President Obama and the Democrat-controlled Congress are on a multi-trillion dollar spending spree to keep our economy from slowing even further.
Whether all that spending will revive our economy is yet to be seen. However, one thing is very clear —
Our recession is spreading across the Pacific Ocean to the booming Asian economies.
The United States has become a nation of consumers. And countries that make all the doodads, toys, clothes, and other consumer goods we can't seem to go without are seeing their economies slow to a snail's pace as we buy less and less.
The Chinese National Bureau of Statistics released their GDP data for 2008. And it turns out that the Chinese economy expanded by 6.8% in the last quarter of 2008 — the weakest quarterly year-over-year growth rate in seven years!
And for the year as a whole, the Chinese economy grew only 9%, way down from the 13% growth rate in 2007.
The reason for the slowdown is simple: Exports are way down ...
China's exports tumbled 2.8% in December, the most in nearly a decade. To put that in perspective, China enjoyed a 21.7% increase in exports during the fourth quarter of 2007. And for all of 2008, exports were up by just 17.2%, a huge drop from 25.7% in 2007.
I also pay a lot of attention to electrical output. That's because this statistic is an extremely accurate indicator of overall economic growth (or lack thereof). And in the fourth quarter China's electrical output was 6% below the same period in 2007.
Now, you may be telling yourself that a 6.8% economic growth rate is nothing to sneeze at. You're right — we'd do cartwheels for that type of economic growth in the U.S. — but the circumstances in China are very different.
You see, a population of 1.3 billion means that tens of millions of new workers are entering the workforce every year, especially as migrants from the poor interior cities move to the coastal cities looking for factory and construction jobs.
So while 6.8% growth would be great in the U.S., a growth rate of 6.8% is almost like a recession to China.
On top of that, China is also facing pressure from President Obama to allow the yuan to rise in value. Timothy Geithner, Obama's pick for Treasury Secretary, said that "China is manipulating its currency."
Nevertheless, the last thing China can afford is to allow its currency to rise and make its exports more expensive. So I foresee that the currency-valuation issue will probably turn into some sort of political battle down the road, threatening to make things worse for both the U.S. and China.
No doubt, China's slowdown is going to affect more than just its own economy. And the steepness of this slowdown is likely to have a significant impact on much of the rest of Asia, which relies heavily on demand from China.
In fact, it is already causing ...
Slumps in Three Major Markets:
Slump #1 — Japan ...
The Japanese Finance Ministry reported that Japanese exports plunged by a faint-inducing 35% in December from the year before. For an export-dependent country like Japan, that is a kiss of corporate profit death.
Sony, for example, reported its first annual loss in 14 years last week. It also announced 8,000 layoffs and the closure of 10% of its manufacturing plants around the world.
Slump #2 — South Korea ...
South Korea's economy contracted a painful 5.6% last quarter — twice as bad as had been expected. The problem? China is South Korea's biggest export market. And exports to China are nose diving.
Case in point: Korean electronics giant Samsung reported its first ever quarterly loss. The $674 million loss was a whopping two times larger than the Wall Street crowd was expecting.
The big problem, by the way, was cell phone sales. Furthermore, Samsung warned that it expected the cell phone market to drop by another 5% or 10% in 2009. So if you're a Motorola or Nokia shareholder, you might want to re-think the wisdom of holding on to a company in a shrinking industry.
Slump #3 — Australia ...
Australian Prime Minister Kevin Rudd warned last week that the slowdown in China will chop $3.3 billion of business from the Australian economy.
He went on to say, "And that means a massive five billion dollar fall immediately in Australian exports, just because of China alone, and with a consequential impact on Australian jobs."
In fact, Australian mining giant BHP Billiton is closing a nickel mine and cutting 6,000 jobs around the globe because of weaker demand from China, the world's No. 1 consumer of metals.
I could go on:
Singapore, Taiwan, India, Malaysia, Indonesia, and China's other Asian neighbors are all feeling the same economic pinch.
What's important is that things are going to get worse before they get better. I'm not just talking about the U.S., either.
What You Should Be Doing Now ...
As the U.S. recession sends a financial tsunami from sea to shining sea, there are five moves you might consider to protect your wealth and profit from the chaos ahead ...
Use any rallies to sell stocks and reduce your exposure to equities. Raise cash!
I think U.S. dollar-denominated assets will get clobbered the most. I expect U.S. stocks and U.S. bonds to be among the worst performing assets in the world. I would avoid them like the plague!
Our politicians are spending money like there's no tomorrow. And that means a whole lot of inflation is in our future. So make sure your portfolio includes some inflation hedges, such as gold and timber.
If you're very aggressive and have some speculative money you can afford to put at risk, take a look at either long-term put options (also known as LEAPs). Or consider inverse exchange traded funds, such as the ProFunds Ultrashort FTSE/Xinhau China 25 (NYSE:FXP). This ETF is designed to move twice the inverse of the daily performance of the FTSE/Xinhua China 25 index. In other words, for every 10% the index drops, the ETF is meant to go up 20%. Of course, the opposite can happen: If the index rises 10%, the ETF could drop 20%.
Get ready to become a big, big buyer. The economic picture will get uglier. But the best time to buy is when nobody wants to! And don't forget that stock markets historically bottom 6-12 months before the economy does.
My Asia Stock Alert subscribers have already implemented the above strategy and are calmly waiting for the buying opportunity of a lifetime. I hope you will be ready to do the same.
8th Jan 2009 Lean pickings • Consumer activity appears to be holding up so far but a weaker economy will cause lower spending in coming months. We see thin pickings in the consumer sector; defensives like BAT and BToto are trading at 14% and 41% PE premium to the market. At its worst, BAT has previously traded at a 48% discount to market. • We suggest that investors look beyond the sector and recommend a switch to either Tanjong or PLUS, which offer better value, net dividend yields of 5% and clean corporate governance. • Meanwhile, discretionary names like Resorts and Genting which outperformed global gaming peers last year are likely to lag the upswing in markets, especially, following the recent related party transaction by Resorts. If Resorts were to return to its historical P/BV trough of 0.9x, this implies 39% potential downside from current levels. • Genting is trading at a 10% premium to the market and currently ranks as the fifth most expensive gaming stock in the world. If Genting were to return to its historical P/BV trough of 0.9x, this implies 24% potential downside from current levels. • Foreign shareholdings for both Resorts and Genting remain high at 33% and 35% respectively compared to around 20% for the broad market and hence, share price performance could suffer should there be sector rotations or redemptions.
We remain negative on the equity market; stay with the dominators.
economic outlook will be bleak in 2009.
KLCI to hit 776 points. We remain negative on the equity market and continue to expect the KLCI to slide to 776 pts in 1H09. Valuations are not compelling as the market is currently trading on 14.2x 09CL forecast, while the 10-year PE average is 13.1x. Furthermore, rades at a significant premium of 26% to ex-Japan. We also believe there is room for more earnings downgrade from consensus. According to IBES, our 2009 earnings forecast is 16% below consensus. Also note that Greed & fear has reduced weighting to 1%, making it the country with the highest negative mismatch against the benchmark MSCI Asia ex-Japan.
Cherry picking in 2009. Given our negative stance on the equity market, we remain sellers of banks and plantations stocks. Our top SELLs are Maybank (MAY MK - RM5.10 - SELL), Sime Darby (SIME MK - RM5.20 SELL) and SP Setia (SPSB MK - RM3.14 - SELL). We continue to keep
Broad theme #1: The Bursting of the Bond Market Bubble
While all eyes will likely remain focused on the real estate, mortgage and stock markets, quietly behind the scenes another bubble will be bursting: The bond market.
A tsunami of debt issues from the Treasury to borrow the money planned for the fiscal stimulus and the budget deficit will strike the bond market like a hot knife through butter, slicing away trillions more in wealth from investors who have fled to the so-called safety of government bonds.
In my view, U.S. Treasury bonds are now the riskiest of all assets on the planet. And I expect to see a 30% to 40% plunge in bond prices in 2009, shocking investors all over the world.
Already, in just the first few trading days of the new year, bonds have lost almost 9 full points, or nearly 7% of their value. More losses are likely ahead for bond investors.
Broad theme #2: The Federal Reserve will continue to do anything and everything to save the financial system and turn around the economy,pumping in fiat money like there's no tomorrow.
The Fed is now accepting just about anything as collateral to issue new loans and backstop the risk in nearly all markets. And it will continue to bail out institutions like Fannie Mae, Freddie Mac, AIG, Citigroup, and others that are sure to fail in 2009.
And even while bond markets are plunging, and long-term interest rates start jumping, the Fed will also be forced to keep short-term interest rates near zero to try and pump up the economy, setting the stage for a massive re-inflation of virtually all assets (through a weaker dollar).
Broad theme #3: President-elect Obama will also stop at almost nothing to help turn the economy around.
Obama is planning to implement an eye-popping $1.5 trillion stimulus and spending program – the biggest in U.S. history.
Obama will enact and oversee the greatest stimulus and spending programs in this country's history.
Already totaling a proposed $785 billion, the fiscal spending programs are likely to hit well over $1 trillion, perhaps even a staggering $1.5 TRILLION, by the end of 2009.
Obama will:
Bail out the unemployed ...
Bail out millions of defaulting homeowners ...
Insure the health of every U.S. citizen ...
And embark upon the most expensive public works programs this country has ever seen.
And don't be surprised to see many of his pre-election policies change dramatically, including much deeper tax cuts and his stance on Iraq.
Broad theme #4: A rise in social unrest all over the world.
This includes terrorism, and inevitable attacks on U.S. targets overseas and likely the first attack within our borders since 9/11. I say this with a heavy heart, for no one likes to be the bearer of bad news.
Broad theme #5: Everything you thought you knew about economics and the markets will be turned on its head in 2009.
That's why I'm calling 2009 the "Year of the Trap."
Because what you would normally expect to be good news will be interpreted as bad news by the markets.
Conversely, what would normally be considered bad news will give birth to positive market developments.
As a result, even the most experienced pros will get the markets dead wrong this year ... yet again.
For instance, the economy continues to slide, unemployment soars, corporate earnings collapse — and yet the stock market surges in one of the most powerful rallies ever, trapping even the most seasoned analysts squarely on the wrong side of the fence.
Or deflation rules the headlines, yet commodity prices take off to the moon, again — catching almost everybody off guard.
How would these moves be possible, and what would drive them? And how can you ensure you don't get caught in the trap? Unfortunately, I don't have enough room to get into all the details here.
But all of the specifics, including my first set of core recommendations for 2009 can be found in the upcoming January Real Wealth Report 2009 Forecast Issue. If you're a subscriber, be on the lookout for that issue!
This will no doubt be another challenging year for investors. So you need to think differently, like a true contrarian, digging below the surface — for nothing will be as it seems.
If you do this, you will find the hidden profit opportunities and turn 2009 into one of your most profitable years, ever!
IS the wind of privatisation going to blow next year in view of the low valuation of stocks?
Since the beginning of this year, there have been more than 20 privatisation proposals. The latest included those of DK Leather Corporation Bhd, Industrial Concrete Product Bhd (ICP), VADS Bhd, TH Group Bhd, M3nergy Bhd and Mesdaq-listed Modular Techcorp Holdings Bhd.
Analysts have a mixed view. For one, Jupiter Securities head of research Pong Teng Siew said the trend of privatisation was unlikely to persist next year, with funding likely to be an issue in view of the global credit crunch that had already reduced funds available to investors to take part in such exercises.
“Just take the proposed plan to privatise AirAsia as an example. It illustrates well a crucial issue in privatisation, which is the funding source,” he told The Edge Financial Daily.
AirAsia’s major shareholder Tune Air Sdn Bhd, led by the group’s chief executive Datuk Seri Tony Fernandes, had to put on hold its plan to privatise and delist the counter from the local stock exchange due to the difficulties in securing funding amid the global financial crisis.
Pong said the magnitude of the global credit crunch had prompted local banks to be more cautious and prudent in their lending.
Also, he said the global economic recession did not bode well for privatisation initiatives, even for those that were currently under way.
On the other hand, OSK Research head Chris Eng said the wind of privatisation was expected to be strong next year in view of the low valuation of stocks, although earnings may contract.
The Kuala Lumpur Composite Index (KLCI) had tumbled to 876.40 points on Dec 19, 2008, a 73% drop from its peak of 1,516.22 on Jan 11, 2008.
It is worth noting that the price-to-earnings ratio (PER) of the KLCI had also dipped to 10.10 times as of the week ended Dec 19, 2008 from a high of 16.84 times as of the week ended Jan 11, 2008. Its lowest PER for the year was 9.31 times for the week ended Oct 24, 2008.
“We think there will be increasing privatisation given the low valuation of stocks. Even if earnings contract next year, PERs are still low,” Eng told The Edge Financial Daily.
An ideal example is ICP, which was a 63.4% subsidiary of IJM Corporation Bhd. ICP, which is Southeast Asia’s largest pre-tensioned spun concrete piles (PSC piles) manufacturer, had been registering an annual average net profit growth rate of 70% since 2000.
“I believe we will see an increasing trend of privatisation among small, family-owned public-listed companies especially where cash per share is higher than the share price,” Eng added.
Other factors that may fuel privatisation include businesses that were fairly stable where there was no need to raise cash via equity, which in turn, made the requirements of a listing such as the need to hold AGMs and issue annual reports expensive.
Kenanga Investment Bank Bhd’s head of corporate finance Debbie Leong agrees. She said other than cheap valuation, other motivating factors included the cost of maintaining the listing.
She said the same goes for companies that were not benefiting from having a listing status, such as the inability to tap the capital market for funds due to lack of visibility to investors, low analyst coverage, or the mere fact that the companies were too small to attract institutional shareholders.
“We are of the view that privatisations among locally listed companies over the next year are likely to continue, albeit at a much reduced pace, compared to this year.”
She said although the valuation of listed entities had been further depressed, the number of privatisation cases expected to be completed next year would be lower given the difficulty in obtaining funding.
“We see that privatisations are likely to involve small to mid-cap companies moving forward, as the quantum involved in completing the privatisation would be smaller (less than RM100 million) and thus more manageable when it comes to obtaining funding,” Leong told The Edge Financial Daily.
Minority interest Analysts said privatisation also played a significant role in bringing stock prices closer to their intrinsic values. But the main concern is the offer price, whether it is in the interest of minority shareholders to sell out.
Are these shareholders getting a fair deal or are they being taken advantage of? Is the premium offered over the existing stock price sufficient to compensate the minority shareholders?
The proposed privatisation of Harrisons Holdings (M) Bhd by its single-largest shareholder Bumi Raya International Holding Co Ltd is one good example of minority interest taking a tough stance and succeeding.
SC Fund Management LLC, based in New York, had accumulated 8.41%, and had sought a higher price for the takeover offer by the offerors, which held a collective 42.54% stake.
Bumi Raya proposed to take Harrisons private in July at RM1.20 a share. It later revised the offer price to RM1.45 a share following criticism that the initial offer price was too low. Even at RM1.45, SC Fund Management said the price was only equivalent to 45% of Harrisons’ book value as at end-June.
The proposed privatisation had also prompted the Minority Shareholder Watchdog Group (MSWG) to urge Harrisons’ minority shareholders to reject the offer. The privatisation eventually failed.
All in all, no matter where the wind of privatisation blows next year, to ensure a successful exercise, the offer price must be attractive enough, or more importantly, “fair” to all shareholders.
By Candice Zachariahs Dec. 15 (Bloomberg) -- Australia's dollar may fall toward the 5 1/2-year low it touched in October at 60.1 U.S. cents as commodity prices come under pressure from a slowdown in China, its biggest trading partner, State Street Global Advisors said. The Australian dollar has declined 32 percent since reaching a 25-year high of 98.49 U.S. cents in July. Chinese industrial output grew 5.4 percent in November, the weakest pace in almost a decade, as export growth collapsed. "There's a lot of gloom and doom already expected and seen in the U.S. economy," said Chris Loong, head of currency management and asset allocation in Sydney at State Street Global Advisors, a unit of State Street Corp., the world's largest money manager for institutions with $14.1 trillion under custody as of Sept. 30. "Asia is more uncertain and that's probably the greater risk for the Australian dollar." The currency, which traded at 66.57 cents at 11:14 a.m. in Sydney, may extend this year's decline if export markets slow significantly, Loong said in an interview on Dec. 10. Asia accounted for 71 percent of Australia's minerals exports and 66 percent of its energy shipments overseas in 2007- 2008, according to the Australian Bureau of Agricultural and Resource Economics. The nation's earnings from commodity exports may be A$192 billion ($127 billion) in the year ending June 30, 2009, rather than A$214 billion as forecast in September. "China's continuing demand for minerals and metals commodities is key to the speed of turnaround in commodities markets," it said in a report on its Web site.
China Slowing
The World Bank forecast growth in China will slow to 7.5 percent next year, with East Asian economies growing at the slowest pace in eight years, in its annual Global Economic Prospects report on Dec. 9. Reserve Bank of Australia Governor Glenn Stevens said this month that China has slowed "much more quickly" than forecast. The next round of commodity price negotiations will show "how much their slowdown can flow through into our export markets and our industry and economic growth into 2009 and 2010," said Loong. "How much of a deceleration we'll get in Chinese growth and our other export markets," will affect the currency, he said. Australia's dollar strengthened since the October trough as the central bank bought a record A$3.15 billion in the market to support the currency. Governor Stevens pruned interest rates three percentage points since September to encourage domestic spending and help the economy skirt a recession. Lower interest rates make the nation's assets less attractive to international investors seeking higher returns on their investments. The low 60-cent level is "the bottom end of our valuation range," said State Street's Loong. The mid-70 cent level would be "roughly" fair value, he said. "If we get past the point where people have more confidence, they will be able to look at the Aussie and kiwi and say we're happy to fund those currencies at those interest rates and those commodity prices because the export markets are expected to recover," he said.
TA Securities' top value stock picks are LCL Corp, KNM, Malaysia Airports, Kian Joo, QSR, Boustead Holdings, Gamuda, Tanjong, AirAsia and QL Resources
INVESTORS should stick to defensive and value stocks next year as the external environment will continue to be volatile and uncertain, TA Securities said.
The research house expects the Kuala Lumpur Composite Index (KLCI) to peak near 1,023 points, or at best 1,062 points, in the first quarter of next year, possibly March, and then trend downward for the rest of the year.
As such, it advised investors to buy defensive and value stocks at the start of the year and then sell ahead of a deeper correction in the second half of the year.
After that, investors should return to defensive mode. "Investors should find solace in defensive high-yielding low-beta stocks that provide good capital appreciation as well as resilient business fundamentals," it said in its market strategy report for 2009.
Its top defensive stock picks are Resorts World, PLUS Expressways, Carlsberg, Asia File, DiGi, TM, JT International, Public Bank, Berjaya Sports and KFC.
TA advised investors to also buy value stocks as the recent heavy bashing in the stock market had left many stocks trading at undemanding valuations.
"It would be worthwhile to look at some of these battered stocks to ride on the future growth when the current turmoil settles," it said.
Its top value stock picks are LCL Corp, KNM, Malaysia Airports, Kian Joo, QSR, Boustead Holdings, Gamuda, Tanjong, AirAsia and QL Resources.
It sees probable downsides for the KLCI next year at 775, 615 or 559 points.
TA is maintaining its "overweight" call on the consumer, oil and gas, gaming and plantation sectors and is "neutral" on the construction, telco and power sectors.
It is "underweight" on the banking, automotive, property and technology sectors as these will be affected by the softer outlook for private consumption.
The slowdown in the economy in the third quarter, from 6.7% in 2Q08 to 4.7% in YoY terms and down to only 1.3% in QoQ annualised terms, largely reflected the drag from net exports. Since then there have been indications of slowing private sector demand compounding the fall in exports. This has triggered both fiscal and monetary easing. However, these will provide only partial offset against sharply declining export revenues. Even with further interest rate cuts and fiscal measures pushing the official deficit to 5.8% of GDP (with additional off-budget expenditure at 1% of GDP or more) we still believe recession is unavoidable, maintaining our negative real GDP forecast for 2009. Private consumption growth slowed in the third quarter but was still buoyant at 6.5% QoQ annualised. Auto sales have provided the first signal of consumption turning down with a 14.7% YoY contraction in October. This has taken the trend level of auto sales down to late 2007 levels and heading south. Malaysia’s cyclical vulnerability stems from its high export to GDP ratio at around 100% of GDP. The slump in global demand will lead to tumbling export revenues which will spill over to falling investment and employment growth thereby leading to a further cutback in consumption. The export downswing has already started with a 6.7% YoY contraction in October (US$ terms). Malaysia is doubly exposed on the export front. It has suffered a reversal in its terms of trade as oil and commodity prices have fallen. This year, combined oil, gas and palm oil exports comprised 26% of total exports. This was 6ppt higher than in 2007 highlighting the boost to export revenues during the commodity boom. This will be more than reversed though, at current low oil and commodity prices leading to a steep decline in export revenues. The other exposed sector is electronics with a high 38% share of total exports confronting a severe global electronics downswing. The effects on the domestic economy are apparent from job losses and declining wages in the manufacturing sector (see second chart). Manufacturing employment contracted by 1.6% YoY in the third quarter (even before the 19% YoY contraction in electronics exports reported in October) while manufacturing wage growth slowed to 2% YoY, well below the 7.3% average wage growth in 2007. The trade surplus remained buoyant at US$2.7bn in October despite the dip in exports. However, larger outflows on the capital account were evident from falling foreign reserves which continued through November. Reserves have fallen by US$28.1bn from the June peak, equivalent to 22% of total reserves. As export revenues continue to fall, the external liquidity squeeze will counter the central bank’s efforts at fuelling private sector demand through further interest rate cuts.
Martin father, J. Irving Weiss, wrote about the Great Depression before he passed away
"In just three short years between the peak of the stock market boom in 1929 and the bottom in 1932, it felt like the entire world was falling apart.
"The financial bubble burst.
"Giant companies failed.
"America lost 13 million jobs as unemployment surged to 25 percent.
"Industry cut its production nearly in half, and home construction plunged by more than four-fifths.
"Over 5,000 banks failed.
"And yet, despite it all, there was one all-important investment vehicle that not only survived, but actually thrived: The United States dollar.
"Why? Because of deflation and fear.
"Thanks to deflation, prices fell on virtually everything — commodities, farm land, homes, automobiles, consumer goods, even labor. And because of fear, investors shunned risk and sought the safety of cash in greenbacks. Result: The dollar's purchasing power and value surged."
That's What's Happening Today!
Today, like in the early 1930s, unemployment is surging, with over a half million jobs lost in the month of November alone.
As in the 1930s, America's largest financial institutions — Fannie Mae and Freddie Mac, Washington Mutual and Wachovia, Bear Stearns, Lehman Brothers, and Merrill Lynch ... even giants like AIG and Citigroup — have gone under, been bailed out or forced into shotgun mergers.
Most important, as in the 1930s, prices are falling, with fear driving millions to the safety of hard cash.
The net result: The U.S. dollar — virtually given up for dead not long ago — is now gaining steadily and rapidly in value.
In this midst of all the bad news, this is the one, outstanding ray of hope — for two reasons:
First, it indicates that, despite all the economic pain still ahead, the United States dollar will survive and thrive.
Second, it means you are now witnessing the first phase of a dollar rise that opens up some of the largest and steadiest profit opportunities of our lifetime.
So convert some of our assets to US$ and ride the up wave, of course at your own risk.
1 December 2008 http://finance.yahoo.com/banking-budgeting/article/106257/How-Long-Will-the-Recession-Last? Longer than past downturns, and Wall Street's meltdown will slow the recovery. Well, now it's official: we're in a recession. And we know when it began: December 2007, according to the official arbiter of business cycles, the National Bureau of Economic Research (NBER), which made the announcement Monday. So now the question is: When will it end, and how deep will it get? There are good reasons to be worried about both of these measurements, as the headwinds facing the economy are powerful indeed. But it's best to resist the temptation to give in to predictions of unconditional gloom and take a cool-headed look at how this recession compares so far to the many other downturns we've survived. On the likely depth of the recession, it has been often said that this may be the most severe recession "in decades." This statement is almost certainly true but not particularly informative, as the two most recent recessions, in 1990-91 and 2001, turned out to be famously mild and short-lived by historical standards. So the real question remains: "the deepest recession" in exactly how many decades? The most intuitive, and legitimate, reference is the 1981-82 recession, which lasted a longer-than-average 16 months and led to a peak of 10.8% in the unemployment rate - by all standards, a pretty serious affair. Still, it would take an extraordinary amount of additional severe damage to today's economy over a fairly long period to drive the unemployment rate from its current 6.5% to double-digit territory. It is also important to remember that the 1981-82 recession was almost deliberately caused by sky-high interest rates, in the titanic fight of Fed chairman Paul Volcker to drive inflation out of the system. In contrast, the Fed's response now has been to pull out all the stops in the other direction, including the precipitous lowering of short-term interest rates and a barrage of other actions. A somewhat more plausible comparison to the current downturn is the 1973-75 recession, commonly attributed to the surge in oil prices at the time. That one lasted a longer-than-average 16 months and led to a 9% peak in the unemployment rate. Direct comparisons to the Great Depression have become more common in recent weeks, given the collapse of the stock market and consumer spending. But those comparisons overlook many key facts. During the Great Depression, the unemployment rate surged to 25% and GDP contracted by 28% between 1930 and 1932, an unthinkable prospect in today's environment, thanks to a long list of underlying differences between then and now. For example, the banking system collapsed in its entirety during the Great Depression and the absence of bank deposit insurance at the time caused catastrophic erosion to household wealth and consumption. Today, FDIC insurance (and its recently elevated limit to $250,000) provides a significant cushion; the response of economic policymakers is immeasurably faster and more aggressive now; and the coordinated actions among the major economies today to address the root causes of the current episode are both impressive and totally unprecedented. How long will this one last? The prevailing view: probably through the middle of 2009. Two points to highlight here: First, such a prediction is not based on any particularly refined insight that economic forecasters have into the current recessionary dynamic. After all, economic forecasting has a well-deserved reputation for being a notoriously imperfect art (most definitely not a science). The predictions about this recession lasting through mid 2009 are mostly based on the following simple calculation: Until the NBER's announcement on Monday, the prevailing view was that the recession probably started at some point last summer and it was likely to be about average in length, by historical standards. Given that the average length of the ten recessions since World War II has been 10.4 months, with a range of 6 months in the 1980 recession to 16 months in the 1981-82 one, the natural "placeholder" time frame for the end of this recession would appear to be the middle of 2009. However, the fact that the recession is now already 12 months old, and clearly not approaching its trough yet, raises the distinct prospect that it will exceed the length of the 1973-75 and 1981-82 recessions (both at 16 months), making it the longest since the Great Depression (43 months, from August 1929 to March 1933). The crowd fond of making comparisons to the Great Depression will be quick to declare some kind of victory on this one. Second, the prediction that this recession may end around the middle of 2009 is not unreasonable, but even if accurate it disguises the critical question: What kind of a recovery is likely to follow? The answer is: probably a gradual one, unlike the more typical (but not universal) pattern of the economy coming out of most past recessions roaring ahead, propelled by pent-up consumer demand. The healing process of a deeply wounded banking system, that has already led to nearly $1 trillion of write-downs, will act as a weight around the neck of any economic recovery in the latter part of 2009. Banks will likely continue the slow process of recapitalization and cleaning up the mountains of toxic assets on their balance sheets for a period longer than just the next few quarters. That task will become even more challenging in the months ahead, as the recession itself will tend to generate an additional amount of toxic assets in their portfolios, impairing their ability to resume a more normal pace of lending. So, even though the economy may technically emerge from the recession in the second half of 2009, the recovery may initially become more of an issue of semantics rather than a robust turnaround in economic activity. To be sure, this is a major recession and its downside risks in the midst of a highly volatile financial market environment shouldn't be underestimated. There are reasons, though, to believe that its severity and length will ultimately be contained by an unprecedented array of economic policy measures, some already in place, others in the pipeline. Despite a series of false starts with some of those measures by the Treasury, the Fed's seemingly limitless reserve of innovative actions and the incoming administration's commitment to put in place a particularly aggressive fiscal stimulus package should gradually gain some traction that will help stabilize the economy within the next three quarters or so. Anthony Karydakis is a former chief U.S. economist for J.P. Morgan Asset Management and currently an adjunct professor at New York University's Stern School of Business. Copyrighted, Fortune. All rights reserve
If Resorts share price returns to historical P/B trough of 0.9x this implies a share price of RM1.45 (FY09 PER 7.2x -36% downside risk). Foreign shareholding remains relatively high at 36% as at end Sept 08. Maintain UP with TP RM1.80.
2nd December 2008 Dividend picks. In the medium term, concerns about growth will likely continue to weigh on the market. In this environment, we like stocks with relatively resilient dividend flows. Despite projected slower economic growth, we expect Public Bank’s operating parameters (asset quality, loans growth, ROE momentum) to remain strong and support dividend yields of 7-8%. Utility-type earnings at YTL Power and PLUS Expressway should be relatively resilient to sustain high dividend payouts. BAT should also be a safe haven for dividend seekers. Value stocks. With the market’s 40% YTD drop, several stocks have tested lows last seen in 1998. Our picks here are IJM Corp (0.5x FY10 BV, below 1998 low of 0.6x), WCT (0.9x FY09 BV, versus 1998 low of 0.8x), AMMB (0.7x BV, lowest since 1999) and KNM (0.9x BV, all-time low). Downside for Sime Darby, Maybank and BCHB. On the other hand, we see further downside for Sime Darby, being the most expensive in the sector at 10.8x FY09F EPS with projected 44% drop in earnings and lower dividends. For Maybank, we see risks in the consolidation of its acquisitions, especially BII, and are concerned about the potentially higher borrowing costs it might incur for the rest of its capital raising exercise. BCHB remains Fully Valued on continued weak capital market activities. There could be further increases in operating expenses resulting from the consolidation of its acquisitions (i.e. Lippo-Niaga merger and Bank Thai).
This week could be a major turning point for equity and commodity markets. The US DJIA has likely completed the wave “d” of the triangle formation and only needs one more leg up to complete wave “e”. This should then be followed by one more major down leg targeting the DJIA at 7,000-7,500pt, likely a major bottom. The Dollar Index (DXY Index) which has been trading sideways for the past three weeks in a triangle consolidation finally broke out last night, currently trading at 87pt this morning. Dollar Index should surpass the 90 levels soon. This could mean trouble for global equity markets as there has been a strong inverse relationship of the US$ and global equity markets since Mar this year. As such, it is not surprising crude oil below US$60/barrel last night, currently at US$58/barrel. It is likely that crude oil could fall towards the US$50/barrel levels before a major bottom sets in. We will provide more details on global equity and commodity markets in our next Alpha Edge end of this week.
Nearly everywhere you look, another massive corporation is announcing staggering losses and begging Washington for billions to avoid bankruptcy.
CASE STUDY #1 — General Motors:$25 billion wasn’t enough — needs $50 billion more to survive! GM’s sales are down 20% in a year. Its share price is down nearly 90% — from $31.14 a year ago to $3.36 at yesterday’s close.
The last time GM stock was this low, Harry Truman was in the White House, and Elvis Presley was in grammar school. And now, analysts are warning that America’s largest automaker may soon be worth zero.
Investors have every reason to fear for GM’s survival: Last Friday, GM posted a $2.5 billion net loss for July, August and September, bringing its 2008 losses to $21.3 billion.
Worse: Yesterday, the company revealed that despite the $25 billion in Washington aid already on the way, it is now burning through its cash reserves at the staggering rate of $2.3 billion per month.
The company’s top executives now freely admit that without a bailout, GM will likely go broke in the first half of next year.
Alarmed that an estimated 1.4 million GM workers and suppliers could suddenly find themselves out of work, House Speaker Pelosi huddled with car company executives to arrange another, additional bailout of up to $50 billion. And during his visit to the White House yesterday, President-Elect Obama urged President Bush to sign the bill when it passes Congress.
CASE STUDY #2 — American International Group (AIG): $150 billion refinancing announced yesterday!
First, the Fed gave AIG an $85 billion line of credit in a failed attempt to save America’s largest insurer.
When that failed to work, the Fed added $38 billion more through its borrowing facility.
And when the company continued racing towards failure, the Fed agreed to buy more billions of AIG’s toxic commercial paper.
Now — just yesterday — after announcing it still lost a whopping $25 billion in July, August and September, the government revealed that it refinanced AIG’s earlier loans with better terms and gave them still MORE money, for a new, total rescue package of $150 billion!
That’s just ONE single company, and already it has gotten as much money as the entire U.S. population got from the economic stimulus package of 2008.
CASE STUDY #3 — Fannie Mae: Losing money so fast, it could need as much as another $100 billion or shut down completely!
Despite the $100 billion already spent to bail out Fannie, the company has revealed that it lost a staggering $29 billion in the third quarter — an announcement that means America’s largest mortgage lender will probably need untold billions more to avoid a total shut-down.
Ten Billion Here ... A Hundred Billion There ... Before You Know It, You’re Talking REAL Money!
Anyone who thinks that these three companies are alone — and there won’t be hundreds more lined up behind them to demand their share of the greatest bail-out bonanza in history — is dreaming.
Just yesterday, we heard more calls in Congress for a second huge stimulus package in an attempt to get shell-shocked consumers to begin spending again.
And anyone who believes the government can magically create all of this wealth out of thin air is greatly mistaken. They will have to BORROW the money. Indeed, last week — even BEFORE this latest news hit the wires — the U.S. Treasury announced that it will borrow a total of $550 billion — more than the entire deficit for ALL of fiscal 2008 — just in the last quarter.
But even that record-smashing amount is only the tip of the iceberg: Goldman Sachs analysts announced that, to finance an $850 billion federal deficit ... to buy $500 billion in bad assets ... and to roll over $561 billion in maturing Treasury securities, Washington will have to borrow TWO TRILLION DOLLARS!
Worse: That $2 trillion will almost surely STILL not be enough: Just to cover the bailout loans, investments and commitments the government has announced SO FAR, the total bill comes to a whopping $2.7 trillion. (See table at right).
As the U.S. economy continues to crater ... as federal tax revenues continue to plunge ... and as Washington continues to run amuck with new bailouts ... Washington could easily add another $1 trillion or even more to this borrowing spree!
A NEW Orgy of U.S. Government Borrowing Is Directly Ahead!
This reality — the fact that the greatest tidal wave of Treasury bonds in history is about to slam into the markets — means two things:
1. Plunging bond prices: Like any other investment, when the supply of bonds rises, bond prices fall. Given the mind-boggling size of this borrowing binge, we’re now staring down the barrel of one of the most devastating bond market crashes ever.
2. Huge profit potential for contrarian investors like us: Investments that soar when bond prices plunge are about to give you the opportunity to multiply your money throughout the rest of 2008 ... throughout 2009 ... and beyond!
In fact, this great government borrowing binge gives us not just one, but TWO opportunities to go for windfall crisis profits in the weeks and months ahead ...
WINDFALL PROFIT OPPORTUNITY #1: These New, Little-known Investments Can Hand You Triple-Your-Money Gains When Bond Prices Plunge ...
Years ago, unless you were a registered government bond dealer, it was impossible to profit from a bond market decline. You were not allowed to sell Treasury bonds short to profit from their decline. And later, even with the advent of Treasury-bond futures, the risk was too great.
Not any more! For the first time in history, you now can buy a simple, exchange-traded fund (ETF) that was specifically created to PROFIT from falling bond prices.
The basic principal is very simple: The more the government has to borrow, the more bond prices are likely to decline ... and the more bond prices decline, the more money you stand to make!
PLUS, for the first time in history, there is ALSO an ETF now available that lets you DOUBLE your profits as bonds crater: With each $1 decline in the bond price index, you make $2!
Best of all, you can grab that huge profit potential without buying futures or options, without selling short, and with ...
Simple, easy-to-trade EXCHANGE TRADED FUNDS: No exotic investments, no margin, no foreign accounts — just buy or sell ETFs in your regular broker account. If you can buy 100 shares of AT&T, you can just as easily buy 100 shares in these special ETFs, online or offline.
Low cost of entry: Ideal for investors with as little as $5,000 to invest and also for investors with $100,000 or more ...
ETFs that hand you TWO dollars for every one dollar that stock or bond indexes fall: When they drop 15%, you could make 30% ... when they fall 30%, you could grab 60% ... and when they plunge 50%, you could double your money!
Five layers of protection to shield you from excess risk: Designed to help you minimize risk and maximize your returns, making you steadily richer every time stocks plunge ...
All for just $2.46 per day: Recos designed to multiply your money every month for less than the cost of your morning coffee!
If, for example, bonds fall as much as they did in the bond market crisis of 1980, you could see gains of as much as 200% in my favorite inverse bond ETF.
Given the sheer size of this precedent-shattering borrowing spree, I personally think you’ll do much better. But even if bonds only fall half as much as they did in 1980, you could double your money in a relatively short period of time.
WINDFALL PROFIT OPPORTUNITY #2: These Inverse ETFs Can Hand You Many MORE Doubles As Crashing Bonds Take Stocks to New Lows!
The fact is, if these inverse ETFs on bond prices were the only way to go for huge gains as the government’s borrowing binge unfolds, your profit potential would be enormous.
But the wealth you can amass directly from sinking bond prices is only the beginning.
Your second windfall profit opportunity is with ETFs designed to profit from falling stock prices — both in the U.S. and abroad. With the U.S. government borrowing massive amounts and pushing interest rates higher ...
Millions more consumers will find it increasingly impossible to make payments on mortgages, credit cards, auto loans and revolving charges, pushing more lenders to the brink of collapse ...
Companies that manufacture, transport and sell high-ticket items like automobiles and trucks ... flat panel TVs, computers and other electronics ... stoves, refrigerators and other home improvement products ... will suffer greater losses than ever — and many will go belly up ...
The stocks of those companies will crater as earnings turn into massive losses, driving the Dow, S&P and Nasdaq into the most severe tailspin we’ve seen so far ...
And the inverse ETFs on those indexes and sectors will skyrocket, spinning off gains of 46.1% ... 89.9% ... 106.7% — in some cases in as little as a few days — or even in a single trading session!
The simple truth is, with just one trade this summer, these double inverse ETFs could have helped you turn $5,000 into as much as $10,335 ...
Or $50,000 into $103,350 ...
Or $100,000 into a whopping $206,700 ...
All in just a few weeks!
On big down days in the market, you could make those kinds of gains in just a few HOURS! But I don’t stop with just helping you go for huge gains on single days: My Crisis Opportunity ETF Trader is designed to help you COMPOUND your gains — month after month — as long as this crisis lasts!
And in this super-volatile environment, only inverse ETFs can make those kinds of gains possible — all in a regular brokerage account, even an IRA!
Even last summer — between May 15 and July 15 — when stocks were far less volatile than they are now, inverse ETFs could have handed you gains of 30.9% ... 46.1% ... up to 106.7%.
Thanks to these inverse ETFs, you could have banked ...
A healthy 30.9% gain between June 5 and July 15 as the technology sector declined ...
An impressive 37.2% gain between June 5 and July 11 as the semiconductor sector fell ...
A tidy 37.7% gain between May 15 and July 15 as the consumer services sector dropped ...
A tasty 46.1% gain between June 5 and July 15 as the real estate sector plunged, and ...
A whopping 106.7% gain — more than a DOUBLE — between May 15 and July 15 as the financial sector cratered.
And more recently — as the markets became more volatile in September and October, these inverse ETFs could have handed you ...
A 49.6% gain in just 14 days as the semiconductor sector declined between October 1 and October 15 ...
A 61.0% gain in just 15 days as the technology sector fell between September 25 and October 10 ...
An 89.13% gain in just 19 days as the real estate sector dropped between September 26 and October 15 ...
An 89.6% gain in just 19 days as the consumer services sector plunged between September 26 and October 15, and ...
An 89.9% gain in just eight days as the financial sector cratered between October 1 and October 9!
Unfortunately, you can’t go back in time to grab those gains and neither can I. But it’s crucial to understand two things: First, in each case, your money would only have been at risk for a brief time, and second, over time, these kinds of short-term gains could easily multiply your money three times ... four times ... even five times over!
And now, with soaring interest rates, global stock markets are setting themselves up to get crushed again, and my favorite inverse ETFs on foreign stock markets could give you even greater profits in a shorter period of time!
Inverse ETFs: The Best of All Possible Worlds
I love using exchange traded funds at a time like this. Of course, losses are always possible with any investment vehicle. But like mutual funds, ETFs spread your risk over a basket of securities. And as with mutual funds, you can trade them in your regular brokerage account. You can even put them in your IRA if you wish.
But that’s where the similarities end. UNlike mutual funds ...
ETFs cost less to own. They never nick you for loads or 12-b1 (marketing) fees.
You always know what your ETF owns. You can check online, anytime, 24/7.
ETFs are priced continuously through the trading day — so you always know precisely what your shares are worth ... and you can buy or sell your ETFs instantly ... at any time of the day.
Plus, INVERSE ETFs let you profit when a particular index or stock sector goes down. And best of all, double-inverse ETFs let you earn two dollars for every one dollar the index falls!
Crisis Opportunity ETF Trader’s mission: To protect your capital and profits like a junkyard dog.
If history proves anything, it’s that the ONLY way to build wealth consistently over the long haul is to avoid excessive risk like the plague. Doing everything I can to limit any losses is the only way to compound your profits over time and to turn a molehill of money into a Mount Everest of money.
That’s why Crisis Opportunity ETF Trader aims to protect your money and your profits in five, crucial ways:
1. No Margin: I never, NEVER, recommend using margin accounts or borrowed money. So you’re never exposed to the high risk of shorting or speculating in any leveraged futures or options.
2. You’ll Never Have All Your Eggs in One Basket: Because I use exchange traded funds, your investment is always spread out over a basket of stocks or bonds in each fund. Plus, my strategy is to own more than one ETF at all times to further diversify your portfolio.
3. You’ll Never Get Locked in to a Buy-and-Hold Strategy: Crisis Opportunity ETF Trader is always flexible and nimble — ready to get you into a position or to take your money off the table quickly. That’s a critical risk-protection feature in today’s volatile market.
4. I Use Every Possible Tool to Keep You Where The Most Profitable Action Is: I use every cutting-edge fundamental and technical tool available to focus your investment on the sectors that I believe are most likely to suffer the greatest declines — and to get you to the sidelines when the time is right.
5. I Designed Crisis Opportunity ETF Trader to Cut Any Losses Short while Letting Your Profits RUN: Because your money is only exposed for short bursts of time, there’s little risk that you’ll be in a losing investment for more than a few days.
Plus, I Designed Crisis Opportunity ETF Trader To Give You SIX MORE Huge Advantages ...
I named this service “Crisis Opportunity ETF Trader” because I believe that inside every crisis, there’s an opportunity. And I also believe that, since this is the greatest economic crisis since the 1930s, we now have the opportunity to go for the greatest profits we’ve seen in nearly eight decades.
And even beyond the remarkable profit potential it gives you — the very real potential to multiply your money many times over — I’ve designed Crisis Opportunity ETF Trader to give you six more strategic advantages:
1. You can start with limited capital: Because most of these ETFs go for as little as $10 or $20 per share, you don’t need to already be rich to go for gains that could make you rich.
That means it’s ideal for investors with as little as $5,000 to invest and also for investors with $100,000 or more!
2. There’s nothing to learn: Just follow the plain-English trading signals two to three times a month.
3. No new accounts to open: You just follow my trading instructions in your regular brokerage account!
4. It’s the soul of convenience: Just check your e-mail each weekday for instructions. When you get a signal, just make the trade.
5. It’s easy to follow: In each trading alert, I tell you what to buy ... when to buy it ... what you should pay ... and I even give you my profit target for each trade.
And I do the same when it’s time to sell. You can execute each trade online or simply by reading the trading instructions to your broker.
6. You'll be delighted with the profits you earn, or it's FREE: No one can guarantee profits, but you must be delighted with the money Crisis Opportunity ETF Trader makes you, or cancel for a full refund within the first 60 days. In addition, you can cancel at any time for a pro-rated refund on the balance of your membershi
NEW PANIC IN WASHINGTON! Hundreds of Billions in NEW Bailouts and Handouts Set to Slam Bonds and Stocks!
GM needs $50 billion more ... Fannie and Freddie could need $100 billion more ... AIG gets $150 billion refinancing ... PLUS Congress has a NEW $100-billion-plus stimulus package on the way!
Q: Where will it all end? A: In the greatest orgy of government borrowing in recorded history!
By Candice Zachariahs Nov. 7 (Bloomberg) -- Investors should sell Australia's currency against the U.S. dollar because it may lose 29 percent as it slumps toward a record amid a global recession, Morgan Stanley said. The Australian dollar, which dropped 27 percent in the past three months, may decline toward its April 2001 low of 47.75 U.S. cents as investors dump the nation's higher-yielding assets and retreat to the safety of the greenback, according to Ned Rumpeltin, a London-based currency strategist at Morgan Stanley. ``The most immediate concerns about the financial system may have eased, but worries about global growth prospects are now coming to the fore,'' Rumpeltin wrote in a research note yesterday. ``There is considerable scope for further declines.'' Australia's currency dropped the most in a week, falling 2.5 percent to 66.20 U.S. cents as of 12:07 p.m. in Sydney from 67.86 cents late in Asia yesterday. It reached an all-time high of 98.49 cents on July 16. Morgan Stanley lowered its forecast for the Australian dollar last month, predicting it would fall to 57 cents by year's end and then touch 47 cents by June 2009, the lowest since the currency was first freely traded in December 1983. The Aussie, as the currency is called, has tumbled since the collapse of Lehman Brothers Holdings Inc. in September paralyzed credit markets and caused equities to tumble as concern over a global recession spread. The International Monetary Fund yesterday predicted that global growth will slow to 2.2 percent next year amid the first simultaneous recession in the U.S., Japan and euro region in the post-World War II era. A growth rate of 3 percent or less is ``equivalent to a global recession,'' the IMF said as recently as April. The Australian economy will grow 1.8 percent in fiscal 2009, according to the IMF, as a A$10.4 billion ($6.85 billion) stimulus package from the government and aggressive interest rate cuts by the central bank boost the domestic economy.
