than 3 acres in size just don't exist at less than 6 dollars a bushel. Chinese farming is not about profit margins. It's about revenues. The Gman is subsidizing the farmers, because the farmers are pouring out of the farms and into the cities.

18. Jim Rogers himself has stated while he doesn't think it will happen, he is clear that the risk is very real: water shortages could lay an unimaginable beating on the industrial revolution in China. No water equals: Starvation. The world bank notes the following about China:

o With 20% of the world's population but only 7% of global water resources, China meets with a severe challenge.

o More than half of China's 660 cities suffer from water shortages, affecting 160 million people.

o The per capita water volume in China is one fourth of the world average.

o 90% of cities' groundwater and 75% of rivers and lakes are polluted.

o As a result of widespread water pollution, 700 million people drink contaminated water every day.

19. Some cyclical forecasters believe an actual "dust bowl" type of event could occur in the 2011-2012 period. My suggestion is: If you are feeling like you can't go on in the gold market at this point in time, rather than trying to be king of the dollar bugs, simply shave off a FEW gold profits, and grab a nice piece of corn on the price weakness cob. Take a bite out of that, not US dollars, to kill your thoughts of gold suicide.

20. If gold goes to $3000, where will the dollar be? Focus on Gold's blood family, not gold's enemies. I would suggest you also consider the "cost of farming floor" with agricultural items like corn. It's not impenetrable by any means, but there is a price point below which the farmer throws in the towel. The odds of price going below there and staying there are small, never mind the odds of it going to a real price of zero.

The deflationists haven't factored starvation into their pipedream. There is much more Deflation of value coming to the world's economy, but there will be Inflation of Price. Earth to price deflationists on Mars: There can't be any deflation of price because we'll all starve to death. The global farming industry will collapse and we'll all die. The gold relatives advice applies to gold price chasers as well. Some have the thought, "I'm missing out, I just gotta buy, gold will be at 1200 and I'll have too little!"

If gold soars higher, do you think items like oil, food, and other hardcore commodities are going to tank? Not likely. But you can buy them without the adrenaline gusher that is present in the gold market right now. "I don't buy anything that just went to an all-time high" -Jim Rogers. Maybe you are smarter than he is. I doubt it. There are many items, like food and energy that are trading at low prices.

21. My most important point today is this: Many gold stocks haven't joined bullion yet. Those that have risen have done so modestly in most cases. Do not dump them to chase the bullion rocket. That borders on insanity. Gold stocks should be bought aggressively into any and all weakness. If you think you are missing out on bullion now, magnify that by 100, and you'll have the picture of how twisted your emotions will be when the gold stocks join the party and you sold out to chase a $100 move in bullion.

22. The Dow is beginning to hyperinflate, as major institutional players sense a US dollar meltdown is very near at hand. Rising bullion prices coupled with a soaring Dow put you, the gold stock owner, in what I term "The Ultimate Driver's Seat". There is no better place to be invested right here, right now. My suggestion is you scan the gold stocks horizon and buy what you can that is weak.

Don't walk to those stocks. Run. Notice I said "hurry". Not: "back up the truck". You don't need much fuel in a toy rocket to shoot it 500 feet in the air. That is the gold stocks market. But do not waste time. Time is of the essence. The gold juniors rocket is on the launchpad in a situation in time that I would term as about like where gold bullion was at $960 as it moved towards the triangle breakout.

23. The pros are moving onto the gold stocks rocket and preparing for liftoff, while the gold topsters are jumping out of the rocket onto the US dollar cement below. The banksters are transporting their broken bodies to the US dollar oven and preparing for final roasting. Do I have a few longside US dollar peanuts in my bag like Jim Rogers does? Sure I do. I've bought the dollar into this weakness.

With the peanut capital it deserves. So far, while I've banged about 10 or 15 USD pucks into the net on strength out of the hole from the recent low, overall it tastes like bits of USD shell mixed with USD peanuts. Those who sell gold stock in major size here and buy the dollar in size, are going to find they have a mouth full, not of shells, but of poison. It will be a mouthful far worse than the poisoning they got shorting the Dow into 6500. Gold's blood relatives versus USD paper bills in the oven. Not such a tough choice. Is it?

Stewart Thomson November 12, 2009

US Stocks Close Sharply Lower; DJIA Ends Month Flat

2009-10-31T07:40:00.001+08:00

NEW YORK (MarketWatch) -- U.S. stocks tumbled Friday, with Bank of America, JPMorgan Chase and Alcoa leading the Dow Jones Industrial Average's components lower as investors again grew concerned about the economy after the short-lived excitement over Thursday's good report on gross domestic product.

The Dow Friday posted its biggest one-day point drop since April 20, and ended October just 0.45 point above where it began. Other major measures, including the Standard & Poor's 500 and the Nasdaq Composite, ended the month in the red, marking their first monthly declines since February.

The Dow closed down 249.85 points, or 2.51%, at 9712.73, marking its 10th triple-digit movement this month. Five of them were down and five up, reflecting how volatile the market has gotten as investors try to get a handle on whether the 48% surge in the Dow since March can be justified by economic fundamentals. For the week, the Dow fell 259.45 points, or 2.6%, marking its second consecutive week in the red.

Among the Dow's big movers Friday, Bank of America tumbled 1.15, or 7.3%, to 14.58, while JPMorgan slid 2.58, or 5.8%, to 41.77, and Alcoa dropped 58 cents, or 4.5%, to 12.42.

Across other measures, the Nasdaq Composite fell 52.44, or 2.50%, to 2045.11. It was down 5.08% for the week, and 3.65% for the month.

The Standard & Poor's 500 dropped 29.93, or 2.81%, to 1036.18. For the week, it dropped 4.02%; it was down 1.98% for the month.

Friday's declines come as the latest measure of consumer spending came in weak, reflecting the biggest drop since December 2008, although it was in line with economists' expectations.

Still, investors are growing hungry for economic data to start showing improvement and strength, rather than simply being above or in line with expectations. In addition, they are starting to wonder how much of the economic growth that was reported Thursday would have been there if it weren't for all the government support through such programs as the "cash for clunkers" funding for automobile purchases.

Nonetheless, some market participants said Friday's decline was typical of a market in recovery, and therefore no major cause for concern.

"It's not unprecedented after having such a strong rally," said Mary Ann Bartels, head of U.S. technical and market analysis at Bank of America Merrill Lynch. "Markets need to consolidate in order to achieve new recovery highs, and a correction will broaden out the base-building process we've been in since last year," giving stocks more support for a move higher, she said.

Life insurers fell in an exaggeration of the declines across the market, as the sector is exposed to equities through its variable-annuity guarantees and other equity-linked retirement-income products. MetLife was among the decliners, slumping 2.81, or 7.6%, to 34.03, after it swung to a third-quarter loss on $1.4 billion in investment losses. The life insurer's stock had climbed 7.8% Wednesday ahead of the report.

McAfee declined 1.87, or 4.3%, to 41.88, after the security-software company said its third-quarter profit fell 25% as higher costs led to lower margins.

Stereo maker Harman International Industries was a bright spot, surging 4.61, or 14%, to 37.61, after the company reported fiscal first-quarter sales above Street expectations. The company said its markets are stabilizing and it is gaining market share.

Estee Lauder also rose, climbing 1.36, or 3.3%, to 42.50, after its fiscal first-quarter profit more than doubled as the beauty-products company posted higher earnings across all of its businesses. Goldman Sachs raised its investment rating on the stock to neutral from conviction sell.

ITT fell 3.66, or 6.7%, to 50.70, after the defense and industrial conglomerate reported a 73% drop in third-quarter profit, stemming from a $131 million charge for asbestos-liability claims.

Cummins was down 2.86, or 6.2%, to 43.06, after the engine maker reported its third-quarter earnings fell 59% from last year's record results as it struggles in the face of weak North American and European trucking and construction markets.

Beckman Coulter fell 2.73, or 4.1%, to 64.33. The maker of biomedical instrument systems and test equipment posted a 94% plunge in third-quarter earnings as restructuring and acquisition costs masked higher sales and margins.

Universal Health Services' latest quarterly earnings beat analysts' expectations, but its shares fell 5.07, or 8.4%, to 55.65, as investors focused on the hospital operator's growing bad debt, which climbed more than analysts had been expecting. The news weighed on Tenet Healthcare, which fell 37 cents, or 6.7%, to 5.12.

With Dow Near 10,000, Stocks Might Get Stuck

2009-10-15T01:20:00.004+08:00

Some strategists say sell-off might be in the cards.

NEW YORK (MarketWatch) -- With the Dow Jones Industrial Average fast approaching the 10,000 mark, more than a year after plummeting through it near the height of the financial crisis, market strategists believe passing the magic level convincingly might prove a sticky affair.

The blue-chip average holds a special place for the public. Reaching that level might therefore help soothe some of the trauma experienced when investors saw the Dow industrials sink more than 500 points on Oct. 7, 2008 -- the last day it traded above the 10,000 level.

"10,000 is such a big number," said Darin Newsom, senior analyst at Telvent DTN. "Reaching it the first time was a big deal and falling through it was a big deal."

But cheery media headlines and sighs of relief that 401ks have regained some ground might not be enough for the market, at least in the near term.

"For the market right now, it brings up the question of whether we're running out of gas," Newsom said. "Are we sizing up for a possible sell-off? These are some of the ramifications as we test this level."

Newsom thinks the Dow might be making a "last gasp" run at 10,000 for this year, as the market tends to reach highs in October. And reaching the number will raise questions as to what justifies further gains after the Dow's more-than-50% rally from its 2009 lows reached in March.

Overhead supply

"Being back closer to where we were before the disaster might signal it's time to get more cautious," said Marc Pado, market strategist at Cantor Fitzgerald.

A number of analysts, including Pado, believe the market is likely to run into so-called overhead supply below and above Dow 10,000. Overhead supply consists of a pool of willing sellers who had bought the market just before it went down and are keen to break even.

"The higher we go from here, the more supply we have," the analyst said.

The market has already shown signs of hesitations whenever the Dow has traded above 9,900. On Tuesday, the Dow industrials fell back 14.74 points, or 0.2%, to 9,871.06. The S&P 500 Index dropped 3 points, or 0.3%, at 1,073.18, while the Nasdaq Composite Index rose 0.75 points to 2,139.89.

Should the Dow break through 10,000 and hold above the mark against selling efforts, the level could then become support. Cantor's Pado still thinks the Dow will reach his price target of 10,500 before the end of the year. But not before a 7-10% sell-off in the market in the near term.

"We can continue to push higher but if companies reporting earnings only meet expectations, people will be disappointed and the 10,000 level will be the perfect excuse [for a sell-off]," he said.

Psychological factor

Retail investors have remained largely cautious since the March rally and Dow 10,000 might eventually do some work at restoring a certain level of confidence in the market, said Donald Selkin, chief market strategist at National Securities.

"Whenever it's a round number like that it's psychological," Selkin said. "A decisive break above that level, which would then be acting as a support on the downside, would in turn help investor psychology."

Selkin, however, also thinks that the market will first sell off upon reaching the level.

"We've been rallying into earnings and have had a relentless run to higher levels," he said. "We're very overbought."

Gold Taps Fresh Record Above $1,060

2009-10-09T02:00:00.001+08:00

NEW YORK (MarketWatch) -- Gold futures climbed above $1,060 an ounce Thursday, marking a fresh record high for the third session in a row, as investment demand continued to rise and as the dollar weakened once more.

The gains appear likely to push the winning streak for the precious metal to five. Holdings in the SPDR Gold Trust, the biggest exchange-traded fund backed by physical gold, rose for a fourth straight session, reaching the highest level in three months.

Fostering the gains in gold, the dollar gave ground in currency trading, under renewed pressure as the European Central Bank and the Bank of England made no changes in their respective interest-rate policies.

Gold for October delivery rose as high as $1,060.40 an ounce, the loftiest level ever for a front-month contract. It was last up $16.30, or 1.6%, to stand at $1,059.60 on the Comex division of the New York Mercantile Exchange.

Gold for December delivery, the most actively traded contract, was up $14.40, or 1.4%, at $1,058.80 an ounce, modestly off its intraday high of $1,062.70.

"New records each day, as higher volume, higher moving averages, higher open interest and huge ETF demand from investors continue," said George Gero, a precious-metals trader for RBC Capital Markets. "ECB and BOE left rates at lows, cheap rates make it easy to hold gold for investors as they prepare for possible future inflation."

SPDR Gold Trust holdings reached 1,109.31 metric tons on Wednesday, up 8.8 metric tons from a day earlier. That's the highest level since July 13. "The fact that the gold price broke through the old high of March 2008 is obviously attracting financial investors to the gold market," said analysts at Commerzbank in a note.

If demand for gold ETFs continues to rise, "a further gold-price increase has to be expected, especially as short-term oriented market participants are likely to be jumping on the bandwagon."

'Top heavy' in the short term?

Some analysts questioned whether the rally in gold could continue, however. Christopher Ecclestone, mining strategist at Global Hunter Securities, said gold's strength was "like a feather being pushed up by the lightest of breezes. There is no substance to the rise."

Indeed, gold's performance in the euro, the British pound and other currencies has been lackluster compared to its rise in U.S. dollars, a trend suggesting that investors are more interested in bullion as a hedge against the greenback than global inflation. "The short-term outlook is again beginning to look top-heavy with gold vulnerable to a correction should the dollar recover," said James Moore, analyst at TheBullionDesk.com.

In foreign-exchange trading, the dollar index moved down 0.4% to 76.191, leaving the benchmark just slightly higher than the one-year low hit about two weeks ago. A weaker dollar typically pushes up dollar-denominated commodities prices. The European Central Bank, which sets monetary policy for the 16 nations that use the euro, left its key lending rate unchanged at a record low of 1%. The Bank of England did likewise, its key lending rate unchanged at a record-low 0.5%.

For now, "gold prices continue to trend higher, driven by the same factors as in previous days -- a weaker [U.S. dollar] and still-low bond yields," analysts at Credit Suisse wrote in a note to clients issued Thursday.

Also in metals trading, December silver futures rose 17 cents, or 1%, to $17.67 an ounce. October platinum gained $8.80, or 0.7%, to $1,329.30 an ounce, and December palladium rose $4.95, or 1.6%, to $319 an ounce. December copper added 8.85 cents to $2.868 a pound, a 3.2% advance.

Is October Correction Inevitable For The Dow Jones ?

2009-10-02T01:25:00.000+08:00

In order to predict the future, one must consider the past and research similar market cycles to come up with a probable forecast for the future. After studying comparable periods to the one we are experiencing today, investors will realize that an October correction is not likely.

Consider the following:

We have not yet recovered fully from 2008. The market rebound after the crash of 1987 did not see a correction of 10% until 1990, which is more than two years later. Moreover, that correction was after "only" a 35% drop from top to bottom. At present, we are only six months removed from a 55% drop in the market.

October may be a negative month, but it's usually more in the range of 3% to 5%. The Octobers of 2008 and 1987 were the two biggest October sell-offs of the last 30 years, but each was preceded by a negative September. This year, September was positive.

During past October sell-offs, the month didn't represent the first wave of the attack. May and June often paved the way. October then stepped up to wipe out the survivors who believed the worst was over. Again, we did not see major selloffs in May or in June. In fact, this past June marked the fourth consecutive month of gains.

If we do sink lower in October, the catalyst can easily be the lack of top-line growth in earnings reports. However, if top-line growth is present, it can be another factor driving the market up in October.

To play devil's advocate, I must point out that six months after the market bottomed in 1987, the market was 21% higher. After the 2002 bottom, it was 24% higher. Today, we are 58% higher than we were in March. This is a significant jump.

To prepare investments for October, consider diversifying with a prudent amount of truly non-correlated asset classes like Treasury Inflation-Protected Securities (TIPS), commodities such as precious metals, managed futures and inverse funds.

If you have already pulled significant assets out of the market and are sitting on the sidelines, get back in but not all at once. Dollar-cost-average back into a diversified portfolio in order to avoid buying in on the worst day of the year, and consider tactical asset allocation programs for a small percentage of your portfolio.

On the fixed income side, TIPS is a good way to get some income and inflation protection. The Fidelity Floating Rate Bond Fund still looks attractive. Blackrock Global Allocation is a wonderful fund with multiple asset classes.

For equities, Tom Soviero and some of the rest of the folks over at Fidelity Leveraged Company Stock Fund, are some of the best in the business, as is the team running the Kinetics Paradigm Fund.

In conclusion, it is inevitable that a correction will occur in the market at some point, but research shows that an October correction is unlikely. A 3% to 5% pullback is conceivable for October, but do not prepare investments for a major selloff. You will regret it.

Selamat Hari Raya - Salam Aidilfitri.

2009-09-20T11:54:00.001+08:00

May this year celebrating will be the Best Of All.

Gold Futures Advance on Inflation-Hedge Demand; Silver Gains

2009-09-16T19:20:00.000+08:00

Sept. 15 (Bloomberg) -- Gold rose, closing above $1,000 an ounce for the third straight session, as commodities climbed on demand for a hedge against inflation. Silver also gained.

Federal Reserve Chairman Ben S. Bernanke said the worst U.S. recession since the 1930s has probably ended, while warning that growth may not be strong enough to reduce unemployment quickly. The Fed has kept its benchmark lending rate as low as zero since December. It authorized $1.45 trillion in purchases of mortgage-backed securities and other housing debt this year.

“The market believes that the Fed is not going to be able to withdraw the funds fast enough and that would cause inflation,” said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois. “I don’t believe that for a minute, but this is what the market believes.”

Gold futures for December delivery gained $5.20, or 0.5 percent, to $1,006.30 an ounce on the Comex division of the New York Mercantile Exchange. On Sept. 11, the metal reached a record closing price of $1,006.40.

The price for immediate delivery gained $6.63, or 0.7 percent, to $1,006.93 at 2:54 p.m. New York time. Eighteen of 19 raw materials in the Reuters/Jefferies CRB Index rose today, led by a record surge in corn.

“The debate on gold’s price prospects remains alive and well among both fundamentals-followers and technicians poring over charts,” Jon Nadler, a Kitco Inc. senior analyst in Montreal, said in a note.

The dollar fell against a basket of six major currencies, extending a slide to the lowest in 11 months. Gold futures have rallied 28 percent since the demise of Lehman Brothers Holdings Inc. a year ago as investors bought precious metals to protect their wealth amid the first global recession since World War II.

Possible ‘Reversal’

“Charts indicate that if the $1,050 level is not attained during the current ‘break-out’ or if a double or triple top is confirmed under that same level, then gold could signal a reversal such as the ones that occur on average about every six years,” Nadler said.

Futures reached an 18-month high of $1,013.70 on Sept. 11. Gold may climb to as high as $1,100 in the next six months, researcher GFMS Ltd. said yesterday.

Sales at U.S. retailers in August surged 2.7 percent, the most in three years, from July, government data showed today.

“Gold is continuing to knock on the $1,000 door without making a concerted effort either way to test resistance or support,” GoldCore Ltd., a brokerage in Dublin, said in a note. “Gold needs to push above $1,012 in the short term and $1,020 in the longer term for the upward momentum to be regained.”

Net Longs

Hedge-fund managers and other large speculators increased their bets on rising New York gold futures to a record in the week ended Sept. 8, the U.S. Commodity Futures Trading Commission said last week. Net-long positions jumped 22 percent to a 224,676 contracts, the biggest increase this year.

Silver futures for December delivery in New York rose 37.7 cents, or 2.3 percent, to $17 an ounce. The price has gained 51 percent this year.

Platinum futures for October delivery was little changed at $1,320.30 an ounce on the Nymex. Palladium futures for December delivery gained 0.2 percent to $296.25 an ounce.

Stocks Bull Market Signals September Opportunity for the Bears

2009-09-01T01:38:00.000+08:00

Dear Reader

The Stocks bull market continued to forge ahead with the Dow closing at 9544, after hitting a high of 9630 during the week, which is a stones throw from the target of 9,750, having advanced 3,280 points and more than 50% in less than 6 months, now it will be interesting to see how the market behaves as it enters the target zone for the termination of this phase of the bull run of between 9750 to 10,000, as my analysis of 5 weeks ago (updated this week) called for a more significant correction to follow than that which transpired during June to July, perhaps just about the time when many of the public bears throw in the towel and the not so smart money starts to pile in as greed replaces fear?

The perma bears having missed the whole bull market as each minor dip was THE end of the mistakenly labeled "bear market rally" for the rules are clear, pick up any reputable technical analysis book and you will read that a bull market is confirmed when an stock indices rallies by 20%, similarly a bear market is confirmed when an indices falls by 20% from a high, therefore regardless of the perma views of this being a bear market rally, whilst under the basis of technical analysis this rally has long since been confirmed as a bull market more than 30% ago! So much for the claims of following the basic tenants of Dow theory!

The stock market's powerful advance of 50%+ may soon give an opportunity for the perma bears to crow loudly as the market heads into the seasonally weakest period of the year i.e. Sept to October, especially as an technically overbought rally is well primed to achieve the anticipated 'significant' correction, perhaps even a crashette, where readers need to remember that the bull market would still remain intact as long as the Dow does not fall by more than 20% from the peak.

Rules exist for a reason, and that is to arrive at a FIRM TRADEABLE CONCLUSION, rather the deluded fixation that is indicative of a perma attitude that are perpetually fixated to one side regardless of the actual price action i.e. the whole rally has been supported by the crash is coming mantra for the past 6 months! A totally useless repetitive statement when it comes to the monetizing of analysis. There is no point in catching a say 15% drop if one fought against the 50% rally, as the net position is still for a 35% LOSS!

The target for the rally from 6470 has been for a move to 9750 to 10,000, at this point in time I continue to favour a price slightly north of 10,000 which would be enough to sucker early bears into losing positions, and as I voiced in this weeks update, the market's strong advance now points to an earlier peak.

Meanwhile the US Dollar continued to play out a double bottom pattern which is potentially bearish for gold, which in itself has traded in a tightening range that is likely to resolve soon, which again perma gold bugs hope will be to the upside though as my dollar analysis suggests it is more probably likely to be to the down side. I will cover Gold's probable trend in an in depth analysis next week as the existing analysis / forecast of January 2009 has expired.

On the topic of stock market plunges, Robert Prechter's latest 10 page Elliott Wave Theorist Newsletter, within which he states that the financial crisis is NOT over and gives a warning he's never had to include in 30 years of analysis.

Its Free, so grab it while you can !

Your stock index trading analyst.

By Nadeem Walayat

China To Maintain Stimulus As Economy Faces Fresh Woes.

2009-08-25T10:35:00.000+08:00

BEIJING: China's top economic official cautioned that the country faces possible new problems and said Beijing will continue its stimulus policies because a recovery still lacks a solid foundation, according to comments reported yesterday.

Premier Wen Jiabao warned against being "blindly optimistic" despite improvements in economic growth, according to a report on the Cabinet's website.

"Economic operation still faces many new difficulties and problems," Wen was quoted as saying during a visit to southeastern China that ended yesterday.

He cautioned that the effects of some government measures might fade while others would take time to show results, the statement said. It gave no other details of potential problems.

Wen said Beijing will stick to policies meant to boost domestic demand, maintain easy credit and promote efficiency, the statement said. The government is in the midst of a two-year, 4 trillion yuan (100 yuan = RM52) stimulus that is meant to insulate China from the global downturn by boosting domestic consumption.

A drop in new yuan bank loans in July to 356 billion yuan, compared with an average of over 1.2 trillion yuan in each of the first six months of the year, has created worries among some analysts that the recent rebound in growth could be knocked off track.

Wen's comments echoed his repeated recent warnings against complacency and assurances that Beijing's stimulus spending and easy credit would continue. But they clashed with increasing optimism among financial analysts who say China is emerging from its economic slump.

China's economic growth accelerated in the latest quarter amid Beijing's huge stimulus spending but authorities have called for continued vigilance. They say weak corporate profits and other areas show a recovery is not fully established.

"The foundation of the economic recovery is not stable, not firm and not balanced, and we certainly cannot be blindly optimistic," Wen said during his visit to Zhejiang province south of Shanghai, according to the statement. - AP, Reuter

Market Outlook - Kaladher Govindan. FBM KLCI Ripe For Correction

2009-08-17T10:53:00.000+08:00

Lower liner steel and construction-related stocks Sino Huaan, Kinsteel, Perwaja, MRCB, Ranhill and UEM Land remain top technical picks to out-perform the broader market.

RESURGENT rotational buying of lower liners and better-than-expected economic data from US, Europe and Asia managed to lift the local stock market and the FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) for a fifth straight week of gains to track a 13-month high.

Plantation stocks led the way as investors increased their bet that commodities will see a revival in demand with the eurozone registering better-than-expected gross domestic product growth in the second quarter and China's resilient retail sales expansion of 15.2 per cent in July.

For the week, the FBM KLCI rose 3.69 points, or 0.3 per cent, to end at 1,188.57. Gains in IOI Corp (+3.42 points for the FBM KLCI), Sime Darby (+2.39), and KLK (+2.38) were offset by losses in Maybank (-4.23) and Genting Bhd (-1.47). Average daily traded volume and value recovered to 1.07 billion shares worth RM1.58 billion respectively, compared with 961.3 million shares and RM1.54 billion in the previous week.

Global market trends played a crucial role again in the FBM KLCI's movement last week. After reacting positively to the US market's performance on Monday, the FBM KLCI went into a sharper correction on Wednesday when worries about earnings surfaced after China warned about a slow recovery in its exports. Although the 23 per cent contraction in China's exports for July met consensus expectation, it was higher than June's contraction of 21.4 per cent,thus the worry that domestic expansion may not rise fast enough to absorb the impact of slower recovery in exports.

News of better-than-expected economic growth in Germany and France helped to breathe fresh life into the markets on Thursday that helped US equities to recoup early losses as an unexpected dip in the advance retail sales figure rekindled worries about the US economy. The Malaysian market reacted in tandem and rose close to the expected 1,200 resistance on Friday but closed lower ahead of the weekend.

From a fundamental viewpoint, trading at 16.4x CY10 PER, the FBM KLCI is more expensive than the benchmark indices of Singapore (14.8x), Indonesia (13x), Thailand (10.5x), South Korea (10.5x) and Hong Kong (15.1x), which explains in part the less vibrant foreign activities and more dominant participation of locals. Thus, the fact that the FBM KLCI has outperformed only the Nikkei and has underperformed the rest of the region in terms of year-to-date gain should not necessarily translate into an attraction unless earnings improve.

Until then, we should see more visible signs of a two-tier market where other big- and medium-cap plays playing catch-up with stocks listed in the benchmark index. While a minor setback in the benchmark index is expected this week, there are still buying opportunities.

It is heartening to see that big-cap plays like Commerce, AMMB and Air Asia reported better-than-expected earnings in the ongoing second-quarter 2009 results season. While Commerce is a "sell" as the share price has already fully factored in the earnings surprise, AMMB (Buy, Target Price: RM5.00) and Air Asia (Buy, RM2.20) are undervalued and worth buying.

AMMB not only has registered healthy loan growth and gained market share in deposits, it also has shown a steady improvement in containing costs after its solid partnership with ANZ Bank.

Despite a gloomy outlook for the airline industry caused by the spread of the influenza A H1N1virus, Air Asia has shown a strong load factor of 72 per cent as it steals customers from full-service airlines with its attractive promotions. Valuation wise, it is trading at a single digit FY10 PER of 4.6x only and appears attractive compared to rivals like Virgin Blue, Ryan Air and EasyJet.

Talking about A H1N1, expect this to be the single largest risk factor in the immediate term. The disruptions it causes to business will be great as the number multiplies and the private sector seems oblivious to the fact. Traders and pharmacies are seizing the opportunity to rake huge profits as face masks are in short supply. Some are even selling a piece for RM7 in Klang Valley claiming it to be of superior quality. The government has to ensure adequate supply of such items and take stern action against suppliers who hoard them. Corporations can view it as part of their Corporate Social Responsibility to supply free face masks to their employees.

Technical outlook

Shares on Bursa Malaysia managed to extend mild gains on Monday, helped by the less severe US jobless rate and a surge in Hong Kong stocks to an 11-month high. On the next day, as blue chips extended their profit-taking consolidation, cheap lower liners staged a strong comeback on resurgent rotational buying interest, highlighted by sharp rallies in lower liner rubber glove makers given the deteriorating health situation due to the H1N1 virus.

On Wednesday, stocks suffered a profit-taking correction triggered by sharp falls in the region led by Hong Kong and Shanghai after the mainland's ministry of commerce said efforts to boost domestic demand could not offset a huge export slump. The FBM KLCI subsequently fell to intra-week low of 1,178.51

However, stocks rebounded the next day in line with regional equities after the US central bank kept interest rates at record lows and said the recession is easing. The profit-taking consolidation extended ahead of the weekend, but the KLCI managed to rise to a 13-month high of 1,196.46 before settling last Friday at 1,188.57.

The daily slow stochastics indicator for the KLCI has dipped to the neutral region following last week's sell signal at the overbought region (Chart 1), but the weekly indicator continued to claw higher into the overbought zone. The 14-day and 14-week Relative Strength Index (RSI) momentum indicators remained in overbought territory with a reading of 74.58 and 76.63 respectively.

Meantime, the daily Moving Average Convergence Divergence (MACD) trend indicator is in bearish mode following last Monday's sell signal, but the weekly MACD indicator continued its upward expansion. The 14-day Directional Movement Index (DMI) trend indicator is still in bullish trending mode, with a higher reading on the ADX line of 56.54 as of last Friday.

Conclusion

The lower-than-expected US consumer confidence data and sharp fall in commodity prices last Friday due to concern the steep five-month recovery since March has lifted share prices to become overpriced should spark profit-taking correction in the region early this week. Nonetheless, expect the profit-taking correction to be shallow given that most investors would have sold on rally the previous few weeks, and are looking to buy back upon a more significant correction. Core blue chips are expected to consolidate while buying interest shifts towards lower liners on active rotational plays.

On blue chips, investors should buy on dip defensive gaming stocks Genting Bhd and Genting Malaysia given that the H1N1 virus scare has pressured share prices down to more bargain levels. Lower liner steel and construction-related stocks Sino Huaan, Kinsteel, Perwaja, MRCB, Ranhill and UEM Land remain top technical picks to out-perform the broader market. Also buy on dip Kencana and Wah Seong, while buy DNP, Hovid, Leader and RCE Capital on any profit-taking dips.

As for the KLCI, immediate support upon correction is set at 1,180, with 1,171, then 1,164 and 1,156 acting as stronger support platforms. On the upside, the significant upside hurdle will be at the 1,200 psychological level, which requires a bullish breakout to aid further upside towards 1,220, and then 1,248, which represents the 61.8 per cent FR of the fall from 1,525 all-time high to 801 pivot low, acting as a major resistance.

Malaysian Stocks Overvalued: OSK

2009-08-04T16:54:00.000+08:00

Malaysian stocks, trading near a one-year high, face the risk of an “Edwardian Summer” that may end with a “crash” as shares are overvalued amid shrinking earnings, according to OSK Research Sdn Bhd.

“As with any Edwardian Summer, the longer it lasts, the more out of touch it gets with its fundamentals, and the greater the crash at the end,” OSK said in a report today. “The market is definitely overvalued.”

Investors should sell “into strength” and buy selected shares such as property developer Malaysian Resources Corp and Top Glove Corp, the world’s largest rubber glove maker, OSK said. It removed Public Bank Bhd from its top five picks.

Top Glove, the world’s biggest rubber-glove maker, gained 4.8 per cent to RM7.23 at midday, set for the largest increase since July 7.

The benchmark FTSE Bursa Malaysia KLCI Index rose 9.3 per cent last month, the steepest increase since April. The measure has risen 34 per cent this year, as the government’ stimulus plans and a RM10 billion fund set up to invest in publicly traded companies helped buoy the market.

Prime Minister Datuk Seri Najib Tun Razak, who took office on April 3, has announced stimulus plans valued at RM67 billion to revive economic growth.

OSK likened the market’s outlook to the “Edwardian Summer” in the UK during the reign of King Edward VII from 1901 to 1910. The Edwardian era was regarded as a romantic golden age of long summer afternoons, garden parties and big hats immediately prior to the First World War.

The stock index is trading above 17 times 2009 earnings, higher than the average of 15 times since 2000, OSK said. Companies in the index were trading at 15.5 times in 2006 and 2007 when earnings growth was averaging 30 per cent growth, it said.

With earnings set to shrink in 2009 and grow at only 12 per cent in 2010, the current price to earnings multiple is “excessive,” it said. -- Bloomberg

Genting's Sentosa Casino Gears For Opening

2009-07-30T08:04:00.004+08:00

Genting Bhd's new casino resort in Singapore will start receiving guests in two-thirds of the facilities by early next year, including Southeast Asia's first Universal Studio theme park and the casino.It is aiming for 60 per cent overseas visitors, most of whom will come from Malaysia.

Other key target markets are China, India, Indonesia and Thailand. An estimated 12 million to 13 million visitors are expected to arrive in the first year at the resort on Sentosa Island, a stone's throw from the harbourfront Vivocity shopping mall. "By early 2010, a good 60-70 per cent will be opened.

We are talking about the Universal Studio, four hotels, part of Festive Walk, which is a dining and shopping area, and the casino," Robin Goh, assistant communications director of Resorts World at Sentosa Pte Ltd, told Business Times in an interview in Kuala Lumpur yesterday. "We would love to (open by Chinese New Year), but we don't have the date yet," he said.

The rest of the project, including the Oceanarium and two more hotels, will be ready in the following months. The company is ramping up publicity and marketing efforts to prepare for ticket sales which will start towards the year-end. As a prelude to the opening, a charity concert will be staged within the resort in December, Goh said.

Both the integrated resorts in Singapore are expected to open in the first three months of next year. Analysts are speculating that Resorts World, which started construction later, may be the first to open after Marina Bay Sands encountered some delays. Marina Bay Sands will probably open in either January or February, its executive director of sales Paul Stocker told Business Times separately.

Analysts believe that the two resorts will strive to start operations before Chinese New Year, which falls on Valentine's Day next year, to capture the peak period for the casino. Goh said that Resorts World had yet to decide the ticket price for the theme park or the hotel room rates, but was "mindful" of its pricing strategy to attract the crucial Malaysian crowd. It will probably bundle hotel stays with entrance fees, apart from the day ticket, two-day pass and annual pass.

"What is important is that Malaysian families must be able to see value for money in our theme park. "The proposition is that this will be the nearest Universal Studio among the four parks in the world, and it is a world-class facility and not a watered-down version. "There will be 24 rides in Singapore's Universal Studio compared with around 21 for the other destinations in Osaka, Japan, and Orlando and Los Angeles in the US.

Eighteen of the rides are built exclusively for the park in Singapore, Goh said. Among the highlights, a new Transformers ride will debut in Singapore, replacing the popular Spiderman three-dimension thrill ride which is already in all the three existing parks.

Article from Business Times.com

Market Stays Above Key Support Level.

2009-07-27T00:54:00.001+08:00

SHARE prices on Bursa Malaysia rebounded in tandem with the sharp rebounds on the Wall Street and regional stock markets over the last five trading days. The FTSE Bursa Malaysia Composite Index (FBM KLCI) continued to stay above its critical support of 1,100 when it closed at 1,155.88 points yesterday.

The FBM KLCI opened on a weak note before resuming its prior technical rebounds on Monday. The FBM KLCI closed at 1,139.25 points, posting a day-on-day gain of 18.35 points, or 1.64 per cent. Share prices on Bursa Malaysia paused for a brief consolidation on Tuesday. The FBM KLCI closed at 1,184.70 points, giving a day-on-day loss of 4.55 points, or 0.40 per cent.

Overall market sentiment improved significantly on Wednesday. The FBM KLCI rebounded to higher to its intra-day high of 1,160.61 before closing at 1,148.70 points, posting a day-on-day gain of 14.00 points, or 1.23 per cent. The FBM KLCI gyrated around its overnight level for the major part of the trading session on Thursday. The FBM KLCI closed marginally higher at 1,152.15 points, giving a day-on-day gain of 3.45 points, or 0.30 per cent.

Once again, the FBM KLCI moved sideways in consolidating its recent gains yesterday. It fluctuated around its overnight level for the major part of the trading session. It managed to close marginally higher at 1,155.88 points, giving a day-on-day gain of 3.73 points, or 0.32 per cent. On the foreign front, The Dow Jones Industrial Average (DJIA) rebounded in earnest on some economic recovery news over the last four trading days. The DJIA closed higher at 9,069.29 points on Thursday, recording a four-day gain of 325.35 points, or 3.72 per cent.

The tech stock heavy Nasdaq Composite Index staged a successful re-penetration of its overhead resistance of 1,900. It closed at 1,973.60 points on Thursday, posting a four-day gain of 86.99 points, or 4.61 per cent. The Tokyo stock market staged a strong follow-through technical rebound over the last five trading days. The Nikkei 225 Index closed at 9,944.55 points yesterday, posting a week-on-week gain of 549.23 points, or 5.85 per cent. The Hong Kong stock market climbed back above its critical support of 19,000. The Hang Seng Index closed at 19,982.79 points, recording a week-on-week gain of 1,177.13 points, or 6.26 per cent.

The FBM KLCI rebounded to close higher at 1,155.88 points yesterday, posting a week-on-week gain of 34.98 points, or 3.12 per cent. The FTSE Bursa Malaysia Second Board Index gained 168.42 points, or 3.48 per cent to 5,010.79 level while the FTSE Bursa Malaysia Mesdaq Index added 20.31 points, or 0.50 per cent, to 4,097.99 level.

Following are the readings of some of its technical indicators:

*Moving Averages: The FBM KLCI continued to stay above its 10-, 20-, 30-, 50-, 100- and 200-day moving averages.
* Momentum Index: Its short-term momentum index stayed above the support of its neutral reference line.
* On Balance Volume: Its short-term OBV trend stayed above the support of its 10-day exponential moving averages.
* Relative Strength Index: Its 14-day RSI stood at the 80.32 per cent level yesterday.

Outlook

The FBM KLCI continued to rally to its intra-week high of 1,160.61 on Wednesday, moving into the confines of this column's envisaged resistance zone (1,124 to 1,163 levels). The FBM KLCI's weekly chart moved to the underside of its immediate overhead resistance (See FBM KLCI's weekly chart - A5:A6) yesterday.

It continued to stay above its resistance-turned-support trendline (A3:A4). Chartwise, the FBM KLCI's daily trend rebounded closer to its overhead resistance (See FBM KLCI's daily chart - B1:B2) yesterday. It continued to stay below its intermediate-term uptrend (B7:B8). The FBM KLCI's daily, weekly and monthly fast MACDs (moving average convergence divergence) stayed above their respective slow MACDs yesterday.

This augurs well for its near-term perspectives. The FBM KLCI's 14-day RSI stayed at 80.32 per cent level yesterday. Its 14-week and 14-month RSI stayed at 73.84 and 56.52 per cent levels respectively. Last week, this column commented that the FBM KLCI was poised to stage a re-challenge of the Fibonacci-based 50 per cent retracement objective at 1,163 level.

This column was spot on as the FBM KLCI hit its intra-week high of 1,160.61 on Wednesday. There were intermittent profit-taking liquidations over the last four trading days. The FBM KLCI is likely to pause for a short and brief consolidation before resuming its prior technical rebounds. Next week, the FBM KLCI's envisaged resistance zone hovers at the 1,159 to 1,193 levels while its immediate downside support is at the 1,116 to 1,150 levels.

Article from Business Times Malaysia

Citibank's Problems Are Far from Over

2009-07-20T23:20:00.001+08:00

While there are a lot of numbers reported in Citibank's (C) recent quarterly earnings there is ONE critical comparison that is missing -- that is the sequential analysis of the credit losses (Q1 vs. Q2). I believe this is critical information not just for Citibank but for all financials.

First, here are the links to the Q1 report and Q2 report.

Getting to the point on credit losses:

April 17th report: Credit costs of $10.3 billion, up 76%, consisted of $7.3 billion in net credit losses, a $2.7 billion net loan loss reserve build, and $332 million of policyholder benefits and claims. The total allowance for loans, leases and unfunded lending commitments was $32.7 billion.

July 17th report: Credit costs of $12.4 billion, up 81%, consisted of $8.4 billion in net credit losses, and $3.9 billion loan loss reserve build. The total allowance for loans, leases and unfunded lending commitments was $37.0 billion, up from $21.9 billion in the prior year period.

As seen from these numbers, from Q1 to Q2 -- credit costs are STILL RISING. Losses were up by $1.1B and loan loss reserve is also higher by $1.2B. Unfortunately, from these reports, we do not get details of early delinquencies vs. late delinquencies; so a greater analysis of month to month trend is not possible based on these reports (companies like E*Trade Financial provide such details).

But given that on a quarterly basis numbers are still getting worse is an indication that problems at Citibank are FAR from being over. Indeed, increasing unemployment and recent indications that early stage delinquencies may be on the rise. For example, foreclosureradar.com's California report for June 2009, showed the HIGHEST number of notice of default on record ever.

Notice of default is the "first" step towards foreclosure and is the early stage indicator of things to come. June 2009 being worse than the entire last year and this year is indeed quite scary and banks like Citi, Wells Fargo (WFC), Bank Of America (BAC), JPMorgan Chase (JPM) etc. are more likely to be impacted by this than some of the other banks. And this is only mid-summer. Seasonally, things get worse in real-estate late-summer and fall.

While I wish to remain optimistic, and have net long position on financials (through XLF) - it is hard to remain optimistic in light of these numbers. I have tried to hedge my long position in financials with some FAZ.

The Great Baby-Boomers Economic Depression of 2007-2017

2009-07-15T20:55:00.000+08:00

Prof Rodrigue Tremblay writes: "Banking Establishments Are More Dangerous Than Standing Armies." Thomas Jefferson (1743-1826), 3rd US President

"... a serious depression seems improbable; [we expect] recovery of business next spring, with further improvement in the fall." Harvard Economic Society (HES), November 10, 1929

"While the crash only took place six months ago, I am convinced we have now passed through the worst -- and with continued unity of effort we shall rapidly recover. There has been no significant bank or industrial failure. That danger, too, is safely behind us." President Herbert Hoover, May 1, 1930

"Under a paper money system, a determined government can always generate higher spending and hence positive inflation." Fed Chairman Ben Bernanke, in 2002

Many observers think that “prosperity is around the corner” and that this recession, like others since World War II, will end as soon as the stock market, as a leading indicator, recovers and people start spending again. This is a myopic view of the current economic big picture.

In fact, since the peak of the housing bubble (in the U.S.) in 2005, the onslaught of the subprime financial crisis in August 2007 and the beginning of the recession in December 2007, the U. S. economy, and to a certain extent, the world economy, have entered a period of protracted adjustments. For sure, there will be some quarters of positive economic growth ahead and the recession may be declared officially over in the coming months, but the radical economic reorganization that is taking place will go on for years to come.

Why is this so?

Essentially, because we are at the very end of the 60-year inflation-disinflation-deflation Kondratieff cycle that began in 1949 when war-frozen prices were liberalized; and that powerful long cycle is ending now. The post 1980s era, i.e. the Reagan era, is over, but the excesses and bubbles of the last few decades have to be corrected, at a time when large population shifts are about to take place. Such adjustments will take years to unfold and this will entail a lot of efforts and a lot of changes.

Indeed, the era of excessive spending and of excessive debt is over. The era of excessive government economic disengagement and of financial deregulation is over. The era of irresponsible Ponzi-scheme finance is over. The era of unregulated derivatives is over. The era of greed as an ideology is over. The era of wild and predatory capitalism is over. The era of cheap oil, of cheap transportation, of cheap commodities and of cheap food is over. The era of excessive concentration of wealth and income is also over. However, the age of political corruption, of incompetent politicians and of destructive wars of aggression is not over. What has arrived is the age of hyperstagflation.

The central driving force behind most of these developments, besides the collapse of the financial sector, the debt pyramid and the derivative products structure, and irresponsible talk of larger wars by loose cannon politicians (as if there were not enough problems!) is going to be demographic.

Indeed, we have entered a period during which the largest demographic cohort in the history of mankind, the post Word War II baby-boomer generation, has passed its spending peak. This is not something that can be reversed overnight. This is going to be a decade-long process of adjustment, of less spending, of more saving, and above all, of paying off excessive debt loads. Let's keep in mind that consumer spending represents 70 percent of GDP.

The economic consequences are going to be profound and will affect all sectors of the economy. We only have to consider how the automobile industry, once a major engine of economic growth, is presently going through a fundamental reorganization and downsizing. Even computer-based industries have matured and cannot anymore be considered fast growing industries.

The only growth sectors left in the U.S. seem to be the health services industry, as the population is aging, and the war-related industries, as the U.S. military-industrial complex keeps on expanding. But even those sectors will have to slow down; lest they bankrupt the entire economy.

That's why I think these industrial and demographic trends herald a period of slower economic growth that could last many years. Governments better wake up to the challenges that such a slow growth environment entails. Very few people are prepared for such a prolonged period of economic stagnation that will be accompanied by forced debt liquidation, in a deflationary environment.

This is particularly true of private pension plans that will have trouble paying pensions to recipients in the coming years. This is also true for employment that will expand at a slower pace than the working population, at least for a while, resulting in a rise in the level of unemployment.

Baby-boomers are those individuals who were born between 1946 and 1966. Because of its sheer size (more than 70 million people in the U.S.), this generation has been dominant in all spheres of life for the last fifty years. But now, it has passed its spending peak. This occurred in 2005-06, at the very top of the housing bubble.

The average age of the baby-boomer demographic cohort was then 50, which is the age of top spending. At that time, the U.S. personal savings rate fell to a whopping minus 2.5 percent per year. As a comparison, it was 12.5 percent during the 1981-82 recession and it has now rebounded a phenomenal 5.7 percent in April 2009, and it's climbing fast.

Indeed, the end of the housing bubble, the financial crisis, and the economic recession altogether have sent a clear signal to Baby Boomers. You'd better begin saving soon, or your retirement will have to be postponed. And saving means consuming and spending less, while paying up debts, in order to boost net current personal assets to a level that could sustain retirement needs. But if the largest cohort of consumers cuts down on its spending and borrowing, what does it mean for aggregate spending and economic growth?

It can only mean slower overall economic growth and some painful economic adjustments. Therefore, there is a high probability that this recession will be a super one that may linger on for years, being interrupted by short-run upside bursts, but soon being followed by a return of stagnant conditions. In Japan, in the nineteen-nineties, a similar financially and demographically induced recession lingered on for an entire decade. And even after twenty years, it cannot be said that Japan is out of the woods yet.

In the short run, in order to counteract the effects of the financial crisis and to fight the current recession that began officially in December 2007 (according to the National Bureau of Economic Research- NBER), the Obama administration has devised a three-quarter billion dollar stimulus plan and has let the fiscal deficit explode to more than two trillion dollars a year because of its bail-out of the troubled banks.

Similarly, the Fed has lowered short-term rates to zero and has purchased billions of dollars in long-term Treasury securities, in government agency securities, and even in mortgage-backed securities, in a desperate effort to save large financial institutions such as AIG, Fannie and Freddie, and other American financial institutions from imploding.

But now bond investors, especially international investors, are selling Treasury bonds and are pushing long-term interest rates up and the U.S. dollar down as inflation fears increase, even though paradoxically the collapse of the pyramid of debts creates a deflationary environment for the entire economy.

The danger here is that bond investors will be selling Treasury bonds faster than the Fed can buy them. In which case, there will be a downward spiral in bond prices as inflation and solvency fears are exacerbated. In a word, if the Fed does not tone down its current policy of excessive monetizing of public and private debts and its obvious 'benign neglect' policy toward the dollar, high inflation and possibly even hyperinflation become a possibility down the road. This has happened elsewhere in the past and there is no reason why it could not happen again, especially if the U.S. keeps getting involved in costly wars abroad, paying those adventures with money it does not have.

For now, a quick resurgence of inflation is only a remote possibility. This is nevertheless a possibility, considering that central banks have a tendency to overdo the printing of fiat money. In fact, if governements attempt to print their way out of the coming structural demographic problem, they will end up generating an hyperstagflation.

In a nutshell, this is what the huge international dollar-denominated bond market sees and fears, at a time when it has to absorb a huge supply of new bond issues. In reality, the bond market will always win against any central bank, any time. The solvency woes and the likely default of the state of California on its outstanding debt will only add to the anxiety.

A few weeks ago, I warned against the risk of future long term interest rates hikes and future U.S. dollar depreciation following the decisions by the U.S. Treasury and by the Fed to flood the markets with trillions of dollars of new Treasury bond issues and with newly printed money. The undertow is coming even faster than I thought.

Only when the markets expect relative economic stagnation and a lasting deflationary environment will long term interest rates taper off.

Brace yourself and hold on to your britches. There is a rough economic decade ahead.

Tipping Point For Nusajaya Growth In 2011: UEM Land

2009-07-14T03:00:00.001+08:00

UEM Land Holdings Bhd expects growth for its Nusajaya township to start gathering momentum from 2011 as more infrastructure and other projects near completion. Managing director Wan Abdullah Wan Ibrahim said the year would mark the starting point for many large-scale projects in Nusajaya.

At the same time, work on other major projects would also be done by then. Among the projects that would be completed by 2011 are the coastal highway linking Johor Baru, quarters for state government staff and the federal government agency complexes. The Legoland theme park would also be in its finishing stage.

"The tipping point for growth to spurt in Nusajaya would be in 2011. That is when a new pace of development begins and the environment in Nusajaya and Iskandar Malaysia would pick up pace," said Wan Abdullah during a question-and-answer session after a briefing on projects under Iskandar Malaysia.

Housing and Local Government Minister Datuk Kong Ho Cha, who was on his first visit to Nusajaya with his deputy Datuk Lajim Ukin were among those at the briefing in Nusajaya, near Gelang Patah, Johor.

Also present were Iskandar Regional Development Authority chief executive officer Harun Johari and Iskandar Investment Bhd managing director Arlida Ariff. Wan Abdullah said Nusajaya already has the volume in terms of residents as 11,000 houses in the township were already occupied. Foreigners also make up almost two thirds of high-end homes such as the East Ledang project.

When asked about a public housing project which would cater to people working in the area, Wan Abdullah said the efforts would be made to ensure only qualified tenants would get the houses. UEM Land Holdings is the developer of Nusajaya's main features such as the state administration complexes of Kota Iskandar, Puteri Harbour, Southern Industrial and Logistics Clusters and Alfiat Healthpark and residences.

Article from Business Times.com

Five Fatal Flaws Of Trading

2009-07-07T12:03:00.000+08:00

By Jeffrey Kennedy

Close to ninety percent of all traders lose money. The remaining ten percent somehow manage to either break even or even turn a profit – and more importantly, do it consistently. How do they do that?

That's an age-old question. While there is no magic formula, one of Elliott Wave International's senior instructors Jeffrey Kennedy has identified five fundamental flaws that, in his opinion, stop most traders from being consistently successful. We don't claim to have found The Holy Grail of trading here, but sometimes a single idea can change a person's life. Maybe you'll find one in Jeffrey's take on trading? We sincerely hope so.

The following is an excerpt from Jeffrey Kennedy’s Trader’s Classroom Collection. For a limited time, Elliott Wave International is offering Jeffrey Kennedy’s report, How to Use Bar Patterns to Spot Trade Setups, free.

Why Do Traders Lose?

If you’ve been trading for a long time, you no doubt have felt that a monstrous, invisible hand sometimes reaches into your trading account and takes out money. It doesn’t seem to matter how many books you buy, how many seminars you attend or how many hours you spend analyzing price charts, you just can’t seem to prevent that invisible hand from depleting your trading account funds.

Which brings us to the question: Why do traders lose? Or maybe we should ask, 'How do you stop the Hand?' Whether you are a seasoned professional or just thinking about opening your first trading account, the ability to stop the Hand is proportional to how well you understand and overcome the Five Fatal Flaws of trading. For each fatal flaw represents a finger on the invisible hand that wreaks havoc with your trading account.

Fatal Flaw No. 1 – Lack of Methodology

If you aim to be a consistently successful trader, then you must have a defined trading methodology, which is simply a clear and concise way of looking at markets. Guessing or going by gut instinct won’t work over the long run. If you don’t have a defined trading methodology, then you don’t have a way to know what constitutes a buy or sell signal. Moreover, you can’t even consistently correctly identify the trend.

How to overcome this fatal flaw? Answer: Write down your methodology. Define in writing what your analytical tools are and, more importantly, how you use them. It doesn’t matter whether you use the Wave Principle, Point and Figure charts, Stochastics, RSI or a combination of all of the above. What does matter is that you actually take the effort to define it (i.e., what constitutes a buy, a sell, your trailing stop and instructions on exiting a position). And the best hint I can give you regarding developing a defined trading methodology is this: If you can’t fit it on the back of a business card, it’s probably too complicated.

Fatal Flaw No. 2 – Lack of Discipline

When you have clearly outlined and identified your trading methodology, then you must have the discipline to follow your system. A Lack of Discipline in this regard is the second fatal flaw. If the way you view a price chart or evaluate a potential trade setup is different from how you did it a month ago, then you have either not identified your methodology or you lack the discipline to follow the methodology you have identified. The formula for success is to consistently apply a proven methodology. So the best advice I can give you to overcome a lack of discipline is to define a trading methodology that works best for you and follow it religiously.

Fatal Flaw No. 3 – Unrealistic Expectations

Between you and me, nothing makes me angrier than those commercials that say something like, "...$5,000 properly positioned in Natural Gas can give you returns of over $40,000..." Advertisements like this are a disservice to the financial industry as a whole and end up costing uneducated investors a lot more than $5,000. In addition, they help to create the third fatal flaw: Unrealistic Expectations.

Yes, it is possible to experience above-average returns trading your own account. However, it’s difficult to do it without taking on above-average risk. So what is a realistic return to shoot for in your first year as a trader – 50%, 100%, 200%? Whoa, let’s rein in those unrealistic expectations. In my opinion, the goal for every trader their first year out should be not to lose money. In other words, shoot for a 0% return your first year. If you can manage that, then in year two, try to beat the Dow or the S&P. These goals may not be flashy but they are realistic, and if you can learn to live with them – and achieve them – you will fend off the Hand.

*For a limited time, Elliott Wave International is offering Jeffrey Kennedy’s report, How to Use Bar Patterns to Spot Trade Setups, free.*

Fatal Flaw No. 4 – Lack of Patience

The fourth finger of the invisible hand that robs your trading account is Lack of Patience. I forget where, but I once read that markets trend only 20% of the time, and, from my experience, I would say that this is an accurate statement. So think about it, the other 80% of the time the markets are not trending in one clear direction.

That may explain why I believe that for any given time frame, there are only two or three really good trading opportunities. For example, if you’re a long-term trader, there are typically only two or three compelling tradable moves in a market during any given year. Similarly, if you are a short-term trader, there are only two or three high-quality trade setups in a given week.

All too often, because trading is inherently exciting (and anything involving money usually is exciting), it’s easy to feel like you’re missing the party if you don’t trade a lot. As a result, you start taking trade setups of lesser and lesser quality and begin to over-trade.

How do you overcome this lack of patience? The advice I have found to be most valuable is to remind yourself that every week, there is another trade-of-the-year. In other words, don’t worry about missing an opportunity today, because there will be another one tomorrow, next week and next month ... I promise.

I remember a line from a movie (either Sergeant York with Gary Cooper or The Patriot with Mel Gibson) in which one character gives advice to another on how to shoot a rifle: 'Aim small, miss small.' I offer the same advice in this new context. To aim small requires patience. So be patient, and you’ll miss small."

Fatal Flaw No. 5 – Lack of Money Management

The final fatal flaw to overcome as a trader is a Lack of Money Management, and this topic deserves more than just a few paragraphs, because money management encompasses risk/reward analysis, probability of success and failure, protective stops and so much more. Even so, I would like to address the subject of money management with a focus on risk as a function of portfolio size.

Now the big boys (i.e., the professional traders) tend to limit their risk on any given position to 1% - 3% of their portfolio. If we apply this rule to ourselves, then for every $5,000 we have in our trading account, we can risk only $50-$150 on any given trade. Stocks might be a little different, but a $50 stop in Corn, which is one point, is simply too tight a stop, especially when the 10-day average trading range in Corn recently has been more than 10 points. A more plausible stop might be five points or 10, in which case, depending on what percentage of your total portfolio you want to risk, you would need an account size between $15,000 and $50,000.

Simply put, I believe that many traders begin to trade either under-funded or without sufficient capital in their trading account to trade the markets they choose to trade. And that doesn’t even address the size that they trade (i.e., multiple contracts).

To overcome this fatal flaw, let me expand on the logic from the 'aim small, miss small' movie line. If you have a small trading account, then trade small. You can accomplish this by trading fewer contracts, or trading e-mini contracts or even stocks. Bottom line, on your way to becoming a consistently successful trader, you must realize that one key is longevity. If your risk on any given position is relatively small, then you can weather the rough spots. Conversely, if you risk 25% of your portfolio on each trade, after four consecutive losers, you’re out all together.

Break the Hand’s Grip

Trading successfully is not easy. It’s hard work ... damn hard. And if anyone leads you to believe otherwise, run the other way, and fast. But this hard work can be rewarding, above-average gains are possible and the sense of satisfaction one feels after a few nice trades is absolutely priceless. To get to that point, though, you must first break the fingers of the Hand that is holding you back and stealing money from your trading account. I can guarantee that if you attend to the five fatal flaws I’ve outlined, you won’t be caught red-handed stealing from your own account.

For more information on trading successfully, visit Elliott Wave International to download Jeffrey Kennedy’s free report, How to Use Bar Patterns to Spot Trade Setups.

Jeffrey Kennedy is the Chief Commodity Analyst at Elliott Wave International (EWI). With more than 15 years of experience as a technical analyst, he writes and edits Futures Junctures, EWI's premier commodity forecasting package.

NEoWave Warns Stock Market Has Peaked for 2009

2009-06-28T10:07:00.003+08:00

NEoWave Institute's Glenn Neely is forecasting the largest vertical drop of the decade for the S&P 500. Neely predicts the stock market will decline 50% in the next 6 months.

Glenn Neely, founder of NEoWave Institute and prominent Elliott Wave analyst, today announces a startling prediction: The S&P 500 is forming a major top in June, which will be followed by a large decline, eventually pushing the stock market to record lows for the decade.

"Technically speaking, according to NEoWave a correction began at last October's low; the March-June rally is the final leg of that correction," Neely explains. "The March-June rally is now ending, allowing the bear market to resume. During the next six months, the S&P will decline 50% or more, breaking well below 500!" Currently, the S&P is hovering around 900.

Glenn Neely is providing this information not as a specific trade recommendation but as a general public service announcement. A prominent Elliott Wave analyst, Neely was recently recognized in Timer Digest's May issue as the #1 stock market timer for the past 12 months.

About Glenn Neely and NEoWave Institute:Glenn Neely, who is internationally regarded as the premier Elliott Wave analyst, founded the Elliott Wave Institute in 1983. In 1990, Neely published his advanced Wave analysis process in his now-classic book, Mastering Elliott Wave. In 2000, Neely changed the name of his research and advisory firm to NEoWave Institute to differentiate his scientific Wave analysis technology from orthodox, subjective Elliott Wave analysis, which is frequently nebulous, inaccurate, and constantly fluid.

This article appear on 16 June 2009.

Why Stocks Will Collapse This Fall

2009-06-21T21:57:00.000+08:00

Written by Graham Summers
Thus far, 2009 has been a virtual repeat of 2008 for financial markets.

So far, both years have had:

A Crisis/ Market low in March (Bear Stearns & March collapse to 666)
A Government/ Federal Intervention (Bear Stearns & Stimulus Package)
Gold testing/ breaching $1,000 in the first quarter (March & February)
Stocks rallying into the summer on worsening fundamentals
Stocks rallying close to their beginning of the year highs in May/ June
Commodities rallying into the Summer on the China story/ inflation concerns
Various government figures using the rally to claim that the “worst is over”

Stocks rolling over in earnest in June as fundamentals take hold

Even the charts are similar… except for the fact that 2009 has been like 2008 on steroid (the chart has been rebased to 100).

The Fed claims that it cut interest rates and pumped trillions into the market to lower volatility and return stocks to “normal” trading action. Looking at 2009’s performance compared to 2008, I’d say their efforts have been a complete and utter failure. The stock market has become more volatile with larger swings.

As I’m sure you’ll recall, stocks completely collapsed in the fall of 2008. I think that stocks will suffer a similar fate in 2009. My reasoning is simple:

1) The Fed’s moves have not solved the critical issues facing financial markets
2) The economic and financial fundamentals have worsened dramatically

The primary issue facing the financial markets is system solvency. In extremely simple terms there is too much debt, too many crummy assets, and not enough capital. Debt permeates our entire economy from the consumer level to the federal government. Debt became some out of control that at its peak, people could buy the largest single asset of their lifetime (a house) with no money down.

Since that time, Americans have done the sensible thing: deleveraging by paying off debt ($40 billion in credit cards debt Feb-May) and raising capital (saving their money). The In contrast, the Federal Reserve (the alleged back-stop for the financial markets), has done quite the opposite: issued more debt and spent even more money. Small wonder volatility has worsened.

The other critical issue facing the financial markets is accounting. To this day, no one knows the real value of the assets sitting on the banks’ balance sheets. No one knows if the banks are even solvent (I have my doubts). No one knows what the financial markets would look like without the Fed’s props in place.

To use a metaphor, the Fed has propped up a collapsing home with a few stilts and buttresses. Has the foundation improved? NOPE. Is the structure more stable? Definitely NOT. Do we even know the extent of the rot or damage that needs to be fixed? NOPE again. Have we spent a ton of money on the issue? YEP.

Now, onto issue #2 (economic and financial fundamentals are worsening dramatically). Sentiment and trading patterns may dictate short-term moves, but ultimately the market is driven by earnings. Well, earnings have fallen off a cliff. Consumers are not spending as they used to (they probably won’t ever again).

Year over year, retail sales are the worst seen in the post–WWII period. The last few months have shown the rate of collapse is slowing… but getting horrendous at a slower pace isn’t a sign of a turnaround.

Moreover, unemployment is rising which means even less spending (who goes on shopping binges to celebrate getting fired?). And this is happening at the same time that oil and other commodities are rising (which means operating costs will go up).

In very simple terms, higher costs + lower sales = much, much lower earnings. It’s simple math, but Wall Street analysts don’t seem to get it. Neither do any of the “green shoots” crowd.

So in summation, we have a MORE volatile stock market, rallying even harder on worsening fundamentals, with no real solutions to the structural issues plaguing the financial system.

If this isn’t a recipe for a potential Crash, I don’t know what is.

Good Investing?
Graham Summers

Courtesy From Jesper Lee - Cimb

MGM, Genting In Talks On Macau.

2009-06-16T00:25:00.002+08:00

KUALA LUMPUR: MGM Mirage Inc, a global casino operator, has held discussions with Genting group on the latter’s possible participation in its Macau operations, as part of their overall talks towards forming a “very powerful” global alliance.

In an email reply to queries from The Edge Financial Daily, MGM public affairs senior vice-president Alan M Feldman said: “We have had specific discussions about Macau but would not rule out Genting’s participation if it made strategic sense for all parties.” Other than Macau, he said the two parties had started discussions on possible marketing relationships, strategic ventures and partnerships globally.

“While discussions between the companies are at a preliminary stage, we have started to consider possible marketing relationships, strategic ventures and partnerships with Genting globally,” he said. Feldman was asked to comment on intense speculation that Genting group, which is also building a casino resort in Singapore, may be buying over MGM’s interest in Macau.

“A relationship with Genting makes strategic sense as both companies have similar operating philosophies. This has great potential to be a very powerful alliance,” he said. MGM, which is listed on the New York Stock Exchange, owns and operates 16 properties in the US. It also has 50% interests in four other properties in Nevada, New Jersey and Illinois in the US, and in Macau.

For the financial year ended Dec 31, 2008, MGM group recorded net revenues of about US$7.2 billion (RM25.2 billion). MGM Grand Macau is a 35-storey, 600-room casino resort, which opened on Dec 18, 2007. The property is owned and operated with its 50% joint venture partner, Pansy Ho, the daughter of Macau casino king Stanley Ho. The Edge weekly in its latest issue reported that unlike the cash-rich Genting group, MGM was on the brink of bankruptcy due mainly to a US$14.4 billion debt burden.

It also ran into problems at its CityCentre project in Las Vegas, a partnership with Dubai World, leading to cost overruns. The report said MGM’s prospects were turning for the better after a fund-raising exercise that would allow it to redeem about US$1 billion in bond papers expiring later this year. Genting’s recent RM349.5 million (US$100 million) acquisition of a 3.2% equity stake in MGM added fuel to the speculation that the cash-rich Genting group was weaving its plan to venture into Macau.

The stake was offered under a US$1 billion equity placement by MGM last month. Also last month, Genting Bhd and its unit Resorts World Bhd completed the subscription of a total of US$100 million worth of senior secured notes issued by MGM.

The notes were part of MGM’s US$1.5 billion fund-raising exercise to help settle its outstanding debts and for general corporate purposes, and were secured by a first-priority lien on substantially all of the assets of the Bellagio Hotel and Casino and the Mirage Hotel and Casino, both located in Las Vegas.

Following that, analysts had speculated that those investments could pave the way for Genting group to acquire a stake in MGM or take over the US casino operator’s investment in MGM Grand Macau.In response to The Edge weekly story, Genting said the group was constantly reviewing and evaluating business and investment opportunities that may arise in the gaming industry, refusing to comment on such speculation.

In the email reply to The Edge Financial Daily, Feldman did not say whether its MGM Grand Macau partner, Pansy Ho, would be agreeable to any equity participation by Genting in the Macau unit. He also did not comment on the New Jersey gaming law enforcement authorities’ call for MGM to cut ties with Ho due to allegations that her father was tied to organised crime.

Interestingly, in earlier reports MGM Macau defended Pansy Ho and disagreed with the authorities’ recommendation that she was an “unsuitable” business partner. It was reported earlier this month that the gaming giant would challenge the regulatory report. It is understood that the final ruling against MGM could force the Las Vegas-based casino giant to choose between abandoning the lucrative gaming market of Macau or walking away from its investment in Atlantic City, New Jersey, where it owns half the Borgata Hotel Casino & Spa, the city’s highest grossing casino.

When contacted by The Edge Financial Daily last week, Genting’s head of strategic investments and corporate affairs Justin Leong declined to comment on Genting’s purchase of the MGM stake and the speculated Macau venture.

U.S. Debt Crisis as Treasury Bond Prices Collapsing and Interest Rates Surging

2009-06-09T21:34:00.001+08:00

Martin Weiss writes: Just as we’ve been warning, the United States Treasury is the next and largest victim of this great debt crisis. Right now, the Treasury’s finances are collapsing … its bond prices plunging … its interest rates surging.

Indeed, the Treasury’s financial crisis looms so large, it could wreck more havoc on the economy and deliver more pain to average Americans than the subprime mortgage disaster, the housing bust, the banking crisis, and the collapse of General Motors put together … It could create a rising tide of interest rates that wipes out the effects of any stimulus, undermines any recovery, and sabotages any new bailouts …

But unlike GM, Fannie Mae, Citigroup, AIG, and the many others that the U.S. Treasury has bailed out in recent months, there is no institution on the planet big or rich enough to bail out the U.S. Treasury itself. Further, unlike all prior episodes in this great debt crisis, the Treasury’s financial troubles cannot be covered up, papered over, or kicked down the road like an empty tin can.

Already, Treasury bond prices are crashing, and doing so with greater speed that at any time in history. Already, interest rates, which automatically go up when bond prices fall, are surging, with the rate on 10-year U.S. Treasuries nearly DOUBLING in a half year — the most dramatic surge during any recession since the founding of the Republic. And already, the interest rates on 30-year fixed mortgages, auto loans, commercial loans, and other debt are going through the roof.

This Is a Game Changer!

If you’re not paying attention to this new phase of the debt crisis, you’re making a grave error. And if you’re not taking swift action to protect yourself, you’re taking your financial life in your hands. In this issue, I’ll show why it’s going to get worse, why the Federal Reserve is powerless to stop it, how it will impact each major sector of the economy, and what you must do immediately to protect yourself and your family from the inevitable fallout.

Why This Is Just the Beginning of the Treasury’s Crisis. Why It’s Going to Get a Heck of a Lot Worse This Year. And Why It Could Continue for Years Beyond 2009.

It’s widely known that America’s federal deficit is out of control. But so many dire deficit warnings have been issued so often, they now fall mostly on deaf ears. Wall Street pundits roll their eyes. Washington politicians laugh at those who would cry “wolf.”

What they don’t realize is that this time, due to a series of devastating facts they’ve chosen to ignore, the day of reckoning is here:

Fact #1. Sheer size. According to the government’s official estimate, the federal deficit for fiscal year 2009 will be $1.84 trillion, or 13.4 percent of GDP!* It is the worst deficit in U.S. history.

It means the deficit has now exploded to a level which is so far beyond the range of anything we’ve experienced before, it’s impossible to imagine any scenario in which it does not have a devastating impact.

Fact #2. The actual deficit could be much larger. The administration’s $1.84 trillion deficit forecast presupposes a dramatic turnaround in the economy, which, by definition, is virtually impossible with the government running trillion-dollar deficits!

How can the administration possibly predict an economic turnaround when its own Treasury Department is sucking nearly $2 trillion in funds out of credit markets — the same credit markets that derailed the economy late last year?

Similarly, how can the government predict a turnaround when its own borrowing frenzy is already driving up mortgage rates and undermining real estate, the one sector that’s most responsible for the economy’s decline in the first place?

Fact #3. No end in sight. Since the United States declared its independence nearly 233 years ago, the only time the federal deficit approached or exceeded 10 percent of GDP was during major wars — the Civil War, World War I, and World War II. But in each case, the deficit financing began promptly — and ended promptly — with the war.

Unfortunately, that’s not the case this time. Although the U.S. is fighting wars in Iraq and Afghanistan, their cost represents only a small fraction of the budget shortfall. Even if the Iraqi and Afghan wars could be ended tomorrow, America’s great budget crisis would still be just beginning.

Fact #4. Today’s deficits are far worse than those of the Great Depression. America’s first big, multi-year peacetime deficits came in the 1930s. Tax revenues plunged with the sinking economy. And in the years that ensued, government expenditures — mostly for a series of programs to bail out the economy — went through the roof.

But even with a 90 percent collapse in the stock market in 1929-32 and even after three years of double-digit GDP declines that make today’s look mild by comparison, the federal deficit in 1933 was just 3.27 percent of GDP, less than one-fourth of what’s projected for this year.

And subsequently, even when the U.S. government embarked on the most ambitious stimulus and bailout programs of its 150-year history, the biggest single deficit — in 1936 — was 4.76 percent of GDP, only about one-third the size of today’s.

Fact #5. Structural deficits. Our nation’s second encounter with giant peacetime deficits was in the 1980s, but with a big difference: This time, there was no Great Depression. This time, the government’s fiscal woes were mostly structural — deeply ingrained in the bloated size of government and in our society’s dependence on government for much of its sustenance.

And even then, the federal deficit never rose to more than 5.63 percent of GDP, less than HALF its size today. The big difference today: Our current structural deficits are far larger than in the 1980s because the government is now liable for $65 trillion in future payments for Social Security, Medicare, government pension benefits, and other obligations that are now kicking in at a quickening pace.

Fact #6. Massive new commitments. Beyond the $1.84 trillion of red ink projected for 2009 and beyond the trillions more in future obligations, the U.S. government has just assumed responsibility for nearly $14 trillion in new loans, commitments, and guarantees to bail out brokers, banks, insurers, auto makers, and the broader economy.

If just one of these suffers greater-than-expected losses, we could see wave after wave of new demands on the government to honor its guarantees, bloating the deficit far further.

Why the Federal Reserve Can’t Stop Treasury Bonds from Falling

I can assure you, it’s not for lack of trying. In a massive attempt to boost Treasury bond prices launched March 25, the Fed has now bought $145.5 billion in Treasury notes and bonds, the most ever in such a short period of time. But despite all the Fed’s buying, T-bond prices have continued to plunge and interest rates have continued to surge.

Plus, in an even larger effort to support mortgage prices — and to suppress mortgage rates — the Fed has poured a whopping $507 billion into direct purchases of mortgage-backed securities (MBSs). But again, even after spending more than a half trillion dollars to bid them up, mortgage prices have still collapsed and rates have still surged.

In sum, the U.S. Federal Reserve has failed to stop this new phase of the crisis, and one of the key reasons is obvious:

To buy bonds, the Fed must print money. But the more it prints, the more it fans inflation fears and the more it chases away bond investors, who realize they’ll be paid back in cheaper dollars. Some pundits seem to think the Fed can simply print all the money it wants to finance the massive deficits. But in the real world, it doesn’t work that way.

The reason: As I explained last week, the government has not one, but TWO debt problems simultaneously:

A. The NEW debt problem:Massive Treasury borrowings of close to $2 trillion just to fill the gaping holes in the current federal budget.

B. The OLD debt problem: $14.5 trillion in Treasury securities, government agency securities, and MBSs outstanding.

The problem: If just 10 percent of those are dumped on the market, it would trigger the sale of $1.45 trillion worth, easily overwhelming the Fed’s purchases. The dilemma: The main reasons investors sell — fear of inflation and damage to the U.S. government’s credit — are, themselves, fueled by the Fed’s money printing and bond buying. End result: The more the Fed buys bonds, the more it risks triggering massive investor selling. So if you’re counting on the Federal Reserve to bail out the U.S. Treasury Department, forget it.

In the government’s grand balance sheet, printing money does nothing more than shift debts from one government account to another. It does not create wealth. It certainly does not stop bond prices from plunging and interest rates from surging.

Far-Reaching Consequences

Never underestimate the impact of surging rates — especially with near double-digit official unemployment and the worst debt crisis since the Great Depression.

Rising rates in this environment will be pure poison for:

The nation’s insurance companies loaded with long-term corporate and government bonds.
The nation’s banks counting on low interest rates to raise funds for close to nothing.
Utilities that must continually borrow huge amounts of long-term money to finance their massive investments in power plants and facilities.
Home prices that can only fall when available credit in the nation is hogged by Uncle Sam’s massive borrowing and when mortgage rates rise.
You! Stocks, long-term bonds, and virtually all types of real estate properties are extremely vulnerable to surging interest rates.

Your Action Plan

FIRST: Get the heck away from long-term bonds and shift to shortest term securities.

SECOND: Use the resources provided with my new book, The Ultimate Depression Survival Guide, to find a truly safe bank near you … or to bypass banks entirely.

THIRD: Use any temporary market recoveries as an opportunity to SELL off assets you don’t need, such as investment real estate and vulnerable stocks. Keep your 401(k). But within your 401(k), shift to the safest, shortest term alternative available.

FOURTH: To profit from falling bond prices, consider inverse ETFs designed to rise as Treasury bonds fall.

Good luck and God bless!

Martin

* The 13.4 percent of GDP assumes the following: Deficit — the $1.84 trillion projected by the administration; GDP — the 3.3 percent GDP decline proposed by the banking regulators in their bank stress tests. However, the actual deficit in that scenario could be larger.

Dollar Collapse - Will The Dollar Really Collapse?

2009-06-04T00:06:00.000+08:00

If the thought of the US dollar crashing, or devaluing makes you laugh, or shake your head because its just a myth, think again!

I was listening to Ben Bernanke’s (Federal Reserve Chairman) Audio last week. Who in front of Congress blatantly admitted to having no concern for the dollar. He stated his job was to stimulate the economy, (not to mention his own bank account!) Which means print off money and throw it around into the markets and other companies that don’t need it in the first place.

That is only part of the reason why the market has been heading north full steam ahead…. I must be the first one to say here, that if you go back hundreds of years, in any economy and see the consequences of such actions and its not rosey picture.

Let’s take for example South Africa, or what has happened in Zimbabwe recently. The consequences of such actions has already taken place there and many crazy pictures are showing up on the internet. When you have a look at them (see on your right) It’s like some sort of bizarre scene out of a “Gods must be crazy” Film. But the only crazy people are the ones running this show. The governements and media.

In Zimbabwe things are drastic and their country has fully collapsed. Hyperinflation has riddled the country, destroying their currencies and the true gentle spirit nature of it’s people. Check this picture on your right. It’s is a picture of one of the locals racing off to the shops to errrr… buy a loaf of bread! Ah you forgot your wheelbarrow mate! “Oh you couldn’t afford one!…RIGHT!”

Jokes aside, this is a serious situation. It’s sad really!!!! I would not want to be living in a place like this, that’s for sure. The scary thing is that the US and some other countries are about to undergo a massive currency correction, and valuation also. How much?, well….time will tell? But the effect will have dramatic consequences on many families, young and old, rich and poor!

THERE ARE BIG CHANGES COMING FOR MAJOR COUNTRIES AROUND THE WORLD.

Zimbabwe is only one small portion, that has already felt these effects. What will really matter is how this will affect people psychologically. I know that people are in trouble now financially but when people get DESPERATE, they can sometimes do DESPERATE things.

Anyway….Its kinda hard to explain what is going on without showing some charts. Here is one that will simply BLOW YOUR MIND!. For video refer HERE.

Refer to this website for articles.

Financial Markets and Economic Crash, The Next Leg Down Will be Worse

2009-05-31T13:02:00.000+08:00

Collapsing home prices and credit markets continue to put downward pressure on consumer spending, forcing the Federal Reserve to take even more radical action to revive the economy. Last week, Fed chief Ben Bernanke raised the prospect of further monetizing the debt by purchasing more than the $1.75 trillion of Treasuries and mortgage-backed securities (MBS) already committed. The announcement sent shock-waves through the currency markets where skittish traders have joined doomsayers in predicting tough times ahead for the dollar.

Foreign central banks have been gobbling up US debt at an impressive pace, adding another $60 billion in the last three weeks alone. That's more than enough to cover the current account deficit and put the greenback on solid ground for the time-being. But with fiscal deficits ballooning to $3 trillion in the next year alone, dwindling foreign investment won't be enough to keep the dollar afloat. Bernanke will be forced to either raise interest rates or let the dollar fall hard.

Export-led nations are looking for an edge to revive flagging sales by keeping their currencies undervalued. But the strong dollar is making it harder for Bernanke to engineer a recovery. He'd like nothing more than to see the dollar tumble and reset at a lower rate. That would reduce the debt-load for homeowners and businesses and send consumers racing back to the shopping malls and auto showrooms. Perception management is a big part of stimulating the economy.

That's why the financial media has been air-brushing articles that focus on deflation and shifting the attention to inflation. It's an effort to kick-start consumer spending by convincing people that their money will be worth less in the future. But deflation is still enemy number one. Rising unemployment, crashing home prices, vanishing equity and tighter credit; these are all signs of entrenched deflation.

Bernanke faces three main challenges to put the economy back on track. He must remove the hundreds of billions in toxic assets from the banks balance sheets, reignite consumer spending to offset the sharp decline in aggregate demand, and fix the wholesale credit-mechanism that provides 40 percent of the credit to the broader economy. Treasury Secretary Timothy Geithner has taken over the distribution of the remaining TARP funds, and created a new program, the Public-Private Investment Partnership (PPIP), for purchasing toxic mortgage-backed assets.

The PPIP will provide up to 94 percent "non-recourse" government loans for up to $1 trillion of assets which are worth less than half of their original value at today's prices. The Treasury's plan is an attempt to keep asset prices artificially high so that the losses will not be realized until they've been shifted onto the taxpayer. Here's how John Hussman of Hussman Funds summed up Geithner's PPIP:

"From early reports regarding the toxic assets plan, it appears that the Treasury envisions allowing private investors to bid for toxic mortgage securities, but only to put up about 7% of the purchase price, with the TARP matching that amount - the remainder being "non-recourse" financing from the Fed and FDIC. This essentially implies that the government would grant bidders a put option against 86% of whatever price is bid.

This is not only an invitation for rampant moral hazard, as it would allow the financing of largely speculative and inefficiently priced bids with the public bearing the cost of losses, but of much greater concern, it is a likely recipe for the insolvency of the Federal Deposit Insurance Corporation, and represents a major end-run around Congress by unelected bureaucrats.

Make no mistake - we are selling off our future and the future of our children to prevent the bondholders of U.S. financial corporations from taking losses. We are using public funds to protect the bondholders of some of the most mismanaged companies in the history of capitalism, instead of allowing them to take losses that should have been their own.

All our policy makers have done to date has been to squander public funds to protect the full interests of corporate bondholders. Even Bear Stearns bondholders can expect to get 100% of their money back, thanks to the generosity of Bernanke, Geithner and other bureaucrats eager to hand out the money of ordinary Americans." (John Hussman, "The Fed and Treasury - Putting off Hard Choices with Easy Money, and Probable Chaos, hussmanfunds.com)

The second part of the Fed's plan is to fix the wholesale credit-mechanism, which means restoring the securitization markets where pools of loans are transformed into securities and sold to investors. Until Bernanke is able to lure investors back into purchasing high-risk debt-instruments comprised of student loans, mortgage securities, auto loans and credit card debt, the credit markets will continue sputter and growth will be flat.

Structured-debt creates the asset base which is leveraged though traditional loans or complex derivatives. Credit expansion maximizes profit, inflates asset prices and establishes the structural framework for shifting wealth to financial institutions via speculative asset bubbles. This is the basic financial model that US banks and financial institutions hope to export to the rest of the industrial world to ensure a greater portion of global wealth for themselves and a stronger grip on the political process.

Bernanke's Term Asset-backed Securities Loan Facility (TALF) provides up to $1 trillion in non recourse loans to financial institutions willing to buy AAA-rated debt-instruments backed by consumer and small business loans. So far, the response has been tepid at best. For all practical purposes, the market is still frozen. Bernanke knows that there will be no recovery unless the credit markets are functioning properly.

He also knows that the TALF won't succeed unless he provides guarantees for the underlying collateral, which is loans that were made to applicants who have no means for paying them back. Bernanke's guarantees will cost the taxpayer billions of dollars without any assurance that his plan will even work. It's a complete fiasco.

From the Federal Reserve Bank of San Francisco Economic Letter, "US Household Deleveraging and Future consumption Growth" by Reuven Glick and Kevin J. Lansing:

"More than 20 years ago, economist Hyman Minsky (1986) proposed a "financial instability hypothesis." He argued that prosperous times can often induce borrowers to accumulate debt beyond their ability to repay out of current income, thus leading to financial crises and severe economic contractions.

Until recently, U.S. households were accumulating debt at a rapid pace, allowing consumption to grow faster than income. An environment of easy credit facilitated this process, fueled further by rising prices of stocks and housing, which provided collateral for even more borrowing. The value of that collateral has since dropped dramatically, leaving many households in a precarious financial position, particularly in light of economic uncertainty that threatens their jobs.

Going forward, it seems probable that many U.S. households will reduce their debt. If accomplished through increased saving, the deleveraging process could result in a substantial and prolonged slowdown in consumer spending relative to pre-recession growth rates. Alternatively, if accomplished through some form of default on existing debt, such as real estate short sales, foreclosures, or bankruptcy, deleveraging could involve significant costs for consumers, including tax liabilities on forgiven debt, legal fees, and lower credit scores.

Moreover, this form of deleveraging would simply shift the problem onto banks that hold these loans as assets on their balance sheets. Either way, the process of household deleveraging will not be painless. (The Federal Reserve Bank of San Francisco Economic Letter, "US Household Deleveraging and Future consumption Growth" by Reuven Glick and Kevin J. Lansing) http://www.frbsf.org/publications/economics/letter/2009/el2009-16.html)

The economy is in the grip of deflation. Commercial banks are stockpiling excess reserves (more than $850 billion in less than a year) to prepare for future downgrades, write-offs, defaults and foreclosures. That's deflation. Consumers are cutting back on discretionary spending; driving, eating out, shopping, vacations, hotels, air travel. More deflation. Businesses are laying off employees, slashing inventory, abandoning plans for expansion or reinvestment.

More deflation. Banks are trimming credit lines, calling in loans and raising standards for mortgages, credit cards and commercial real estate. Still more deflation. Bernanke has opened the liquidity valves to full-blast, but consumers are backing off; they're too mired in debt to borrow, so the money sits idle in bank vaults while the economy continues to slump.

In an environment where businesses and consumers are rebuilding their balance sheets and paying off debt, there's only one option; inflation. Bernanke will keep interest rates will stay low while increasing monetary and fiscal stimulus. The ocean of red ink will continue to rise. Still, the systemwide contraction will persist despite the Fed's multi-trillion dollar lending programs, quantitative easing (QE) and Treasury buybacks.

The "Great Unwind" is irreversible; the era of limitless credit expansion is over. David Rosenberg, chief economist and strategist at Gluskin Sheff & Associates, believes that the equities markets have undergone a "gargantuan short-cover rally" and that stocks will retest the March 9th low, which was a 12 year low for the S&P 500 Index. Rosenberg said he doesn't expect the economy to recover in the second half of the year.

"I'm seeing no revival of consumer spending in the second quarter," Rosenberg said. (Bloomberg). The conditions that supported the explosive growth of the last decade no longer exist. The credit markets are in a shambles, the banking system is hanging by a thread, and the consumer is out of gas. Traders are clinging to the slim hope that the worst is over, but they could be mistaken. There's probably another leg down and it will be more vicious than the last.

By Mike Whitney

This is Not a Bull Market: Stocks Are Not Up, and They’re Headed Even Lower

2009-05-28T02:40:00.001+08:00

How do you measure wealth generation?

1) Average annual gains?
2) Gains relative to an underlying index (the S&P 500)?
3) Gains relative to inflation?

Of these three, the last is the only real means of gauging wealth creation or destruction. Commentators have been going bananas over the fact that stocks are up 20%+ since their bottom of 666. No one mentions that this rally may actually be induced by the Federal Reserve pumping trillions of dollars into the financial system.

Similarly, no one mentions that adjusted for inflation, stocks are still WAY down from their peak during the Tech bubble. As you can see, stocks entered a bear market in earnest following the Tech Crash. Yes, in number or nominal terms, the Dow has risen. But you have to remember the dollar lost roughly a third of its value from 2001 to today.

Measuring stocks or anything in dollars between now and then was like measuring with a ruler that was continually shrinking. Also, bear in mind that the above chart is using the Government’s phony measure of inflation: the Consumer Price Index [CPI] which DOESN’T include food or energy prices. Using accurate inflationary data, stocks are down even more in real terms.

My main point is this: inflation is an ever-present reality in the post WWII era. Investors need to be protecting themselves from this beast at all costs. You can do this by:

Buying gold
Buying commodities or real assets
Buying companies that can offset inflationary costs by raising the price of their products

I suggest having some money in all three. It’s the only certain way to protect your wealth from inflation. The Feds are cooking up an inflationary storm of epic proportions, pumping TRILLIONS of dollars into the financial system. Stocks may rally like a rocket-ship from here. But in real terms they’re still tanking. After all, if the Dow hits 30,000, but you’re celebrating by drinking a $150.00 coke… are you really any richer?

Article from Seeking Alpha.com (Sorry for not posting it so many days. Having holiday in China)

Soros, The World's Most Influential Investor by Robert Slater

2009-05-18T08:45:00.000+08:00

The subtitle to this book on George Soros, I believe, should be “What Makes George Run?” after the title to a novel originally published in 1942. Slater does a good job presenting his subject in an easy to read and interesting biography. Yet, the book seems incomplete because a question still remains as to why Soros does what he does. It is not so much that he is an investor and a very successful one. It is why he seems driven to be a philosopher, a philanthropist, and a political mover and shaker.

As one critic remarked about the subject of the novel just mentioned, he is running “always thinking satisfaction is just around the bend.” It is like Soros has never found a way to justify his existence and so must continually search for ways to prove himself worthy. Over and over he is described as an extremely self-confident man. Yet the things he does indicate a need for something more, something that will ultimately give him satisfaction, something that will give him peace.

Soros is successful. He generously shares his wealth. He wants to do good things and contribute to good government. He wants to be known as a thinker. These are all commendable things and we should certainly hold him in respect for them. It is just that as one reads of his life, as Slater presents it, one comes away feeling that he is not completely comfortable with who he is.

People talk about how both Barack and Michelle Obama seem comfortable with who they are. That is one reason, people contend, that they can project themselves so well to others. They are not trying to be someone they are not. I do not get the same feeling when I read this book about George Soros.

From everything that is public about him, it seems Soros has legitimately earned his fortune. He has worked hard, he has taken risks, and has guessed right more often and in larger amounts that he has guessed wrong. He has set up and led several organizations and has retained talented individuals who have remained loyal and supportive of him. And, he has sustained his position at or near the top of the performance ladder for many years. He remains very, very wealthy.

His secret? Slater tries to get at this, but the best answer he can come up with is that Soros has great intuition. Soros is quoted as saying, “In the final analysis, you must rely on your instincts for survival.” Work hard, read widely, study, study, study…and then…well…? We are told that investing “is a business that doesn’t necessarily lend itself to logical, rational thinking. It’s an intuitive process.”

Soros attempts to provide us with his insight into how markets work and how investors make money. In his major effort to comprehensively explain how he sees the world work, “The Alchemy of Finance”, he describes a world in which all views of the world are “flawed or distorted.” The ‘academic’ models that assume investors have complete information and act rationally with this information are best kept in the academy.

The price of an asset, he contends, is “a result of perceptions that (are) as much the outcome of emotions as of hard data.” Soros uses the term ‘reflexivity’ to describe the connection between these flawed perceptions and the course of events, a connection that, from time-to-time, produces a ‘self-reinforcing factor’ that interacts with ‘underlying trends’ to create wide swings in individual prices or in movements in whole markets. In other words, “Flawed perceptions cause markets ‘to feed on themselves.’”

The Soros effort to provide ‘intellectual’ support to how he views the world falls into the category of economic theories that blame “irrational” explanations for the movement of markets. A recent ‘academic’ presentation of this approach is the book by Robert Shiller and George Akerlof entitled Animal Spirits. Animal spirits, according to Shiller and Akerlof, are related to “noneconomic motives” that are major influences on people making economic decisions: motives like confidence, fairness, corruption and bad faith, money illusion, and stories. Because of these motives, they argue, financial markets will, from time to time, fall into chaos since animal spirits tend to drive the economy sometimes one way and sometimes another causing markets to fluctuate more excessively than if investors had complete information and acted rationally.

To perform well in these markets one must act intuitively and respond on the basis of instinct, attributes that Soros seems to have a plentiful supply of. However, intuition and instinct cannot be taught. They cannot be modeled. Soros, as a thinker and a writer, just does not possess the skills of a Shiller or Akerlof to present such a picture of the world coherently or cogently. And why should we expect this since we are told that Soros has never been more that an average scholar, even in college. Still he tries, for he wants to be a “philosopher.”

This, however, does not seem to satisfy the world famous investor and so he has branched out into ‘good works’ (his philanthropic efforts) and to changing how the world is governed (his efforts to promote liberal causes and open societies). People listen to him. Well, why shouldn’t they? He has lots and lots of money and he has been very willing to give it away to others. I’d listen to him too. It is a small price to pay.

Slater does a good job of relating the events in the life of George Soros: his upbringing in Hungary, his stay in London, his education at the London School of Economics (where he met and interacted with Karl Popper) and his move to New York. He follows Soros through the ups and downs of his investment career, spending a total of three chapters on his “greatest coup,” the “remarkable bet against the pound” in 1992, which “made him a world-famous investor.”

Read this book for the story of the man. Read this book as a history of the period. But, don’t read the book to learn how to invest like George Soros. And don’t read the book to see how all that George Soros has done has led to a contented life.