Tenaga Nasional Bhd’s net profit for the first quarter ended Nov 30, 2014, rose 34.4% to RM2.352bil from RM1.75bil a year ago, thanks to the increase in tariff and sales in the Peninsula and Sabah.
Sales in the Peninsula grew 3.3%, while in Sabah it was 2.4%, which was an additional boost to TNB given the tariff hike in January 2014 of 14.9% and 16.9% respectively.
Up 34.4% making 600 mil more PROFIT than a year ago, on top of the ridiculous profit they are making now. They are getting so much money they don't know what to do with it. With this money, surely Integrax is going to ask for a higher offer.
Unfortunately, everyone is paying higher electricity bill charges. Whoever sold stocks because of GST, Tenaga is just rolling over the GST problem like a small little pothole in the road.
Game Theory, more specifically the Nash equilibrium, Prisoners Dilemma is alive and well in the world. Europe is doing what is best for itself and US is doing what is best for itself. They can both cooperate for better gains but they won't even though it may be in their best interest to do so. (i.e. printing money the way US wants it done)
Apparently US needs help outside of itself to get the economy going again. If Europe won't cooperate with money printing, kiss Geitner's and Bernanke's money printing based solutions goodbye. Of course, they could print even more money, but it is hard to justify buying more assets to debase the currency as there is no crisis. Let's see where Bernanke goes with this.
Anyways, like I said before the US swap lines are open, but the ECB isn't using them. The swaps mean the US gets ECB bonds, Europe gets US Treasuries. ECB in turn, buys crap assets such as sovereign bonds with US money. If the ECB is gone sometime in the future, guess who will own the crap sovereign debts!
South Korea is proposing that central banks set up a permanent arrangement for foreign-currency swaps to help address the type of funding shortages that emerged during the global financial crisis.
“Broadening and institutionalization” of such measures could help establish “a global financial safety net,” the governor of the Bank of Korea, Kim Choong Soo, says in the text of a speech to be delivered Monday in Seoul at a conference of central bankers.
Mr. Kim’s proposal comes five days before finance chiefs from the Group of 20 nations are scheduled to gather to discuss strengthening efforts to prevent financial crises. The U.S. Federal Reserve chairman, Ben S. Bernanke, who is among the officials scheduled to speak at the meeting, has opposed currency swaps as a “permanent service,” seeking instead to pressure banks into better managing their funding needs across different currencies.
Mr. Kim said his proposal could reduce the need for emerging economies to hold large quantities of foreign-exchange reserves as insurance at a “substantial” economic cost.
Wow, we're talking about Korea suggesting to the US to use more swaps. Well, if they want to bail out Europe, other countries are going to ask for their share as well.
But Bernanke isn't in much of a position since he let the genie out of the bottle with use of swaps during his tenure. Not calling him rascist or anything, but what the hell, exports to Asia are just as much as exports to Europe. If Asia is in trouble, it is in US' company's best interest to bail them out. Asian countries won't need to hold as many reserves which is good for US exports.
US Exports to the world by region
That is the main reason why Europe is getting bailed out. I say Asia should hold one currency together so they don't need to carry as many reserves and dump US dollars so Asia currency and wages can go up.
Then people in Asia can take holidays in Europe and US for Cheap!
I'm not bullish on US stocks for a major reason, I think growth will slow. The only avenue of growth for companies is through exporting (i.e. Weak dollar) which is what James Altucher of Formula Capital is arguing for a bull market. I agree with him in a perfect world where the world's interest is the US' interest...... however,
James Altucher of Formula Capital is a moron. I watched some of his videos on CNBC. His whole bullishness is predicated on what is going to drive stock market profits is the low dollar. He fails to consider one huge monkey in the room, China. China is NOT going to sit by idly while US and Europe trash their own currency. China will devalue their yuan and join in the race to the bottom.
So, until China decides to devalue the yuan, the markets will do alright. But, once the devaluation happens, the stock markets sell off. The US dollar will appreciate, and guess what, the profits of US companies will go with it. That is why I'm not bullish on US stocks. In this case, there is nothing the FED can do. They can ease even more, but I think they won't once China shows the US they have the gonads to wreck their own currency and go toe to toe with US in the trashing of their own currency.
In simple terms, the Yuan will not go up against the US dollar, stock investors will see this (they don't now) and slash their growth estimates for stocks, thus sending markets back down into correction or a bear market.
Honestly, I don't even think central governments care about gold. So what if it goes to ten or twenty thousand an ounce? Honestly, they will care more about what is happening with their economic well being and whether people are working than what happens if some shiny metal is worth ten or twenty thousand bucks an ounce.
With the ridiculous money printing and moral hazard going on in almost every industrialized nation, I'm now a gold bull.
It's tough to love such a metal which has value only as people give it. It doesn't have much use besides jewelry, but I have to be alarmed by what in the world is going on with trillion dollar bailouts of countries, banks, and other corporations.
I doubt many of the gold pundits could have predicted how ridiculous countries have gotten with fiscal irresponsibility, but it seems everyone is pulling the nuclear option and monetizing debt these days, Euro, UK, and US. With this, I'm not surprised gold isn't even higher.
With this much money running around, metals, gold, etc seem to be the biggest no brain trade of a lifetime. I foresee the UK getting the shaft next as people tire of giving the Euro a beat down, that is until Spain, Italy, and the rest of the PIIGS fall under the same situation as Greece. Then we might see capitulation and the end of a currency.
The US has now reopened SWAP lines with other currencies in effect, also torpedoing the US dollar by helping bailout the Euro. Will the treasury recognize the losses when a Euro is gone?
While it is interesting how the media try to spin 10% drop in the DOW on Friday as an error or mistake, the truth is that it doesn't take much for the market to do that. The 1987 crash didn't really have many events causing the 20% drop.
The latest reason seems to be a huge amount of options were bought causing a major bank to sell a lot of stock when they wrote the option. This is one of the more likely reasons.
Another possible reason is the selling of futures which equates to the counter party hedging their futures position with stock. The counter party needs only put up some margin, while the seller buys the stock to hedge. A 20% margin would equate to 5 times the margin amount of selling power. This is another way to create some massive selling power.
I mentioned earlier that the buying of futures could cause a massive rally. I also mentioned what could happen if the futures weren't rolled over, massive selling power. Options buying and selling have the same dynamic. Writers buy or sell the underlying position to hedge against the buyers.
I would think the real reason behind the crash would probably be a dynamic of either futures or options. All this talk about high frequency trading, mistaken orders, failed circuit breakers probably are not the root cause despite what is mentioned in the media.
Bank Negara Malaysia said it may increase interest rates further to avert asset bubbles and discourage risky investments by people seeking better returns, even as inflation will likely remain "modest" this year.
"We will review the conditions at our next monetary policy meeting and work toward further normalising if necessary," governor Tan Sri Dr Zeti Akhtar Aziz said in a March 12 Bloomberg Television interview in Kuala Lumpur. "Inflation will continue to be modest and therefore it would not prompt us towards tightening, but that does not preclude that we will continue to normalise interest rates."
"Certainly the first half of the year, all the signs are pointing to stronger growth" as domestic demand and investment recover, she said.
Inflation of about 2 per cent would be considered "modest", Zeti said. Malaysia's consumer prices rose for a second month in January, climbing 1.3 per cent from a year earlier from an average 0.6 per cent in 2009.
Should price gains accelerate further to 3 per cent, for example, "we would begin looking at what are the sources of inflation because if it was demand-induced then" the central bank would look at "tightening" monetary policy, Zeti said.
Zeti refrained from raising interest rates in 2008 when consumer prices rose as much as 8.5 per cent in July and August amid soaring oil and commodity prices, saying inflation wasn't driven by higher demand and would ease as global growth slowed.
Malaysia's policy makers aren't "inflation targeters", she said last week.
While the rise in interest rates is not insanely surprising, given many other countries are currently tightening, the tone used in explaining the rationale of the interest rate moves point towards moving in a different direction that other central bank uber money printers.
For one, the bank has openly stated that it is not an inflation target-er, and is willing to repay back the savers who have been sitting patiently financing the Malaysian economy through this difficult time. This is excellent. This is a central bank that is willing to break from the crowd and not just follow inflation and economic data like a mindless lemming.
They are willing to raise interest rates and acknowledge savers which is fantastic given the ridiculous amount of money printing by everyone out there. Countries that have raised interest rates are doing so because of what inflation data tells them, following in the footsteps of the US; not because they want to compensate savers. While interest rate increases do give investors confidence, the knock on these central banks is that they will just as likely reverse actions if the data tells them to. Rarely is data ever stable especially given the current volatile economic conditions, so what currency investors crave is foresight on what a bank will do. Foresight that the bank will act accordingly to data is about as stable as an earthquake.
In a world where every central bank is hell bent tunneling in on economic growth, the Malaysian Central bank has taken a refreshing change in tone. This currency is going up, and the economy should be decent. If you want to break from the pack, Malaysia central bank is a prime example. Nothing says confidence like a country that is willing to acknowledge it will do something different from the money printing crowd and defend the savers and spending power of its currency, even if the economic recovery isn't as strong.
One of the biggest questions that deflationists have to answer versus the inflationists is:
who will buy all the debt issued by the government to keep interest rates down?
Inflaionists say that no one will buy this government debt and thus rates will go up and we will have inflation.
Deflationists have had trouble giving a credible sounding answer to this one. But it is important to address as low government rates are a basic tenant of the deflationist camp. I've had difficulty coming up with a reasonable answer to this myself and I'm skeptical of all ideas on deflation as well as inflation. I'm concluding that the debt issued by the government will be financed by savers.
The next question is when will this happen as it hasn't happened yet? Well, we have to consider China and foreign buyers of US debt. From Barrons:
the real question isn't whether the U.S. will pay back what it's borrowed from abroad. In essence, can foreign purchases of Treasuries keep up with the widening deficit? That's the question posed by Greg Blaha and Ryan K. Malo of Bianco Research in a note to clients.
Back in September 2007, foreign purchases of Treasuries equaled 270% of new issuance, they note, as they sucked up the available supply of U.S. government securities in sight. That was before the budget deficit exploded last year owing to the economic collapse and the cost of the federal bailouts. By September 2009, foreign investors were taking down only 16% of Treasury issuance.
Obviously, foreign purchase of debt is way down and will not be enough. Next, we consider the consumers/savers. The main reason why they have not been putting their money in treasuries is that some of them have been compelled to spend on cars and houses. They've been liquidating what little they have saved. Q3 GDP showed consumers saved 3.3% of personal income as opposed to 4.9% of income in Q2. [1] (Personal savings as a percent of income on line 34)
Anyhow, now we look at the other buyer, the Federal reserve.
The 10 year treasury rates have been going higher as the fed slows their treasury purchases. The Fed ended their treasury purchase in August. The fed's balance sheet also reflects this action. An inflationist would say once the Fed stop purchases, the rates will go up and inflation will soar. This has been happening as of late, probably why gold is up and proving inflationists right so far. But this is only somewhat true for a short period while the consumer transitions to saving again. This is an inflation "head fake."
Fed Balance Sheet (notice the treasury purchase portion of assets has flattened)
Coincidentally, gold has gone a lot higher during this void where the fed ended their buying and the thrifty part of the consumer is spending. Make no mistake, though that consumers will soon return to their saving ways. Of course not all savers turned to consumers at the government's incentive. They are probably the ones to thank for keeping the rates as low as they have been. I imagine after all these stimulus measures have taken effect, the consumer will revert back to saving and de-leveraging and buying treasuries. When the consumer/saver returns to increasing their savings rate, the treasuries will once again increase increase in value.
While I'm not too sure when this will happen, I can't imagine it will take too long, maybe a couple of months. When we see people stop buying into stimulus programs, saving more in the BEA personal income and outlays reports, and the prices of treasuries start to firm up is when we will have the treasury asset class strengthen again for quite a while unless of course the government manages to whip out another carrot. Even then the US government has only so many bullets before people start to lose patience.
Recently, Zerohedge wrote and article on an Australian professor, Steve Keen. The professor did correctly predict the financial crisis and is vocal that the US and Australia is still not in the clear.
One of the key points I got from his talk is that the current model of money supply is flawed. We should think of it like reservoirs and dams, with the dam controlling the flow of money to other reservoirs.
His idea is that dumping trillions of dollars in the reservoirs of banks will just make the water level higher and the rate of flow will not increase to the debt holders. The current economic posture of all this easing of monetary policy to the banks with tarp and asset buying with the fed is basically having little effect.
So, in the end, his conclusion is to actually give the money to the debtors, who have increased their flow the the creditors. This is the most simplest method of debt reduction. Basically he is saying, no pain, no gain. At some point when banks and restrict their flow of money, conventional monetary policy of increasing banks reserves do not work.
Intuitively, this probably explains why government programs like the cash for clunkers and home buyer tax credit had a major bang for your buck effect (money went to debtors), while the TARP program (money went to banks) looks like a failure.
There are some spillover effects of the current government monetary easing in that it does put extra income into consumer's pockets but not that much as many homeowners are on fixed loans. Generally, though the effects are not enough.
This idea does confirm the deflationists' point of view in that if the money is not flowing any faster to the debtors, you will still have the debtors de-leveraging. We should give the money to the debtors and wait to see if the economy will start leveraging up again, then we will have more sustainable growth. But again, this kicks the bucket down the road until another debt crisis hits us.
Penang recorded inflow of investments of only RM1.3 billion in the January-June period this year, as investors turned cautious about the fallout of the global financial crisis.
This was a stark contrast to the RM10.3 billion recorded for the 12 months in 2008.
InvestinPenang Bhd chairman of the executive committee Datuk Lee Kah Choon said on Sept 1 the plunge in investments had to be viewed in a wider perspective and the flow of investments in other countries.
Lee said there were investors still adopting a wait-and-see attitude as it was unclear if the financial meltdown was finally over.
The 1.3 billion, annualized is roughly 75% decline from last year. It goes to show that the fixed investment portion of investment in Penang is huge and extremely vulnerable to the world recession. The island's economy can't survive on consumption and services alone. It still requires massive investment from individuals. Another down year like this, I imagine asset prices will start to crumble.
Malaysia’s economy contracted by 3.9 per cent in the second quarter from a year ago, less than expected, and pace of decline slowed from a 6.2 per cent drop in the first quarter, signalling the start of a slow recovery for this export-dependent country.
Economists in a Reuters poll had forecast gross domestic product would drop by 5.1 per cent due to poor demand for Malaysian exports, which account for 110 per cent of gross domestic product.
Central bank Governor Tan Sri Dr Zeti Akhtar Aziz told a press conference that the budget, due in October, would see a revision to government forecasts that the economy would shrink 4-5 per cent for the full year and that the drop would be less than that.
“We expect gradual recovery, and that this would be sustained,” she said. Asia’s economies are still feeling the effect of the global economic downturn and Indonesia’s economy grew 4 per cent in the second quarter from a year earlier, while Thailand contracted 4.9 per cent, easing from a 7.1 per cent drop in the first.
Malaysia is Asia’s only exporter of oil and gas and also has large commodity exports and the prices of both have fallen sharply from a year ago.
The government has said that it expects growth to pick up in the second half of 2009 with positive growth in the fourth quarter as a RM67 billion package of government spending and loan guarantees spread over two years kicks in.
The 6% rate of contraction in Q1 overshot due to inventories not being replenished. Q1 had a inventory loss of RM14 billion. Q2 inventories look more normal compared to the last eight quarters at a loss of RM 4 billion.
The good news is we will have inventory replenishment going on and will push up future GDP numbers. It could go to -3% in the following quarters. The bad news is we don't have a lot of upside until about 4Q of 2009. I expect negative growth for Q3 and maybe even growth for Q4.
TRADE between Taiwan and Malaysia is expected to be at US$10 billion (US$1 = RM3.50) this year, a decrease from the US$12.3 billion posted in 2008.
According to the Taipei Economic and Culture Office in Malaysia, this is due to the global financial crisis.
"The decrease is not much as the Taiwanese government has been trying to help local manufacturers continue exporting while providing opportunities to promote their products," director of the economic division, Lin Min-Li said yesterday.
In 2008, Taiwan's imports from Malaysia were at US$6.8 billion while exports stood at US$5.5 billion.
Besides that, Lin said the Taiwanese government was also helping and encouraging investors to look at five important markets in South East Asia - the Philippines, Indonesia, Malaysia, Thailand and Vietnam.
"Among the five countries, Malaysia is the most successful for investment. We prefer Malaysia due to the stable political climate, as well as good manufactured products.
"There is still room for Taiwanese investors to come to Malaysia," he added.
According to Lin, Taiwan ranked number three in terms of foreign direct investment in Malaysia for the first five months of this year.
We see a 20% drop in trade between Malaysia and Taiwan. When you look at Malaysia's largest trading partners, Singapore, US, Japan, China, and Thailand, each one of them have based their policies on growth through exports, with the exception of US. Even worse, each one of these countries' largest trading partner is the US. Like I said before, this is exactly the reason US needs to recover first for Malaysia to recover. It takes more than talk to say the world economy has diversified itself away from the US, especially Asia.
With the latest employment report from the US showing some positives, I'd just like to point out that the unemployment numbers have been showing job losses but the unemployment rate has decreased from 9.5% to 9.4%. This number can vary month to month but over a period of a few months, will straighten itself out. I don't think people should be jumping for joy just yet.
Some people have been criticizing auto sales in the cash for clunkers program to be just a subsidy for a short time. This is true for the specific industry, next year, the car sales will certainly fall without the cash for clunkers program. But people have been failing to realize how much economic windfall comes from a single car sale. Getting car sales up could be one of the most cost effective ways to help bring the global economy and American economy on track.
A single car involves thousands of parts from all over the globe. The heavier, more expensive parts will likely be made in the United States. I can think of no single purchase which has positive effect on so many industries than autos. Houses by comparison, involve mainly building materials and have a larger price tag, but the sheer number of components pales to a single car.
This brings me to my next point. It is likely a general rebate program such as the one the US uses in it's "cash for clunkers" program will not work in Malaysia. Why? Malaysia doesn't have a huge auto industry and mainly imports most of its auto component needs. The market is too small. Such a program won't do much to help the Malaysian economy. Also, large components can be made by nearby countries and shipped at a relatively low cost, thus increasing the economic leakage of such a program to other countries.
Of course, they could give an even bigger rebate to the Malaysian car manufacturers. That would work much better. It is important though, that the more expensive components are manufactured in Malaysia. Given the high tax rate of autos here, and that a lot of used cars are still worth quite a lot of money, much higher than RM5000 the government is refunding, it is just too small for people to seriously consider taking up the offer. They should probably up the rebate to 20% of the cost of a new car.
California’s credit rating was cut for the second time in as many weeks by Fitch Ratings after a stalemate over how to close a $26 billion budget deficit forced the most-populous U.S. state to pay some bills with IOUs.
Fitch lowered its rating of California’s general obligation bonds by two steps to BBB from A-, placing the debt two ranks above so-called high-yield, high-risk junk ratings, and said the state may be cut further. The credit-rating company last lowered its assessment of California on June 25.
California, the largest issuer of municipal bonds, last week began issuing IOUs for the second time since the Great Depression as Governor Arnold Schwarzenegger and lawmakers remained deadlocked over the budget cuts needed to make up for revenue lost because of the recession. California Controller John Chiang said the step was needed to conserve cash.
“The downgrade to ‘BBB’ is based on the state’s continued inability to achieve timely agreement on budgetary and cash flow solutions to its severe fiscal crisis,” Fitch said in a statement.
The Fitch action affects $79 billion of debt -- $69.3 billion of general obligation bonds, rated BBB, and $9.7 billion of appropriations credits, rated BBB-.
Schwarzenegger, a Republican, and Democratic leaders of the Legislature remained divided over how to fix the budget after a meeting in the governor’s office late yesterday. Assembly Speaker Karen Bass, a Los Angeles Democrat, said she was “discouraged” and criticized Schwarzenegger for seeking to link government reforms to a budget deal.
The article is mainly self explanatory, but for a state government to endure downgrades to a level of BBB speaks exactly how bad things are at the moment. States almost never get that kind of treatment. The US government treasuries seems to be the only place now where money is safe at the moment. This could change of course.
The June employment report suggests that the alleged ‘green shoots’ are mostly yellow weeds that may eventually turn into brown manure. The employment report shows that conditions in the labor market continue to be extremely weak, with job losses in June of over 460,000. With the current rate of job losses, it is very clear that the unemployment rate could reach 10 percent by later this summer, around August or September, and will be closer to 10.5 percent if not 11 percent by year-end. I expect the unemployment rate is going to peak at around 11 percent at some point in 2010, well above historical standards for even severe recessions.
The other element of the report that must be considered is that, for the summer, the Bureau of Labor Statistics (BLS) is still adding between 150,000 and 200,000 jobs based on the birth/death model.We know the distortions of the birth/death model – that in a recession jobs created within firms are much smaller than those created by firms that are dying. So that’s distorting downward the number of job losses. Based on the initial claims for unemployment benefits, it’s more likely that the job losses are closer to 600,000 per month rather than the figures officially reported.
The other important aspect of the labor market is that if the unemployment rate is going to peak around 11 percent next year, the expected losses for banks on their loans and securities are going to be much higher than the ones estimated in the recent stress tests. You plug an unemployment rate of 11 percent in any model of loan losses and recovery rates and you get very ugly losses for subprime, near-prime, prime, home equity loan lines, credit cards, auto loans, student loans, leverage loans, and commercial loans – much bigger numbers than what the stress tests projected.
There are also signs that there may be forces leading to a double-dip recession, sometime toward the second half of next year or towards 2011. If oil prices rise too much, too fast, too soon, that’s going to have a negative effect on trade and real disposable income in oil-importing countries (US, Europe, Japan, China, etc.). Also concerns about unsustainable budget deficits are high and are going to remain high, with growth anemic and unemployment rising. These deficits are already pushing long-term interest rates higher as investors worry about medium- to long-term stability. If these budget deficits are going to continue to be monetized, eventually, toward the end of next year, you are going to have a sharp increase in expected inflation - after three years of deflationary pressures - that’s going to push interest rates even higher.
For the time being, of course, there are massive deflationary pressures in the economy: the slack in the goods markets, with demand falling relative to supply-and-excess capacity. The rising slack in labor markets, which are controlling wages and labor costs and pushing them down, implies that deflationary pressures are going to be dominant this year and next year.
But eventually, large budget deficits and their monetization are going to lead – towards the end of next year and in 2011 – to an increase in expected inflation that may lead to a further increase in ten-year treasuries and other long-term government bond yields, and thus mortgage and private-market rates. Together with higher oil prices driven up in part by this wall of liquidity rather than fundamentals alone, this could be a double whammy that could push the economy into a double-dip or W-shaped recession by late 2010 or 2011. So the outlook for the US and global economy remains extremely weak ahead. The recent rally in global equities, commodities and credit may soon fizzle out as an onslaught of worse- than-expected macro, earnings and financial news take a toll on this rally, which has gotten way ahead of improvement in actual macro data.
I pulled some interesting sections from RGE Monitor's article by Nouriel Roubini regarding the current US job numbers.
Last month's job losses were quite decent at 360k compared to the trend of 500k job losses a month. But this blip might be explained by the distortions caused by the birth/death model that the BLS is recently employing. Adjust 360k by 150-200k jobs a month, we are back at 500k job losses a month, about where the trend currently is.
Higher unemployment has a huge effect on the stress tests., so bank losses will get larger. Analysts using the stress test results for their earnings projection will need to adjust for higher unemployment.
Deflationary pressures will be around for this year and next, adding on to the idea that the recent commodity rally looks like a head fake.
And this "W" shaped recovery a lot of economists are talking about seems more like a recovery with ups and downs instead of a double bottom. The recovery will be weak, recessions will now be weak, basically, a stagnant economy. Inflation might rise further into the future.
The Federal Reserverefrained from increasing its $1.75 trillion bond-purchase program, said the pace of economic contraction is slowing and predicted inflation will remain “subdued for some time.”
Chairman Ben S. Bernanke is watching to see how quickly the economy can recover from the deepest recession in five decades: Orders for durable goods unexpectedly rose in May, a government report showed today, while unemployment continues to climb. The Fed also wants to quell concerns that the $1 trillion expansion in its balance sheet will fuel inflation, pushing bond yields higher and crippling any rebound in the economy.
Today’s decision was unanimous. The Fed’s $300 billion Treasuries-purchase plan is scheduled to end in mid-September, according to the FOMC statement at the conclusion of the March 17-18 meeting, when it was announced. The Fed also committed to buy up to $1.45 trillion of housing debt this year. At its current rate, the Fed will reach the $300 billion of Treasuries by late August.
Total assets on the central bank’s balance sheet grew $1.17 trillion over the past year to $2.07 trillion as the Fed loaned to banks, commercial paper issuers, and purchased bonds outright to support the flow of credit to consumers and businesses.
The Fed will surely keep interest rates low, that's a bygone conclusion. I think the most important part of this meeting is the purchases of securities and whether it will go up or not. The Fed at this point seems to believe that we are in a recovery and are finally backing up their words with their actions by not lending anymore monetary help with additional purchases.
This statement of confidence is a bit speculative at this point in time. They should expand the purchases but not necessarily spend all of it. Make the purchases at their discretion. Unemployment needs to go down a lot more. I think they are now suddenly caught up with the current market hype of "green shoots."
Even though there are economic indicators showing that the economy is improving, I'm highly skeptical because the unemployment rate is still going up and an incredible rate. We are getting less job losses but higher unemployment. It's tough to predict when unemployment will turn because of changes in the mix of people looking for work.
Economic indicators are great, but unemployment is the bottom line. I won't be entirely convinced until it starts to turn. When people keep seeing 10% unemployment, I think they will think twice about spending. Lets see if the Fed is right or wrong in calling the bottom.
Currently, China has been buying up lots of commodities. I believe they think that commodities is one of the most important investments they can make. But likely most of the purchases at this point is speculative and probably unneeded unless they are willing to let the supplies sit their for years.
The major reason commodities will do well over a longer period of 5+ years is mainly because nothing has really changed. China will continue to dump exports and piggy back on the the US and other developed nation's economies. They will find it harder to do so as time goes on as they will have to manage their currencies with other developing nations besides the US.
As you can tell, this is not a really healthy or effecient way of running an economy. By force feeding products to developing nations, we have a problem. The other economies don't really need the exports. By making exports cheaper than they are supposed to be through currency manipulation, quantity of products supplied to the world grossly exceeds what is effecient.
But alas, nothing is perfect. If nations can't play fair with each other, it will show with commodity prices. To keep this oversupply of products gravy train going requires an equally sizable oversupply of commodities. So this is a nice gutcheck against those countries who piggy back through export oriented economies.
The export model has taken a gut check, but there are no indications that countries will change their growth through exports philosophy so the picture for commodities is still strong. Also contritbuting to this is monetary abuses by nations. So once the monetary abuses abate or the world has an oversupply of commodities, we will probably see the commodity prices come back down.
The other way the commodity picture might turn bad is for world nations to start paying down debt. Most nations, though aren't doing the right thing as all they can think about is spending their way out of a recession. Most countries' leadership lack the mettle to take the tough medicine and would rather put it off for later. As long as we have this, the outlook for commodities looks good.
"Live by the sword, die by the sword" prevails as a prominent theme throughout the recent financial crisises. China has its part to blame in fattening the US economy by providing cheap exports and fueling their consumption binge.
No one should really depend on China to bring their economies back from the brink. China's prosperity depends in large part on the US prosperity. Their whole financial system is basically built on exporting everything they possibly can to the US. So whoever would depend on China utlimately also depend on the US. I can think of several southeast asian countries that fit the mould.
The countries which piggy back on others through exports enjoyed some fantastic propserity will also share some fantastic pains during this global recession. Those countries will never be decoupled from global growth as long as exports make up a large portion of their gdp.
The White House says double-digit unemployment is coming sooner than previously acknowledged.
White House spokesman Robert Gibbs says the president expects the nation will reach 10 percent unemployment within the next few months.
In an interview with Bloomberg last week, President Barack Obama said he expected the nation to reach 10 percent unemployment sometime this year.
The current unemployment rate reached a 25-year high of 9.4 percent in May.
President Obama is at least starting to realistically assess what happens when the unemployment reaches at least 10 percent. So, with this expectation, the next obvious question to his advisors will probably be how will things look with 10 percent+ unemployment. It's a step in the right direction at least. Stress tests will need to be re-done as well.
Some economists fear excessive stimulus will lead to hyperinflation in coming years. Does this worry you?
Although the size of the stimulus programs and injections of liquidity around the world are cause for concern, and commodity prices have moved sharply higher. Excess capacity still exists in many industries. This, combined with high unemployment rates, should act to contain inflation for the foreseeable future.
I'm going to agree with this, and to add to this we are still going to see a decrease in prices for the housing portion of inflation. This will suppress the cost of living. But low inflation or deflation doesn't mean that commodity prices will be low as well. Their prices can act on their own individual demand and supply situations.
Capacity is a tricky thing as well. Certain industries that haven't really gone through a big growth cycle might not have excess capacity. Any industry related to housing probably has lots of excess capacity. Perhaps tech might not have so much excess capacity as their boom years happened in pre-2000 and they probably have worked a lot of it off.
So, this is my point, when looking at inflation from this kind of a "surgical" perspective, due to all this liquidity sloshing around, we will see certain industries and commodities outperform relative to others.
This outperformance will not necessarily be due to growth of the industry or demand for the commodity, but relative lack of capacity to produce more combined with the excess liquidity being channeled there.
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