A Potential threat Against RCE

There seems to be something in the air these days.

First it was CUEPACS wanting to do its own deductions for civil servant retail loans. If they could do so, it would save some money for civil servants and literary break the monopoly of the National Cooperative Organisation of Malaysia, or Angkasa, as a middle man conduit for such payments.

Now, rumour has it that a number of commercial banks are planning to break into the lucrative market of lending to government employees after being allowed to make automatic salary deductions.

Presently, only credit cooperatives and a number of government-owned financial institutions are provided with the special codes that allow these salary deductions.

It is understood that the move is aimed at liberalising the landscape in order to benefit the borrowers, namely the over one million government employees.

The entry of commercial banks should spell lower interest rates and better service levels but may also jeopardise the profitability of existing players.

The market for these loans is huge.

According to a document obtained by StarBiz, civil servants forked out a whopping RM590mil in loan repayments for the month of August alone under this scheme.

It does seem to be a great business to be in.

The government-initiated monthly salary deduction means that the loans are virtually risk free, keeping non-performing loan levels extremely low.

Angkasa, the national union integrating the various cooperatives in Malaysia is weary of such developments.

Over the years, Angkasa has built a robust interface system with the Accountant-General’s office that enables the salary deductions.

The approved lenders – the 450-odd credit cooperatives and government-owned financial institutions such as Bank Rakyat, Malaysia Building Society,Bank Simpanan Nasional and Agrobank – have to use Angkasa’s services for the deductions.

Angkasa netted RM6.3mil in transaction fees in August alone.

To be sure, commercial banks are already in the business.

But their role has been limited to funding those holding the Angkasa codes.

Public-listed RCE Capital has made a profitable business out of funding three cooperatives to reach government servants.

Due to the many layers involved, the interest rates on the loans to government employees have historically been high.

But competition among the existing players has driven down rates to an average of 5% to 6% presently.

Still, if commercial banks are allowed in the market, interest rates can be driven down more, considering their lower cost of funds and the lower risk involved due to the banks’ ability to “garnish” the salaries of borrowers.

That, in turn, can lead to existing borrowers migrating to the commercial banks.

And that can spell trouble for existing players.

The status quo, however, is unlikely to be rocked overnight.

The interested commercial banks are believed to be working on building an electronic interface similar to what Angkasa has.

Due to the complexity of such a system, it may take months before it is up and running.

Furthermore, Angkasa is unlikely to open its system up to the newcomers.

Angkasa’s members are the cooperatives involved and they have their rationale for keeping things as they are.

Angkasa vice-president Mustapa Kamal Maulut said: “The profits that Angkasa make are channelled back into society in the form of free training programmes on skill development for cooperative members.

"Opening up the market to other players could hurt Angkasa’s bottom line and hence these activities.”

Another concern is that with cheaper loans available to them, civil servants may be tempted to borrow more.

Former chief executive of Malaysia Building Society, Ahmad Farid Omar, said more checks needed to be in the system to ensure there was no over-borrowing.

“There should be some way of determining that loans should only be given for productive purposes such as buying of land. An unnecessary high debt level among civil servants can lead to all sorts of problems,” he said.

Still, the argument for liberalisation does make sense.

There must be other ways to fund the cooperatives’ social objectives without denying the benefits that a freer market place will bring to the country’s civil servants.

So,companies like RCE will have to view all this new development seriously;so as not to lose too much to these johnny-come-lately banks.

Singapore is Unconvinced!

Singapore is yet to be convinced that an early economic rebound can be sustainable. As such on Oct 12, its central bank kept its loose monetary policy unchanged. Economists now expect tightening only to begin next year.

New data has shown the economy expanded a forecast-beating 0.8 per cent in the third quarter from a year ago, returning to growth after three quarters of contraction. however, the central bank was quick to point out that there continue to be no decisive recovery in export demand.

This cautious outlook for export-dependent Singapore mirrors its policymakers’ concerns from the United States to South Korea that an economic revival could taper off, underscoring the urgent need for growth-supporting policies.

“Going forward, do we see this kind of growth in Q4? It is quite unlikely,” said Wai Ho Leong, economist at Barclays in Singapore. “On the policy front ... the chances are the central bank is building towards an April normalisation.”

The Monetary Authority of Singapore, which next reviews policy in April, manages the Singapore dollar in a secret trade-weighted band against a basket of currencies, instead of setting interest rates.

The currency fell as far as 1.4010 per US dollar, down nearly 0.4 per cent from Friday’s close and compared to levels of 1.3950 just before the policy announcement. The Singapore dollar had risen last week as some investors had placed bets on a possible tightening of policy.

The central bank said there could be some upward consumer price pressure from higher oil and food prices, though underlying domestic cost pressures will be contained. It forecast inflation of 1 per cent to 2 per cent next year.

“MAS will continue to be vigilant over developments in the external environment including the medium-term risk of stronger global inflationary pressures,” the Monetary Authority of Singapore (MAS) said in a statement.

Singapore’s economy continued to grow robustly in the third quarter as the base of the recovery extended beyond pharmaceuticals into the wider manufacturing and services industries.

GDP grew 14.9 per cent from the previous quarter on a seasonally adjusted basis.

The government lifted its forecast for 2009 GDP to a contraction of between 2.5 to 2 per cent, from a forecast of a contraction of 6 to 4 per cent.

“Inflationary pressure is still benign, growth is showing steady improvement. But overall economic fundamentals and external conditions are still below the historical trend, or where MAS would extend a tightening policy,” said Irvin Seah, economist at DBS Group in Singapore.

So, do not bring out the beer cans out yet, hear?

US Housing Boom?

Are we reading more into this than we should?

A report from New York on October 10th has this.

The sudden rise in home prices suggests that the psychology of the market has shifted substantially. But what should we expect in the months ahead? Not necessarily that we’re entering a new housing boom. To a large extent, where we’re heading depends on what home buyers are thinking.

Some clues are found in the annual home-buyer surveys that Karl Case, the Wellesley economics professor, and I have run for years. For the surveys, we canvass recent home buyers in four cities — Los Angeles, San Francisco, Milwaukee and Boston; the surveys are now being conducted under the auspices of the Yale School of Management. We have just received the 2009 results, with responses from June and July.

This year’s survey coincides nicely with the upturn in home prices, the sharpest change in direction we have ever seen. The data show that the Standard & Poor’s/Case-Shiller 10-City Composite Home Price Index for the United States rose 3.6 per cent between April and July. While that is not a whopping increase, it followed a decline of 4.8 per cent in the previous period, between January and April.

The suddenness of this shift surprised me. In my column in June, I wrote that home prices might well continue to decline for years. As of that time, the S&P/Case-Shiller price index had fallen every month for almost three years. Add to that the prospect of continuing high unemployment and a weak economy for years to come, and the prospects for home prices did not seem rosy.

But the new data are startling. Since the indexes began in 1987, the closest parallel to such a change came at the conclusion of the last housing bust, at the end of the 1990-91 recession. Home prices rose 2.3 per cent from April to July 1991 after having fallen 2.1 per cent from January to April that year. By July 1996, five years after that “turnaround,” home prices were down 0.6 per cent from their July 1991 level, and down 13.8 per cent in inflation-adjusted terms.

Could the more extreme recent shift mean that home prices will just keep rising this time? Here is where our new survey results are helpful.

We looked at both the long- and short-term attitudes of home buyers. In our survey, we ask, “On average over the next 10 years, how much do you expect the value of your property to change each year?” The average answer among 311 respondents in 2009 was an increase of 11.2 per cent. The median response — with half above, half below — was 5 per cent, also high. That sounds rather like bubble thinking.

For a home buyer who borrows 90 per cent of the money to acquire a house, an appreciation rate of 11.2 per cent offers an investment bonanza. By putting a small amount of money down, investors stand to make a large gain if home prices climb. That is the power of leveraging. Recently, however, home buyers have also experienced the unpleasant consequences of leverage when home prices fall. Investing in a home during the wild past few years has been like gambling in a casino: You can leave with riches or empty pockets.

In our survey data from one year earlier, when prices were falling at an annual rate of nearly 20 per cent, buyers were still expressing long-term optimism. Then, the average answer to the question about expected yearly increases in home values was 9.5 per cent a year, with a median of 5 per cent — high figures indeed for that time. The bubble thinking is not new.

Those long-term expectations may not have changed much in character, but short-term expectations certainly have. In the survey, we also ask, “How much of a change do you expect there to be in the value of your home over the next 12 months?” Here, the average answer for June-July 2009 was a 2.3 per cent rise, versus a negative 0.4 per cent a year earlier. That was a dramatic change.

Another survey question is this: “If you think that present trends will not continue forever, what do you think will stop them?” Respondents were asked to answer in their own words. In 2008, when the current trend was unambiguously down, people nonetheless made it clear that they thought a housing recovery would come as the recession ended, with a new president after the election, and after home prices have come back down. What has changed in 2009 is that they suddenly see this anticipated scenario as actually playing out.

An additional question pertains to short-run considerations of market timing. We have been asking respondents whether they agree with this statement: “I bought now because I felt that I had to even though I might have done better financially if I had waited.” During the housing boom in 2004, only 17.9 per cent agreed with that statement. That figure doubled, to 36.7 per cent, when prices were dropping fast in 2008, and now has come back to 24.8 per cent.

What should we conclude? Given the abnormality of the economic environment, the sudden turn in the housing market probably reflects a new home-buyer emphasis on market timing. For years, people have been bulls for the long term. The change has been in their short-term thinking. The latest answers suggest that people think the price slide is over, so there is no longer such a good reason to wait to buy. And so they cause an upward blip in prices.

At the moment, it appears that the extreme ups and downs of the housing market have turned many Americans into housing speculators. Many people are still playing a leverage game, watching various economic indicators as well as the state of federal bailout programs — including the $8,000 first-time home-buyer tax credit that is currently scheduled to expire before Dec 1 — in an effort to time their home-buying decisions. The sudden turn could signal a new housing boom, but is more likely just a sign of a period of higher short-run price volatility.

So is it fact or fiction?

Space Clowns!

Just fancy that!

Canadian circus tycoon Guy Laliberte was sent to space. He returned to Earth today, wearing his trademark red clown nose, when a Soyuz capsule carrying him and two astronauts landed safely in the steppes of Kazakhstan.

These Canadians! Are they doing it just for laughs?

Silencing the Lions!

It was truly a fateful day for the MCA in Malaysia. The second largest party of the Barisan Nasional went for a referendum of sorts to determine who should indeed lead the much battered MCA.

Fateful Double 10th it was. Using the historical memorable date of the independence of mainland China to stage this EGM, more than 2,304 delegates silenced the lions and sent them packing. They were tired of the bickering. They could smell the "Et tu Brutus" refrain,orchestrated by "known and seen' hands of the President and his men, to killed off the opposition,the much maligned Deputy who continues to be tainted by a sex scandal.

The party is now in shambles like a rooster without a head. This Thursday, October 15 will see a procedural MCA Central Committee meeting that will decide what to do with the fell-out of the EGM. Morally, The President, defeated in a unprecedented 'No Confidence' vote should just resign honourably and ride away into the political void. As for the erstwhile ex-Deputy, he has been granted his wish to be an ordinary member until his dying day.


Anyone can guess the future of MCA.

With third rate Leos coming in to fill the vacuum at the top, the once proud MCA will now slowly be put into political wilderness and lose its glory forever.

Expect non-partisan members to desert in droves to the DAP and the PKR!

The Rhythm of the American Heart

Slice it, dice it anyway you want it.

But truth be told, the American Dream is no more,at least that is the way it is showing from Corporate America.

This article was taken from the blog of 'Where is Ze Moola'.

Currently,circa Friday October 9, 2009, every 13 seconds there is a foreclosure filing in US.

I paraphrase:

What is the rhythm of the American heart these days?

It is in aberration. It beats to the rhythm of a crisis that threatens to choke off hopes for a recovery in the US housing market as it destroys hundreds of billions of dollars in property values a year.

There are more than 6,600 home foreclosure filings per day, according to the Centre for Responsible Lending, a non-partisan watchdog group based in Durham, North Carolina. With nearly two million already this year, the moving flood of foreclosures shows no sign of abating any time soon.

If anything, the country’s worst housing downturn since record-keeping began in the late 19th century, may only get worse since foreclosures, which started with subprime borrowers, have now sadly moved on to the much bigger prime loan market on the back of mounting unemployment.

In congressional testimony last month, Michael Barr, the Treasury Department’s assistant secretary for financial institutions, said more than six million families could face foreclosure over the next three years.

“The recent crisis in the housing sector has devastated families and communities across the country and is at the centre of our financial crisis and economic downturn,” Barr said.

A September report by a foreclosure taskforce appointed by Florida’s Supreme Court pointed to a shift in the root cause of foreclosures.

“People are no longer defaulting simply because of a change in the payment structure of their loan. They are defaulting because of lost jobs or reduced hours or pay,” it said.

Florida had the country’s highest rate of homes – 23% – that were either in foreclosure or delinquent on mortgage payments in the second quarter, and the report said: “The latest news for Florida is horrifying.”

A recent pickup in sales and home prices in some regions has been heralded as a sign that the crisis in residential real estate may be close to bottoming out, after the steepest price decline since at least 1890.

But nearly half of recent sales have been attributed to foreclosures or “short sales” at bargain-basement prices.

Even as the US economy seems to be recovering from its worst recession since the Great Depression, mortgage delinquencies continue to rise. And that adds risk to any relatively upbeat assessment, since foreclosures depress the value of nearby properties while eroding the net worth of homeowners and the tax base for communities nationwide.

The Centre for Responsible Lending says foreclosures are on track to wipe out US$502bil in property values this year.

That spillover effect from foreclosures is one reason why Celia Chen of Moody’s Economy.com says nationwide home prices won’t regain the peak levels they reached in 2006 until 2020.[This is indeed scary!]

In states hardest-hit by the housing bust, like Florida and California, the rebound would take until 2030, Chen predicted. [This is indeed even more scary!]

“The default rates, the delinquency rates, are still rising,” Chen said. “Rising joblessness combined with a large degree of negative equity are going to cause foreclosures to increase.”

Anyone doubting that the recovery in US real estate prices would be long and hard should take a look at Japan, Chen said. Prices there are still off about 50% from the peak they hit 15 years ago.

Jay Brinkmann, chief economist with the Mortgage Bankers Association, said foreclosures were expected to peak in the second half of 2010. But that forecast is based on a projection that unemployment will begin falling after topping out “barely in double digits by the middle of next year.”

Last week, the Labour Department reported the unemployment rate rose to a 26-year high of 9.8% in September, in the latest evidence that a turnaround in the jobs market is the missing link in the economic recovery.

Since the start of the recession, the number of unemployed people has soared 7.6 million to 15.1 million. In Florida, unemployment is hovering at a nearly 40-year high of 10.7%, led by a steep decline in construction jobs.

Modifications and ‘monsters’

Mortgage modifications, the centrepiece of a plan unveiled by the Obama administration in March to help as many as nine million struggling borrowers hold onto their homes, have gotten off to a sluggish start.

The Office of the Comptroller of the Currency, which regulates US banks, said in a Sept 30 report that banks and loan services stepped up efforts to help distressed homeowners in the second quarter, more than tripling the loan modifications that reduced principal.

“This trend represents a significant shift from earlier quarters, when the vast majority of loan modifications either did not change monthly payments or increased them,” it said.

Only a relatively small number of homeowners have seen financial relief from so-called “loan workouts” so far, however, and government officials acknowledge that far more is needed to reverse the national tide of foreclosures.

Help would be more than welcome in areas like Miami Gardens where there is a pervasive sense of anger about banks and the blight caused by foreclosures in a city that once boasted one of the highest home-ownership rates in the country.

A predominantly African-American community of 111,000 people, just north of Miami, it now has a 13% foreclosure rate – the second highest in Florida – and a glut of shuttered or boarded-up homes.

“The banks were bailed out first. We all assumed that they were going to turn around and help other people but that didn’t happen,” said Ruby Milligan, 61, a teacher who took early retirement after suffering a mild stroke several years ago.

Milligan received a foreclosure notice from Deutsche Bank in August last year, but still lives in her Miami Gardens home, fearing a knock on the door with an eviction order any time.

Her retiree income is considered insufficient to qualify her for any modification of the adjustable-rate home-equity loan that she took out when the property was worth far more than it is today, she says.

“I feel that the banks should write these mortgages down,” Milligan said. “They wrote these bad mortgages, they created these monsters.”

One way of easing the crisis would be so-called “cramdowns”, a measure giving bankruptcy judges authorisation to write down the principal on homeowners’ mortgages.

A similar measure helped curtail family farm foreclosures in the 1980s, but Representative Brad Miller, a North Carolina Democrat, said the banking lobby killed it when it came up for approval by Congress earlier this year.

“We fought that fight before and lost it,” Miller said. “The industry will continue to oppose it.” — Reuters

The saddest part was the following quote:

* “The banks were bailed out first. We all assumed that they were going to turn around and help other people but that didn’t happen,” said Ruby Milligan, 61, a teacher who took early retirement after suffering a mild stroke several years ago.

Sigh! Help the rich and screw the poor? Sigh!

And it does not help when the poor reads how many millions in bonuses the bankers will receive!

Yeah, rewarded for doing what???

How?

Worse is over? Or worse is yet to come?

Shale Oil-New Hopes for Petronas?

With a new technique that tapped previously inaccessible supplies of natural gas in the United States spreading to the rest of the world, there is now elevated hope for a huge expansion of global reserves of the cleanest fossil fuel.There is now fresh new hope for Petronas.

Italian and Norwegian oil engineers and geologists have arrived in Texas, Oklahoma and Pennsylvania to learn how to extract gas from layers of a black rock called shale. Companies are leasing huge tracts of land across Europe for exploration. They are gathering rocks and scrutinizing Asian and North African geological maps in search of other fields.

The global drilling rush is still in its early stages. But energy analysts are already predicting that shale could reduce Europe’s dependence on Russian gas. They said they believed that gas reserves in many countries could increase over the next two decades, comparable with the 40 per cent increase in the United States in recent years.

“It’s a breakout play that is going to identify gigantic resources around the world,” said Amy Myers Jaffe, an energy expert at Rice University. “That will change the geopolitics of natural gas.”

More extensive use of natural gas could aid in reducing global warming, because gas produces fewer emissions of greenhouse gases than either oil or coal. China and India, which have growing economies that rely heavily on coal for electricity, appear to have large potential for production of shale gas. Larger gas reserves would encourage developing countries to convert more of their transportation fleets to use gas rather than gasoline.

Shale is a sedimentary rock rich in organic material that is found in many parts of the world. It was of little use as a source of gas until about a decade ago, when American companies developed new techniques to fracture the rock and drill horizontally.

Because so little drilling has been done in shale fields outside of the United States and Canada, gas analysts have made a wide array of estimates for how much shale gas could be tapped globally. Even the most conservative estimates are enormous, projecting at least a 20 per cent increase in the world’s known reserves of natural gas.

One recent study by IHS Cambridge Energy Research Associates, a consulting group, calculated that the recoverable shale gas outside of North America could turn out to be equivalent to 211 years’ worth of gas consumption in the United States at the present level of demand, and maybe as much as 690 years. The low figure would represent a 50 per cent increase in the world’s known gas reserves, and the high figure, a 160 per cent increase.

The projections suggest that the new method of producing gas “is the biggest energy innovation of the decade,” said Daniel Yergin, chairman of the Cambridge consulting group. “And the amazing thing is there was no grand opening ceremony for it. It just snuck up.”

Over the last five years, production of gas from shale has spread across wide swaths of Texas, Louisiana and Pennsylvania. All the new production has produced a glut of gas in the United States, helping to drive down gas prices and utility costs.

Now American companies are looking abroad for lucrative shale fields in countries hungry for more energy. They are focusing particularly on Europe, where gas prices are sometimes twice what they are in the United States, and large shale beds are located close to some cities.

Exxon Mobil has drilled a few exploratory wells in Germany in recent months. Devon Energy is teaming up with Total, the French oil company, seeking approval to drill in France. ConocoPhillips announced recently that it had signed an agreement with a subsidiary of a small British firm to explore a million acres in the Baltic Basin of Poland.

Early estimates of recoverable European shale gas resources range up to 400 trillion cubic feet, less than half the industry’s estimates of what is recoverable in the United States. But European energy executives say they are excited about the prospects because the Continent’s conventional gas reserves are too small to meet demand.

“It is obvious to everybody that it has huge potential,” said Oivind Reinertsen, president of StatoilHydro USA and Mexico, a Norwegian company with growing shale interests. “You see a lot of land-grabbing by different companies in Europe, potentially spreading to the Far East, China and India.”

Donald I. Hertzmark, a consultant who advises multinational oil companies on gas projects, said that in a decade or so, the new shale gas resources would improve Europe’s ability to withstand any future reduction in Russian pipeline shipments. In 2006 and again last winter, Russia cut off gas deliveries shipped through Ukraine because of disputes between the two countries, causing shortages around Europe.

European companies are buying large interests in shale fields in the United States, partly to supply the American market, but also to learn the specialised mapping and drilling techniques required for shale gas.

Several of the European companies have entered into partnerships with smaller American companies. ENI of Italy paid US$280 million (RM980 million) in May for a stake in a 13,000-acre gas field north of Fort Worth operated by Quicksilver Resources. ENI has a crew of four engineers, a geologist and a geophysicist in Texas to learn from Quicksilver personnel.

One of the biggest marriages is between Chesapeake Energy of Oklahoma City and its strategic partner StatoilHydro.

Seeking cash, Chesapeake agreed to sell Statoil a large stake in its Marcellus shale holdings, centred in Pennsylvania, for US$3.9 billion last November. The two companies are looking at shale fields in China, India, Australia and other countries. Seven Statoil employees are working in Oklahoma and Pennsylvania learning to map and fracture shale and calculate shale gas pressures, and more are coming.

“We know the shale is out there,” said Lars Erik Oino, a Statoil geologist working at Chesapeake headquarters here, as he rubbed hydrochloric acid on a shale sample to test its mineral makeup. “This could have a huge impact on the European energy situation.”

So, with potential new gas supplies, God has given countries like Malaysia a second chance at better resource utilization for economic development.