UPDATE on Global economies are heading for turbulence, ARE WE IN TROUBLE GOING FORWARD?
July 24th, 2010 | 
Author: THE STOCK MARKET PERSPECTIVE
The first week past this initial write-up “ Global economies are heading for turbulence – ARE WE IN TROUBLE GOING FORWARD” dated 5th July 2010 saw global markets rose sharply, ahead of the US corporate reporting season, confounding market analysts. European markets rallied on BP’s increasing optimism of resolving its Gulf of Mexico Deepwater Horizon oil spill issue and expectation that no major European banks would fail the “stress” tests. Over the other side of the Atlantic, US investors also came back into the market with a vengeance after returning from the US Independence Day holiday. The big factor underpinning the market ebullience was thought to be the two-months equities sell-off even as economic fundamentals deteriorated. On 8 July 2010, the International Monetary Fund warned that “A potential spill-over of sovereign risk to European banking sectors and fiscal policy challenges “give us reasons to be less optimistic than we were three months ago” http://sg.news.yahoo.com/afp/20100708/tts-finance-economy-imf-growth-c1b2fc3.html
Against this gloomy economic background, and NO GOOD OVERHEADECONOMIC NEWS OR ANY OTHER CORPORATE NEWS, US stock market actually staged a spectacular rebound. In the four sessions shortend week ended 9 July 2010, the Dow gained 512 points, or 5.3%. The S&P
500 rose 5.4% and the Nasdaq was up 5% – the best week in almost a year, just ahead of the first wave of quarterly corporate results due next week.
http://money.cnn.com/2010/07/09/markets/markets_newyork/index.htm
Was the European and US stock markets taking a risk posture to suggest a strong corporate results ahead proving the strength and substance of the economic recovery leaving the IMF grim warnings behind to be buried of economic history? Or was that a relief rebound which chartist calls a “technical rebound” of a deeply-oversold position of two months of sustained sell-off? The spectacular market rebound in US had two characteristics. Most of the gains on each trading sessions were in late afternoon trade or sometimes in the last hour after choppy trading but volume were light relative to recent past, giving some hint of the tentative speculative drive of stocks up north. In other words, the buying were “cautiously optimistic” in anticipation of better corporate results.
Interesting to note that in that exciting week, bond prices fell lifting yield on 10-year US Treasury bond to slightly over 3.05% from around 2.8% and there were signs of slight gains in oil and metal prices. European markets too, benefited from increasing confidence that the first Greek auction in the debt market would be well received. Interesting enough, China was in the market buying up Greek sovereign debt alongside Japanese sovereign debt as well.
Some confidence did returned to stock markets on these “improving” fundamentals as that week progressed.
News that Bank of Korea, South Korea’s Central Bank, unexpectedly raised its benchmark interest rate on 9 July 2010 by 25 basis points to 2.25 per cent from record lows to pre-empt inflation as the domestic economic recovery gains momentum was well-received in Asian stock markets. After South Korea achieved its largest-ever trade surplus in June and together with a much faster-than-expected growth in industrial output in May, Bank of Korea revised its economic outlook to to expand 5.9 per cent this year, faster than its previous forecast in April of 5.2 per cent.. The reasonable assumption is that is economic recovery is gaining momentum.
This piece of good news gave further impetus to optimism that the Asian “chopstick” economies at least might have consolidate a firmer recovery grip. Asian stock markets rallied in sympathy of optimism.
CORPORATE RESULTS AND OUTLOOK PERSPECTIVE.
Unfortunately, the optimism DID NOT LAST as big US corporate results began to hit the market – mostly below expectations for some high profile globally-competing entities, excluding certain items impacting comparability with prior year.
Compounded the announced weak results, excluding certain items impacting comparability with prior year, were some pessimistic forward earnings guidance such as Samsung, Tupperware Inc, BHP-Billiton along with dismal macro-economic numbers coming out of China and USA. Tupperware’s diluted earnings per share for 2nd qtr is a diluted 93 cents, a spectacular record but diluted earnings per share in management guidance of forward outlook is forecast to be 54 to 59 cents. The steep pessimism in that profit outlook warning is apparent. Tupperware is a global giant direct marketing kitchenware products and they are expecting tough times ahead in consumer demand for even basic kitchen use products – globally.
What about BHP Billiton? BHP is the largest mining entity in the world is also cautious about the short-term outlook of the global economy “Uncertainty surrounds the near term prospects for growth in the developed world as governments adjust fiscal policies following a period of significant stimulus and subsequent increase in sovereign debt levels,” BHP Billiton warned.
Now let us look at Samsung, the world’s largest chip-maker and three times larger than its competitor, Sony Corp. Despite its size, market share and scale economies advantages, Samsung is facing tough times in its key markets. Analysts’ consensus forecast of 4.8 trillion won in operating profit against Samsung’s own estimated its April-June operating profit at a median 5.0 trillion won ($4.09 billion) in a range of 4.8-5.2 trillion won. BUT ALL THAT LOOKS OVER-OPTIMISTIC NOW.
Samsung’s profit guidance now stood a a mere 4.41 trillion won – that is 12% shave off as the actual result is pending announcement end of this month.
It will be watched very closely by the markets and economists as to the strength of the electronic consumer market looking at Samsung’s forward profit guidance in the 3rd quarter. As of now, the picture does NOT look optimistic at all. There are a few exceptional positive factors benefiting the disappointing results now awaiting Samsung and a store of negative factors emerging over the horizon.
http://finance.yahoo.com/news/Samsung-growth-to-slow-as-rb-4022898826.html?x=0&.v=4
Sales of liquid crystal display flat screens is likely to benefit from robust TV demand growth during this year summer’s World Cup. That won’t be repeated and should slow down in the 2nd half as pent up demand have been amply satisfied. Analysts expect sluggish demand from Europe after a nearly 10 percent tumble in the euro made import more expensive. The full impact is yet to be felt as Euro fell only from end April 2010. Margins and sales volume in EU will be hit by adverse falling exchange rate movement of the declining euro – these could have been factors behind the downward revised profit guidance from Samsung’s management. They do not bode well for chip making or the electronic consumer market. On the topline revenue number, Samsung now expects roughly 34.6 trillion won on sales compared to the same 1st qtr revenue of 32.5 trillion won – a mere 6% gain and expected to be falling as the year progresses. On those numbers, one can expect, on balance, to see stock markets to react adversely rather than positively when Samsung released its actual results at the end of this month.
Of the major corporate results in US, the first result came from Alcoa, the aluminium giant. Because of its varied GLOBAL customer base from consumer packaging to construction and infrastructure and transport, its result is viewed as good proxy of indicative forward GLOBAL economic trend and outlook.
Alcoa swung to a profit after striking a 6% increase in sales revenue over 1st qtr 2010 firing up market optimism when Alcoa’s chairman boasted that the global “economic recovery has legs”. But a closer look at its accounting number paints a different picture.
http://www.alcoa.com/global/en/news/news_detail.asp?pageID=20100712006733en&newsYear=2010
The revenue increase was brought by a 1% decreased in realised aluminium price to customers. Not surprisingly, the most price-sensitive packaging sector saw the biggest revenue growth of 17% .Commercial transportation expanded by 10% – this one is the tail end of the one-off cash for clunkers surge in demand – thanks to Obama’s stimulus tax credits while building and construction had the benefit of strong export market in China where cutback in power consumption forced a decline in local production. On the earnings front, the picture is also not that rosy as it first appeared. Net income of $136 million were struck after Alcoa reduced its overhead by more than $311 million in the first 6 months – without which 2nd qtr positive earnings could NOT be achieved. The only economic recovery legs I could see of Alcoa results is a type of prosthesis legs.
Klaus Kleinfeld, Alcoa’s chairman and CEO believes that China will account for much of the 2010 growth in consumption, with higher sales in the heavy truck and trailer, beverage can packaging and commercial construction sectors. But China’s manufacturing has slowed down near the end of 2nd qtr 2010.!
In North America, Alcoa sees sales dropping by 23 percent to 27 percent for commercial building and construction. It expects beverage can sales to be flat.
As of 2009, about half of Alcoa’s sales were in the U.S., 27 percent in Europe, 15 percent in the Asian-Pacific region, with the remainder in North and South America.
http://biz.thestar.com.my/news/story.asp?file=/2010/7/13/business/20100713115215&sec=business
Alcoa reported sales growth “ in many markets” it competes in the 2nd Qtr 2010 . Yet Mr. Kleinfeld see huge drop in US demand for building and construction by between 23% to 27% in 2010 INDICATING THAT HE EXPECTED US ECONOMY TO SLOW DOWN CONSIDERABLY.
Intel results followed Alcoa with above-seasonal revenue growth which the US stock market liked, expected and consistent with industry’s analysts expectation that the tech sector will benefit from an uptick in corporate demand as the economy recovers. But strangely enough, its stock prices actually tanked on announcement of results.
The reasons offered by analysts was that “multiple indications of slowing demand” from Europe, China, the PC manufacturers and U.S. retailers such as Best Buy and Costco. The belief is that INTEL had seen the best of past and first half strong performance which is NOT durable looking from other sources within the same industry. Semiconductors are said to be at the end of the electronics food chain and thus are the last to feel any inflection in demand. And as Samsung’s own results is likely to bear out this month end, the peak of the unusual seasonal consumer electronic market demand is past.
http://www.marketwatch.com/story/us-stocks-slip-on-retail-sales-but-tech-shines-2010-07-14
Intel painted a rosy outlook of global economic recovery BUT ASIAN MARKETS GREETING THE RESULTS WERE NOT IMPRESSED AT ALL AND SINGAPORE STOCK MARKET ACTUALLY FELL 6 POINTS THE DAY AFTER. Let us look at the possible reasons.
Intel reported a margin improved to 17% on sales in 2nd qtr 2010 compared to 13% in the corresponding period in 2009. Given the recovery from extreme depressed economic conditions prevailing then, the slight recovery in margin was not unexpected. 2009 second qtr results was also affected adversely by a charge of $1.45 billion related to a European Commission antitrust fine. Net earning rose to $2.9 billion in 2nd qtr 2010 against the loss of $398 million the year before same qtr. Intel sales grew by 34% from a low depressed base of 2nd qtr 2009 to $10.8 billion.
But compared to its 1st qtr 2009 sales revenue of $10.3 billion and net income of $2.4 billion, the 2nd qtr 2010 result is HARDLY IMPRESSIVE. Sales grew by a mere 5% and net earnings grew by 20% in a recovery from very deep trough.
In guidance forward, Intel is forecasting a 7.4% increase sales – not a big expectation from current trend of slow growth.
A slew of big high profile corporate results came in on 16 July 2010 – GE and a couple of banks – there were way below expectations. REVENUE FELL when compared to 2009, indicating the tightness of market demand slowing revenue inflow in a difficult global market conditions WORSE THAN 2009.
GE – the world’s largest conglomerate is truly a bellwether stock of the global economy - bragged of strong performance and rosy outlook. “GE’s economic environment continues to improve,” said Chairman and CEO Jeff Immelt. Market critiques disagree. I can’t help it but look at GE long-term share price chart. It showed that GE had been a “dog’ business for its patient shareholders for close to a decade.
http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=ge&sid=0&o_symb=ge&freq=2&time=13
Let’s look at the accounting numbers for objectivity of recent performance analysis. Two comments from GE merit closer scrutiny in conjunction and its relevance to understanding the economic outlook GE faces.
Pre-tax earnings at GE Capital swung to a profit of $741 million, even as the benefit from tax write-downs continued to fall, reaching about $100 million in the recent quarter. Meanwhile, GE Capital is winding down its debt and restructuring with a strategy to refocus on its core businesses of infrastructure and industrial products. Stronger performance at GE capital came from winding down its badly-bleeding consumer credit divison to focus on infrastructure and industrial products financing i.e. corporate business I guess because the US consumers are considered to be “dead”. Secondly, the write-back from hollow log accounting is near the tail end of that hollow log implying that GE had either had modestly over-provided in prior periods or aggressively writing back overprovisions to bring GE Capital back to profitability. GE IS CAPITAL IS NOT PERFORMING at all of organic business, especially consumer credit.
Revenue at GE’s energy infrastructure unit came in at $9.54 billion, off about 9%, although profit climbed 3%. – that is worrying REVENUE HAS FALLEN. It is amazing that their revenues here did not at least have a rebound from recesssion lows last year – not just at GE Capital but in all other key businesses of GE. Revenue at its technology infrastructure unit came in at $9.06 billion, off 6%. Profit at the unit declined 11%” Equally, it is also amazing that energy and tech infrastructure sales are lower despite emerging markets growing gangbusters with infrastructure growth of all kinds.
http://seekingalpha.com/article/214926-ge-lights-on-lights-off
There were big infrastructural projects, not only In China, but in India, Persian Gulf states, Europe, America, Australia and even in Africa.
So what does that tells us about the global economic health? THE INFRASTRUCTURAL STIMULUS SPENDING worldwide has been no help to GE and some of these stimulus spending in China is being curtailed now will aggravate the adverse economic outlook next year and beyond unless China steps up again its stimulus spending and risking overheating its property sector. GE RESULTS DID NOT GIVE ME ONE REASON TO BE OPTIMISTIC.
Together with the GE results release were some major banks and Google. They all reported LOWER THAN EXPECTED REVENUE AND REVENUE DECLINES COMPARED TO RECESSION-RIDDEN 2009! US stock market took a beating that day led by GE down 1.1 percent, while Bank of America tumbled 4.7 percent and Citigroup lost 1.9 percent. Google Inc. sank 4 percent. Banks are lifeline of business and they are licking wounds of the 2009 GFC meltdown even as late as 2nd qtr 2010!. Of the US banks, only JP Morgan reported better revenue and earnings. Its 76% increase in second-quarter profit was due in part to a 23% reduction in reserves for loans unlikely to be paid back. Again, better results was due to hollow log accounting. JP Morgan’s Chief Executive Jamie Dimon poured some cold water on the market’s excitement over the results, noting that losses from bad consumer loans “remain at extremely high levels.” Consumers in US is still facing very tough times de-leveraging.
http://www.marketwatch.com/story/stocks-open-down-as-data-offsets-jp-morgan-results-2010-07-15
Well Fargo reported increasing value of its bad loans portfolio which must yet be ominious indicative sign that the healing of consumer spending wounds have NOT yet completed. Clearly the EU and US economy is troubling in spite of better economic outlook prevailing on this side of the Pacific.
http://noir.bloomberg.com/apps/news?pid=20601087&sid=aMEuJBqkIojU&pos=5
As of yesterday, 21 July 2010, nearly 76% of the S&P 500 companies reported higher than expected revenue and earnings –same as recent quarters but the key questions unanswered remain – are the revenue estimates too low in the first place and what is the quarter to quarter performance this year rather than comparing to the depressed base of 2009.
http://www.marketwatch.com/story/us-stocks-falter-on-health-tech-earnings-2010-07-21
Our analysis showed that Intel’s 2nd qtr revenue and earnings did fantastically well compared to 2009 results but not on a quarterly to quarterly basis to show the economy has really turned around. GE was also a complete disappointment on the global basis. Two other notable results are worth mentioning before we move on to examine the global economic macro-economic data. They are Apple and Coca-Cola. Apple is ready to overlap Microsoft in the forseeable future reported strong revenue and earnings growth lifted by new product innovations sales of i-phone. Coca-cola reported volume sales growth and market in all markets EXCEPT EUROPE. Now imagine EU consumers could not longer casually afford a bottle of ubiquitous COKE – that must send compelling warning that consumer demand in EU has either cratered or about to crater into the ravine of demand collapse.
Coca cola’s quarterly revenue rose 5% to $8.67 billion with with 2% growth in North America and 6% internationally suggesting weak US consumer market relative to international economic environment. “The state of the global economy remains uncertain in many regions, affected by ongoing deficit concerns in Europe, recent downward revisions to China’s economy and weakened consumer confidence,” said Muhtar Kent, chief executive, in the earnings report
http://www.marketwatch.com/story/volume-share-gains-push-coca-cola-profit-higher-2010-07-21
There are pockets of strong corporate results, notably Caterpillar, 3M and UPS with sales and profits gains. Caterpillar 2nd Qtr sales of $10.409 billion is 26.3% gain on lst qtr 2010 much-depressed sale revenue of $8.238 billion – itself much lower than 1st qtr 2009 figure of $9.225 bln. Indeed 2nd qtr 2009 sales was further depressed at $7.975 billion, so the illusory “improvement” in Caterpillar is somewhat exaggerated by the much lower base in 2009 and 1st qtr 2010 actual performance. Net profit rose to $707 milion in 2nd qtr 2010 compared to $223 million in the 1st qtr 2010 – thanks to costs cutting and strong orders from mining and energy businesses globally. Asian trade flows helped UPS to do a lot better, highlingting the continuiing strength of the Asian recovery story at least until the 2nd qtr of 2010. Likewise 3M achieved a marginal growth of 6% in sales from $6.7 billion in 2nd Qtr 2010 against $6.3 billion in the first qtr of 2010. Its strongest growth was in emerging market and its business is MAINLY CORPORATE. Compared to the low base of 2nd Qtr 2009 when corporate were trimming expenses aggressively, 3M’s sales and earnings growth “look” a lot more impressive.
The key conclusions that this author arrive at are
- the corporate results in US to date look good superficially but on deeper examination is NOT great and in some instances seems troubling of real achieved outcomes and forward outlook guidance.
- US economy is still very weak – no sign of underlying improvement in top-line revenue for a lot of major corporations like GE, Bank of America, Citibank, IBM and disturbing forward-looking profit guidance from consumer basics like Tupperware, Coca-cola, Well Fargo etc. Samsung and Intel tell of peaked demand and seasonal slacks in consumer electronic demand forward and this cannot be good for Singapore.
- EU market is very weak – can’t even sell more coke as euro fell making foreign imports generally more expensive for distressed consumers and that spells trouble for China. You cannot expect inflationary spending booms as EU turned on the deflationary austerity spending by sovereign Governments.
- stimulus spending globally on infrastructure stalled economic deep recessions but NOT cured it as the results of GE’s troubling infrastructural sales shows.
- Asia is the only bright spot but that is dependent on the weaker (in comparison) US economy and this is also slowing, judging from the shrinking revenue base evident from banking results, Alcoa’s forward forecast and the on-going winding down of GE Capital’s consumer credit division.
MACRO-ECONOMIC PERSPECTIVE
NOW LET US NOW LOOK AT SOME GLOBAL MACRO-ECONOMIC DATA. It is worse than this author expected in the last write-up. Conditions deteriorated significantly in the last qtr according to the IMF in early July. This came as the global equity markets is said to suffered more than $US11 billion ($12.5 billion) of net outflows in the first week of July, 2010 amid fears of a double-dip recession.
http://www.smh.com.au/business/markets/double-dip-fear-sends-investors-to-cash-20100709-103jn.html
Interesting enough, the lure of gold and precious metals as a hedge against uncertainty helped commodity funds top the list of EPFR Global-tracked sector funds once again in early July. Spot gold rallied from March to June 2010 by a mere 13% in US dollar term as the euro fell by more than 25% against the US dollar indicating that investors are fleeing EU financial market into US dollars and gold.
http://www.xe.com/currencycharts/?from=USD&to=EUR&view=10Y
Gold, in the view of this author, is NOT seen as a ideal CURRENCY HEDGE for European investors at least but more of a generalised broader uncertainty hedge of global economy in which any deflationary collapse of US economy will also perhaps shrink demand for gold and leaving spot price of physical gold vulnerable. Any collapse of US dollar in subsequent another deep US recession would be hdeged by having some investment in gold. These are indications of economic turbulence and unfathomable uncertainty sweeping financial markets.
http://www.kitco.com/charts/livegold.html
The initial confidence in equities at the beginning of this month also saw bond yields on US 10 year treasury bond rising to 3.05%. Money has flowed out of BOTH EQUITIES AND US DOLLAR 10 YEAR BONDS. Since then, the euro has recovered slightly by about 6% relative to the US dollar, US 10-year bond yield fell backward to 2.89% and spot gold declining also 6% to US$1178 per oz from its recent peak of US$1,251 per oz. GOLD IS MORE SENSITIVE TO US DOLLAR ASCEND THAN US DOLLAR DECLINE evidencing again the lack of one-to-one currency hedge volatility but more to economic uncertainty generally also reflected in volatility of US 10-year bond yields.
In the base metals market, copper has fallen 12.5% , nickel 22%, zinc
21% , lead 20% and aluminium 20% from their recent peaks.
http://www.kitcometals.com/charts/aluminum_historical.html
And of late, bulk commodities like iron ore ( by about 10% in the last few weeks) suddenly and metallugical coal has levelled off despite very steep increases since May 2009. It is not surprising that ST also reported recently falling dry bulk commodity ship loading space. Steel sector is weak – not just in China but in India, US and EU. Falling demand was the key factor and there is no relief in sight indicating that the credit squeeze is having its bite in Chinese infrastructure, residential construction and manufacturing CONCURRENTLY as indicated in my introductory write-up of early July. Baoshan Iron & Steel Co. — China’s second largest steel mill by output, cut the price of its its hot-rolled-coil (HRC) and cold-rolled-coil (CRC) products by 5% last week back to the first qtr of 2009 citing weak demand. Hot-rolled coil (HRC), a benchmark for flat steel, used by the automobile and white goods majors. That must indicate a weakness in autos and white goods manufacturing in China and also globally since China is now the world’s largest steel producing nation.
http://www.marketwatch.com/story/chinese-steel-mills-suffer-slumping-demand-2010-07-14?dist=news
As much of Chinese steel produced are exported to global markets, concerns have been expressed about European steel demand being reduced there by up to 2 million tonnes a month across the continent.
Indian steel sector is suffering the same fate with intense pressure on
hot-rolled coil (HRC) with prices falling by 2,000 rupees per tonne last month to 32,000 rupees per month – a 6% fall in prices even though iron-ore price last month was stable around US$120 per tonne and coking coal was trading around US$200 per tonne. End buyers of steel are said to be de-stocking – yet another pointer to slowing auto production forward as car sales keep hitting new peaks.
http://www.mineweb.com/mineweb/view/mineweb/en/page39?oid=107518&sn=Detail&pid=92730.
The best might be over for now as car manufacturing are gearing up for production of clean energy lithium battery-operated car mass manufacturing in Japan.
http://sg.news.yahoo.com/afp/20100720/tts-japan-auto-company-honda-7d7070a.html
Over in US, the steel market is also not better. This is also apparent from the prices of molybdenum and manganese used in steel production which have fallen below their recent trendlines. US import licenses dropped 14.9% in June from May 2010 to 1,773,206 tonnes after a six months consecutive import surge of 35% this year but remain more than double the level of a year ago. As US steel prices are said to be lower than global level, US steel imports of Chinese steel will shrink forward as China modify its export tax rebates for steel products take toll.
http://seekingalpha.com/article/213667-june-steel-report-import-licenses-drop-china-surges
US car manufacturing were not as strong as initial auto data sales show and most likely to have peaked already because of cash for clunker incentives.
http://money.cnn.com/2010/06/29/news/economy/auto_sales_weakness/index.htm?postversion=2010062910
Autos is big industry in US and since most of the Obama’s stimulus package was meant for corporate rescue and some consumer spending items like (over-supplied) housing and cars rather than industry, infrastructure and construction, steel consumption is likely to constrain once the incentivized purchases ended. In fact, manufacturing is the strongest pillar of US economic recovery due to inventory re-stocking BUT THIS HAD FALTERED in June, extends into July and seems to be continuiing in the September qtr as the re-stocking is drawing to a close.
http://www.marketwatch.com/story/factories-slowing-in-july-sentiment-surveys-say-2010-07-15
Philadelphia Federal Reserve Bank said the Philly Fed manufacturing sentiment survey declined to 5.1 in July from 8 in June and 21.4 in May. The reading is above zero, which shows the sector is still expanding, but the breadth of that expansion has diminished and dimishing very fast. This must point to weaker economic growth, employment into the second half of this year and consistently with falling demand for steel in the otherwise strong US manufacturing sector.
A preliminary estimate released last month showed US gross domestic product expanded at a 1.9 per cent annual rate in the second quarter. This compared unfavourably with the twice-revised 1st Qtr GDP growth of 2.7% due to lower consumer spending. The evidence points a downward trend in US GDP growth that sustained into the second half. But even that is likely to be revised downward I believe. Why?
http://www.marketwatch.com/story/fed-to-mull-stimulus-moves-just-in-case-2010-07-14?pagenumber=2
Federal Reserve officials last week agreed that the outlook for the recovery had softened between April and June, with financial market tension due the European fiscal crisis as the leading culprit. They also trimmed their officials forecast for growth over the next two years adding the unemployment rate might remain higher next year than they had expected. With interest rates just slightly above zero, analysts warned that the Fed has no economic lever to deal with any sudden adversity in steep decline.
Consumer demand has weaken and consumer confidence plummeted further in July hitting the lowest level since August 2009. University of Michigan index fell to 66.5 in early July from 76 in late June. It is shocking because the June reading was the highest level in more than two years and then this sudden drop to threaten consumer spendings adding to US economic woes.
http://www.marketwatch.com/story/us-july-consumer-sentiment-plummets-2010-07-16
And it came after US Government data showed increasing unemployment numbers in June and steep US factory orders declined in May, posting the largest drop in 14 months as transportation related orders tumbled. Factory orders again declined into the month of July 2010 in continuation of that adverse trend.
http://www.marketwatch.com/story/factories-slowing-in-july-sentiment-surveys-say-2010-07-15
There is therefore risks of higher unemployment ahead leaving consumer increasingly tight-fisted with their wallets.
As for inventories, inventories of U.S. wholesalers rose in May as warehouses were restocked with machinery and other durable goods, while sales registered their first decline in 14 months. This is a trojan horse. Unless sales picks up – unlikely as consumer cut spending in June, July and maybe into the next qtr as unemployment is ready to rise again to clear stocks – there will be a period of wholesalers de-stocking ahead to run, depressing manufacturing further going forward. As of current indication, US Consumers are still very busy engaging in plastic surgery of pruning their credit card debts. According to the Federal Reserve, total household credit outstanding has declined for seven quarters in a row.
http://www.marketwatch.com/story/plastic-surgery-and-the-double-dip-2010-07-20
This prolonged de-leveraging, unparalleled in the post war era, has begun to take its toll on consumer spending. June retail sales declined after rising (tepidly) during the previous eight months. Sales unexpectedly dipped 1.2 percent to 362.5 billion dollars in May from the previous month, according to data from the Commerce Department.
http://sg.news.yahoo.com/afp/20100612/tts-us-economy-retail-sales-c1b2fc3.html
Since retail sales make up one-half of consumers’ spending, and thus, one-third of the gross domestic product, it would be difficult for the economy to expand in the absence of a rise in these outlays.
Besides hurting from the drop in employment, most households are also suffering from a decline in their wealth because if the drop in prices of homes and their investments continues. House prices are vulnerable to further decline despite record low mortgage rates. Resales of U.S. homes fell 5.1% in June to a seasonally adjusted annual rate of 5.37 million as a federal subsidy for home buyers ends, the National Association of Realtors. The expiration of the tax credit has devastated the housing market
http://www.marketwatch.com/story/existing-home-sales-fall-51-as-tax-credit-ends-2010-07-22-10200
In fact, housing starts fell another 5% in June after a 15% drop in May, to a seasonally adjusted annual rate of 549,000, the lowest level in eight months, the Commerce Department estimated. A DOWNWARD TREND HAS BEEN FLAGGED.
http://www.marketwatch.com/story/us-housing-starts-fall-5-to-8-month-low-2010-07-20
New housing starts is now back in the dumps where is was a year ago after federal tax credits for buyer expired. This is NOT surprising noting that sales of new single-family homes plunged 33% in May to a record-low level after a federal subsidy for home buyers expired, according to the US Commerce Department
http://www.marketwatch.com/story/new-home-sales-plunge-33-to-record-low-in-may-2010-06-23
Pending homes sales also tumbled in May to lowest level on record after tax credits expire. The number of buyers who signed contracts to purchase homes dropped in May to the lowest level on record, a sign the housing recovery can’t survive without government incentives.
http://finance.yahoo.com/news/May-pending-home-sales-tumble-apf-2024500274.html?x=0
Sales agreements for previously occupied homes dropped 30 percent in May from April. The index fell to 77.6 from 110.9. May’s reading was the lowest dating back to 2001.The index also was down 15.9 percent from the same month a year earlier.
Sales of existing home in June fell by 5.1% against expected 10% . It was better than expected but the continuiing fall is yet another disturbing illustration of the weak housing sector. Americans are still selling their homes in the face of an over-supplied market.
On the manufacturing front, industrial production is also weakening in June and the rebound shown in US leading economic indicators proved unsustainable. Expansion in the U.S. manufacturing sector moderated in June after three months of very rapid growth. The Institute for Supply Management index fell from 59.7% in May to a reading of 56.2% for June.
http://www.marketwatch.com/story/manufacturing-growth-moderates-in-june-2010-07-01?dist=bigcharts
Following an upwardly revised increase of 0.5% in May,the index of leading economic indicators declined 0.2% in June
http://www.marketwatch.com/story/june-leading-indicators-fall-slower-growth-seen-2010-07-22-102000
THE DYING US HOUSING MARKET, SLOWING MANUFACTURING SECTOR AND FALLING RETAIL SALES STRONGLY SUGGEST THAT THE US ECONOMIC RECOVERY IS STALLING OR HEADING FOR A STEEP DECLINE.
About the worse economic news that emerged out of US this week is Beb Bernanke’s public pronouncement that the Fed will ease monetary policy if growth slows down further, particularly if employment weakens.
http://www.marketwatch.com/story/bernanke-stresses-he-is-ready-to-ease-2010-07-22?dist=news
If Bernanke is NOT positive of US economic outlook, how can we?
Eurozone
Eurozone saw some late improvement of economic data. May industrial orders were up contrary to market expectations despite the sovereign debt crisis. May industrial orders across the euro zone rose 3.8% compared to April and rose 22.7% compared to May 2009. Adding on, we saw its flash estimate July Purchasing Manager Index edging up slight to 56.7 in July compared to 56.0 in June suggesting that production had a slow grind ahead. But EU is not a one shade monolith. Analysts cautioned that the increase was driven largely by a sharp rise in German PMI, which jumped to its highest level since February 2007. Like South Korea, it has been known that German exports have done very well as conditions in emerging economies continue to improve. The strong outcome in the July PMI data “probably reflects Germany’s outperformance — in the manufacturing sector in particular. Of some concern is the deceleration of increase in export orders despite the cheaper euro ( which should have help exports) hint of lack of demand growing forward as the restocking cycle in export markets may be over.
Overall, the nascent recovery is charting through rough waters of fiscal austerity and long journey ahead of improving export competitiveness following steep depreciation of the Euro in the last quarter. The International Monetary Fund, in its latest report, warned that The recovery, driven mainly by external demand, “is likely to be slowed in the near term by market tensions related to sovereign risks”
http://sg.news.yahoo.com/afp/20100722/tts-finance-economy-imf-europe-509a08e.html
PIIG members of EU faced intense pressure of immediate action of credible fiscal adjustment to establish the path toward long term fiscal sustainability. The European Central Bank warned that government debt in the 16-nation zone is forecast to reach 88.5 percent of gross domestic product in 2011, or roughly 8.3 trillion euros (10.0 trillion dollars).
http://sg.news.yahoo.com/afp/20100606/tts-ecb-eurozone-bank-banking-sector-pub-c1b2fc3.html
Despite a strong and far-reaching eurozone policy response to the crisis, IMF warned “market confidence will take time to restore. Countries facing market pressures have no option but to adjust forcefully and meet their deficit targets.” Much of continental Europe, namely Greece, Italy, Spain, Portugal, is now on austerity drive with determined efforts to cut budget deficits to restrain public debt to an acceptable percentage of GDP. In June 2010, the German Government announced a 80 billion euro spending cut combined with up to 15,000 job cuts in the public sector, as part of a sweeping austerity package.
New taxes will also be imposed on air travel and the nuclear power industry.
http://edition.cnn.com/2010/BUSINESS/06/07/merkel.germany.spend.cuts.ft/index.html
Britain’s forward economic outlook is just as gloomy. The new Government inherited from its predecessor one of the world’s worst public deficit rocketed to a record-high of 156 billion pounds in the 2009/10 fiscal year which ended in March, as severe recession hit tax revenues and as the government spent billions of pounds on bailing out banks.
http://sg.news.yahoo.com/afp/20100620/tts-britain-economy-finance-budget-cac1e9b.html
All these forced tough fiscal discipline and will definitely have negative impact on economic aggregates. NOT surprising that Coca-cola’s 2nd qtr earnings already announced that its sales in EU is the only market sector which experienced negative growth. EU has slowed down but its impact is still to be felt in China in the coming quarters.
China & the Rest of Asia.
Manufacturing is also slowing in China. Chinese manufacturing activity grew at a slower rate last month than in May. China’s official purchasing managers’ index (PMI) fell from 53.9 in May to 52.1.
A separate measure, the HSBC China Manufacturing Purchasing Managers Index also showed a slowdown, falling for the third month in a row to 50.4, from 52.7 in May. At close to 50, it suggests that Chinese manufacturing sector is CLOSE TO SHRINKING. Does that surprise me? The answer is NO. It is in the Chinese trade data recently announced.
http://www.chinadaily.com.cn/china/2007-07/10/content_5430541.htm
Exports in June soared 21.7 percent to US$179.6 billion while imports grew 14.2 percent to US$76.4 billion, the customs agency said. The record trade surplus, despite gloomy global economic conditions, confounded many analysts but in reality hide a multitude of disturbing facts. US trade deficits with China escalated further – the reason is the rush of glut-filled Chinese steel exports into US ahead of the expiration of export tax rebates to be lifted by China soon. What is more disturbing is the decline in the value of imports. Noting that China is an over-sized glutton of bulk commodities especially iron-ore and coking coal, imports were expected to be higher shrinking Chinese trade surplus. Why? It is because iron-ore prices lifted up another 40% in the 2nd qtr 2010 (though declined about 8% in the last fortnight) and coking coal price have surged in that interval. Therefore the fall in imports of these dry bulk commodities reveal a disturbing trend in steep fall in the VOLUME of iron-ore and coking coal imports forced upon by the much slowed-down steel sector supplying steel inputs to infrastructure and manufacturing sector. Other metal prices have also fallen in the 2nd quarter 2010.
Crackdown on overheating property market have hurt infrastructure, construction and manufacturing sectors in China at the same time and its impact crunches commodity prices. Since mid-April, mid-April, global prices for aluminium are down 18 per cent; for copper, 13 per cent; for lead, 19 per cent; and for nickel, 27 per cent
China is confronting a property market bubble probbaly worst than the US. Straits Times, July 10, 2010 page B25 has this interesting news item – 65 million empty homes – one big bubble. Oh I am sure it is. Dr Yi Xianrong, an economist with the Chinese Academy of Social Sciences disclosed that estimates from electricity meter readings showed 64.5 million empty apartment and houses in urban China, many of them bought by speculative buyers hedging on ever rising property market of no ending. Chinese Government is aware of speculators buying 2nd and 3rd properties relying on bank borrowings. Dacronian new monetary policies put in place recently halted the insanity of these wild speculation but they hurt all other sectors of the economy.
There are fears that manufacturing is also peaking for much of Asia’s emerging economies. South Korea and Taiwan’s manufacturing logged their 16th consecutive months of expansion and India its 15 months of consecutive expansion. In a world where the macro-economic environment is tepid, how long can these bullish run continues? Samsung which accounts for nearly 12% of South Korea GDP will report a lower than expected 2nd qtr results and forecast to slow even further for the rest of this year is a case in point. There are other warning signs. The purchasing managers’ indexes, released early this month, showed more muted rates of growth in China, India, South Korea and Taiwan.
http://www.marketwatch.com/story/asian-factory-data-may-signal-rebound-has-peaked-2010-07-01
As government are forced to cutback spendings and steep currency djustments in Europe and the winding down of consumer tax spending credits in US, demands for Asian manufacturing exports must now take into account the realities of slowed-down consumer spendings in these countries. Analysts believe, and I agree too, is that the strength of manufacturing upswing in Asia in the last 12 months had the benefits of a restocking cycle which followed the credit freeze from the end of 2008. This has ended – noting steep decline in consumer spending in housing, retail goods and banking services evident from 2nd qtr US corporate results released in the last fortnight.
What implications these developents has for Singapore? Tough times and increased risks of external shocks of a global double dip starting from US. The much touted global economic recovery spoke of in the last 6 months is tepid, fragile and shallow. The US economy slowed from a twice-revised-downward 2.7% growth in GDP in the 1st qtr to a even considerably slower 1.9% in the 2nd qtr (maybe subject to downward revision again??) and increasingly deteriorating retail, housing conditions, continued de-leveraging of consumer debts, worrying employment trends and a clearly slowing manufacturing sector which was until recently a stellar pillar of its recovery core. Europe is on austerity drive and decline in euro is hurting badly consumer’s ability to spend even on a bottle of coke. Tupperware’s gloomy forward profit guidance signal weakening demand even in emerging markets. China is definitely at risks of a hard landing instead of a soft one as manufacturing were hit CONCURRENTLY with infrastructure and construction sector. Both China and US spoke recently of further stimulus spending before year end if the economies continue to weaken faster than expected.
How can they, may I ask?
In China’s case, it will risks rekindle the property bubble so soon and in US , such a decision will escalate US Government’s public debt relative to its GDP to increasingly difficult to manage of stress levels and financial market tolerance in the bond market. I do see global economies perching dangerously on the tightrope and updates of corporate results in US showed very little organic growth on a quarter to quarter basis. When the economic recovery is shallow and weak, it is very vulnerable to sudden shocks and this is what we must expect. Be warned that bond prices has risen and yield on 10-year US Government bond is down back to 2.89% now. Gold seems to be factoring sensitivity to uncertain economic outlook reacting with muted enthusiasm to Bernanke’s “unusually uncertain”outlook prognosis leaving me to guess that there is downside to current spot gold prices.
LET ALL BE FOREWARNED HERE. Ben Bernanke is openly pessismistic of US economic outlook in the short-term in his congressional testimony this week.
My own prognosis judge that there is at least a 70% chance of a double dip before the final quarter of calendar 2010 with big negative consequences for Singapore unless both US and Chinese Governments take an about turn to stimulate their economies again, however unpalatable this policy dilemma means. Anyone disagreeing??
Federal Reserve Chairman Ben Bernanke called the economic outlook “unusually uncertain” but avoided naming any new steps to jump-start growth
http://www.marketwatch.com/story/us-stocks-falter-on-health-tech-earnings-2010-07-21
His comments DO NOT give me confidence that he knows what to do when that happens.
FASTEN YOUR SEAT BELTS, MATES! Enjoy the rough roller-coaster ride awaiting ahead.
Zhen He
UPDATE on Global economies are heading for turbulence, ARE WE IN TROUBLE GOING FORWARD?
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Very, very good article! You must have spent quite a bit of time digging out and consolidating all these. Thanks!
Martin:
July 24, 2010 at 4:09 pm
Glad to hear you find it interesting. Yes, a lot of thoughts went into developing the framework picking out what I believe to be “salient” corporate results just released to illustrate the latest state of the global economic outlook.
I DON’T LIKE what I am seeing of the state of world economy. Hope other TR readers find it interesting as well. Contrary thoughts in disagreement, if any, is, of course, welcomed.
Amidst the general gloomy worldwide economic outlook and economic results of major corporations across the globe – that although positive but showed a downward future trend, what possibly could have caused Singapore’s GDP performance to have expanded by 13 to 15 percent – as so loudly trumpeted by PM LHL ?
Is this a responsible act that merely drive up false confidence, or an irresponsible political act to pump up the hoooooopla spirit ahead of more wild partying celebrating another NDP2010 to be followed by the YOG2010 – and to be followed by Election2010 ?
Amidst the gloom, sovereign funds such as Singapore’s Temasek, Malaysia’s Khazanah, and others including China, Saudi Arabia and Norway – have all reported aggressive expansion in asset acquisition.
Clearly, although the economic outlook in the short to medium term remain bleak, and the present situations can only be “works in progress” – the various governments will have to collaborate to prevent a total economic collapse on a global scale.
This will require all governments to remain sensitive to economic data, and alert to the various signals so as to make the appropriate responses – instead of total neglect that begins from irresponsible inactons to hapless ignorance as shown by the previous US President Bush.
There remains a glimmer of hope for the global community as long as regional co-operatives and forums such as the G-8, G-20, APEC and ASEAN gather the various concerned government bodies to focus their respective strengths and energies to sustain the efforts to grow the global economy.
is this your uni thesis? too comprehensive for just a blog post.
Maybe, maybe, maybe … that’s why they will pump-prime the Singapore economy to die-die ensure GDP is >10% for 2010 (even at the risk of raising the ire of native Singaporeans as they open the floodgates for another deluge of 100k foreign workers).
10% GDP growth is that Magic Number because it will mean the ministers and senior civil servants can get the maximum GDP bonus of 8 months’ salary!
Maybe, maybe, maybe … that’s their way of going off with a Big Bang as some will likely lose their electoral wards in the next General Election.
If things could be “managed” short of an sudden blow-out from external factors, then the timing should work out for GE in 1H 2011 after they have the GDP safely in their pockets.
No such thing as a New York-style Wall Street clawback when it comes to our Singapore-style High Street in the vicinity of our Parliament House, eh?
The Pariah, http://www.singaporeenbloc.blogspot.com
This is a well formatted article – logical and very convincing.
Ultimately, the whole world will be financial turmoil as all FIAT currencies get into trouble – if every central bankers just keep on printing money.
Zhen He,
Can you can help to elaborate further what will happen to S’pore if a double dip really occur ?
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Hi TR – for such a complex but meaningful LONG technical paper. would it be possible in future to have a short summary at the beginning? Thks.
Very current and informative article. I am impressed. Interestingly, Noeriel Roubini’s forecasts and global economic snapshots are similarly pessimistic for the mid-to-long term conditions.
Singapore’s major GDP contributors – manufacturing and tourism will be severely affected if US and Europe start cutting down imports to reduce their huge budget deficits. I think we will be in deep trouble early 2011. So likely elections will be called by December with good bonuses for civil servants and some goodies for the man-in-the-street thrown in for good measure to entice “daft” voters.
http://dayakbaru.com/weblog08/2009/11/22/kaki-dalam-kasut-tun-mahathir/
Highly insightful . . .
Kaki Dalam Kasut – Tun Mahathir
Posted by Bryant
Foreign writer Bryant’s comments on Mahathir’s article : Kaki dalam Kasut where he says Chinese is the real master of Malaysia . This is a rational article written by a foreign observer in Malaysia.
The highly respected Tun,
WE NEED TO WORK TOGETHER
China is coming up, India is coming up, Vietnam is coming up and now even Russia is on the rise. In this flat world that is all wired up and regardless whether we are Malaysian Malay, Chinese or Indian, and if Malaysia does not progress, all of us would become history of this country! Without the Malay, Chinese could not do well in the country and without the Chinese, Malay would not do well. Both have to work together to bring up Malaysia and mitigate the ascute impact that is being brought about by the globalisation.
For me, a true leader is someone who has the foresight that not only focus on one particular group in the country but take care of the future of everyone. A good leader is someone who know what is the biggest threat the country is facing and direct the people to fight off the threat.
A leader is also someone who is impartial that has the ability to promote harmony in the country for a long period of time.
UMNO MAKE MALAY FIGHT WITH NON MALAY
UMNO is a political loser that leads the country to nowhere. They do not understand what is going on the outside world. They have no clue where Malaysia will be in the next 30 years. With the 3 new superpowers, i.e Indian, China and Russia standing tall and high together with USA and the Europe Union, they do not know what kind of world it would be and how Malaysia is going to compete and share the ever smaller slice of cake of the world economy.
They only know how to get the Malays to fight with other Non-Malay on tiny issues within Malaysia , while the two races know jolly well that the issues they are fighting are trivial and is totally self-satisfying. UMNO does not give a damn to how the poor Malay is going to live in the future and they do not care about the real benefits of the poor Malays. They only want the votes from them.
The NEP is a good evidence on how they benefit the cronies, instead of the poor Malay.Despite all their despicable acts they are still in the power.
MALAY IS EVERYTHING IN MALAYSIA
As you are aware, the Malays control the rights to all the lands and all other natural resources in this country. They control all government institutions, GLC and State owned companies. The Malays dominate the lawmaking process in Malaysia ; The Malays control the decision making process in formulating the economy policies. The Malays own the largest national assets and the Malays are given shares in the public listed companies for free.
The Malays have also been given all kind of priorities when it comes to buying properties, awarding of public contracts, tertiary education opportunities, awarding of scholarships and even getting a job in government departments. With all these privileges and rights enjoyed by the Malays, you are saying nothing has been done enough to help the Malays to catch up with other races, mainly the Chinese. Then what else should Malaysia do to satisfy the Malays?
Did the Chinese seize or rob anything away from the Malays or all their wealth was a result of their hard work? If it is all due to their hard work, why do you say it is unfair? I don’t quite get your point here.
WOULD THE FOLLOWING MAKE MALAY HAPPY IN MALAYSIA?
May I humbly ask you what do you expect the Chinese to do if your so-called NEP did not achieve the desired result? Would the Malays be happy if the ethnic Chinese in this country do any of the followings:
■surrender their assets and hard earned money to the Malays unconditionally;
■-not to engage in any business activities;
■-not to score As in all sort of examinations;
■-not to make money that is more than the Malays are earning;
■-not to advance to higher education; or
■– renounce their citizenships and go back to China or migrate to some other countries?
WHY DIVIDE AND RULE IN YOUR OWN COUNTRY?
I am a foreigner but I am surprised that your intention is to divide your own country. I think you are mainly targeting the Chinese. Frankly, tell us, what do you expect the Chinese to do in order to achieve what is so called “equality” meant by you?
ARE JEALOUS OF LEE KWAN YEW ACHIEVEMENT?
Tun, after all these criticism you have against the present government, I feel that you are starting to lose your rationality on your arguments. You have run out of good reasons to convince us. I guess it could be due to your accumulating jealousy of Mr Lee Kuan Yew, your former counterpart in Singapore . But reality is always hard to accept. No matter how, you have to accept the fact that he is regarded the Father of Singapore but you are not regarded the Father of Malaysia; you have to accept the fact that Mr Lee is able to influence the government of Singapore until he the day he dies but you have not been able to influence the government from the moment you stepped down as PM.
You must also accept the fact that he is still very popular on the world stage and a leader respected by many but you are not quite. Because of these jealousies, you are starting to accumulate imbalances in yourself that lead you to embark on a series of action to attack your successors. It is very obvious that you are not happy when your successors are more popular than you.
Is there any good of doing that? What is your intention? Can’t you take it easy? During your time, you criticised most of the developed countries especially the Western Countries out of jealousy and after stepping down as PM you criticise every single soul remained in the cabinet for not listening to you.
When will you ever stop criticising any people?
Can’t you respect the decision of others?
IS THERE ANYTHING WRONG WITH CHINESE IN MALAYSIA?
Back to your recent blog, is there anything wrong with Chinese in this country? Did they seize or rob the money away from the Malays? Did they have the ability to come out with any policies to marginalise the Malays? Did they dominate the lawmaking process of this country? Did they formulate the economy policies in this country? Did they control the government departments in this country? Did they control the state owned companies and GLC in this country? Did they control the country’s largest oil companies and banks? You know the answer right?
WHO ARE MAKING THE LAWS IN MALAYSIA?
Malays are the one who dominate the the lawmaking process of this country; Malays are the one that formulate the economy policies in this country that favours the Malays. Malays are the ones that control the government departments, state owned companies and GLC. Malays are the one the control the funds in this country. Malays are also the ones that control the largest oil companies and banking industry in this country. With all these rights enjoyed by the Malays, what else do you want the Chinese to do?
Surrender their houses and savings and their wealth that they earned with their hard work to the Malays, for no reason? or ask all the Chinese to renounce their citizenship and go back to China ? Have you ever thought of after 30 years of implementing NEP, why it does not achieve the desired result? Don’t forget under the NEP there are a series of policies that favors the Malays. The obvious ones would be the distributions of APs and awarding of contracts.
IS THE CHINESE TO BLAME?
If with all these policies, it still does not give the Malay what they want, what else do you want the Chinese to do? Is the Chinese to be blamed because they are too hard working? Or the Malays to be blamed because they do not treasure the opportunities given? You know very well the NEP has been misused and it only benefits the cronies. So if you have designed NEP to only benefits the cronies, please don’t say it is the problem of Chinese that NEP does not achieve its result. It has nothing to do with the Chinese but NEP and the Malay themselves.
WE SHOULD NOT BE FIGHTING ONE ANOTHER – BUT WORK TOGETHER
This is a globalised world, Chinese and Malays should not be fighting against each other because Malaysia is competing with other countries. China used to be backward and lagging behind Malaysia but now they have caught up and have even surpassed Malaysia . Can we ask them to slow down their development? If they refuse to listen can we make a complaint to the United Nation that China is developing too fast and this is very unfair to Malaysia, which adapts a more a passive approach? Who give you the right to prevent others from progressing?
CONCLUSION – WE LIVE IN A FLAT WORLD
Who you think you are? This is a flat world (Obviously Tun did not read the book named “The World is Flat”). Don’t be so narrow minded to only focus on the Chinese or Malay in Malaysia . We should now look at the world as a flat world.
If Malaysia does not progress, no matter we are Malay, Chinese, Iban, Kadazan, Indian etc , we must work together or we would be extinct one day!
My guess – if George Yeo indeed hinted or said that GE is Q4 10 or Q 11, what does that mean about the economic prospects? Is there another jumbo IR project in the pipeline? By 2012, most if not all private property projects would have been completed relative to the onset of the ppty market boom. An economist 12th july article highlighted that S’pore market is the frothiest. Other than increasing the population resident in S’pore that promotes internal consumption etc, it is well known that there is a limit, if not already intensively demonstrated by the flooding. When PM and MM said that it is costly to construct more canals etc, what does that mean? Canals are not road tunnels, no ERP etc. Furthermore, tunnels can be done but when the word ‘costly’ was used, it can only mean that we are running on a tight budget. If the workfare or work credit scheme remains, it continues to expend billions of dollars. From where on can these funds come from? More COEs? More land sales?
It’s truly and unspeakably very strange. Globally, Europe and the US are worried about the global recovery and where 7 out of 91 banks in Europe just failed the stress test; and here we have Singapore boasting to be the world’s fastest growing economy at 13-15% 2nd quarter. Amazing! Shameless! They would sell their own mothers for their corrupt bonuses!
Just wait till year end election is over & then all the “BAD” news as usual will come crashing through. This time they will blame God for not sustaining Singapore. After God, they will blame the atoms and molecules. After that, they will blame the existence of the Blackhole, which essentially translates as their own Assholes having no toilet paper accountability to stop them from s.h.i.t.i.n.g more crap out.
atobe:
July 24, 2010 at 5:28 pm
Like ships in safe harbours, they still needs their lights on while tumultus storm is raging outside – this is natural – metaphorically. It partially explain your comment below although I think the most recent asset buying spree got their timing “wrong” looking at the state of global economy and its CURRENT outlook.
“Amidst the gloom, sovereign funds such as Singapore’s Temasek, Malaysia’s Khazanah, and others including China, Saudi Arabia and Norway – have all reported aggressive expansion in asset acquisition”
Atobe, you may have noted some common threads in your comment. They are
a) conscious shifts in strategic directions
b) driven by consideration of domestic economic constraints
c) capacity to spend
d) on-going build on of existing economic policy and most importantly
e) STRONG NATURAL RESOURCES FOCUS AND CHASE GLOBALLY FOR FINITE RESOURCES.
I will explain these. The first wave of oil support Petro-dollar flowed into US and European giants like GM, FORD BMW, K-Mart, General Electric etc. These were good for a while but now proven to be DUDS. So Saudi money are looking for strategic investment stake to bring industrialisation back home. Ghawar oil field, the world largest, is said to have produced over 65 billion barrels of oil and an estimated reserves of 71 billion barrel according to unconfirmed sources. Geologically, it is rare to find an oilfield producing more than 40% of its total RESOURCE base ( term as RESERVES) and production rate will fall very fast as one approaches this geological limits. Some even fall of rapidly at mere 30%. Looking at these numbers, it would look like Ghawar is MORE THAN halfway past its life history of exploitable RESERVES. There is no big industry to replace money from Ghawar and other Saudi oilfields UNLESS THERE IS A MAJOR DISCOVER OF SIMILAR SIZE IN REPLACEMENT. No sign of that, so the Saudi is looking to develop upstream natural resource sector such as energy-intensive industries like big aluminium refinery taking advantage of their access to cheap energy sources. The Saudi lacks technological base, so foreign partnership is important and they use their petro-dollars to strong effects.
http://www.ameinfo.com/65654.html
So the Saudi buyings of foreign assets is an ongoing strategic shifts in economic direction driven by domestic consideration of economic constraints and fear of geological constraints and risks of ” Peak Oil”. Off course, they got the capacity to spend. likewise, Norway is also looking for shifts in economic direction, cutting their reliance of North Sea oil and gas base to 25% of its GDP base. These are on-going.
http://www.booz.com/media/uploads/Economic-Diversification.pdf
What about Malaysia, it shifts direction. Petronas was looking for oil and gas in Greenland. Recent comments from Malaysia indicated that it is cutting exposure internationally to focus on opportunities closer to Malaysia. I suspect, geopolitical consideration overrides as Petronas exposure in Sudan and Iraq may be viewed as having some import of sovereign risks consideration. Malaysia might be looking for new partners to search and explore for oil nearer at home which big oil majors have not shown big interest preferring Burma, Vietnam etc.
And of course, China will NOT be buying unlimited supply of US Treasuries, recently buying into Greek and Japanese sovereign debts. Whatever left, is aggressively spent on buying mining and resources assets around the globe, leaving Japanese, South Korean, Indian grasping for their breath. The Chinese Goverment now said that it is NOT buying into gold bullion as reserve asset to back its currency which must mean that it is slowing down the pace of pressure towards internationalisation of the Yuan.
Singapore, of course, is the usual “Johnny-come-late-to-dinner” class of its own to do a lot of dishwashing and eating the leftovers. We went in BIG relative to our investment base in March/April 2010 buying near the peak of base metals prices looking for opportunities in Mongolia and Cobre Panama etc. As we know, base metal prices have fallen between 13% to 20% in just two months. We should have done that in March 2009 but we gambled in banks that are burning like raging fires. Singapore has no resources and it is a natural port of call for diversification of our economic base.
We really screwed up BIG TIME buying the wrong things and NOT buying the right things at the right time.
@ Walau:
July 24, 2010 at 5:28 pm
You can’t possibly write substantively on a topic of GLOBAL economic outlook with just a short paragraph or a few short paragraphs yet leaving scope for forum discussions of viewpoints. It is necessarily a BIG and COMPLEX topic as financial markets and economic are interlinked.
@ The Pariah:
July 24, 2010 at 5:34 pm
IMF is less optimistic than us. The IMF report out two days ago forecast the Singapore economy would expand a rapid 9.9 percent in 2010 before slowing down to 4.9 percent next year.
http://business.asiaone.com/Business/News/Story/A1Story20100723-228624.html
We are talking about expectation of being the fastest growth economy in 2010 only because we had fallen the fastest inot the deepest ravine in 2009. So it is an empty boast of self-flattery in delusion.
Leaving that aside, I have COMPELLING DOUBTS that the flash estimate of 19.3% GDP 2nd qtr was underpinned by tourism-related spending lift and gains in the pharmaceutical. Official economic statistics and pure economic logic proved the contrary. Retail sales of clothing, electronic consumer goods and food consumption fell SEQUENTIALLY in May 2010 and both April and May 2010 retail sales were worse than the 2009 recession. Compared to marine, petrochemical and electronics, the pharmaceutical component in our manufacturing sector is PEANUT.
The IMF report I quoted above noted that our economy is very sensitive to economic disturbances in developed nations such as key European and United States markets. It is also proven of truth in the first qtr 2009 when we sank deepest and fastest.That being so, US economic growth revised twice from 3.5% to 2.7% in first qtr TUMBLED by nearly 30% to 1,9% in 2nd qtr. And during the 2nd qtr of 2010, EU was in the PERFECT STORM of 25% fall in the value of euro hampering a lot of trade and investments. China slowed down from 11.9% to 10.3%. So how did we performed miracles that statistics proved the opposite??? I am totally puzzled of comprehension.
I don’t recall that there were more than 100,000 jobs advertised in the local media and internet of unfilled positions in the last three months when our economy myseriously grew by 19.3%. Did you see any?
The decision to add another 100,000 workers must be, in my best considered judgement, POLITICALLY, NOT ECONOMICALLY MOTIVATED. It was made BEFORE most of the US corporate results telling us how dire the economic situation is like and before Ben Bernanke’s grim warning on Friday (2 days ago) ominious warning that US economy faced “unusual uncertainty” – two big scary words.
But whether we hit 10% or not by pump priming is NOT a certainty of outcome to me. The US corporate sector is mixed and dependent on consumer who are now financially lethargic and in most cases near death looking at accounting numbers of corporate results and forward guidance. As the MOMENTUM of recovery is weak, all it needs, by defintion, is a little shock and the economic building will come crashing down. I think Bernanke knows this and his carefullychosen words “UNUSUAL” AND ‘UNCERTAINTY” TELLS US THAT IT IS NOT GOING TO BE THE USUAL look out surprise will tumble the US economy but unusual surprise. And the MAGNITUDE of impact is also unpredictable which could explain why he did NOT offer possible solution possibility of policy choices when he warned of grim outlook ahead.
If the US tripped and fell heavily, I am sure China will feel a giant economic earthquake as two of it principal market would be in complete turmoil. All hell would break lose. The EU would NOT recover so quick from the massive currency devaluation of the last 2 months and US falling into the cesspit in the 3rd qtr.
In those circumstances, I would think Singapore would face a small negative growth in 3rd qtr and a massive collapse in the 4th qtr of delayed impact. On this gloomy scenario, much of the strong gains in the first half of 2010 could be wiped out leving maybe a net GDP growth of 2% to 5% at best.
Anyone disagreeing?
@ logic & reasons:
July 24, 2010 at 5:40 pm
Mate, you asked an INTERESTING question but I have NOT got a precise definitive answer. The reason is that it involved scenario casting of varied factors, severity of a US economic double dip and what that also impacted upon China. I am very tempted by your valid probe to write another economic-based paper for TR but it won’t be now as I will be watching EVOLVING key economic parameters and global developments as they eventuate or unfold. Much of what I want to say of CURRENT OUTLOOK IS ALREADY in this write-up.
For now, I could say is of generality by necessity.
If the US tumbled badly, I feel strongly that there is VERY LITTLE POLITICAL WILL to aggressive stimulus support even if Obama wants to do that. Congress would be very wary after spending so much and FAILED. China already spent close to US$1 trillion, and that DID NOT WORKED TOO , if US collapsed again in the third quarter. So I think THE US WOULD BE FORCED INTO THIS VERY DRASTIC DECISION – DEVALUING THE US DOLLAR since China refused to appreciate the Yuan significantly. China cannot afford to revalue after the euro fell more than 20% in a few months because EU is China’s biggest export market and that is already imperiled by the euro’s massive de facto devaluation.
A major long-term devaluation of US has twin major impacts.
a) a reshoring of American investments from China and Asia back to USA and there is some trend of that already in progress
b) China’s economy will wobble and that will deflate up its property bubble sending BIGGER shock waves into its manufacturing sector (also already seen in the CONCURRENT decline in manufacturing now as credit squeeze being put in place).
One must remember this cold fact – CHINA HAS LESS CAPACITY TO HANDLE A BANKING CRISIS IMPACT ON THEIR ECONOMIES THAN EU OR THE US. Why??
The Chinese do not have a sophisticated financial system to manage monetary aggregate vias macro-economic policies except by crude mirco-economic monetary control like a hike in cash deposit for second property speculation. It is like using a BIG HAMMER to hit an irritating flies on your own hand. Yes, you might kill the fly but all your fingers also got smashed!!!!
When China property bubble burst, Hong Kong listed companies with big exposure in property investment anbd projects in China will feel the tsunami and Singapore will be badly hit.
I believe, all asset classes will fall in value in Singapore and the world too – stocks and shares, property in particular as Chinese pulls out. Certainly there will be massive job loss because it is hard to find the money to pump prime our economy as our investments in overseas shares will drop a lot of value as well – let us not forget that.
I believe a banking drought will destroy a lot of good business just because they are geared up to bank borrowings.
Anyone with big debt borrowings are in big trouble.
@ @ logic & reasons:
July 24, 2010 at 5:40 pm
One more thing. Compared to all the “chopstick” economies, Singapore is the WEAKEST because we don’t have a strong indigenous domestic sector catering to either a large domestic market or global markets. The GFC of 2009 proved that. We are the first to fall and fall the deepest in the whole wordl in the 1st qtr of 2009!! And now in the first half of this fragile recovery, the strongest economies did the best – South Korea, Taiwan, Germany, Australia, Canada, Brazil. We are the opposite of this – THIS IS OUR BIGGEST MISTAKE AND TROJAN HORSE OF FAILED ECONOMIC MANAGEMENT FOR 4 DECADES SINCE INDEPENDENCE.
I REALLY PRAY AND HOPE THAT US WILL NOT FALL FOR THE SAKE OF ALL SINGAPOREANS AND THE WHOLE WORLD. AND IF THEY FALL, I HOPE IT IS SHALLOW FOLLOWED BY A PERIOD OF TEPID RECOVERY FOR THE NEXT FEW YEARS TO ENABLE THE REST OF THE WORLD TO BUY TIME AND RECOVER THIS LONG-TERM ECONOMIC MALAISE AND SEMI-PERMANENT CRISIS.
@ reallyconcerned:
July 24, 2010 at 5:36 pm
Yes, I agree it is a LOT of FIAT currencies. Just look at the level of public sovereign indebtness as a proportion of their GDP across Europe, USA and Japan. Most EU countries are over 100%, japan is nearly 190%, USA over 85% and all ARE COUNTING as interest keep piling on top of continuiing fiscal deficits year in nd year out. That is why I believe – AGAIN IT IS PERSONAL OPINION ONLY – that gold will tumble with the next deflationary economic impact but rise solidly thereafter ( since Government got to spend even more money pump prime their economies back to recovery adding to bigger sovereign debts). FIAT CURRENCY is forcing gold into the alternative currency role by substitution effects of gold convertibility worldwide and the inevitable decline of the US dollar.
Do you agree???
the science center project in jurong is put on hold! due to $ ‘govem bo lui’.
@ Baby Boomer:
July 24, 2010 at 10:31 pm
Yes, I agree with Roubini’s assessment of long-term economic outlook. He looked at structural factors – indebtness, finite resources contraints, AGGRAVATED by overpopulation, climate change concerns, urbanisation impact on food prices BUT HE DID NOT LOOK EXPLICITLY ON TECHNOLOGY. This is a big one I think worth exploring because they have a big impact on economic costs and economic opoortunity spacing out to new frontiers and shifting opportunities. For reasons of technology and innovation, I feel the “fork-spoon-knife” economies have a headstart and should again lead the world – once the current financial crisis is contained within limits of sustainable development. I feel the “chop-stick” economies will play catching up with South Korea, Japan, Taiwan, China and India, maybe Saudi Arabia IN THAT ORDER leading the pack and Singapore trying to fit in or piggbacking. And of the “hands” economies, most will remain in the backwater of sleepy development.
What do you think???
Hi Zhen He “but more of a generalised broader uncertainty hedge of global economy in which any deflationary collapse of US economy will also perhaps shrink demand for gold and leaving spot price of physical gold vulnerable”.
This comment could be wrong: you are confusing the paper gold with the physical gold. The divergence of this two are happening quickly, any deflationary collapse of US economy will initially reduce the paper spot price but as people realize the seriousness many people will rush to buy physical gold a real asset. Eventuality, if enough physical gold is bought COMEX and LBMA might default and the price of physical gold will be unconstrained by the paper gold and will shoot up.
@ james:
July 24, 2010 at 11:20 pm
I have not read that article you mentioned.
“An economist 12th july article highlighted that S’pore market is the frothiest.”
But I have always felt our economy lack a substantial robust economic base unlike other “chopstick” economies. That leaves our economic choice to limited option of inflating the public housing to create illusory wealth driving up the GDP numbers via real estate development. We need to froth up the bubbly housing sector to inflate an air-bag economy since we do not have a strong external sector. What better way to do it to restrict supply – forcing PRs to buy in the small resale market – and letting in the immigration floodgates when we run out of economic ideas to generate growth. The flow-on impact of escalated runaway pricing in HDB resale market will lift up HDB values and encourage upgrading to bid higher in the private condominium market. This will grow the the real estate sector, construction industry and supporting the banks. The strategy seems to be sell higher, and then BUY EVEN HIGHER – hoping that the bubble won’t deflate and hoping that the economy won’t tank and if they looks like crashing again, bring in another 100,000 migrants in the disguise of “addtional foreign workers needed” when jobs are NOT even advertised as available or in existence. There are always plenty of rich people looking for another passport which they cannot get in USA, Australia, Canada, New Zealand or EU. Just don’t get caught standing when the music chair game suddenly ends with a global economic bang like 2009.
It would be interesting if you could kindly fill in here what the economist wrote, thanks!!
@ nonsense:
July 25, 2010 at 12:16 am
Your comment below is poignant, though the figure quoted is a little inaccurate
“It’s truly and unspeakably very strange. Globally, Europe and the US are worried about the global recovery…. and here we have Singapore boasting to be the world’s fastest growing economy at 13-15% 2nd quarter.”
The 2nd qtr growth flash estimate is 19.3%, not 13% to 15%. It is incomprehensible of acclaimed basis of support of this number. Bernanke spoke of “unusual uncertainty” reminds me of Greenspan’s two words “irrational exuberance”. Two words are very dangerous when they comes out of the Chairman of the US Federal Reserve Board. The US economy is very strange indeed now. Corporate sector is NOT that hopelessly weak, but definitely NO SUSTAIN RECOVERY GROW GENERALLY inside US. Look at Alcoa, 50% of its sales are in USA, its Chairman says this recovery “has legs” but he also forecast at least 25% decline in sales in US market!!! So the only legs I see is prothesis legs which a little push from a little girl would see the towering Chairman fell over hard on the concrete pavement of economic street. Look at GE, Jeffrey Immelt talk of need to conserve cash to be safe in post result calls from analysts. Two days later, under market pressure I presumed, GE announced 2% increase in dividend and allocated US$15 billion to resume share buy-back after 2 years haitus!! It is a nice wayang show there. Hahahaha! 3M and Microsft did well but it is corporate market. Autos are doing well but it is also corporate market-driven. WHERE IS THAT CONSUMER which Low Thia Kiang famously spoke of in Singapore Parliament in 2009 budget statement debate poignantly and correctly – “THERE IS NO DEMAND”. And that is troubling or Tupperware and Coca-cola now.
I AM GLUMMY NOW, NOT HAPPY, NOT HAPPY BY A LONG SHOT!!!!!!!!!!!
Jamesneo:
July 25, 2010 at 11:22 am
Yes, I see your point there BUT IS THERE A LONG TERM SIGNIFICANT DIVERGENCE of “paper” and “physical” gold of your distinction. You must agree with me that the value amount of PAPER GOLD trade on global financial market is a lot more than physical gold produced and sold in the consumer market. It is also the paper gold which drives the price volatility putting marginal mines into production and also set the bottom price of production costs below which below that level also drive gold mines into collapse shut-down. But once, that level of shut down price occurs, supply will be restricted and in any case, after the recovery of economy, IT WILL BE THE DEMAND IN THE PAPER GOLD MARKET THAT WILL DRIVE UP THE PRICE OF PHYSICAL GOLD. RAPIDLY AS PEOPLE MAY SEE IT AS AN ALTERNATIVE CURRENCY.
So my point is that paper gold drive physical gold and they move hand in gloves – which is why I believe that in a deflationary economic environment, all asset classes including gold will be liquidated. You see that in the Asian currency crisis when Koreans took out their gold and sell for cash. It will happen again. Once that is over, gold price will recover. Only this time, I believe – AGAIN IT IS ONLY MY PERSONAL OPINION – it will recover faster and to greater extended height because currency has lost purchasing power. Gold is denominated in US dollar. I see US dollar heading south since China refused to let the Yuan rise substantially. This IS MY ECONOMIC OPINION AND IT IS NOT A SURE THING. It is just opinion which could be right or wrong and which you may or may not agree.
Your views is therefore respected even if I differ in some different perspective in this instance. I believe gold is still headed up north.
What are your further thoughts on this subject? Be glad to hear from you again or any other TR readers.
Yes, growth at all cost is good, like the man says.
Constrution was one of the pillars for this boom and very luckily, most of the time when recession hits us, remember 85 and which one ??
now that both IR’s were completed, most of the FW’s were sent home, now, we need them back, as money to grow the economy is there(job credit stop, very costly too) and the need to “grow at all cost”
As most fortune 500 com has made some profits at lower man numbers and cheaper raw materials(some commodity) we would expect them (cash rich) to boost the world’s economy by, employing more, spending more, expansion in all kind as which only they have the bullets.
Sametime, most mnc’s in china are finding it difficult to make money of expand, due to gov policies, preference given to home cottage industries(same as japan during those days) to that when the real economy trully takes off, these local cottage industries and local brand names will have some “level playing field”, can’t blame them, due to huge numbers of slave labors around and kick backs, should they go around with no jobs.
My take is S$1 will be on almost on par with usd 1.2 should the world economy spun into a deeper recession and that recession will last many many moons as world leaders are all afraid and have no clue what to do next..Kenesian economics was written when the world has not seen printing machine this size yet.
Just my take, pls forgive me folks.
@anonymous:
July 25, 2010 at 10:31 am
Thank you for replying.
I enjoy your article & hope you will touch futher more on the subject. Let have more discussions.
@anonymous:
July 25, 2010 at 11:03 am
I feel the “fork-spoon-knife” economies have a headstart and should again lead the world – once the current financial crisis is contained within limits of sustainable development.
Agreed bro. My only reservation is on the timing – how soon and how fast can bring their act together, ie how much control will they have in bringing some order to the financial chaos, reducing deficits, reigning in the financial institutions risk-taking ventures, and allowing national junk bonds to collapse.
masterservant:
July 25, 2010 at 12:34 pm
Yes, they went too far the monetarist way and into derivative time-bomb of asset inflation. Fundamentals do not justify. So after the bubble burst, they all came back crawling for rescue of Keynsian economics – the trouble with that, as you pointed out correctly, is the money machine is too BIG and printed for too LONG and Governments’ all sleeping.
Life is very tough for the young generation and the tragic thing is that many in Singapore still in party mode and don’t know a tsunami can suddenly sweep in and drown them without warning.
All that it takes is an “unusual” small earthquake in America and their economic cards will just crater in. For years I have seen luxurious bungalows in the fringes of some Chinese cities unoccupied. It is crazy to me that China should have allowed 65 million urban homes bought and unoccupied and still built another ghost town in Inner Mongolia called Kang Ba Shi – all in the ghostly chase of the much-worshipped GDP statistics hogging the limelight on the world stage.
Chinese at least got a large domestic sector and a huge manufacturing base that won’t disappear overnight Ours is very much property bubble and inflated air-bag real estate and economy. Part of our manufacturing has “got walking legs” at risks of random walk overseas or back to country of origin. If it is double-dip for us, it is tragic as a sick man/woman relapsing into intensive care unit of previous collapse and SO SOON AFTER THE FIRST ONE.
If our currency falls significantly, then inflation will hit home very hard.
We are very weak indeed.
@ Baby Boomer:
July 25, 2010 at 1:58 pm
I don’t think timing matters. Within the chaos, there is order and the chaos, if it comes in the double dip, is NOT confined to the “fork-spoon-knife” economies, the cancer must also infect the “chopsticks” economies.
My best read is that the “chopstick” economies will find the struggle A LOT HARDER AND MORE PROLONG. Why?? We have not been through the “cleansing” process that the “fork-spoon-knife economies” are going through now. And in the “chopsticks” economies, China is the ELEPHANT, the challenge is how to make that oversized elephant dance to “Saturday Night Fever” beat to get to “What-a-feeling” of Irene Cara’s funky dance routine again.
And as I pointed out, China do NOT have a “sophisticated” financial markets which is so well integrated with its economy. That is why it CANNOT whack the fly without smashing its fingers and hand right now. Manufacturing should NOT have been hit in China in the current austerity drive BUT SEQUENTIALLY. It is not the case now because China’s property bubble is TOO BIG.
In the next chaos, I think US got less to do of adjustment pain than China. Look at Japan, after the lost decade, the GFC of 2009 has a lot less impact than many countries including Singapore or Taiwan. I believe, for all these reasons above, USA will re-emerge first from the next crisis excluding resources rich countries like Canada, Australia and Brazil and strong economies like Germany and South Korea.
The “fork-spoon-knife” economies have all the cutting edge technology to move up the next economic cycle – Apple, Googles, Microsoft, Cisco and the likes of these technological prowness will open up new economic frontiers and new industries for them. Thanks to their “liberal thinking” education and robust political-judicial institutions, their fundamentals are very strong to take them higher to the next cycle. Their institutions are ALWAYS CHALLENGING the status quo and RESPECTED AND WELCOMING OF CHALENGING. In our failing cultures, who dare to challenge gets into the black prison outside the rule of law. How to find progress in the fear and blindness of search and efforts???????
Asian “chopsticks” economies, EXCEPT FOR SOUTH KOREA, ARE ALL DOGGED AND HAMPERED BY ARCHAIC MENTALITY OF OLD CONFUCIUS THINKING OF OBEDIENCE AND FOLLOWING – how can we ever lead civilisation with that kind of trap mindset of political dictatorship which is outdated, incompetent, even refused-to-die or disappeared from the political stage in dignity instead of shameless failures after failures after failures and after even more failures? “Face” of political dogmatism is eating away our society and robbing future generations our future. FOLLOWERS, BY DEFINITION, ARE LED BY SOMEONE ELSE ALWAYS.
In the same vein, I think that we are strategically wrong to focus our investment in Asia WHICH LOOKS COMPARATIVELY GOOD NOW relative to US BUT CAN CHANGED DRASTICALLY WITHOUT WARNING. I believe we should bet our future on a wider world – NOT CHINA and “chopsticks” economies. But that is another topic.
What do you think, mate?
Dear Anonymous,
I doubt our currency will fall due to the reserves, if they’re still there. A housing bubble burst will lead to a fall in sing dollar, dubai revisited.
As for a recession, inflation, deflation, yes, it’ll hit us badly and rest of the world, all things being equal, the USD will still be the currency to keep, being a trillion dollar economy. And we’ll go back to the 200B or less economy, but i think we’ll survive, with some pain as before, but the need to get rid of the excess, FT and PR’s, should the push comes to a shove. The island has too many excess slave labor, reason for growth of 300b economy. We have aborb too many “dirty” industries, which 3rd world wants, energy giants dirting the air and consuming too much water,(wafer) and chemical too.(polluting our waters around)no wonder we cannot make babies, for those in oil industry, their sperm level drops and deformed babies are born.(some studies done on this, reason why the west don’t want them)
The euro will not be able to sustain that deep a recession or high inflation or deflation and may not be there, as not all europeans want to suffer(work hard) for another, living on free money, gov’s that cannot create, not find, jobs and no one is buying, the common notion of many people(business) is, as long as i manufacture or create something special or worthy of,(example IPHONE 4, IPAD ?)there will be buyers.
Apple has sold 1 million Iphone 4 so far in US and the demand is falling, due to antenna problem. They have not tell you, what is the volume of sales for Iphones 3gs. Is it a failed product, selling 2 million or whatever and now IP4 is here, who the hell wants 3gs. Will tech companies like Apple, be too big to fail like the banks in future.
Try not to be too pessimistic and look on the brighter side, and how to get rid of “BIG” gov (84 or was it 82 mps)and budget deficit cause by big scale bonusese, wages and relentless spending in gov.
Do we need CPIB when so called millions are spend on wages for mp, should this dept be scale down, what about the arm forces, should we spend so much of GDP on this, and how about welfare, should we not scale back on public housing too, etc etc.
@ logic & reasons:
July 25, 2010 at 12:35 pm
Even GIC said in Bloomberg news today that there is a strong risks of shocks triggering a recession sooner than expected.
http://www.temasekreview.com/2010/07/25/gic-says-risk-of-shocks-may-trigger-world-recession-sooner-than-expected/
As a hypot, if really double dip any advice for the average singaporean earning a honest living. Hope for best, prepare for the worst
How will it affect the bond market & many countries are holding US bonds.
Is it still possible for gov to support property / bank sector where most of the money are.
@ anonymous:
July 25, 2010 at 10:49 am
I hope gold can be the new currency – but I have my doubt as gold is currently becoming moving towards FIAT. There is huge “paper gold” being developed over the last 5 years – could be 100X or 1000X more than actual physical gold (I think no one really knows the exact figure – and those you know will never tell).
My worries here is that future FIAT currencies will be backed, not by real commodities (although attempts will be make for all of us to believe it is so), but instead by “Standing Army – Military Power”.
If I’m right, then USD (obviously backed by the Pentagon) will remains the reserve currency of the world – EURO will remain strong (back by NATO) and maybe RMB (backed by PLA) will be the 3rd major currency.
Just guessing!
Hi anonymous July 25, 2010 at 11:58 am, i agree with all your observation of paper gold and physical gold moving in tandem in usual times. However, if US is forced in to a deflationary spiral followed by a hyper-inflationary spiral( the chances are not high yet), people will awake to the fact that paper gold is useless and demand their physical gold. When the COMEX and LBMA cannot fulfill their obligations, they will first offer cashback offer like 125% hike which will succeed for a while. However,when some big hedge funds refuse and insist of the physical delivery then things become interesting. If no such big event occurs then i agree everything might follow your reasoning.
Another thing interesting to note is to see what the BIS is doing: Are they are creating any new currency backed by gold, oil or will be continuing with the SDR or the IMF$ but including emerging currencies like remb or russian rouble . China is already very irritated at the US and the new credit agency based in china have already downgraded the US bond slightly. While this new credit agency has little influence, the fact that they downgrade it shows that china is trying to diversify out of the US dollars. But they are doing it covertly and officially their stance is they will not buy gold but unofficially, they could be buying huge amount of gold from their own gold mines.
For singapore, i am not so sure about government bonds but i want to ask: Will any housing burst affect the cpf balance sheet and thus affect our ability to buy our government bond since most of the government bonds are bought by cpf, big banks, temasek, big property companies. We can give such a low yield for our government bond because of the large money from cpf. Will we be forced to seek foreign investors to buy our government bond or the GIC and temasek will come to rescue? Will that lead to our private debt increasing tremendously?
@ masterservant:
July 25, 2010 at 4:29 pm
In glum mood, I still could laugh at what you wrote of your opening line.
“I doubt our currency will fall due to the reserves, if they’re still there.”
WHAT IF IT IS NOT THERE ANYMORE?? But I think it will STILL COME DOWN. It is a matter of extent since it is trade-weighted basket of currency. EU is a big market for us, and euro has fallen maybe 20% from recent high. If US dollar comes drops 15% in one year ( HUGE of historical experience), I think Singapore dollar must come down. Otherwise, US MNC will move back home for good reasons of economics and operational logistics. It is hard to find business returning over 10% after tax except software and high technology. Singapore’s export dependent foreign manufacturing will hollow out so fast the the political class,looking at the drastic impact on economy of big US$ devaluation, might NOT be able to recognise who their wives or mothers or husbands is!!
As for euro, a sustained weakening of economy will break up the EU. Politically, it is unsustainable for Germany to feed the East German “comrades” and carry on the burden of feeding the PIIG countries as well. Angela Merkel will be voted out, and the strong German industries will seek global market for survival and prosperity instead. It is logical for them to do that.
I am not pessimistic to doomsday scenario as yet – at least until China’s property market bubble burst and ravaging all other parts of its economy, particularly banking. When that happens, the pain of adjustments will be very hard for Singapore because we are structurally weak of any domestic content. In metaphorical sense, it is like a skinny small old is struck by a big-built young street bully, there is not much to give without the old hag ending in intensive care hospitalisation in any physical assault. But let’s hope for the best and brace for the worst. The speed at which the market turnaround in adversity to the January peak is worrying – it evidenced no staying power.
@ logic & reasons:
July 25, 2010 at 6:17 pm
If I am an average Singaporean working for an honest living, I would do exactly that – stay put and earn an honest living. I would NOT change jobs now when business in downturn might do the last-in-first-out or cut costs going for younger, cheaper foreigners and only the longest loyal troops might be retain grudgingly. Having said that, I hunched that a lot of good businesses would still go under because of banking drought. Banks recalling loans to restore their balance sheets and all debtors unable to move – each seeking their own survival. Debt is dirty now. I would NOT change car, go for expensive holidays nor would I upgrade my housing and take on any additional load. And I certainly won’t go to the casino and speculate in financial markets when the risks are so high. This is just my opinion of preferred personal lifestyle when economy is hitting a rough patch.
As for bonds, if you noticed, US 10 year bonds were closer to 4% and in a few months fell to below 3% as bond prices rises. Bonds tends to move in opposite direction of equities. So if there is another recession, I believe equities (stocks and shares) will fall, bond prices will rise further and yields on bond will fall even lower. Interest rates will come down but it is NOT a reason to add debt because it is “cheaper”. It will become expensive when one cannot repay the loan when call upon. I don’t think US Government will go bankrupt funding another stimulus package but the political fights in Congress to get there will be tough. China has no political fight on this score but it won’t be reckless.So those who hold US bond will still be secured because there is strong fundamental to turn US economy around, however tough that journey may be or long it may be.
If it is a property and banking crisis, I think Government will back banking and let property sector go. This is somewhat similar to the situation in Malaysia during the Asian Currency crisis, Mahathir choose the banks and let heavily listed companies go under either immediately or long slow death. A lot of the listed former wonder stock in KLSE has disappeared if you have noticed. In any case, I cannot see how China could bankroll their property bubble – IT IS WAY BEYOND ITS BANKING PRUDENTIAL FINANCIAL MEANS. That is my biggest fear now.
Anyone disagree????
@ reallyconcerned:
July 25, 2010 at 6:28 pm
I am NOT aware of any benchmark for gold as over or under-valued because physical gold earns not income to compare yields with other class of assets from shares, bonds or property. So I think – AGAIN IT IS JUST MY OPINION ONLY – gold has the capacity to move higher after a little knock down in the recession but will rise if sovereign debt is increased in stimulus spending. I don’t buy the notion that gold is a “barbaric relic” as one former Australian Federal Treasurer – Peter Costello said much to the annoyance of Australian gold miners. Because gold and US Dollar along with euro and Australian dollar has easy international convertibility, it would have some store of value if US dollar fall. It is just the exact currency offset i.e. if US dollar drop by X %, gold will have to rise to compensate. Otherwise gold producers will get less in their home currency when US$ devalue and go bankrupt cutting supply. Gold therefore gain value by their mere convertibility to US dollar, But currency could still fall due to competitive devaluation to restore market price competitive positions.
Ther other thing I noted is that in crisis, people fled to gold. At the end of the Vietnam war, former South Vietnamese general went to Canada carried a suitcase of gold! And in the aftermath of Asian currency crisis, South Koreans took out their gold, sold them and donate to their country. Gold will NOT die.
On paper gold, I would imagine that a lot of the ETF trade on speculation would quiet down and most trade will involve clearing of position. Banks are unlikely to finance derivative trades in gold, so that physical gold might be the real market in a crisis situation.
Do you agree?
@ Jamesneo:
July 25, 2010 at 6:53 pm
Good observations in your post. A cross-basket of currency and SDR might come back and maybe gold included in component. You are right of observation that while the Chinese Government stated publicly it won’t buy gold in the physical market, it is ACTUALLY BUYING GOLD FROM CHINESE GOLD PRODUCERS at presumably global market prices. That means China is ADDING to its gold reserves as China is now probably the world’s largest gold producer??? Chinese are very slow to internationalise its Yuan.
I suspect there is very CUNNING thinking in the works of Chinese financial minds in Beijing. They must be buying US Treasuries not to make American smiles whilst living beyond their means. There is a sinister motive behind. Buying US Treasuries shore up US dollars and keep the Chinese Yuan parity to US dollar from rising. This the US Government cannot accused China of currency manipulations. It is Chinese “investment” in US sovereign debt and supporting US economies BUT THE EFFECT IS MAKING CHINESE EXPORTS CHEAPER IN USA AND THEREFORE CORNERED AMERICANS INTO DEBT SITUATION OF PERPETUALLY BORROWING FROM THE CHINESE!!!! AGAIN THIS IS MY OPINION, CHINESE ARE VERY VERY SCHREWD SPECIE, their minds are proactive…thinking 3 steps maybe ahead before they make any move especially about money matters. So Americans are trapped to some extent but that also trapped China in the same monetary prison. If US Government, caught in impossible tight situation, dishonour all treasury or bargain for a steep discount or nothing, what can the Chinese do too??? They are in the same boat of misery!!!
You raise a very relevant issue of property crash on CPF balance – NO ONE THOUGHT ABOUT THAT IN THE PUBLIC FORUM AS FAR AS I CAN SEE IN CYBERSPACE. Can you imagine if I am stuck with a $1 million mortgage and have nearly the same amount in my CPF balance and suddenly SG Government says no withdrawal of any amount even for housing until I retire at 65, what would my banker do other than squeezing my balls??? I did be crying, mate, not just glummy day in day out like today!!! Or the Government might engineer an even bigger property bubble????
It would be interesting to hear from your end of interesting ideas!!
I just feel that Singapore will be in deep s.h.i.t. very soon. I am deeply offended by our gah-men having the most raw of audacity to declare such cooked up growth figures just to justify their ill gotten “LEGAL” bonuses. Such crimes against the state and people of Singapore deserves nothing short of what China would do to traitors-PSLE-Public State Legal Executions, sponsored by maybe our telcos. Guaranteed 100% viewership and advertisers. LOL>:)
Hi Zhen He,
How useful is the report depends on the accuracy of the forecast.
I don’t know how accurate is your forecast. Let’s don’t forecast, after all no one can see the future. Can we read next week newspaper about what is going to happen this week? The answer is clearly NO. If the forecast by the report is wrong, the report becomes a white elephant, laughing stock report.
@anonymous:
July 25, 2010 at 4:24 pm
I think that we are strategically wrong to focus our investment in Asia WHICH LOOKS COMPARATIVELY GOOD NOW relative to US…
Agreed bro. The Western economies do have the technological edge to overcome economic setbacks faster. China’s financial infrastructure and technology may take a while to master the impact of massive economic repercussions.
BTW your responses to all the comments from fellow readers are interesting to read. I am learning and refreshing my views so much from all you guys. Thanks.
@ Jamesneo:
July 25, 2010 at 6:53 pm
Thanks James for an interesting viewpoint of gold and bringing up potential property crash impact on CPF balance.
Note for TR editors:
Maybe TR should set up a separate section for “Economic Posts” so that those keen to share their viewpoints on this subject can contribute for the benefit of readers who wish to update themselves on current and future economic issues.
Fannie May and Freddie Mac revisited, i doubt so.
The US gov has not money to sustain them, but we have, different here. All things being equal, should the US gov wish to manipulate the $ lower to get exports moving,business to return, S$ will fall in tendem, simply because of what the US gov did, every country will be manipulating its currency and interest rates will go down too, just to be competitive.
My only worry is what will singapore gov do for the jobless singaporeans when all american or european mnc’s move, will there still be that plenty FT and PR’s here, waiting for handouts or shoving us for jobs at “whatever pay”. Many service industry will close, lower consumption,(reason for 200B or less economy and should world gov have no plans, more ppl will be out of work and all industries will shrink further)and job credits will not help, maybe for 1 yr. Should foreigners decided to ship home,(as they cannot sustain living cost which is lower at home, because of savings from working here and x’rate) yes hdb and private prop prices will collapsed. We’ll still envy these foreigners as many only need to work 1 yr here and can afford to sit 5 yrs or less back home. They will certainly ride the storm better than us.
What really matters to singaporeans is, what is the gov going to do for us ? 1950, revisited.
sorry for the long reading and your time, mucho gracias.
They have always consider, defaulting.
http://blogs.ft.com/martin-wolf-exchange/2010/07/25/the-political-genius-of-supply-side-economics/#more-506
@ William:
July 26, 2010 at 9:47 am
Forecast wrong and white elephant report?
You have NOT provided a basis of your conclusion. I don’t have an angle to debate the substance of your hidden thoughts thus concluding.
But I do ask you to reflect the following truthful sequence of event of practical reality. Hope you did read my initial write-up on TR of 4 July BEFORE YOU COMMENT. That was in reference to bullish comments and forecasts in MSM of Singapore’s GDP forecast of over a dozen banks and investment brokers – great minds I am sure even if I disagree. I hold contrary view closer to Selena Ling’s forecast of 10% in the lower ranges.
If you did read my commentary on TR of 4 July 2010, I was negative of my prognosis on global outlook. Guess what happened? A FEW DAYS LATER ON 8 JULY 2010, the International Monetary Fund came up with this bearish assessment.
http://sg.news.yahoo.com/afp/20100708/tts-finance-economy-imf-growth-c1b2fc3.html
AS FOR FORWARD PROSPECTS, it is interesting that IMF warned
“A potential spill-over of sovereign risk to European banking sectors and fiscal policy challenges “give us reasons to be less optimistic than we were three months ago,”
SO THERE A CONGRUENCE OF THOUGHT ON FORECAST OUTLOOK BETWEEN MY OWN AND THE IMF ASSESSMENT WHICH CAME AFTER MY WRITE-UP IN TR.
Six days later – on 14 July 2010, PM LHL was very bullish on Singapore’s forward outlook which must depend on global economic outlook by necessity. Read this CNA report entitled …”2010 will be record growth year for Singapore: PM Lee”
http://www.channelnewsasia.com/stories/singaporebusinessnews/view/1069265/1/.html
In US, LHL announced an UNAVOIDABLE need to import over 100,000 additional foreigners to support our bullish economic outlook. THE GOVERNMENT IS VERY BULLISH ON ITS FORECAST LOOKING FOR 13% TO 15% GDP GROWTH FOR 2010 AND OUTLOOK FORWARD, RIGHT? What happened after that?
Just 10 days later, 25 July 2010, GIC made public through Bloomberg news that it is BEARISH of Singapore outlook, warning on “risk of shocks may trigger world recession `sooner than expected” May I remind you of the following facts
a) GIC is a low profile fund manager
b) GIC is NOT an investment broker
c) the bearish warning came from Dr Tony Tan speaking for GIC’s viewpoints and he is unlikely to be publicly talking of bearish outlook if he has NOT seriously considered the substance and rigorous conviction of his bearish forecast.
d) I trust his prognosis MORE when that prognosis is made of public release ON A WEEKEND INSTEAD OF A BUSINESS DAY IN THE WEEK TO FOLLOW – there is some urgency in the relevance of views expressed that is well considered thoughts of his, I believe.
I did this write-up and forecast on 22 and 23 July 2010 and published in TR on 24 July 2010.MY BEARISH FORECAST HAVE NOT CHANGED DIRECTION BUT THIS TIME WITH GREATER CONVICTION OF BEARISH OUTLOOK SUSTAINING FOR THE WORST.
Dr. Tony Tan and myself must have very carefully thought about the substance of forecast outlook. WE BOTH AGREED THAT IT IS BEARISH.
QUESTIONS ARE
a) WHAT MADE GIC CAME TO THE BEARISH OUTLOOK AFTER THE GOVERNMENT IS SO BULLISH OF THEIR OUTLOOK AND FORECAST JUST 10 DAYS EARLIER?
B) WILLIAM, WITH ALL DUE RESPECT TO YOUR INTELLIGENCE, ARE YOU SAYING THAT MY BEARISH FORECAST IS WRONG, AND IMF, GIC AND SINGAPORE GOVERNMENT’S CHANGED POSITION ARE ALSO WRONG?
WE ALL THINK INDEPENDENT OF EACH OTHER!
Tell me why you are right of contrary thinking – the substance – so that we could elaborate on this debate, please?
masterservant:
July 26, 2010 at 11:52 am
I don’t see the political will nor appetide too for that revisit your comment touched on.
“Fannie May and Freddie Mac revisited, i doubt so.” The adjustment pain in US housing is over but the “deaths” of buyers continues with continued economic decimation. The numbers on US housing statistics showed that demand dried up as the drug that incentized support is weaned off. Consumption have NOT gathered pace in sufficient resolute as stimulus spending effects die off. It is a case of chicken chasing eggs instead of eggs chasing chicken of corporate and consumer. That is why it is terrifying of sudden death and double dip. Of course, it does NOT necessarily have to be a sudden crash but may start on a sloping slip (already commenced in the 2nd qtr 2010) and then over the plunging cliff without warning.
You see Geithner talked again yesterday about USD/Yuan exchange rate as the centrepiece of sustaining the slipping US recovery. Geithner again urged China to allow its currency, the yuan, to appreciate compared to the dollar, after Beijing announced on June 19 that it would make the yuan rate more flexible. Note his comment….”What matters to us is how fast and how far they let it go.” – that sends shivers up my spine.
http://sg.news.yahoo.com/afp/20100726/tts-us-economy-finance-geithner-c1b2fc3.html
THE MESSAGE GEITHNER SENT WAS A STEEP AND FAST RISE OF YUAN is essential to sustain US recovery efforts. Another 10% in one year??? Not possible. The Yuan already appreciated more than 20% against the euro which lost that much value in 3 months and for it to appreciate another 10% against US dollar in the next 12 months – it is to me impossible and improbably of fat hope. That scenario will decimate Chinese industries which facing a lot of costs pressures from striking workers. Remember much of Chinese industry are low-value added – there is very little room to squeeze out of cheap labour to please Geithner, Obama and Bernanke crowd. Anything less than 10% in 12 months will NOT rescue employment and the recovery of US economy. The unfavourable US-China trade imbalance “robbed” some percentage off the US GDP every year. But the key problem still remains consumers are nearly exhaustion of death – there is no demand within US. Tipping a strong exchange rate adjustment by unilateral devaluation of US may NOT even be the answer. Why? Foreign imports into US become even more expensive adding to consumption burden within US. I don’t see any prospects of US achieving BOTH how “far” and how “fast” objective simultaneously by Chinese voluntary adjustments. So i agree with you that US dollar will be “devalued” in the next 12 months – since speed was of URGENCY IMPORTANT TO THE US NOW.
When that happens, Singapore has NO choice but follow suit or the walking legs of MNC starts walking. Jobs will be lost as other sectors of the economy here will also collapse as the world slowed down the pace of economic activity.
My anguish is that a lot of Singaporeans won’t make it back to employment market. Employers in crisis may see them unwilling to take adjustment risks of new staff but relying on foreigners forcing wages down accross the board. The end result is massive drop in wage levels along with retrenchments. We will have our own tsunami of Fanny Mae and Freddie Mac-like waves hitting the banks as people unable to hold on to mortgages. The housing collapse will hit banks hard as each cycle of collapse escalated their property loans portfolio of bad debts. A nightmare scenario. Singapore reckless use of foreigners will backfire badly. Foreigners hit by mortgage defaults or lost employment will flee our shores leaving banks helpless and Singapore homeowners forced into financial solvency even with jobs. Forget the jobless and those “accidents” on MRT tracks. CPF is a time-bomb might just implode as citizenry demands cash for survival as fleeing foreigners also wants their money back. This is the TWIN DANGER OF RELYING ON PROPERTY BUBBLE TO SUSTAIN AIR-BAG ECONOMY AND RELYING ON FOREIGNERS TO SUSTAIN BOTH AIR BAG PROPERTY BUBBLE AND CPF BASE.
In crash market scenario, a lot of money will also be wiped out by investment losses in Th and GIC. That won’t help either. Now that GIC realise the grim economic outlook, it is hope they cash out of all equities soon to protect whatever reserves that is left.
I fear the journey forward for Singaporeans.
@anonymous:July 26, 2010 at 4:35 pm
Hope what i say next sound correct. Due to the huge deflationary pressure on the US,i believe that the devaluation of the US can only come about if Bernanke launch QE2 unless they implicitly devalue the US dollar.
What are the implications of this forced devaluation on singapore and the world on ordinary citizens? In my humble opinion, i feel that our gold reserve asset as reported of only 2.3% is too low. Although the US dollar is safe at the moment(2-3 months), our government should start to diversify our foreign assets denominated in US to buy real assets like oil, agriculture, minerals and of course gold. A more safe position should be at least 5-10% and preferably up to 20% of gold in this more uncertain times. Although the chances are low in the short term(3-6 months), it is better to be prepared against the possible either default of US debt or any hyperinflation danger through excessive QE. Any corrections of wrong assumption is gladly appreciated.
i concur with your analysis on the potential danger of foreigners on our property bubble. If this series of pullback by foreigners coincide with the huge amount of BTO and DBS that will be completed in 2013 onwards. Then suddenly, the supply will be > demand and price might spiral downwards.
MM Lee:”Asia is the main engine of growth we can rely on India and China. Guess what??? MM Lee was wrong!!!
China spend 3-4 trillion dollars domestic spending (after she encourage locals to spend more) USA spend 15 trillon in purchasing of products worldwide”
BBC World serivce:”if they all cut spending together, we will head into recession” BBC was wrong!!! USA bought this crap wholesale, borrow 800 billion and spend it. The experts said this will stimulate the US economy. Guess what??? it did not.
Those professional said this stimulus package will encourage spending, the unemployment rates will drop below 8% percent. Guess what??? The unempolyment rose higher to 10% percent, (not to mention figures about workers had virtually given up hope looking for a job)
BBC failed to mention it, and goes into hiding, until the coast it clear they come out and talk again thinking people had short memory
China own USA T-bills 23 billons, experts said she will own 100 billions in a couple of years.
Where did all the money gone??? As soon as the 800 billons arrived in USA, it disappeared into…(you can’t say that, people will be angry, it is not politically correct things to say) i show you my angry face. okay i will not mention the trade imbalance
MM Lee said:”Asian countries are great saver, we only export but never import. You spend money in the West, we saved money in Asia.
We shall see how can this model last???????????????????????????
You know Asian had gone through hardship, so we saved money for rainy days, we don’t spend money
@ Jamesneo:
July 26, 2010 at 9:25 pm
I hold slight different view from you. I would like to see our Government cash out of most equities as volatility will escalate in the downturn and keep Singapore dollar instead. I would NOT like them to be interested in US bonds because the yield now is less than 3% and the risks is capital loss of 10% maybe resulting from US dollar decline forward (unless we match our dollar down as well) When the global economy wobbles, I am pretty sure that gold, Canadian and Australian dollar will take a nice beatings initially BUT THAT IS OPPORTUNITY, they should then buy into those assets there – like you said natural resources and BENEFITING FROM THE CURRENCY REBOUND AND ALSO VALUE OF THESE HARD ASSETS AS THE ECONOMY RECOVER TAKING UP PRICES OF METALS IN PARTICULAR. I believe it would be also a great idea if they invest in German INDUSTRIAL equities after market taking a beating. Germany industrial stocks are having a party time now because they recovered very strongly both in 2009 and also the EU turmoil – proving that their fundamentals are very strong in global competitiveness. I like South Korean industrials for their technological prowness and global reach. Gold is non-income generating, adding gold when recession bit has some gain and some currency hedge but the return on capital gain is NOT likely to be spectacular. It takes time for economic recovery and aggressive stimulus spending to take gold strongly upwards. I doubt any Government got the political will or appetide or money for BIG stimulus spending anymore. So gold will NOT be my favourite. What do you think, Jamesneo?
I concur with you that after the big dip, if it comes, the housing sector could be oversupplied and also there might be an overhang of distressed mortgages and dearth of new buyers. There won’t be many jobs around for even PR as the risks of MNCs moving out is loomings.
Pardon me for being not very clear. I agree that assets of GIC and Tem could adopt your strategy and cash out of equities. Indeed, during any big dip, it could be a great opportunity to gain good real assets at much below valuation which could appreciate significantly in the long term.
What i am talking about is our Foreign exchange reserves(foreign currency deposits, bonds and gold) held by our MAS. In this case, like you say we should reduce our holdings in any US short term bonds and i suggested to start converting this to gold.I feel that going forward gold will retain its original role of store of value and thus it is essential to convert the gold by buying from IMF or the BIS to ensure we have the necessary tools in case of currency attack. A transition to a world in the long term whereby the dollar might coexist with a new reserve currency heavily backed by gold is in my opinion a possibility.
I fear that US might be doing stealth monetization through their proxy in UK(i read somewhere from the net but i cannot establish if the allegations are true or not). Moreover, if the US does have a big recession( chances are 50/50 now), Bernanke might be able to convince the US senate to try another stimulus spending. However, this is only speculation on my part for now.
Jamesneo:
July 26, 2010 at 11:10 pm
Yes, in that case gold might look appealing. If US dollar fell off, gold would be a store of value given the convertibility of gold into dollar and international gold trade is denominated in US dollar. My recollection is that the US Federal Reserve was the biggest institutional holder of physical gold, and Germany is also a big fan. In hey days of economic growth, our Government has little appetide for gold but with global uncertainty less and less predictable, gold might be a nice hedge even if no return on yield – just for security a higher percentage for gold holding that we are accustomed to. If there is a big downturn and financial institutions worried, IMF might seek some return to gold as PART OF RESERVE CURRENCY, and in those circumstances, any significant gold holding would have advantage for us. I also like the idea of diversified holding in other currencies like Australian dollar, Canadian dollar and maybe Japanese Yen ( this one is because any weakness or struggling US economy and China could benefit the competitive position of Japanese going forward)
@ Jamesneo:
July 26, 2010 at 11:10 pm
Take a look at this.
http://www.marketwatch.com/story/china-may-link-yuan-trade-to-currency-basket-2010-07-23
If China is going to benchmark the Yuan to a weighted basket of currency, it means US can’t “force” Chinese to revalue the Yuan. That will restrict scope for US political pressure on the China Yuan and frustrated Geithner’s hope for a “fast” and “far” appreciation of the Chinese Yuan.
That I believe, will force the US to devalue its currency to get out of its economic quagmire.
We are in for an interesting times ahead.
@zhen he
compact and comprehensive analysis of the current economic environment and the uncertainties that lie ahead.
i think the world top corporate leaders need to RETHINK on the way they have been operating the the most part of the last decade or so.
CEOs’ GREED has contributed largely to the current economic woes and if such EXTREME GREED nd selfsihness do not abate,i am afraid the world economic order will only get worse going forward.
Greed has overtaken not only the past old fashioned ETHICS OF DOING BUSINESS,in many instances,GREED has alos surpassed plain logic leading to so much unemployment and other financial woes that is so intertwined with real economic growth.
until the globalised world learn to SHARE this world’s resources and income disparities truly narrow,there will be unsteady growth,or worse,shrinking,TOTAL CONSUMPTION,that is so necessary for sustianable economic growth.
I like to share a simple but meaningful song with all TR readers in relation to what i mention about GREED.
this beautiful song has meaningful lyrics ad is titled WHAT THE WORLD NEEDS NOW sung ost beautifully by JACKIE DE SHANNON.
CHEERIO!
Dear Anonymous,
The default rate of the US gov is getting higher every day should the yuan stays are current level. Paying back your loans is very, very difficult, unless you have something to sell, your mnc’s, brand names, high income tech companies, etc etc. China would not want to buy NY or California, too many to feed, clothe and upkeep,(essentials) cost too high, nothing to sell, maybe Texas and Alaska will do. Would young americans with low pay and no jobs even, want to, or has the ability to pay for the nation’s debts. War or default may be the answer.
Buying more gold may be fine for tiny singapore, to buy food as S$ is of no value in barter trading, other then that, selling something of value(what in singapore has value)to convert that into gold to fund imports like food, oil, maybe not water as many FT and PR’s would have left, we have nothing others need in barter trade.
Politicians will talk up the market or anything just to sell himself, would it be different for the economist, analyst or job seeker. Remember, there were many talking up the market, when behind, they were selling…in 1999 prior to the crash.
Thank you for your time.
http://articles.moneycentral.msn.com/Investing/JubaksJournal/are-stocks-cheap-and-which-ones.aspx
looking to buy, read above…
http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/chinese-lesson-better-red-than-fed.aspx
just for knowledge
http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/chinese-lesson-better-red-than-fed.aspx
for reading
http://articles.moneycentral.msn.com/Investing/JubaksJournal/are-stocks-cheap-and-which-ones.aspx
reasons for buying
eaglefly:
July 27, 2010 at 11:23 am
Oh, Be CAREFUL!! Do not slide down the other side of slippery plunging slope when you read Jubak’s journal. He wrote this two lines -
a) So, for example, at the end of June, Birinyi Associates reported that over the past 20 years, the average trailing price-to-earnings ratio for the S&P 500 is 20.3. On June 29, the trailing P/E for the index was just 15.6.
b) they’re cheap on future earnings. And future earnings determine tomorrow’s price for the stock you buy today.And that’s especially true right now, as fear that a slowing global economy is going to take a bite out of future earnings is driving down stock prices.
The KEY message you missed out is “slowing global economy is going to take a bite out of future earnings is driving down stock prices” SO THAT TOMMORROW IT WON’T BE CHEAP BUT EXPENSIVE AFTER STOCK PRICES PLUNGED!
The macro picture is grim, looks ready to tip over on the other side of the steep plunging cliff. There is NOT a single sign of any macro data that looks strongly positive or emerging of lifting hopes.
The current fundamental, as Bernanke put it correctly is “unusual uncertainty” and in my read is the oddity of CHICKEN CHASING EGG RATHER THAN EGG CHASING CHICKEN”. And I have just found another gloomy economic indicator – the Baltic Dry Indicator has turned strongly negative pointing to a much slower economic activity ahead.
http://noir.bloomberg.com/apps/cbuilder?ticker1=BDIY%3AIND
And on the economic update side of Singapore, this shocker of news from another blogger on TR, Singapore’s manufacturing side have collapsed in June by a huge 24.3% over May which itself grew by a mere 5.2% in April.
http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=asy1C9np.K9g
I would be very scared and careful to buy now. Why buy now when you can buy cheaper, maybe a lot cheaper in 6 months time???
Anyone agreeing or disagreeing?
[...] UPDATE on Global economies are heading for turbulence, ARE WE IN TROUBLE GOING FORWARD? THE STOCK MARKET PERSPECTIVE The first week past this initial write-up “ Global economies are heading for turbulence – ARE WE IN TROUBLE GOING FORWARD” dated 5th July 2010 saw global markets rose sharply, ahead of the US corporate reporting season, confounding market analysts. European markets rallied on BP’s increasing optimism of resolving its Gulf of [...] Read more on The Temasek Review [...]
Baby Boomer:
July 24, 2010 at 10:31 pm
” I think we will be in deep trouble early 2011. So likely elections will be called by December with good bonuses for civil servants and some goodies for the man-in-the-street thrown in for good measure to entice “daft” voters.”-UNQUOTE
…………………………………………………………
hey,another bullshit forecaster,mimicking MM lee.
how much are you paid?
my forecast,you will,be proven wrong,wait and see.
BABY BOOM LOSER:
July 28, 2010 at 10:53 am
I DOUBT Baby Boomer’s pessmistic forecast of 2011 is WRONG.
You offered no reason for your disagreement. The reasons are plenty and compelling of a bleaker outlook. Another set of nasty figure came out today. Job worries darken consumer confidence in July threatening retail sales figure and consumer spending.
http://www.marketwatch.com/story/job-worries-darken-july-consumer-confidence-2010-07-27
July’s consumer confidence index fell to 50.4 – the lowest level since February — from an upwardly revised 54.3 in June.
It could turn negative i.e. below 50 in August that could really tip the US stock market and economy over
Unemployment is a major stumbling block to consumer spending – that is one side of the equation. On the other confirming side of the same economic equation is BUSINESSES IN US ARE RELUCTANT TO ADD JOBS OR MAKE BIG INVESTMENTS.
http://money.cnn.com/2010/07/27/news/economy/fear_economy/index.htm?cnn=yes
The economic recovery needs TWO HANDS TO CLAP and NOT one if making an effort. On the domestic front, export dependent manufacturing has collapsed in June. There is no single sign to point to rosy outlook.
Baby Boomer is right of negative outlook conclusion. As for election, my thought are that if the economy dips again before this year is out, the window of opportunity for recovery in 2011 is much dimmer and narrower. A reasonable inference would have it that an election will be in the works before end of 2010 and civil service bonus is the last hope and “vote-bank” in “goodies” of pork-barrel politics from the public coffer and maybe some sweets for the citizenry to induce voting preference.
Anyone disagreeing?
http://www.dailyfinance.com/story/real-estate/six-reasons-to-expect-slow-economic-growth-ahead/19566246/
daily, we have some good and bad news but the truth is, “it’s anybody’s guess”
http://www.fool.com/investing/dividends-income/2010/07/27/7-more-years-until-were-out-of-the-woods.aspx
masterservant:
July 28, 2010 at 12:09 pm
SHARPER MINDS SEE PATTERNS, most see “news” of both “good” and “bad” news every day. So I don’t agree with your comment below
“daily, we have some good and bad news but the truth is, “it’s anybody’s guess”
Some minds see patterns i.e. the “order” within the “chaos” and they have internalized so much that it has become second nature. Others see patterns fom EXPERIENCE. And finally, some people learn from mentors who walk them through the seeming confusing mind fields of conflicting news.
But coming back to the global economics, the big picture relationships cannot be ignored. Big economies like EU, China and US has one common pattern – either in turmoil or slowdown.
You can’t ignore the sovereign risks impact taking down euro by 20% in two months when even major devaluation in the era of fixed exchange rate of 10% of phenomenally BIG. You can’t ignore the reality of China’s economic slow-down to 10.3% from 11.9% and the slowdown is ACCELERATING as evidence from falling imports of raw materials in official statistics like iron ore and coking coal atop of Chinese Government credit squeeze. You can’t ignore a consistent PATTERN of decline in US housing demand, rapid decline in consumer confidence index and a slowdown in the (otherwise strong) manufacturing sector and you can’t ignore the reality that all those globalised US entities (even those reporting strong results like FedEx, UPS, IBM,etc etc) all report adverse economic performance inside USA and has negative profit guidance for US sales forward.
When you put the MACRO PATTERNS together, small news like slight improvement in housing sale in US becomes miniscule of relevance and importance in BIG PICTURE forecasting. You need a CONSISTENT PATTERN of data reversing the NEGATIVE TRENDS OVER THE NEXT FEW MONTHS to see light at the end of the gloomy tunnel. In analogy, it is like a man dying of pneumonia lung infection sleeping in a hospital bed has a small decrease in temperature read for one small moment of time (good news) and all other indicators see he is dying any moment.
GLOBAL OUTLOOK IS LIKE A BIG SHIP IN AN OCEAN, YOU NEED BIG EFFORT, SPACE OF MOVEMENT AND SPACE OF TIME TO TURN ITS DIRECTION. And so far, no sign of the BIG SHIP COMPRISING EU, USA AND CHINA IS TURNING FOR THE BETTER.
Do you agree?
Well,the pessimists see rainfalls and the optimists insist on sunshine just so to substantiate their opinions.
the reason I say so is becos this govt still has ample funds to tahan for some more years and they will not let pessimistic forecaste get the better of their optimistic forecast.
I am sure forecaster MM Lee’s will be more correct than that of ordinary chaps like Baby Boomer….we jus have to wait and see.
Financial means DOES NOT CHANGE FORECAST. Forecast is forecast – dpending only on global external conditions.
Financial means do give resilience to withstand adversities when the adversities strike and only to a limited degree. Reserves has other contigent needs awaiting such as the costs of costly reclamation works, and God forbids future nuclear power station. These reserves ALSO SHRINKS with adversities if they are fully invested in BLIND OPTIMISM as already happened in 2009. People always forget the simple mathematics, if you lose 50c in a dollar (only 50% decrease in your asset base), you NEED TO GROW 100% FROM THAT DEPLETED BASE OF 50c back to your parity of original investment of $1. IT IS MUCH MORE EASIER TO LOSE YOUR MONEY THAN RECOVERING THE LOSS – Herculean task and heavenly luck to come together.
The simple fact and truth is that Dr Tony Tan and GIC also see the validity of adverse economic outlook at IMF and Ben Bernanke along with many others including many CEOs confronting economic uncertainties in their daily decisions. And when actual topline (revenue) shrinks, these CEOs knows how tough to grow profits than when economic conditions are just benigh or better still, favourable. Even top performing banks like Deutsche Bank and UBS warned of non-sustainability of their current favourable trends and UPS and FedEx spoke of higher traffic volume into Asia and higher pricing in these sectors to grow revenue and profits. So many big banks in US saw dead revenue growth as a result of shrank banking activity. When banking activity is shrinking, is the the economy growing? When Baltic Dry Index falling reflecting steep fall in raw material traffic, is the economy needing these raw material spinning out production?
BLINDNESS TO TRUTH CAN’T CHANGE THE DARKNESS OF SITUATIONAL OUTLOOK. THE TRUTH IS THE TRUTH whether the outlook is positive or negative.
Anyone disagreeing?
http://www.economist.com/node/16646034
some interesting reads.
http://www.economist.com/economics/by-invitation/questions/what_will_it_take_convince_emerging_markets_halt_reserve_growth
eaglefly:
July 29, 2010 at 1:21 pm
Now that China is taking the route to abandon its US dollar peg, gold will, I believe, has an exciting future.
By abandoning US dollar peg, it smartly remove political pressure from the US that China is artificially holding down its exchange rate to advantageously benefiting Chinese exporters into US market. Anyway, one must note that of recent past, Chinese have negotiated trade arrangements with Brazil etc to be settled on non-US dollar account. That gives hint that China is moving away from US as the sole trading and reserve currency. Morever, Chinese recently bought Japanese and Greek sovereign bonds, as if to underscore China’s determination to diversify its foreign reserves from US treasuries.
Since US is so strongly dependent on China giving way to allow for a very fast and far appreciation of the Chinese Yuan as Geithner stated recently, that option now appears to be closed. This forces the US towards a managed devaluation of the US dollar, even if unofficial, forward.
Since gold trade is denominated in US dollar, any US dollar decline will force gold price up. To that extent, gold could be a reluctant currency hedge against US dollar. No foreigners would want to hold a rapidly depreciating US dollar in their external reserves. I believe, many countries will offload their US dollar reserves and buy gold instead.
An interesting possibility is that once China moved to finally peg its Yuan to a weighted basket of currency and as US dollar depreciates to facilitate long-term structural re-alignment of US competitive trade position, many countries especially petro-dollar rich economies might move within the IMF for a mixed bag of strong global currencies to displace the US dollar as the sole reserve currency. Such a mixed basket could, for example, include the Euro, US Dollar, Chinese Yuan, maybe Australian Dollar, Canadian Dollar and Japanese Yen. And to balance the competitive strength and risks of domination by any trade bloc, the IMF might include GOLD AS THE COUNTERBALANCING ‘reserve” component. That should be positive for gold outlook BUT IT IS JUST MY SPECULATIVE THOUGHTS from a fancied angle.
Anyone agreeing or disagreeing?
To anonymous,
China is already doing so by pegging RMB with Korea, Singapore, etc. It is indeed off loading US dollars at an accelerated pace since Hilary Clinton revealed US’s intention to form a full encirclement of China’s route in South China Sea and also north west China.
Gold will certainly be more and more important, but we have to look at RMB as well. This complicates the equation.
Unfortunately, we can see a war coming soon in Asia. Either it be because of North Korea or in South China sea, the war games are heating up. We are sitting on a ticking time bomb.
@ 笑贫不笑娼:
July 29, 2010 at 9:03 pm
If Chinese Yuan is pegged to a fixed basket of currencies, its exchange rate will be determined by BALANCE OF PAYMENT rather than simple bi-lateral trade with US. That should slow down the Yuan appreciation. Geithner was star-gazing when he publicly asserted US hoping for the Chinese Yuan to appreciate “fast” and “far” as soon as possible. Also can you imagine Chinese export to EU is already 20% more expensive after the euro fell more than 20% in the last 3 months and if Chinese Yuan revalues upward by another 10% – the impact would be 30%!! How can Chinese manufacturing survive with that kind of costs pressures – allowing for competitive exports elsewhere coming into EU. Looking at accounting numbers globally of profit margins, it is IMPOSSIBLE. So I factored that China has no choice but took the least painful one of a peg to a basket of currencies instead of bi-lateral currency.
Tensions in North Korea and South China Sea are temporary flashpoint – any ignition would be disastrous for China and the rest of the world. I see no war but more sabre-rattling just like the US-South Korean naval exercise in the Yellow Sea – that is a show of impotence of retaliation rather than a show of force to intimidate North Korea who already sank “Cheosan”. In South China Sea, I doubt US will get militarily involved – Iraq is still raging and in Afghanistan, America and Nato has NO POSSIBILITY OF A VICTORY THERE. And no military and naval forces can counter Chinese firepower in the Spratley – not even combined naval force of Asean. I don’t see a war there when it is going to be a one-side fight – militarily.
But I see real exciting possibility once gold is talked up in international forum like IMF as part of a reserve currency. That would give gold strong fundamental support. This possibility has some weight of possible support from China which is now the largest gold producing country I believe since gold-mining is largely state-owned enterprises.
There are very few gold acquisition opportunities left in South Africa, Australia or Latin America. Once the major gold companies start gobbling up the Canadian mid-tier gold producers and explorers with big discoveries or similar entities listed in London, the gold market is going to really fire up. There are not many mid-tier sized gold producers now in Australia or New Zealand and Chinese gold producers are NOT for sale. It would be a case of plenty of buyers, few sellers available. That would be compelling signal that gold market has turned up north.
What do you think????
To anonymous & other contributors,
After reading thru the comments, i feel very pressure.
All predict that Spore property will crash if US economy dip again.
Will public housing ( HDB ) be affected if things turn out as what you all mention? I bought from open market end of last year due to the frenzy as i fear that price gets higher & higher, could it be a wrong decision? Any advice.
I’m only a ITE student & poor knowledge on economics.
ITE only:
July 29, 2010 at 11:06 pm
As of this moment, it is NOT a foregone conclusion that a double dip of global economies but the risks of that happening, in my considered opinion is significantly higher than not. The economic statistics and corporate results coming out from US is pointing that way. I am NOT happy too. IMF, GIC like me is bearish but we are not without justification. Only this morning, heard that Kellogs ( breakfast cereal business) reported poor results, its CEO worried about deflationary tendencies and also downgrade his forward guidance and outlook for its business. IT IS NOT A SURPRISE to me. The signs are there since Alcoa announced its results about 3 weeks ago, so it is NOT scary to me. I am trying to put things in proper perspective. Alcoa reported 17% increase in its packaging business but also diclosed 1% reduction in realized price to its customers. Look at 1% is means nothing or should I say seems an insignificant number but why did its CEO even mentioned it when Alcoa announced its results then? To my mind, 1% is a GIGANTIC number. Why? if you are in the packaging business of supply aluminium cans to beverage manufacturing – lets say in Jurong, can you ship out stacks and stacks of empty can to can food manufacturing plant in Malaysia or Thailand when you make perhaps 1/64 of one cent per empty can and the transportation of that empty can from Jurong to beverage plants in Thailand costs 2c per can. You will be bankrupt even before your empty aluminium can reach Thailand. So 1% cut in aluminium prices is VERY BIG PROFIT MARGIN or SURVIVAL MARGIN for can manufacturers supply to Coca-Cola, Pepsi or whatever. So when Alcoa cuts its aluminium price by 1%, I already knew that food manufacturing business in the US is in BIG TROUBLE. I don’t expect food manufacturing business in US to be doing well AND I ALSO KNOW THE CONSUMERS IN US ARE HAVING A VERY TOUGH TIMES when they have to cut down on ESSENTIAL food. Alcoa cut of 1% of aluminium realised price to customer is TELLING A LOT ABOUT THE TERRIBLE STATE OF US ECONOMY. So the first big corporate announcement (Alcoa) coming out of US tells me their economy is in deep shit. AND TRUE TO MY PROGNOSIS, Alcoa’s CEO forecast at least a 25% decline in its US sale for 2010 even though its business elsewhere are better. Then Tupperware came out with good results ( compared to depressed figures of 2009) but forecast much lower earnings per share in the second-half. NOW THAT IS ANOTHER CONFIRMATION that US consumers are in deep trouble since people cannot afford to buy small food containers to hold left-over food in the fridge. I expected people to buy MORE TUPPERWARE to package their work lunches. They DID but only for a few months and after that Tupperware expects tough time – meaning people are having hard time buying food! Why I bother to explain my thoughts and analysis here? It is because, my prognosis were NOT irrational judgement but careful consideration of anecdotal evidences that a PATTERN EXISTS each confirming the other. What I expects to see, I see when the results comes out – intuitively I feel my bearish thoughts are correct. While the mental gymnastics may be intuitively “correct”, IT DOES NOT MAKE ME HAPPY. I fear too BUT WE CANNOT LIVE IN FEAR. We live in hope for a better tommorrow. You said you bought your HDB and feel under pressure. i think a lot of people’s lives are also pressured if they know the real things instead of daily rubbish you read or hear “somewhere”. You are NOT alone. Since you bought for own occupation, you have done your budgets and means, just live through this “bad” cycle.
When global economy tumbles – everyone get hurt, some more than others. All asset prices fall. 2008/2009 proved that. So I have no doubt about this but it is NOT the end of the world. Hope you still have your job. I sincerely wish you the best.
Latest Beige book pronouncement says the modest recovery in US is faltering in some region as I did also forecast in my write-up that US economic recovery has stalled or stalling. Not surprise again.
http://www.theaustralian.com.au/business/markets/modest-advances-in-us-economy-says-federal-reserves-beige-book/story-e6frg926-1225898239948
BUT IT IS NOT DOOMSDAY AS YET. It may dip from to maybe 0.5% growth in 3rd quarter and then rebound to 1% in the final quarters again – ALL DEPENDS ON WHAT FIGURES COMING OUT OVER THE NEXT FEW WEEKS AND CHANGING GLOBAL ECONOMIC CONDITIONS. These are EVOLVING all the time. And of course, it could turn out a lot worse. Have to wait and see new patterns evolving, if any, but current patterns as seen from Beige Book report is bad.
But there are spots of sunshine too. Germany, South Korea, Taiwan, Australia, Canada and Brazil – even Poland seem strong now. Question is will emerging markets hold up and support three major economic blocks – EU, China and USA either in turmoil or slowing and if so, how long? The three major economic blocks – EU, USA and China is probably aroun 35% of the world. It is now “poorer” emerging economies supporting “richer” economies in trouble.
Good luck, mate.
http://www.cnbc.com/id/38476770
http://www.nytimes.com/2010/07/30/business/economy/30fed.html?_r=1&hp
there is too much of pessimism around and its not good for world trade and if its not good for world trade, then its not good for all.
http://www.cnbc.com/id/38469418
Gold may not be the answer.
it has no place in trading world, too cumbersome.
its only place is in barter trade, that’s when the world’s currency is dead.
http://www.cnbc.com/id/38462830
the women are more optimistic, survey found.
http://www.cnbc.com/id/38466028/
eaglefly:
July 30, 2010 at 10:50 am
IT IS NOT A PESSIMISM/OPTIMISM DICHOTOMY of fear and greed thoughts. It is solely about dealing and handling with uncertainty AND OF COURSE REALITY. If you read the article of your quote in
http://www.nytimes.com/2010/07/30/business/economy/30fed.html?_r=1&hp
Mr. Rosengren, perhaps the Fed official most outspoken on the prospect of the economy getting stuck in a deflationary cycle, is WHOLLY VALID.
“While I am not anticipating we will be in a deflationary period, it’s a risk that I do take seriously, and we should continue to monitor what’s happening with prices,” Mr. Rosengren said in an interview last week. “A heightened risk of deflation is something that we should react to.”
EXACTLY!! we CANNOT AND MUST NOT get stuck in that “CATERPILLAR MENTALITY” of feeding voraciously and instant gratification when leaves are all consumed and NOT GROWING fast enough. That must make us vulnerable and visible to birds flying past and have us for dinner instead.
Now put yourself in the position of a CEO of an electronic component manufacturer in Singapore. On your desk is a email memo from your corporate advisor with the following factual briefs
- Samsung the world’s largest consumer electronic goods manufacturer cuts its 2nd qtr earnings by 12% 2 weeks ago
- LG electronics, world’s second largest consumer electronic goods manufactuer, 2nd qtr earnings fell 90% just announced this morning citing difficult European market conditions and tough competitive pressures ahead. Outlook ahead is weak market demand
http://finance.yahoo.com/news/LG-misses-Q2-estimates-lacks-rb-3177211492.html?x=0&.v=1
- Sony, the world’s 3rd largest consumer electronic goods manufacturer announced better-than-expected-reults but its CEO confirmed that it is NOT DUE TO ‘INDUSTRY FACTORS” (his words) but Sony’s new innovation launching success.
http://www.reuters.com/article/idCATOE66T01220100730?rpc=44
What would you do if you have not got new orders for electronic components for the last 2 weeks? Sit tight and pray or play since more time for disco than hard work previously?
If I was the CEO, I did call in my Chief Financial Officer for an unscheduled meeting – calculate the costs of some retrenchment, pushed my warehouse stock out faster, get some cash in hands, reduced bank borrowings and hand out some pink slips tommorrow to save the business instead of bankers knocking at my door 3 months down the road and shut it all up.
What do you think? Dealing with realities or just emotions of pessimism and optimism divide?
My take is IF YOU DON’T REACT, THE WORLD WILL REACT ON YOU when conditions in US deteriorate so fast and events is moving out of your control at that point.
eaglefly:
July 30, 2010 at 11:11 am
You missed these words obviously in your reference weblink quote
http://www.cnbc.com/id/38466028/
” 65 percent of women and 60 percent of men believe we still have a ways to go before the economy hits bottom. Only 30 percent of women and 35 percent of men believe we have already hit bottom..”
The MAJORITY OF BOTH MEN AND WOMEN ARE PESSIMISTIC AND MORE WOMEN THAN MEN ARE PESSIMISTIC.
And of course, more men than women are main breadwinner – they are spending more time in the “battle front” and if I say women are spending more time in the “kitchen” ( let say fill in the “blank” of your preference here to keep peace ) – it would stir up a lot of gender accusation of “sexism”. Hahahaha
Regardless, have a nice day, mates of all gender. HAHAHAHA.
LOW COST PRODUCTION as in outsoucrcing by most MNCs to cheap third world sourses like PRC at very low cost(wages),and PRICING products at the same premia do not bode well for the wolrd economy going forward as the wolrd would not get the same level of CONSUMPTION as before such outsourcing that causes more and more workers,and thus,consumers to reduce or stop consuming.
I still believe that the world leaders need to STOP THIS LOW WAGE ABUSE as it is ultimately going to show its ‘KARMIC EFFECT’ of action equals opposite reaction of equal magnitude!
By applying cheap labour and getting standard waged worker out of jobs by the millions,even the best manufactured products will simply get stucked on their shelves waiting to be sold at or below cost ultimately as in the case of many electrical products like FLAT SCREEN TVS etc.
the problem of economic growth is just too intertwined with the level of real employment,no matter how one looks at it.
so far,exaggerated cost cutting measure have not helped companies but have destroyed some among them.
@ LIONS ROAR:
July 30, 2010 at 12:30 pm
Yes I agree that the economy will take a long time to return to the old growth paths again. Too much debt, consumers globally is retrenching spending and instant gratification, corporations are terrified to invest and add employment, banks too fearful to lend and stimulus spending effects are wearing off. Many are expecting consumers’s private spending will fill the GDP gap. It is not like a light switch, just turn it on and economy will be bright again. Nonsense. China had been exporting deflation for decades now on their low-wage competitive policy but low wage make rich consumers? Nonsense again.
If Chinese exports to US and EU collapse, the poverty grind will kill of consumer spending in China – even in urban rich cities. When that happens, the negative cycle of no demand, no production, less employment, more poverty is re-established making recovery even more difficult without more stimulus spending from Government. But that has risks too. Creditors to sovereign debt might come knocking and demanding higher interest rate for risks lending knocking recovery even further. All in all, if the next double dip is NOT too deep, we might see a rolling economy for half a decade of tepid growth. Not much else of high hope – anywhere in the world. I see tough times ahead globally. Singaporeans will be worse as more incoming foreigner displace Singaporeans from jobs because they are cheaper.
The talent talk is bullshit – no talent comes cheap because there is higher wages for talent in other countries. Even a class 457 visa for temporary work as a welder, electricians, boiler-maker, etc in Australia earns an AVERAGE salary of A$120,000 a year (S$150K) in mining industry before tax. How many percent of FTs in SME or GLC earned half the money pre-tax in Singapore? And how many percent of FTs earns less than 10% of that salary in Singapore?
When you have been around, you know they talk rubbish.
@anonymous
thanks for enlightening me with your thoughts espacially on debt burden.
this is really the thorn in the the rose bush even if there is still some rose shrubs left hanging in the sunshine.
as always,you constantly display depths in your thoughts and writings here.
cheers.
The electronic sector in Singapore is heading for a rough time. Samsung, the world’s largest chip-maker announced record results BUT WARNED OF VERY TOUGH CONDITIONS AHEAD – similar to all its competitors. Consumer electronics is heading for a big slowdown globally.
Read the contents of its CEO’s result announcement just released this afternoon.
http://finance.yahoo.com/news/Samsung-Elec-sees-weak-profit-rb-3218591322.html?x=0&.v=2
Singapore’s manufacturing sector already slumped in June by 24.3% compared to May. This is bad news for our economy forward.
The possibility of us going back to 200b or less economy is great, that’s about it.
China pars down US T bonds but may be buying US such via UK for instance, to send signal to US gov that it is watching a default impending and preparing.
The world leaders knows very well that the yen,yuan, euro, cannot take over the current dollar as world currency. Most major american mnc’s are holding trillions in cash and sitting on it, waiting for clear signals. These mnc’s cannot allowed these dollars to be “poof” or devalued, too much, otherwise it would defeat it’s purpose of accumulating and sitting on it(untold opportunity cost).
China knows that buying Greek or european bonds of dubious sort is madness, default rate too is high, so what are they trying to tell. More likely i read as, a sign “let us work together and sort,solve all problems via lending hand” and world leaders too know that should the market dips, it’ll be a long time before anything can come right, which is a bummer to all nations, reason why IMF and world bank is trying to get all nations that can help to set up a much bigger fund than present, to contain future crisis.
It does no one good to win this trade war as some chinese leaders may think. It is not in the interest for USA to default, either.
I think the IMF and world bank will ask for nations to give 2nd stimulus a consideration. Nations with high savings, will be ask to push for heavy spending, in all kinds.
The slow down of the Baltic shipping index shows most countries stimulus package ending. It may not be correct as the container trade has pick up, due to allocation of space being par down. This may not be long as over supply of ships is overhanging, and not sure what our NOL is trying to do by buying 1.2b of ships and MSC is into this also. If world trade is shrinking, what are these 2nd and 5th players trying to do, kill themselves.
Lets hope the prop bubble will not come, otherwise all is very sad for the man in the street.
masterservant:
July 30, 2010 at 4:34 pm
I believe your comments in this post needs further clarity.
First it is hard to disguise who is the buyer of US treasuries whether these were transacted through NY, London, Zurich, Franfurt or Tokyo, There is a registered owner with legal rights and there is a settlement payment source identifying the owner/purchaser.
Americans corporations are cash rich but why hold foreign currencies when they can hedge in the forex market? So the argument that they would not allow US dollar to devalue is unfounded. If anything, cheaper US dollar will enable them to competitive take on foreign competitors in foreign markets and making foreigner less competitive in US market. US corporations are not looking to hold hoards of US dollar to make themselves rich, they are there for business and cheaper US dollar benefits them especially when most of the biggest US entities have global reach and devaluation would be extremely beneficial to them.
As for Chinese buying Greek and European sovereign debt is madness. This seems illogical to me. The German put in a lot more lending to Greece and so is the European Central Bank 850 billion euro credit facilities. Their participation in support of Greece gives some comfort and security that the chance of default is correspondingly reduced. So why Chinese would not put money into high-yielding Greek sovereign debt unless one takes the position that Greece will be bankrupt into extinction. It is past that stage for now. There is no such a thing as risk-free opportunity. In any case, why would Chinese invest in ever-ballooning debt-ridden country like US solely? It also has sovereign risks as well. Buying into Greece and Japan is simply rational riks diversification. Chinese buying of Japanese bonds were at record levels too.
http://www.ft.com/cms/s/0/8c861c30-8a5d-11df-bd2e-00144feab49a.html
Some of these are for short-term maturities for quick yields.
I do agree with you that IMF may encourage some countries to continue on further stimulus spending. In fact IMF is encouraging the US to do so now.
http://sg.news.yahoo.com/afp/20100730/tts-imf-us-economy-972e412.html
Your other comment on Baltic Dry Index is interesting perspective though I disagree with you on some points. BDI is NOT necessarily a reliable leading economic indicator ONLY BECAUSE freight rates may fall due to PROLONGED over-supply of vessels (keywords are “PROLONGED over-supply”) rather than a slow-down in dry bulk cargo of raw material traffic globally. In principle, that argument holds BUT WHAT ABOUT IN EVIDENCE OF ACTUAL SHIPPING RATES?
Here is some nice evidences from fresh data.
http://noir.bloomberg.com/apps/news?pid=20601109&sid=aC.VTNAvQJ5E&pos=11
As you might see from my weblink, BDI fell drastically in the last few weeks. The key question is – IS THERE AN OVERSUPPLY OF VESSELS IN THE LAST FEW WEEKS AND NOT THE LAST 12 MONTHS? The answer must be affirmatively NO. Why no? Very simple. Where can you find so many ready vessels that did NOT exists two months ago unless it is made of paper??? Also Read the text the following observations
- Expectations for higher shipping costs suggest the 78 percent plunge in capesizes since June 2 doesn’t point to a new global economic slump.
The question must be asked why 78% plunge in capesize vessel since June 2. The answers are found in two sources. First the Chinese import statistics I wrote in this report. It fell dramatically opening up China’s trade surplus when fast rising iron-ore imports and metallurgical coal – EVEN FOR THE SAME VOLUME IMPORTED – would have lifted the value of Chinese imports substantially. BUT the exact opposite happened. When prices of metallurgical coal steadily and iron-ore rose by 40% in the 2nd Qtr, the total value of Chinese import fell INDICATING A BIG FALL IN VOLUME OF IRON-ORE IMPORTS AND METALLURGICAL COAL. BHP-Billiton, a major supplier of iron-ore and metallurgical coal reported bearish outlook for its Chinese market. Brazil facing a suddden fall in iron-export to China also suddenly cut its iron-ore prize by 10% AND SHIPPING COSTS FROM BRAZIL TO CHINA IS FAR MORE EXPENSIVE BECAUSE OF ITS FURTHER DISTANCE COMPARED TO BHP-BILLITON.
So multiple INDEPENDENT sources showed VOLUME OF TRAFFIC OF RAW MATERIAL SHIPPING INTO CHINA HAS FALLEN.
SINCE THE SAME NUMBER OF VESSELS EXISTS TWO MONTHS AGO AND NOW, THE FALLING RATES MUST BE DUE TO FALLEN TRAFFIC VOLUME. THERE IS NO SUSTAINED PROLONGED OVER-SUPPLY OF CAPESIZE VESSEL.
And if you read the actual freight rates transacted – the following comments are valid
- Current spot rate a day is about $12,755 now and actual transacted Forward freight agreements traded by brokers are pricing in a fourth-quarter average of $26,625. This is LOWERED THEN if rates rebound to the $30,375 level anticipated in the Bloomberg survey of analysts forecast 5 months ago.
And if the rebound came to $30,375 per day in the December 2010 qtr signal economic rebound in China? The answer is affirmatively NO. Why?? Here is some clues.
“Global shipments of iron ore will advance 6 percent to a record 961 million tons this year, Clarkson estimates. The brokerage also predicts a 9 percent gain in coal cargoes to an all-time high of 874 million tons”
China accounts for 64% of the global iron ore import of 961 million tonnes or roughly 625 million tonnes. And what is the inventory level now?
“iron-ore stockpiles at Chinese ports. Inventory expanded for four consecutive weeks to almost 74 million tons by July 16.”
Now that is about 1.5 months supply. Therefore China needs to start importing iron-ore by early September latest. This will impact on freight rates for capsize vessels lifting BDI index from current depressed unsustainable level. BUT IT DOES NOT SIGNAL ECONOMIC TURNRAOUND IN CHINA. IT IS MERELY RE-STOCKING OF THEIR IRON-ORE AND METALLURGICAL COAL STOCKPILE INVENTORIES TO BALANCE UP PRODUCTION NEEDS.
So until the major economies picked up including China, the world is going through a rough time. Even container rate rising is meaningless to me. Containers don’t carry dry bulk cargo like iron-ore, coal, copper, zinc etc, they carry finished goods or semi-finished intermediate inputs and for the records, Asian countries has been fairly strong here on finished goods demand. UPS and FedEx results proved that. But as all consumer electronic companies from Samsung, LG Electronic, Sony etc, they forecast falling sales ahead. Now that is also gloomy.
As for NOL and MISC buying vessels, it may be due to replacement cycle for vessels within their financial affordability when prices are likely to be cheapest now given depressed shipping rates. Nothing of significance can be read into that of global economic outlook.
anonymous:
July 30, 2010 at 9:14 am
Hi Canada might not be as sound a economy as one expects as its property sector have showed significant slowdown. Moreover, with their recent new HST(Harmonized Sales Tax), a big correction similar to the US crash could occur. http://www.greaterfool.ca/2010/
It has been shown that significant GDP for Canada in the recent years have significant contributions from the real estate and related banking sectors and thus the crash is likely to have significant pressure on the Canada economy from 2011-2 onwards
For Australia, their property bubble has also blown up to extreme level although a slowdown have not manifested yet. However, based on http://www.debtdeflation.com/blogs/, the debt to GDP of Australians have reached horrendous unsustainable levels.
Regarding gold the views by http://fofoa.blogspot.com/
whereby the world economy might transition to a free-gold world are a possibility. I suspect that eventually all paper gold will be exposed for its fraud if physical demands overwhelms the bullion banks and the metal exchanges whereby the leverage is at least 40-100:1.
FOA: “In the end, physical gold will win out and prove to be the greatest wealth holding anyone has ever known.”
Just an update the ECRI have reached -10.7, http://www.zerohedge.com/article/ecri-leading-indicator-plunges-deeper-double-dip-territory-stocks-turn-green
Things are turning very bad unless some reversal can occur in August Sep, or else i suspected by the end of the last quarter of 2010 things will be confirmed.
@ Jamesneo:
July 30, 2010 at 11:02 pm
My focus of this write-up is changing global outlook, so it is a “BIG PICTURE” perspective of economies. In each country, there must be sector weakness. I am sure Canada and Australia has their weakness – both lack a strong big manufacturing sector servicing global markets even though their economies has far longer growth histories than South Korea which emerged in the early 1970s. Australia had a strong industrial base then. But I shall discuss your points of reference, nevertheless as it adds to meaningful discussions in an economic arena.
I understand why Canada, living next door to USA, did NOT faced the GFC in 2008/2009 for ONE VERY GOOD REASON – their banking system is statutory-barred from dealings with derivatives unlike elsewhere in the world. So that sheltered a lot of risks exposure of their banking sector when the GFC meltdown took place. And for that, I DO NOT rate the prospect of a property meltdown bringing the kind of damaging consequences to all other sector of the economic as singnificant of possible occurence even if property prices came off. Property bubble abetted by easy money is A GLOBAL PHENOMENA FOR 20 YEARS – IT IS A QUESTION NOW OF WHO ADMITS IT AND WHO DENIES IT.And property cycles occur even if economy are sustaining – even of modest growth patches of economic cycle. But overall, you don’t read of mass unemployment uplift, massive industry-wide retrenchment even though many Canadian manufacturing sells a lot cross-border into the depressed US economy. Its industry and commerce is humming and they struggled with energy needs at this moment. You might not be aware, Canada recently turned its back on nuclear energy option – too costly. Read the comments
“recent decisions by the Canadian provinces of Saskatchewan and Alberta not to go ahead with costly reactors that had been contemplated, and the cancellation of a planned build in Ontario”
http://www.mineweb.com/mineweb/view/mineweb/en/page38?oid=97399&sn=Detail&pid=92730
It is a booming economy having to struggle with alternative energy sources. In a world of shortage, Canada is in the midst of a reesurgent mining boom with some prospects of developing its oil-shale deposits ( said as much oil as Saudi Arabia) and huge deposits for potash (for fertiliser production). There were big gold discoveries. Canada is doing very well in my judgment and poised to continue the same for the next few decades.
Australia is in a mining boom now. Apart from Gorgon supply 60 years to China energy needs,there were big discoveries in the North West Shelf. In analogy, oil is identified with Saudi Arabia, gas is associated with Australia. Mining boom created a two-speed economy problem there. As for property, yes, it gone up very high and personal debts are a concern but its banking and Government fiscal discipline since Paul Keating days in the 1990s put their economy on a very sound footing despite the GFC. They had no recession in the GFC and worried about inflation as the world economies slowly recovering. I believe interest rates there has to rise again shortly to cool its property sector.
As for gold, I believe tradition of history will not cheat us despite “modernisation” of values in China. After property speculation for the very very rich, gold has to be the mass market for future speculation. That should be a driver of gold in the long-term apart from shrinking gold production due to the lack of exploration for so long. Interestingly enough, modernisation has also changed the thinking in Saudi Arabia which in recent years see ordinary Saudis buying gold for investment. There has been no historical precedents of that in history unlike India and East Asian countries, so that is a hint of new consumer market for gold in private hands outside Central Banks’ holdings. But I believe the strongest fundamental will come when IMF add gold to its “reserve” counterweight ( only my hypothesis at this stage) to a basket of foreign currencies.
My take is the housing slowdown cause fall of imports to china, and tightening of credit markets and the chinese are known to play the markets, their way, when these items went spot or short term prices( no longer on yearly contract basis). The 30% tax on exports by australia’s gov has to be factored into all sales too, so prices has to go up further, who in the right mind would want to pay the auusie gov such taxes, when prices are lower elsewhere.
There is a suplus of such vessel’s way before 2007 (overbuilding)and thence onwards on yearly basis, the owners are putting some older ones to scrap, but the suplus is here to stay as many shipbuilders are launching on smaller scale, do you see shipyards going bankrupt, no, but mergers and acquisitions like maersk, recently selling one of its yard in denmark or something. Containers do carry scrap, cement and certain dry cargo on smaller scale. Would TH, being the biggest shareholder, allowed NOL/APL to buy in an uncertain market, i doubt. I think most of the ships in the fleet are less than 15 years old, so why commit hard earned dollars for more tonnage when the market is so uncertain, for the sake of cheap and what are you going to do with them with collapse or slowdown, lay them up, there’s a cost here, opportunity cost. The container trade is very voilatile with every 3-4 year cycle.
MNC’s in america hold USD in trillions, not foreign currency. They are debt free and waiting for the obama admin to show clear signals, as to what/how the financial regulations will impact them and the way markets will go. Should taxes be lowered or incentives given on larger scale, these companies will returned to america to manufacture as cheap labor in china may not be the answer, if chinese gov is making things difficult for them and furthermore, labor is not getting cheap in china, maybe elsewhere, like in Bangladesh, US71 for garment worker, that’s slavery. I will not buy GAP or whatever they produce there, should i know its’ slave labor.
Here is some of the past articles on china. Not sure if you have seen them. I don’t read much on links you have inserted in your comments.
http://articles.moneycentral.msn.com/Investing/JubaksJournal/is-china-actually-bankrupt.aspx?OCID=eml_msnnl_6004.4.5.31&REFCD=emmsnnl_6004.4.5.31
http://www.bizcast.co.za/2010/02/04/satyajit-das-the-china-syndrome-parts-12-and-3/
@ Jamesneo:
July 30, 2010 at 11:09 pm
Contrary to the “wave of optimism” so religiously touted in the local media, I had been negative in my write-up of 4 July 2010 – a viewed shared by IMF own publishing 4 days later. My bearish outlook, sustained beyond the glossy yet unbelievable (to me) of Singapore’s 2nd qtr GDP boast of irrational exuberance, published on TR on 24 July 2010 only to be shared by GIC and Dr Tony Tan’s prognosis.
Well, we got it now from US last night. US first quarter GDP figure was revised upwards from 2.7% back to 3.7% but this 2nd qtr GDP came in at 2.4%.
The compelling “pattern” is the US economy ENTERED the 2nd qtr on a very strong platform of 3.7% and exit that quarter on a much weaker GDP growth of 2.4%. In numerical terms, the momentum of growth FELL BACKWARDS BY NEARLY 35% proving that the US economic recovery momentum has definitely fallen as the macro-statistics and micro accounting data from corporate results indicated. They are now forcasting a 1.6% annualised growth for the rest of this year – the same rate of decline of 35% from 2nd Qtr GDP figure.
NOW THAT IS A DOUBLE DIP even if there is no recession – if their forecast is correct. Why? The recovering from negative GDP to the robust 1st qtr GDP of 3.7% has NOT sustained, it dipped BACKWARD QUICKLY (since the 1st qtr) to a much slower rate of growth of 1.6% within 2 quarters sequentially. Let us hope it does NOT get worse than this.
The US 2nd qtr GDP figure showed SLOWER modest growth AND SLIDING. The fear that the slide could turn negative. The Chicago Purchasing Managers Index turned positive for the first time in 6 months. I suspect that this is autos sales.
http://www.ibtimes.com/articles/20080731/us-chicago-pmi-index-shows-expansion-in-july-for-the-first-time-in-six-months.htm
If it is heavily weight to autos in Detroit, then it could be false dawn of optimism. It is a flash, not a trend that is likely to sustain. Why? All Japanese, Korean and European autos are reporting tougher conditions ahead in their corporate results announcements. So why is US an exception when Japanese and Korean cars are competitively sold in US? Every auto manufacturing is searching for topline revenue in any market, so the US market will be competitively challenged. Autos might not sell as well. in fact, figures showed auto sales already fall in June 2010 when June is traditionally a strong month in US auto sales. Much of the US auto sales boom is due to “cash for clunker” tax incentivized push which has expired and it stimulated CORPORATE BUYS for tax benefit consideration. Passenger car sales in US is still weak even as the tax incentives were on-going and expiring in March 2010. Car sales will hit two vaccumn – corporate buys and consumer buys. On this account, I see the Chicago PMI slipping in August for compelling reasons.
Another surprise in auto sales could come from the stock market itself. historically, auto sales in US strongly correlated with US stock market indices. If the stock market falls – not an impossibility – car sales will fall too damaging autos and manufacturing sector and employment. There is no big reason to fire up US market other than macro-economic news as corporate results have to wait another 3 months to come. And macro picture is not sunshine but gloomy. The odds, on balance, is that US stock market could head down south than north because “strong” corporate results have NOT fired the market up north and sustaining it in July.
There are however, some bright spots in the GDP figures. Business did spend on some investment, mainly in software and business application technology. Consumer spending, though slower, is still not negative – helped by tax incentives of the stimulus package and recent stabilisation of employment.
The BIGGEST RISKS IS WHEN THE ECONOMY SLOWS DOWN BELOW 2%, unemployment may rise as more enter the employment market. This is a modest recovery losing steam and is very easy to be shaken down into a steep slide.
So by your prognosis that by the December qtr this year, the US economy and global outlook might fell over is a point I agree with of assessment, as of statistic looking now.
For a country deep in debt, they sure have many to spare.
http://www.cnbc.com/id/29880401?slide=1
Below is world’s biggest debtor nations.
http://www.cnbc.com/id/30308959/
I agreed that Canada and Australia being resource rich country would emerge better than the rest of the western economies if the recovery occurs like what you commented but if a double double occurs, commodities will be suppressed at least for a while. For longer term >10yrs i agreed that the mining boom bodes well for Canada and Australia but in the shorter term 2-5 yrs, my belief is that the huge deleveraging needed in both countries coupled with any shocks from any new GFC is likely to play down on any growth.
Moreover, my main point is that the banking practices of both countries especially after the GFC of 2008 are not as sound as one would believe. The Harper government in Canada have encouraged Canadians to undergone a debt binge in the past two years after the GFC of 2008 and just recently they announced a new HST and also increased the interest rate to try to contain the inflation from easy money. The consequence of this changes is the debt deflationary process will hit their economy significantly and commodities might tank again. But overall, i agree with you that they might still emerge better then the US.
@ masterservant:
July 31, 2010 at 11:27 am
@ Jamesneo:
July 30, 2010 at 11:09 pm
Both of you added good inputs into this thread. Thank you! Just like to comment a little further on Jamesneo’s comment below which I thought rather interesting – reading at Obama’s own comment on the GDP figures. Jamesneo said
“Things are turning very bad unless some reversal can occur in August Sep, or else i suspected by the end of the last quarter of 2010 things will be confirmed.”
What did Obama said? He said this in Detroit.
“Our economy is growing again instead of shrinking. And that’s a welcome sign compared to where we were.But we’ve got to keep on increasing that rate of growth and keep adding jobs so we can keep moving forward,” Obama said.
http://www.theaustralian.com.au/business/news/slow-us-growth-sparks-political-debate-over-gfc-recovery/story-e6frg90o-1225899326792
From a negative actual growth of 6.8% in the final qtr of 2008, US t GDP took a long hard ride up to record a 3.7% in first qtr of 2010, only to slide back very quickly in the 2nd qtr. That is the fear inhabiting Obama’s mind that this recovery is, without explicitly stating so, UNABLE to (in his political speak) “keep on increasing that rate of growth and keep adding jobs so we can keep moving forward.”
And IMF forewarned only yesterday a sense of urgency plea that the US spend further on fiscal stimulus
http://sg.news.yahoo.com/afp/20100730/tts-imf-us-economy-972e412.html
Where to find the money? Masterservant’s post above illuminates the financial debt distress US is facing.
And where is the political will for that kind of undertaking between now and disaster which Jamesneo said that must be resolved in August and September?
I would strongly assert NIL. Why? The answer is the US mid-term Congressional re-election on 2 November 2010.
Would the Republicans kick their own arse to help the Democrats tighten their grip of Congress to their detriment of 2012 election? I doubt so.
And if most of the key economic data comes out negative in August and/or September 2010, I would increase my odds of a double-dip recession before this year is out to at least 80/20.
Anyone disagreeing?
@ Jamesneo:
July 31, 2010 at 2:58 pm
Did you noticed this? Despite the gloom inhabiting global economies, metal shares have performed strongly notbly copper, gold, iron-ore and metallurgical coal though weaker for nickel, lead, zinc and aluminium. It is NOT just demand BUT SUPPLY CONSTRAINTS because of the lack of exploration since the early 1990s and big “Goliath” miners are gobbling up smaller “Davids” and in betweens INSTEAD OF DOING EXPLORATION. If there is a double dip in recession, some shines in metals will be shaved off – no doubt in the metals but as soon as economies recover, the pent-up shortage will re-emerge favouring countries like Australia, Canada, Brazil, Poland, West Africa with established mining deposits and mining infrastructuring to put into production within the shortest development cycle. Most people don’t realise that the lead development cycle from discovery to production in large deposits take up to 15 years and some up to 90 years and still no development due to political risks. Many of the decent size discoveries in Africa are in politically (read ideologically) unreliable jurisdictions in Africa, Mongolia and Afghanistan, Pakistan, Iran, Central America, Venezuela etc. That is why the fundamentals are so strong for resources-rich economies with stable reliable political risks like Canada, Australia, Brazil and Poland – economic cycles notwithstanding.
Deleveraging in both Canada and Australia has NO IMPACT whatsover on their natural resources sector WHICH DEPEND SOLELY ON GLOBAL EXTERNAL DEMAND. You need to remember that neither Australia nor Canada has such a huge industrial base as even South Korea needing raw materials.
I believe Australia, Canada, Brazil, South Korea, Germany are the economic frontrunners in the decade ahead. There could be a few rising emerging stars in West Africa such as Ghana, Guinea Bisseau, Togo on account of big off-shore oil discoveries. Israel also recently had multiple big oil and gas discoveries off its Meditereanean coast. With its technological base and new found oil wealth, Israel is potentially a solid tiger economy in the decade ahead.
masterservant:
July 31, 2010 at 10:53 am
I have a compelling question to ask you in answer to your poser below
“Would TH, being the biggest shareholder, allowed NOL/APL to buy in an uncertain market..”
My question is – DO A BUSINESSMAN INVEST IN CAPACITY IN UNCERTIAN MARKET (when it is cheapest obiously of asset buy) AND REAP THE HARVEST IN GOOD TIME ( when no assets is available for sale even)?
Or do a businessman invest in capacity in good times and take delivery of asset unable to deploy to earn income when bad times comes rolling – KNOWING THAT YOU ORDER A SHIP TO BE CONSTRUCTED, IT TAKES YEARS FOR DELIVERY GIVEN BUYING ORDER BOOK ALREADY IN THE QUEUE?
For me, I will ALWAYS INVEST in tough times to reap the good times ahead and NOT what textbook economic teaches in reverse. So for me, to be in business in perpetuity, I will always buy in bad times and sell in good times if I can get my timing right – not easy BUT BUYING IN BAD TIMES IS THE BEST BUSINESS STRATEGY IN EVERY BUSINESS.
If you can survive the hard times, the good times will COME THUNDEROUSLY ROARING GOOD. Ask experienced businessmen with long history of experience in economic cycles.
MNC holding trillions of USD issue, a devaluation is a plus for them because they can shift their plants back to USA over time and they have already established market presence worldwide. China would find it difficult to compete because its labour economic advantage would have been eroded. I am sure China is moving offshore too in those circumstnces of major US dollar devaluation just like China is finding it harder and harder to compete in EU selling cars and white goods made in Turkey in EU on account of shipping cost differential. Chinese auto manufacturing such as Geely is going international looking for acquisitions is for this reason.
its good to talk up the market and
http://www.nytimes.com/2010/07/02/opinion/02krugman.html?ref=paulkrugman
@ eaglefly:
July 31, 2010 at 6:25 pm.
This written economic paper DOES NOT intend for one moment either to “talk up the market” or “talk down the market”. It is pure and simply focusing on economic fundamental and the realities of evolving market conditions of how these may affect our economic prospects ahead.
while your enthusiasm feels it is
“good to talk up the market” and share Paul Krugman’ s deep economic thoughts on bond vigilantes, the economic journey is long. Sorry, I have less inclination for this import.
In any case, if China gradually but consistently offload US bonds, interest rates in US might rise as China may need money to re-invest in its own economy instead of sustaining US sovereign debt in perpetuity. Untimately, thoughout economic history all creditors of capital wants a rate of return commensurates with risks weighing against alternative rates of returns of all other investment opportunities. Krugman forget that economic history has not proven this principle wrong – at least till now.
Better know the “truth” of realities and be able to react (hopefully) in crisis or ahead of crisis than to be buried in crisis just like the thought-to-be ever-lasting parties of Wall Street investment bankers who found their extinctions sudden and inescapable in raging fires of 2008/2009 in the aftermath of GFC. Most of us must be glad that economically, we have not passed on to the “dinosaur” era of true economic history. Otherwise none of us could be here writing our respective deep thoughts.
Have a nice day, mate.
Hi Zhen He,
I think you have to correct your report. The market is so bullish that it is very hard for people to believe the accuracy of your report. Report is long or short does not matter. The only thing that is important is accuracy.
@ William:
August 3, 2010 at 12:19 am
Europe has gone up by 5% in July and US by 7%, does that really changed the world? The report is on FUNDAMENTAL, not a technical analysis ( SENTIMENT) as evident from the charts.
If you noticed carefully, this write-up also said of rapid rise in stock market in the week post the first write-up, but was that sustained higher?
Alan Greenspan, in the afternoon edition of Today, warned us to be ‘BEWARE THE DOUBLE-DIP” SAYING THT THE ECONOMY HINGES ON HOME PRICES.
Should Alan Greenspan also changed his view of FUNDAMENTAL IN THE LIGHT OF TONIGHT BULLISH MARKET SENTIMENTS ON NEW YORK STOCK EXCHANGES?
One of the thing most people forgot is that the “strong” corporate results in 2010, compared to 2009, is NOT COMPARABLE IN MANY INSTANCES. Why?? In 2009, the accounting rules for write-off of assets below market value is instant but with the changed accounting rule now, asset valuation is the Chief Accountant’s fancy with a little nod and nudge from the CEO. If they had followed strict accounting rules, there could be a fair bit of write-offs in the 2nd qtr bringing reported earnings down. Why? Stock market fell from April to May, some of those entities with investment in listed shares would have a need to do a write-down but for reasons of changed accounting rules, DO NOT. So their reported accounting profits looks better.
All said I am watching retail sales figure and employment figure carefully this August to give me clues as to the economic fundamentals deteriorates further or improved. I don’t know as of now.
As for those macro-data that has came out since this write-up, the fall is not big – so that is a consolation.
As for Europe, conditions are better – thanks to a lower euro helping exports, Germany is doing well. I see no evidence in the rest of EU at this juncture. Figure out from China is still falling manufacturing and car sales. Someone spoke of rising container rates of BDI. Well that is NOT incorrect – it is from a low base and retailers are importing for Christmas stock-up early to avoid last minute rush as containers manufacturing in China has fallen off giving worry of shortages ahead. And that does NOT signal turnaround because there is no evidence of increase in VOLUME SHIPMENT as consumer spending has no sign of turnaround as yet.
So the question of long or short is IRRELEVANT. But the fundamentals do NOT change in a week when Greenspan only last night spoke of double dip again. Greenspan is a “shy” man with very careful tongue and not PRONE TO IRRATIONAL EXUBERANCE OF TALKING NONSENSE if accuracy is what your focus is as much as my writing.
@ @ William:
August 3, 2010 at 12:19 am
Just read the comments of two of the biggest miners in the world, BHP-Billiton and Rio Tinto at Diggers and Dealers Mining Conference in Kalgoorlie today of near-term prospects. They recently warned of more difficult times ahead.
At today’s Conference, the prognosis of outlook reads as follows
BHP Billiton and Rio Tinto, which rely on China for
a quarter of annual sales, have warned that slower
China demand would weaken sentiment and heighten
market volatility.
Iron ore miners might regret this year’s hard-won fight
against steel mills to shift pricing to the spot market
as prices drop off and new entrants face hurdles to
development.
Spot prices are trading well below the new $160 a
tonne CIF third quarter contract price, with forecasts
continuing to point south.
Hardest hit in the sector may be Australia’s burgeoning
magnetite iron ore sector, which has enjoyed growth in
foreign investment, particularly from Chinese steelmakers.”
http://graphics.thomsonreuters.com/10/diggersdealers.pdf
The third quarter is 1 July 2010 to end September 2010. Today is 2n August 2010 and both miners forecast prices of iron-ore magnetite going down south still when spot price has already fallen.
They are in the frontline of business and I ASSUMES THAT THEY ARE IN THE KNOW MORE THAN ANYONE ELSE IN THEIR BUSINESS. They know the realities of the market place – not just the traders and speculators on Wall Street – on the true fundamentals. Most companies goes to these Conferences to boast about their achievements and prospects but NOT the two biggest Australian miners.
THEY TELL ME A STORY I BELIEVE.
@ William:
August 3, 2010 at 12:19 am
Please check the forecasting “inaccuracy” of my write-up above and see if it makes sense to you now IF IN FACT IT IS INACCURATE.
My write-up was prepared on 22 July 2010 made the following forecast in BOLD print
“THE DYING US HOUSING MARKET, SLOWING MANUFACTURING SECTOR AND FALLING RETAIL SALES STRONGLY SUGGEST THAT THE US ECONOMIC RECOVERY IS STALLING OR HEADING FOR A STEEP DECLINE.”
On 29 July 2010, the Federal Reserve Beige Book has this comment
“The latest Beige Book report was another sign that the recovery in the world’s biggest economy may be running out of steam. Economic activity slowed or stalled in four of the Fed’s 12 regional districts.”
http://www.theaustralian.com.au/business/markets/modest-advances-in-us-economy-says-federal-reserves-beige-book/story-e6frg926-1225898239948
The key catchphrase of relevant reference in confirmation of my forecast outlook from Fed is ……”Economic activity slowed or stalled in four of the Fed’s 12 regional districts.”. I DID NOT KNOW IN ADVANCE OF THIS ACTUAL HAPPENINGS since my write-up was done on 22 July 2010.
Of course I also did NOT KNOW AND COULD NOT HAVE KNOWN, at the time of writing, that US 2nd Qtr GDP deteriorated from 3.7% annualized growth rate (in the 1st qtr 2010) to 2.4% annualized growth rate – THAT IS A 35% SEQUENTIAL FALL IN GROWTH MOMENTUM IN JUST 3 MONTHS WHICH WAS ANNOUNCED 8 DAYS AFTER MY FORECAST.
Needless to add, I did NOT know in advance Greenspan’s warning on 1 August 2010 – 9 days AFTER I wrote my grim forecast – also warned of a double-dip
http://www.telegraph.co.uk/finance/economics/7921353/Alan-Greenspan-warns-that-US-could-be-heading-for-double-dip-recession.html
So I DON’T EXACTLY know where that inaccuracy exist in your thoughts, William. Maybe you could fill me in, thanks.
Until new economic data coming out of the pipeline proves the contrary, I remain faithful to my conviction that my forecast is objective and in correct of judgment.
Do you or anyone else disagree?
Hi, Zhen He
Any further forecast , would like to hear more from you.
What do you think about latest 2nd quarter GDP results..seems that Sg is doing well. Perhaps even if US double dip, things in Sg may not turn out as bad as you mentioned ( e.g property crash … ) . Possible ?
ITE Only:
August 10, 2010 at 10:44 pm
I have did a forecast It is called “Update2 – Global economies heading for turbulence, are we edging closer to trouble heading forward?.
TR has approved it for publishing but does not seems to appear. You can read my forecast on global economic outlook at my own blog
http://global-economies-outlook.blogspot.com/
I believe the downside risks now weigh much higher than a recovery in the 2nd half for US. And that is also in
http://www.marketwatch.com/story/whopping-downward-revision-for-q2-gdp-seen-2010-08-11?pagenumber=1
Hope you find it interesting.
your new share!
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Dominick Mihaly:
August 15, 2010 at 1:14 am
My new share of thoughts as of 11 August 2010 is in my blogg
http://global-economies-outlook.blogspot.com/
and also published in Temasek Review on 13 August 2010.
http://www.temasekreview.com/2010/08/13/update-2-%e2%80%93-global-economies-heading-for-turbulence-are-we-edging-closer-to-trouble-heading-forward/
Hope that helps.
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@ Scholarships for Single Mothers:
August 17, 2010 at 3:14 pm
@ internet marketing books:
August 18, 2010 at 10:44 am
@ wholesalers drop ship:
August 18, 2010 at 12:27 pm
Glad you all enjoy reading my write-ups. When time permits, I may update at my blog and also publish the same in Temasek Review if you all missed out. The most recent one is 11 August (published on 13 in TR) Update 2 – Global economies heading for turbulence, are we edging closer to trouble going forward?
http://global-economies-outlook.blogspot.com/
Enjoy!
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