Be a Contrarian: Buy When It's Down

Gerald Ambrose ... 'Markets are now operating on a trampoline. The safety net doesn't work anymore.'

Thomas Yong ... 'Risk aversion will remain for now and everyone will be cutting positions.'

They say never waste a crisis. Fund managers are cautious but see an opportunity in the midst of global markets tumbling on the back of Europe's tumultous debt problems.


Emerging markets are always known to be more volatile. As its ups and downs are always more extreme, would it be wiser to rejig one's portfolio or brace through the storm?

Fortress Capital Asset Management Sdn Bhd chief executive officer CEO Thomas Yong, who started trimming his position three weeks ago, is no longer selling, but waiting to see how things pan out.

“We are in a position to buy (in Malaysia), but it would be premature to act now. Risk aversion will remain for now, and everyone will be cutting positions,” he said.

He opined that Europe might not be as quick as the United States in implementing measures, hence uncertainty would continue to dominate sentiments for the time being.

Aberdeen Asset Management managing director Gerald Ambrose is a buyer of the market, and is in fact buying some of the stocks he could not previously buy because it had moved too fast. “For instance, the rubber gloves have done very well and have gone up a lot. With this correction, they also fall faster. Here's an opportunity,” he said.

He added that volatility was irrelevant, and Aberdeen's investment was not based on market volatility.
“Markets are now operating on a trampoline. The safety net, which had been the interest rates and financial stimulus used by central banks, have been used so much that it doesn't work anymore. Now that the safety net has been removed, there is a possibility that things could go really wrong,” Ambrose said.
Ambrose likes gold, and said it was the only insurance against the follies of the authorities of the world.

Meanwhile, HwangDBS Investment Management Bhd chief investment officer David Ng said that in view of what's happening in the euro zone, they had reduced the risk in their portfolios by cashing in on the less liquid stocks.

“Moving forward, we are still cautiously optimistic about the market as we expect the economic recovery to continue even if it might be reduced by the events in Europe. However, the market will need to further re-price this slower growth outlook before we opt to increase our invested levels,” he added.

On Thursday, BNP Paribas' Cliver McDonnell said that the euro zone crisis signalled that markets were about 40% through the crisis.

“We believe we are in the fear phase, don't buy stocks until capitulation is reached,” he said.
He added that for Asian equities, the two biggest worries were negative earnings translation due to euro weakness and the impact of a slowdown on euro-zone demand.

McDonnell listed his 10 steps to capitulation, four of them which he said had already occurred. These included worst recession, loss of investment-grade status, drying up of liquidity, and further de-rating of the euro-zone banks.

He said the next likely step was the nationalisation of a bank in southern Europe, as he thought it was improbable that not a single bank had racked up significant losses related to non-performing loans and trading losses as a result of the recent economic downturn and wild swings in markets.

Text, Don't Talk

This came from AFP/Relaxnews.

"Do you often have the urge to chat with a friend while stuck on a train, subway or waiting on a never-ending line? In a new study,Cornell University researchers are saying you should resist the urge to dial as it irritates and distracts all the people around you — yes, even if you whisper.

For those stuck by a chatty Kathy feeling frustrated and annoyed with the distraction, well that is completely normal according to Michael Goldstein, assistant professor of psychology at Cornell University and Lauren Emberson, PhD candidate in psychology at Cornell University in their research to be published in the June edition of the journal Psychological Science.

Eavesdropping cannot be avoided and someone else’s very important minutia or hot gossip becomes an irritant not because the person is loud but rather because only half the conversation or “halfalogue”, can be heard and understood. This rattles the brain coupled with the inability to ignore the chatter.

Apparently even your meditation mantra won’t do the trick. Emberson explained, “Hearing half a conversation is distracting because we are unable to predict the succession of speech. We believe this finding helps reveal how we understand language in conversation: We actively predict what the person is going to say next and this reduces the difficulty of language comprehension.”

“People are often more irritated by nearby cell phone conversations rather than conversations between two people who are physically present. Since halfalogues really are more distracting and you can’t tune them out, this could explain why people are irritated.”

So be kind, text don’t call, or read, take photos, play a game, surf the web, catch-up on emails — there are so many ways to keep you distracted with your smartphone’s applications that you do not need to distract everyone in your vicinity.

Also the results of the Interphone study, a multi-centre international control case study, published their findings in the advance online edition of International Journal of Epidemiology on May 17.

The researchers concluded that there is not enough conclusive research to support that cell phone use causes or doesn’t cause brain cancer — why not err on the side of caution since the participants of the study were not classified as long-term heavy-use mobile phone users"


so be kind to your neighbours on a journey, text don't talk.

The Pain Before the Gain

The US is confident the world will ride the current turmoil emanating from Greece and the fall of the Euro.

Though undergoing much pain, US Treasury Secretary  Geithner said a strengthened global economy is now in better shape to handle the strains emanating from Europe’s crisis.

“You see some of the challenges in Europe now. But I think we are in a much stronger position to manage those challenges,” he said en route to China.

Geithner also said the dollar was on the rise because confidence was growing about the strength of the US recovery.

The US Treasury chief was due to arrive in Beijing on Sunday for meetings of the Strategic and Economic Dialogue, co-chairing the US side with Secretary of State Hillary Clinton.

The economic component of the Monday and Tuesday talks are expected to explore ways to better balance the two countries’ US$400-billion (RM1.32 trillion) trade ties, steering clear of an open clash about the yuan’s peg to the dollar.

The United States still has the world’s largest economy and China has the fastest-growing one, so Geithner said cooperation between the two was vital for healthy global growth.

“China and the United States are doing what we need to do to help contribute to a broader global economic recovery,” he said.

The US administration is going to tackle the deficit situation very seriously, Geithner said. As he tries to reinvigorate the US economy, President Barack Obama has set a goal of doubling exports in five years, which can be met only with a big increase in sales to China.

Geithner said both the US and Chinese economies have undergone a major transformation in recent years and struck a theme that he is expected to pursue by praising rising levels of domestic consumption in China.

The Obama administration has been urging China to rely less on exports, and more on increased consumer spending at home, to fuel its economic growth. Geithner also noted that the US economy’s expansion now was being led by investment and exports, rather than consumer spending, and that savings were rising.

Europe concern

Europe’s debt crisis has become an issue of concern, partly for fear that it might spread to other regions but also because it means a diminished market for exports from countries like China.

That has led to speculation that Beijing will be less likely to let its yuan currency rise in value, as the Obama administration was urging, since the euro’s decline has made Chinese products more expensive in its top export market.

A US$1 trillion safety net, provided by EU nations and the International Monetary Fund to stabilise the euro zone — following a rescue of debt-ridden Greece — has not stopped the bloc’s currency tumbling.

Several euro zone governments have followed Athens in announcing or planning austerity measures to shore up their credit ratings and avoid having to seek a Greek-style bailout.

How long the hemorrhaging of stock and commodities is going to last  is anybody's guess. for now, those with cash in hand can make .hay while the sun shines'

Maverick Merkel and Market Jitters

First, protect yourself, then move in to isolate the culprits. And that is what Merkel has done. The after effects is the collapse of stocks,bonds, commodities and all world-wide.  What a shame, Merkel!

This Reuters report tells of its effects and strategies to adopt.

"BERLIN, May 22 — Germany’s parliament approved yesterday a US$1 trillion (RM3.32 trillion) safety net to stabilise the euro as fears swirled that Europe’s debt crisis and tougher financial regulation may choke economic recovery.

European Union finance ministers, meeting in Brussels, backed a German call for tougher sanctions in future against states that flout the bloc’s budget rules, to prevent any repeat of Greece’s debt crisis, which required a euro zone/IMF bailout.

Worries persisted that Greece’s debt troubles would spread to other indebted nations, dragging down Europe’s economy and curtailing trade to the United States and Asia.[The European contagion is just as deadly as the currency debacle in Asia in the late 1990s.]

“The Greek debt crisis and its ripple effects are bad news for all corners of the world and there is a strong collective interest in containing the problem,” said Eswar Prasad, senior fellow at the Brookings Institution in Washington.

European officials were eager to show they were committed to bringing down deficits without smothering a still-fragile recovery. European Central Bank President Jean-Claude Trichet sought to calm nervous markets by declaring the euro was not in danger.

Both chambers of parliament approved Berlin’s contribution of up to €148 billion (RM617 billion) in loan guarantees, deeply unpopular with voters, on top of an equally divisive €22.4 billion in bilateral loans for debt-ridden Greece.

The bill passed the lower house by 319 votes to 73 with 195 abstentions after the opposition Social Democrats and Greens abstained and 10 members of Chancellor Angela Merkel’s (pic) centre-right coalition rebelled, highlighting the domestic pressure she faces.

The vote was not enough to stop the fall in European shares, which lost a further 0.5 percent on the day after Asian stock markets slid again. Japan’s Nikkei average closed 2.5 per cent down for a loss of 6.5 per cent on the week, mostly due to worries about the euro zone.

“It doesn’t make any difference what Germany does. It doesn’t make any difference what the financial reform is. Traders and investors are frightened here, and they just want out,” said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont.

But Wall Street rebounded, led by financial shares, after the Dow Jones industrial average briefly fell below the symbolic 10,000 point level following US Senate adoption two days ago of a sweeping financial reform bill after months of fierce debate.

Merkel said the parliamentary vote was a clear German message of support for Europe. But she failed to secure the broad backing she sought to ease public hostility to bailing out weaker euro zone states, despite unilaterally banning speculative trade in some financial instruments on Wednesday.

The surprise German ban on naked short-selling of sovereign euro bonds and some financial shares sent stocks and the euro plunging this week and drew sharp criticism from EU partners, including close ally France, which were not consulted.

HARSHER SANCTIONS

In Brussels, EU finance ministers debated how to tighten the bloc’s tattered budget discipline rules and improve economic policy coordination in the 16-nation euro zone, drawing lessons from the Greek crisis.

As expected, they reached no immediate decision, but European Council president Herman van Rompuy, who chaired the task force meeting, said there was broad support for Berlin’s demand for harsher sanctions on deficit laggards.

“One of the conclusions of our debate is that it is very clear that there is a broad consensus on the business of having financial sanctions and non-financial sanctions,” he told reporters.

However, he indicated that only Germany was pressing for a longer-term insolvency procedure for states crippled by debt.

German Finance Minister Wolfgang Schaeuble and his French counterpart, Christine Lagarde, told a joint news conference the EU should focus on strengthening fiscal discipline in the short term before looking at possible changes of the EU treaty, which would be harder and slower to agree and ratify.

Several euro zone governments have followed Athens in announcing or planning austerity measures to shore up their credit ratings and avoid having to seek a Greek-style bailout.

But doubts remain about their ability to push through savage spending cuts in the teeth of public opposition.

The head of Spain’s largest union, Comisiones Obreras (CCOO), said it could call a general strike to protest against planned austerity measures, probably for one day, although analysts regard Greek-style unrest as unlikely.

Efforts by France and Germany, the euro’s founders, to patch up differences on the debt crisis and financial regulation, along with short-covering, helped push the euro up as high as US$1.26 yesterday from a four-year low of US$1.2143 on Wednesday.

Euro zone policymakers brushed aside any talk of intervention to steady the single currency, which has lost 12 percent against the dollar this year.

ECB President Trichet told the Frankfurter Allgemeine Zeitung: “Let us be clear, it is not the euro that is in danger, but the fiscal policy of some countries that has to be, and is being, addressed.

Luxembourg Prime Minister Jean-Claude Juncker, chairman of the Eurogroup of euro area finance ministers, and Ewald Nowotny, a member of the European Central Bank’s governing council, both dismissed worries about the euro’s level.

With the United States increasingly involved in trying to contain the euro zone crisis, US Treasury Secretary Timothy Geithner will visit Europe next week, on his way back from a trip to China, and will meet the head of the European Central Bank and Germany’s finance minister.

Beijing also warned the crisis was creating global uncertainty. — Reuters"

I guess most economies are in dire straits right now because of the market meltdown, no thanks to Merkel and the Godless Greeks!

Iron Bowl No More!

There was a time when government jobs were most sought after as it assured the incumbent security of tenure. As long as there is  no disciplinary case against him, and he has passed all his in-service examinations; the incumbent will wait for his for promotion. There was no discrimation by race or creed. Office politics was almost non-existent.

Then came the office political element into the service. Meritocracy was abused to promote those of the Chief Secretary's men. Inefficiency crept in.

Yesterday,the current Chief Secretary said that public sector jobs were no longer considered “safe” as the Government and society now expect more from them.


 The bulging civil service must be trimmed down and the Public Services Department is forced to re-look at how they can do this as the way civil service business is run must also change with time and the advent of technology.

He spoke about 'merit' in the civil service  and that it had become very important in a globalised and competitive world. I do hope his definition of 'merit'  has the same meaning as used universally to mean a 'level -laying field'. 

“When I first joined 36 years ago, public service was not the best-paying job, but it was almost a ‘guaranteed’ job as long as you didn’t commit a big boo-boo until retirement,” he told reporters yesterday after meeting with delegates from the Muslim Council of Britain.[Let us not forget, my good man, that boo-boo are oftentimes created to put good men down!]

However, there was now higher expectation of the public sector and civil servants had no choice but to improve or be replaced, he said.[ This hardly happened. They are transferred out to the JPA pool.]

“If you don’t perform, we will have to find better ways to make you perform. If we don’t do things as expected, other people will do those things,” he said.[ This is perhaps, laughable! Only Japan does this.]

“Where public sector jobs was once seen as ‘safe’, it is not the case anymore in Malaysia,” he added.

He said the highest ranking officers in the civil service needed to make their contact details public so they were accessible by e-mail and phone. [ Extending contracts of some self-serving officers is killing morale and denying others of promotion!]

“Complainants must receive a response within 48 hours. We engage all media – print and online alike.
“We need to clarify queries raised both through the media and complaints bureaus. In short, nothing is sacrosanct to probe and questioning,” he said. [You may be doing it. The Public Complaints Bureau may be practising it. Are others that hardly have anything to do with the public doing this,my good man?]

Sidek said the public sector needed to drive the private sector by setting higher standards of service delivery.

He warned against complacency although Malaysia now ranked 23 out of 185 countries in the World Bank’s Ease of Doing Business ranking, 24th in the World Economic Forum’s competitiveness ranking and 10th in the Swiss-based IMD competitive ranking.

“Although we are ahead of countries like China, Italy, New Zealand in our competitiveness, it is still not good enough,” he said. You said it truly here, my good man.

As the Bard says, " To thine own self,be true!"

Malaysia: Subsidy Crunch!

KUALA LUMPUR, May 21 — The Cabinet is to meet next week to discuss politically unpopular changes to its subsidy regime for petrol, natural gas, food and road tolls.

Subsidies alone chewed up RM24.5 billion in 2009, 15.3 per cent of the total operating spending, pushing Malaysia’s budget deficit to a more than 20-year high of 7 per cent of gross domestic product.

Plans to cut subsidy spending to RM20.9 billion ringgit this year were dealt a blow by the government’s failure to implement planned petrol price hikes in May.

If you add in other social spending in areas like education grants and health, total transfer spending is around treble the declared figure for subsidies.

Following are the options the government may consider.

Complete withdrawal of subsidies in one go

A big bang approach would impress investors in Malaysian bonds but is unlikely to be popular with voters as it would likely involve petrol prices, for example, rising by 15 sen per litre from their current RM1.80.

Smarting from a by-election loss in Sarawak, Prime Minister Datuk Seri Najib Razak is unlikely to opt for this choice, especially with Sarawak state polls looming this year. Sarawak provides a fifth of the government’s MPs and the state served as a bulwark against record losses to the opposition in Election 2008.

A sudden withdrawal of all subsidies would mean that Malaysia’s economic recovery could be halted. Asia’s third most export-dependent country relative to the size of its economy grew 10.1 per cent in the first quarter of this year.

A “big bang” approach would also cause inflation to spike and could prompt Malaysia’s central bank to hike rates, although in the past Bank Negara has “looked through” food and fuel price spikes. It left rates on hold from April 2006 to November 2008.

If this happened there would likely be a big rally in Malaysian bonds.

A gradual approach

This is far more likely. It would reassure markets fearful of budget indiscipline and limit political damage for Najib who must call a general election by 2013.

A small initial hike in petrol prices by say 15 sen per litre would not immediately hit wallets or derail economic recovery. Prices could then be hiked over a period of years on a regular basis. The timeframe for price hikes would have to be credible.

Savings from raising petrol prices alone in mid-year could be as much as RM1.4 billion in 2010, based on a 15 sen hike.

To assist poorer people the government could pay cash benefits to owners of smaller cars or motorcycles.

The risk is that regular price hikes on a semi-annual or annual basis could cause a continual drip of discontent with the government. For markets, the risk would be that the government would lose heart in the face of public opposition.

Electricity price hikes could be mitigated by putting a base consumption level under which people would not pay extra charges.

If electricity was hiked by 2.4 sen per kilowatt-hour, that could save RM800 in 2010.

There would be a spike in annual inflation as a result of the start of the subsidy regime changes, although the base effect would diminish their effect over time. Inflation could spike up to 4.5 per cent at the start of 2011 if petrol, gas, electricity and toll road prices were hiked.

Bullish for bonds if implemented. Could boost electricity company Tenaga’s stock price.

Just make minor changes or do nothing

Tempting for a government that has deferred planned price hikes due to fear of a voter backlash.

The fact that Najib has outsourced all of his economic reforms to independent bodies shows that there is little support within the government for painful decisions. Failure to implement two electricity price hikes have hit credibility.

Looks like Malaysians will have to bite the bullet or face the stoic Grecian pains.

Malaysia: Subsidies Crunch Time

This is an interesting write-up from Reuters. 


21 May 2010-The Cabinet is to meet next week to discuss politically unpopular changes to its subsidy regime for petrol, natural gas, food and road tolls.

Subsidies alone chewed up RM24.5 billion in 2009, 15.3 per cent of the total operating spending, pushing Malaysia’s budget deficit to a more than 20-year high of 7 per cent of gross domestic product.
Plans to cut subsidy spending to RM20.9 billion ringgit this year were dealt a blow by the government’s failure to implement planned petrol price hikes in May.
If you add in other social spending in areas like education grants and health, total transfer spending is around treble the declared figure for subsidies.


Following are the options the government may consider.
Complete withdrawal of subsidies in one goA big bang approach would impress investors in Malaysian bonds but is unlikely to be popular with voters as it would likely involve petrol prices, for example, rising by 15 sen per litre from their current RM1.80.Smarting from a by-election loss in Sarawak, Prime Minister Datuk Seri Najib Razak is unlikely to opt for this choice, especially with Sarawak state polls looming this year. Sarawak provides a fifth of the government’s MPs and the state served as a bulwark against record losses to the opposition in Election 2008.[Sarawak saves us again!]
A sudden withdrawal of all subsidies would mean that Malaysia’s economic recovery could be halted. Asia’s third most export-dependent country relative to the size of its economy grew 10.1 per cent in the first quarter of this year.A “big bang” approach would also cause inflation to spike and could prompt Malaysia’s central bank to hike rates, although in the past Bank Negara has “looked through” food and fuel price spikes. It left rates on hold from April 2006 to November 2008.If this happened there would likely be a big rally in Malaysian bonds.A gradual approachThis is far more likely. It would reassure markets fearful of budget indiscipline and limit political damage for Najib who must call a general election by 2013.A small initial hike in petrol prices by say 15 sen per litre would not immediately hit wallets or derail economic recovery. Prices could then be hiked over a period of years on a regular basis. The timeframe for price hikes would have to be credible.Savings from raising petrol prices alone in mid-year could be as much as RM1.4 billion in 2010, based on a 15 sen hike.To assist poorer people the government could pay cash benefits to owners of smaller cars or motorcycles.The risk is that regular price hikes on a semi-annual or annual basis could cause a continual drip of discontent with the government. For markets, the risk would be that the government would lose heart in the face of public opposition.
Electricity price hikes could be mitigated by putting a base consumption level under which people would not pay extra charges.
If electricity was hiked by 2.4 sen per kilowatt-hour, that could save RM800 in 2010.There would be a spike in annual inflation as a result of the start of the subsidy regime changes, although the base effect would diminish their effect over time. Inflation could spike up to 4.5 per cent at the start of 2011 if petrol, gas, electricity and toll road prices were hiked.Bullish for bonds if implemented. Could boost electricity company Tenaga’s stock price.
Just make minor changes or do nothingTempting for a government that has deferred planned price hikes due to fear of a voter backlash.
The fact that Najib has outsourced all of his economic reforms to independent bodies shows that there is little support within the government for painful decisions. Failure to implement two electricity price hikes have hit credibility.
With Malaysia’s economy rebounding strongly, tax receipts will grow and the need for government stimulus measures will fall so the budget gap will narrow more quickly than the government’s forecast of 5.6 per cent of gross domestic product this year.