Showing posts from June, 2008

American "meltdown" reason for Fortis money injection

28th of June, 9:10

BRUSSELS/AMSTERDAM - Fortis expects a complete collapse of the US financial markets within a few days to weeks. That explains, according to Fortis, the series of interventions of last Thursday to retrieve 8 billion. “We have been saved just in time. The situation in the US is much worse than we thought”, says Fortis chairman Maurice Lippens. Fortis expects bankruptcies amongst 6000 American banks which have a small coverage currently. But also Citigroup, General Motors, there is starting a complete meltdown in the US”
Courtesy of CNA forummer - Topsage

I made 5 phone calls to friends who are in the "investment management" line. At least those who I know are somewhat successful ( > 7 yrs, live in private housing).

These is the consensus view (not necessarily the correct view):

1. US slowdown will span 3 quarters starting from beginning of 2008 until Sep 2008.

2. Even after Sep 2008, recover will be slow.

3. Asian markets always follow US stock market down. EVEN when the actual economy is decoupled. One of my friends did an analysis - there are many US recession that did not affect certain Asian economies much, yet the stock market fell.

4. When Asian market rebounds, for economies not in recession, it is expected to be sharp.

5. The market is in grind down mood. "Finding the bottom" mood. This is a slow process and can take weeks if not months and nobody not even the greatest expert can tell you when it is over.

6. Expected markets that will show some decoupling are Taiwan & Thail…

BNP head sees worst of global crisis over-report

The worst of the financial crisis is over and markets should start settling from the second half of this year, the head of France's biggest listed bank, BNP Paribas, told Italy's La Repubblica newspaper.

"The worst should be over and I think that from the second half onwards the crisis should normalize: that is, the phase of exceptional turbulence on the markets should end," Baudouin Prot, chief executive of BNP, said in an interview published on Sunday.

"I still expect to stay volatile," he added.

He said BNP had only been touched "lightly" by the crisis in the U.S. subprime mortgage market as the bank had only 200 million euros of exposure.

Prot said he was in favor of a pan-European committee to supervise markets "with strong decision-making powers over banking."

But he added that it was also "important to keep a close eye on sectors of the financial industry which are still not supervised."

Prot reiterated that BNP was not intere…

More consumers, workers shoplift as economy slows

By Christine Dugas, USA TODAY
One morning last month, the manager of a Stop & Shop in Methuen, Mass., noticed a man, along with his young daughter, leave the store without paying for several bags of shrimp. When police arrived, they found something else on him, too: 20 cans of baby formula.

Call it a sign of the times. Steadily and alarmingly, shoplifting seems to be rising at many retail chains, and experts are pointing at a prime cause: the sputtering economy.

"Wages aren't keeping up with inflation, especially the price of food and energy," says Diane Swonk, chief economist at Mesirow Financial. "It just leaves less money for everything else, and that breeds a lot of temptation."

Retail and law enforcement experts agree that they've seen an increase in store theft during the current slowdown — and not only from customers.

"It's clear that both employee theft and shoplifting are up," says Richard Hollinger, professor of criminology at the Uni…

Harvard, Buffett Have Bad News for Asia Bulls: William Pesek

June 27 (Bloomberg) -- ``The worst is over.'' One hears some variation of this view constantly when traveling around Asia.

It's a comforting one, predicated on the idea that the U.S. economy will avoid the recession that markets have priced in for some time. It's also a view that could be in for some serious revision as the year unfolds, and not in a good way.

The latest sign comes from a Harvard University report. Growing foreclosures and tighter lending standards are creating an environment that ``is shaping up to be the worst in a generation,'' Harvard's Joint Center for Housing Studies said on June 23.

``The slump in housing markets has not yet run its full course,'' said Nicolas Retsinas, director of the center.

The U.S. market seems likely to remain mired in a recession. And as Retsinas pointed out, housing markets historically recover only after an economy contracts and prices fall enough to improve affordability.

That's a bigger problem for A…

S'pore stocks - down but not out

Rough ride expected ahead, but counter-inflationary stocks or those that can ride rising oil prices could offer opportunities

Business Times - 28 Jun 2008

(SINGAPORE) Rising inflation and slower economic growth projections are eating away at sentiment on the Singapore stock market. With the picture unlikely to brighten in the near term, stocks could drift further south in the second half of this year, analysts say.

Since January, the Straits Times Index (STI) has lost almost 15 per cent to 2,955.91 points along with the broad sell-off across regional bourses and on Wall Street.

Trading volumes have also slumped 46 per cent from a year ago to some 150.5 billion shares in the first half of this year.

Analysts believe that investors are in for a tougher ride in the next six months as lingering inflationary fears and possible tightening measures by central banks continue to stoke market volatility.

'We started the year thinking that the second half will be better than the fir…

Citigroup warns of Barclays rights issue deficit

By Philip Aldrick
Last Updated: 12:01am BST 28/06/2008

Barclays' £4.5bn fundraising falls about £9bn short of what is necessary to absorb credit-related writedowns and bring the bank's capital in line with European peers, Citigroup claims in a note to clients.

The British bank's shares came in for more heavy selling following the note, dropping to 289½p at one stage yesterday before ending the day down 5¾ at 298p.

Citi analysts said that simply moving Barclays' core tier one capital in line with its closest peer, Royal Bank of Scotland, would require an extra £2.5bn. If Barclays was to write down its credit-related positions to the same degree as RBS the figure "increases to circa £9bn".

Barclays has taken just £1.7bn of writedowns this year, compared with £5.9bn at RBS, leading some to believe that it has not been sufficiently prudent in its assumptions.

The bank thought it had allayed some concerns this week by securing backing from several existing shareholders …

Stagflation threat overstated for stocks, bonds, report says

Globe and Mail Update

Stagflation might not be the bogeyman for stock and bond markets that it's cracked up to be, a top U.S. market strategist says.

Tobias Levkovich, chief equity strategist at Citigroup Global Markets Inc. in New York, has published a report looking at periods of stagflation - stagnant economic growth coupled with high inflation - over the past 40 years and analyzing returns experienced by various investment asset classes. He found that U.S. stocks and bonds were actually top performers during those periods, outpacing gold, oil, industrial commodities and residential real estate.

The data fly in the face of conventional wisdom, which holds that stagflation is a killer for both stocks, as a result of the lack of economic growth, and bonds, because of the high interest rates that result from inflation. They also suggest high-flying commodities such as gold and oil, which some investors have sought out as a shelter from a possible stagflation storm, mig…

The best place to put your hard-earned money is where it can make you some more money, the more the merrier. But with the plethora of financial invest

By Joe Bel Bruno, AP Business Writer
Record crude prices biggest difference from last market downturn in 2002

NEW YORK (AP) -- Investors who remember the stock market's steep and prolonged decline earlier this decade may be wondering if the recovery from Wall Street's current morass will also take several years to accomplish.

The dot-com bust, terrorist attacks, recession and corporate wrongdoing combined to send stocks plunging in 2002. Today's market has some similar problems, in particular the troubled economy and a devastated industry -- this time, it's the financial sector. But there's one variable that may be impossible to resolve: oil prices that have more than doubled in a year and show no signs of abating.

"The economic gloom is far greater today then it was in 2002 because we have concern about worldwide inflation and what oil is going to do to the economy," said Alfred E. Goldman, chief market strategist at Wachovia Securities. "The problem fo…

Tips to boost your investment returns

The best place to put your hard-earned money is where it can make you some more money, the more the merrier. But with the plethora of financial investment vehicles that exist today, how do you pick and choose where to park your money? Is a higher return all that matters when you’re saving for your future? While a financial advisor would be the best person to help you with your investing needs, these tips provide an insight to a few time-tested strategies that work in the investment world:

* If you’re not experienced in dabbling in the stock market, put your money in mutual funds – the risks in one stock are balanced by the returns in another.
* For the stock market investor to make money, the knowledge of when to sell and when to buy is a must. Buying when prices are low and selling when they’re high is the most obvious strategy, but things do not always work like clockwork in a market where no one can achieve the perfect timing. The trick here is to adopt the dollar-cost-averag…

Prepare for global financial storm, warns British bank

Barclays says Fed has unleashed an inflation shock by not raising rates, and that there will be a deep recession over next three years

BARCLAYS Capital has advised clients to batten down the hatches for a worldwide financial storm, warning that the United States Federal Reserve has allowed the inflation genie out of the bottle and let its credibility fall 'below zero'. 'We're in a nasty environment,' Mr Tim Bond, the British bank's chief equity strategist, was quoted as saying in a report by the Telegraph yesterday.

'There is an inflation shock under way. This is going to be very negative for financial assets. We are going into tortoise mode and are retreating into our shell. Investors will do well if they can preserve their wealth.'

Barclays Capital said in its closely watched Global Outlook that US inflation would hit 5.5 per cent by August, and the Fed would have to raise interest rates six times by the end of next year to prevent a wage spiral, the pap…

Barclays warns of a financial storm as Federal Reserve's credibility crumbles

US central bank accused of unleashing an inflation shock that will rock financial markets,reports Ambrose Evans-Pritchard

Barclays Capital has advised clients to batten down the hatches for a worldwide financial storm, warning that the US Federal Reserve has allowed the inflation genie out of the bottle and let its credibility fall "below zero".

"We're in a nasty environment," said Tim Bond, the bank's chief equity strategist. "There is an inflation shock underway. This is going to be very negative for financial assets. We are going into tortoise mood and are retreating into our shell. Investors will do well if they can preserve their wealth."

Barclays Capital said in its closely-watched Global Outlook that US headline inflation would hit 5.5pc by August and the Fed will have to raise interest rates six times by the end of next year to prevent a wage-spiral. If it hesitates, the bond markets will take matters into their own hands. "This is the f…

Worst of Credit Crisis Yet to Come

By Stewart Bailey and Dale Crofts

June 26 (Bloomberg) -- The global credit crisis will slow construction and U.S. economic growth for at least 18 more months, Nucor Corp. Chief Executive Officer Dan DiMicco said.

``We haven't seen the worst impact on the economy yet,'' the CEO of the largest U.S. steel producer said yesterday in an interview in New York. ``The impact of the tighter credit controls is just starting to affect folks.''

The credit crisis, sparked by U.S. mortgage defaults, caused $400 billion in writedowns at the world's largest banks and securities firms in the past year. Standard & Poor's and Moody's Investors Service have tightened credit-rating measures, making it more difficult for companies to borrow money, DiMicco said.

While the crisis originated in the U.S., it's a worldwide phenomenon that will last through 2009 at least, DiMicco said.

``After that, who knows?'' DiMicco said. ``There are two camps: one saying we're …

Graduating to a Happy, Financially Secure Future

by Laura Rowley

Every year around this time, the New York Times prints a roundup of commencement addresses. I always find a little inspiration there to cut out and stick on my office wall. This year, its author J.K. Rowling's address to Harvard grads about the benefits of failure -- although if I were to nominate a group for the "least likely to fail" award, it would probably be that audience.

In any case, I had some thoughts for my own commencement address. Here's what I would tell the class of 2008 about money.

Believe the Clichés

Personal finance advice is so similar, and so often repeated, it's become a cliché:

• Live within your means.

• Set up an emergency fund with three months of living expenses.

• Stay out of debt.

• Join your company's 401(k) plan or open an individual retirement account; set aside at least 10 percent of your pre-tax income every year.

• Invest in a diversified portfolio of mutual funds to help your money grow over time, and make sure you…

Bankers’ pay is unfair, say ABN AMRO and OCBC bosses

Simon Mortlock

The heads of ABN AMRO in Asia and OCBC Bank are sick of overpaying their traders. Remuneration in financial services is “inherently unfair”, according to David Conner, chief executive of OCBC. The pay gap between, for example, those in trading and operations roles is too extreme, he told Singapore’s Institute of Banking and Finance (IBF) conference last week.

In an impassioned attack on traditional reward structures, Conner said those pocketing the fattest pay cheques often don’t generate as much revenue for banks as others who get much less money.

Also addressing the annual gathering of banking bigwigs, David Wong, South East Asia chief executive of ABN AMRO, said the solution is to close the gulf in pay between risk takers and risk managers. Wong said firms should consider paying fund managers and risk managers almost the same amount. “The incentive structure has to change,” he added.

Professor Ronald Collard, a partner at PricewaterhouseCoopers, said these disparitie…

Asia not immune from Morgan Stanley’s axe

Sarah Butcher

Morgan Stanley bankers who were hoping John Mack would take pity on them again this year are due to be disappointed. And Asia is no safe haven from the global carnage.

Last December Mack raided the coffers to stump up a 5% increase in average compensation for 2007 over 2006, but he now appears to have decided his people can do without. Whereas the average Morgan Stanley banker had accrued $108.3k in salary and bonus by this time last year, that figure is now down to $63.8k – a drop of 40%.

Instead of hanging on for a paltry bonus, the better bet at Morgan Stanley might be to get yourself laid off. The bank’s Q2 figures show that it made a total of $245m in severance payments to 660 staff last quarter, an average of $371.2k.

A nice new redundancy cheque may be easy to get your hands on later this year, even in Asia. The i-bank’s Q2 revenues fell 25% in the region – against a 14% drop in EMEA. This income slump has already taken its toll on headcount, with Tokyo in particular …

Financials: A Long Way from the Bottom

No tears are being shed on Main Street amid reports of more layoffs on Wall Street. But news both Goldman and Citigroup are each cutting 10% of their investment banking staffs is a worrisome sign for investors. For the past year, many traders have repeatedly sought to find "the bottom" in financials and related stocks (i.e. homebuilders), but the reality is the sector is a long way from a true bottom. Beyond needing to further trim the fat, the financial sector is dealing with the double-whammy of stricter regulation and the 'deleveraging' process after years of massive credit extension.That combination is going to result in slower earnings growth for the sector and a revaluation of brokerage stocks, which got well above their historic norms during the peak of the boom earlier this decade. Just like big-cap tech stocks like Cisco are still well below their bubble-era levels, it's going to be a long time before the Citis, Goldmans and Lehmans of the world revisit…

Is China's Economy Slowing?

by: Michael Pettis posted on: June 19, 2008

Much of the focus in China continues to be on the performance of the stock markets. Yesterday the market bounced around both above and below Friday’s close, before ending the day at 2874, up slightly less than 0.2%. That was the first positive day for the SSE Composite in nearly two weeks (after last week’s 14% decline), but a quick look at the trading patterns and trading volume didn’t seem to indicate much conviction.

Wednesday, the market dropped sharply again. It started the day with a little bit of buying – in the first half hour the market traded up nearly 0.7%, but as often happens with any strength, sellers took advantage to unload positions and prices quickly bounced their way down to 2769, down 3.7%, just 30 minutes before the close of day, before staging a late rally to close at 2794, still nearly 2.8% down for the day.

This puts us at 6.9% below the 3000 level which we broke last Wednesday and which, supposedly, was the level below…

Don’t Buy What Wall Street Is Selling

by: Martin Hutchinson posted on: June 18, 2008

Imagine that you’re the investment director for one of the new sovereign wealth funds (SWFs). A very important guy - you get to invest several hundred billion dollars, with far fewer committees and shareholder interest groups harassing you than if you're the head of U.S. institutions such as CalPERS or TIAA-CREF.

Last winter, you had delegations from all the big banks in New York explaining that they’d just had this teensy weensy hiccup in subprime mortgages and so were giving you an unparalleled opportunity to buy shares - or convertible bonds - at a modest discount to the market price. You bit and you bought - a few billion dollars in each of two or three of them maybe, a fleabite in terms of your overall funds to invest but real money for ordinary mortals.

Now you open The Wall Street Journal handed you by a flunky to see how your investment is doing….

And find it’s down an average of 15%. And that’s in dollars, which themselves appea…

Report: Citigroup to slash investment-banking jobs

Report: Citigroup will slash thousands of investment-banking jobs worldwide NEW YORK (AP) -- Citigroup is preparing fire thousands from its worldwide investment-banking division, The Wall Street Journal reported on Sunday.The Journal, citing people familiar with the matter, said the layoffs are part of a plan to cut about 10 percent of the staff of the 65,000-member investment-banking group.Messages left with Citigroup spokesmen on Sunday were not immediately returned. The Journal said the fired employees could be notified as early as Monday.The New York-basked global bank, along with much of Wall Street, is in the throes of recovering from bad investments on mortgages and leveraged loans that cut billions of dollars from its portfolio.It was not immediately clear if the reported job cuts would be in addition to cuts announced by Citigroup in April. After reporting a $5.1 billion first-quarter loss, the bank said then it was reducing its staff by 9,000, in addition to the 4,200 job cu…

The good news is that things are predictably bad

By Damian Reece
Last Updated: 12:18am BST 19/06/2008

Life might seem uncertain and unpredictable at the moment but in reality it's proving quite the opposite. The bursting of the property bubble was widely predicted, albeit the nationalisation of a major high street lender was not.

Since then, warnings from various sources of mounting losses amongst the banks have been realised, even though the banks themselves have seemed in denial.

The warnings about consumers being left high and dry by their debt binge have come to pass while the tired old cliché about inflation being like toothpaste - once it's out of the tube it's hard to get it back in - has been in use by the Telegraph since the summer of 2006.

We may have offended some by resorting to the simile a little too much but we, like others, have been trying to make a point on prices for some time.

Yesterday's letter from Mervyn King to Alistair Darling about inflation revealed more about a UK economy that is behaving in lin…

Net income at S'pore banks seen rising

But 2009 could be tough as economy slows, exports fall, predicts Moody's

Business Times - 20 Jun 2008

(SINGAPORE) The three Singapore-listed banks should still see growth in net income this year as they pass on higher costs to customers, but could struggle to show growth next year as bad loans start to rise, ratings agency Moody's said yesterday.

The outlook for the banks' credit ratings - which measure their ability to repay their debt and stay solvent - remains stable, as all three have solid capital bases and ready access to funds.

DBS Group, OCBC Bank and United Overseas Bank are all rated 'B' by Moody's. Deborah Schuler, a senior vice-president at Moody's responsible for rating financial institutions in Asia, said that while profit margins are likely to fall this year, 'net income for most banks in the region is going to increase'.

However, fee income from non-lending businesses such as securities brokerage, wealth management and risk m…

Indian equity fund inflows plunge as euphoria fades

May's 48b rupees and April's 45.9b rupees a mere drop of Q1's 449b rupees

Business Times - 20 Jun 2008

(MUMBAI) Investors are shying away from Indian equity funds as a sustained slump in the stock market wipes out a major chunk of their stunning gains in 2007, but the industry is not yet facing pressure from redemptions.

Diversified stock funds delivered returns of nearly 60 per cent in 2007, as the benchmark stock index rose 47 per cent.

But with the market down about a quarter so far in 2008, investors have seen the value of their holdings cut by almost a third and have started cutting back on new investments.

'There has been a slowdown in the flows of equity funds in the last two months,' Sanjay Prakash, chief executive of the Indian fund unit of HSBC, told Reuters. 'We are seeing net inflows every day, but very small amounts,' said Mr Prakash, whose firm saw its average monthly assets drop 0.95 per cent to 184.7 billion rupees (S$5.9 billion) in the six mont…

Fund managers gloomiest on equities in 10 yrs

Many now wonder whether monetary policy has become too stimulative

Business Times - 20 Jun 2008

(SINGAPORE) Fund managers' view of global equities has nosedived to a decade low as fears of stagflation heighten, according to the latest Merrill Lynch Survey of Fund Managers.

The June survey shows that the net balance of fund managers who 'underweight' equities rose from 5 per cent in May to 27 per cent in June - the most negative stance that the survey has recorded in 10 years.

Only one per cent of the respondents believe equities are undervalued, down from 25 per cent in March. A net 42 per cent are 'overweight' cash, up from a net 31 per cent in May.

Merrill Lynch noted that investors have reacted to the stagflation fears by reducing their exposure to both equities and bonds and moving into cash, raising their cash positions back to the levels last seen in March.

'The prospect of stagflation is beginning to create a major headwind for equities,' sa…

Inflation bigger threat to Asean growth than US slump

Central banks forced to change direction to combat it: Moody's

Business Times - 20 Jun 2008

(SINGAPORE) Soaring inflation and the response it triggers from central banks is a greater threat to economic growth in Asia than the downturn in the US, a senior spokesman for ratings agency Moody's said yesterday.

Asian central banks that were previously easing monetary policy to help cushion their domestic economies from the impact of slowing growth in the US, Europe and Japan have now been forced to change direction because of a rapid increase in food and energy prices, said Thomas Byrne, a senior vice-president and regional credit officer for Moody's sovereign risk unit in Asia and the Middle East.

'Inflation has become our foremost concern,' he said at a news briefing to present the Moody's outlook for South-east Asian banks and governments. 'The policy response to inflation - tightening by central banks or reluctance to ease because of the inflationar…

The demise of ASEAN Economies

Courtesy of CNA forummer: ringbook

Vietnam as a Prelude
We saw the collapse of the Vietnamese economy in the past 6 weeks. Most people will agree with me that Vietnam has minimal impact on global economy. (Indonesia is the world’s 20th largest economy, Vietnam is only 60th). I asked myself why it happened. Vietnam’s economy is a bubble but not really that big, not worth the effort (you know what I mean?)

I suddenly realized that this is an invitation call for raiders to prepare their assault on ASEAN. To raid the financial system of an economy, there is no meat if it is already in a bad shape (limited downside). Maybe China and India are too big for the predators to swallow (like elephants), but ASEAN is slowly emerging as the deers & buffaloes in the food chain.

The Inevitable Collapse of Philippines
The media is exposing the rotten structure of the Philippines economy these days. In the past 10 weeks, Peso is down 10% against USD. No doubt soft commodities are getting expensive due t…

U.S. Slowdown,Price Increase Isn't Your Father's Stagflation

By Carlos Torres and Rich Miller

June 19 (Bloomberg) -- Stagflation just ain't what it used to be.

While economic growth has almost stalled, and surging oil prices have doubled the rate of inflation since the start of last year, structural changes in the economy since the 1970s mean the U.S. is unlikely to witness anything like the conditions that ravaged it then.

``It's a mini-stagflation,'' said Allen Sinai, chief economist at Decision Economics Inc. in New York.

Compared to the 1970s, the economy these days is more flexible, thanks to deregulation and advances in information technology. And it's less inflation-prone, because fewer workers are able to win big wage increases, and policy makers including Federal Reserve Chairman Ben S. Bernanke are more aware of the risks of letting prices spiral.

``We learned a lot of lessons in the 1970s,'' said Stephen Cecchetti, economics professor at the Brandeis University International Business School. ``I don't see t…