Recession Is On The Cards?

In a highly unexpected move, Malaysia's Central Bank cut its interest rates by 50 basis points to 2 per cent on Tuesday due to rising concern about the country’s economic growth.

The Central Bank also cut the commercial banks’ statutory reserve requirement (SRR) by 100 basis points to 1% effective March 1.

This was the third straight rate cut in as many meetings and came after a shock 75 basis point cut last month.

Despite Malaysia Government's constant denial of possible recession, the latest measures clearly indicate that the economy is all but well, and is deteriorating at an alarming rate! Perhaps, the feared word "recession" is truly on the cards!

Dividend Yield? Don't Bank On It!

At a challenging time like this, more and more companies are slashing their dividend payout to conserve cash for either future defensive or offensive measures. Some time ago i have written the possibility of such scenario happening and how true indeed.

JP Morgan, U.S. second-largest bank, slashed its common stock dividend by 87%, a surprise move by a lender considered among the strongest in the U.S. financial sector. This came about despite the bank claiming a "solidly profitable" quarter, and that the outlook being in line with expectation.

It's decision to lower its quarterly dividend to 5 cents per share from 38 cents will save US$5 billion of common equity a year and hopes to pay back the US$25 billion of capital it got in October from the U.S. government's Troubled Asset Relief Program faster.

Among others, Bank of America and Citigroup, have in fact slashed their quarterly dividends to a penny per share since November 2008!

It is highly expected that more companies across the globe will continue to slash dividends in order to conserve cash.

Locally in Malaysia is no exception, whereby Carlsberg Brewery Malaysia announced an unprecedented reduction in dividend distribution by 60% compared to the past. In the past, such company has never failed to give out high dividend yields from the range of 8% to 10%.

With the current global financial crisis and recession looming, one should not blame them for being conservative. After all, no one knows how bad the situation may pan out. It's better be safe than sorry!

Warren Buffett's Words of Wisdom for 2009

Here's a special message from the one of the wealthiest man on earth and is worth your time reading and taking notes....It's simple yet powerful and meaningful.

"We begin this New Year with dampened enthusiasm and dented optimism. Our happiness is diluted and our peace is threatened by the financial illness that has infected our families, organisations and nations. Everyone is desperate to find a remedy that will cure their financial illness and help them recover their financial health.

They expect the financial experts to provide them with remedies, forgetting the fact that it is these experts who created this financial mess.

Every new year, I adopt a couple of old maxims as my beacons to guide my future. This self-prescribed therapy has ensured that with each passing year, I grow wiser and not older. This year, I invite you to tap into the financial wisdom of our elders along with me, and become financially wiser.

Spending: If you buy things you don't need, you'll soon sell things you need.

Savings: Don't save what is left after spending; spend what is left after saving.

Hard work: All hard work brings profit; but mere talk leads only to poverty.

Laziness: A sleeping lobster is carried away by the water current.

Earnings: Never depend on a single source of income.

Borrowings: The borrower becomes the lender's slave.

Accounting: It's no use carrying an umbrella, if your shoes are leaking.

Auditing: Beware of little expenses; a small leak can sink a large ship.

Risk-taking: Never test the depth of the river with both feet.

Investment: Don't put all your eggs in one basket.

I'm certain that those who have already been practicing these principles remain financially healthy.

I'm equally confident that those who resolve to start practicing these principles will quickly regain their financial health.

Let us become wiser and lead a happy, healthy, prosperous and peaceful life."

- Warren Buffet

U.S Consumer Aid: Step In the Right Direction?

US President Barack Obama pledged another US$275bn to a program that includes cutting mortgage payments for as many as 9 million struggling homeowners and expanding the role of Fannie Mae and Freddie Mac in curbing foreclosures.

The plan includes US$75bn to reduce monthly payments for borrowers, helps
homeowners with loans owned or backed by Fannie Mae and Freddie Mac to refinance at lower rates. On the other hand, the Government will double to US$200billion funding available for Fannie and Freddie to buy loans.

Further deteriorating market data showing U.S. housing starts and building permits dropped to record lows in January, as builders shelved construction plans to try to clear a glut of unsold houses caused by the slump in demand.

Major doubts remain over the effectiveness of this latest measure. However, it could well be a positive step towards salvaging a catatrosphic mushrooming in defaults and thus putting more pressure on banks, property prices and limiting consumer spending, which is an important element of U.S. economy.

Are You On The "Unwanted" List?

Here's some startling facts and figures which I have gathered from some local publications. According to Bernama, companies operating in Malaysia had retrenched 14,484 workers between October 2008 and January 2009, of which 4,207 workers left their jobs under a voluntary separation scheme (VSS)!

Looking ahead, the Manpower Department anticipates some 100,000 people in Malaysia to be retrenched by April! Singapore, on the other hand, was prepared to retrench all its 300,000 foreign workers, of which 200,000 are Malaysians.

To hit the final nail, the Deputy Prime Minister of Malaysia has also hinted that the Government may have to reduce further the country's GDP forecast for 2009, which currently stands at 3.5%!

Some analysts are predicting that Malaysia will fall into recession this year. What's your thought?

Whatever it is, be prepared but do keep this in mind at the same time.....When there are CRISIS, there are OPPORTUNITIES!

Cheaper Credit Card Debt: What You Should Know And Ignore

Here's a piece of good news for Malaysians with credit card debt! The Central Bank of Malaysia have just declared that interest rates for credit cards will be reduced by 0.5 to 1.5% for credit cardholders, while late payment fees will be slashed to a minimum of RM5 and a max of RM75 (against previous fees of RM10 or 1% of total outstanding balance subject to a maximum of RM100) effective from 31 Mar 2009.

To recap, Tier I being cardholders who pay at least the minimum amount promptly over 12 consecutive months, will now pay 13.5% in annual interest, from the present 15%. Tier II being cardholders who pay at least the minimum amount promptly over 10 consecutive months, will now pay 16% in annual interest, from the present 17%. Finally, Tier-III cardholders who do not meet the above criteria will have a minimal reduction of 0.5% from the present 18%.

The reduction in interest rates should give rise to savings for credit cardholders. However, i believe this is merely an act of reducing potential debt default (in view of the economic slowdown or possible recession) instead of increasing consumer spending, as consumers face the likelihood of reduced income or income uncertainties due to job losses and business slowdown.

Nevertheless, the silver lining to this is that nobody should use the credit card as a form of borrowing due to the extreme high cost of financing. It is advisable to pay off such credit debts with lower cost of financing such as personal loan, property loan refinancing or make use of tools such as credit balance transfer to another credit card with much lower cost of financing.

Avoid credit card debt!

Stimulus Or Mere Hindrance?

U.S. Government have unveiled the much anticipated financial sector rescue plan. The Treasury Department and Federal Reserve took the bold step of committing more than US$1trillion in financing for loan purchases as well as commercial mortgage-backed securities, and unveiled a sweeping reform to previous programs.

Here are some of the salient points:
• The banking sector will undergo a check up to determine whether banks have adequate
capital to continue lending. Financial institutions will also be tested to see if they can stay
solvent if the downturn turns worse than expected;

• Efforts will be made to improve banks' public disclosure of their holdings. Besides, banks with assets greater than US$100billion will have to undergo individual assessments;

• Similar to the existing US$250bn Capital Purchase Program (CPP) under the Troubled
Asset Relief Program, Treasury will continue to help banks shore up capital after
undergoing a stress test. Like the TARP program, Treasury will take an equity position in
the form of preferred shares in banks receiving CAP investments. The investments that
Treasury makes will then be placed into a separate trust, overseen by fund managers;

• A public-private investment fund will be setup to help banks cleanse their holdings of "toxic" assets in order to extend private lending. However, no specific amount was provided;

• banks receiving government funding are required to show how they are using the money they receive for lending. They must also submit a plan to Treasury detailing how they expect to use bailout money to boost lending;

• Companies in receipt of bailout funding will be required to cut their dividend to a maximum
of 1% per quarter until the loan is repaid. Banks cannot repurchase privately held
shares, and they cannot buy other healthy banks without Treasury's consent;

• Executive pay at some bailed-out banks is to be capped;

• A foreclosure prevention program valued at US$50bn will be introduced to mitigate foreclosures and make housing more affordable by lowering interest rates;

• A new program to boost small business and community bank lending will be introduced, by financing purchases of high-quality Small Business Administration (SBA) loans and increasing
SBA loan guarantees to 90% and reducing their fees.

Many investors have started to question if the latest stimulus plan is enough to halt the economic slump, particularly after billions of dollars pumped in but have yet to witness any form of positive results.

What's your thought?

Source of rescue plan : CNN Money

Asia To Outperform The Rest of World

1997 was a year of crisis originated from the Far East. Then, the likes of emerging markets such as China and India had not quite come on stream... Ironically, Asia is again hit by financial crisis a decade later. This time albeit is originated from the west, namely U.S, followed by Europe.

Being predominantly export-led markets, Asian shares have been dragged down as a result by the global financial crisis that has seen foreign investors oozing to clear the fire exit. The outlook for this year is certainly bleak, no thanks to the over-dependence on exports. It remains to be seen how long this current crisis would unfold towards recovery. Asia perhaps stand a much better chance to withstand the current storm and outperform global shares in the mid to long term.

Here are my six reasons why.

1. Asian countries do not suffer from the consumer indebtedness and deleveraging that is now causing massive headaches in the western countries.
   
2. Asian financial system never became as dependent on credit markets and its banks are far less exposed to the toxic debt in U.S. and Europe;
3. Asian economies are generally buffered with high foreign exchange reserves, high savings rate and current account surpluses;
4. Asia's favourable demographics, being higher population growth with lower dependency ratio;
5. Asian equities are now trading on a similar valuation to global average. Thus, undervalued and attractive stocks are aplenty across the region.
   
6. Asia's long term growth prospects are still good, with both China and India leading the pack.
   

It's worthy to note that the above reference to the word Asia excludes Japan, which has had experienced stagnant growth for the past 2 decades.