Financial Education: 3. Learning to read the Tea Leaves [Archive]

pywong

17-05-2008, 06:05 AM

With the mass of information being churned out daily and the fact that most of us are busy chasing the good life, it is hard to make sense of the world.

One of the way is to develop a simplified picture of the world. That is what the Rat Race series is all about.

By itself, it is not enough. We live in a world driven by money and what happens in the financial system have a big impact on our lives. There is a lot of information and "news" available. The volume is so much that we eventually drown in it. Most people give up at this stage and decide that it is simpler to put their nose to the grinding stone and work hard. Welcome to the Rat Race. :D

Another way for us is to learn how to read the Tea Leaves - to understand what is going on and to try and "predict" or anticipate the future. Often times it is obvious - when you see a steamroller headed down your way, you get out of the way.

Sometimes the storm signals are not so obvious. Then we need to build up the little pieces of information to develop a composite picture. We can see it in the thread - Financial Crisis Coming. http://www.usj.com.my/bulletin/upload/showthread.php?t=22392

Here is another way: Reading analysis by people smarter than us. Check out here: http://www.sitkapacific.com/files/Sitka_Pacific_capital_management_2007_review.pdf

A few takes here:
1. The US economy is in recession. We can assume that it will affect us in Malaysia.

Key question to ask: Is the Govt doing anything about it?

Nothing much. Badawi is more concerned with saving his own skin.

2. The stock market will drop. If we are in the market, does it make sense to get out? The do-nothing option is still available if we have enough spare cash and we are not concerned with losing it.

3. The US bond is headed up. Since it is based on USD which is expected to crash, it is not going to do us much good investing in it.

4. The place to be in is precious metals, gold mining shares and essential commodities.

pywong

17-05-2008, 09:29 PM

In learning to read the tea leaves, it is useful to understand what is inflation.

Many believe that inflation is caused by rising prices. Not true. Rising prices is a symptom of inflation.

Another misconception is that it is due to shortage of materials. Again, not correct.

If driven solely by a supply-and-demand imbalance, rising prices have absolutely nothing to do with inflation. If gasoline prices rise because supplies decrease relative to demand, this isn’t inflation. It is simply the free markets at work addressing a supply imbalance. Rising prices simultaneously retard existing demand and entice new supplies to market, leading to a new equilibrium level between consumption and production.

All throughout history, inflation has exclusively been rising prices directly driven by growth in money supplies. If you have relatively more money competing to buy relatively fewer goods and services, the only possible outcome is higher prices. And although the meaning of words gradually changes over centuries, if you look in any dictionary, encyclopedia, or economic textbook today you’ll find that inflation is monetary.

American Heritage says inflation is “a persistent increase in the level of consumer prices or a persistent decline in the purchasing power of money, caused by an increase in available currency and credit beyond the proportion of available goods and services”.

The problem is rising money supplies often coincide with supply imbalances in specific commodities, so usually both inflation and simple economics are co-drivers.

For example, global oil demand is growing as China, India, and the rest of the developing world drive more cars and transport more goods. But supply growth can’t keep pace, as big new oilfields are exceedingly rare. So much of oil’s bull is fundamental, it has nothing at all to do with inflation. But at the same time, oil priced in euros has risen slightly less than half as much as it has in dollars. So about half of the oil bull seen by Americans is largely driven by dollar inflation. And that applies to us in Malaysia as well.

Be aware that varying large fractions of the rising prices are purely fundamental. Global demand is straining global supplies. Rice is a great example of this today. But the remaining fractions of price increases we are seeing are the result of true monetary inflation. This is a direct result of the US Fed printing huge volumes of money (annual growth rate of 20%) to bail out the banks and mortgage companies. Anyone holding USD or money tied to USD pays a price in a decrease in purchasing power.

As you watch the US Fed and the Eurobanks lending money to all and sundry to prevent a collapse of the banks, remember that is inflationary and your ringgit is shrinking accordingly.

You can follow the links here for more discussions on this subject:

http://www.usj.com.my/bulletin/upload/showthread.php?t=22719
http://www.usj.com.my/bulletin/upload/showthread.php?t=22662

pywong

17-05-2008, 09:45 PM

As explained here: http://www.usj.com.my/bulletin/upload/showthread.php?t=22474 page 3,
inflation allows the Ruling Class to pay less in wages and pensions.

pywong

18-05-2008, 06:48 PM

An important element on reading the tea leaves is watching the financial institutions. There are 3 groups that we can monitor easily:
1. Banks
2. Mortgage Lenders
3. Builders

Let's start with the banks and list out which ones are suffering from write-downs and distress. This is not to say that they are in danger of collapse. But if their losses are in the billions, it bears watching, especially since the US Fed and the Securities and Exchange Commission seem to collude with bigger banks to swallow smaller banks (http://www.blogher.com/what-bear-stearns-collapse-means-taxpayers-and-what-lawmakers-must-do).

There's more to this than what is reported in the news. It is necessary to read a wide range of analysis to understand the background and to remember that greed is the over-riding motive in all financial matters.

List of banks in distress or have suffered write-downs.

• Barclays PLC - $6.4B? (0) May 15, 2008
• Credit Agricole SA-$13.8B (0) May 15, 2008
• Societe Generale SA- $13.7 /$8.5B (0) on May 14, 2008
• Morgan Stanley - $16.1B (0) May 14, 2008
• Lehman Brothers - $7.2B (1) May 14, 2008
• Goldman Sachs - $5.4B (2) May 14, 2008
• RBS - $3.6B/$24 B (2) May 14, 2008
• HSBC Bank PLC - $5.3B (0) May 14, 2008
• Citigroup - $67.1B/$36B (5) May 8, 2008
• Merrill Lynch - $32.2B (1) May 8, 2008
• Washington Mutual - $1.6B (2) May 7, 2008
• Fifth Third Bancorp - $155M (0) May 2, 2008
• WestLB AG - $3.14B (0) May 1, 2008

• HBOS PLC - $2.5B (0) on April 30, 2008
• Bank of America - $4.4B (3) April 30, 2008
• Deutsche Bank - $11.3B (1) April 29, 2008
• National City - $200M (0) April 21, 2008
• JP Morgan Chase - $9.9B (2) April 17, 2008
• US Bancorp - $1.2B (0) April 16, 2008
• Wells Fargo - $2.9B (1) April 16, 2008
• Wachovia - $6.8B/$10.5B (4) April 14, 2008
• SunTrust - $718.7M-$1.5 B (1) April 13, 2008
• Mitsubishi Financial Group - $510M (0) April 12, 2008
• Mizuho MFG - $5.4B (0) April 10, 2008
• Bank of NY Mellon - $118M (0) April 9, 2008
• Sovereign Bancorp - $1.580B (0) April 8, 2008
• Bayern LB - $6.7B (0) April 3, 2008
• UBS - $38.0B/$26.5B (2) April 1, 2008

• IKB - $12.91B (0) March 20, 2008
• Bank of Montreal (BMO) - $639M (0) March 19, 2008
• DZ BANK AG - $2.1B (0) March 7, 2008
• HSBC - $26.5B (0) March 5, 2008

• ABN AMRO Group - $2.4B (1) February 28, 2008
• Royal Bank of Canada - $544M (0) February 20, 2008
• Canadian Imperial Bank of Commerce - $3.2B (0) February 20, 2008
• Credit Suisse - $5.95B (0) February 19, 2008
• Natixis - $1.8B (1) February 18, 2008
• Commerzbank - $855M (1) February 15, 2008

One thing we observe is that the number of banks getting into trouble is increasing month by month and the value of loss is also increasing - Apri USD 85 Billion, up to mid-May USD 200 billion. That is a monthly rate of USD 400 billion for May, which is almost 5 times that for Apr. The trend is very scary. If this continues, the chances of a financial collapse is very high.

Next, we will look at mortgage lenders.

pywong

19-05-2008, 07:50 AM

The list of banks above with the numbers can be interpreted as follows:

Banks suffering write-downs (reduction in capital) are:
................No............Capital Reduction, USD B.... Raise Capital, USD B
Feb 08: ......6.............14.75......................... .........0
Mar 08: ......4.............42.15......................... .........0
Apr 08: .....15.............92.23......................... .......35.5
15 May 08: 13...........175.70............................... .68.5

In the first half of May alone, the write-downs has exceeded the total for Feb to Apr 08. Similarly for the need to raise capital. The trend is not good as it is accelerating. If this continues, the banks will collapse before the end of the year, especially when we consider Tier 3 (very high risk) assets which will be discussed in another posting.

See the attached file for a graphical presentation.

pywong

19-05-2008, 11:09 AM

Watch this carefully. Either it is a ploy to siphon money out because of the fear of Anwar's takeover of the govt by Sept 16, or it is some dumb management over-paying for foreign acquisitions in the face of a financial crisis. Time will tell. If you have savings in Maybank, think hard.

Asian Wall Street Journal

Malaysia's Maybank Loses Luster
String of Purchases Raises Eyebrows Due to Premiums
By ELFFIE CHEW
May 19, 2008

KUALA LUMPUR, Malaysia -- It has been a tough year for Malayan
Banking. Its shares have sharply underperformed the broader market. It
has lost its position as the country's most valuable bank stock. Its
recent acquisitions and stake moves have raised eyebrows. To top it
off, many observers don't see its fortunes turning around anytime
soon.

......

pywong

19-05-2008, 12:41 PM

A corollary of "Do not get into debt" is to save more. In saving more, it is important that we keep our savings in a stable form of "money", not paper money.

Observe what happens if China were to use increase the exchange rate of the RMB and encourage the Chinese to consume more.

The Answer for China’s Inflation Peter D. Schiff 18 May 2008

Letting the yuan (RMB) rise might be an answer for China, but it spells trouble for the US

• A stronger currency, commensurate with China's increased economic strength, would both tamp down inflation and allow Chinese consumers to buy more goods and services.
• By allowing their currency to appreciate, Chinese monetary authorities would no longer need to buy and remove as many dollars from the open market, producing an immediate reduction in the demand for US Treasuries, mortgage-backed securities and other US dollar-denominated debt.
• The result in America would be a simultaneous increase in both consumer prices and interest rates. Such developments would only compound the problems already rippling through the US economy.

http://asiasentinel.com/index.php?option=com_content&task=view&id=1206&Itemid=32

If China were to adopt the above policy, chances are the US economy will crash, along with the value of the USD. Our RM will follow accordingly. To protect ourselves, we should convert our cash to gold or silver.

kpc

19-05-2008, 06:31 PM

Joe Gomez

19-05-2008, 06:41 PM

If China were to allow the RMB to strengthen, wouldn't it make US exports cheaper and consumption in US more expensive?
The effect of this would reduce the large US trade deficits.

This would solve more problems for USA in the longer term.If China were to do that, wouldnt she ( China ) be impacted in exactly the opposite manner ? Wouldnt she want to avoid that ?
Just curious ....... :confused:

pywong

19-05-2008, 07:37 PM

If China were to allow the RMB to strengthen, wouldn't it make US exports cheaper and consumption in US more expensive?
The effect of this would reduce the large US trade deficits.

This would solve more problems for USA in the longer term.
In theory, yes. But if a person is already bankrupt and in such a deep hole (trust me, it is a very, very deep hole. Debt = 5 x GDP) he can't even pay the interest, let alone the capital. I am afraid it is too late.

US has only a few choices:
1. Sovereign default
2. Debase the USD to zero
3. Nationalise all the privately held gold in US.
4. Go to war.
Maybe a few others I have not thought of yet.

DarkNite

19-05-2008, 08:08 PM

I am afraid it is too late.

US has only a few choices:
1. Sovereign default
2. Debase the USD to zero
3. Nationalise all the privately held gold in US.
4. Go to war.
Maybe a few others I have not thought of yet.What means Sovereign default?
What's the repercussion?
I also understand that China do invest a lot in US.
Would that means their investment also goes up in smoke?
Or they get to own USA?

pywong

19-05-2008, 09:06 PM

What means Sovereign default?
What's the repercussion?
I also understand that China do invest a lot in US.
Would that means their investment also goes up in smoke?
Or they get to own USA?
Please read this article:
http://www.bankofengland.co.uk/publications/fsr/fs_paper01.pdf

Definition on page 8 & 9.

China investments in US: No easy answers. If a big bully owes you money and refuse to pay, what are you going to do?

What you want to be concerned with is what happens to your assets, not China's assets. China's problems would be the least of your problems in such a crisis. :D

DarkNite

20-05-2008, 06:16 AM

Please read this article:
http://www.bankofengland.co.uk/publications/fsr/fs_paper01.pdf

Definition on page 8 & 9.

China investments in US: No easy answers. If a big bully owes you money and refuse to pay, what are you going to do?

What you want to be concerned with is what happens to your assets, not China's assets. China's problems would be the least of your problems in such a crisis. :DThanks for the link.
Been following your articles.
On China's problem being the least of my problem,
my apologies, on the contrary, it does affect my 'rice bowl'.
My boss company and several of his friends have
investment in China and planning to increase operations there.
And most of the goods and services are for US.
Before we did not monitor the exchange rate USD:RMB as closely as now.
It puts him and his friends in a dilemma.
We are trying to minimized the impact of this fallout as much as possible.

kpc

20-05-2008, 12:01 PM

pywong

20-05-2008, 12:44 PM

There are opinions that China and Japan will not allow the USD to depreciate too much or too quickly.
These central banks will keep on buying US dollars to prop it up.

B'cos if the USD falls over the cliff, who is going to consume all the manufacturing output of these two manufacturing giants?

So pywong,

could your predictions be too fatalistic at the moment?
kpc, there are two ways to approach it.

1. You can put your faith in the Central Banks of China, Japan and the US. So their policies dictate the fate of your cash.

2. You can get out of the way by parking your cash in precious metals, doesn't really matter which - gold, silver, platinum. All 3 if you want to play safe.

Say, you are right and the US survives. From past trends, it is guaranteed that the USD has to devalue further. Her economy and total deficit cannot sustain the current value of the USD. Therefore, your RM depreciates accordingly.

Say, you are wrong and the USD crashes. What happens to your RM?

Either way, isn't it safer to park your cash in gold?

Concerning your point about China and Japan not wanting to let the USD crash because they have too much invested in the USD. It is worthwhile to remember that China and Japan is merely one factor in the equation. There are other more important considerations.

The US Fed is frantically trying to save her crony banks and printing money like crazy to do so. The Fed is accepting very poor quality and dodgy assets from the banks in exchange for the USD. Bear in mind, the Fed has only USD 860 billion and the figure is dropping fast. At the rate the Fed is going, by the end of the year, the Fed will be holding junk assets and zero cash.

2nd point: The Fed and the US Treasury is fighting a "war" to suppress gold price. It is estimated that the US have less than 4000 tonnes left. Historically, a nation that has no gold and no foreign reserves will be declared bankrupt because other nations will not accept her currency. Last month someone was selling a lot of gold so much so that the price dropped by more than USD 150/oz to USD 850/oz. That gold cannot be replaced because annual production shortfall is 1000 tonnes.

Gold is now shooting back. It has exceeded USD 900/oz this morning. China, India, Russia and the Arabs are rotating their USD into gold. By the end of the year, gold should reach between USD 1150 to USD 1600/oz.

3rd point: US deficit is now > USD 9 trillion. That is a 9 with 12 zeros. You stack USD 100 dollar note side by side, you can build a bridge from KL to Johannesburg. Actual debt of the US Govt is of the order of USD 50 to 60 trillion, taking into account her social security obligations. She can't pay the interest, let alone the capital.

4th point: The US is fighting 2 wars - Afghanistan and Iraq. Historically, no power in the world has ever managed to subdue Afghanistan. I don't think the Afghans intend to let the Americans create a precedent.

BTW, you need to read the Rat Race series to see another angle to this. :)

Irag is bleeding the US. She is in a quagmire but too frightened to admit it.

5th point: There is USD 700 trillion of financial derivatives floating around, most of it created by the US banks. All it needs is a spark and the whole thing will blow up. Last August's shock was just a prelude. The list of bank write-downs and capital raising is a very strong indication of financial stress. Wait till you see the number of mortgage institutions going bust. It is spooky.

Whether Obama, Clinton or John McCain comes in will not make a whit of a difference. Ron Paul, maybe. Even then there will be tremendous pain. Are the Americans willing to go through that after enjoying the fruits of empire for more than 60 years. (It is just like the NEP for the UMNOPutras.)

Historically, govts in such a position ends up bankrupt.

Coming back to my point, what China does, is not really going to make much difference to the US. China herself is in a bubble that could crash if her policies are not managed properly.

Regarding your question about who is going to consume Japan and China's production, that is their problem, not ours. :) For a start, they could raise their exchange rate and consume it internally.

For me, I prefer to hide in a cave and meditate. :D

pywong

20-05-2008, 01:27 PM

My boss company and several of his friends have
investment in China and planning to increase operations there.
And most of the goods and services are for US.
DarkNite, my suggestion is to be conservative in the future projections of growth.

Are there other markets to absorb a shortfall in US demand?

How much financial reserve do they have to handle a downturn? Are they leveraged on their capital or using their own money? Big difference. Banks have a habit of taking away the umbrella at precisely the moment you need it. Speaking from painful experience. So, please do be careful.

During my visit to South Africa, I see lots of prospects there. Only problem is they don't have the purchasing power. So an investor have to plan for the long-term. They have lots of land and resources but very few people.

pywong

20-05-2008, 01:30 PM

When the Regulators don't do their job and the companies cheat in their reporting ....

Banks Keep $35 Billion Markdown Off Income Statements (Update1)

By Yalman Onaran

May 19 (Bloomberg) -- Banks and securities firms, reeling from record losses resulting from the collapse of the mortgage securities market, are failing to acknowledge in their income statements at least $35 billion of additional writedowns included in their balance sheets, regulatory filings show.

Citigroup Inc. subtracted $2 billion from equity for the declining value of home-loan bonds in its quarterly report to the Securities and Exchange Commission on May 2 without mentioning the deduction in the earnings statement or conference call with investors that followed. ING Groep NV placed 3.6 billion euros ($5.6 billion) of negative valuations in its capital account, while disclosing only an 80 million-euro depletion to income.

The balance-sheet adjustments are in addition to $344 billion of writedowns and credit losses already reported

...... http://www.bloomberg.com/apps/news?pid=20601208&sid=ajTu.H_velzQ&refer=finance

One reason I refuse to invest in the Malaysian market. It is just too difficult.

pywong

20-05-2008, 01:33 PM

The Mogambu Guru has a hilarious way of reading tea leaves but he talks sense.

...

May 17, 2008

The economic sky has fallen
By The Mogambo Guru

From Bloomberg.com we learn the ugly news about inflation in Britain, as "Prices charged by factories rose 7.5% from a year earlier, the most since records began two decades ago, the Office for National Statistics said." Yow! The most in 20 years!

And as bad as 7.5% inflation is, when exhibited over the course of a year, it gets a lot worse when they go on, "On the month, prices increased 1.4%, also the fastest pace on record." 1.4% in one freaking month!

....... http://www.atimes.com/atimes/Global_Economy/JE17Dj01.html

DarkNite

20-05-2008, 01:53 PM

DarkNite, my suggestion is to be conservative in the future projections of growth.

Are there other markets to absorb a shortfall in US demand?..... Banks have a habit of taking away the umbrella at precisely the moment you need it. Speaking from painful experience. So, please do be careful.

During my visit to South Africa, I see lots of prospects there. Only problem is they don't have the purchasing power. So an investor have to plan for the long-term. They have lots of land and resources but very few people.
Currently there are no other markets comparable with US.
EU is also contracting.
Taken note of your advice on banks' behaviour on its financial facilities at time like these.
We have been to SA but like you say, NO purchasing power, and that was in 2005.
Don't know if this have change much.

Very unfortunately we cannot ta pau and live in a cave. :D
Suppose being conservative - prudent is the key?

Nowiam

20-05-2008, 02:22 PM

Say, you are right and the US survives. From past trends, it is guaranteed that the USD has to devalue further. Her economy and total deficit cannot sustain the current value of the USD. Therefore, your RM depreciates accordingly.

Say, you are wrong and the USD crashes. What happens to your RM?

Why do you think the RM depreciates accordingly?

When gold was below USD300 the rate was 3.80
Now gold is circa USD900 the rate is circa 3.20

Sure it does not keep step with the rise in precious metals, but then all currencies are depreciating in relation to precious metals, but the ringgit is certainly not dropping blow by blow with the USD.

pywong

20-05-2008, 02:24 PM

Currently there are no other markets comparable with US.
EU is also contracting.
Taken note of your advice on banks' behaviour on its financial facilities at time like these.
We have been to SA but like you say, NO purchasing power, and that was in 2005.
Don't know if this have change much.

Very unfortunately we cannot ta pau and live in a cave. :D
Suppose being conservative - prudent is the key?
DarkNite, when you see storms coming, it is wise to be conservative and not over-extend yourself. Sometimes banks have no choice but to pull back their loans. They are in trouble themselves. In the current scenario, the first ones to fall are the banks.

That means, instead of a bank evaluating a borrower whether he is credit-worthy or not, a borrower has to evaluate the bank now and determine whether the bank could pull the rug from under the borrower. If there is a fall in market demand, your money is tied up in machinery and you are personal guarantors to the banks, watch out!

Many of us, in our greed for profits, expansion and market share, forget to stop and ask ourselves:

What can go wrong?

In our arrogance, we believe bad luck cannot happen to us. Been there. Done that. :D

pywong

20-05-2008, 02:49 PM

Why do you think the RM depreciates accordingly?

When gold was below USD300 the rate was 3.80
Now gold is circa USD900 the rate is circa 3.20

Sure it does not keep step with the rise in precious metals, but then all currencies are depreciating in relation to precious metals, but the ringgit is certainly not dropping blow by blow with the USD.
Currently, USD constitutes 63.3% of the global central banks reserves. How much is Malaysia's USD holding? I don't know. If it is 60%, say, then that fraction will affect the RM value. And that fraction is held hostage to the US Fed's policies.

We can argue the remaining 40% in Euro, Yen, SGD, Sterling will rise to compensate. Yes, it does and that explains why the RM has not dropped as much as the USD. This will only hold true up to a point.

Every nation, unless it is a primary producer of a vital commodity like oil, minerals, metals, etc, has to produce and sell to the international market place to survive. There is this constant competition to sell. That means that there is also a strong incentive not to allow your currency to rise too much against your competitors.

The significance of this is that if the USD were to drop too far, other countries are forced to devalue accordingly in order not to be priced out of the market. Why do you think China has been controlling the rise of the RMB? Based on economic strength, her RMB is probably 30 to 40% undervalued (my guess). But allowing the RMB to rise that far will devastate her export market, which she is not willing to accept.

Your point about gold price and RM/USD rate only confirms the drop in purchasing value of RM. It does not address the issue of purchasing power.

But the bottom line is, as individuals, we want to protect our purchasing power, not our exchange rate.

kpc

20-05-2008, 03:37 PM

PYWong,

Shouldn't you put a warning or disclaimer as your signature so that in case usj forumers get burnt by your bullish gold speculation, they wouldn't come after your head?

pywong

20-05-2008, 04:37 PM

PYWong,

Shouldn't you put a warning or disclaimer as your signature so that in case usj forumers get burnt by your bullish gold speculation, they wouldn't come after your head?
kpc, thanks for the reminder. Here goes:

Anything you read here posted by me cannot be taken as a recommendation. It is presented as part of my contribution to global warming, blah, blah, blah. :D

Seriously, if you refer to the title of this thread, it states: Learning to Read The Tea Leaves. So it is just some sharing of ideas. In any case, a sensible person will not blindly follow what someone else says but conduct his own diligence.

In investing, in accordance with the Dando principle, you want to limit your losses to a little, if you are wrong but to make a lot if you are right. So you look for situations with high uncertainty (not high risks) and place your bets.

In my opinion, with precious metals, it is high certainty and low risk.

It is a case of the little Rat fighting back. :D

Anyway, your thoughts are appreciated. :)

pywong

21-05-2008, 05:38 AM

We have said in The Rat Race Part IV (http://www.usj.com.my/bulletin/upload/showthread.php?t=22866) that there is a conspiracy to manipulate the financial market. That includes the gold and silver market. One reason they can do it is that the US Fed has the power to print unlimited amount of money.

Here is an interview of Ted Butler dated 20 May 2008 that criticizes the Report of the Commodity Futures Trading Commission. The CFTC is charged with regulating the trade of silver futures. Instead, they seem to be colluding with the short traders.

http://news.silverseek.com/TedButler/1211293587.php

What he is saying is that the CFTC is turning a blind eye to the malpractice of 8 of the top short sellers who control 80% of the market.

On 11 Mar 08, the 8 largest traders are short 400 million oz.

There isn't enough silver in the world to cover this short demand.

If the CFTC were to declare the short-traders practice as manipulative, they will be forced to cover the short and buy in the open market. This can trigger a 4 or 5-fold increase in the price.

When that happens, gold price can also shoot up.

Things are starting to fall apart. In this environment, we should be conservative in our investments. Keep cash in the form of precious metals. That does not mean you should go off and buy jewelery for your girlfriend. Buy basic gold coins or ingots. You don't lose by paying unnecessarily for workmanship.

pywong

21-05-2008, 05:45 AM

Here are two articles that will give you an indication of the rising storm.

What do they portend?

1. A possible financial crash
2. The fall of the American Financial Empire and a new financial system will have to be created.

Read page 7 & 8 of the Rat Race Part IV for more details.

Don't be a victim.

http://www.dailyreckoning.com/

No More Mr. NICE Nation
London, England
Tuesday, May 20, 2008

........

GROWTH & INFLATION DEBATE
by Puru Saxena

Over the past few months, we have heard numerous times in the media that the Federal Reserve and the other central banks have a choice between economic growth and rising prices (wrongly defined as inflation). In fact, most investors have been brainwashed into believing that the policies that stimulate strong economic growth automatically result in higher prices within the economy. For example, in our current situation, it is now widely believed that by slashing rates and adding liquidity to the financial system, the Federal Reserve is opting for strong economic growth in the United States. which in turn is causing the consumer price levels to rise. In other words, most people are being hoodwinked into believing that the prices are rising due to strong growth.

pywong

21-05-2008, 06:10 AM

What this means is that we cannot invest in the US market anymore because there is no transparency. This will also apply to mutual funds that have US-listed companies in their portfolios.

The actions in the US is consistent with our conspiracy theory in The Rat Race Part IV.

The US Govt allowed Wall Street to create a trading exchange outside of the NYSE that caters only to big institutions. All this does is obscure the information that is supposed to be available to EVERYONE who is involved with trading/investing in stocks. If anything, the big funds will suffer the most.

here's a great explanation of "dark pools"

This is a complete tragedy for free market capitalism and underscores the Orwellian model of what is happening in the US:

"Under the plan announced today, Goldman, UBS and Morgan Stanley will allow for the secretive trading to take place between their clients."

http://dealbreaker.com/2008/05/one_big_dark_pool_to_rule_them.php

***

Jesse chimes in:

http://jessescrossroadscafe.blogspot.com/2008/04/shadow-
exchanges-for-shadow-financial_22.html

Nowiam

21-05-2008, 09:04 AM

Your point about gold price and RM/USD rate only confirms the drop in purchasing value of RM. It does not address the issue of purchasing power.

But the bottom line is, as individuals, we want to protect our purchasing power, not our exchange rate.

OK, if I understand you - you mean depreciate in relation to the Gold as anchor comparison. This is clear no argument. But the RM is appreciating against the USD (or USD depreciating against all other currencies etc), so in the language of world finance, it is not "depreciating accordingly" when the USD goes down.

Granted there will be a severe effect on all fiat when the big whale goes down, but we must also consider our own local conditions:-
- our balance of payments
- our commodity base
- our other trading partners
- our options for reserves
etc etc

Until the armageddon scenario comes along, these are the winds that guide the RM value vis a vis other forms of money (=store of value). Whether armageddon comes or not ...

pywong

21-05-2008, 10:35 AM

pywong

21-05-2008, 01:05 PM

4th point: The US is fighting 2 wars - Afghanistan and Iraq. Historically, no power in the world has ever managed to subdue Afghanistan. I don't think the Afghans intend to let the Americans create a precedent.
More fun in Pakistan.

Famous last words by Bush:
Either you are with us or you are against us.

Arrogance and corruption - a potent combination. :D

NATO Is Troubled by Pakistan Peace Talks With Taliban Militants

By Ed Johnson

May 20 (Bloomberg) -- The commander of NATO forces in Afghanistan said he is concerned that truce talks between militants and Pakistan's government will make it easier for terrorists to cross the border.

``We are troubled by the negotiations and the possibility of yet another peace deal in the northwest,'' U.S. Army General Dan McNeill said yesterday. ``We keep our eyes on Pakistan. It seems to me to be very dysfunctional right now.''
........ http://www.bloomberg.com/apps/news?pid=20601080&sid=aJnhIFfPYGMQ

pywong

23-05-2008, 10:43 AM

Just to reassure you that our leaders do not have the monopoly on stupidity.

Imagine this:
The US is dependent on OPEC for their oil.
The USD value is dependent on OPEC accepting it in payment for their oil.

And now they want to whack OPEC... :confused:

You know things are bad when .....

House passes bill to sue OPEC over oil prices
Tue May 20, 2008 2:27pm EDT
By Tom Doggett

WASHINGTON (Reuters) - The House of Representatives overwhelmingly approved legislation on Tuesday allowing the Justice Department to sue OPEC members for limiting oil supplies and working together to set crude prices, but the White House threatened to veto the measure.

The bill would subject OPEC oil producers, including Saudi Arabia, Iran and Venezuela, to the same antitrust laws that U.S. companies must follow.

The measure passed in a 324-84 vote, a big enough margin to override a presidential veto.

The legislation also creates a Justice Department task force to aggressively investigate gasoline price gouging and energy market manipulation.

"This bill guarantees that oil prices will reflect supply and demand economic rules, instead of wildly speculative and perhaps illegal activities," said Democratic Rep. Steve Kagen of Wisconsin, who sponsored the legislation.

......... http://www.reuters.com/article/politicsNews/idUSWAT00953020080520

pywong

23-05-2008, 11:11 AM

In learning to read the tea leaves, it is important we use the right leaves.

Malaysian statistical data are distorted and cannot be trusted.

Try Singapore ...
The Relentless Rise of Cost of Living in Singapore (http://theonlinecitizen.com/2007/08/the-relentless-rising-cost-of-living-in-singapore/) Their reported CPI is getting close to 7%. What was the reported figure for Malaysia?

It is always useful to develop a helicopter vision. To do so, we look out, to see in. :)

We can't achieve that by gazing at our navels or going for the Guinness Book of Records.

pywong

23-05-2008, 02:18 PM

Singapore ...
The Relentless Rise of Cost of Living in Singapore (http://theonlinecitizen.com/2007/08/the-relentless-rising-cost-of-living-in-singapore/) Their reported CPI is getting close to 7%.

What was the reported figure for Malaysia?
Nor Mohamed said the country's inflation rate was forecast at 3.0 percent or slightly higher from 2.0 percent in 2007.

......... http://malaysiakini.com/news/83316

If you believe Nor Mohamed's figure of CPI 3%, you can believe that pigs can fly.

kpc

23-05-2008, 05:53 PM

PY,

The US analysts just declared today that the ringgit is undervalued !
That means the ringgit is going to appreciate against gold very soon !

pywong

24-05-2008, 02:18 AM

PY,

The US analysts just declared today that the ringgit is undervalued !
That means the ringgit is going to appreciate against gold very soon !
In June 1997, the Western press praised Mahathir to heaven. On Jul 1997, Thai baht was devalued, followed by Indonesia, South Korea and Malaysia.

So watch it when US analysts praised us. They are setting us up for suckers.

But if it makes you happy, stick to RM. :D

pywong

24-05-2008, 11:14 AM

Housing mortgages were the first component that got the banks into trouble. The mortgage companies were lending money to people who did not have the means to pay. These people borrowed the money to spend, not to invest.

Mortgage companies were confident about their strategy. The rationale was that with rising prices, if the borrowers defaulted, the lenders could recover their loans by selling the houses. Secondly, they packaged the mortgages into bonds with exotic names like CDOs and sold it to unsuspecting buyers overseas who were looking for higher returns, forgetting that high return usually means high risk. (Greed makes people blind).

When the house prices started dropping as people could no longer afford it and the return on the house did not match the cost of money, builders and mortgage companies got into trouble.

Since late 2006, the following number of companies have collapsed:

Major US lending corporations: 260
Major builders: ......................28

Arising from these collapses together with other poor investment decisions, the US banks have lost USD 383 B to date.

There are more losses to come together with more bank collapses.

Watch:
Goldman Sachs
JP Morgan
Lehman Brothers
Citibank

The first two are involved in gold speculation and price suppression as well. So a collapse will trigger a jump in the gold price as they are short gold, meaning they have sold gold that they don't have, at a low price.

pywong

24-05-2008, 12:34 PM

What happens in the US is also reflected here. We can use the incidents there as a guide to help in investigating the previous Selangor State Govt for fraud.

We should hear some interesting stories on 22 Jun 08 during the Selangor State Govt 100-day forum.

Meanwhile watch JP Morgan and Lehman Brothers closely. When they reach a stage where the US Fed have to bail them out, we know the tipping point is getting very close. If that happens, there will be repercussions in Malaysia as well with our banks and the RM at risk.

Those who have gone into gold will be glad they did. The only other instruments that could be safe are shares in commodity and precious metal companies. Even then, we have to be careful about which ones to invest in as many have exposure to risky financial derivatives or hedges also.

pywong

24-05-2008, 01:36 PM

This is an important question to address:

CAN WE TRUST BANKS?

So far, most of the financial problems existing in the world can be traced to banks or financial institutions and the underlying motive is GREED!

This is nothing new.

Here are some other tea leaves to read. If the banks succeed in changing the rules, it means that the crash is confirmed, albeit delayed slightly.

They are required under BIS rules to identify their Tier 3 assets which are generally regarded as worthless.

So, for banks to ask for this means two things:

1. This is VERY far from over and only the tip of the iceberg.
2. Many of these large banks KNOW they will go broke unless the rules are changed to help them.

The tea leaves are now an open book. Get your cash out from the banks!

Top banks call for relaxed writedown rules

By Francesco Guerrera in New York and Jennifer Hughes in London

Published: May 21 2008 23:04 | Last updated: May 21 2008 23:04

The world’s leading banks have stepped up pressure to relax controversial accounting rules with a new plan aimed at breaking the “downward spiral” of huge writedowns, emergency fundraisings and fire-sales of assets.

The proposals on “fair value” accounting by the Institute of International Finance, an alliance of 300-plus companies chaired by Josef Ackermann, Deutsche Bank’s chairman, would enable financial companies to cushion the blow of financial crises by valuing illiquid assets using historical, rather than market, prices.

...... http://www.ft.com/cms/s/0/07cb8b1a-275e-11dd-b7cb-000077b07658.html?nclick_check=1

pywong

24-05-2008, 02:21 PM

Try Singapore ... Their reported CPI is getting close to 7%. What was the reported figure for Malaysia?
Actual CPI for Singapore in Apr 08 is 7.5%.

Is Nor Mohamed's figure of 3% for Malaysia believable?

pywong

25-05-2008, 02:44 PM

Lehman Brothers stock price drops after short-seller's speech
Einhorn expessed concern about i-bank's accounting for assets that trade infrequently

May 23, 2008

....... http://www.financialweek.com/apps/pbcs.dll/article?AID=/20080523/REG/389103430/1038/EXCLUSIVES

fonzie

25-05-2008, 04:01 PM

Like I have posted somewhere, the professional traders or investment "whiz-kids" are making big bets and on the FUTURE of commodity prices, metal prices, interest rates etc. Do a google on bank failures like the recent French bank case. More closer to home the Barclays Bank branch in Singapore a couple of years ago. Somemore, the CEOs of such institutions DON'T KNOW what their "whiz-kid" employees are doing! Be careful of banks paying obscenely high fees to such employees and yet reporting poor quarterly/annual results.

Therefore, teach your children on the necessity to save money and importance of money in life. Teach them honesty and integrity. Teach, nay, nurture and nature them on an austere lifestyle, to face the future. Develop the motto "Don't owe the banks", "Let the banks work YOUR MONEY FOR YOU" and not the other way around when the banks sells you some new financial packages, you accept.

Teach them about the four seasons - we only have one - and its relations to crops growing. Teach them the difference of wheat growing and corn growing, what is wheat for and what is corn for. Teach them cattle rearing, chicken farming etc. Teach them how oil is extracted from the ground. Teach them that if there is a shortage of oil, the US just needs to tell OPEC "Yoi! Buddy! put more oil in the market!" and expect it to happen. Get real!

Teach them statistics, how to read numbers in financial and economic publications. Teach them those jargonned acronyms - GDP (in relation to population, not GDP growth per se), CDOs ( "snake oil from the whiz-kids") and lots more. Teach them financial/economic cycles. These cycles don't follow the calender months. Good times you enjoy, bad times you hunker down and face the effects.

Teach them the times of the months. October to January is Christmas/New year, bonus time, winter time - what happens? February to April (Spring time) what happens? June until October (summer) what happens? Look at the economical aspect of life - which is also the global aspect. People all over the world , collectively, do the same things when such seasons arrives. You need money to finance these activities! You think money grow on trees ah?

Cheers!
FonZie
Presently listening to CSNY's "Teach the children"

pywong

25-05-2008, 04:34 PM

Housing mortgages were the first component that got the banks into trouble.
A report, issued on 19 May, 2008 by Aite Group, found that only $1.5 billion in CDOs backed by asset-backed securities have been issued this year. $226 billion worth were issued in 2006.

“With less collateral to securitize into CDOs and no ready buyers in sight, ABS CDO issuance has virtually disappeared.”

He also predicted that the incentive structure for securitization will change. CDO arrangers, rating agencies and investment banks all had profit structures that “were too enticing to be dismissed.” Thus, collateral managers ended up producing as many CDOs as possible.

pywong

25-05-2008, 05:02 PM

pywong

27-05-2008, 11:29 PM

Actually the Gulf States told the US to take hike as they don't want the USD anymore.

Merrill sees U.S. giving nod for Gulf FX change
Sun May 25, 2008

DUBAI (Reuters) - Merrill Lynch & Co said the United States has effectively given Gulf Arab oil producers the go ahead for making changes to their dollar-pegged foreign exchange policies, by recognizing inflation as a problem.

......... http://www.reuters.com/article/businessNews/idUSL2565817720080525?feedType=RSS&feedName=businessNews

pywong

28-05-2008, 04:26 PM

May 28, 2008

This is coming up in the US. What are the implications for us?

EFFECTS:
Energy and food prices are soaring.
The housing market continues to collapse.
Government revenue is falling, and taxes are rising.
Airlines are jacking up fares and fees while reducing service.
Banks are pulling credit lines.
Auto companies are cutting production once again.
Even investment bankers are losing their jobs.

Overabundance of cheap, easy credit created a housing bubble that artificially inflated the price of land and housing,
Auto bubble,
Commercial real estate bubble,
Travel bubble,
College tuition bubble,
Retail bubble,
Web 2.0 bubble and
Commodities bubble.

CAUSES:
Declining dollar is a significant factor. The decline is the result of years of large and growing U.S. trade deficits that should have caused the exchange rate to adjust years ago but didn't because so many of her trading partners in Asia and the Middle East were intent on linking their currencies to the dollar. In the process of maintaining those dollar pegs and reinvesting those surpluses in Treasury bonds and Fannie Mae and Freddie Mac securities, they created a surfeit of cheap credit that spawned all those bubbles.

PRICES OF ENERGY WILL FALL BUT FIND A HIGHER LEVEL THAN BEFORE:
At some point, that speculative bubble will burst and energy prices will plunge. When things finally settle down, the new equilibrium price is almost certain to be well above where it was last year at this time.

GOVT BODIES:
State and local governments are in budget crises due to declining revenue from property assessments and real estate transfers.

One option is to raise taxes and leave less money for private spending. The other is to accept lower levels of government service and subsidies, which inevitably will lower the incomes of some households while forcing others to go without services or pay for them privately. Either way, it amounts to a lower standard of living.

US used to live way beyond their means. As a result, it has gone from being the largest creditor nation to the world's largest debtor. For the first time since the early 1980s, Americans will have to endure several years of uncomfortably slow growth and uncomfortably high inflation

http://www.washingtonpost.com/wp-dyn/content/article/2008/05/27/AR2008052703077.html?nav=rss_email/components

MALAYSIA:

We can expect the following:
Falling economy
Property prices dropping
Higher food and fuel prices as govt cuts subsidies
People losing jobs
High inflation in essential items.
Civil unrest as food and fuel prices hit the poor especially hard.
Our RM savings are depleted due to inflation and devaluation.
Businesses failing.

What we should demand of the local councils such as MPSJ:
Reduce operating costs by 40% to reflect the reduction in corruption in their maintenance and project contracts.
Reduction in our house assessments and quit rent by 20% to reflect drop in property prices and over-charging of the past.
Resolve the issue of sewerage charges imposed on us by IWK. MPSJ should bear the charge.

What should we demand of the Govt?
If we have to change our lifestyle, the govt have to do likewise.
They have to cut their operating budget by 30%.
Programmes like National Service should be cancelled.
Similarly for all the feel-good programmes.
We have to actively challenge them every step of the way to show them that we will not accept their past excesses in contract negotiations. Otherwise, the extra cost will be borne by us eventually.
Demand that they chop the bureaucracy by 30%. We have one of the highest bureaucrat/population in the world and in a recession, we cannot afford it anymore.
Everyone should bear the pain equally.

What can we do to help ourselves?
Plant some food in our gardens.
Collect rainwater in water tanks
Sort out our refuse to recycle as much as possible. Bury organic refuse in the garden for organic fertilizer.
Cut down on our expenses if we cannot afford it during a downturn.
Oh yes! Buy gold. :D

pywong

29-05-2008, 11:56 AM

Watch carefully the following:
Lehman’s Aurora Loan Services for Alt-A loans,
Merrill’s First Franklin for subprime,
Wells Fargo for non-conventional Jumbo intermediate-term ARM’s and
Chase for Home Equity Lines/Loans.

Investors Putting Bad Loans Back To Lenders - This Is Only The Beginning.

Posted on May 28th, 2008 in Mr Mortgage's Personal Opinions/Research

A phenomenon not yet discussed in any great degree is the forced buybacks of defaulted loans by the original lender or investor due to early payment defaults, fraud and lender ‘negligence’. I have written about this many times and today the Wall Street Journal had a wonderful story out entitled ‘Investors Press Lenders on bad Loans’ from Ruth Simon and Jams R. Haggerty on page C-1 confirming this. Below is my summary.

....... http://mrmortgage.ml-implode.com/2008/05/28/investors-put-bad-loans-back-to-lenders-this-is-only-the-beginning/

Nowiam

02-06-2008, 01:25 PM

Nowiam, we have allowed ourselves to be conditioned to think of money in terms of paper currency. That is how the Ruling Class wants us to think as it simplifies their efforts to exploit us.

Try thinking of money in terms of time. Time is universal. Everyone have 24 hours a day only.

How many months of salary does it take to buy a car, a house, an oz of gold?

Using another scale. Consider oil as the base of reference.

How much does it take to buy a barrel of oil?

1 barrel of oil cost:
............... 1971............... 2008 ....... increase by (times)
Gold..........3.2 gm ............. 4.36 gm ....... 1.36
USD ......... 3.6 ................ 129 .............. 35.8

From 1971 to 2008, do you think a Rat's salary increased by 36 times or 2 times? Actually, this is a trick question. It depends which class of Rat you are referring to. :D.

Long delay in reply as too busy earning depreciating assets ... ;-)

pywong, your statements all have merit but it also has its deficiencies – but lets live in the world as we find it too. Whether there is a Ruling Class conspiracy etc I leave to the more outer field inclined.

Back to the matter of MYR depreciation; if we buy gold traded in USD. It is important for us in the end what we get back in MYR to eat, sh*t, and frolic with – ie: when Gold is USD2000 or whatever, what is it for us in MYR.

We tackle each step as we see it coming because the situation is fluid and nothing is foretold.

What I stated only that when USD drops, it does not mean MYR drop accordingly. There is more to it than a simple statement. It is important to someone who buys gold and lives in Malaysia. Because you have to change back from gold to MYR one day to use. I contend that it does not necessarily follow that MYR depreciates with USD, and therefore our returns in MYR is affected – it may be it does it all depends on unfolding events. All is yet to transpire.

So, do you prefer to keep your cash in paper currency or gold?

Inflation has a very insidious effect on our purchasing power. We only see the effects when we study it over decades, not years.

These are the facts, whether armageddon comes or not.

On your question, my answer is it depends which part of the asset you refer to.

In case you think I am questioning your wisdom on gold, I am not, but certain statements must be balanced with practicality instead of blanket statements.

When I go into the gold investment world it was traded at USD250 per ounce. I have been there and done that and forgotten more than I recall. I am not newbie nor an expert, only someone who was lucky.

pywong

02-06-2008, 01:51 PM

Long delay in reply as too busy earning depreciating assets ... ;-)

pywong, your statements all have merit but it also has its deficiencies – but lets live in the world as we find it too. Whether there is a Ruling Class conspiracy etc I leave to the more outer field inclined.

Back to the matter of MYR depreciation; if we buy gold traded in USD. It is important for us in the end what we get back in MYR to eat, sh*t, and frolic with – ie: when Gold is USD2000 or whatever, what is it for us in MYR.

We tackle each step as we see it coming because the situation is fluid and nothing is foretold.

What I stated only that when USD drops, it does not mean MYR drop accordingly. There is more to it than a simple statement. It is important to someone who buys gold and lives in Malaysia. Because you have to change back from gold to MYR one day to use. I contend that it does not necessarily follow that MYR depreciates with USD, and therefore our returns in MYR is affected – it may be it does it all depends on unfolding events. All is yet to transpire.

On your question, my answer is it depends which part of the asset you refer to.

In case you think I am questioning your wisdom on gold, I am not, but certain statements must be balanced with practicality instead of blanket statements.

When I go into the gold investment world it was traded at USD250 per ounce. I have been there and done that and forgotten more than I recall. I am not newbie nor an expert, only someone who was lucky.
Nowaim, If we study the chart of every currency against gold, ALL of them have lost out. So it does not matter which component of foreign currency Bank Negara has to back RM. None of the foreign currencies have real asset backing other than confidence in the economy of that country.

Another thing that has occurred to me: What provision has Malaysia made for her pension liability? I have not come across any statement on that (not that I am actively looking for it). This can have a big impact on our foreign reserves. I won't be surprised if our bureaucrats who have been serving UMNO so loyally wake up one day to find out that the govt has no money for their pensions. Then all hell will break loose. :D

Nowiam

03-06-2008, 05:28 PM

Nowaim, If we study the chart of every currency against gold, ALL of them have lost out. So it does not matter which component of foreign currency Bank Negara has to back RM. None of the foreign currencies have real asset backing other than confidence in the economy of that country.

Another thing that has occurred to me: What provision has Malaysia made for her pension liability? I have not come across any statement on that (not that I am actively looking for it). This can have a big impact on our foreign reserves. I won't be surprised if our bureaucrats who have been serving UMNO so loyally wake up one day to find out that the govt has no money for their pensions. Then all hell will break loose. :D

aiyo, i think we cross channel lah - ok lah I think we leave it here, those who read can get their own opinion.

your statements above are correct in principle, but time will tell how it plays out.

pywong

03-06-2008, 11:34 PM

aiyo, i think we cross channel lah - ok lah I think we leave it here, those who read can get their own opinion.

your statements above are correct in principle, but time will tell how it plays out.
I don't think we are all that far apart. Just a question of which asset class to choose.

pywong

04-06-2008, 10:20 AM

pywong

05-06-2008, 10:00 AM

AllUrban

05-06-2008, 01:20 PM

This chart shows that everytime there is a spike in bank borrowings from the US Federal Reserve, there is a recession. Look at the latest spike!

http://research.stlouisfed.org/fred2/fredgraph?chart_type=line&width=1000&height=600&preserve_ratio=true&s%5b1%5d%5bid%5d=BORROWpretty shocking...but have they adjusted the figures for inflation?...no, wait....who cares...this is pretty scary! :eek:

Cheers, m

pywong

07-06-2008, 07:21 PM

Someone once said: My house is my biggest asset. Read this. Do not imagine that our property price is immune to the US economy.

Equity in Americans’ homes falls to historic low
Drops to 46.2 percent in first quarter — level not seen since end of WWII
updated 7:08 p.m. ET, Thurs., June. 5, 2008

NEW YORK - The equity Americans have in their most important asset — their homes — has dropped to its lowest level since the end of World War II.

Homeowners’ portion of equity slipped to 46.2 percent in the first quarter from a revised 47.5 percent in the previous quarter. That was the fifth quarter in a row below the 50 percent mark, the Federal Reserve said Thursday.

The total dollar value of equity also fell for the fourth straight quarter to $9.12 trillion from $9.52 trillion in the fourth quarter, while Americans’ total mortgage debt rose to $10.6 trillion from $10.53 trillion.

A homeowner’s equity is the market value of a property minus the mortgage debt. And homeowners’ percentage of equity has declined steadily even as home values surged during the housing boom due to a jump in cash-out refinancing, home equity loans and an increase in 100 percent financing.

http://www.msnbc.msn.com/id/24988315/

pywong

09-06-2008, 10:00 PM

Study the 5 year price charts of these US financial institutions carefully. Most of them show a downturn that looks very similar to Bear Sterns. It only need one of them to crash to trigger a collapse in more of them. If you have investments in the stock market, you may want to consider getting out, even at a loss.
AIG: http://finance.google.com/finance?q=NYSE%3Aaig&hl=en

AXP: http://finance.google.com/finance?q=NYSE%3Aaxp&hl=en&meta=hl%3Den

BAC: http://finance.google.com/finance?q=NYSE%3Abac&hl=en&meta=hl%3Den. It has suffered a 25% drop in one month which is scary by any standard.

BK: http://finance.google.com/finance?q=NYSE%3Abk&hl=en&meta=hl%3Den

C: http://finance.google.com/finance?q=NYSE%3Ac&hl=en&meta=hl%3Den. In less than a year, it has dropped by more than 60%.

COF: http://finance.google.com/finance?q=NYSE%3Acof&hl=en&meta=hl%3Den

FNM: http://finance.google.com/finance?q=NYSE%3Afnm&hl=en&meta=hl%3Den. It has dropped by 60% in 9 months.

FRE: http://finance.google.com/finance?q=NYSE%3Afre&hl=en&meta=hl%3Den

GE: http://finance.google.com/finance?q=NYSE%3Age&hl=en&meta=hl%3Den. It has dropped by nearly 30% in 9 months.

GS: http://finance.google.com/finance?q=NYSE%3Age&hl=en&meta=hl%3Den

LEH: http://finance.google.com/finance?q=NYSE%3Aleh&hl=en&meta=hl%3Den. It has dropped by more than 60% in less than a year.

JPM: http://finance.google.com/finance?q=NYSE:JPM Watch this one. It was bailed out in Mar 08 when the Fed financed its takeover of Bear Sterns with a gift of USD 29 billion. After an initial recovery, it is dropping back again. If JPM falls, the whole financial system will crash as it holds the largest volume of derivatives.

MER: http://finance.google.com/finance?q=NYSE%3Amer&hl=en&meta=hl%3Den. This has suffered a drop of more than 58% in 1 year.

MS: http://finance.google.com/finance?q=NYSE%3Ams&hl=en&meta=hl%3Den. This also suffered a drop of 54% in 1 year.

RF: http://finance.google.com/finance?q=NYSE%3Arf&hl=en&meta=hl%3Den. This has suffered a drop of 57% in 1 y ear.

STI: http://finance.google.com/finance?q=NYSE%3Asti&hl=en&meta=hl%3Den. It has dropped by 49% in 1 year.

WB: http://finance.google.com/finance?q=NYSE%3Awb&hl=en&meta=hl%3Den. This has dropped by 64% in 1 year.

WFC: http://finance.google.com/finance?q=NYSE%3Awfc&hl=en&meta=hl%3Den. It has dropped by more than 30% in 9 months.

WM: http://finance.google.com/finance?q=NYSE%3Awm&hl=en&meta=hl%3Den. It has dropped by 82% in less than a year.

pywong

09-06-2008, 11:45 PM

Bush & Cheney are reckless enough to bomb Iran. Then we will be thankful our fuel price only went up by RM 1 per litre.

PETER BRIMELOW
Does gold, commodities surge signal war?
Commentary: Gold bug sees impending attack on Iran

http://www.marketwatch.com/news/story/story.aspx?guid=%7BD534C413%2D16E9%2D4738%2DA2A2%2 D5BF0D81936DB%7D&siteid=rss

pywong

10-06-2008, 07:18 AM

US Outlook:

Municipalities will have trouble raising capital for maintenance and infrastructure work.

Unemployment has risen to its highest level in 22 years, causing a drop in consumer spending and leading to recession.

The two largest bond insurers (MBIA and Ambac) were stripped of their AAA insurer ratings by Standard and Poors. The ratings were cut by two levels to AA.. This development has potentially catastrophic consequences for cities and states that rely on AAA bond ratings to sell bonds with relatively low interest rates for a variety of infrastructure and other needs.

Ratings of trillions of dollars in bonds issued by municipal and state entities will drop. The value of the bonds themselves will drop, causing major financial institutions which hold these bonds in their portfolios to have to write them down to lower market values, which, therefore, will cause their regulator-imposed capital levels to drop, thus requiring them to raise more capital and further constrict their lending. It also means that the bonds in their portfolios are much less liquid then they were heretofore. In sum, states and cities will find it much harder to raise capital, thus creating an even larger economy-slowing effect.

Friday, June 6th: the Official Unemployment Data Release showed a dramatic increase in unemployment to 5.5% - - a 22 year high and truly recessionary.
Real Unemployment is much higher than 5.5%. “Adjusted for the discouraged workers” defined away during the Clinton Administration, actual unemployment is estimated by the SGS-Alternate Unemployment Measure, rose to 13.7% in May from 13.1% in April.” Flash Update, June 6, 2008, shadowstats.com.

pywong

10-06-2008, 07:24 AM

Lehman Drops as Analysts See Quarterly Loss, Capital Infusion

By Yalman Onaran

June 3 (Bloomberg) -- Lehman Brothers Holdings Inc. fell to a five-year low in New York trading after analysts said the company may seek more capital and report its first quarterly loss since going public in 1994.

http://www.bloomberg.com/apps/news?pid=20601087&sid=a1ci_jGipFYc&refer=home
9 Jun 08: LEH Lehman Brothers reports Q2 EPS loss of $5.14; announces to raise $6B in capital.

Recall a capital raise had been anticipated, with the WSJ pegging the figure at more than $5B.

Moody's lower rating for Lehman from stable to negative. This will increase the cost of raising capital by Lehman.

pywong

10-06-2008, 10:40 AM

The Fed is stuck. Lower interest rates - USD bomb and inflation shoot through the roof.

Increase rates to fight inflation - that could be the last straw that break the camel's back.

Citi, Merrill, UBS Face Monoline Losses, Whitney Says (Update1)

By Jeff Kearns and Bradley Keoun

June 9 (Bloomberg) -- Citigroup Inc., Merrill Lynch & Co. and UBS AG may post losses of $10 billion on bond insurance after MBIA Inc. and Ambac Financial Group Inc. lost their top credit ratings, Oppenheimer & Co. analyst Meredith Whitney said.

MBIA and Ambac, the world's largest bond insurers, had their AAA ratings cut two levels by Standard & Poor's June 5, which trimmed ratings on more than $1 trillion of securities they guaranteed. The downgrades may limit the so-called monoline insurers' ability to write new policies, putting further pressure on earnings, she wrote today in a note to investors.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aWzDAfdNmgOw&refer=home

pywong

24-06-2008, 05:23 PM

How would you feel if your insurance company came up to you and ask you to forgo the insurance after you have paid the premium?

Bond insurers in talks to wipe out $125 bln of cover
By Simon Kennedy
Last update: 3:39 a.m. EDT June 23, 2008
Comments: 23
LONDON (MarketWatch) -- Bond insurers including Ambac Financial and FGIC Corp. are talking to banks about wiping out $125 billion of insurance contracts on risky debt,

http://www.marketwatch.com/News/Story/Story.aspx?guid={D50A5366-6140-42BB-884A-CCC1F3FDD3C2}&siteid=yhoof2

pywong

24-06-2008, 05:36 PM

Ambac is now at $2. At this price, many mutual funds may be forced to sell it, thus putting more downward pressure on it.

Embattled bond insurers are back in the hot seat

By Jeremy Lemer in New York

Published: June 21 2008 03:00 | Last updated: June 21 2008 03:00

Wall Street stocks fell sharply yesterday as oil prices rebounded and a series of ratings downgrades for bond insurers and cuts to analysts' earnings estimates for investment banks stoked fears that the credit crisis has further to play out.

Overnight, Moody's became the last of the three major rating agencies to downgrade Ambac and MBIA , the embattled bond insurers, citing their limited ability to raise new capital and write new business.

http://www.ft.com/cms/s/0/11c3336c-3f2c-11dd-8fd9-0000779fd2ac.html?nclick_check=1

pywong

17-07-2008, 11:01 AM

One very important skill we need to develop is how to interpret the statements of politicians with respect to the impact on the economy. By habit, they lie. It is part of their DNA.

Eg.
Badawi said:
12 Feb 08: I will not dissolve Parliament.
13 Feb 08: He dissolved Parliament.

Before 8 Mar 08: He said that fuel prices will not be raised this year.
Before 4 Jun 08: Minister of Domestic Trade, Shahrir, said that fuel prices will not be raised until Aug 08.
4 Jun 08: Petrol price was raised by more than 40% and diesel by more than 60%.

It is not only Malaysian politicians who have this habit. The US suffers from the same problem.

11 Jul 08: Financial Week - US Treasury Secretary Henry Paulson denies any bailout of Fannie Mae and Freddie Mac is being considered.
http://www.financialweek.com/apps/pbcs.dll/article?AID=/20080711/REG/720999248/1036

14 Jul 08: New York Times - Paulson announced the bailout of Fannie Mae and Freddie Mac.
http://www.nytimes.com/2008/07/15/washington/15fannie.html?_r=3&ref=business&oref=slogin&oref=slogin&oref=slogin

The US Govt's act will have a huge impact on the US dollar and by extension, the RM. Think carefully the consequences if your assets are in RM alone.

So, when politicians assure us that there is no political conspiracy behind their actions, you can be absolutely confident that is precisely what they intended to do in the first place - institute a political conspiracy.

What are the implications for us?

Examine the records of the KLSE on 15 and 16 Jul 08. Were there short-selling just before the Anwar arrest at 1:05pm on 16 Jul 08. Why was there any necessity to use the anti-terrorist squad (Unit Tindakan Khas, UTK) to execute the operation on a person who was scheduled to meet the police at 2pm on the same day?

Besides political impact, there is economic impact. Imagine, if you were holding shares prior to 16 Jul 08 and their values dropped arising from Anwar's arrest. Would you have lost financially?

pywong

17-07-2008, 12:02 PM

There is a big difference in the time lapse between political events and economic events.

Political events:
Usually these have an instantaneous effect on the financial market. Say, the US bomb Iran, you can expect oil prices to shoot through the roof and the stock market to crash virtually immediately.

Similarly, because of Anwar's arrest on 16 Jul 08, the KLSE has dropped to its lowest point over the past year.

We need to read the political tea-leaves carefully and act fast. It also means that we are vulnerable to speculators, with access to information about impending political events, who can short-sell the market.

Economic events:
These have longer-term effects and we are able to take our time to plan.

Fannie Mae (FNM): The signs that it was headed for trouble was already apparent more than a year back. In fact, I sold my shares in Apr 07 at USD 58 per share. Today, after more than 15 months, it had to be rescued by the US Govt and its share value has dropped to USD 9.25, a drop of more than 80%.

At the end of the day, it is just too difficult trying to keep on top of everything. We have a life to live. So, it is simpler to park our assets in gold. Even if the US govt tries to manipulate the gold price, eventually they will fail. Simply because gold cannot be printed. It has to be mined, refined and minted.

pywong

21-07-2008, 09:04 PM

Since late 2006, the following number of companies have collapsed:

Major US lending corporations: 260
Major builders: ......................28
Update on failures since May 08:

Collapsed Major US Lending Corps increased from 260 to 266
Collapsed Major builders increased from 28 to 35.

News on banks in distress is even more depressing. See here:
http://bankimplode.com/

pywong

27-07-2008, 07:08 PM

Update on failures since May 08:

Collapsed Major US Lending Corps increased from 260 to 266
Collapsed Major builders increased from 28 to 35.
Add 2 more banks to the list.

Regulators Close Two More National Banks
By Alison Vekshin
Bloomberg News
Saturday, July 26, 2008; D01

First National Bank of Nevada and First Heritage Bank were closed by U.S. regulators yesterday, the first institutions to fail since regulators seized IndyMac Bancorp two weeks ago following a run by depositors.

First National Bank of Nevada, with $3.4 billion in assets, and California-based First Heritage Bank, which had $254 million in assets,were under capitalized, the Office of the Comptroller of the Currency said last night in a statement. Mutual of Omaha Bank acquired their deposits, according to the Federal Deposit Insurance Corp., which was named the receiver.

"All depositors, including those with deposits in excess of the FDIC's insurance limits, will automatically become depositors of Mutual of Omaha Bank for the full amount of their deposits," the FDIC said.

The banks, owned by First National Bank Holding Co. of Scottsdale, Ariz., are the sixth and seventh to fail this year as the financial-services industry grapples with failed loans stemming from the worst housing slump since the Depression.

pywong

29-07-2008, 12:04 PM

US corp distress could mean big bankruptcies-report

NEW YORK, July 28 (Reuters) - The amount of U.S. investment-grade bonds trading at distressed levels has risen close to an all-time high, a sign that a wave of mega-bankruptcies is likely on the way, a veteran high-yield strategist said.

Bonds are considered distressed when their yields, which move in the opposite direction of prices, exceed 1,000 basis points over those on U.S. Treasuries.

The distressed trading levels in both investment-grade and speculative-rated bonds "suggests that we will see record-sized bankruptcies by volume into 2009-2010," said Christopher Garman, writing in high-yield research publication Leverage World.

About 1.8 percent of high-grade bonds by par value are trading at distressed levels, slightly under an all-time high of 2.4 percent, according to Garman, publisher of Leverage World and former head of high-yield strategy at Merrill Lynch & Co Inc.

About 27.2 percent of high-yield bonds by par value are distressed, Garman said.

Strategists often track junk bond distressed levels as a precursor of default rates, but high-grade borrowers are now contributing nearly 20 percent to total distressed bond volumes, or nearly 70 issues, Garman said.

"The largest corporate bankruptcies on record often follow this level of distress," Garman said.

Including both high-grade and high-yield issues, about 7.5 percent of total corporate bonds are trading at distressed levels, pointing to nearly $97 billion of defaults through 2009, Garman said.

That level of distress is the same seen during the credit downturn of 2000 to 2002, a period when the largest corporate bankruptcies on record were filed.

pywong

29-07-2008, 12:06 PM

NEW YORK POST

THAT '70S WOE IN RERUN

By FREDRIC U. DICKER, State Editor

July 28, 2008 -- ALBANY - Gov. Paterson, convinced the state faces its worst fiscal crisis since the mid-1970s, will deliver the grim news in an unprecedented special address to New Yorkers as soon as tomorrow night, The Post has learned.

The governor's address - which his aides hope will be televised by public and cable news stations - will say that plunging state revenues will force painful cuts in state services, necessitate a reduction inthe state work force, possibly through layoffs, and require other difficult economic measures, source said.

Paterson is also expected to announce that he's ordered state agencies to slash spending beyond the relatively modest 3.3 percent cuts he ordered in late spring.

He may also call a special session of the Legislature to propose reducing some of the record-high levels of spending that were approved as part of the state's new budget in April.

"The situation is worse than anyone realizes," said a source close to Paterson.

"The governor has said he's tired of the state going from deficitto deficit, spending like it has a credit card that never has to be paid, and that he's prepared to take action," the source said.

Paterson in recent days has huddled with budget planning officials from the administrations of former Govs. Mario Cuomo and Hugh Carey "to get their ideas on how to manage a fiscal crisis," the source said.

To make his concern even clearer, Paterson will hold a private meeting today with Columbia University's Nobel prize-winning economist Joseph Stiglitz, the former head of the World Bank, who has called the current worldwide financial crisis the worst since the Great Depression.

"The governor has been impressed with Stiglitz's work, and there have been staff discussions leading to the meeting Monday," said an administration source.

Paterson warned last week that Wall Street bonuses - a major source of state tax revenue - will likely drop by 20 percent or more this year…

-END-

pywong

29-07-2008, 12:11 PM

If the US market crashes, the KLSE is likely to follow, given the current political instability. It is another 7 weeks to Sept 16 when Anwar makes his move. Before then, you can expect the GLCs price to start dropping as they can expect to have their contracts reviewed and their terms exposed to the public.

With so much turmoil anticipated, the safest thing to do is to sell all your shares and park it in gold. Sit it out until the picture become clearer.

DON'T BE A VICTIM!

pywong

30-07-2008, 12:09 PM

We, Malaysians are not the only ones having to deal with misinformation from the MSM. The Americans are in an even worse position because of the sophistication of their MSM.

Read this. Merrill Lynch is in deep trouble.

Super-Senior Tranches of CDOs are Worth Much Less than 22 Cents on the Dollar: Another Ponzi Scheme of "Selling" Toxic Garbage with More Leverage

Nouriel Roubini
Professor of Economics, New York University and Chairman, Roubini Global Economics
July 29, 2008

Merrill Lynch decision to "sell" a good chunk of its remaining CDOs at 22 cents to the dollar has been widely praised as the firm finally recognizing the full extent of its losses on these toxic instruments. This batch of $30.6 billion of CDOs was already marked down to $11.1 billion. Now with the "sale" of it to Lone Star at a price of 6.7 billion Merrill Lynch is taking another $4.4 billion writedown and "selling" it at 22% of the original face value.

But is this a market-based "sale"? No way as calling this transaction a "sale" is a joke.

Let me explain next why…

First, note that the secondary market for CDOs is now extremely illiquid and Merrill will provide financing for 75% of the purchase price, or a financing of $5.055 billion. That implies that these CDOs are worth much less than 22 cents of the dollar. These type of "sales" transactions – broker dealers "selling" their toxic waste at a discount and providing hedge funds and private equity funds with heavily subsidized financing for it – has going on for a while. That discounted "sale" price often ends up being much higher than the true value of the assets (and the ensuing writedown of the assets is smaller than the correct one) because of three reasons:

* the selling broker dealer is providing most of the financing for the transaction as this market is totally illiquid and no one could dump $11.1 billions of toxic and illiquid CDOs in such a market;
* the interest rate at which the financing occurs is often significantly lower than the appropriate rate at which this risk financing will occur. Merrill has not announced what are the terms of its financing of this deal and this leaves the serious suspicion of a heavily subsidized transaction;
* the collateral for this risky financing is the same toxic waste that was sold to a fund. In the case of the Merrill transaction if the market value of this $11.1 tranche (now priced at $6.7 billion) falls another 25% the collateral for the 75% financing will be worth less than the underlying assets and thus additional losses will be incurred by Merrill. In other terms, as pointed out by Bloomberg since "the financing is secured only by the assets being sold, meaning Merrill would absorb any losses on the CDOs beyond $1.68 billion".

So, based on the above consideration, is this toxic junk worth 22 cents on the dollar? No way and one would have to assume that the true market value of this garbage is closer to zero than 22 cents. So the street is now arguing that 22 cents on the dollar sets a market benchmark for writing down CDOs (Cit is still carrying them at a value of 53 cents rather than the 22) and many other firms will now have to use this benchmark; but the reality is that this toxic garbage is worth much less than 22 cents. So the charade of pretending to mark down to market the value of this junk will continue for a few quarters with continued bleeding of earnings.

At this point it would be more honest for the financial firms to write down to zero the value of these assets (with possible positive revaluation if they turn out being worth more than zero) and keep them on balance sheet rather than pretending to "sell" them via greater debt that massively adds to the credit risk that these firms are taking at the time when they should be deleveraging rather than releveraging further.

What is the sense of taking on another $5 billion of risky debt that has toxic garbage as collateral? Is this sound financial balance sheet restructuring or another Ponzi scheme of a house of debt-upon-debt cards? Selling worthless junk and providing financing for it is not a "sale"; it is another accounting scam whose purpose is hiding the full extent of the losses on garbage, not coming clean on them. So beware of the cheerleading chorus of banking "analysts" praising Merrill and this transaction. The entire episode stinks with the Merrill CEO making a series of misleading statements on Q2 earnings and on no need for further capital and now coming out of the blue with this new surprise and a new large capital injection that will massively dilute current shareholders a few days after the dismal Q2 results were reported. Add to this charade the fact that what will be raised in this new round of recapitalization will be much less than the announced $8.5 billion once Temasek and other shareholders who participated in the previous recap will be compensated for the massive losses they incurred in that round of recapitalization of Merrill.

If this is the way to run the finances of one of the largest broker dealers in the most advanced financial system in the world it is not wonder that this system is totally broken. The smart and very savvy Mohamed El-Erian (co-CEO of Pimco) put it in polite terms when he recently said while commenting on this financial crisis: "What has suffered most is the credibility of the most sophisticated financial systems in the world." It is both the credibility and viability of the most sophisticated financial system that is at stake now as most of this financial and banking system is on its way to substantial and formal insolvency and bankruptcy.

EMail this Article to a Friend: http://www.lemetropolecafe.com/passiton.cfm?PID=7074

pywong

03-08-2008, 11:02 AM

We keep hearing reassuring noises about how the Asian economies are not coupled to that of the US and that a US crash will not affect us. Don't believe that. When the US crashes, the whole world will be dragged down. Her economy is too big and no country is immune.

The concern is what is Badawi doing about it other than worrying over some one's butt (Saiful's). He seems to be totally oblivious about the coming crisis.

Henry Paulson has lost the control over US finance

by William F. Engdahl

When Henry Paulson agreed to leave his job as chairman of the powerful Wall Street investment bank, Goldman Sachs to go to Washington as Treasury Secretary in 2006 he demanded extraordinary powers as de facto economic czar. He got it. Paulson is also head of the President’s Working Group on Financial Markets -- the secretary of the treasury and the chairmen of the Federal Reserve Board, the Securities and Exchange Commission and the Commodity Futures Trading Commission. The Working Group is the financial world's equivalent of the Pentagon war room. Paulson, not Fed chairman Bernanke, is the person running the Administration’s crisis management. And his recent actions indicate he has lost control as the snowballing problems from the semi-government mortgage companies Freddie Mac and Fannie Mae to the collapse of the multi-trillion dollar market in Asset Backed Securities (ABS) to the real economy are compounding into the worst crisis since the 1930’s Great Depression.

‘The US banking system is sound…’

In an eerie echo of President Herbert Hoover in 1930, during a Presidential campaign against Roosevelt, following the stock market crash and collapse of numerous smaller banks, Paulson recently appeared on national TV to declare "our banking system is a safe and sound one." He added that the list of "troubled" banks "is a very manageable situation." In fact what he did not say was that the US bank deposit insurance fund, the Federal Deposit Insurance Corporation (FDIC) has a list of problem banks that numbers 90. Not included on that list are banks such as Citigroup, until recently the largest bank in the world.

The statement is hardly reassuring. The California savings bank, IndyMac Bank which was declared insolvent a month ago was not on the FDIC list a week before it collapsed. The reality is the crisis created by "securitizing" millions of home mortgages into new financial instruments and selling the packages to pension funds and investors is unfolding like a snowball rolling down the Swiss Alps.

http://www.globalresearch.ca/index.php?context=va&aid=9728