Andy Xie On Market Rally & The Fed

Many people like Andy Xie, including me. Singapore liked him so much that they wanted him away from the country as much as possible so that they can miss him more. Andy Xie, former Morgan Stanley economist and current board member of Rosetta Stone Advisors shares some thoughts on the stock market rally and the Fed.

Regardless of what investors or speculators say to justify their punting, the real driving force is the return of animal spirit. After living in fear for more than a year, they just couldn't sit around any longer. So they decided to inch back. The resulting market appreciation emboldened more people. All sorts of theories began to surface to justify the market trend. Now that the rising trend has been around for three months globally and seven months in China, even the most timid have been unable to resist. They're jumping in, in droves.

When the least informed and most credulous get into the market, the market is usually peaking. A rising economy and growing income produces more funds to fuel the market. But the global economy is now stuck with years of slow growth. Strong economic growth won't follow the current stock market surge. This is a bear market rally. People who jump in now will lose big.
The dollar index-DXY has fallen 10 percent from the March level, even though the U.S. trade deficit has declined substantially. It reflects the market's expectations that the Fed's monetary policy will lead to inflation and a dollar crash. The cause of dollar weakness is the outflow of U.S. money, in my view. It is the primary cause of a surge in emerging markets and commodities. Most U.S. analysts think the dollar's weakness is due to foreigners buying less of it. This is probably incorrect.

The dollar's weakness can limit Fed policy options. It heightens inflation risks; a weak dollar imports inflation and, more importantly, increases inflation expectations, which can be self-fulfilling in today's environment. The Fed has released and committed US$ 12 trillion (83 percent of GDP) for bailing out the financial system. This massive overhang in money supply could cause hyperinflation if not withdrawn in time. So far, the market is still giving the Fed the benefit of the doubt, believing it will indeed withdraw the money. Dollar weakness reflects the market's wavering confidence in the Fed. If the wavering continues, it could lead to a dollar collapse and make inflation self-fulfilling.

The Fed may have to change its stance, even using token gestures, to assure the market it won't release too much money. For example, signaling rate hikes would soothe the market. But the economy is still in terrible shape; unemployment may surpass 10 percent this year. Any suggestion of hiking interest rates would dampen growth expectations. The Fed is caught between a rock and a hard place.

Economic Indicators On The Up - Fears Overblown

The Bank of Japan on Tuesday upgraded its assessment of the economy for the second straight month, encouraged by signs that the worst of the economic downturn may be over. The BOJ board also voted unanimously to keep the unsecured overnight call loan rate unchanged at 0.10% while it gauges the effectiveness of previous measures. The board last lowered the policy interest rate in December by 20 basis points.

Following its May meeting, when the BOJ raised its economic assessment for the first time since July 2006, the central bank confirmed Tuesday that the economy has continued moving toward recovery over the past month.

"Japan's economic conditions, after deteriorating significantly, have begun to stop worsening," the central bank said in a statement released together with the rate decision.

In May, the BOJ said "exports and production are beginning to level out," though economic conditions have been deteriorating. Still, economic upgrades alone don't necessarily mean the bank will change its easy monetary policy anytime soon, as economic conditions remain on the weaker side. Market participants are waiting for a news conference by BOJ Governor Masaaki Shirakawa for more details on the bank's outlook and whether or not its policy stance may change down the road.

WASHINGTON -- Home construction climbed in May far above expectations, with single-family starts rising a third month in a row and giving more evidence of stability in the housing sector.

Separately, U.S. producer prices posted their largest annual decline in 60 years last month, suggesting that the prolonged recession continues to take pressure off inflation.

Housing starts increased 17.2% to a seasonally adjusted 532,000 annual rate compared to the prior month, the Commerce Department said Tuesday. Building permits rose; apartment construction surged. The 17.2% increase was much bigger than expected. Economists surveyed by Dow Jones Newswires forecast a 7.0% increase to an annual rate of 490,000.

Toll Brothers Inc. recently reported its fiscal second-quarter loss narrowed a little. The nation's largest builder of luxury homes posted a loss of $83.2 million, compared with a year-earlier loss of $93.7 million. It recorded smaller write-downs. The company operates in 21 states and last reported a profit nearly two years ago. Toll Brothers said it expects to deliver between 2,200 and 2,800 homes during the year, compared with an earlier, March view of 2,000 to 3,000 homes.

Tuesday's report on housing showed building permits in May increased 4.0% to a 518,000 annual rate. Economists had expected permits to rise by 2.4% to a rate of 510,000. April permits fell 2.5% to 498,000. But the problems of the housing sector are not over. Inventories are way too high, in relation to new-home sales, a key measure indicates. The ratio of those for sale to property sold in April exceeded 10 months.

Layoffs and tight credit are holding back sales. And mortgage rates have started rising, pushed by rising government bond yields. Investors are concerned about inflation because of increased spending in Washington meant to pull the economy out of recession. Freddie Mac data showed the average on a 30-year mortgage loan was 5.59% last week -- 73 basis points higher than the average four weeks earlier of 4.86%, an advance that could hurt demand for houses.

A report Monday indicated builder confidence faltered in June, after going up two straight months. The National Association of Home Builders index on builder confidence in sales of new, single-family houses fell to 15 from 16 in May. "The issues in the housing market are going to take some time to play out and won't reverse nearly as soon as some would like," Dan Greenhaus, a bond market analyst at Miller, Tabak & Co. in New York, said in reaction to the NAHB report.

Tuesday's data said starts in April dropped by 12.9% to 454,000; originally, Commerce reported April starts fell 12.8% to 458,000. Year over year, housing starts were 45.2% lower than the pace of construction in May 2008. Single-family starts climbed 7.5% to 401,000, after rising 3.3% in April and 1.1% during March. Construction of housing with two or more units jumped 61.7% to 131,000; within that category, groundbreakings of homes with five or more units -- or multifamily -- were 77.1% higher. Regionally, housing starts climbed 16.8% in the South, 2.0% in the Northeast, 11.1% in the Midwest, and 28.6% in the West. Nationwide, an estimated 51,200 houses were actually started in May, based on figures not seasonally adjusted. An estimated 48,100 building permits were issued last month, also based on unadjusted figures.

German economic expectations in June rose to 44.8 from 31.1 a month earlier and experts predict a recovery will start by year-end, the Center for European Economic Research said Tuesday. It was the highest reading since May 2006. Economists in a Dow Jones Newswires consensus forecast had expected a reading of 37.0. The center, also known as ZEW, after its German initials, said the increase showed that economic optimism is becoming entrenched.

"The assessment of the experts indicates that the economic downturn dynamics are currently coming to rest. They further see tendencies for a recovery at the end of this year," said the president of ZEW, Wolfgang Franz, who also heads the council of economic advisers to the government.

Survey participants also revised their assessments of the current situation, which in June rose to -89.7 from -92.8 the month earlier, the center said.

"What we see now for the first time (in a while) is that also the assessment of the current situation is improving," said ZEW economist Peter Westerheide.

In tandem with the economy, many of the 271 survey respondents expect inflation to return. Prices in Germany were mostly unchanged last month on an annual basis, official data showed recently. "A deflation scenario is not really on the horizon," as of now, Mr. Westerheide said. "Just a small minority of respondents" sees further downside price pressures, he added.

The experts also expect the European Central Bank, which sets interest rates for the 16 countries using the euro, to hold its policy rate steady at 1% over the next six months. ZEW's survey also showed that expectations rose across a number of industrial sectors. The more optimistic assessment was most prevalent in banking and investment products, Mr. Westerheide said.

WASHINGTON - The U.S. economy is healing faster than anticipated but still at an anemic pace that's unlikely to soon produce either jobs or inflation, according to the International Monetary Fund. In its annual review of the U.S., the IMF forecast that the U.S. economy would contract by 2.5% this year, compared with the 2.8% decline the IMF predicted in April. For 2010, the IMF forecasts the U.S. will grow 0.75%, rather than the zero growth it predicted two months ago.

The IMF said the U.S. was benefiting from monetary and fiscal stimulus, and from some improved stability in the financial markets. The tepid growth rate was likely to keep inflation in check in the short term, with the consumer price index expected to decrease 0.5% in 2009 and increase 1% next year, the IMF forecast.

John Lipsky, the IMF's deputy managing director, interpreted the recent increase in Treasury bond yields as a positive sign. He said the rise reflected "the effectiveness of policy in reducing fears of really serious negative outcomes," and an increased willingness of investors to search out riskier investments.

Longer term, the IMF said, the U.S. needed to "develop and communicate" a strategy for withdrawing monetary stimulus and fiscal stimulus. Otherwise, such stimulus "may stoke concerns about inflation and rising debt, exerting upward pressure on interest rates."

But the IMF advised the U.S. to start cutting back only after a "sustainable recovery is under way." The IMF didn't expect that to occur shortly.

Mr. Lipsky said the IMF didn't expect U.S. unemployment to stop rising until the second half of 2010, even if the U.S. economy grows somewhat before then. The IMF also warned that U.S. debt may rise to 75% of gross domestic product by 2011, nearly twice what it was in 2008 -- and higher than the 70% of GDP forecast by the White House.

"Looking forward, such a rise in debt may put significant pressure on Treasury bond rates," the IMF said.

Calling the administration's economic assumptions "relatively optimistic," the IMF said the U.S. needed to cut spending or boost revenue by an additional 3.5% of GDP through 2019 to keep to the debt levels sought by the White House -- 70% of GDP in 2019.

The IMF laid out a number of possibilities for boosting revenues, including reducing the deductibility of interest on corporate debt and on household mortgages, and raising energy taxes. Any one of those proposals would be a tough political sell in Congress. The U.S. Treasury, in a statement Monday, said the analysis reflected the IMF's "independent judgment" of the U.S. economy, and that the U.S. supported its public release. The statement didn't comment on the specifics of the analysis by the IMF.

p/s photo: Elanne Kong Yuk Lam

Doing Time At Schools

Great write up from The Economist: American children have it easier than most other children in the world, including the supposedly lazy Europeans. They have one of the shortest school years anywhere, a mere 180 days compared with an average of 195 for OECD countries and more than 200 for East Asian countries. German children spend 20 more days in school than American ones, and South Koreans over a month more. Over 12 years, a 15-day deficit means American children lose out on 180 days of school, equivalent to an entire year.

American children also have one of the shortest school days, six-and-a-half hours, adding up to 32 hours a week. By contrast, the school week is 37 hours in Luxembourg, 44 in Belgium, 53 in Denmark and 60 in Sweden. On top of that, American children do only about an hour’s-worth of homework a day, a figure that stuns the Japanese and Chinese.

Americans also divide up their school time oddly. They cram the school day into the morning and early afternoon, and close their schools for three months in the summer. The country that tut-tuts at Europe’s mega-holidays thinks nothing of giving its children such a lazy summer. But the long summer vacation acts like a mental eraser, with the average child reportedly forgetting about a month’s-worth of instruction in many subjects and almost three times that in mathematics.


Some thoughts from muah: we should structure school hours to encourage both parents to be working, or rather that the structure be there to allow parents to take that option without being penalised unfairly. Of course there are some who say the school hours should be structured to discourage that, so that the mom stays at home with the kids.

As competitive as the world is, let's try to allow kids to be kids. They will be young only once. Don't fill up their spare time with tuition classes, piano lessons, karate lessons, squash training, ballet lessons, etc... and then still have to do homework. Must allow kids some time to lepak, relax, do nothing or just be kids. You need well adjusted kids, not all nerds or computer geeks running the world later.

You don't want your kids to tell you when they are older: "Dude... where's my childhood??"

p/s photos: Suki Tsui Suk Mun

Can I Borrow $25?

I have come across this story before, but its wonderfully poignant to be reminded. Saw this in a nice blog:
weiliang10.blogspot.com

A man came home from work late, tired and irritated, to find his 5-year old son waiting for him at the door.

SON: 'Daddy, may I ask you a question?'

DAD: 'Yeah sure, what it is?' replied the man.

SON: 'Daddy, how much do you make an hour?'

DAD: 'That's none of your business. Why do you ask such a thing?' the man said angrily.

SON: 'I just want to know. Please tell me, how much do you make an hour?'

DAD: 'If you must know, I make $50 an hour.'

SON: 'Oh,' the little boy replied, with his head down.

SON: 'Daddy, may I please borrow $25?'

The father was furious, 'If the only reason you asked that is so you can borrow some money to buy a silly toy or some other nonsense, then you march yourself straight to your room and go to bed. Think about why you are being so selfish. I don't work hard everyday for such childish frivolities.' The little boy quietly went to his room and shut the door.

The man sat down and started to get even angrier about the little boy's questions. How dare he ask such questions only to get some money? After about an hour or so, the man had calmed down , and started to think: Maybe there was something he really needed to buy with that $25.00 and he really didn't ask for money very often The man went to the door of the little boy's room and opened the door. 'Are you asleep, son?' He asked. 'No daddy, I'm awake,' replied the boy. 'I've been thinking, maybe I was too hard on you earlier' said the man. 'It's been a long day and I took out my aggravation on you. Here's the $25 you asked for.' The little boy sat straight up, smiling. 'Oh, thank you daddy!' he yelled.

Then, reaching under his pillow he pulled out some crumpled up bills. The man saw that the boy already had money, started to get angry again. The little boy slowly counted out his money, and then looked up at his father. 'Why do you want more money if you already have some?' the father grumbled. 'Because I didn't have enough, but now I do,' the little boy replied.

'Daddy, I have $50 now. Can I buy an hour of your time? Please come home early tomorrow. I would like to have dinner with you.' The father was crushed. He put his arms around his little son, and he begged for his forgiveness.

It's just a short reminder to all of you working so hard in life. We should not let time slip through our fingers without having spent some time with those who really matter to us, those close to our hearts. Do remember to share that $50 worth of your time with someone you love. If we die tomorrow, the company that we are working for could easily replace us in a matter of hours. But the family & friends we leave behind will feel the loss for the rest of their lives.


p/s photo: Kathy Chow Mun Kei

Science & Maths In English, The Feedback

Such a hot topic, sure got plenty of views. The first one by swifz on "freedom of choice" has been aptly answered by Smoking Gun. My other replies in purple.

swifz said...

Totally disagree with you. There is no freedom when you impose your will on others. This is like when you think kissing corrupts the mind. So no kissing in the movies. This is like thinking that dressing short skirt invites rape, so you ban short skirt. What is right what is wrong? Are you more wise to decide this?

I always believe in freedom and the strength of diversity. Let every one teach using their way. The parents will decide what is best for their children. Learning different methods ensure that if one method fails, we can count on other methods to survive. It is just like planting rice, you don't have the whole country planting the same species because if a disease strike that species, the whole country will die of hunger.

If parents think that English have its strength, then they will send their children to English school and other type of school will slowly lose out the students. The idea is that we let the parents to make the decision. This is what free economy means. It is not good to have the government control every aspect of our life. This makes us become like communist.

Freedom of choice!!!!!!

SmokingGun said...

We elect a govt as a steward for this generation and to lay the foundations for the next. Which includes debatable education policies such as this even though some quarters may debunk the wisdom of teaching the two subjects in English.

The reasons for objections cited include absurd reasons such as national pride, losing one's Malaysianness, etc, which Dali has so eloquently argued otherwise.

Freedom and strength in diversity is an aspiration and good ideal.. but it will only prosper within well defined and stipulated boundaries, or structures.. Especially in small developing nations like Malaysia, with a substantial rural population, there is a need for the government to act as a shepherd. Total freedom is suicidal.

Parents that are illiterate or monolingual, will tend to perpetuate the cycle, as they are keeping within own comfort zones.. meaning that their children and future generations shall find it difficult to break out of. Govt are supposed to be there for the people, and they are given the mandate to lead them... not for the people to lead them... The poor parent often makes uninformed decisions (often wrong ones), and if it was left on their own, most kids would be out of school..
(The rich wouldnt even bother cos it doesnt affect them.. All their kids are overseas studying anyway)

Malaysia is a small country.. and the language is relatively new.. it would take a herculean effort to translate all the existing scientific texts out there, not to mention the new dissertations and journals appearing everyday in English (and Chinese/Japanese). Better to teach our young to fish (English/Chn/Jap/German/whatever) than to feed them everyday (translate into BM)

This policy has already been in place for a few years already.. if i am not wrong, the statistics has not shown that the overall grades has been affected. It is just politicizing and posturing by certain quarters. The more this issue rages on (which it has gone on for a long while, and has seen some fiery and racist overtones), the more I believe that the future of this country is shrouded with bigotism and close mindedness.. already the livelihoods of many are threatened by the recessionary clouds that hang over us now.. but we seek to deflect this and argue to overturn policies that will reverse our progress and undermine our competitiveness...(its no longer our "cheap" labor..and no, we are not that high up the value chain to be supreme innovators... its our English speaking workforce, stupid..!)

And you wonder, why so many middle-class folk think bout migrating...

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SS - PLEASE do not look down on those who cannot speak coherent English, it doesn't mean that you are smarter and superior than they are, it just shows that you don't understand what is 山外有山，天外有天。 p/s: Zhang Xin Yu & JJ probably cannot speak coherent English as well, you still like them, don;t you? Is it because of their looks or just double standard ?

SS dear,
I do not look down on people who do not know English. My mum does not know English, but I am certain her choices and options in life would be enhanced if she did. No, I don't look down on my mum. We are all victims and creatures of our surroundings, environment and conditions - if you were born during the war period, you'd be lucky to get any kind of education. I am not against learning Chinese or Malay, go do it by all means... but for heaven's sake, learn English as a priority. I have explained why Science & Maths are so important to be taught in English - its the business, finance and research language of the world. What kind of parents are you to deny your kids, why curtail your child's options. By all means, study history in Chinese, or even Social Studies, or even Ethics, or even Asian History, go and learn calligraphy even ... but do not be blinkered into NOT studying English as a priority. SS, you are barking up the wrong tree when you use the girls knowledge of English as a predetermination of liking or not liking someone, that is so shallow and unnecessary.

I am not looking down on anyone, I am just scolding them and hope they will consider the broader picture. If after all that, you still want to drop English in those two subjects, then go ahead... as they say in cantonese, "you want to die, why should I stop you from dying..." (lei ngoi sei, ngor ngm bei lei sei meh) ... but before I make that statement, I hope to at least shout in anger about the consequences and bigger issues surrounding the matter. If after all that, you still want to "kill" yourself, then go ahead by all means.

Thanks to "random" for replying to SS' queries.

random

random has left a new comment on your post "Teach Syains & Madds In Engris, You Im-be-ci-les":

lol SS wtf is wrong with you?

If you are so adverse to profanities you should stop reading the post instead of emphasizing the use of the word FUCKING (there's already a disclaimer put out)

This is not about looking down on anyone.. this post is about arguing the point that those who study Science and Maths in English will have a competitive edge in the real world.

Please don't bring your inferiority complex here.
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kinwing said... How about Taiwan of which population is only as big as us? So the English standard of most of the Taiwanese is not as good as us but they are integrated with the world well. There is another case from the former British colonial, Hong Kong. I think normal Hong Kong people do not master English very well, at least at the same level with Malaysian. But their competitiveness is much better than us!!! So I think mastering English is not a rocket science of making a person smarter just because he/she knows how to read reports in English. It is the determination of becoming success and attitude are the keys. By the way. I was chinese educated all the way from the primary (Sekolah Cina Kebangsaan), secondary (Chinese Independent High School, SUWA) to tertiary (New Era College, created by a Chinese association, i.e. Dong Jiao Zhong) education. And I only started to seriously learn about English when I was at college. Still I was able to manage to keep up the English standard though I can't say I am mastering it perfectly.

Kin, you are right in citing Taiwan as their population is 22m, but you should also know that there is a huge gravitation of their students to do their degrees in the US. Mastering English DOES NOT make a person smarter, thats not my point at all. Your kids will have an equal chance of being an asshole or a lazy bum or an under achieving good-for-nothing even with English.

At least next time, ask for bribe also can ask in English la...

... oh btw, there are plenty of retired teachers who have an excellent command of English that you can tap on a part time basis. They will be more than happy to help out, just double their last pay scale.


And finally, a sobering commentary from an actual English teacher ....

Arn

Arn has left a new comment on your post "Teach Syains & Madds In Engris, You Im-be-ci-les":

The best way to learn and master the English language is to learn and master the English language itself. Learning Science and Mathematics in English will, by itself, not improve one's standard of English. I should know because I actually teach English.

I can tell you that the best way for anyone to improve their English language skill is to read more books and magazines, and to speak it as much as possible. Forcing children to learn Science and Mathematics in English, when they don't yet have a grasp of the language itself, is of no significant advantage.

The Japanese, Taiwanese and South Koreans are technologically more advanced than us, but the average Japanese, Taiwanese and South Korean can barely hold a decent conversation in English. I should know because I have met Japs, Taiwanese and South Koreans, and talking to them is a real chore at times.

When I was but a wee lad, I studied Science and Maths in Bahasa Malaysia, and I do not believe that I have been disadvantaged in anyway as a result. What I did do was read lots of Beano, Dandy, Spiderman, the Star, NST, WW2 comics, and anything else I could get my hands on, besides watching English language programs on TV and radio. I also spoke English all the time with my schoolmates. Now this is where Malaysian children today are different from us grown-ups; they are more likely to speak their mother tongues instead of English. The Chinese kids will watch HK serials and movies and speak Cantonese or Mandarin with their peers, the Malay kids will stick to BM and the Indian kids will likely be speaking Tamil.

If the idea behind the teaching of Science and Maths in English is so that the children can be immersed in the English language, then you'd have to make English the standard medium of instruction, displacing Bahasa Malaysia. This means everything; Geography, History etc. I doubt if this will happen.

Another logistical stumbling block is the lack of Malaysian TEACHERS who can actually teach English, let alone Science and Maths in English.

In conclusion, the only realistic way forward is to get more English teachers into Malaysia to teach English to Malaysian children, and to encourage Malaysian children to read more books, listen to English-language radio, and speak more English.



p/s photo: Linda Chung Kar Yan

Temasek's Future Under Goodyear

Saw the article in FinanceAsia on Temasek. Its an analysis by Nomura:

Charles Goodyear is slated to take over as chief executive officer of Temasek from Ho Ching on October 1. This has prompted Nomura to review the Singapore-based investment firm's track record and strategies under Ching, and to draw inferences from Goodyear's background as to how he will manage the firm. Its conclusions were published in a research report last week.

The analysis of Temasek is what Nomura terms an anchor report, in which it examines the key themes and value drivers upon which it is basing sector views and stock recommendations. Temasek did not talk to Nomura for the report.

Temasek has succeeded in geographically diversifying its portfolio, Nomura commented, with Singapore now accounting for one-third of its exposure, down from 50% five years ago. However, despite the diversification, Nomura estimated the portfolio was down 23% by May 2009 compared to March 2008.

Nomura questioned whether Temasek is over-exposed to the financial sector, as its exposure to the sector has doubled to 40% in 2008 from 21% in 2004. Given that a significant portion of the investments in financials are held by Fullerton Financial Holdings, Nomura speculated that Goodyear could consider an initial public offering of Fullerton. Nomura has suggested that Temasek might create a special purpose vehicle to allow other investors to co-invest alongside Temasek. This would enable Temasek to continue to invest in attractive opportunities without significantly increasing its financial exposure, while other investors could tap into Fullerton's operational expertise.

Goodyear's past track record led Nomura to suggest that Temasek could gear up the balance sheet as the cheapest form of raising financing, a strategy he adopted at BHP Billiton. As is now widely predicted, Goodyear is also likely to increase investing in natural resources assets, given his own familiarity with the sector. Under Goodyear's stewardship, Temasek could also enhance its focus on China, either through expanding existing representative offices or by making further investments in local private equity funds. Nomura also suggested that under Goodyear Temasek could play a more active role in Temasek-linked companies.

"We think Temasek's performance over the tenure of [Ho Ching's] term has been respectable," wrote Nomura, referring to the increase in the portfolio value to S$185 billion ($127 billion) in March 2008, from S$90 billion in 2004.

Temasek measures total shareholder return (TSR) by market value and by shareholder funds. During its 34-year history, Temasek's TSR by market value has been 18%, but Nomura noted that its performance has weakened in recent years, with one-year TSR by market value falling to 7% as of March 2008. Nomura suggested Temasek could see a further dip in TSR in the fiscal year to March 2009 due to losses on the Merrill Lynch investment and the worsening of the financial crisis, though it added that these may be cushioned by the sales of three Singapore power generating companies during the course of the year.

Nomura analysed in detail Temasek's "unprecedented loss" from the investment in Merrill Lynch, terming the firm's decision to exit the resultant stake in Bank of America in the first quarter of calendar 2009 as surprising. Nomura referred to street estimates that Temasek lost between $2.3 billion and $4.6 billion. It fielded the criticism that Temasek realised the paper loss in an untimely manner, just as the overall market was recovering, by highlighting that Temasek freed up capital and sectoral limits to increase its stake in China Construction Bank.

Among the Singapore companies in its portfolio, DBS Group Holdings, Singapore Airlines, ST Engineering and Neptune Orient Lines are likely to be strategic investments for Temasek which it will continue to own, said Nomura. Its holdings in SMRT Corporation, SembCorp Industries, Singapore Telecom and StarHub could be trimmed, while PSA International, Mapletree Investments, Mediacorp, Changi Airport and Fullerton are potential IPO candidates.

A merger between DBS and Standard Chartered does not seem likely in the near future, Nomura said, as it is complicated by domicile, legal and regulatory jurisdiction, and accountability. But Nomura suggested that in the longer run it is an idea worth exploring as it would be in Singapore's best interest to have a regional financial powerhouse.


p/e photo: Sowelu

Commodities Charging On - The Next Bull Phase / KLCI 1,100 Gone Soon

Two pieces of important information which should impact on markets over the near term. First one is oil, which is being pushed higher. The second one is on soyabean prices, which ill drag palm oil higher as well. I think following the inventory work down, funds and genuine buyers are beginning to stockpile. The bookings as reflected in Baltic Dry Index would lend credence to the sustainability of hard and soft commodities run up. Overweight palm oil stocks. The initial run for the last 3 months was more due to recovery in financials. It looks like this run (bear market rally or whatever you want to call it) may have some legs left in it.

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June 10 (Bloomberg) -- Global proved oil reserves fell last year, the first drop since 1998, led by declines in Russia, Norway and China, according to BP Plc. Oil reserves totaled 1.258 trillion barrels at the end of 2008, compared with a revised 1.261 trillion barrels a year earlier, BP said in its annual Statistical Review of World Energy posted on its Web Site today. The world has enough reserves for 42 years at current production rates, BP said.

BP and other oil companies are struggling to replace reserves as access to deposits becomes harder and older fields in places like the U.K. and Mexico are depleted. Russia passed a law last year that limits foreign ownership in some of the country’s biggest energy and metals deposits. Middle East countries, which hold 60 percent of global reserves, restrict access for international companies.

“Our data confirms the world has enough reserves of oil, natural gas and coal to meet the world’s needs for decades to come,” BP Chief Executive Officer Tony Hayward said in his introduction to the report. “The Challenges the world faces in growing supplies to meet future demand are not below ground, they are above ground. They are human, not geological.”

Saudi Arabia’s reserves, the world’s largest, stood at 264.1 billion barrels, little changed from 264.2 billion a year earlier, BP said. The Middle East as a whole holds 754.1 billion barrels, compared with 755 billion barrels last year.

“Declines in Russia, Norway, China and other countries offset increases in Vietnam, India and Egypt,” BP said on its Web site.

Canadian Oil Sands

Including Canadian oil sands deposits of 150.7 billion barrels, total global reserves stood at 1.409 trillion barrels, the review said. BP made an upward revision to 2007’s global oil reserves of 23.1 billion barrels, with the largest increases in OPEC members Venezuela and Angola. None of the biggest international oil companies have replaced output through new discoveries or extending fields in the past six years, Sanford C. Bernstein & Co. said in an April 2 report. Companies such as Royal Dutch Shell Plc, Europe’s largest oil company by market capitalization, are looking at acquisitions to boost reserves, Bernstein said.

BP said the estimates in today’s report are a combination of official sources, OPEC data and other third-party estimates. Oil reserves include gas condensates and natural gas liquids, as well as crude oil.

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Published: June 10 2009 11:38 | Last updated: June 10 2009 20:05

Soyabean prices rose above $12.50 a bushel to a nine-month high after the US government warned on Wednesday that soya stocks in the world’s largest exporter of the commodity will drop to the lowest level in 32 years. The Department of Agriculture said by August 31 stocks of soya would drop to 110m bushels, the lowest since stocks fell to 103m bushels in 1976-77.

Hussein Allidina, head of commodities research at Morgan Stanley, said inventories had reached a “precarious” level. The US exports about 45 per cent of the world’s soya.

CBOT July soyabean rose to an intraday high of $12.55½ a bushel, up 30 per cent so far this year. The new crop contract – CBOT November – rose to $10.81½ a bushel as the USDA also cut its forecast for 2009-10 stocks. CBOT July soyameal jumped to $414.4 per tonne, less than 10 per cent below its all-time high of $456.8 per tonne set last July.

Soyameal is the key feeding commodity for hogs, chicken and turkey; its rise suggests an imminent surge in meat and poultry costs. Corn prices rose as the USDA painted a bullish picture, with 2009-10 corn stocks approaching the key 1bn bushels mark. CBOT July corn rose to $4.49 ¾ a bushel, although it later traded flat at $4.44.

Wheat dropped as a forecast of lower consumption offset a drop in supply in 2009-10. CBOT July wheat fell below $6 a bushel, though the new crop contract of September traded at $6.27 a bushel. Other commodities markets mostly rose, supported by hopes the economy has reached its bottom and a weakening of the US dollar.

Crude oil extended its rally, trading near $72 a barrel at a fresh seven- month high with investor appetite stirred by a larger- than-expected drop in US crude oil inventories. Nymex July West Texas Intermediate, the US benchmark, rose $1.40 in late afternoon trading to $71.41 a barrel. It had hit an intraday high of $71.79 a barrel, the highest level since November. ICE July Brent rose $1.14 to $70.76 a barrel.

Weekly crude inventories data from the US Department of Energy showed that the country’s crude stocks fell by 4.4m barrels last week to 361.6m barrels, a two-month low. The drop came after a sharp fall in oil imports into the US.

Oil prices have doubled in price since the market turmoil of late last year, with WTI gaining 60 per cent since January 1 as speculators have begun to gamble on a rebounding global economy leading to higher crude prices.

The US government data also showed gasoline inventories falling by 1.6m barrels, a figure exceeding forecasts of an 800,000 barrel increase, while distillate stocks, including diesel, dropped by 300,000 barrels against expectations of a 1.4m barrel increase.

Nymex July RBOB gasoline futures rose above $2 a gallon for the first time in eight months following the report on lower stocks.

The broad-based rally lifted copper to an eight-month high of $5,220 per tonne before it fell 0.2 per cent to $5181. Aluminium rose 1.7 per cent to $1,689 per tonne, a six-month high, but later followed copper lower, losing 1 per cent to $1,643. Zinc rose 1.4 per cent to $1,622.5 per tonne.

Gold slipped 0.2 per cent to $951.70 a troy ounce; silver rose 0.5 per cent $1518.5 per troy ounce.

Nymex July West Texas Intermediate, the US benchmark, rose $1.49 to $71.50 a barrel, its highest since early November. Earlier, it hit an intraday high of $71.60 a barrel. Meanwhile, ICE July Brent rose $1.24 to $70.86 a barrel.

The surge came after the American Petroleum Institute, the industry body, reported a larger-than-expected drop in US oil inventories of almost 6m barrels, against Wall Street’s forecast of 400,000 barrels. Although API statistics are less important than the official US Department of Energy figures, to be released later on Wednesday, the market still takes them as a sign of the direction of the official numbers.

Oil has doubled in price since the market turmoil of late last year, with WTI gaining 60 per cent since January 1, as speculators have begun to take bets on a rebounding global economy resulting in higher crude prices.

Production cuts by OPEC, the international oil cartel, of over 4 million barrels per day since September have also contributed to rising oil prices.

The negative correlation between the US dollar and dollar denominated commodities continued, with dollar weakness helping push several base metals to fresh monthly highs. The broad based commodities rally helped copper to an eight-month high of $5220 per tonne, a gain of 0.6 per cent.

Aluminium gained 1.7 per cent to $1689 per tonne – a fresh six month high that took the light metal’s gains to $120 over the past three sessions – and zinc rose 1.2 per cent to $1634.5 per tonne. Aluminium’s continued gains have left many observers puzzled due to the continued stockpiling of the metal by Shanghai traders and London Metals Exchange data showing record levels being held in the LME’s warehouses.

p/s photo: Aya Nakata

Lessons From The Current Crisis - Macroeconomics

Economics has been bashed thoroughly, by me, and loads of other commentators for failing to be remotely useful in predicting or solving this current crisis. Is it totally useless? To be fair, many of the economic concepts and ideas are useful in addressing and commenting on business issues and strategies, even till today. Its problem is its predictive element and is it still relevant?

In Businessweek International, they had 3 economists to share their insights on lessons from the current crisis:

1) Hyun Song Chin, Princeton University - He thinks that the Fed should pop credit bubbles early by raising interest rates. Shin faults macroeconomists for developing models that didn't allow for the possibility of risks such as a bubble in lending or deterioration of credit standards.

2) Roger Farmer, UCLA - He thinks that the Fed should make large scale purchases of equities to restore investor confidence and get the economy back on track. He thinks that the Obama's administration doing that would be more effective than deficit spending. He frets that if the government puts more money in the public's pockets via spending or tax cuts, people won't spend it as long as they feel poor because of stock market losses. Similar ideas have been tried before in HK, Taiwan and Japan - but had been relatively effective in HK and Taiwan.

3) Thomas Sargent, NYU - To him, the economy is volatile because households and businesses hold fragile beliefs that shift quickly. In the 70s Sargent stood by "rational expectations" which says that ordinary people can correctly anticipate the range and likelihood of possible future outcomes. He now thinks that theory was oversimplification. In real life, households and businesses are highly uncertain. These fragile beliefs though may shift back positively again through unexpected positive events.

In my view, macroeconomics has failed to predict or solve this crisis because:

a) the models are not sophisticated enough. They did not have the capacity to assess the "effects of derivatives", how the leveraged balance sheets (or rather off balance sheet items) pumps liquidity through the system, and the consequences when this liquidity is eroded.

b) the assumption of the "rational man" is flawed, I totally agree with the "fragile beliefs man" theory. That being the case, the importance of "confidence" in expectations has been understated, and maybe difficult to be incorporated into models.

c) the assumption that the markets is efficient is again flawed, apparently markets are not efficient but rather random and unpredictable, and will have extended periods where the markets can be totally inefficient.


p/s photo: Suki Chui Suk Mun & Shirley Yeung Si Kei

Pictures That Tell A Thousand Words

Paul Krugman Thinks US Recession Will Be Over By September

For Krugman to be so bold in making that statement, its becoming a media circus. How are you going to take popularity votes from Roubini unless you make these aggressive calls that make everyone sit up and take notice. Even if your call does not work out, you are an outstanding economist, you role in life is to justify and explain why your predictions did not turn out the way you predicted. Great way to stay in the media focus and still be just doing your job, without achieving anything really in the end... mommas, don't let your sons grow up to be economists!!

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The US economy probably will emerge from the recession by September, Nobel Prize-winning economist Paul Krugman said.

"I would not be surprised if the official end of the U.S. recession ends up being, in retrospect, dated sometime this summer," he said in a lecture today at the London School of Economics. "Things seem to be getting worse more slowly. There’s some reason to think that we’re stabilising."

US stocks erased an earlier decline after Krugman made his comments. The Standard & Poor’s 500 Stock Index was little changed at 939.14 in New York after slumping as much as 1.5 per cent earlier, and the Dow Jones Industrial Average gained 1.36 points to 8764.49.

Krugman, a Princeton University economist, has warned recently that the US government hasn’t done enough to help the country’s economy recover. Last month, at a conference in Abu Dhabi, he said the fiscal stimulus is "only enough to mitigate the slump, not induce recovery".

The National Bureau of Economic Research, based in Cambridge, Massachusetts, is the official arbiter of US recessions and expansions. Last week, Robert Hall, the head of the NBER’s business-cycle-dating committee, said it’s "way too early" to say the contraction is over.

The US has been in a recession since December 2007, and the NBER may take months to decide when a trough has been reached. Recent reports have shown an easing of declines in industrial production and other measures that the group reviews when determining whether the economy is in a recession.

Even with a recovery, "almost surely unemployment will keep rising for a long time and there’s a lot of reason to think that the world economy is going to stay depressed for an extended period," Krugman said.

The unemployment rate jumped to 9.4 per cent in May, the highest since 1983, partly reflecting more people joining the labor force to look for work.

The US Federal Reserve’s efforts to stabilise markets - measures that have swelled the central bank’s balance sheet - have helped, Krugman said. "A lot of the spreads in the markets have come down” and “the acute financial stuff seems to have come to a halt," he said.

Fed officials lowered the benchmark interest rate to a target range of zero to 0.25 per cent in December and have switched to using credit programs and outright purchases of Treasuries, mortgage-backed securities and housing agency debt as the main tools of monetary policy.

$US2.31 Trillion

The balance sheet’s size peaked at $US2.31 trillion in December. It has fluctuated around $US2.1 trillion over the past two months.

The Fed’s swollen balance sheet is "a little alarming. In the long run you really don’t want the central banks to be so involved in the business of lending," Krugman said. "But it’s arguably necessary" even if there are questions about "where does it stop?"

p/s photos: Kim Ahep

How To Change Asia's Reliance On Exports

Asia's growth model relies extensively on exports. We all know that that places us at the mercy of our consumers. Is there a better way? How can we lessen the reliance on exports? Is it OK to do nothing? If we do change, are the changes for the betterment of Asian economies? Roubini's RGE has a good article weighing the matters at hand:

• Asia is dependent on the export model (using an undervalued exchange rate and sourcing inputs from other Asian countries) to drive its growth. A large share of its extensive reserves have been invested in the G-3 markets. Asia's export to GDP ratio rose from 36% in 1998 to 46.7% in 2007 with the ratio exceeding 100% for Singapore and Hong Kong, and over 60% for Malaysia, Taiwan and Thailand.
• Problems with the model: Large FX reserves and current account surpluses have contributed to the global imbalances which are unsustainable. Consumption has been subdued especially in China, Singapore and South Korea, followed by Hong Kong, Taiwan, Thailand and Malaysia. Consumption to GDP ratio for emerging Asia actually declined from above 50% in 1998 to around 47% in 2007
• Governments put off other areas of the economy, such as liberalizing domestic sectors and encouraging domestic demand and ignored social services and good governance
  
• Rising wage and other costs in Asia along with upward pressure on exchange rates, high oil and shipping prices reduced cost-savings for Western producers from importing from Asia.
• Since exports started weakening in mid-2008, many Asian countries returned to favoring an undervalued currency or at least stopped allowing appreciation
• Stimulus related investment policies to raise consumption indirectly by boosting production will temporarily boost growth, but they cannot result in a sufficiently large increase in domestic net consumption to replace American buying. Also some of these policies (es: China increasing loan growth which will only raise NPLs) will sharply constrain future domestic consumption just when it is needed most
• Benefits of continuing with the model: Trade helped several Asian economies attain higher per capita incomes, stronger economic growth while reducing poverty significantly. Letting their currencies appreciate will result in losses on their U.S. holdings
• It might be politically easier to continue with the present policies to boost manufacturing jobs and rural migration than to initiate economically/politically difficult and longer-term structural changes in the economy
• Changing the model would entail diffusing rather than concentrating wealth and political power
  
• The adjustment will largely depend on China's stance on its currency and export policies (as ASEAN takes cues from China to maintain their relative export competitiveness), and the political will of Asian leaders to re-balance their economies
• Reforms/Structural changes needed to change growth model/boost domestic demand: Increasing domestic demand will boost imports and help reduce current account surpluses and global imbalances
• Need to increase social safety net for workers (pensions, public services), reform Social Security systems, increase returns of pension schemes and improve health care access. Move from low-end to high-end and labor-intensive manufacturing and also services to increase job creation and also incomes. Need to attract private investors and banks, increase government spending on innovation, development of human capital, raise crop yields
  
• Will need to improve credit access to reduce the need to save, move away from devalued currency which will lead to cheaper imports for consumers (and lower commodity prices), government investment in infrastructure. Higher public spending on health, education and welfare support could encourage households to save less and spend more. Financial intermediation of savings to investment to reduce dependence on external capital, speeding up financial liberalization to lift the cost of capital for firms (reducing the need to borrow from abroad)
  
• It may already be too late for developing ASEAN countries to attract the kind of foreign investments that will help them benefit from technology transfer and MNCs. They have few homegrown MNCs. Private investments are constrained by capital limitations and a general lack of entrepreneurial spirit. As a percentage of GDP, domestic credit from the banking sector in ASEAN, apart from Vietnam and Cambodia, is lower than 1995 levels. Domestic capital markets, an alternative funding source, are shallow: stock and bond markets are small
  

p/s photos: Intan Ayu

Can Asian Markets Continue To Outperform The Rest

Asian equity markets have outperformed mature markets in 2009 thanks to continuous FII inflows amid diminishing risk-aversion among global investors and some signs of green shoots in Asia. As of June 3 2009, MSCI Asia (ex Japan) gained 35.9% ytd with India and China as the best performers, and Pakistan and Malaysia as the worst performers. Despite impressive improvements, downside risks remain due to bleak corporate earnings outlook, worries over the real economy and revival of any global risk aversion

* 2009 MSCI Asia (ex Japan) performance in USD terms: 35.9% ytd as of June 3, 2009, up 64.6% during March 2-June 3

* Best performers (ytd as of June 3, 2009): India: 55.6% | China: 51.9% | Indonesia: 49.9% | Taiwan: 47.8% | Viet Nam: 45.2% | Sri Lanka: 42.3%

* Worst performers (ytd as of June 3, 2009): Singapore: 34.1% | Philippines: 33.2% | Thailand: 31.9% | Hong Kong: 28.6% | Korea: 22.6% | Malaysia: 21.4% | Pakistan: 17.3%

* In 2009: Asia's equity market (ex Japan) have outperformed mature markets, up 35.9% ytd as of June 3 2009, while the U.S. Dow Jones Industrial Average and the S&P 500 Index fell 3.98% and 0.01% respectively during the same period.

Also, as of end April 2009, market capitalization of Asian Pacific markets ($10.2tn) has come ahead of that of European markets ($9.3tn, including Africa and the Middle East) as Asian stock prices sour at a faster pace than European ones.

* From March 2009: Asian equity markets have witnessed a rally following a surge in U.S. markets and began to benefit from the widening valuation gap on the back of relatively resilient macroeconomic fundamentals. During the March 2- June 3 period, MSCI Asia (ex Japan) rose by 64.6%, significantly higher than the S&P 500 Index and the Dow Jones Industrial Average which gained 32.9% and 28.3% respectively

* Valuations: Taiwanese shares are the most expensive in the region, 63.7 times reported earnings, followed by Korea (29.2x) and China (28.0x for A-shares). On the other hand, Singapore (12.5x) and Pakistan (9.3x) are cheapest when compared to their regional peers. Given China's aggressive fiscal and monetary policies to stimulate domestic economy, A-shares are valued more than B-shares (20.5x)

* 2008 Review: The peak-to-trough decline in Asian equities in 2008 (more than 70% for some markets) surpassed the 60% fall in local currency terms during the 1998 Asian financial crisis. Sustained outflows from offshore Asian funds took total net redemptions in Jan-Oct 2008 to a record high such that all money that flowed in during 2007 flowed out

* 2009 Outlook: Asia markets will need to offer more attractive growth and valuations than the rest of the world in order to attract fund flows into the region. Asia valuations, however cheap by its own historical standards and cheaper than the U.S., are still more expensive than the 8.6x median of 46 countries (DBS). Nonetheless, given decreasing inflationary pressures and relatively healthy fiscal positions, further fiscal and monetary stimulus policies by Asian govts will able to boost the region's equity markets in H2 2009

* Upsides: AXJ region is now attractively valued, and buying into most of the region's equity markets seems a better bet than bonds amid increasing bond issuance. Continuous FII inflows to Asian equity markets since early March have taken ytd net flows to a positive US$1.9bn in mid-May 2009, the most sustained inflows since November 2007

* Downsides: gloomy earnings forecasts, worries over the U.S. economy, exit by local investors and also FIIs alarmed at greater than expected impact of global slowdown on Asia's growth, exports, fiscal deficits, slowing consumer spending and investment may have negative impacts. Investors may move money to bond markets from equity markets in an anticipation of slower global economy's recovery due to the spread of swine flu. High (external) debt exposure of corporate sector in some countries and risks of real estate correction and bank profitability are additional risks

* Market Integration: there is a noticeable upward trend in the Asia-U.S. correlation with the correlation parameter picking up sharply in H2 2008 (peaking during mid-Oct 2008). However, average correlations for emerging Asian equity markets are generally higher between the region's markets than with the US markets

* Government intervention: Several countries including Taiwan, Pakistan, Vietnam, Thailand intervened in the stock market by narrowing the trading band, introducing stabilization fund to contain volatility, banning short-selling, directing govt funds to buy shares

p/s photo: Zhang Xin Yu

Why Kids Can Be Constituted As 'False Advertising'

I like kids as much as the next guy, but I also think those innocent faces belie what lies ahead. Of course, not all kids turn out to be teenage brats, but some do. Young kids are the cutest and most lovable when they are under 6 - that can constitute as 'false advertising' to lure innocent young parents to desire for babies. This wonderful video totally captures why kids are so lovable and cute!





p/s photo: Shinobu Ikehata