03-23-2008, 04:48 AM
Friday March 21, 2008
US financial crisis closer than you think
WHY NOT?
By WON SAI WAN
We better steel-lock ourselves and our savings to face another worldwide economic meltdown.
WHILE all of us had our eyes on the general election for the past 30-odd days and the after effects of the shocking results, there was another more important event playing out on the other side of the world.
As I have been working every day since Feb 11 and getting home 1am daily, watching the telly had been my way of winding down.
At that hour, the best thing to watch are the financial channels like CNBC and Bloomberg on Astro.
Tracking the US economy, the decline of the dollar and the rising price of oil became a form of distraction from the campaigning, politicking and accusations going on then.
Just two days before polling day, oil prices went past the US$111 per barrel and the US dollar fell below the 100-yen mark. On top of that gold prices reached US$1,000 per ounce. All were record highs.
It was as if the moon, stars and planets were lined up. It seemed that disaster was beckoning on a global scale.
In 1997, the hedge funds and currency speculators caused the Asian financial crisis and 11 years on, the same financial wizards have caused the US economy to go into a tailspin.
Their speculative bets against the Asian currencies then, caused a crash in all the financial markets in our region.
This time they bet on the great American financial institutions and lost.
Asian companies had to come to the rescue of several financial institutions by buying stakes into huge global firms but their investments may not see any returns for a long time.
Among the major investments were:
> State-owned China Investment Corp invested US$3bil (RM9.53bil) last May for a 9% stake of Blackstone Group LP, the worldâs biggest buyout fund but its investment value has already shrunk to less than 50%.
> The same Chinese firm spent US$5bil (RM15.89bil) on Morgan Stanley and the shares has lost 30% of its value.
> Government of Singapore Investment Corp and a Middle East investor paid over US$11bil (RM34.96bil) for a stake in the Swiss-based UBS and the stock has fallen 57% since Dec 10.
The Federal Reserve has repeatedly cut interest rates in the United States since December and the latest was a reduction of 75 basis points on Tuesday.
The Fed (as the US central bank is called) is trying to kick-start the stalling economy hoping this will contain damage to the economy and financial system from housing troubles and a credit crisis.
Yes, the stock markets around the world reacted positively to the latest move but listening to many financial commentators, I think that the rebound will be temporary.
The financial turmoil, which I dub the American Financial Crisis (as opposed to the Asian one in 1997), started late last year with the sub-prime (risky) mortgage crisis outbreak.
Speculators lost confidence in investing their money in banks that were lending to people, who technically did not qualify for such big loans, to buy property at a higher interest rate. The banks in turn recalled these loans thus starting a crisis that has led us to where we are today.
All signs are there that the contingent effect is spreading across the world and no country will be spared just like the one 11 years ago.
The collapse of financial supermarket Bear Stearns last weekend was another nail in the worldâs economic coffin. A company whose share traded at US$30 per share on a Friday was sold the following Monday for US$2.
It had over US$30bil (RM95.34bil) in cash and assets and yet the 82-year-old Bear Stearns was sold to JP Morgan for only for US$236mil (RM750mil).
There are numerous reasons for the crisis but it is suffice to say that the speculation put paid to the worldâs economy. The same speculators lost confidence in what they were doing and sold out thus causing this mess.
It is truly a global crisis, and although not officially called so, the United States is in recession.
But what does it mean for us in Malaysia?
Immediately? Nothing actually. For one thing, the ringgit has appreciated quite a bit against the US dollar and this means that if you are going to the US, you will have more money to spend.
If you got kids studying in the United States then quickly pay the tuition fees now and save a whole load of ringgit.
But our joy will be short-lived. Our exports to the United States (our number one trading partner) will get more expensive and Americans, who already have less in the pockets, will soon shun our goods.
This, of course, means our factories in Penang, Perak and Selangor will have to cut their production and people will eventually lose their jobs if the trend does not change.
Will the huge Chinese market come to our rescue? If the Americans stay in trouble, the Chinese factories will also be in trouble for the same reasons.
The contingent effect will hit us. Malaysia, as the worldâs number 24th trading nation, will not and cannot be spared.
This brings me to the point about keeping one eye on the election and the other on the collapsing world economy â whatever that was promised in the manifestos by ALL political parties will not be fulfilled because it is not economically possible.
>PKR will not be able to cut petrol prices because oil prices have climbed higher than Petronasâ profits of last year;
>PASâ welfare state programme will also be thwarted because unemployment will climb and there will not be enough money to offer help to everyone;
>The DAPâs bonus of RM6,000 per family with an annual income of less than RM6,000 will also not be possible because of Petronasâ problems; and
> The Barisan Nasional will be hard pressed to keep its promises of continued development because the cost of maintaining the subsidies will become too exorbitant. Their total subsidies are about RM81bil if oil prices stayed at US$100 per barrel. There will be no money left for development.
So for us ordinary citizens â get ready for a bumpier ride this year.
US financial crisis closer than you think
WHY NOT?
By WON SAI WAN
We better steel-lock ourselves and our savings to face another worldwide economic meltdown.
WHILE all of us had our eyes on the general election for the past 30-odd days and the after effects of the shocking results, there was another more important event playing out on the other side of the world.
As I have been working every day since Feb 11 and getting home 1am daily, watching the telly had been my way of winding down.
At that hour, the best thing to watch are the financial channels like CNBC and Bloomberg on Astro.
Tracking the US economy, the decline of the dollar and the rising price of oil became a form of distraction from the campaigning, politicking and accusations going on then.
Just two days before polling day, oil prices went past the US$111 per barrel and the US dollar fell below the 100-yen mark. On top of that gold prices reached US$1,000 per ounce. All were record highs.
It was as if the moon, stars and planets were lined up. It seemed that disaster was beckoning on a global scale.
In 1997, the hedge funds and currency speculators caused the Asian financial crisis and 11 years on, the same financial wizards have caused the US economy to go into a tailspin.
Their speculative bets against the Asian currencies then, caused a crash in all the financial markets in our region.
This time they bet on the great American financial institutions and lost.
Asian companies had to come to the rescue of several financial institutions by buying stakes into huge global firms but their investments may not see any returns for a long time.
Among the major investments were:
> State-owned China Investment Corp invested US$3bil (RM9.53bil) last May for a 9% stake of Blackstone Group LP, the worldâs biggest buyout fund but its investment value has already shrunk to less than 50%.
> The same Chinese firm spent US$5bil (RM15.89bil) on Morgan Stanley and the shares has lost 30% of its value.
> Government of Singapore Investment Corp and a Middle East investor paid over US$11bil (RM34.96bil) for a stake in the Swiss-based UBS and the stock has fallen 57% since Dec 10.
The Federal Reserve has repeatedly cut interest rates in the United States since December and the latest was a reduction of 75 basis points on Tuesday.
The Fed (as the US central bank is called) is trying to kick-start the stalling economy hoping this will contain damage to the economy and financial system from housing troubles and a credit crisis.
Yes, the stock markets around the world reacted positively to the latest move but listening to many financial commentators, I think that the rebound will be temporary.
The financial turmoil, which I dub the American Financial Crisis (as opposed to the Asian one in 1997), started late last year with the sub-prime (risky) mortgage crisis outbreak.
Speculators lost confidence in investing their money in banks that were lending to people, who technically did not qualify for such big loans, to buy property at a higher interest rate. The banks in turn recalled these loans thus starting a crisis that has led us to where we are today.
All signs are there that the contingent effect is spreading across the world and no country will be spared just like the one 11 years ago.
The collapse of financial supermarket Bear Stearns last weekend was another nail in the worldâs economic coffin. A company whose share traded at US$30 per share on a Friday was sold the following Monday for US$2.
It had over US$30bil (RM95.34bil) in cash and assets and yet the 82-year-old Bear Stearns was sold to JP Morgan for only for US$236mil (RM750mil).
There are numerous reasons for the crisis but it is suffice to say that the speculation put paid to the worldâs economy. The same speculators lost confidence in what they were doing and sold out thus causing this mess.
It is truly a global crisis, and although not officially called so, the United States is in recession.
But what does it mean for us in Malaysia?
Immediately? Nothing actually. For one thing, the ringgit has appreciated quite a bit against the US dollar and this means that if you are going to the US, you will have more money to spend.
If you got kids studying in the United States then quickly pay the tuition fees now and save a whole load of ringgit.
But our joy will be short-lived. Our exports to the United States (our number one trading partner) will get more expensive and Americans, who already have less in the pockets, will soon shun our goods.
This, of course, means our factories in Penang, Perak and Selangor will have to cut their production and people will eventually lose their jobs if the trend does not change.
Will the huge Chinese market come to our rescue? If the Americans stay in trouble, the Chinese factories will also be in trouble for the same reasons.
The contingent effect will hit us. Malaysia, as the worldâs number 24th trading nation, will not and cannot be spared.
This brings me to the point about keeping one eye on the election and the other on the collapsing world economy â whatever that was promised in the manifestos by ALL political parties will not be fulfilled because it is not economically possible.
>PKR will not be able to cut petrol prices because oil prices have climbed higher than Petronasâ profits of last year;
>PASâ welfare state programme will also be thwarted because unemployment will climb and there will not be enough money to offer help to everyone;
>The DAPâs bonus of RM6,000 per family with an annual income of less than RM6,000 will also not be possible because of Petronasâ problems; and
> The Barisan Nasional will be hard pressed to keep its promises of continued development because the cost of maintaining the subsidies will become too exorbitant. Their total subsidies are about RM81bil if oil prices stayed at US$100 per barrel. There will be no money left for development.
So for us ordinary citizens â get ready for a bumpier ride this year.