Saturday, November 15, 2008
Euro zone goes into recession
Worse to come as global slowdown takes hold, economists say
Nov. 14, 2008, LONDON A global economic slowdown, financial turmoil and home-grown problems pushed the 15-nation euro zone into its first recession since the debut of the single currency nearly a decade ago, data showed Friday.
The region's third-quarter gross domestic product shrank 0.2% compared to the previous quarter, according to the statistical agency Eurostat. The second quarter also saw a 0.2% decline.
Recession is commonly defined as two or more consecutive quarters of falling GDP.
Consensus expectations were for a 0.1% quarterly decline.
Compared to the third quarter of 2007, GDP matched forecasts for a 0.7% rise -- the slowest pace of annual growth in more than six years.
And it's going to get worse, economists say.
"With manufacturing activity in a freefall due to an inventory overhang and plunging orders, services hit hard by the credit crisis and construction activity starting to contract, future growth prospects appear gloomy," said Aurelio Maccario, chief euro-zone economist at UniCredit MIB in Milan.
The recession's likely to deepen in the current quarter and into the first quarter of 2009, said Maccario, who has penciled in 0.4% declines for both quarters, as well as a negative outturn in the second quarter before signs of a rebound emerge during the second half.
Also of note, bank lending is likely to slow sharply, said Ben May, an economist at Capital Economics.
And with exports set to drop amid the global economic slowdown and falling house prices likely to erode household wealth, the euro zone is on track to contract by 1% in 2009, he said.
Reinforcing the gloom, European registrations for new passenger cars fell 15% on the year in October, to 1.13 million vehicles, as consumers continued to delay big-ticket purchases, the European Automobile Manufacturers Association, said Friday.
The fall into recession for the euro zone comes little surprise, particularly after figures released Thursday showed that Germany, Europe's biggest economy, had entered recession in the third quarter.
Meanwhile, country figures released earlier Friday morning showed France narrowly escaped the recession criteria, scoring a 0.1% rise in third-quarter GDP, while Italy joined the recession ranks with a steeper-than-expected 0.5% quarterly decline. Ireland was the first euro-zone member to fall into recession.
Against this backdrop, the euro slipped to new lows for the day following the Italian data but remained well off weekly lows against the dollar. The single currency traded at $1.2656 in recent action, a loss of 1% on the day.
European stocks traded mostly higher. See Europe Markets.
Meanwhile, Eurostat said October annual consumer price inflation rose 3.2%, slowing from 3.6% in September. Inflation pressures are expected to continue falling at a sharp pace as the economy slows, economists said, giving the European Central Bank room to more aggressively cut interest rates in coming months.
The Frankfurt-based European Central Bank, which had hiked interest rates as recently as July in an effort to anchor inflation expectations, cut its key rate by a half percentage point in October as part of a global round of rate reductions. The rate was slashed a further half a point, to 3.25%, earlier this month.
"Today's data underline again the need for decisive monetary policy action. While the European Central Bank lowered its minimum bid rate by 50 basis points to 3.25% earlier this month, it is our view that a larger step would have been appropriate," said Joerg Radeke, an economist at the Center for Economic and Business Research.
Friday, November 14, 2008
KL - Mixed reactions greet relaxing of bumiputra equity rule
Reprinted from Business Times
Some say it's a moot point, others look forward to more easing off
14 Nov 2008, MALAYSIA'S decision to relax the 30 per cent bumiputra equity requirement for public companies has met with mixed reactions, with most analysts seeing it as a non-event.
On Wednesday, Deputy Prime Minister and Finance Minister Najib Razak announced that companies that try but fail to get bumiputra takers for shares are free to sell them to anyone, regardless of race. But most analysts are underwhelmed.
'Most companies are trading below their initial public offer prices anyway,' a Kuala Lumpur-based foreign analyst said on condition of anonymity and in what seemed to be a typical reaction. 'What is surprising is that it took the authorities so long to make what is essentially a moot point.'
Chris Oh of JPMorgan is more charitable. 'It is a step in the right direction,' he told BT. 'Now companies can get on with their business instead of worrying about the law. We hope this is just the first of other relaxations.'
Mr Najib's decision implies that the government has agreed with only one of three proposals submitted to it three months ago by Bursa Malaysia, the former Kuala Lumpur Stock Exchange.
Industry insiders say that the proposals were an attempt to do away with conditions revolving around a decades-old affirmative action policy that were said to be stifling the market. Companies with overseas assets were said to be increasingly reluctant to list locally, and a growing number were going private or seeking to list overseas.
Since 1973, there has been a requirement that 30 per cent of a listed firm's equity be set aside for bumiputra, or ethnic Malay, shareholders. That condition has not really been contested. But problems arise over 'top-up' requirements if a company tries any sort of restructuring, such as a rights issue. Regulators can demand that bumiputra equity be restored to 30 per cent if sold down, as is usually the case. This has always been contentious because company owners rightfully complain about earnings dilutions.
Bursa is said to have suggested that once a company is listed and the 30 per cent bumiputra shareholding spread satisfied, it should no longer be subject to top-up conditions. But Mr Najib seemingly did not agree to this.
According to industry insiders, Bursa also suggested that all sale moratoriums be abolished. Currently, bumiputra shareholders are not allowed to sell their shares until a certain time has elapsed. This disadvantages them in bear market conditions, whereas their non-bumiputra peers are under no such inhibition. Mr Najib also did not countenance this idea.
The Bursa proposal that Mr Najib endorsed is that of insufficient take-up. Currently, shares not taken up are placed in escrow, but this ignores the reality of the current bear market, in which less than 17 per cent of the past 12 listings have traded above their listing price.
The 30 per cent condition originated with the New Economic Policy (NEP), Malaysia's overriding economic ideology over 35 years. The policy, originally slated to expire in 1990, has been extended to 2020, and seeks to bridge economic disparities between ethnic Malays and their richer non-Malay countrymen by using affirmative action to favour the majority Malays.
The original aim of the NEP, which was promulgated after race riots in 1969, have never been disputed - the elimination of poverty irrespective of race and the restructuring of society so that no race is identified with a specific economic function.
This was to be achieved was through targets - specifically the 30 per cent mark that bumiputras would attain in every sphere of society from employment and occupation to house ownership and corporate equity.
Some say it's a moot point, others look forward to more easing off
14 Nov 2008, MALAYSIA'S decision to relax the 30 per cent bumiputra equity requirement for public companies has met with mixed reactions, with most analysts seeing it as a non-event.
On Wednesday, Deputy Prime Minister and Finance Minister Najib Razak announced that companies that try but fail to get bumiputra takers for shares are free to sell them to anyone, regardless of race. But most analysts are underwhelmed.
'Most companies are trading below their initial public offer prices anyway,' a Kuala Lumpur-based foreign analyst said on condition of anonymity and in what seemed to be a typical reaction. 'What is surprising is that it took the authorities so long to make what is essentially a moot point.'
Chris Oh of JPMorgan is more charitable. 'It is a step in the right direction,' he told BT. 'Now companies can get on with their business instead of worrying about the law. We hope this is just the first of other relaxations.'
Mr Najib's decision implies that the government has agreed with only one of three proposals submitted to it three months ago by Bursa Malaysia, the former Kuala Lumpur Stock Exchange.
Industry insiders say that the proposals were an attempt to do away with conditions revolving around a decades-old affirmative action policy that were said to be stifling the market. Companies with overseas assets were said to be increasingly reluctant to list locally, and a growing number were going private or seeking to list overseas.
Since 1973, there has been a requirement that 30 per cent of a listed firm's equity be set aside for bumiputra, or ethnic Malay, shareholders. That condition has not really been contested. But problems arise over 'top-up' requirements if a company tries any sort of restructuring, such as a rights issue. Regulators can demand that bumiputra equity be restored to 30 per cent if sold down, as is usually the case. This has always been contentious because company owners rightfully complain about earnings dilutions.
Bursa is said to have suggested that once a company is listed and the 30 per cent bumiputra shareholding spread satisfied, it should no longer be subject to top-up conditions. But Mr Najib seemingly did not agree to this.
According to industry insiders, Bursa also suggested that all sale moratoriums be abolished. Currently, bumiputra shareholders are not allowed to sell their shares until a certain time has elapsed. This disadvantages them in bear market conditions, whereas their non-bumiputra peers are under no such inhibition. Mr Najib also did not countenance this idea.
The Bursa proposal that Mr Najib endorsed is that of insufficient take-up. Currently, shares not taken up are placed in escrow, but this ignores the reality of the current bear market, in which less than 17 per cent of the past 12 listings have traded above their listing price.
The 30 per cent condition originated with the New Economic Policy (NEP), Malaysia's overriding economic ideology over 35 years. The policy, originally slated to expire in 1990, has been extended to 2020, and seeks to bridge economic disparities between ethnic Malays and their richer non-Malay countrymen by using affirmative action to favour the majority Malays.
The original aim of the NEP, which was promulgated after race riots in 1969, have never been disputed - the elimination of poverty irrespective of race and the restructuring of society so that no race is identified with a specific economic function.
This was to be achieved was through targets - specifically the 30 per cent mark that bumiputras would attain in every sphere of society from employment and occupation to house ownership and corporate equity.
A Magnetic Personality
Reprinted from theStreet.com
There are two elements involved in becoming a magnet. The first is your ability to attract people. The second is your approachability, the extent to which others perceive you as being open. Together, these two qualities create a positive attitude, one of the top traits of a master networker. Together, they influence how magnetic you are for your business.
In business, magnetism typically means being a center of influence. What if you could become a living magnet for your business? Who or what would be attracted to you? Being a center of influence involves positioning yourself to attract other people to you. It means becoming recognized as the go-to person, the one with a broad network, the person who knows people who can solve other people's problems. That's the person you want to become because that's who you need to be to stand out from your competition.
A magnet's strength is related to the composition of the magnet -- not necessarily the size. You've probably heard of a person having a magnetic personality. If something or someone is magnetic, the object or person has an extraordinary power or ability to attract. We tend to attract people most like ourselves in our daily encounters. You may have experienced the challenges of trying to get a group of six close friends together. Busy people attract other busy people, making it more challenging to get that group together. But the rewards are great when the schedules align for a nice dinner or evening out.
Now let's consider the second element of becoming magnetic: your approachability factor. Author and professional speaker Scott Ginsberg has done extensive research on approachability in relationships. You may have heard of him. He's also known as "the Nametag Guy." (He wears a name tag everywhere he goes.) As the author of The Power of Approachability, he helps people maximize their approachability and become unforgettable.
Ginsberg says, approachability is a two-way street. "It's both you stepping onto someone else's front porch, and you inviting someone to step onto your front porch," he says. Here's a summary of Ginsberg's tips on how to maximize your approachability.
1. Be ready to engage. When you arrive at a meeting, event, party or anywhere conversations will take place, prepare yourself. Be ready with conversation topics, questions and stories in the back of your mind as soon as you meet someone. This will help you avoid awkward small talk.
2. Focus on CPI. CPI stands for common point of interest. It's an essential element in every conversation and interaction. Your duty, as you meet new people, or even as you talk with those you already know, is to discover the CPI as soon as possible. It helps establish a bond between you and others. It increases your approachability and allows them to feel more comfortable talking with you.
3. Give flavored answers. You've heard plenty of fruitless questions in your interactions -- questions like "How's it going?" "What's up?" or "How are you?" When such questions come up, Scott warns, don't fall into the conversation ending trap of responding, "Fine."
Instead offer a flavored answer: "Amazing!" "Any better, and I'd be twins!" or "Everything is beautiful." The other person will instantly change his or her demeanor, smile and, most of the time, ask what made you answer that way. Why? Because nobody expects it. Not only that, but offering a true response to magnify the way you feel is a perfect way to share yourself or make yourself personally available to others.
4. Don't cross your arms at networking events. Even if you're cold, bored, tired or just don't want to be there, don't cross your arms. It makes you seem defensive, nervous, judgmental, close-minded or skeptical. It's a simple, subconscious, nonverbal cue that says, "Stay away." People see crossed arms, and they drift away. They don't want to bother you. You're not approachable.
Think about it. Would you want to approach someone like that? Probably not. So when you feel that urge to fold your arms across your chest like a shield, stop. Be conscious of its effect. Then relax and do something else with your arms and hands.
5. Give options for communication. Your friends, colleagues, customers and co-workers communicate with you in different ways. Some will choose face-to-face; some will email; others will call; still others will do a little of everything. Accommodate them all. Give people as many ways as you can to contact you. Make it easy and pleasant.
On your business cards, email signatures, Web sites and marketing materials, let people know they can get in touch with you in whatever manner they choose. Maybe you prefer email, but what matters most is the other person's comfort and ability to communicate with you effectively. There's nothing more annoying to a phone person than to discover she can't get a hold of you unless she emails you.
6. Always have business cards. At one time or another you've probably been on either the telling or listening end of a story about a successful, serendipitous business encounter that ended with the phrase, "Thank goodness I had one of my business cards with me that day." If you recall saying something like that yourself, great. You're practicing approachability by being easy to reach.
If not, you've no doubt missed out on valuable relationships and opportunities. And it happens. People forget cards, neglect to get their supply reprinted or change jobs. Always remember: There is a time and a place for networking -- any time and any place. You just never know who you might meet.
7. Conquer your fear of rejection. Do you ever hear yourself saying, "They won't say hello back to me. They won't be interested in me. I will make a fool of myself"?
Fear is the No. 1 reason people don't start conversations -- fear of rejection, fear of inadequacy and fear of looking foolish. But practice will make this fear fade. The more you start conversations, the better you become at it. So be the first to introduce yourself, or simply to say hello. When you take an active rather than passive role, you develop your skills and lower your chances of rejection.
8. Wear your name tag. We've heard every possible excuse not to wear name tags, and all of them can be rebutted:
"Name tags look silly." Yes, they do. But, remember, everyone else is wearing one, too.
"Name tags ruin my clothes." Not if you wear them on the edge of your lapel, or use cloth-safe connectors, like lanyards and plastic clips.
"But I already know everybody." No, you don't. You may think you do, but people join and leave businesses and organizations all the time.
"But everyone already knows me." No, they don't. Even the best networkers know there's always someone new to meet.
Your name tag is your best friend for several reasons. First of all, a person's name is the single piece of personal information most often forgotten -- and people are less likely to approach you if they don't know (or have forgotten) your name. Second, it's free advertising for you and your company. Third, name tags encourage people to be friendly and more approachable.
Ginsberg's axiom about the CPI is particularly powerful in networking for your business. Consider the people you know best right now. If you know them through work, they all share work with you as a CPI. If you know them through your soccer league, they share your interest in soccer. With that in mind, you could be attracting people who later -- after you've built a relationship starting from this common ground -- could help your business.
There are two elements involved in becoming a magnet. The first is your ability to attract people. The second is your approachability, the extent to which others perceive you as being open. Together, these two qualities create a positive attitude, one of the top traits of a master networker. Together, they influence how magnetic you are for your business.
In business, magnetism typically means being a center of influence. What if you could become a living magnet for your business? Who or what would be attracted to you? Being a center of influence involves positioning yourself to attract other people to you. It means becoming recognized as the go-to person, the one with a broad network, the person who knows people who can solve other people's problems. That's the person you want to become because that's who you need to be to stand out from your competition.
A magnet's strength is related to the composition of the magnet -- not necessarily the size. You've probably heard of a person having a magnetic personality. If something or someone is magnetic, the object or person has an extraordinary power or ability to attract. We tend to attract people most like ourselves in our daily encounters. You may have experienced the challenges of trying to get a group of six close friends together. Busy people attract other busy people, making it more challenging to get that group together. But the rewards are great when the schedules align for a nice dinner or evening out.
Now let's consider the second element of becoming magnetic: your approachability factor. Author and professional speaker Scott Ginsberg has done extensive research on approachability in relationships. You may have heard of him. He's also known as "the Nametag Guy." (He wears a name tag everywhere he goes.) As the author of The Power of Approachability, he helps people maximize their approachability and become unforgettable.
Ginsberg says, approachability is a two-way street. "It's both you stepping onto someone else's front porch, and you inviting someone to step onto your front porch," he says. Here's a summary of Ginsberg's tips on how to maximize your approachability.
1. Be ready to engage. When you arrive at a meeting, event, party or anywhere conversations will take place, prepare yourself. Be ready with conversation topics, questions and stories in the back of your mind as soon as you meet someone. This will help you avoid awkward small talk.
2. Focus on CPI. CPI stands for common point of interest. It's an essential element in every conversation and interaction. Your duty, as you meet new people, or even as you talk with those you already know, is to discover the CPI as soon as possible. It helps establish a bond between you and others. It increases your approachability and allows them to feel more comfortable talking with you.
3. Give flavored answers. You've heard plenty of fruitless questions in your interactions -- questions like "How's it going?" "What's up?" or "How are you?" When such questions come up, Scott warns, don't fall into the conversation ending trap of responding, "Fine."
Instead offer a flavored answer: "Amazing!" "Any better, and I'd be twins!" or "Everything is beautiful." The other person will instantly change his or her demeanor, smile and, most of the time, ask what made you answer that way. Why? Because nobody expects it. Not only that, but offering a true response to magnify the way you feel is a perfect way to share yourself or make yourself personally available to others.
4. Don't cross your arms at networking events. Even if you're cold, bored, tired or just don't want to be there, don't cross your arms. It makes you seem defensive, nervous, judgmental, close-minded or skeptical. It's a simple, subconscious, nonverbal cue that says, "Stay away." People see crossed arms, and they drift away. They don't want to bother you. You're not approachable.
Think about it. Would you want to approach someone like that? Probably not. So when you feel that urge to fold your arms across your chest like a shield, stop. Be conscious of its effect. Then relax and do something else with your arms and hands.
5. Give options for communication. Your friends, colleagues, customers and co-workers communicate with you in different ways. Some will choose face-to-face; some will email; others will call; still others will do a little of everything. Accommodate them all. Give people as many ways as you can to contact you. Make it easy and pleasant.
On your business cards, email signatures, Web sites and marketing materials, let people know they can get in touch with you in whatever manner they choose. Maybe you prefer email, but what matters most is the other person's comfort and ability to communicate with you effectively. There's nothing more annoying to a phone person than to discover she can't get a hold of you unless she emails you.
6. Always have business cards. At one time or another you've probably been on either the telling or listening end of a story about a successful, serendipitous business encounter that ended with the phrase, "Thank goodness I had one of my business cards with me that day." If you recall saying something like that yourself, great. You're practicing approachability by being easy to reach.
If not, you've no doubt missed out on valuable relationships and opportunities. And it happens. People forget cards, neglect to get their supply reprinted or change jobs. Always remember: There is a time and a place for networking -- any time and any place. You just never know who you might meet.
7. Conquer your fear of rejection. Do you ever hear yourself saying, "They won't say hello back to me. They won't be interested in me. I will make a fool of myself"?
Fear is the No. 1 reason people don't start conversations -- fear of rejection, fear of inadequacy and fear of looking foolish. But practice will make this fear fade. The more you start conversations, the better you become at it. So be the first to introduce yourself, or simply to say hello. When you take an active rather than passive role, you develop your skills and lower your chances of rejection.
8. Wear your name tag. We've heard every possible excuse not to wear name tags, and all of them can be rebutted:
"Name tags look silly." Yes, they do. But, remember, everyone else is wearing one, too.
"Name tags ruin my clothes." Not if you wear them on the edge of your lapel, or use cloth-safe connectors, like lanyards and plastic clips.
"But I already know everybody." No, you don't. You may think you do, but people join and leave businesses and organizations all the time.
"But everyone already knows me." No, they don't. Even the best networkers know there's always someone new to meet.
Your name tag is your best friend for several reasons. First of all, a person's name is the single piece of personal information most often forgotten -- and people are less likely to approach you if they don't know (or have forgotten) your name. Second, it's free advertising for you and your company. Third, name tags encourage people to be friendly and more approachable.
Ginsberg's axiom about the CPI is particularly powerful in networking for your business. Consider the people you know best right now. If you know them through work, they all share work with you as a CPI. If you know them through your soccer league, they share your interest in soccer. With that in mind, you could be attracting people who later -- after you've built a relationship starting from this common ground -- could help your business.
Thursday, November 13, 2008
KL tweaks long-standing 30% bumi equity rule
Business Times - 13 Nov 2008
Move intended to keep capital market competitive and progressive: Najib
(KUALA LUMPUR) The government yesterday relaxed the 30 per cent bumiputra equity ownership for companies wanting to be listed but have yet to fulfil the quota.
Deputy Prime Minister Najib Razak said the relaxation, which would take effect immediately, was to ensure that the Malaysian capital investment market stays progressive and competitive.
He said that the companies concerned had to take specific steps and, under the reorganisation, needed to heed the conditions of the National Development Policy while continuing to offer the shares to institutions and bumiputra investors approved by the Ministry of International Trade and Industry.
He said, however, that the shares that were not subscribed could be offered to other bumiputras as part of the share voting process.
'I wish to stress that the 30 per cent bumiputra equity participation at the point of listing will continue to be enforced. However, there will be a slight change in terms of the methodology,' he told reporters after visiting the Securities Commission.
'This means that more individual bumiputras could apply for the shares concerned. If the shares offered to individual bumiputras are still not fully subscribed, then the company concerned is deemed to have fulfilled the 30 per cent bumiputra equity,' he said.
Asked whether this move would jeopardise the 30 per cent bumiputra equity, he said the action would allow other bumiputra individuals to participate and take up the public balloting.
'There are two tiers. After the two cuts, if the shares are still not taken up, it is only fair to allow the companies to be listed. Otherwise there will be a huge uncertainty for them,' he said.
Meanwhile, Securities Commission chairman Zarinah Anwar said to date, seven companies had not fulfilled the share ownership conditions.
She said the companies concerned had met the Securities Commission and had been given time to fulfil the condition.
'The share prices of these companies today have gone below their IPO pricing. Of course, it does not make sense then to compel bumiputras to subscribe as they will be able to buy the shares cheaper from the market,' she said
Tuesday, November 11, 2008
Obama's Priceless Impact on Economy
11/10/08 - 10:18 AM EST, The stock market is always right. Nonetheless, I must admit to being more than a little annoyed that the stock market greeted the election results with a two-day nosedive, the worst two-day decline since the crash of 1987. Even Friday's 250-point gain was little solace.
It smacked of Wall Street pique that the next president appears to be no friend of "the Street." But the economic platform of our new president came as no surprise, so why the selloff?
Yes, he promised to tax capital gains at the same rate as ordinary income, which would represent a huge hit to those who still have any capital gains remaining. But the smart money had already priced that fact into the stock market, selling earlier in the campaign as the candidate's momentum picked up.
Certainly, President Obama will take a more populist approach to digging America out of its economic mess. But realistically, how much more could Wall Street have expected in the way of aid from the government? More than a trillion dollars has already been injected directly into the banking system by way of guarantees and capital stock purchases.
With the global financial markets resisting transparency, clarity and centralized clearing of transactions, all the liquidity in the world won't restore trust and spur lending. So why not try from the other end -- by helping the debt-ridden consumer?
On balance -- priceless!
The stock market, as measured by the Dow Wilshire 5000 Index, lost $1.2 trillion in the two days following the election. Part of that came from fear of the unknown impact of the next president's (and Congress') planned policy changes and spending programs.
It reminds me of the MasterCard commercials that tote up the price of components of an event: "Tickets, $100; parking, $20; pop corn, $15." But remember the punch line is always the sum total of the experience.
And in the case of the global impact of the election of Barak Obama as the next president of the United States, the overall impact is indeed PRICELESS!
America now has the opportunity to regain global trust in our basic principles of equal opportunity. If one picture is worth a thousand words, we have demonstrated the true strength of our democracy, with a capital D. We didn't have to go to war to spread democracy. All we had to do is demonstrate beyond the shadow of a doubt -- and beyond hanging chads -- our national commitment to our unique political system.
And in doing so, we have visibly inspired millions of people around the world to give us the benefit of all the doubts that have been raised in the past eight years.
Priceless, but costly
Now comes the tough part. As we try a different approach to restoring our economic growth, all the hope in the world can't deny economic reality. The jobs figures last Friday demonstrated the immediate need to grow the economy. Now there will be even greater expectations of some sort of government-directed public-works program.
The real issue is how to pay for all of this spending. And on that score, President-elect Obama may have a very appropriate role model in the actions of President John F. Kennedy.
It was Kennedy who famously said: "Paradoxically, the way to increase tax revenues, is to cut tax rates." Those are my italics.
When Kennedy became president, the top personal tax rate was 91%. That's not a typo. Almost every penny of the last dollar earned by top wage earners went to the government -- and the economy was stagnant.
Kennedy became the largest tax-cutter in American history at that time, cutting the top personal tax rate from 91% to 70%. He also cut the top corporate tax rate from 52% to 48%. Unfortunately, he did not live to see the resultant spurt in growth that came to be known as the "Kennedy Boom."
Cutting taxes to spur economic growth is not a Republican vs. Democrat issue. It is a growth vs. stagnation issue. And since the top 10% of tax returns produce 60% of the tax revenues, that is where rates will have to be cut in order to produce more jobs, more economic growth and then more tax revenues.
President-elect Barack Obama has given ample demonstration of his insight, intelligence and his appreciation of his place in history. That is why the world, and the markets, should be filled with hope, even amid this very real economic slowdown. And that's The Savage Truth.
It smacked of Wall Street pique that the next president appears to be no friend of "the Street." But the economic platform of our new president came as no surprise, so why the selloff?
Yes, he promised to tax capital gains at the same rate as ordinary income, which would represent a huge hit to those who still have any capital gains remaining. But the smart money had already priced that fact into the stock market, selling earlier in the campaign as the candidate's momentum picked up.
Certainly, President Obama will take a more populist approach to digging America out of its economic mess. But realistically, how much more could Wall Street have expected in the way of aid from the government? More than a trillion dollars has already been injected directly into the banking system by way of guarantees and capital stock purchases.
With the global financial markets resisting transparency, clarity and centralized clearing of transactions, all the liquidity in the world won't restore trust and spur lending. So why not try from the other end -- by helping the debt-ridden consumer?
On balance -- priceless!
The stock market, as measured by the Dow Wilshire 5000 Index, lost $1.2 trillion in the two days following the election. Part of that came from fear of the unknown impact of the next president's (and Congress') planned policy changes and spending programs.
It reminds me of the MasterCard commercials that tote up the price of components of an event: "Tickets, $100; parking, $20; pop corn, $15." But remember the punch line is always the sum total of the experience.
And in the case of the global impact of the election of Barak Obama as the next president of the United States, the overall impact is indeed PRICELESS!
America now has the opportunity to regain global trust in our basic principles of equal opportunity. If one picture is worth a thousand words, we have demonstrated the true strength of our democracy, with a capital D. We didn't have to go to war to spread democracy. All we had to do is demonstrate beyond the shadow of a doubt -- and beyond hanging chads -- our national commitment to our unique political system.
And in doing so, we have visibly inspired millions of people around the world to give us the benefit of all the doubts that have been raised in the past eight years.
Priceless, but costly
Now comes the tough part. As we try a different approach to restoring our economic growth, all the hope in the world can't deny economic reality. The jobs figures last Friday demonstrated the immediate need to grow the economy. Now there will be even greater expectations of some sort of government-directed public-works program.
The real issue is how to pay for all of this spending. And on that score, President-elect Obama may have a very appropriate role model in the actions of President John F. Kennedy.
It was Kennedy who famously said: "Paradoxically, the way to increase tax revenues, is to cut tax rates." Those are my italics.
When Kennedy became president, the top personal tax rate was 91%. That's not a typo. Almost every penny of the last dollar earned by top wage earners went to the government -- and the economy was stagnant.
Kennedy became the largest tax-cutter in American history at that time, cutting the top personal tax rate from 91% to 70%. He also cut the top corporate tax rate from 52% to 48%. Unfortunately, he did not live to see the resultant spurt in growth that came to be known as the "Kennedy Boom."
Cutting taxes to spur economic growth is not a Republican vs. Democrat issue. It is a growth vs. stagnation issue. And since the top 10% of tax returns produce 60% of the tax revenues, that is where rates will have to be cut in order to produce more jobs, more economic growth and then more tax revenues.
President-elect Barack Obama has given ample demonstration of his insight, intelligence and his appreciation of his place in history. That is why the world, and the markets, should be filled with hope, even amid this very real economic slowdown. And that's The Savage Truth.
Ultimately, there was no protection at all
Reprinted from Business Times
Mon, Nov 10, 2008, WHICHEVER way you look at it, an investment fund or note that trumpets a 'protected' stamp is very clever marketing. As recent events have painfully shown, it is a misnomer and the description should be banned from fund or investment product literature.
Protected and guaranteed unit trusts first made their debut in 2000 when the market was rocked by the bursting of the technology bubble. Fund managers who offered them raised billions of dollars, the bulk of which have since matured to a mixed record by now - that is, most of them delivered the capital and no more after 3-5 years.
At worst, those that set out to protect or guarantee 70-90 per cent of investors' capital - on the grounds that a lower level of guarantee allows the manager to take on more risk and deliver more returns - finished at just what they set out to secure. That outcome is disappointing. Who would be happy with just 70-90 per cent of his capital after 3-5 years, when a deposit would have delivered the full capital plus an interest rate, albeit piffling? What's more, the outcome is actually a loss when a sales charge is factored in.
The subscription rate of capital-protected unit trusts in fact pales in comparison with retail structured notes, as investors took to notes even more feverishly. Notes, as you would know by now, are hardly regulated, if at all. Unlike unit trusts, there appears to be no minimum credit rating for underlying securities; little disclosure of what exactly the funds are invested in; and absolutely no disclosure of fees. That opened the marketing floodgates.
But first, back to basics on the distinction between protected and guaranteed products. A protected fund or note relies on the strength of the underlying securities or bonds to deliver an investor's capital. This suggests that the most robust of products would go for the highest AAA-rated securities.
To call itself guaranteed, on the other hand, a fund or note needs an institution to underwrite the maturity value.
A crisis situation like today's illustrates just how illusory protection really is. And the flimsiness of the structure was engendered not only by product manufacturers (fund managers and investment banks) but also by relatively loose regulation.
On the product side, structuring a protected fund in the last few years was a challenge because of the low interest rate environment, particularly in Singapore dollars. So, fund managers and banks trawled from lower-quality credits - with at least minimum investment-grade ratings - to put together a basket that would in aggregate deliver an attractive yield. This included reaching into complex structured debt which also fetched higher yields because of their implicit risks.
The big question - even at that time - was whether there was enough cushion in terms of credit quality to secure investors' principal. As we can see now from various structured products whose mark-to-market values are alarmingly low, the answer is clearly no.
As for regulation, the Monetary Authority of Singapore's (MAS) code for collective investment schemes typically sets a concentration limit of 10 per cent for a single security for unit trusts. With lobbying from the fund management industry, this was loosened for structured funds to one-third. This was arguably something that worked against investors' interests. Diversification helps to preserve principal.
For instance, UOB Asset Management's United Capital Protected Fund Series 3 Sing dollar fund had an 11 per cent exposure to Lehman debt as at June 30. The fund recently matured at just about 90 per cent of principal. The US dollar fund's exposure was nearly 29 per cent. The fund matured at about 73 per cent of capital.
Interestingly, Prudential Asset Management's Yield 15 and Yield 20 funds, whose underlying asset is a collateralised debt obligation (CDO), has not fared too badly so far, considering that CDOs are now widely seen as 'toxic'.
The funds have to date suffered four credit defaults out of a total reference basket of 100 names. Still, as a CDO is structured with 'subordination', which gives it a cushion, the capital is expected to remain intact at maturity in 2010, says Prudential. It remains to be seen whether the expected uptick in default rates will hurt. But based on the structure, roughly 18 names will have to default to breach the capital.
Another Prudential Fund 3Plus has had two credit events: Lehman, and Iceland bank Kaupthing Banki. These have reduced the subordination level to 2.07 per cent. With three years to maturity, Prudential so far does not expect the capital to be compromised.
As for structured notes, it has been a marketing free-for-all. Merrill Lynch's Jubilee Series 9 note, for instance, calls itself protected, but there is little to inspire confidence in the underlying assets. In the product literature, there is little disclosure on the credit quality of underlying securities, let alone what exactly the securities are.
As with most other notes, Merrill's noteholders also rank last in any claim on the fund. In short, no protection.
The use of a 'protected' label obscures the risk-reward proposition of a product, which is further obscured by bankers eager to make a sale. Structured funds and notes are often sweetened with a seemingly attractive initial coupon payout. In many cases, this is actually a return of capital rather than a return on capital, which investors fail to grasp.
But the downside risk is that of your capital dwindling to zero - as High Notes investors have realised to their dismay. That surely is an outcome that is too heavily skewed to the downside to be palatable.
Going forward, as MAS reviews the rules on the marketing of structured products, it would not be a bad thing to bar them from the retail market altogether - along with ditching the 'protected' label. After all, structured products really aren't investments. They are a bet that a set of market conditions will hold - that of normal trending markets with muted volatility. All that has since gone horribly awry.
Mon, Nov 10, 2008, WHICHEVER way you look at it, an investment fund or note that trumpets a 'protected' stamp is very clever marketing. As recent events have painfully shown, it is a misnomer and the description should be banned from fund or investment product literature.
Protected and guaranteed unit trusts first made their debut in 2000 when the market was rocked by the bursting of the technology bubble. Fund managers who offered them raised billions of dollars, the bulk of which have since matured to a mixed record by now - that is, most of them delivered the capital and no more after 3-5 years.
At worst, those that set out to protect or guarantee 70-90 per cent of investors' capital - on the grounds that a lower level of guarantee allows the manager to take on more risk and deliver more returns - finished at just what they set out to secure. That outcome is disappointing. Who would be happy with just 70-90 per cent of his capital after 3-5 years, when a deposit would have delivered the full capital plus an interest rate, albeit piffling? What's more, the outcome is actually a loss when a sales charge is factored in.
The subscription rate of capital-protected unit trusts in fact pales in comparison with retail structured notes, as investors took to notes even more feverishly. Notes, as you would know by now, are hardly regulated, if at all. Unlike unit trusts, there appears to be no minimum credit rating for underlying securities; little disclosure of what exactly the funds are invested in; and absolutely no disclosure of fees. That opened the marketing floodgates.
But first, back to basics on the distinction between protected and guaranteed products. A protected fund or note relies on the strength of the underlying securities or bonds to deliver an investor's capital. This suggests that the most robust of products would go for the highest AAA-rated securities.
To call itself guaranteed, on the other hand, a fund or note needs an institution to underwrite the maturity value.
A crisis situation like today's illustrates just how illusory protection really is. And the flimsiness of the structure was engendered not only by product manufacturers (fund managers and investment banks) but also by relatively loose regulation.
On the product side, structuring a protected fund in the last few years was a challenge because of the low interest rate environment, particularly in Singapore dollars. So, fund managers and banks trawled from lower-quality credits - with at least minimum investment-grade ratings - to put together a basket that would in aggregate deliver an attractive yield. This included reaching into complex structured debt which also fetched higher yields because of their implicit risks.
The big question - even at that time - was whether there was enough cushion in terms of credit quality to secure investors' principal. As we can see now from various structured products whose mark-to-market values are alarmingly low, the answer is clearly no.
As for regulation, the Monetary Authority of Singapore's (MAS) code for collective investment schemes typically sets a concentration limit of 10 per cent for a single security for unit trusts. With lobbying from the fund management industry, this was loosened for structured funds to one-third. This was arguably something that worked against investors' interests. Diversification helps to preserve principal.
For instance, UOB Asset Management's United Capital Protected Fund Series 3 Sing dollar fund had an 11 per cent exposure to Lehman debt as at June 30. The fund recently matured at just about 90 per cent of principal. The US dollar fund's exposure was nearly 29 per cent. The fund matured at about 73 per cent of capital.
Interestingly, Prudential Asset Management's Yield 15 and Yield 20 funds, whose underlying asset is a collateralised debt obligation (CDO), has not fared too badly so far, considering that CDOs are now widely seen as 'toxic'.
The funds have to date suffered four credit defaults out of a total reference basket of 100 names. Still, as a CDO is structured with 'subordination', which gives it a cushion, the capital is expected to remain intact at maturity in 2010, says Prudential. It remains to be seen whether the expected uptick in default rates will hurt. But based on the structure, roughly 18 names will have to default to breach the capital.
Another Prudential Fund 3Plus has had two credit events: Lehman, and Iceland bank Kaupthing Banki. These have reduced the subordination level to 2.07 per cent. With three years to maturity, Prudential so far does not expect the capital to be compromised.
As for structured notes, it has been a marketing free-for-all. Merrill Lynch's Jubilee Series 9 note, for instance, calls itself protected, but there is little to inspire confidence in the underlying assets. In the product literature, there is little disclosure on the credit quality of underlying securities, let alone what exactly the securities are.
As with most other notes, Merrill's noteholders also rank last in any claim on the fund. In short, no protection.
The use of a 'protected' label obscures the risk-reward proposition of a product, which is further obscured by bankers eager to make a sale. Structured funds and notes are often sweetened with a seemingly attractive initial coupon payout. In many cases, this is actually a return of capital rather than a return on capital, which investors fail to grasp.
But the downside risk is that of your capital dwindling to zero - as High Notes investors have realised to their dismay. That surely is an outcome that is too heavily skewed to the downside to be palatable.
Going forward, as MAS reviews the rules on the marketing of structured products, it would not be a bad thing to bar them from the retail market altogether - along with ditching the 'protected' label. After all, structured products really aren't investments. They are a bet that a set of market conditions will hold - that of normal trending markets with muted volatility. All that has since gone horribly awry.
Monday, November 10, 2008
How China and Singapore coping with current recession
China unveiled a multi-trillion yuan economic stimulus plan Sunday aimed at boosting domestic consumer demand in the face of flagging exports, as foreign markets contract in the global financial crisis and would increase spending on infrastructure and a range of other sectors amid slowing domestic growth.
"China has decided to adopt an active fiscal policy and moderately easy monetary policies to foster fast but steady economic growth by expanding domestic demand," said a statement posted on the Cabinet's website.
The spending package would total four trillion yuan (US$586 billion) by the end of 2010, including monies already earmarked this year, it said.
The measures come amid slackening overseas demand for China's manufactured goods -- the mainstay of the Chinese economy -- and the statement
Economic growth in the country eased to nine per cent in the third quarter of this year, the lowest in around five years, partly due to slowing exports.
The central bank has already cut interest rates three times since September and taken other steps to loosen monetary policy.
Those measures marked an about-face from a policy of steadily raising interest rates to cool the economy amid growing inflation and fears of overheating.
The Cabinet, or State Council, also recently approved a plan to spend two trillion yuan on construction of new railways from now until 2020.
The new approach mirrors similar policy steps taken between 1998 and 2004 to cope with the effects of the 1997-98 Asian financial crisis.
Those measures included issuing large amounts of treasury bonds and ramping up public investment.
"The economic situation China is facing now is far more grave than in 1998. There could be more coordination with other central banks as China is more exposed to the external environment," Xing Ziqiang, a Beijing-based economist with China International Capital Corp Ltd, told AFP.
"In 1998, it was mainly Asian countries, including some competitors of China, that ran into trouble. But this time it's China's export market -- America and Europe."
The new spending will be directed at a broad range of areas including the construction of railroads, highways and airports, boosting the services sector and agriculture, and upgrading power grids, the state-run broadcaster CCTV said.
Money also would be poured into social welfare systems including education and public health, it said.
The slowdown is raising fears that millions of factory workers could be left jobless and could confound China's plans to spread economic development from the prosperous coastal manufacturing areas into poor interior regions.
Over in Singapore, Minister Mentor Lee Kuan Yew has said the current global recession is the most severe since the Great Depression of the 1930s. And he cautioned that it is just the beginning in Singapore.
But Mr Lee said: "Our reserves can see us through this crisis without going broke, although we have no natural resources, no oil, gas, palm oil whatever."
Mr Lee also gave the assurance that the government will ensure nobody falls below the poverty line.
It's perhaps an anomaly in the current times that public housing prices in Singapore have remained steady. But, Mr Lee said, unlike the housing crisis in the US, few citizens in Singapore have bought homes they cannot afford.
Singapore's property market is one example pointing to the country's strong economy. Other bright sparks - jobs available at the upcoming integrated resorts and continued investments by high-end manufacturing companies.
Mr Lee said the government will also prime the economy to prepare for tough times ahead.
But here's a reality check - it will be some time before Singaporeans will enjoy the same standard of living they experienced before the crisis.
Mr Lee said: "We cannot restore people (people's living standards) to what they were enjoying before the worldwide crash. But we will make sure nobody falls below the poverty line.
"After studying the situation carefully, ministers have to make a realistic estimate of how much we can afford in additional U-Save, Workfare and other alleviating measures.
"But again, it depends on our assessment of how long and how deep this recession will be."
Mr Lee said that no one knows how long the current downturn will last. His advice to Singaporeans is that they have to accept that sacrifices and cutbacks will have to be made.
"China has decided to adopt an active fiscal policy and moderately easy monetary policies to foster fast but steady economic growth by expanding domestic demand," said a statement posted on the Cabinet's website.
The spending package would total four trillion yuan (US$586 billion) by the end of 2010, including monies already earmarked this year, it said.
The measures come amid slackening overseas demand for China's manufactured goods -- the mainstay of the Chinese economy -- and the statement
Economic growth in the country eased to nine per cent in the third quarter of this year, the lowest in around five years, partly due to slowing exports.
The central bank has already cut interest rates three times since September and taken other steps to loosen monetary policy.
Those measures marked an about-face from a policy of steadily raising interest rates to cool the economy amid growing inflation and fears of overheating.
The Cabinet, or State Council, also recently approved a plan to spend two trillion yuan on construction of new railways from now until 2020.
The new approach mirrors similar policy steps taken between 1998 and 2004 to cope with the effects of the 1997-98 Asian financial crisis.
Those measures included issuing large amounts of treasury bonds and ramping up public investment.
"The economic situation China is facing now is far more grave than in 1998. There could be more coordination with other central banks as China is more exposed to the external environment," Xing Ziqiang, a Beijing-based economist with China International Capital Corp Ltd, told AFP.
"In 1998, it was mainly Asian countries, including some competitors of China, that ran into trouble. But this time it's China's export market -- America and Europe."
The new spending will be directed at a broad range of areas including the construction of railroads, highways and airports, boosting the services sector and agriculture, and upgrading power grids, the state-run broadcaster CCTV said.
Money also would be poured into social welfare systems including education and public health, it said.
The slowdown is raising fears that millions of factory workers could be left jobless and could confound China's plans to spread economic development from the prosperous coastal manufacturing areas into poor interior regions.
Over in Singapore, Minister Mentor Lee Kuan Yew has said the current global recession is the most severe since the Great Depression of the 1930s. And he cautioned that it is just the beginning in Singapore.
But Mr Lee said: "Our reserves can see us through this crisis without going broke, although we have no natural resources, no oil, gas, palm oil whatever."
Mr Lee also gave the assurance that the government will ensure nobody falls below the poverty line.
It's perhaps an anomaly in the current times that public housing prices in Singapore have remained steady. But, Mr Lee said, unlike the housing crisis in the US, few citizens in Singapore have bought homes they cannot afford.
Singapore's property market is one example pointing to the country's strong economy. Other bright sparks - jobs available at the upcoming integrated resorts and continued investments by high-end manufacturing companies.
Mr Lee said the government will also prime the economy to prepare for tough times ahead.
But here's a reality check - it will be some time before Singaporeans will enjoy the same standard of living they experienced before the crisis.
Mr Lee said: "We cannot restore people (people's living standards) to what they were enjoying before the worldwide crash. But we will make sure nobody falls below the poverty line.
"After studying the situation carefully, ministers have to make a realistic estimate of how much we can afford in additional U-Save, Workfare and other alleviating measures.
"But again, it depends on our assessment of how long and how deep this recession will be."
Mr Lee said that no one knows how long the current downturn will last. His advice to Singaporeans is that they have to accept that sacrifices and cutbacks will have to be made.
Sunday, November 9, 2008
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