This Reuters Report dated 30 April is quite re-assuring as we await confirmation. Read on.
"US economic growth probably slowed in the first quarter, data is expected to show today, but resurgent consumer spending should offer evidence of a sustainable recovery.
The economy expanded at a 3.4 per cent annual rate in the first three months of the year, economists polled by Reuters believe. That would mark a slowdown from the 5.6 per cent pace logged in the fourth quarter when the economy got a big lift as businesses curbed efforts to cut inventories.
The advance report on US gross domestic product from the Commerce Department due at 8.30am (1230 GMT) should mark three straight quarters of growth as the economy digs out of its worst recession since the Great Depression.
GDP measures total goods and services output within US borders.
Though the economy took a step back from its brisk pace in late 2009, today’s report should show areas such as consumer and business spending proved more robust in the first quarter, analysts said.
The bulk of the growth in the fourth quarter came as businesses met more demand with new production and less by selling off goods sitting on the shelf.
Inventories are expected to play a lesser role in the first quarter, when consumers are seen taking up the baton.
“The key thing for sustaining and growing the US economy is consumer spending. Everything we know about the first quarter is looking very strong in that area,” said Kurt Karl, head of economic research at Swiss Re in New York.
Data that has already come in on consumer spending has been robust. Analysts expect consumer spending during the quarter grew at a rate anywhere between 3.2 per cent and 4 per cent.
Consumer spending, which normally accounts for about 70 per cent of US economic activity, grew only at a 1.6 per cent pace in the fourth quarter.
There have been worries the US recovery, which has been led by the manufacturing sector as businesses begin to rebuild inventories, could sputter if consumers did not come on board. These concerns are beginning to take a back seat.
“There is growing evidence of a handoff from stimulus and inventory-driven growth to broader sources of demand, although we still look for overall moderate growth,” said Julia Coronado, an economist at BNP Paribas in New York.
The US Federal Reserve on Wednesday noted economic activity had continued to strengthen in recent week and the labor market was starting to improve.
However, saying it still expects a modest recovery, it left benchmark overnight lending rates near zero and renewed its vow to keep them low for an extended period.
While inventories will still contribute to first quarter growth, it will be far less than the 3.8 per centage points of US growth it accounted for in the fourth quarter.
Excluding inventories, the economy is expected to have expanded at a 2.1 per cent rate, up from 1.7 per cent in the fourth quarter.
Boding well for the recovery is business spending on software and equipment, which is expected to have continued its upward trend in the January-March period.
“If they are spending on equipment already, it shows a lot of confidence for the future hiring which supports consumer spending. If we continue to have employment growth, we will have a good year,” said Swiss Re’s Karl.
Last month the economy enjoyed the strongest jobs growth in three years as private employers stepped up hiring.
Investment in new homes, which showed some hesitancy early this month, is expected to be a drag on growth in the first quarter — after two quarters of gains. Spending on structures likely subtracted from GDP for a seventh straight quarter.
With some of the rise in domestic demand being met through imports, a wider trade deficit will chip at growth in the first quarter."
April 29, 2010
The Customer is no longer King
I took this news article from the online STAR this morning. I think it is worthy of reading and I have pasted it here.
Whose business is it anyway? - by John Zenkin
The Goldman Sachs fiasco should remind businesses the purpose of their existence
I was going to write about the rather dry subject of risk assessment this week until I watched the Goldman Sachs congressional testimony on Tuesday night and linked it in my mind with an article in The Economist of April 24 entitled “Shareholders vs Stakehol-ders: A New Idolatry” which deals with the old conundrum of where to focus in good governance: on shareholders, customers or employees.
The reason I changed my mind was that I was shocked to listen to three Goldman Sachs traders being unable or unwilling to answer a simple “Yes” or “No” question from Senator McCaskill of Missouri.
Her question was simple and to the point: did they have a fiduciary duty to their clients, which means looking after their clients’ interest first?
Only one of the panel of four said “Yes”.
The other three hedged their answers to the increasing anger of the senator as she repeated her question.
From the testimony it appeared that all that mattered was that Goldman Sachs made money at the expense of the clients it was supposed to serve, even going to the extent of shorting trades that they had sold to their clients as being good investments, even though internal memos described the assets involved as “shi**y”.
Whether their behaviour was illegal is the subject for the courts, though it certainly appeared that the senators believed strongly that what the traders had been doing was unethical.
As I watched, fascinated by the drama, it seemed to me Goldman Sachs had forgotten the first rule of business stated by the late Peter Drucker in 1946 in his book The Concept of the Corporation that “the purpose of business is to create and maintain satisfied customers”.
What is more, this rule of business was Goldman’s own rule as long as they were a partnership because they recognised that the long-term interests of the partners were to avoid alienating their customers in return for a short-term profit.
What seems to have happened since Goldman Sachs went public is that its employees have been able to look after their own interests at the expense of both customers and shareholders.
This is because the money they were playing with was no longer theirs, but that of other people – their investors and their shareholders.
This suggests that there are limits to how much a company can look after the interests of its employees, especially when they are paid enormous bonuses, apparently regardless of how much pain the shareholders are experiencing (as we have seen in the case of AIG or Merrill Lynch).
It is even more the case when the payout comes from the taxpayer in the form of bailouts.
It seems to me therefore that if there is an excessive focus on protecting shareholder or employee interests at the expense of the client or the customer, the company could put itself at unnecessary risk as far as its reputation and license to operate are concerned.
How soon Goldman Sachs will recover from the damage to its brand shown in the following quote from April 28’s Washington Post is anybody’s guess:
“There was a time when issuers would pay a premium to have Goldman Sachs underwrite their securities, just as there was a time when investors would pay a premium to buy into a Goldman-sponsored offering. Today, Goldman has fully monetised the value of its reputation, and anyone who pays such a premium is a fool.”
I was also struck by the fact that their style of defence bore similarities to those of Exxon in the Valdez case, Shell in the Brent Spar case and recently Toyota when it was found wanting on quality. When customers get upset or when NGOs go after companies, their argument is emotional – designed to be fought in the court of public opinion rather than in a court of law. Legal niceties, technical subtleties do not go down well with people who are looking for memorable soundbites.
What ordinary people want to see is someone who shows emotion and empathy, says he/she is sorry and that he/she will try to do better next time and then there can be closure. Lawyers, with their eye on court cases and damages, advise clients to never say sorry and to prevaricate and obfuscate. This merely increases the anger and frustration of the offended parties.
I have, however, yet to see a company suffer because it has focused too much on serving its clients or delighting its customers.
Perhaps a more correct approach in today’s world is that of the new boss of Unilever, quoted in The Economist article referred to earlier, where he says:
“I do not work for the shareholder, to be honest; I work for the consumer, the customer … I’m not driven and I don’t drive this business model by driving shareholder value.”
Well said!
The reason I changed my mind was that I was shocked to listen to three Goldman Sachs traders being unable or unwilling to answer a simple “Yes” or “No” question from Senator McCaskill of Missouri.
Her question was simple and to the point: did they have a fiduciary duty to their clients, which means looking after their clients’ interest first?
Only one of the panel of four said “Yes”.
The other three hedged their answers to the increasing anger of the senator as she repeated her question.
From the testimony it appeared that all that mattered was that Goldman Sachs made money at the expense of the clients it was supposed to serve, even going to the extent of shorting trades that they had sold to their clients as being good investments, even though internal memos described the assets involved as “shi**y”.
Whether their behaviour was illegal is the subject for the courts, though it certainly appeared that the senators believed strongly that what the traders had been doing was unethical.
As I watched, fascinated by the drama, it seemed to me Goldman Sachs had forgotten the first rule of business stated by the late Peter Drucker in 1946 in his book The Concept of the Corporation that “the purpose of business is to create and maintain satisfied customers”.
What is more, this rule of business was Goldman’s own rule as long as they were a partnership because they recognised that the long-term interests of the partners were to avoid alienating their customers in return for a short-term profit.
What seems to have happened since Goldman Sachs went public is that its employees have been able to look after their own interests at the expense of both customers and shareholders.
This is because the money they were playing with was no longer theirs, but that of other people – their investors and their shareholders.
This suggests that there are limits to how much a company can look after the interests of its employees, especially when they are paid enormous bonuses, apparently regardless of how much pain the shareholders are experiencing (as we have seen in the case of AIG or Merrill Lynch).
It is even more the case when the payout comes from the taxpayer in the form of bailouts.
It seems to me therefore that if there is an excessive focus on protecting shareholder or employee interests at the expense of the client or the customer, the company could put itself at unnecessary risk as far as its reputation and license to operate are concerned.
How soon Goldman Sachs will recover from the damage to its brand shown in the following quote from April 28’s Washington Post is anybody’s guess:
“There was a time when issuers would pay a premium to have Goldman Sachs underwrite their securities, just as there was a time when investors would pay a premium to buy into a Goldman-sponsored offering. Today, Goldman has fully monetised the value of its reputation, and anyone who pays such a premium is a fool.”
I was also struck by the fact that their style of defence bore similarities to those of Exxon in the Valdez case, Shell in the Brent Spar case and recently Toyota when it was found wanting on quality. When customers get upset or when NGOs go after companies, their argument is emotional – designed to be fought in the court of public opinion rather than in a court of law. Legal niceties, technical subtleties do not go down well with people who are looking for memorable soundbites.
What ordinary people want to see is someone who shows emotion and empathy, says he/she is sorry and that he/she will try to do better next time and then there can be closure. Lawyers, with their eye on court cases and damages, advise clients to never say sorry and to prevaricate and obfuscate. This merely increases the anger and frustration of the offended parties.
I have, however, yet to see a company suffer because it has focused too much on serving its clients or delighting its customers.
Perhaps a more correct approach in today’s world is that of the new boss of Unilever, quoted in The Economist article referred to earlier, where he says:
“I do not work for the shareholder, to be honest; I work for the consumer, the customer … I’m not driven and I don’t drive this business model by driving shareholder value.”
Well said!
Malaysia: Hot Rush Hour
I took this from an article by Yow Hong Chieh in The Malaysian Insider as it will give you viewpoints of this current hot issue.
"Kuala Lumpur, April 30-
Any attempt by Malaysia to impose capital controls to stem the current inflow of hot capital will be viewed negatively by the market, say analysts and economists.
Their warning came after the possibility of hot money pouring into the country as a fiscal crisis grips several Western countries including Greece which is unable to resolve its problems, even with European Union and International Monetary Fund support.
In the last few days, Greece Spain and Portugal have all been downgraded by Standard & Poor’s, the credit ratings agency.
Maybank Investment’s Suhaimi Ilias said any capital controls would be “counter-productive” although governments and central banks in the region want a more balanced flow of capital between short-and long-term investments.
“I would be surprised if there was any form of capital controls emerging,” he told The Malaysian Insider.
“There’s a concern about hot money essentially and how to manage this to make sure that our economy, while growing, won’t create inflation risk.”
He said the main concern was most likely due to the glut of “cheap money” externally due to the low interest rates in more developed economies like the US.
Suhaimi also identified the anticipated yuan exchange policy change as a reason for increased proxy investments in regional assets.
“There might [also] be some outflow from Thailand looking for more defensive markets. I think Malaysia is benefitting from that.”
However, he warned that capital controls would make Malaysian assets less attractive to foreign investors.
“In an environment where it’s already very competitive to get capital, to adopt such a policy, as far as investment is concerned, [represents] a negative aspect.”
Suhaimi added that there were better options available to achieve “sustained rather than punctuated” capital inflows, citing market-based instruments.
“When you apply market-based instruments it can also contribute to the development of the financial market. There are a lot of benefits that come with it.”
He said the ringgit position as the best regional performing currency has not been seen for a long time, and cited this as an example of “letting the market do its work”.
Another economist, who did not want to be named, said he believed most Asian governments would not introduce strict capital controls.
“Based on our past experience from the Asian financial crisis, we know that capital controls... can be viewed as negative even in the long run,” he said.
“My personal view is that the problem is very similar to the early ‘90s where we saw a huge influx of hot money flowing into the emerging economies.
“I guess the risk [is that] the major industrialised countries will start to increase their interest rate… and then we’ll see outflow.”
While he viewed the recommendations issued by Standard Chartered on Monday to “adopt greater currency flexibility and broaden and deepen capital markets” positively, he said such changes could not take place overnight.
The report said that many emerging market economies, having recovered faster than the West, are on the receiving end of a surge in capital and liquidity that include bank lending, direct and portfolio investment and hot money.
“It takes time to develop... One cannot just transform the economy and the capital market in such a short span of time.”
Economist Zainal Aznam Yusof downplayed the issue of capital inflows and said it was “a manageable kind of situation”.
He explained that such movement of capital always happens when there are signs of recovery.
“We should not be excessively worried about that... We have to allow the exchange rate in Malaysia to react.”
He added that he expected the exchange rate to strengthen some more.
“The question is by how much.”
Zainal said instability in Thailand was probably a minor source of hot capital flowing into the country, reasoning that investors were already familiar with the country’s political landscape.
“The Thailand [political situation] has been persisting for a long time so we shouldn’t exaggerate the Thai factor.”
Lee Heng Guie, of CIMB Investment Bank, said that while it was a challenge for Asia to deal with the flood of cheap liquidity into the region, he believed that Malaysia was not experiencing such an influx.
“I don’t think we see this surging of this hot money into Malaysia at the moment.”
He added that Malaysia had a diversified asset class to absorb the current level of capital inflows, which were not big enough to warrant controls.
However, Lee warned that countries that are unable to stem the tide of short-term capital flows may experience some instability when the flow reverses.
“The IMF even suggested that some countries may think of selective capital controls to deal with these inflows of hot money.”
"Kuala Lumpur, April 30-
Any attempt by Malaysia to impose capital controls to stem the current inflow of hot capital will be viewed negatively by the market, say analysts and economists.
Their warning came after the possibility of hot money pouring into the country as a fiscal crisis grips several Western countries including Greece which is unable to resolve its problems, even with European Union and International Monetary Fund support.
In the last few days, Greece Spain and Portugal have all been downgraded by Standard & Poor’s, the credit ratings agency.
Maybank Investment’s Suhaimi Ilias said any capital controls would be “counter-productive” although governments and central banks in the region want a more balanced flow of capital between short-and long-term investments.
“I would be surprised if there was any form of capital controls emerging,” he told The Malaysian Insider.
“There’s a concern about hot money essentially and how to manage this to make sure that our economy, while growing, won’t create inflation risk.”
He said the main concern was most likely due to the glut of “cheap money” externally due to the low interest rates in more developed economies like the US.
Suhaimi also identified the anticipated yuan exchange policy change as a reason for increased proxy investments in regional assets.
“There might [also] be some outflow from Thailand looking for more defensive markets. I think Malaysia is benefitting from that.”
However, he warned that capital controls would make Malaysian assets less attractive to foreign investors.
“In an environment where it’s already very competitive to get capital, to adopt such a policy, as far as investment is concerned, [represents] a negative aspect.”
Suhaimi added that there were better options available to achieve “sustained rather than punctuated” capital inflows, citing market-based instruments.
“When you apply market-based instruments it can also contribute to the development of the financial market. There are a lot of benefits that come with it.”
He said the ringgit position as the best regional performing currency has not been seen for a long time, and cited this as an example of “letting the market do its work”.
Another economist, who did not want to be named, said he believed most Asian governments would not introduce strict capital controls.
“Based on our past experience from the Asian financial crisis, we know that capital controls... can be viewed as negative even in the long run,” he said.
“My personal view is that the problem is very similar to the early ‘90s where we saw a huge influx of hot money flowing into the emerging economies.
“I guess the risk [is that] the major industrialised countries will start to increase their interest rate… and then we’ll see outflow.”
While he viewed the recommendations issued by Standard Chartered on Monday to “adopt greater currency flexibility and broaden and deepen capital markets” positively, he said such changes could not take place overnight.
The report said that many emerging market economies, having recovered faster than the West, are on the receiving end of a surge in capital and liquidity that include bank lending, direct and portfolio investment and hot money.
“It takes time to develop... One cannot just transform the economy and the capital market in such a short span of time.”
Economist Zainal Aznam Yusof downplayed the issue of capital inflows and said it was “a manageable kind of situation”.
He explained that such movement of capital always happens when there are signs of recovery.
“We should not be excessively worried about that... We have to allow the exchange rate in Malaysia to react.”
He added that he expected the exchange rate to strengthen some more.
“The question is by how much.”
Zainal said instability in Thailand was probably a minor source of hot capital flowing into the country, reasoning that investors were already familiar with the country’s political landscape.
“The Thailand [political situation] has been persisting for a long time so we shouldn’t exaggerate the Thai factor.”
Lee Heng Guie, of CIMB Investment Bank, said that while it was a challenge for Asia to deal with the flood of cheap liquidity into the region, he believed that Malaysia was not experiencing such an influx.
“I don’t think we see this surging of this hot money into Malaysia at the moment.”
He added that Malaysia had a diversified asset class to absorb the current level of capital inflows, which were not big enough to warrant controls.
However, Lee warned that countries that are unable to stem the tide of short-term capital flows may experience some instability when the flow reverses.
“The IMF even suggested that some countries may think of selective capital controls to deal with these inflows of hot money.”
Malaysia: Civil Litigation Rears its Head
Well, we have become a litigators' country,haven't we?.
With so many civil suits and counter suits,what may become of us poor folks? Is money the driver behind all the civil suits that have been filed lately?
I remembered at one time, the former PM of Malaysia did want to cap civil litigation awards only at RM10,000. I wonder what happened since so many litigants have been awarded RM10 million even on those who have died.
Lately we have heard again about these suits.
The one that was pretty interesting was when the current MB of Selangor won against Bank Islam.
Now, we have the ones involving Zaid Ibrahim. He is filing civil suits against the Election Commission for helping BN steal the Hulu Selangor Elections as well as a suit against Utusan Melayu for defaming him as an alcoholic. The latter is interesting as he is only seeking damages of a token Ringgit Malaysia.
And let us not forget Ibrahim Ali's suit against The Sun newspaper for purportedly painting him as a racist.
Quo vadis, Malaysia?
With so many civil suits and counter suits,what may become of us poor folks? Is money the driver behind all the civil suits that have been filed lately?
I remembered at one time, the former PM of Malaysia did want to cap civil litigation awards only at RM10,000. I wonder what happened since so many litigants have been awarded RM10 million even on those who have died.
Lately we have heard again about these suits.
The one that was pretty interesting was when the current MB of Selangor won against Bank Islam.
Now, we have the ones involving Zaid Ibrahim. He is filing civil suits against the Election Commission for helping BN steal the Hulu Selangor Elections as well as a suit against Utusan Melayu for defaming him as an alcoholic. The latter is interesting as he is only seeking damages of a token Ringgit Malaysia.
And let us not forget Ibrahim Ali's suit against The Sun newspaper for purportedly painting him as a racist.
Quo vadis, Malaysia?
BNM: May Revise up wards 2010 GDP for Malaysia
She has this to say. "We have realised there’s potential for an upward revision. The review could be done in the middle of this year where the figures could be used in the budget.”
BNM has previously said the economy could expand at between 4.5 to 5.5 per cent this year.
Subscribe to:
Posts (Atom)
