Back In The Black, For Now At Least...

Malaysia has just reported a strong growth of 10.1% for the 1st quarter of 2010, led by strong recovery in exports! On the other hand, Central Bank has also raised the OPR (Overnight Policy Rate) or the official interest rate by another 25 basis point. That means Bank's BLR will go up likewise, by the same token at the very least.

Seems Malaysia represents only the handful countries in Asia that keeps pushing up interest rates...

In a way no surprises to me, given BNM's normalization process as economy recovers. In fact, I expect another rate hike coming around July after the announcement of 2nd quarter GDP.

Does this mean all are hunky dory from now on? Not quite. Much will still depend on how the current European (PIIGS) sovereign debt crisis pan out. Greece has been bailed out no doubt, but that could well be just the tip of the iceberg!

If things turn out for the worst, then we should expect economy to start turning down again in the second half of this year.. Expect to have an eventful second half! In the midst of another potentially looming crisis, the consolation is that we can at least sit back and enjoy the upcoming football World Cup.....It will be another set of drama for sure!

A Case of Reality Check

2009 was a stellar year for global stocks recovery. As I had written before, it was more hope than factual when global funds decided to take on an optimistic route. 2010 is expected to be a lot tougher, in the sense that what was expected last year must bear fruit this year, in order to sustain the bullish views across global economy and investments.

Last year (until the beginning of this year) we saw massive inflows of funds into emerging markets particularly like China, frenzily mopping up undervalued equity stocks and real estate properties. Property prices in Shanghai, for example, has even surpassed the previous highs made before the 2007 financial crisis! Things were beginning to look more bubblish and speculative than solid fundamental!

Problems began to emerge towards the end of 2009, in places like Dubai where they were not able to service their massive debts, to the point they need to be rescued by Abu Dhabi's sovereign funds.

Next in line comes some of the European countries commonly known as the PIIGS (being Portugal, Italy, Ireland, Greece and Spain) who appear increasingly unable to service their respective sovereign debts.

The key question in everyone's mind is that will this snowball into a global issue? Thus turning it into a double dip recession, as what some economists have predicted?

Worries about Europe caused the Euro to hit an eight-month low against the US dollar.

The perception of US Dollar may even turn to become a safe haven! Some analysts are also predicting a bullish rally on US Dollar this year against world major currencies!

The Worst Is Over? Listen To What the Two Richest Men Have To Say

Capitalism is still alive and well, say the world's two richest men, despite lingering shocks from the longest, deepest recession since the Great Depression.

During a live interview in an auditorium filled with nearly 1,000 people at a CNBC-sponsored event at Columbia University in New York, Warren Buffett, the CEO of Berkshire Hathaway, and Microsoft founder Bill Gates fielded questions from Columbia Business School students on the recession and investing.

Most notably, Warren Buffett said that the financial crisis is behind us, and the bottom has come in stocks, therefore do not pass on something that's attractive today!

Both Buffett and Gates also agreed that although mistakes were made, the fundamentals of the American system and a marketplace-driven system where American invest in education and innovation, coupled with a great long term infrastructure, will continue and augurs well for the future of U.S."

To watch the video of Warren and Gates interview, click this link.

For the full article, visit Yahoo News

For Buffett's latest view on investment, click this link.

It's All About Liquidity

What happens when you have lots of money in the bank? Quite rightfully, the tendency is to either spend it or invest it wisely. In a macro scale and global financial terms, we call this liquidity.

Back in 2006 and 2007, global financial markets were flushed with liquidity, aided by the sub-zero interest Yen-carry trades. After all, funds were cheap and it was not surprising that investors took the risk to invest in assets with higher returns with lower cost of funds. However, many investors were caught badly burned as the global financial markets collapsed in the wake of the collapse of Lehman Brothers, followed by the massive loss of liquidity.

When funds dried up and there was a massive loss of confidence, investors naturally become risk averse. Markets continue to fall until the first quarter of 2009 amidst this phenomena.

Since March 2009, the outlook has changed drastically, due to massive pump priming by countries around the world and the huge injection of funds by the U.S. Government to bailout troubled financial institutions. Quantitative easing (printing of money) by countries such as U.S. and U.K. has certainly contributed massively to the availability of funds as well.

As a result, global financial markets are now flushed with liquidity. Whether this is artificially created or not is subject to your own interpretation though.

With U.S. economy showing signs of recovery, the U.S. Government has to decide whether it's time to gradually withdraw the stimulus plan. Indeed, this is what comes out of yesterday's FOMC meeting, however, with no specific timeline mentioned yet. Federal Reserve is not likely to do so until U.S. unemployment rate starts tapering off. Bear in mind that with all the talk about U.S. recovery, the unemployment rate is still hanging high at almost 10%!

With liquidity being the major driving factor, any move that could potentially dampen liquidity prematurely may spark another round of fear within the financial sector.

On the other hand, i believe the bull party is ain't over until there is a dramatic change in liquidity. As such, I am quite prepared to hold on to my positions until there is a clear sign of otherwise emerged.

Unlock The Equity Cross Road....

The word goes that when the U.S. sneezes, the rest of the world catches a cold. The above scenario is still pretty much valid, given how the financial troubles in U.S. had led to the global economic meltdown for the rest of the world! So despite all the speculation about the potential decoupling of world's economy from the U.S., it is simply not true as globalization has increasingly turned the world flat and like it or not, Americans are still the biggest spenders in the world, mopping up many products and services the rest of the world has to offer!

However, China has gradually and surely increased its role in the world's economy, given its huge domestic market (served by 1.4 billion people) and the enormous pace of growth averaging 8 to 10%. In time to come, it will not be exaggerating to say that if China sneezes, the world will likely catch a cold too!

Global stock markets have recovered strongly, against the odds, for the past 6 months. Major doubt is now being raised as whether the optimisms have run ahead of fundamentals or it's a mere speculation? The answer, I'm afraid, is highly subjective. Bear in mind that equity market is always forward looking, which essentially means that as an investor, we simply cannot wait until the event unfolds! Yes, it's a calculated risk that we all will have to take.

Recent data seem to have pointed to a sustainable recovery. However, whether one views it as a V, W, U or S shaped type of recovery is again highly subjective! Tan Teng Boo of iCapital Fund Management seems to believe we are at the beginning of another bull run and there will be a V-shaped recovery! However, most other analysts or financial gurus tend to take a more conservative view. Taking a long term view with China and likely India to spearhead future's economic growth, it is likely that we should have seen the worst for now provided U.S. do not spring more surprises or open up another can of worm!

Right now as we speak, global markets seem to be reaching a cross road where the next direction should be. It is understandable that investors are feeling nervy, having witness a dramatic bull rally for the past 6 months. An overheated bull will tend to follow with meaningful short term bear correction. Only then will the bull have an opportunity to recharge.

Mark Mobious, the well-known founder of Templeton Asset Management and investment guru, stated about a month ago that markets could decline between 20% to 30% following the recovery.

As a matter of fact, China's Shanghai market has corrected (or crashed?) about 20% the last couple of weeks, driven by fear of Chinese Government's plan to tighten the domestic credit market. Tightening credit at a time when China's export and unemployment are still weak does not seem to make sense. However, it is also a concern that excessive liquidity could lead to excessive speculation and unproductive output. As such, the latest measure is meant to ensure that credit resources are diverted to productive investments, which will strengthen real economic activities rather than continue to create bubbles in the stock market and the real estate.

To me, it's good to take a pause and re-assess the status quo, rather than taking the gung-ho approach. The faster one climbs, the harder one falls....

Perhaps, it's also a good time to re-assess your portfolio too. Some spring cleaning will always prove to be timely indeed in due course.

Is U.S. Housing Making A Comeback Soon?

Housing, which led the U.S. economy into recession, may be one of the forces that helps to pull it out of the ditch. Although nobody expects a renewed housing boom, at least sales and construction spending are not falling any further.

Some of the signs of stabilization include:

• Home builders are gradually becoming more hopeful, even though surveys show most builders are still very discouraged. The builders' housing market index has risen in four of the past five months.

• Housing starts have increased in four of the past five months after tumbling to a postwar record low. Building permits for single-family homes have risen at a 109% annual rate over the past three months.

• Sales of new single-family homes have risen three months in a row after falling to a record low in March.

• Sales of existing homes have risen four of the past five months, supported by a government subsidy for first-time buyers and by sales of foreclosed homes.

However, residential mortgages either in foreclosure or with at least one payment past due hit 13.16% in the 2nd quarter, the highest percentage ever recorded!

Mortgages somewhere in the foreclosure process reached 4.3% of all mortgages, up from 3.85% in the 1st quarter and 2.75% in the 2nd quarter of 2008

With current U.S. unemployment rate at almost 10%, it leads to the sign that mortgage performance is once again being driven by unemployment. In fact, prime fixed-rate loans now account for one in three foreclosure starts. A year ago they accounted for one in five. While 41 states had increases in the foreclosure start rate for prime fixed-rate loans, 43 states had decreases in that rate for subprime adjustable-rate loans.

Until the U.S. employment situation improves, it is unlikely that there will be meaningful improvement in the foreclosure and delinquency rates.

Data Source: MarketWatch

Crude Oil...the Beauty and The Beast

Now that the price of crude oil has more or less double up from the lows of $30s per barrel at the beginning of the year to the current $70 range, everyone seems to be cheering, as reflected in the optimisms in the global stockmarket performances to-date, and many were making bold conclusions that the worst of the state of economy is over. However, questions remain as to the real cause of the price hike...could it be pure speculation at play or fundamentally driven? It could well be a combination of both, of course. The next fundamental question to be asked is that have the price run ahead of its fundamental too soon? What if the price of crude oil continue to rise above $80 for instance?

Not forgetting it was only not too long ago (last year in 2008) when crude oil price was driven up to $140 per barrel and there was massive problem in global inflationary pressures on all goods and services and subsequently caused havoc to global economies!

It is therefore important for the price of crude oil to maintain stability (around $50 to %70) and avoid catching the rocket (of over speculation)! If that happens, it will surely introduce another set of massive inflationary issues just when the global economy is barely trying to find its footing of recovery. More so, we are probably ahead of the fundamentals right now and nothing solid (such as corporate earnings and positive growth, increased demand, lower unemployment rate, etc) has come out of the whirlwind. Moreover, there is also the problem of potential US dollar devaluation and the possible hyperinflation the world has to tackle with, given the massive quantitative easing measures taken by the U.S!

So, beware of the beauty and the beast!

Money-printing Caused Market Rally?

What has caused the recent stock market rally across the globe? Too fast, too soon, as there are hardly sufficient evidence to fundamentally support a market euphoria? Here's another theory by the well-known commodity investor, Jim Rogers.

According to Rogers, the recent market rally is flooded with "artificial" liquidity as a result of the various printing money (technically known as Quantitative Easing) initiatives taken by central banks of certain developed countries, particularly U.S. As such, Rogers believe that the next financial meltdown will be in the currency markets.

Rogers claimed that he has bought the Yen because he expects the Japanese currency to withstand future problems, but he does not have short positions in any currency and is currently not buying the yen any more. However, Rogers has not shorted the U.S. dollar at the moment, although it may be at the peak.

Nevertheless, Rogers also believe that for the moment, currencies may look safer than anything else in the markets, as stocks may face a new bottom since they were artificially lifted by the amount of money created by central banks, but there are pitfalls ahead.

Rogers's view seem to coincide with the views of other legendary investors such as Warren Buffett....

Beware of the potential next currency crisis, particularly if you have exposure to multiple foreign currencies!

Sell In May and Go Away?

There is this old adage "Sell in May and go away" for Wall Street. Fact or myth? In essence, this is a belief that the period from November to April inclusive has significantly stronger growth on average than the other months from May to October.

Quite simply, the facts seem to indicate otherwise.

The chart below shows the percentage of time the market rises from May 1 through September 1 over various time frames. Over each time frame covered, the market has a positive return at least 60% of the time. Since 1929, there have been 30 years where the Dow went up more than 5% between May 1st and September 1st, while there have only been 14 years where the index declined by more than 5%. There have been 14 years where the index went up more than 10% versus only 8 occurrences of double digit declines.

Moreover, the fact that Wall Street has been in a free fall mood since the 4th quarter of 2007, it's high time for a decent bear rally, given that the latest economic data in U.S. seem to point to a gradual recovery and possibly an indication that the worst is over. The to-be released bank stress test will further give a clear indication of the health of U.S. banking industry.

As a matter of fact, the Dow has recovered by about 31% as of yesterday since March 2009.

The Age of Buy and Hold Is Over?

Based on various feedback, this is a mixed view. Some say the age of "buy and hold" stocks and/or equity related investments is simply over, simply due to the fact that economy and business are cyclical in nature. For instance, many stocks (even the bluest of blue chips) effectively wiped out the entire gains made during the last 10 years in just one year of global economic crisis last year!

On the other hand, others say that adopting the "buy and hold" strategy is the best strategy to investing as it is not possible to time the market in terms of peaks and troughs.

Personally for me, the "buy and hold" strategy will not work at turbulent times like this as every single company 's market share will be severely affected by sentiment. Instead of "buy and hold", the likely apprroach during such time in fact is "dump first, think later"! The objective of course, is capital preservation.

However, the strategy of "buy and hold" may make sense during market bull rally. For instance, US market went through a 5 year up trend from 1995 to 1999, followed by from Year 2003 to 2007. Notice that market went through a 3 year correction from year 2000 to year 2002. Assuming the stock price performance is correlated to the index, it would be wise to take some profit during initial market downtrend instead of waiting out for the unknown.

Year 2007 to date performance is a classic example where things really turn nasty! For those who hold on to their investments, chances are the entire gain built up over the last 10 years or so may be wiped off completely! Is it worth while to continue with the gung ho approach then?

So the question is how do you tell the market is undergoing bullish trend or bearish trend then?

Answer lies with Technical Analysis. As technical chartists often say, the charts do not lie! Mind you, technical charts are no crystal ball! They serve the purpose of serving a strategic or tactical guide, based on market "psychology" which will be reflected in the chart. As one say, the Trend is your Friend! Do not fight against the trend when it comes to trading or Investing! Tonnes of hard earned gains accumulated over the years could well be wiped off in an instant!

At the end of day, trade or invest with the trend rather than fighting it. One may not be able to time the market perfectly but at the minimum invest with proper risk management in place is the key to long term success.

Similarly, one needs to know when to cash out when the trend changes. No point be the hero. After all, IT'S YOUR MONEY!

Shall I Accept A Lower Loan Installment?

In view of the current low interest rates environment due to global economic crisis, costs of borrowings have become cheaper and if we were to base on the original loan facility agreement with the bank, the repayment period for the affected loans will be shortened, assuming the same amount of installment were to be paid each month. In some countries, banks are required to voluntarily reduce the monthly installment amount of loans so that the repayment period will not be shortened. In some cases, banks even allow troubled borrowers to stop payment for a specific period of time, or willingly negotiate with the borrower to restructure the terms of loan. The objective of this is simple, that is, reduce the burden on consumers and/or businesses in a challenging time like this.

Some people have sought my opinion whether to accept the reduction in installment amount. My answer to that is why not, even if one has no financial difficulties! After all, one could save a fair amount of commitment each month and assuming one has multiple loans (like myself), the amount of savings each month can be quite sizeable.

There are many advantages reduced commitment can bring to the equation. Among them include:
- excess funds for spending on goods and services. Flow of funds and spending are essential for the growth of economy. An environment without consumer and business spending will just make the already stale situation worse off!

- pay off debts which carry a higher interest rates than one's mortgage loan. Credit card debt is an obvious example. This could lead to significant savings in cost of debt.

- best of all, use the savings from the excess funds to invest wisely. Given that many investment grade assets have been bashed down badly during the past one to two years, great bargains are abundant! For instance, stockmarket is expected to give the best return once the global economy recovers. So for those who have not acquired the knowledge of investing, now is the best time to educate yourself, before it's too late!

Also, keeping extra cash in your pocket at the time of crisis is definitely a wise thing to do. After all, we will not know what may happen next. For instance, job retrenchment, business failure, etc, may just pop up down the road, especially if the economy gets worsen.

One word of caution though, do not expect every bank will voluntarily reduce the installment for you. I know for some banks, you will actually have to write in to request for the reduction. So do not just assume this will be done automatically. Go ASK YOUR BANK now!

8 Reasons Why Obama Will Not Solve This Crisis

JS Kim does it again! With his unorthodox assessments and predictions (that often come true, i have to say!), here are 8 reasons why he thinks the Obama administration will not pull America and the world with it, out of its current economic throes, by the end of this year!

(1) Consider that President-elect Obama voted FOR the horrible $700 billion bailout plan that accomplished less than zero in fixing the global economy while only transferring wealth from people that were struggling the most to the unethical financial executives that created this problem.

These were my exact words in October, 2008, verbatim, about the eventual effect of the bailout plan: “Don’t believe the media spin. This will fix nothing. Even if and when the government overpays Wall Street and US banks by 300%, 500% and 1000% for their toxic assets, this temporarily recapitalizes these financial institutions but only creates A MUCH BIGGER PROBLEM for the future.”

If I understood why the bailout plan would most definitely fail, and the next President of the United States could not, that is a scary thought. On the other hand, if President Obama understood that the bailout plan would likely accomplish nothing but the transference of wealth from hard-working citizens to corrupt financial executives and still voted for the bill, then this action needs no further discourse.

(2) The problems afflicting the global economy still have not yet been addressed by any Central Bank or government in any intelligent manner and thus, are not on the path to recovery. No single man, no matter how competent and no matter how much goodwill he possesses worldwide, can fix this current crisis without severely overhauling the current fiat monetary system. There has been zero evidence thus far, that the Obama administration wishes to address the root problem of this crisis – an unsound monetary system.

(3) This crisis is being misreported by virtually every finance journalist in the world due to an education system that teaches an unsound Keynesian economic model at every top university in the world. From the Obama administration’s actions thus far, it is clear that he is taking a Keynesian approach in his attempt to fix the problem, which is to spend your way out of an economic meltdown. The only problem is that any “fix” that may result from such an approach will be 100% illusory and only result in further destruction of wealth by ensuring future devaluation of the world’s major currencies.

(4) Thus far, President Obama’s cabinet appointments do not reflect, in the slightest manner, the enormous change that he spoke of during his campaign. On the contrary, his talk of change, quite honestly, appears to be 100% rhetoric. A clear example of this is President Obama’s appointment of Timothy Geithner, the former President of the New York branch of the U.S. Federal Reserve, to the U.S. Secretary of Treasury, and his appointment of Paul Volcker (Chairman of the Federal Reserve Board, 1979-1987; Chairman of the New York investment banking firm, J. Rothschild, Wolfensohn & Co.; Chairman of the Board of Trustees of the Washington-based financial advisory body, the Group of Thirty; founding member of the Trilateral Commission; and Chairman of the Board of Trustees of the New York-based International House) to head his economic advisory board.

A further inspection of Obama’s economic advisory board reveals a who's who of executives from the institutions that created this current mess!

Furthermore, Volcker was highly instrumental in ensuring one of the worst decisions in economic history, the U.S. decision to suspend gold convertibility in 1971 that subsequently allowed a 100% fraudulent monetary system to spread globally, and consequently almost resulted in the collapse of the U.S. dollar in the late 1970s. Obama’s cabinet appointments are perhaps the most damning evidence that he is strictly about maintaining the status quo and not at all about change when it comes to Wall Street.

(5) For a historical example of how the Obama experiment is likely to turn out, please research the election campaign of Mexican President Vicente Fox (Mexico’s President from 2000-2006). Vicente Fox was largely perceived as a savior among the Mexican general masses because he was the first opposition candidate to defeat the PRI (Institutional Revolutionary Party), a party that had ruled Mexico for more than 70 years. Fox’s election campaign, full of slogans like “Vote for Change" and “Enough!", could have served as a blueprint for Barack Obama’s masterful election campaign. By the time Fox’s six years of Presidency had expired, he was widely regarded as a huge disappointment for failing to implement almost every major plan of change he promised during his campaign and doing very little to change the status quo.

(6) Don’t let President Obama’s professed anger regarding the $165 million of bonuses slotted for AIG executives fool you. The U.S. government clearly changed security laws at their whim last year by making short selling of financial stocks illegal for periods at a time to artificially force financial stock prices higher and thus, help out financial executives, with little opposition. Thus if the President and U.S. Congress’ anger about these bonuses are real, it seems to me that they would just implement new laws to end fraudulent bonuses. They would just “do” instead of keep “trying.”

(7) Why wasn’t the expressed outrage of the Obama administration regarding $3.6 billion of bonuses that Bank of America (BAC) paid to Merrill Lynch (MER) executives, a figure that dwarfs $165 million, equivalent to the outrage being expressed over the AIG bonuses? Something tells me that because AIG is not a pillar of Wall Street it is receiving harsher treatment. I’m not arguing against this harsher treatment by any means. I’m merely illuminating that the hypocrisy in these different standards is an indictment that Wall Street firms’ ties to the U.S. government are so strong that they are still being favored despite the rhetoric.

(8) Remember when former U.S. Treasury Secretary Hank Paulson’s original $700 bailout bill was a 3-page document and he promised that no money would be spent without extremely close supervision? Remember how this 3-page bill mysteriously morphed into a 450-page $850 billion bailout, and loopholes galore were snuck into this new bill last minute so that billions of the bailout money could be allocated for executive bonuses although Paulson promised us such shenanigans would not occur? Remember that Obama voted for this bill!

Here you have it. Time will tell whether his views are proven valid. If indeed correct, it is a scary thought that the world economy will take some more beating before the dust finally settles.

For the full article, please click here.

Is US Dollar A Bubble In The Making?

Many perceive the US Dollar to be a safe heaven, never mind that the US economy is in shambles and the largest banks and automotive companies are almost to the brink of bankruptcies, never mind that US has been selling Treasury bills by the tons to avert a financial collapse and never mind that the US stock markets have shed its value by about half in less than one year! The US Dollar has in fact appreciated against most major currencies by a large scale except for the Yuan and the Yen.

So what caused the Dollar to appreciate?

- Risk aversion to global markets, due to the crash in most global asset classes and the credit crunch in the US. There is therefore a strong demand for US Dollar to be averted back to the US. Also, severe deterioration in world wide economy following the US footsteps has further caused risk aversion and repatriation of funds from both developed and emerging markets.

With the US resorting to printing money (or technically termed as "quantitative easing" to make it sound diplomatically correct!) in order to bailout the banks and save the faltering economy, questions are asked whether the Dollar's strength can sustain in the future.

In essence, any currency will lose its value when the supply is more than demand over time. The problem with quantitative easing is that by the time the money reaches the level of the common consumer and caught up with the excess money in the market, inflation cripples in and the dollar worth of currency will therefore be reduced. This is not the case when the money is first injected as it takes time for inflation to recognise the new money and catch up.

As such, the current strength in US Dollar will likely be hampered in the long term as inflation or hyperinflation takes effect in the US, as and when the economy recovers.

It is also likely that prices of commodities will again be on the rise by then!

On the other hand, better lock down your mortgage rates before interest rates move up in tandem with inflation or a hyperinflation!

Recession Is On The Cards? (Part 2)

Against expectations, the Malaysia Government throw in a massive RM60 billion (US$16.2b) stimulus package, that is equivalent to about 9% of GDP! The increased spending will effectively blow up Government's budget deficit to 7.6% in 2009.

The RM60bil package, to be implemented over 2009 and 2010, includes RM15bil as fiscal injection, RM25bil in Guarantee Funds, RM10bil for equity investments, RM7bil for private finance initiatives and off-budget projects, as well as RM3bil in tax incentives.

The package is aimed at reducing unemployment, increasing consumption and spending in order to kick start the economy, enhances bank lending and liquidity, providing a lifeline to businesses through improved working capital and incentives.

For me, the next critical step is how efficient and how well these measures are going to be implemented. Based on the history as guidance, implementations tend to be poorly executed and there is also the issue of lack of transparency. I only wish the Government will improve this time, given its significance.

One important point to note is that despite the record amount of targeted spending, the Government has only revised this year's GDP growth to the range of minus one to positive one percent! Which means Malaysia would have certainly fallen into a more severe recession if without these measures taking place! Any blips in execution could well cause a more severe downturn in our economy.

Do not be too surprised if that happens, though!

For the complete story, read here.

Worst Ever Results For Berkshire: Warren Buffett

Berkshire Hathaway Inc. posted its worst results ever in 2008! Billionaire Warren Buffett said the economy “has fallen off a cliff” and that efforts to stimulate recovery may lead to inflation higher than the 1970s. Berkshire’s shares have lost almost half their value in the past year as the bear market dragged down financial assets and the recession put pressure on profit from the company’s more than 70 operating businesses. Berkshire’s fourth-quarter net income fell 96 percent to $117 million. Book value per share, slipped 9.6 percent for all of 2008, on the declining value of derivatives and the company’s stock portfolio.

He believes the bailouts of the banking system and “quasi-banks” such as AIG were necessary, even if everyone dislikes what’s been done to salvage the New York-based insurer. He favored insuring all bank deposits, and in response to a question about nationalizing lenders, Buffett said he doesn’t see any moral hazard in the U.S. seizing an institution when shareholders are already almost wiped out.

He also believes the root cause of the current crisis was that companies used too much leverage and “played games” such as creating special investment vehicles to keep producing earnings growth. The U.S. economy was not a "house of cards" over the past ten years, but mistakes were made when it came to borrowing money.

Other keynotes include the following:
- The American public is fearful, confused and changing their buying habits,
- The economy turnaround won't happen fast.
- Five years from now, the economy will be running fine. The strength of the American system will pull it through, just as it has many times in the past.
- Most banks are in "pretty good shape" and can "earn their way out" of the current problems given the low cost of funds. Banks, however, "need to get back to banking.";

- It is extremely important that the government make clear depositors won't lose their money if banks fail;

- Buffett wishes he had written the New York Times "Buy American" a few months later, but stands by the basic argument that one will do better over a ten-year period with stocks that one will with Treasuries. He said in the article he wasn't calling the bottom of the stock market, and he still isn't;

- Buffett says derivatives are not "evil" and to be avoided at all costs, but they are "dangerous" and should be used very carefully. He still expects to make money on the long-term "put option" equity derivative contracts Berkshire has written;

- Housing market could work through, or "sop up," its excess supply in as little as three years if new construction is reduced to a level below natural population growth;

- Mark-to-market accounting should be retained, but regulators shouldn't use it so much to require institutions to increase their reserves.

Here are the full videos of Warren Buffett's interview with CNBC. It's quite a long interview but well worth the time listening.

US Economy has fallen off the cliff


Q&A


Fear Affects Everyone


Banks should go back to basics


Crooks & Investment Advice


Investment Regrets


Automotive Bailouts


Deals and Opportunities


Finding the right solution


Advice for Obama


The rich to subsidize the poor


Final Thoughts

How To Invest At A Point of Maximum Pessimism

Want to know how to invest at the point of maximum pessimism (given current stock market's doldrums)? Below is an experts' view on investing techniques at current market pessimism and where Malaysia stands from both economic and technical perspective.

The live interview was conducted by TheStar newspaper on 20th February 2009. This video may be a tad back-dated but the interviewees certainly gave a full-hearted and frank opinion on current business and market conditions, and sharing good ideas on investing for better future returns.

Here's the video. Enjoy.

AIG Continues To Bleed....Badly!

American International Group (AIG) incurred a record loss of US$62 billion last quarter!

Here are some startling statistics:
- The loss occurred in just 92 days, i.e., $470,000 a minute! And it's more money than Bill Gates' net worth.

- The quarterly loss was the biggest in corporate history, topping the previous record of about US$45 billion set by Time Warner Inc. during the fourth quarter of 2002.

- AIG continues to bleed, despite U.S. Government bailout fund of US$150 billion! Now AIG is asking for another US$30b!

- AIG's quarterly loss is about 12 times the $5.3 billion it lost in the same quarter of 2007. That was more than half the US$114.53 billion lost by nearly all other Standard & Poor's 500 companies combined in the fourth quarter. This represents also the first quarter ever that the S&P 500 has tallied a loss.

- AIG lost more in the fourth quarter of 2008 than it made from 2001 to 2007!

- If $62 billion was distributed across the U.S. population, Americans could each get about $200!

- AIG's loss amounts to 92 percent of the US$67.4 billion that Americans spent at world's largest retailer Wal-Mart Stores in the fourth quarter, which includes the holiday season.

- It would take a person spending $1 million per day, everyday, the next 169 years to spend as much money as AIG lost during the fourth quarter, which lasted just 92 days!

I really wonder how on earth a once proud insurance giant would now become such a miserable sick patient?!

Malaysia Going Into Recession?

Despite Malaysia Government's constant state of denial, the statistics couldn't lie!

Last Friday the GDP data announced for the fourth quarter of 2008 came up short of expectation....only a mere 0.1%. That is to say, Malaysia's economic growth had plummeted from the previous quarter's 4.7% to no growth in the last quarter!

It seems the RM7 billion (US$2billion) were not sufficient to save the economy (as expected), as a result of the larger than expected fall in exports.

The world is suffering from global recession and every country is now scrambling to revise growth outlook and desperately trying to stem the collapse through various stimulus packages.

In Malaysia's case, the Government is going to announce another stimulus package before mid March. Given it's timing (being announced in March and assuming implementation within 3 to 6 months), the effects on economy will mostly likely take place only thereafter. This could well imply that Malaysia could well be in recession in the first and second quarter of 2009!

It's regrettable that the Government took so long to realize the current miserable state and to come up with positive new measures to tackle the economic problems! Ironically, they certainly appear more interested to tackle the various political issues and to safeguard their own political agenda for the past one year up to this present moment!

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!