What can Go Wrong with this Equity Rally.

For those dabbling in equities, a Reuters report suggest a look out for four potential bugbears.

Read the report from London circa October 16.

Four major risks threaten a solid year-end rally to cap this year’s stunning bounce back by global equities — earnings, bonds, currencies and cash.

Investor optimism has been so unrestrained recently that good earnings are beginning to be dismissed because they do not meet exaggerated expectations.

Take Goldman Sachs this week, for example. It beat earnings expectations by 23 per cent on a per share basis but the announcement was met with disappointment.

Stocks fell and the dollar rose initially when the results came out because the market was so ebullient it was willing to believe a so-called “whisper number” for the earnings at the wildest edge of speculation.

In the event, stocks recovered to close higher on the day. But disappointments were the order of the day today.

Nonetheless, world stocks begin next week at 12-month highs, up well over 70 per cent from their March lows. High-yielding currencies are in huge demand and emerging market debt spreads have narrowed about half a percentage point in October alone.

Underlining it all, measures of the volatility of Wall Street stocks are falling. The VIX volatililty index, the “fear gauge”, has broken below its recent range and is now at “normal”, pre-crisis levels.

That in itself automatically creates buy signals in many trading models.

This all points to risk-hungry investors entering a new week with the bit between their teeth again, despite the odd disappointment such as Friday’s Bank of America loss.

“Earnings turned in the second quarter of this year. We are on track for a good 18 months of corporate earnings growth,” said Bob Parker, vice chairman of Credit Suisse’s asset management arm.

The market is enjoying high levels of liquidity, a store of investor cash and generally positive economic numbers, he said.

Underlying economic numbers such as Chinese trade and lending, UK unemployment, US retail sales and euro zone manufacturing have come in better than expected.

Reuters polls this week found expectations among economists that the US and euro zone economies came out of recession in the third quarter.

There are, nonetheless, the four risks. Much of the latest tranche of the stock rally is based on optimism over earnings.

Notwithstanding Goldman’s failure to meet excessive expectations and the Bank of America results, many reports have been positive, among them JPMorgan Chase, Google and IBM.

Thomson Reuters Proprietary Research shows that as of Thursday, with 10 per cent of S&P 500 index companies having reported, 82 percent had beaten expectations.

Should many others come in below forecast or expectations rise too high Goldman-like, the market would be vulnerable to a quick reversal.

Retailers will be in focus next week and Europe will have its first full week of reporting. Results are due from Apple, Nestle, Danone, Coca-Cola, Cadbury, Hershey, LVMH, PPR, Ahold and Home Retail.

Government bond yields, in the meantime, have been rising modestly this month as equities have gained and risk appetite built up. The risk is that this becomes more rapid, creating a sell-off that would send borrowing rates through the roof.

The factors mitigating against this are continued low rates and quantitative easing from central banks along with muted inflationary pressures.

This leaves markets highly sensitive to any hint that authorities are seeking to exit from the programmes the set in place to combat the financial crisis. Australia, for example, has already begun raising rates.

All eyes next week will also be on the currency markets where the dollar’s overall decline has begun to concern those countries whose currencies are rising as a result.

“If we have dollar/euro going to US$1.60 (RM5.40) very quickly that would put a big constraint on euro zone economic recovery, likewise the yen at 85,” Credit Suisse’s Parker said.

The dollar was a fair way from these levels today, at around US$1.49 to the euro and 91 yen -- but the fact that these levels are being mentioned shows the sentiment towards the dollar.

It has fallen 6.6 per cent against a basket of major currencies this year.

Parity, meanwhile, is drawing nearer for the US dollar/Canadian dollar, dollar/Swiss franc and euro/sterling. The psychological impact of hitting such rates would magnify the official reaction, exporters’ scramble to hedge, and the complaints about loss of competitive advantage.

Finally, there are signs that the tidal wave of cash that was put into money market funds at the height of the financial crisis has now mostly been thrown back into other assets this year.

“The latest outflows from money market funds took the YTD total to US$396 billion, equal to nearly 94 per cent of the total weekly inflows recorded by this fund group during 2008,” Fund trackers EPFR Global said this week."

MCA: The Sounds of Silence

The reason for the deafening silence is only known to the beleaguered President. Against all odds,he chose silence to be his defense. To the CC's disgust and consternation,the once gung-ho President then used the remaining ace in his sleeve to call for yet another EGM.

Has he studied the ramifications of this move? Was he clutching at straws in an attempt to extend his lease of political life at MCA? Was it the best move to salvage MCA for its own sake? Only Ong knows.

The conflict against Ong this time was closer home. Departing from the heated Lee San Choon Hall on the faithful day of 10th October where he lost in a no-confidence vote,the action stations have now shifted to the President's own backyard- The CC and the Presidential Council.

Even here, he has lost ground. No one can confirm it at this juncture , but more than 20 of the 42 members wanted him to go. It was a heated CC session debate. Nonetheless, it ended up with nothing to show for.

In an apparent defense, back from the CC Meeting, Ong quickly pre-empted everyone by stating in his blog that Dr Chua Soi Lek's blatant sacking was made collectively by both the the Central Committee and the Presidential Council. As such all members of both CC and Presidential Council must take full responsibility too.

Under MCA’s constitution, a party president can only be removed by a vote from at least two-thirds of national delegates at an EGM. And Ong knew this.

Yesterday, Secretary-General Wong Foon Meng said the new EGM will have only one resolution, which is to support the president and to remove the entire central committee. The legal implications of such a resolution are still being debated.

And so until the new EGM takes place,MCA will be double boiling like stewed bah kut teh . Will the soup still taste bitter?

Morally or Constitutionally-Which Holds Sway?

More information has now leaked out about what actually transpired on the afternoon of 15th October at the MCA CC Meeting. It is now common fact that President Ong had refused to quit despite a majority of CC members requesting his resignation.

Ong then used his prerogative as President after that meeting to call for yet another EGM.

So what will be the issue that will have to be decided by delegates at this new EGM?

According to Secretary-General Wong Foon Meng, delegates will be asked to either support Ong or to dissolve the central committee so that fresh elections can be held.

The wording of the resolution proposed for the next EGM is thus very important. No one wants what happened on Double Ten to rear its ugly head again. Because the MCA constitution is supreme, Ong cannot be dislodged legally and so gets to keep his seat even though he has lost all moral rights to it.

The only way to unseat him, if he refused to resign, is to have two third of the Central committee resigned immediately, thereby precipitating fresh elections.Until that happens, Ong gets to continue as President and also be by extension, a Cabinet minister.

Interestingly, by having this new EGM, Ong get a second bite at the cherry by asking the same delegates who gave him a vote of no confidence last weekend to now back his leadership.

His current action has now pitted him squarely against the erstwhile central committee members and their supporters who supported him at the earlier EGM. So, just looking at the potential numbers lined up against him, expect Ong , in all likelihood,to lose the vote again.

Until the next EGM day arrives, rival factions will surely be working overtime to develop strategies and counter strategies to secure their vested interests.

And so, at this sad nadir of MCA's long history, also anticipate that narrow and naked 'Me, Mine and Myself' objective to drive both the challengers and the incumbents as they go forth on their quest for party ascension and self-preservation.

As observers, we now await with baited breath on what will transpire next in this unfolding chinese wayang.

Status Quo Plus One in MCA

Well the much awaited CC meeting in MCA has come and gone. As the President continues to lick his wounds of defeat, Vice President Liow ascended to deputyship, albeit by a simple majority vote. I guess, he may just be a temporary seat warmer.

Whatever happened to the guts of Kho Cho Ha is anybody's guess. Poor chap. He was seen as a potential take-over candidate. He seems to have given up.

So the status? No one is out of the woods as far MCA is concerned. The battle drags on.

After 5 hours of indecision at the CC Meeting, Ong Tee Keat had to invoke his presidential powers to call for another extraordinary general meeting (EGM) to decide whether the party should hold fresh elections.

These five hours of horsetrading showed a new pattern of support emerging. It appears that there are clearly three groups in the central committee. One, the Ong loyalists, then a splinter group of Ong's faction led by Liow Tiong Lai and finally Dr Chua's supporters.

As an imminent EGM looms, the party becomes more fractured than ever.

These may be early hours but Dr. Chua's group is not waiting to lose lead time. They have dug their heels in to ready themselves for this new EGM, much to the dismay of those who wanted to distribute the 'spoils of war' even before Tee Kiat can get out of his chair honourably.

Things may not be looking too good for Liow as he has been seen to be too impatient to move up from his current Vice Presidentship. His coterie of supporters are also seen as a treacherous lot!

The initiated knows that nothing new is going to come out of the new EGM. It will again be a stalemate of sorts as both Ong Tee Kiat and Dr. Chua cross swords again. It will be a Pyrrhic victory for whosoever wins as half the party will never be with him, heart and soul.

Desertion is on the cards as DAP and PKR awaits the eventual fall-out. It is theirs to gain and MCA, to lose big time.

Financialization...What a Word!

This is a very cynical article from James Pinkerton of Foxnews. It is about the bailout of Corporate America. It was written on the coat-tail of the Dow rising above the psychological 10,000 mark on 14 October 2009.

I append:

"So the Dow hits 10,000--great! President Obama should get some credit. But I suspect that others could have done the same thing, by following the same formula. For example, if I had borrowed,printed or otherwise conjured up more than $12 trillion, and pumped it mostly into the financial sector, I could have made something happen. What would happen? Most likely, Wall Street would start, uh, bubbling again, even as unemployment rose and the rest of the country languished.

Of course, as I sought to make my Wall Street medicine go down, smoothly, I would have to overlook a scandalously upward redistribution of income. Exhibit A in that upward wealth transfer: The nine biggest banks receiving $175 billion in bailout money, nevertheless paid their employees $32 billion in bonuses last year. That’s our money, into their pockets. Neither a muckraker, nor a Marxist, could ever find a purer example of the government serving as a tool of the ruling class.

But if the bailouts have their critics, they also have their defenders. Most of the political-intellectual establishment, which may or may not like Obama, nonetheless accepts the Bob Rubin-ite argument that “financialization” is inevitable and desirable--what’s good for Wall Street is good for America.

Well, we’re testing that proposition now, aren’t we?"

Bailouts speak for themselves. The effects however can be bitter!

Hitting the Magic 10,000

It finally did it! The Dow finally breached the psychological 10,000 points.

Associated Press contributed to the report below:

The Dow Jones industrial average closed above 10,000 on Wednesday (14 Oct), a testament to the stock market's powerful rebound from last year's financial crisis but also to a lost decade that has left many individual investors worse off than they were 10 years ago.

Strong third-quarter earnings from bellwether companies such as JP Morgan Chase and Co and Intel Corp, powered the powered the blue-chip index up 144.80 points, or 1.5 percent, to 10,015.86, the capstone to a furious seven-month rally driven by hope that the punishing global recession is slowly giving way.

The retaking of the 10,000 level marks an improbable turnaround from a brutal bear market, when the Dow plunged 54 percent from October 2007 through early March in the wake of a meltdown in the home-mortgage market, a crash in housing prices and the worst downturn since the Great Depression.

The recovery has been paced by aggressive government activity that alleviated fears of a global financial collapse and resulted in largely improving economic data. The speed and intensity of the rally has spurred fear that stocks are outrunning the still-weak economy and could fall hard again if the economy succumbs to a double-dip recession.

Others point out that the market has consistently defied naysayers and can hold its gains. "There's still room to keep going," said Phil Roth, a market analyst at brokerage house Miller Tabak & Co. "You have be careful how you play the rally, but it would be a bigger mistake to fight it."

Still, reclaiming 10,000 highlights the deep scars that many individual investors have suffered over the last decade and underscores the sharp divide today between the renewed prosperity of Wall Street and the still-deep struggles of Main Street.

The Dow first crossed 10,000 in March 1999 before the popping of the Internet-stock bubble prompted a bruising bear market early this decade.

The Dow is up a spectacular 53 percent from the 12-year low it reached in March, but it must rise 41 percent from its current level just to match its October 2007 record high.

"In 1999, we thought this was the beginning of a rocket ship riding to Dow 20,000," said Art Hogan of Jefferies & Co. "This time around, we're hitting it because we've moved away from the edge of the abyss."

Now, Wall Street giants such as JPMorgan and Goldman Sachs Group Inc are notching blockbuster profits.

Yet consumers are still grappling with rising unemployment, shattered home values and decimated 401(k) retirement accounts.

The economic recovery could be slower and generate fewer jobs than previous recoveries have, producing an even more pronounced gap between economic haves and have-nots, said economist Allen Sinai.

"There's a dramatic night-and-day juxtaposition of a booming stock market and rich financial firms, and jobless Americans," Sinai said. "Part of the prosperity we're seeing on Wall Street is because of massive job losses, which preserve profits" of American companies.

What a paradox- a preservation of profits at the expense of massive job losses.

Is this the new American Dream?

Can We forgive this Man?

The pre-Independence years was such a tumultuous time.

The good guys who fought the Japanese somehow became the bad guys because they continue to fight against British colonialism. They were called terrorists as they were on the other side. Even though they were inclined towards Communist China, its hard to pin them down to that ideology.

On the political front, even far sighted Onn Jaafar lost the proverbial crown to the Tunku and had to turn his liberal beliefs on its head by setting up the much failed Independence Malaya Party.

Ong Boon Hua, more commonly known as Chin Peng, was one of the three top freedom fighters of the MPAJA during the Japanese Occupation of Malaya. He is now old and weary and wants to come home to die in his hometown of Sitiawan, Perak.

He was a hero and his exploits against the Japanese are the stuff of legends. However, to many, he was an anti-hero and traitor. After the Insurgency, he was outlawed to somewhere in Thailand. He was also seen in Australia.

Chin Peng has fought all the levels and rungs in the Judiciary system in an attempt to come home to die in his home town. All his efforts have failed.

The current government in power intends to remain in a populist mode; and will not forgive this old man. As far as they are concerned, he is a traitor and is forever banned from coming home.

He celebrated his 85th birthday early this year. It was a surprise party hosted by friends, oddly at a Japanese restaurant.

The former secretary-general of the outlawed Communist Party of Malaya was actually born on the 21st day of the ninth lunar month in 1924, according to the Chinese calendar. By his family’s reckoning, the date is equivalent to Oct 19. So, the celebration is 4 days too soon.

Ong grew up in a large working-class family which did not believe in celebrating birthdays, let alone having cake. Surprisingly, Malaysia’s former Public Enemy No.1 has a sweet tooth.

He received a box of Godiva chocolates and was treated to a fruit meringue cake, which he heartily devoured.

Asked about the strange choice of restaurant, the anti-colonialist who also waged guerrilla attacks against the Japanese during World War Two, said: “This is not my first time eating Japanese food. I can eat both Asian and European.”

The way things are, the government will unlikely grant a reprieve for Chin Peng to come home alive. Perhaps, his remains may some day find its way home to Sitiawan.

How sad!