Just Watch

Interest Rate Is No More Cost Of Borrowing.

I study Economic in University and i have been told many times that interest rate is the cost of borrowing. According to John Maynard Keynes, An interest rate is the price a borrower pays for the use of money he does not own, and the return a lender receives for deferring the use of funds, by lending it to the borrower. Interest rates are normally expressed as a percentage rate over the period of one year. Even Albert Einstein, the most notable theoretical physicist of 20th century realize the importance of interest rate. He once said "compound interest is the most powerful force in the universe"

The time now is 2.45pm in New York and Federal Reserve just came out with a statement that Fed Rate will be cut to between 0 and 0.25%.

Welcome to a new world! We actually have the second developed country in the history of mankind that kept interest rate lower than 0.5%, USA. I have mentioned many times why Japan manage to kept interest rate lower than 0.5% and why US can't so I am not gonna do that again.

We need to rewrite all Economic text book since interest is no more a cost of borrowing if Fed rate is 0%. Banks can borrow money without cost!

Here's a common sense question: if you can borrow money without cost, what will you do?

You will borrow as much money as you can!

So here's another question: who will lend you money since everyone wants to borrow money?

The answer: Federal Reserve since they are the only agency with authority to print money.

Money supply will increase rapidly and out of control that way.

Furthermore, US is the biggest debtor in the world. How can they repay their debt? Who will want to lend them money? Who will invest in their T-bill? Who will invest in their money market?

Imagine this: 1% interest rate in 2003 created this bubble. What will 0-0.25% interest rate now create?

It will create a huge amount of mal-investment greater than dot-com bubble, housing bubble and credit bubble. Money supply will be out of control and Dollar will fall like stone. Inflation rate will shoot up dramatically after this. I won't be surprise if US inflation rate will be as high as Zimbabwe. After that interest rate will shoot to moon just like Zimbabwe and US will no longer become the most powerful country in the world.

One good news though, stock market will keep rising since high inflation rate will push stock price higher but that's not the point. Zimbabwe stock exchange surge from around 33000 point to more than 4,000,000 point from April 2006 to April 2007 but somehow inflation rate rise more than that so investor won't get anything from that rally. What is the point of earning some dollar from investment in stock market when a load of bread cost 200 million dollar?

I am not saying US will become Zimbabwe but they certainly have all the ingredients. Not even Japanese government dare to lower their interest rate lower than 0.3% even though they have the highest saving rate in the world.

Good luck America, you certainly need it to survive!

Make Yourself Big & Everything Will Be Fine

Recently US auto industry is taking a heavy blow. The Big three(Chrysler, Ford and GM) share plunged as GM said it will need a big help from government to inject money or it will fall.

Amazingly, a lot of expert say yes to this and urge government to take action as fast as possible. According to them, Auto industry is too big too fail.

First of all, total worker in the auto industry is small relative to health care or real estate. Only 3% of American work in the auto industry.

Furthermore, even senate reject the bill of 34 billion loan, Bush Administration still want to use TARP money to save them.The 700 Billion TARP now only left 60 Billion and if Government loan 34 Billion to The big 3, that's mean only 26 Billion left and frankly 26 Billion is as useless as my toilet paper which again mean another big bill coming?

Don't think 34 billion loan will save them, it only ensure them to survive till March so they can get out with a restructuring plan. Does that mean they will need a much bigger loan March 2009?

GM is in talk with Chrysler to merge as a new company for 1 reason and 1 reason only: to make them big enough so government won't let them fall just like financial companies. For Chrysler case, it is even ridiculous. The Owner of Chrysler, Subaru said they don't want to help Chrysler so Subaru ask Chrysler to get help from Government. I mean if Chrysler still has hope of making a profitable business, I am sure Subaru will step in.

The reason they can't fail: too big. They are too big to fail. The same situation happened to Financial companies, Banks, IB and now auto company. Couple of months ago most Banks are into Merge and Acquisition. They merge just to make itself big enough. Bank of America bought Merrill Lynch after accessing ML balance sheet for a day. How can a company buy another company as big as ML after only reading its balance sheet for a day?

Tomorrow FOMC will decide interest rate and it is widely expected to be cut to zero or near zero. Furthermore, Federal Reserve also said they will gear up the printing press.

Anybody remember Zombie Companies and Zombie Banks from the Japanese in the 90's? Jim Rogers mention it many times on TV. In the 90's, Japanese Government won't let anybody fail and bailout everybody. As a result, Japan stock market today is 80% lower than in the 90's and still recovering from it.

However Japan is different as Japanese government is one of the biggest creditor in the world and Japanese work hard and save a lot. US is in exact opposite scenario.

So do you know why government won't save you and me? because we are not big enough. So next time when you make a bad decision, make sure you are big enough so that Paulson and Bernanke will answer you call.

Bottoming?

I just came back from Hong Kong i have to say i love it there. Everybody is working hard (but not as hard as Japanese) yet still enjoying themselves after a tired day.

I have to say stock market performance around the world last week and this week amazed me. I don't think we have such a bear market rally before, so it could only mean a thing: bottoming?

Seriously, Hang Seng Index today closed at 15575, off the low of 11148. That's around 40% rebound off the low. Nikkei had a low of 6994 and closed today at 8660, a near 24% rebound off low. Kospi had a low of 892 and closed at 1145 today, a 28% rebound. FTSTI off the low of 1473 and closed at 1821 today, 24% off low. ASX off the low of 3201 and closed today at 3573, 12% rebound. Shanghai Composite had a low of 1665 and closed at 2079 today, a 25% jump.

For Eurozone stock market, FTSE had a low of 3665 and now trading at 4378, a 20% rebound. DAX had a low of 4014 andnow trading at 4797, a 20% rebound. CAC had a low of 2838 and now trading at 3307, a 17% jump. SMI had a low of 5034 and now trading at 5781, a 15% rebound.

Dow off the low of 7449 and now trading at 8751, 17% rebound off low. Nasdaq had a low of 1295 and now trading at 1551, a 20% rebound and finally S/P 500 had a low of 741 and now trading at 893, a 20% jump.

From the technical analysis point of view, every single stock market look good in every way. MACD, STO, RSI are pointed upward for every stock market listed here.
Besides, the rally we have now is far higher than any bear market rally we had in history. Most stock market have more than 20% rebound off their low. That's good enough to break any Fibonacci level.

Today we will have a congress vote on auto bailout which everyone knows the big three will win the vote. Another strong day coming?

However, we had this rebound out of nothing! No good news at all during this period of 20th of Nov til now (well if you smart enough to consider auto industry bailout or government stimulus package are good news, then there are two). Every economic data show we should not have a rally.

Plus, most rally is funded by government fund. We can clearly see in Japan, US, Hong Kong and Euro zone where stock market is lifted by derivative market. Derivative market shoot the moon with huge volume enable stock market to follow it and investor/trader start buying stocks.

Furthermore, major short covering activities also contribute to this rally.

We all heard about this crisis as the worst crisis since world war 2 or even Great Depression since we look at economic data and we all believe in Keynesian Economic Theory where Consumption is the biggest contributor to GDP*.

However if we look at economic system as a whole from Austrian School of Economic Theory, we can easily notice situation now is much worse than world war 2 or Great Depression. During that period of time, US dollar was pegged to gold(gold standard) and US is still the biggest creditor nation in this world. So situation back then is much better that way.

FYI, I write this not because I am a USA-hater or I have short the market. I am yet to take my profit on this rally. I just want to warn everyone that when everybody thinks we have the bottom and everything seems to get better, disaster is waiting to struck and make sure you prepare for that.

So do you still think we have a bottom in stock market? think twice!

*For those who are not familiar with Keynesian Economic theory, check it out at http://en.wikipedia.org/wiki/Keynesian_economics

and for those who are not familiar with Austrian School Economic theory, check it out at
http://en.wikipedia.org/wiki/Austrian_School

Real Petrol Price In US Is Officially Lower Than Malaysia (Oil Producer Country)

Today (Thursday), average gasoline prices slipped under $1.80 a gallon as WTI world Crude Oil price hit below $44 a barrel.

As we know,

1 US gallon = 3.78541178 litre.

Petrol Prices in Malaysia (Oil Producer Country) are Rm1.90/litre for RON97 and RM 1.80 for RON92. That's make a average of Rm1.85/litre.

According to yahoo finance, latest Rm/$ = 3.6400

So petro prices in Malaysia in $/gallon term is

(RM 1.85 X 3.78541178)/3.64

= around $1.924/gallon which is more than 10 cents per gallon higher than petrol prices in US.

That's amazing as US is much more developed country with much higher money supply. Yes US is also a country with oil company such as Exxon Mobil, Chevron and so, but consider US standard of living compared to Malaysia, petrol price should be much lower in Malaysia.

Maybe one day all Malaysian will have to drive to neighbor country just to get reasonable priced petrol.

FYI, RON 98 price in Singapore is S$1.67/litre, RON 95 is S$1.596/litre and RON 92 is S$1.563

It's Matthias Chang, Again.

This is probably the most gutsiest prediction on the Malaysia economy by the former aid to Tun Dr Mahathir, Matthias Chang.

Matthias Chang,18 November 2008

"Let´s put some money in our mouths. In the past I have challenged those who disagreed with me, that if they can prove me wrong, I would> gladly pay them a RM5,000 cash reward. There were no takers. None could prove me wrong!

In the past few days, the mass media have gone out of the way to interview politicians and the Governor of Bank Negara to project a rosy picture that somehow our economy will overcome the severe pain and disruption from the on-going global financial tsunami.

I am willing to take on anyone from the Badawi regime and Bank Negara that by H1 of 2009, the KLCI will drop below 700. If I am wrong in my analysis, I will pay the first five individuals from the said Badawi regime and or Bank Negara the sum of RM5,000. These five individuals must within a week register at my website that they are willing to take me on in this challenge.

They have to provide their full name and address in accordance with their NRIC/MyKad and their designation.

If they lose to me, they must pay me the same amount!

Fellow citizens, don´t listen to the Badawi regime´s fairy tales. Prepare for the worst and the worst is yet to come. You owe it to your family. The best way to save our family and our country is to be prepared for all eventualities. We must tighten our belts, save for the stormy days that will surely come and not spend, spend as advocated by the Badawi regime´s ministers.

Use common sense. What do you tell your children as responsible parents when the family is going through hard times - spend, spend, spend or be thrifty, thrifty, thrifty?

Remember the flight safety rules when flying - when the oxygen mask falls from the overhead compartment, you are to wear the mask first before attending to your children. If you cannot save yourself, you are not in a position to save anyone. This is a fundamental principle of survival for everyone when a plane is about to crash!

Apply the same principle to economic woes and we will all be saved.

Here are my warnings for 2009:

By 2nd Half of next year, the automobile industry will go into a tailspin and suffer massive losses.

By 2nd Half of next year, credit card debts will soar, credit limits will be drastically reduced (worse than 1997/1998) and interest rates> on outstanding will increase sharply. It is already happening!

By 2nd Half of next year, shipping rates will drop drastically and this is also happening. Our ports and shipping companies will suffer.

By 2nd Half of next year, our housing market bubble will burst notwithstanding all the stimulus and pump-priming. Arab investors will not be coming. Dubai and Abu Dhabi is already in a financial / property gridlock! Why would they come here when they have to save their own asses?

By 2nd Half of next year, our exporters will be in tears, when Letters of Credit (L/Cs) will not be honoured and inventory stacks up at ports and in factory premises. Chinese exporters are already stipulating what LCs from which global banks will only be accepted.

By 2nd Half of next year, FELDA settlers will also be in tears. Having spent their windfall early this year (because of Badawi regime´s false optimism), their savings will be down and they will bleed.

By the 3rd Quarter of next year, corporate NPLs will shoot up! Relaxing mark-to-market rules will not help.

Malaysia will have a huge immigration problem when these hardworking people are thrown out of work and have to compete with the swelling ranks of Malaysian unemployed..

In the meantime capital outflows will continue.

Let´s see whether the statement that Malaysia has more than enough reserves (since according to Bank Negara, we need only have US$30 to US$40 billion reserves) will provide sufficient confidence to foreign investors to continue to invest in Malaysia ..

You can call the above observations - rubbish, pessimism, gloom and doom etc. but that won´t change reality.

Pause and think. In my previous warnings and alerts, I have stated that by the latest - the 1st quarter of 2009, things will get ugly and scary!

If I am not right, why did the leaders of the just concluded G-20 summit in Washington , in their so-called "Action Plan" stipulated that their policies, remedies etc. must be implemented by the end of the 1st Quarter 2009?

My articles were all written BEFORE THE SUMMIT and obviously I have no control over the leaders of G-20.

So ask yourself -"Why Oh Why Must the First Action Plan Be Implemented by the First Quarter of 2009?

This is only the first tentative steps by the G-20 leaders and there is no guarantee that the measures will work. The original Bretton Woods initiatives took almost two years to be formalised and put to work. There is no magic wand to be wielded by the leaders for instant cure. It will be a long hard grind. In the meantime, more shits will hit the ceiling fan. That is a given!

I hope the Badawi Regime and Bank Negara are not accusing the G- 20 leaders and Obama´s financial and economic advisers as being pessimists!

You be the judge!"

Highest Paid President & Prime Minister

The Economic recession has hit one and all, salary cuts and pink slips have
taken their toll on the common man. Presidents, Prime Ministers are no
exception. Most of the heads have cut down on their salaries or are planning
to do so in the near future. Lets take a look at what the heads of top nations
are earning

Lee Hsien Loong, Singapore
(Country GDP: $235.6 billion - 2008)
Politicians in Singapore are amongst the most highly paid government officials in

the world. Lee Hsien Loong, Prime Minister of Singapore earns five times more

than the American President. Lee Hsien Loong takes an annual salary of $2.46

million.

Barack Obama, USA
(Country GDP: $13.81 trillion - 2007)
Second on the list is the President of the biggest economy of the world with a

GDP of $13.81 trillion (2007). President Elect, Barack Obama will be getting

an annual salary of $400,000 when he joins office next year.

Kevin Rudd, Australia
(Country GDP: $773 billion - 2007)
Third on the list is the Australian Prime Minister, Kevin Rudd with an annual

salary of $330,300.

Angela Merkel, Germany
(Country GDP: $2.585 trillion - 2006)
The first lady chancellor of Germany, Angela Merkel receives an annual salary

of € 242,000 (€ 22000 bonus included) ~ $ 307,340.

Nicolas Sarkozy, France
(Country GDP: $1.871 trillion - 2006)
The French President, Nicolas Sarkozy gets an annual salary of

€ 240,000 ~ $ 304,800. This is after he doubled his salary earlier this year.

Stephen Harper, Canada
(Country GDP: $1.274 trillion - 2007)
Stephen Harper, Prime Minister of the seventh largest economy of the world,

Canada recieves an annual salary of $280,000.

Gordon Brown, UK
(Country GDP: $2.772 trillion - 2007)
Gordon Brown, Prime Minister of the second biggest economy in Europe

and fifth largest in the world receives an annual salary of € 187611

~ $238,266.

Vladimir Putin, Russia
(Country GDP: $2.076 trillion -2007)
The Russian Prime Minister recieve an annual salary of $81,190, which

is significantly less than his counterparts.

Wonder why Lee get such a huge salary (>5x more than everybody else).

Temasik? PAP? No strong opposition party? Violence? Use your imagination...

Basic Theory Of Money In Economics And US Economy Today.

Clips explaining the very basic money making theory of
Economics and problem that US face today.