Cautious View from Bank Negara

At its meeting on 28 October, Bank Negara has decided to leaves the overnight policy rate (OPR) unchanged at 2%.

In a statement yesterday, Bank Negara said the outlook for the global economy continued to be uncertain, with recovery likely to be slow and uneven in view of the ongoing adjustments.

However, in the domestic economy, stronger evidence had emerged to suggest conditions were improving and a recovery in economic activity was gaining some strength, the central bank said.

“These improvements are more broad-based and are reflected in stronger labour market conditions, consumer and business sentiments, industrial production, financing activity and external trade.

“These positive developments are expected to continue into 2010, with growth in the domestic economy expected to continue to be supported by existing policy measures and the growing confidence in the private sector,” it said.

Bank Negara said with improving domestic economic conditions, and as price pressures and inflationary expectations expected to remain contained going forward, the assessment is that the current monetary policy stance was appropriate and would continue to provide support to economic activity.

Bank Negara said consumer prices declined at a slower rate in September. It said the decline in prices largely reflected the cumulative fall in fuel prices since June 2008 and the easing pressure on food prices.

“The decline in consumer prices, however, is expected to be temporary. Excluding further unanticipated price adjustments and external influences, inflation in 2010 is projected to be positive but remain subdued,” it added.

I guess the "feel good" sensations for the local economy are yet to be felt and caution rules the the minds of these central planners that savers' interests should still be sacrificed for the interest of business!

Maxis the Marvel Returns!

Yes, this is the largest public offering in the history for Malaysia as far as an IPO is concerned.

Maxis Bhd’s initial public offering (IPO) will see the sale of 2.25 billion Maxis shares equivalent to 30 per cent of the company to new investors with an indicative offer price of RM5.20 per share.

“This is by far the largest public offering the country has ever seen,” said chief executive of CIMB Group, Datuk Nazir Razak, in a statement released during Maxis’ prospectus launch here today.

CIMB Investment Bank Bhd, Goldman Sachs and Credit Suisse are joint global coordinators for the IPO.

Based on current time-lines, the pricing for the IPO is expected to be concluded by Nov 10 and Maxis is expected to be listed on the Main Market of Bursa Securities on Nov 19.

At listing, it is envisaged that Binariang GSM Sdn Bhd through Maxis Communications Bhd will effectively own 70 per cent of Maxis, the statement added.

What a Theory!

This is a very logical way of explaining intelligence!

I don't think you have ever heard the concept explained any better than this ... ....

'Well you see, it's like this .. . . A herd of buffalo can only move as fast as the slowest buffalo; and when the herd is hunted, it is the slowest and weakest ones at the back that are killed first.

This natural selection is good for the herd as a whole, because the general speed and health of the whole group keeps improving by the regular killing of the weakest members.

In much the same way, the human brain can only operate as fast as the slowest brain cells. Now, as we know, excessive intake of alcohol kills brain cells. But naturally, it attacks the slowest and weakest brain cells first.

In this way, regular consumption of beer eliminates the weaker brain cells, making the brain a faster and more efficient machine. And that is why you always feel smarter after a few beers...'

So bring out the chilled glasses ,won't you?

Best Definition of "Rape"

I think that this must be one of the few honest and best quotes of the decade.

Judge Judy to prostitute: "So when did you realize you were raped?"

Prostitute, wiping away tears: "When the check bounced."

Petrol on Free Float?

Bernama reported that the Second Finance Minister, Ahmad Husni Hanadzlah did not discount the possibility that petrol price at the pump could follow the market price or without subsidy once the restructuring of petrol subsidization is implemented early 2010.

He said with the new structure, the offer of subsidy will be more targeted to the qualifying group or the holders of MyKad to enjoy the subsidized petrol price.

“The system is being developed and will be implemented between the first and second quarter,” he told reporters.

So what is the means test for subsidized petrol since this could differ from rural and urban areas?

Green-Shooting the US Economy

A Reuters report circa Oct 27 has reported regional economic reports suggesting the US economy has clambered back to levels associated with the end of recession, though recovery is expected to be patchy and may prove fleeting.

Economic activity and manufacturing data for the US Mid West and Texas hinted the impact of the global financial crisis is slowly abating as the economy emerges from the longest recession in 70 years.

However, an index of national economic activity slipped on a monthly basis and a Texas manufacturing output index fell.

"Those kind of reports tend to support the argument that this recovery will be more uneven and less V-shaped, but with the caveat that these are somewhat narrow regional surveys," said Kevin Flanagan, fixed-income strategist for global wealth management with Morgan Stanley in Purchase, New York.

The indices preceded gross domestic product results on Thursday, the broadest measure of economic health, likely to confirm widely-held views the United States returned to growth in the third quarter. The data is a key focus in markets.

"This week, the most important report is Thursday’s GDP release... which is expected to show one of the more robust readings we have seen in the last few years and will give rise to the notion statistically speaking that the Great Recession has ended," Flanagan said.

According to the median forecast of economists polled by Reuters, the US economy grew 3.3 per cent in the third quarter after shrinking 0.7 per cent in the second quarter.

Market participants will also be watching to see if the Federal Reserve changes its language on quantitative easing measures and future interest rate decisions in response to the shifting economic conditions at the central bank’s two day, Nov 3-4 policy-setting meeting next week.

Yesterday’s Chicago Federal Reserve report showed its three month moving average of economic activity has neared levels seen at the end of previous recessions.

The average, which smooths out monthly volatility, firmed to minus 0.63 in September from August’s revised figure of minus 0.96, previously reported at minus 1.09.

The Chicago Fed said in the past four recessions, the three-month average’s rise back above minus 0.70 has coincided closely with the end of the recession.

Yet other data showed the manufacturing rebound is patchy and uneven.

The Chicago Fed said its Midwest Manufacturing Index rose in September, as auto sector production rebounded.

However, vehicle making may decline as the effect of the government’s recently ended "cash-for-clunkers" buying incentive programme fades, some analysts expect.

The index rose to a seasonally adjusted 82.3 in September from a revised 81.6 in August. However, compared with a year earlier, Midwest output was down 15.7 per cent, steeper than the 7.2-per cent national decline.

The Dallas Federal Reserve’s Texas manufacturing output index fell to a reading of minus 8.0 in October from minus 0.5 in September.

Some more indications that the housing market may be temporarily forming a bottom are expected today, with the release of Case/Shiller home price data. However, economists worry that a tax incentive for first-time home buyers has been a major factor spurring sales and that its expiry next month may lead to a second leg down in housing’s more than three year decline.

The horizon do look better for the US in the 3rd Quarter. Hopefully, we should see better data in the 4th Quarter.

Some Hit and Some Misses in the 2010 Budget

Business Times Singapore did a feature on Najib's 2010 budget. It encapsulates the shadow of an intended fiscal management feature within the budget bringing chiefly revenue from two additional sources. These are: the return of the real property gains tax and a new tax on credit card holders. If administered properly,it will help to quell a potential property bubble from occurring as well as check credit card abuse.

Let us read the report. I have paraphrased where necessary for brevity.

" The main thrust of Malaysian Prime Minister Datuk Seri Najib Razak’s maiden Budget last Friday appears to contain the fiscal deficit.

Courageous cuts were made in both operating and development spending. Najib, currently also Finance minister, cut operating expenditure by almost 14 per cent and development expenditure by over 4 per cent. The cuts will bring the deficit down from 7.4 per cent of GDP this year to 5.6 per cent in 2010.

Taking cognizance that the prospects for global economic recovery are still uncertain, it is only prudent that Malaysia slows down the pace of its pump priming. The budget envisaged that private sector will take up the slack of the reduced government spending by export expansion— at least 3-4 per cent in 2010. Private consumption is also expected to be almost 5 per cent more.

Malaysia estimates real GDP growth for 2010 to come in at 2-3 per cent. If the government is serious on hewing off further fat from its operating expenditure,it can administer transparency and accountability modes in tenders and contracts.

An unconventional feature of the 2010 Budget is the proposal that people residing and working in the Iskandar region in Johor be taxed only at a flat rate of 15 per cent. This is apparently design to kick start the region’s development. But in the Malaysian context, such a low tax rate could create problems. Najib’s proposed cut is a whopping 11 percentage points off Malaysia’s current minimum income tax rate of 26 per cent and could entice a lot of less-than-bona-fide companies and individuals to the area.Administering two separate tax zones in a single country is a difficult proposition and enforcement could be tricky. This is not the same thing as a free trade zone or a duty free area, which the Income Tax Board has long experience in dealing with.[That is an area where MACC should start looking from now onwards.]

The Budget also proposed the restoration of the real property gains tax at a flat 5 per cent on all such assets, irrespective of the tenure of holding. This appears to be a rollback of a liberalisation by former prime minister Tun Abdullah Ahmad Badawi in 2007 — although Tun Abdullah had only suspended the tax rather than abolish it.

Originally the tax was 30 per cent of the disposal gain if the seller had kept the asset for less than six years. Thereafter, the tax got progressively less until it reached zero, depending on the tenure. In short, it was to deter land and property speculation. On the other hand, sadly PM Najib’s proposal would appear to penalise those who were never speculators.

Finally, Najib proposed a RM50 charge on each credit and charge card and a RM25 fee for each supplementary card. The rationale is to curb the aggressive growth of credit card debt. Malaysia, with an estimated working population of about 14 million, has a staggering 11 million cards in circulation. Najib may be right to assume that that is several million too many. [However, many an individual holds more than one card.As such, many will be returning all their unnecessary cards, so bank incomes will take in dip in this aspect.]

[Curtailing expenditure using credit card may also work against the current government efforts to promote consumption that drives the recovery of the economy.]