StanChart says banks to be hit by more losses-paper

SINGAPORE, Oct 28 - Standard Chartered expects banks will be hit by more losses as the financial crisis moves into the real economy, while the market turmoil is far from over, its chief executive was quoted as saying on Tuesday.

"We're in uncharted territory -- the critical thing we're looking for is signs that the intervention launched two weeks ago is working," Peter Sands told the Business Times.

"What I will predict is we'll see more currency and interest rate volatilities and also see many banks with rising loan impairments as the financial crisis moves into the real economy and more corporates see the effect."

Banks worldwide have announced writedowns and credit losses of more than $600 billion since the collapse of the U.S. subprime mortgage market in 2007.

Analysts said on Monday Standard Chartered could need to raise up to $5 billion in capital to match bigger cushions held by rivals and as emerging markets face a slowdown. [ID:nLR327109]

But Sands said Standard Chartered was doing well as it was still hiring new staff and seeing growth.

He said the bank's primary route for growth is organic, but it had made acquisitions during the financial crisis and hired staff from distressed rivals to boost market share.

"We are continuing to hire, although we may pull back a bit in some places," he said.

At the end of June, the group worldwide had 75,000 staff, up from 69,000 at end-2007. It has more than 5,300 people based in Singapore, 900 more from 12 months ago, the paper said.

Singapore economy to remain weak in 2009: central bank

SINGAPORE, Oct 28, 2008 (AFP) - Singapore's economy, which is already in a technical recession, will remain weak in 2009 on projections the global economic outlook will deteriorate further, the central bank said Tuesday.

As a financial crisis evolves to impact economic activity worldwide, the city-state is likely to be hammered given its heavy exposure to external demand, the Monetary Authority (MAS) said in its Macro Economic Review.

"Looking ahead, the outlook for the global economy has deteriorated amidst heightened risk aversion and deleveraging in the financial sector," MAS said.

As a small and open trading economy, Singapore is vulnerable to any downturn in its major export markets such as the United States, Europe, China, India and Japan.

"The risks to external demand conditions continue to be on the downside, and a more severe global slowdown cannot be discounted," the MAS warned.

"Taking all these factors into account GDP growth is expected to be around 3.0 percent in 2008, and the economy will continue to grow below its potential rate into 2009," the MAS said.

Prospects for a recovery late next year hinge on the performance of key global economies, it said.

Singapore this month cut its economic growth forecast for 2008 to 3.0 percent from between 4.0 and 5.0 percent after the economy slipped into a technical recession, described as two consecutive quarters of negative growth.

Real gross domestic product (GDP) declined by 6.3 percent in the third quarter after contracting 5.7 percent in the previous quarter, according to preliminary government data.

The MAS said Singapore's financial sector will suffer from a direct impact, while weakening consumer sentiment will affect retail trade and the property market.

Other segments of the econonomy like manufacturing and tourism will suffer from falling external demand, it said.

S'pore economy weakens

SINGAPORE'S faltering economy has entered a 'more advanced stage of weakness' as falling trade and tourism from other Asian countries adds to a slump in demand for the city-state's exports from the US and Europe, said its central bank on Tuesday.

Singapore's economic growth could see further slippage in the quarters ahead', said the Monetary Authority of Singapore (MAS) in its macro economic review.

As the global financial turmoil evolves to impact eocnomic activity worldwide, MAS said that Singapore is likely to be hammered given its heavy exposure to external demand.

Apart from the manufacturing sector, services industries, such as transport and tourism, will also be hit by the slowdown in Asian economies, it said.

'Looking ahead, the outlook for the global economy has deteriorted amidst heightened risk aversion and deleveraging in the financial sector', said MAS.

'The risks to eternal demand conditions continue to be on the downside, and a more several slowdown cannot be discounted'.

'The bank reiterated a 2008 growth forecast of 3 per cent and said next year the economy will likely perform below its potential', which the government has previously estimated as an annual growth rate of between 4 per cent and 6 per cent.

Former Prime Minister Goh Chok Tong, who now holds the post of Senior Minister in the Cabinet, said recently the economy will likely grow less next year than this year.

Gross domestic product shrank 0.5 per cent in the third quarter compared with a year earlier as a global economic slowdown triggered by a credit crisis in the US hurt demand for Singapore's mainstay electronic and pharmaceutical exports.

Manufacturing fell 8.5 per cent in the third quarter.

'As the financial crisis evolves into a broader and more protracted contraction in economic activity worldwide, there will be significant knock-on effects for Singapore, given its heavy exposure to external demand', the bank said.

The bank reiterated its inflation forecast for this year of between 6 per cent and 7 per cent and for next year of between 2.5 per cent and 3.5 per cent.

Prospects for a recovery late next year hinge on the performance of key global economies, it said.

Singapore this month cut its economic growth forecast for 2008 to 3.0 per cent from between 4.0 and 5.0 per cent after the economy slipped into a technical recession, described as two consecutive quarters of negative growth.

Real gross domestic product (GDP) declined by 6.3 per cent in the third quarter after contracting 5.7 per cent in the previous quarter, according to preliminary government data. -- AP, AFP

1m Thais risk losing jobs

BANGKOK - ONE million Thai workers are at risk of losing their jobs next year because of a sharp fall in export orders, the Federation of Thai Industries said on Tuesday.

The federation's deputy chairman, Thaveekij Jaturajarernkul, blamed the slowdown in global economic growth for the bleak forecast, which he said could bring troubles worse than the 1997 Asian financial crisis.

'Exports orders from our main markets - the US, Europe and Japan - have dropped significantly in all industries.

'That will affect our labour employment and we estimate that next year around one million workers may lose their jobs,' Mr Thaveekij told AFP.

'If another economic crisis hits Thailand this time it's going to be far worse than in 1997 because it will affect every sector,' he added.

Between mid-September and earlier this month, Thai export orders from the top three markets dropped by an average of 30-40 percent across all industries.

The figure was higher still for the luxury goods sector, Mr Thaveekij said.

He said Thailand currently has about six million workers in the manufacturing sector, two million workers in small and medium-sized enterprises and 1.2 million workers in the service and logistics sector.

'Besides, around 700,000 students from colleges and vocational schools are expected to graduate and seek employment next year. They will be affected, too,' Mr Thaveekij said.

He said some businesses had recently cut down their employee workdays from six to five days per week, while others had put a freeze on overtime.

'This quarter we should have received orders for the first two months of next year. But so far we have fewer orders than usual and some orders cancelled,' Mr Thaveekij said. -- AFP

Think Big: This Mega-Bear Will End

ByArne Alsin, RealMoney.com Contributor


Who will be the biggest losers over the next three to five years? Surprisingly enough, it will be investors afraid of losing. Those who squirrel away cash in T-bills or CDs in an effort to get safe are not, in fact, safe. Chances are good that they'll be losers two different ways.

The first way is through diminished buying power. If you accept a 1% to 2% after-tax rate of return in safe investments, chances are good that over the next three to five years, you'll be a net loser after adjusting for inflation.

The second way ultra-cautious investors will lose is brutal -- more likely than not, they're cautious because they've been ravaged by the recent market debacle. They may have lost 50% or more in stocks. And so rather than endure more uncertainty in equities, they've opted out. It's been the biggest "fright flight" in history: After pulling $72 billion from equities in September, $57 billion more came out in the first two weeks in October. These investors will pay dearly, as they'll miss out on likely rebound gains of 50% or 100%.

Context, as they say, is everything. History says that the market doesn't go down and stay down. It has always snapped back, retracing 50% to 100% of the decline within two years of the low.

Since World War II, we've had only two "mega-bear" declines in the Dow Jones Industrial Average -- defined as a slump of 40% or more -- the 1973-1974 drop of 45% and the 2007-2008 decline of 40%.

Investors ran for the hills in 1974. They not only had to watch stock prices plummet, they also saw daily headlines about OPEC's oil embargo, the Watergate scandal, and a spike in inflation to 11%. It's too bad investors were scared out of stocks, because adjusted for dividends, the market retraced the entire decline in two years' time.

If we go back 100 years, we can find three more mega-bear markets. Following the 47% drop that ended 1921, the market retraced two-thirds of that decline over the next two years before reaching new highs shortly thereafter. And following a 52% bear market that ended in 1942, the market also retraced two-thirds of the decline over the next two years before going on to new highs.

And then there is the mega-bear to end all mega-bears: From 1929 to 1932, in the midst of the Great Depression, the Dow fell from 381 to 41, an 89% decline.

Don't listen to the fearmongers who say we're headed for a repeat performance. It's not going to happen. Unlike in the current market, the Dow was absurdly overvalued in 1929. Fueled by speculation and 10% margin requirements, the Dow soared 497% from 1921 to 1929.

A more reasonable run from the low of 64 in 1921 would have taken the Dow to 120 or 150 in 1929. While the low in 1932, at 41, is still quite a drop from 120, look at how fast it rebounded: The Dow rebounded 165%, to 109 in 1933, less than 12 months after reaching the low of 41. The five-year mega-bull market that started in 1932 saw the Dow reach 194 in 1937, a 372% gain off of the 1932 lows.

You shouldn't worry about whether the next 10% move in the market will be up or down. Think big. The next 100% move in the market is up. Your portfolio should be designed so it captures the biggest possible gain in the upcoming retracement while providing plenty of staying power.

The companies I named in my last column will soar in the upcoming retracement, plus they've got staying power. Dell , Boeing , Expedia and Tecumseh Products serve end markets that are not going away, they're loaded with cash, and they are tops in the sectors in which they compete. Here's another idea.


IDT Corp.: A Spectacular Opportunity
Normally, I would never recommend a stock trading below $1 a share. But the current market is light-years away from normal. There are a handful of companies trading at minuscule stock prices that have been mistakenly tossed into the trash heap. IDT Corp. is an excellent example. Trading at 63 cents a share, down from $9 a share at the end of 2007, it has net cash of well over $2 a share. The market says the whole company's worth $48 million. Even in the context of a vicious bear market, this stock never should have dropped to anywhere near its current quote.

The core telecom business, with $1.8 billion in annual sales, has undergone an impressive transformation over the last year. The profitability of the telecom business is masked by one-time charges and the closure or sale of unprofitable businesses. Now that the hard work is done, you'll see free cash flow in the current fiscal year (that started Oct. 1) of $20 million.

This is the type of nugget you can only find in a mega-bear market -- a company valued at $48 million that generates $20 million in free cash flow and has $150 million in net cash on the balance sheet.

In addition to the telecom business, IDT owns several businesses in energy and media. Over the years, the company has developed and sold many businesses -- Net2Phone is one of many success stories. While there is tangible evidence that these businesses have considerable value, even if you assume they're worth zero, the stock is still a bargain.

United we stand

Goh Eng Yeow on the blood-letting on the local stock market.
--------------------------------------------------------------------------------


THE financial tsunami of the century has finally hit our shores.

As I write, the benchmark Straits Times Index has plummetted 139 points or nearly 8 per cent.

Why the rout ?

I had written on Monday about the implosion of hedge funds which is causing a run across stock markets worldwide, as they desperately sell everything in sight - emerging markets equities, oil, commodities and even gold - to pay off angry investors and nervous bankers.

The only way we can trace their activities is through the foreign exchange market where they have made massive purchases of Japanese yen to repay their loans, sellng selling every other regional currency - the Aussie dollar, the Singapore dollar, the Korean won - after making an exit from these markets.

After the relative calm early this week, they have come back with a vengeance.

Nothing escapes. Hong Kong, Tokyo, Seoul and Sydney are in similar plight.

And Wall Street looks likely to suffer another bout of blood-letting tonight. The Dow Jones futures is already flashing red - down a staggering 483 points.

What should investors do in such circumstances ?

The selldown hit our local market at the worst possible times - when companies are unable to defend themselves with shares buybacks because they are in the midst of releasing their third quarter results.

But bear in mind that the blue-chips which form the bedrock of our economy are here to stay.

It will be business as usual tomorrow at Fraser & Neave, Singapore Airlines, United Overseas Bank and DBS Bank, even though their prices have taken a battering.

So don't lose heart as you see your nest-eggs melting away in the selldown. This had happened before during the SARS crisis in 2003 and the Asian financial crisis in 1998.

But the blue-chips came charging back stronger than before, after each crisis.

They have also taken the lessons from the Asian financial crisis to heart. They have plenty of cash to sit out any financial crunch that may come along.

A few examples: SIA sits on $5 billion of cash, while SembCorp Marine has a war-chest of over $1 billion.

Companies such as ComfortDelgro and SMRT will be ferrying hundreds of thousands of passengers every day - financial crisis or otherwise.

And unlike foreign banks, local banks and finance firms are highly capitalised. They have plenty of financial cushioning.

It is time to put the controversy over Lehman minibonds and High Five notes behind us. The institutions involved have been punished enough by the bad publicity. And the process of compensation has been put in place.

As one forum writer succinctly put it, the issue of compensation for the affected 10,000 investors had been pursued with so much zest that the tens of thousands of investors - many of them retirees - who had placed their savings in bank stocks had been neglected. They too are hurting from the collateral damage as listed banks lost billions of dollars in market value.

Yet, even as they shed their tears in silence, there is no mention of compensation for them!

As the financial crisis unfolds and hurt us in many ways, we have to stand united to fight it together. Divided, we will be fodder for the hedge funds now pounding on our gates.

Latin America in jaws of crisis

SAO PAULO - GOVERNMENTS in Latin America stepped forward on Thursday to reassure markets left despondent by fears of a global recession and Argentina's decision to nationalise pension funds.
Brazil and Mexico took measures to try to stop the long slide of their currencies against the dollar, while an Argentine official promised the pensions grab would not mean state intervention in banks and companies managing the funds.

Brazil's central bank also aggressively jumped in to support its currency, the real, promising to pump the equivalent of an extra US$50 billion (S$75 billion) into the market through currency swaps, causing the money to jump 3.25 per cent against the greenback.

Mexico announced an auction of an extra US$1.4 billion to support the tumbling peso, which on Wednesday had sunk to a record low of 13.74 to the US dollar.

Those efforts, along with official affirmations that countries in the region were well-placed to come through the crisis with little more than bruises, did little to offset volatility in equities, however.

On Thursday, the stock market in the region's biggest economy, Brazil, closed 3.57 per cent lower, extending deep losses of more than 10 per cent the day before.

Mexico's bourse closed 5.26 per cent down.

Argentine shares ended 2.43 per cent higher - a small consolation after the two previous days when the Buenos Aires stock market lost more than 26 per cent.

That was largely in reaction to the decision on Tuesday by Argentine President Cristina Kirchner to nationalise pension funds controlling US$30 billion.

Although she portrayed it as protecting retirees from the global crisis, analysts saw it more as a plundering of the funds to service the national debt, which stands at US$150 billion.

'It looks like they want to use the workers' money for non-pension spending,' Dr Gregorio Badeni, a professor at the University of Buenos Aires, told The Economist magazine.

The newspaper La Nacion quoted several lawyers as saying many of the 9.5 million clients affected were inquiring about suing the government over the move.

An Argentine government official, speaking to AFP on condition of anonymity, said however that Ms Kirchner was not looking to intervene in the management companies or private pension funds.

'That's not our intention, and in any case we couldn't do it from a legal point of view,' he said.

A Merrill Lynch executive handling Latin American investments told AFP his bank had now written off Argentina as an investment destination 'for at least the next half decade' because of the decision.

In Brazil, the woes caused by the global financial crisis have prompted further action from the government, which had been caught unprepared by the extent to which investors were also stepping back.

On Wednesday, Finance Minister Guido Mantega said state-run banks were now authorised to help shore up financial institutions left vulnerable by the sudden appreciation of the dollar against the real, which has lost more than 30 per cent of its value in just under a month.

Mr Mantega stressed that Brazil's banking system was 'solid' and said no bank in the country risked going under.

In Peru, the crisis was hitting hard despite a projected nine percent economic growth this year.

Analysts worried that investors were fleeing, and that inflationary pressures were rising. Gross domestic product expansion would probably be cut by at least two points next year, they said.

Part of the slide is due to the slump in copper prices. Peru is the second-biggest producer in the world, after Chile, and the price for the metal has halved in recent weeks.

Mr Oscar Dancourt, a former central bank director, said that could cause the current account deficit to swell.

'The outlook for the future is for inflationary pressures and even a recession. The strengthening of the dollar will also worsen inflation because the prices of various imported products are tied to the exchange rate,' he said.

The country's president, Mr Alan Garcia, has sought to soothe, telling investors on Monday they could 'have faith and confidence in Peru' and predicting the country would survive relatively well 'the international earthquakes' hitting the financial system. -- AFP

Layoffs to rise

WASHINGTON - UNEMPLOYMENT claims, already well into recession territory, are rising even faster than expected, leading economists to warn on Thursday that the worst is yet to come.

As the Labour Department released bleak new numbers on the job market, Goldman Sachs, Chrysler and Xerox all announced they were cutting workers by the thousands, adding to the woes of an economy beset by tighter credit and wobbly banks.

The government said new applications for unemployment insurance rose 15,000 last week to a seasonally adjusted 478,000, above analysts' estimates of 470,000. Jobless claims above 400,000 are considered a sign of recession.

The White House, in unusually stark language, acknowledged the economy is going through what spokesman Dana Perino called a 'rough ride.'

''We expect our GDP (gross domestic product) number next week not to be a good one and the next quarter to be tough as well,' Ms Perino said.

The Commerce Department will release its first estimate of third-quarter economic performance Oct 30, and Wall Street analysts project it will show the economy contracted by 0.5 per cent, according to Thomson/IFR.

Many economists expect the decline to continue into the current quarter and the first three months of 2009, if not longer. The classic definition of a recession is at least two consecutive quarters of negative growth.

Former Federal Reserve Chairman Alan Greenspan, testifying before a House committee, said he could not see 'how we can avoid a significant rise in layoffs and unemployment.'

Mr Zach Pandl, an economist at Barclays Capital, estimates that unemployment will rise to between 7 per cent and 8 per cent by early next year. Other economists have estimated it could rise to 8.5 per cent.

Currently, the unemployment rate is 6.1 per cent. Unemployment peaked at 6.3 per cent in 2003 after the brief recession of 2001. It peaked at 7.8 per cent in the 1991-92 recession, and above 10 per cent in 1982.

The Goldman Sachs Group said it would cut about 3,260 jobs, or 10 per cent of its work force, in the face of what Mr Greenspan called a 'once in a century credit tsunami' that has claimed several of Goldman's rival investment banks.

Also on Thursday, Chrysler LLC said it would cut 1,825 jobs and Xerox said it plans to eliminate 3,000 positions, or 5 per cent of its work force.

Other companies have announced reductions this week: Yahoo Inc. is cutting 10 per cent of its employees, or 1,500 people, drugmaker Merck is eliminating 7,200 positions, and financial services firm National City Corp. will shed 4,000 jobs.

The impact of the job losses is rippling through the economy. As jobs disappear, foreclosures rise when out-of-work homeowners can no longer make mortgage payments.

Home foreclosure filings jumped by 70 per cent in the third quarter, according to the listing service RealtyTrac.

Nationwide, nearly 766,000 homes received at least one foreclosure-related notice from July through September, the company said.

Mr Greenspan said that in order for the financial crisis to end, home prices must stabilise. But he said that was not likely to occur for 'many months in the future.'

Spending is falling, too.

Americans who still have jobs are worried about keeping them, and those who have lost jobs must watch every penny.

Consumer spending accounts for about 70 per cent of the economy, and economists estimate it fell by more than 3 per cent last quarter in what would be the first quarterly drop in 17 years.

Democrats in Congress have urged that unemployment benefits, which last for 26 weeks, be extended as part of a new economic stimulus package.

Democratic presidential nominee Senator Barack Obama endorsed that plan in a statement on Thursday, and said he would also 'suspend the taxes on those benefits and jump-start job creation by giving small businesses emergency loans and tax credits for each new job they create.'

His Republican opponent, Senator John McCain, said he would 'make sure that bailout dollars are used to ... stop the foreclosures and free-fall in housing prices.'

'Times are tough, and we need immediate action to take this economy in a new direction,' he said in a statement.

The four-week average of jobless claims, which smooths out fluctuations, dropped slightly last week from a seven-year high to 480,250, the Labour Department said.

The number of people continuing to claim unemployment insurance dropped by 6,000 to a seasonally adjusted 3.72 million, down from 3.73 million, a five-year high.

Claims were also higher because of the impact of Hurricane Ike in Texas, the department said, which added about 12,000 requests for unemployment benefits, the same as the previous week.

Worries over the economy and financial instability have caused the stock market to fluctuate wildly recently.

On Thursday, stocks initially fell but then recovered, and the Dow Jones industrials finished up 172 points, or about 2 per cent. -- AP

2.7m Chinese to lose jobs

DONGGUAN (China) - AT LEAST 2.7 million factory workers in southern China could lose their jobs as the global economic crisis hits demand for electronics, toys and clothes, according to industry estimates.
The region has seen massive export-driven expansion in recent years by supplying the world with cheap consumer goods, but rising production costs and falling US and European demand have marked a swift end to the boom.

Now 9,000 of the 45,000 factories in the cities of Guangzhou, Dongguan, and Shenzhen are expected to close before the Chinese New Year in late January, the Dongguan City Association of Enterprises with Foreign Investment estimates.

By then, the association expects overseas demand for products from the three manufacturing hubs to have shrunk by 30 per cent, as the knock-on effects of the US housing market collapse and credit crunch filter down to Chinese workers.

'I am afraid it is not going to look good on the Chinese government if the decline of the export-led industries and the unemployment problem continue to worsen,' Mr Eddie Leung, the association's president told AFP.

Mr Leung, also a member of the Chinese Manufacturers' Association, said the estimate of 2.7 million job losses was conservative, given that many of the larger factories in Guangdong province employ thousands of workers.

One of them, Hong Kong-listed Smart Union, a major toy manufacturer in Dongguan supplying US giants Mattel and Disney, closed its doors last week, leaving 7,000 workers out of work and with several weeks of back pay owed.

Clement Chan, chairman of the Federation of Hong Kong Industries, said a quarter of the 70,000 Hong Kong-owned companies in southern China, 17,500 businesses, could go to the wall by the end of January.

Describing the likelihood as a 'worst case scenario', he said Hong Kong firms in the region employed a total of 10 million workers, but did not want to speculate on the extent of possible job losses.

While small and medium-sized factories are especially prone, the threat of lay offs looms just as large over the region's manufacturing giants, further squeezed by the appreciation of the yuan.

Mr Harry To's Mansfield Manufacturing is a classic example of the spectacular growth in China's industrial heartland over the last three decades.

To started a metal business from a small room in Hong Kong in 1975. In 1991, he joined hundreds of other Hong Kong entrepreneurs moving their production across the border into China to take advantage of cheap labour and land.

He now employs 8,500 workers in 11 factories in China and Europe. His six factories in Dongguan cover 140,000 square metres.

Mr To's company, which is now a subsidiary of Singapore-listed InnoTek supplies metal components for cars, plasma televisions, printers and other electrical appliances to Japanese brands including Canon, Toshiba, Epson, Minolta and Fuji-Xerox.

Business for the company, among the largest in its field in China, has grown by 40 per cent annually in recent years, but with credit being harder to come by, no manufacturer is safe, he said.

'With banks being so tight on their lending policies now, bringing down a factory overnight has now become very easy.' All his expansion plans have had to be put on hold.

'Some of our long-time Japanese and European clients have asked us to stop producing for them in the next two to three weeks,' he said.

'They said they did not want to have too much stock piled up in their warehouse as demand continues to dwindle.'

Mr To recently started building a new 70,000 square metre factory in Dongguan and was planning to hire 2,000 more workers later this year. But now, all work on the unfinished factory has stopped until more orders roll in.

'No one would expand their business when the prospects for the entire manufacturing industry look so grim,' he said.

Instead of hiring more workers, Mr To is looking at cutting 1,000 employees across his operations.

But far from being downhearted, he is shifting part of the company's export-led production to developing energy-saving electrical appliances for the domestic market, which he sees as weathering the current financial turmoil.

'In the long run, I am confident that mainland Chinese consumers' purchasing power will keep rising as their Western counterparts continue to lose out.' -- AFP

Hundreds of hedge funds will fail; mkts shut down: Bloomberg

Bloomberg (October 23, 2008): Roubini Says `Panic' May Force Market Shutdown
PrintShare
Nouriel Roubini | Oct 23, 2008

Bloomberg October 23, 2008: Roubini Sees Crisis Worsening, Hurting Emerging Markets (click for video)

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From Bloomberg:

Oct. 23 (Bloomberg) -- Hundreds of hedge funds will fail and policy makers may need to shut financial markets for a week or more as the crisis forces investors to dump assets, New York University Professor Nouriel Roubini said.

``We've reached a situation of sheer panic,'' Roubini, who predicted the financial crisis in 2006, said at a conference in London today. ``There will be massive dumping of assets,'' and ``hundreds of hedge funds are going to go bust,'' he said.

Group of Seven policy makers have stopped short of market suspensions to stem the crisis after the U.S. pledged on Oct. 14 to invest about $125 billion in nine banks and the Federal Reserve led a global coordinated move to cut interest rates on Oct. 8. Emmanuel Roman, co-chief executive officer at GLG Partners Inc., said today that as many as 30 percent of hedge funds will close.

``Systemic risk has become bigger and bigger,'' Roubini said at the Hedge 2008 conference. ``We're seeing the beginning of a run on a big chunk of the hedge funds,'' and ``don't be surprised if policy makers need to close down markets for a week or two in coming days,'' he said.

Roubini predicted in July 2006 that the U.S. would enter an economic recession. In February this year, he forecast a ``catastrophic'' financial meltdown that central bankers would fail to prevent, leading to the bankruptcy of large banks exposed to mortgages and a ``sharp drop'' in equities.

Bear, Lehman

The comments preceded the collapse of Bear Stearns & Cos. and Lehman Brothers Holdings Inc. as well as the government seizure of Freddie Mac and Fannie Mae. The Dow Jones Industrial Average, a benchmark for American equities, has lost 37 percent this year, including its biggest daily drop in more than twenty years on Oct. 15.

The Dow average rose 0.5 percent to 8563.42 as of 10:09 a.m. today in New York.

Italian Prime Minister Silvio Berlusconi roiled international markets on Oct. 10, first saying world leaders were discussing shutting down global financial exchanges, and then saying he didn't mean it.

``In a fairly Darwinian manner, many hedge funds will simply disappear,'' Roman said, speaking at the same event as Roubini.

The hedge fund industry is stumbling through its worst year in two decades and posted its biggest monthly drop for a decade in September. Hedge funds are mostly private pools of capital whose managers participate substantially in the profits from their speculation on whether the price of assets will rise or fall.

`Very Ugly'

``Things are getting very ugly also in the emerging markets,'' Roubini said. ``We used to say when the U.S. catches a cold, the rest of the world sneezes. Well, the U.S. now has chronic and persistent pneumonia. It's becoming a mess in emerging markets.''

Developing nations' borrowing costs jumped to the highest in six years today as Belarus joined Hungary, Ukraine and Pakistan in seeking a bailout from the International Monetary Fund to help weather frozen money markets and a slump in commodities. Argentina risks defaulting for the second time this decade.

``There are about a dozen emerging markets that are now in severe financial trouble,'' Roubini said. ``Even a small country can have a systemic effect on the global economy,'' he added. ``There is not going to be enough IMF money to support them.''

Roubini, a former senior adviser to the U.S. Treasury Department, earlier this month said that the world's biggest economy will suffer its worst recession in 40 years.

``This is the worst financial crisis in the U.S., Europe and now emerging markets that we've seen in a long time,'' Roubini said. ``Things will get much worse before they get better. I fear the worst is ahead of us.''

Unit trusts lose over 20%

THE financial markets maelstrom has turned retirees such as Mr T.P. Wong, 57, into a 'bundle of nerves'.

He is sitting on paper losses of about $20,000 so far this year - even though he has avoided investing in the stock market directly. He had invested in eight unit trusts, thinking that they are safer than stocks because they are diversified and managed professionally.

The returns of his unit trusts, which include one in Vietnam, another in United States stocks and a technology fund, have ranged from negative 7 per cent to negative 26 per cent in the nine months to Sept 30.

'I sold off part of my unit trusts at a loss, but decided to hold the rest as it was too painful to swallow more losses,' he said ruefully.

Mr Wong is among investors who have been hit by a drop of well over 20 per cent in returns of unit trusts invested in equity and commodity markets during recent weeks.

Not surprisingly, funds sold here have also seen redemptions spike while sales dry up as investors flee from market turbulence to the safety of cash.

With the US market tumbling well over 20 per cent and Asia ex-Japan markets suffering falls of over 45 per cent in the year to date, the red ink is flowing deeper than during the Sars period.

Equity funds' performances have generally dropped less precipitously than those of stocks as they are diversified and managed by professionals.

Nevertheless, panicky investors have still been pulling money out of funds, note unit trust distributors and banks.

They declined to comment on the magnitude of redemptions in recent weeks but one bank executive said they were 'the highest he had seen since the Sars period', while sales are 'practically zero'.

Investors in funds approved under the Central Provident Fund Investment Scheme (CPFIS) have also been hit. These funds had returns of negative 11 per cent last month.

They 'were one of the lowest-performing products to date, with all component groups experiencing negative returns', said Mr Suthee Luangaramkul, a Lipper analyst, in a recent report.

CPFIS bond funds on average saw a negative 1 per cent return, while equity funds were in the red by 13.52 per cent.

Investors have flocked to cash while waiting for good equity opportunities. So the best-performing funds this year for distributors like Fundsupermart have been money market ones.

Still, daring investors are starting to dip their toes into certain funds with exposure to some emerging markets where shares have plunged steeply enough for analysts to call valuations attractive.

Just last week, Franklin Templeton Singapore launched three funds, including one invested in emerging or 'frontier markets' and another focusing on small Asian companies.

Mr Ernest Low, head of fund analytics at Providend, an independent investment manager in Singapore, advised investors to stay invested for the longer term, noting that 'this is the worst time to consider redeeming'.

Indeed, retired human resource professional Peter Wong, 67, has decided not to withdraw his money from unit trusts and stocks despite the 30 per cent paper losses that he has suffered so far.

He views them as long-term investments: 'What goes down must come up. I won't withdraw unless I need the money urgently. I still have some liquid cash,' he said. 'I'm not so worried unless it stretches to eight or 10 years. For one to two years, I think I have enough spare cash to tide me over.'

Mr Low noted that it is actually 'time to get back into equities because markets tend to move upwards earlier than economic growth'.

'We personally prefer to start buying again,' he said, adding that US equities looked attractive as 'the economy has been the first to soften and is likely to be first to rise', while the US dollar may strengthen in future.

He warned against buying global fixed income like US Treasuries and Euro bonds now as they are very expensive. He also advised investors to spread out their new investments to take advantage of value cost averaging, buying more of those that have fallen more in price and less of those whose prices have not fallen as much.

Investors flee emerging mkts

LONDON - A FLIGHT from emerging market debt and stocks helped push the dollar to a two-year high against major currencies on Thursday as fears built about a global recession.

Investors were also focusing on major company earnings reports, fearful that the worst financial crisis in 80 years and the deteriorating global economy could combine to batter corporate profits.

European shares put in gains on the back of some positive results, but Asian shares fell to four-year lows and emerging markets were again under the gun.

MSCI's main emerging market stock index was down 3.3 per centon the day, hitting a nearly four-year low after major losses on Wednesday.

Emerging market sovereign debt spreads blew out to more than 800 basis points over US Treasury yields, a gap not seen since late 2002.

The cost of insurance against sovereign debt default in countries such as South Korea, Indonesia, the Philippines, Russia and Kazakhstan has soared over the past two days.

'There is now little argument that the world economy will experience a period of sub-par growth, and a recession in several advanced economies looks increasingly likely,' Goldman Sachs said in a research note.

Investor flight from emerging markets over the past few weeks has accelerated this week, pushing the US dollar to new heights, among other things as money is both repatriated from overseas and seeks relative safety in US fixed income.

The dollar hit a two-year high against a basket of currencies with the dollar index up 0.2 per cent to 85.6 after hitting a two-year peak above 86. The euro slipped 0.3 per cent from late US trade to US$1.2817 (S$1.923).

'We are going to see the current pressures continue as tensions in emerging markets continue. The dollar will remain supported and the high yielders will stay under pressure,' said Ian Stannard, FX analyst at BNP Paribas. -- THOMSON REUTERS

Goldman to cut 3,260 jobs

NEW YORK - GOLDMAN Sachs Group Inc. is cutting about 10 per cent of its work force amid the ongoing downturn in the credit and lending markets, a person briefed on the plan said on Thursday.

Goldman Sachs will cut about 3,260 jobs. Goldman's work force, which was at record high levels at the end of the third quarter, will be pared back close to 2006 and 2007 levels. No additional cuts are planned, the person said.

The job cuts are a direct result of the current economic environment and significantly lower levels of business activity, the person told the Associated Press.

Last month, amid the increasing turmoil that saw Lehman Brothers Holdings Inc. file for bankruptcy protection and Merrill Lynch & Co. sell itself to Bank of America Corp., Goldman Sachs along with Morgan Stanley received approval to become bank holding companies.

September was considered one of the worst months during the credit crisis as banks essentially stopped lending money to each other for fear they would not be repaid. The problems intensified when Lehman filed for bankruptcy and the government loaned insurer American International Group Inc. US$85 billion (S$127 billion) to help it remain in business.

Goldman Sachs and Morgan Stanley made the change to bank holding companies as investors worried the stand-alone investment bank model may no longer be viable. With the new status, Goldman Sachs will likely face increased regulatory scrutiny, which could force it to scale back some of more leveraged and aggressive business units.

The new status also allows Goldman Sachs to grow a large deposit base to help fund its operations, while providing permanent access to borrow money from the Federal Reserve. Before changing its status, Goldman Sachs only had temporary access to that lending option.

Goldman Sachs has widely been considered among the best performing banks amid the ongoing credit and mortgage crisis that began in the middle of 2007. During its fiscal third quarter, which ended Aug 31, the company's profit fell 71 per cent, but that performance was still better than many of its competitors, which have reported quarterly losses throughout much of the year.

Last month, Goldman Sachs struck a deal with Warren Buffett to sell preferred and common stock to Buffett's Berkshire Hathaway. As part of the deal, Buffett planned to invest at least US$5 billion in fresh capital to help Goldman Sachs. The investment could double to US$10 billion.

At the same time, Goldman Sachs issued common stock to raise an additional $5 billion through a public offering.

Shares of Goldman Sachs fell US$1.71 to US$113 in premarket trading. -- AP

Bleak 2009 for car makers

MILAN/FRANKFURT - FIAT and Hyundai Motor Co added to the gloom surrounding automakers on Thursday with bleak forecasts for next year as the global financial crisis takes its toll.

Italian industrial group Fiat said global demand for its products could drop 10 to 20 per cent in a 'worst-case' scenario, while a senior official at Hyundai, South Korea's top automaker, said he expects car demand in emerging countries to fall next year.

Germany's Daimler, maker of Mercedes-Benz luxury cars and heavy trucks, is due to publish its quarterly results at about 6.00 pm and is widely expected to issue its second straight profit warning.

Global automakers are facing shrinking demand as consumers put off major purchases on fears of a recession.

At 3.32 pm, the DJ Stoxx European auto index was down 2 per cent, while the wider market was little changed. Fiat shares were suspended after a sharp fall.

Fiat said its trading profit could plunge by 65 per cent next year. Although the maker of cars, trucks and tractors called its forecast a 'worst case' scenario but analysts saw it as definitive.

'In any case, it will be seen as a profit warning,' one analyst said.

Fiat released better-than-expected third-quarter earnings, boosted by strong sales at its farm machinery business. Trading profit rose nearly 8 per cent to 802 million euros, beating market expectations.

Hyundai posted a 38 per cent fall in third-quarter net profit, also beating market expectations and lifting is shares, but its outlook was gloomy too.

'The market situation in emerging countries is much worse than expected,' Mr Park Dong-wook, a director at Hyundai's treasury division, told reporters. Hyundai is the world's No.5 auto maker along with affiliate Kia Motors Corp.

Sales of higher-end models are also slowing in Hyundai's domestic market, analysts said.

'The stock is rebounding on heavy foreign buying but it is hard to say the outlook for auto makers is improving,' said Mr Kim Joong-Hyun, an analyst at Goodmorning Shinhan Securities.

'There could be some pick-up in sales in the fourth quarter as Hyundai makes up lost output during strikes, but that alone doesn't support optimism amid the sinking world economy.' -- REUTERS

Crisis = 'Credit tsunami'

WASHINGTON - FORMER Federal Reserve Chairman Alan Greenspan told the US Congress in prepared testimony on Thursday that the current global financial crisis is a 'once in a century credit tsunami' that policymakers did not anticipate.

Mr Greenspan was to be the leadoff witness at a House hearing lawmakers called to question past key financial players about what they felt caused the most grave financial crisis since the 1930s.

The witnesses were also expected to be asked how they thought the government would deliver the U.S. from the economic turmoil.

Mr Greenspan was the chairman of the Federal Reserve for 18 1/2 years. In testimony prepared for the House Government Oversight and Reform Committee, he voiced shock over the present turn of events and called conditions deplorable.

He said that he and others who believed lending institutions would do a good job of protecting their shareholders are in a 'state of shocked disbelief.'

And Mr Greenspan also blamed the problems on heavy demand for securities backed by subprime mortgages by investors who did not worry that the boom in home prices might come to a crashing halt.

'Given the financial damage to date, I cannot see how we can avoid a significant rise in layoffs and unemployment,' Mr Greenspan said. 'Fearful American households are attempting to adjust, as best they can, to a rapid contraction in credit availability, threats to retirement funds and increased job insecurity.'

He said that a necessary condition for the crisis to end will be a stabilisation in home prices but he said that was not likely to occur for 'many months in the future.'

When home prices finally stabilise, Mr Greenspan added, then 'the market freeze should begin to measurably thaw and frightened investors will take tentative steps towards reengagement with risk.'

Mr Greenspan said until that occurs the government is correct to move forward aggressively with efforts to support the financial sector. He called the US$700 billion (S$1.05 trillion) rescue package passed by Congress on Oct 10 'adequate to serve the need' and said that its impact was already being felt in markets.

In his written testimony, Mr Greenspan did not specifically address the criticism he is receiving now as being partly to blame for the current crisis.

Mr Greenspan's critics charge that he left interest rates too low in the early part of this decade, spurring an unsustainable housing boom, while also refusing to exercise the Fed's powers to impose greater regulations on the issuance of new types of mortgages, including subprime loans. It was the collapse of these mortgages and rising defaults a year ago that triggered the current crisis.

In his testimony, Mr Greenspan put the blame for the subprime collapse on overeager investors who did not properly take into account the threats that would be posed once home prices stopped surging upward.

'It was the failure to properly price such risky assets that precipitated the crisis,' he asserted.

Meanwhile, Mr Neel Kashkari, the interim head of the government's US$700 billion rescue effort, and other government officials were going before the Senate Banking Committee to lay out their plans for implementing the massive program.

Both hearings were expected to be contentious as lawmakers, already upset about having to vote for the biggest bailout in US history, sought answers to what went wrong and try to determine why the government's rescue effort, which just cleared Congress on Oct 3, already has undergone a radical overhaul.

All the action in Washington was taking place against a backdrop of continued turbulence on financial markets around the world.

The Dow Jones industrial average plunged by 514 points Wednesday amid fears that the government intervention will not be enough to prevent a serious global recession. Ahead of Thursday's market opening, the Dow was down 122 points at the 8,435 level.

Asian stocks fell for a second consecutive day on Thursday, with South Korea's market sinking 7.5 per cent. Japan's Nikkei 225 stock average closed down 2.5 per cent, and Hong Kong's Hang Seng Index was down 4.7 per cent. European stock markets were modestly lower.

Storm clouds were forming on the labor front, too. The government reported that new applications for unemployment benefits increased by more than expected last week as companies cut jobs due to the slow economy.

New claims for jobless payments rose 15,000 to a seasonally adjusted 478,000, slightly above analysts' estimates of 470,000.

While conducting major hearings so close to an election is unusual, House Oversight Committee Chairman Henry Waxman, D-Calif., said the current crisis was so serious that Congress could not wait until a new administration arrives in January to find out 'what went wrong and who should be held accountable.'

Democrats see the prime culprits as greedy Wall Street executives and lax government regulations under a Republican administration, a view that the administration and Republicans in Congress dispute strongly.

Once praised as the 'maestro' of the US financial system during the 1990s economic boom, Mr Greenspan, who was succeeded in 2006 by Mr Ben Bernanke, was likely to find himself defending actions he took that are being blamed for contributing to the current crisis.

Mr Greenspan, true to his Republican free-market principles, successfully opposed attempts to impose tighter controls on complex financial contracts known as derivatives, which are largely unregulated and which some see as a contributing factor in the current problems. -- AP

For '09 Grads, Job Prospects Take a Dive

by Cari Tuna

College seniors may have more trouble landing a job next spring than recent graduates, as employers trim their hiring outlooks in response to the slowing economy and financial-sector turmoil.

Employers plan to hire just 1.3% more graduates in 2009 than they hired this year, according to a survey by the National Association of Colleges and Employers.

That's the weakest outlook in six years and reflects a sharp recent downturn. Just two months ago, a survey by the same group projected a 6.1% increase in hiring. The August survey included 219 employers, 146 of whom responded to the new survey, conducted earlier this month. The big drop in hiring projections is "extremely unusual," says Edwin Koc, the association's director of strategic research.

The results continue a pattern of diminishing job prospects for college graduates. A year ago, employers told the association they would increase hiring for the class of 2008 by 16%. By this spring, though, the projected increase had fallen to 8%. The association doesn't report how actual hiring compares with its projections.

Some of the decline reflects the weakened financial sector, with employers like Lehman Brothers Holdings Inc. in bankruptcy protection and others, including Merrill Lynch & Co., being acquired. But other employers are tightening their belts as well. Insurer Progressive Corp. last fall expected to hire 4,000 college graduates in 2008. In fact, the company has hired fewer than 1,000 this year. Mari Pumarejo, who works with employment and recruiting for Progressive, says the company expects to hire fewer new grads in 2009, although she declined to offer a precise projection. "Things are changing very rapidly, and we are reassessing everything right now," she says.

General Electric Co. hired about 900 undergrads and M.B.A. graduates for full-time positions in the U.S. this year, but expects that number to shrink by 10% next spring, while hiring grows overseas. "It's going to be tougher for the class of '09 than it has been for the previous couple of years," says Steve Canale, manager of recruiting and staffing services.

Retailers Target Corp. and Walgreen Co. also have trimmed hiring projections for 2009. Maureen Reim, director of recruitment for Walgreen, says the company plans to open fewer stores next year and sees more recent hires staying in their jobs, in part because of the weaker job market.

The new survey comes amid the fall corporate recruiting season on college campuses and reflects the weakening U.S. labor market. Employers shed 159,000 non-farm jobs in September, and the unemployment rate was near a five-year high at 6.1%. According to the Department of Labor, the number of unemployed people has risen by 2.2 million in the past 12 months.

Meanwhile, more students are graduating from college, according to the National Center for Education Statistics. Colleges and universities will grant an estimated 1,585,000 bachelor's degrees this school year, up from 1,544,000 in the 2007-2008 year and 1,506,000 the prior year.

The weaker job market is most evident at colleges in the Northeast and schools that typically feed the finance sector. Trudy Steinfeld, director of career services at New York University, says about 15% fewer companies are recruiting on campus this year; the decline is primarily among financial-services firms, she says.

"There are some students who are quite nervous, especially those who thought they were headed to a Wall Street career," she says.

Nick Burch was one. The senior finance major at NYU's Stern School of Business says he had planned to interview with top investment banks. But he's since expanded his search to include midsize banks, like Piper Jaffray Cos. and Lincoln International, as well as finance positions at companies like Macy's Inc.

Mr. Burch is also considering Teach for America, which places recent graduates in teaching positions at underperforming schools. The downturn, he says, makes young people "feel freer to pursue your real passions."

Salaries are likely to suffer, too. In a separate survey, NACE members reported a 7.6% increase in the average starting salary paid to 2008 graduates to $49,224. But career counselors say they expect starting salaries to hold level or decline next year. Mr. Burch says he expects "downward pressure" on his starting salary, and he doubts that job offers in finance will include signing bonuses.

College career counselors are intensifying efforts to help students. Ms. Steinfeld's group is inviting recruiters from smaller employers around New York, soliciting job postings from NYU alumni and scouring newspapers to find companies that are expanding. This week, the career center will hold an information session on "alternatives to Wall Street."

At the University of Wisconsin-Madison, the number of companies attending a September career fair fell to 225, from 232 last year. Leslie Kohlberg, director of career services for the College of Letters and Science, is encouraging students to seek individual counseling, visit employers and develop a back-up plan -- or two.

"Things have been so good that students were able to rely on even some of the least-effective job search strategies," like sending résumés via email and searching online career postings, she says. "They can't really afford to do that now."

The employment outlook is not all bad, career counselors say. Despite cutbacks in finance, retail, manufacturing and construction, demand for recent graduates remains high in fields such as accounting, public service, health care, education and technology.

The federal government, in particular, is boosting campus recruiting ahead of anticipated worker shortages. By 2016, nearly 61% of current full-time government employees will be eligible for retirement, according to U.S. Office of Personnel Management.

0158 GMT [Dow Jones] Singapore banks at risk of credit losses from funding
Marina Bay casino-resort as operator Las Vegas Sands under financial
distress, says UOB KayHian. Notes U.S. gaming group''s US$8.8 million loss
in 2Q08, with debt/equity ratio at 3.9X while interest cover at only 0.83X,
share price down 88.3% year-to-date. All 3 Singapore banks among total of
19 lenders involved in S$5.4 billion credit facility for casino-resort,
with all 3 acting as lead arrangers. "We understand they are still holding
the bulk of term loans allocated. The only exception could be UOB as it
participated through UOB Asia, its investment banking arm." Says UOB could
have distributed portion of its term loans to some other foreign banks.
Downgrades OCBC (O39.SG) to Hold from Buy, cuts target price to S$6.55 from
S$9.80. OCBC off 4.9% at S$5.61, DBS (D05.SG) off 6.9% at S$10.80, UOB
(U11.SG) off 4.8% at S$13.82. (FKH)

GLG's Roman, NYU's Roubini Predict Hedge Fund Failures, Panic

By Tom Cahill and Alexis Xydias

Oct. 23 (Bloomberg) -- Hedge funds closures will eliminate about 30 percent of the industry, and policy makers may need to shut markets for a week or more to stem panic, according to presentations at an investor conference today in London.

``In a fairly Darwinian manner, many hedge funds will simply disappear,'' Emmanuel Roman, co-chief executive officer at GLG Partners Inc., told the Hedge 2008 conference in London today. U.S. regulators will ``find a way to force regulation,'' said Roman, 45, who runs New York-based GLG with Noam Gottesman, 47. The firm was founded 13 years ago as a unit of Lehman Brothers Holdings Inc. and now manages about $24 billion in assets.

Nouriel Roubini, the New York University Professor who spoke at the same conference, said hundreds of hedge funds will fail as the crisis forces investors to dump assets. ``We've reached a situation of sheer panic,'' said Roubini, who predicted the financial crisis in 2006. ``Don't be surprised if policy makers need to close down markets for a week or two in coming days.''

Many hedge funds have resisted oversight by the U.S. Securities and Exchange Commission, even as policy makers coordinated global interest-rate cuts and bailed out banks this month to try and stem the crisis. The hedge fund industry is stumbling through its worst year in two decades and posted its biggest monthly drop for a decade in September.

``There needs to be some scapegoats, and they are going to go hunt people,'' said Roman, who didn't indicate when new U.S. regulation may take effect. Regulation is ``long overdue,'' he said. In the U.S., ``someone can graduate from college on a Friday and start a hedge fund on a Monday.''

More Difficult

Increased regulation and higher borrowing costs will make the hedge-fund business more difficult, Roman said. Still, financial markets have ``overshot,'' he said.

In some areas of financial markets, including loans, there are ``once-in-a-lifetime opportunities,'' he said. ``At some point, people will say this isn't 1929 to the power of 10.''

Roubini, a former senior adviser to the U.S. Treasury Department, forecast this Feburary a `catastrophic' financial meltdown that central bankers would fail to prevent and that would lead to the bankruptcy of large banks exposed to mortgages and a ``sharp drop'' in equities.

The comments preceded the collapse of Bear Stearns & Cos. and Lehman Brothers Holdings Inc. as well as the government seizure of Freddie Mac and Fannie Mae. The Dow Jones Industrial Average, a benchmark for American equities, has lost 37 percent this year, including its biggest daily drop in more than twenty years on Oct. 15.

He predicted earlier this month that the world's biggest economy will suffer its worst recession in 40 years.

`Worst is Ahead'

``This is the worst financial crisis in the U.S., Europe and now emerging markets that we've seen in a long time,'' Roubini said. ``Things will get much worse before they get better. I fear the worst is ahead of us.''

Developing nations' borrowing costs jumped to the highest in six years today as Belarus joined Hungary, Ukraine and Pakistan in seeking a bailout from the International Monetary Fund to help weather frozen money markets and a slump in commodities. Argentina risks defaulting for the second time this decade.

``There are about a dozen emerging markets that are now in severe financial trouble,'' Roubini said. ``Even a small country can have a systemic effect on the global economy,'' he added. ``There is not going to be enough IMF money to support them.''

Italian Prime Minister Silvio Berlusconi roiled international markets on Oct. 10, first saying world leaders were discussing shutting down global financial exchanges, and then saying he didn't mean it.

Hedge funds are mostly private pools of capital whose managers participate substantially in the profits from their speculation on whether the price of assets will rise or fall.

Oil trading down

September trades shrink by nearly half as market players face credit squeeze
By Yang Huiwen

OIL trading in Singapore, the world's No. 3 energy trading hub, shrank by almost half last month compared to September last year.
The problem? Severe strains in the global credit market have made it much harder for traders to borrow funds to punt on the future price of black gold, which is usually a booming market.

Trading in over-the-counter (OTC) oil derivatives fell by 44 per cent last month from a year earlier, according to price assessment agency Platts.

These derivatives, which include options, futures or swap agreements, are generally used to hedge against oil price fluctuations, and can also be used by speculators to punt on the market.

But while OTC trades can hedge against market volatility, market players are saddled with the credit risk of the party with whom they are trading. This is known as counterparty risk.

And in these uncertain times, with the recent failure of many financial institutions around the globe, market players are increasingly wary of such exposure.

With the recent freeze in global credit markets and much higher borrowing costs, market players, especially smaller firms, are finding it much harder to obtain financing from banks to do deals, say industry experts.

More than 70 firms trade in OTC derivatives here daily, said Platts Asia senior editorial director Dave Ernsberger. They range from global energy majors and investment banks to specialist energy merchants and smaller companies such as those in the shipping and bunker supply industry.

For some of the smaller firms, trading has ground to a halt as banks are reluctant to extend credit, he said.

Oil trading houses and investment banks have also been trimming their energy trading operations locally, contributing to the drop in volume.

In addition, there have been concerns that the transformation of investment banks Morgan Stanley and Goldman Sachs into commercial banks may drain more liquidity from the energy markets as they cut back their more speculative activities.

Oil industry consultant Ong Eng Tong expects a further slide in trading volumes, given the heightened market volatility, demand uncertainty and fluctuating market sentiment, which have left traders reluctant to take big positions.

'We'll see more pain before we get to the bottom,' said Mr Ernsberger, adding there could be another 15 per cent fall from current levels. 'It will take a year or two before trading goes back to the levels we saw last year.'

This increase in counterparty risk, exacerbated by the collapse of US investment bank Lehman Brothers, is spurring a move to clear OTC trades.

Traders who do not clear their OTC deals typically face a higher risk as they depend on their counterparties to perform.

Clearing houses such as Nymex Clearport and SGX AsiaClear which offer clearing for OTC derivatives to mitigate counterparty risk have reported a jump in demand for their clearing business.

Total trades cleared last month by SGX AsiaClear surged 145 per cent from August. Nymex Clearport, the largest clearing house in Singapore, expects business to double this month from September.

Counterparty risk is mitigated by transferring an OTC deal to the clearing house as the clearing house and its clearing members will act as central counterparty to the transaction.

'Nowadays, we are increasingly seeing larger companies trading with each other and then clearing their trades with SGX. Credit risks are unpredictable,' said Mr Benjamin Foo, SGX's head of clearing, commodities and AsiaClear.

'With the increased credit concerns, there is a growing acceptance of the need for clearing.' He added that Singapore is seen as a 'good location for Asian companies to maintain their clearing accounts and funds'.

'The process is not done as much here in Asia, compared to New York or London, but business has been growing tremendously,' said Nymex's senior director for Asia marketing, Mr George Ng.

'Now they don't mind paying a small fee to gain the stability and limit their exposure to counterparty risk.'

S’pore govt warns of slower growth and higher unemployment ahead

SINGAPORE: Trade and Industry Minister Lim Hng Kiang has said the country is set for several quarters of slower growth. Speaking in Parliament on Monday, Mr Lim said this could stretch on for longer, depending on the state of the global economy.

Singapore, an open economy, cannot escape the impact of the financial crisis and the global economic slowdown. It is already in a technical recession and there are signs this is affecting the job market.

Mr Lim said: "The slowing economy and more cautious hiring have contributed to an increase in the overall unemployment rate from two per cent in March 2008 to 2.3 per cent in June 2008."

Mr Lim said that the unemployment rate for this year is likely to be higher than the record low of 2.7 per cent in 2007.

For now, he said retrenchments are still unchanged from previous quarters.

The financial turmoil has hit the property, retail and tourism industries. For the construction sector, Mr Lim said it is expected to grow by 7.8 per cent in the third quarter of this year, falling short of the 18 per cent growth registered in the first half of 2008.

And construction on projects like the Downtown mass rapid transit line is expected to contribute strongly to the economy, but the slower growth is due to weaker market sentiments, contractor shortage and equipment delays.

Still, government projects will add S$13.5 billion to the economy this year and the government will bring forward more public sector projects, if needed.

While Singaporeans shopping for daily necessities found higher prices for basic goods this year, Mr Lim said inflation has peaked, so costs will come down, though there will be a lag.

He said: "I must caution that inflation will continue to be sticky in the next few months because some of these costs have a certain amount of lag. But going into the next year, over the next 15 months, both MAS and MTI are confident that our inflation will revert to the more normal two to three per cent that we saw previously."

For professional workers, Mr Lim is hopeful as foreign companies like Halliburton and Qualcomm launch their Singapore operations this quarter. - CNA/vm

Confession of a ex-bank relationship manager

POST-MINIBOND LOSSES: What makes good relationship manager



I REFER to last Thursday's article, 'Retirees recount their big losses'.

My heart went out to the elderly woman whose face was was shown on the cover. On reading her account, I could comprehend her predicament and anticipate the tremendous duress and social repercussions that could lie ahead for those folk who have invested their life savings in the Minibonds that result in their financial bondage.

While the witch-hunting process has begun, I don't see the issue of whether the bank has mandated that retirees should be targeted for this product. If the product is genuinely suited for risk-averse investors , I don't see any reason to target them.

The point of contention is whether the risk-reward ratio has been properly articulated and communicated to investors. My take is, many zealous relationship managers are trained to convey potential returns of the myriad investment products offered by banks, but not to fully disclose the other side of the coin.

A former relationship manager myself, I was often told to go to regular product launch training during my banking career. The modus operandi was, the product manager briefed us on the key features of the product and then gave us the sales pitch, emphasising the unique selling proposition (or USP) of the investment. The downside risk of the product did not seem inherent and it was taboo to talk about it.

The financial turmoil is undeniably caused by mispricing of assets. This Minibond crisis is, arguably, caused by mispricing and miscommunication of the risk-reward of the product.

Quite often during the sales process, reward of the products was highlighted, emphasised and repeated, but the risk factor was never clarified or verified, not to mention certified. The best thing the relationship manager could advise about risk was the line often highlighted in brochures, 'past records are not indicative of future performance'. Derivatives and structured products are complex investment vehicles that went through a rigorous financial engineering process and carry an element of risk. The risk of the principal defaulting is coloured with terms like 'principal protected' and 'capital guaranteed'. How can a layman understand these sophisticated terms? But he would look rather foolish if he asked, so such terms are not explained or discussed.

Second, the competence of relationship managers currently in the market is debatable. Many are fresh from university and, though armed with degrees in finance, business administration or accountancy, have not experienced, not to mention understood, the dynamics of the market. Many are given onerous weekly, monthly and yearly sales targets. These relationship managers, who are the profit centre, are pushed to bring in lucrative creme-de-la-creme fee-based income, as opposed to traditional interest income, by virtue that fee-based income has zero downside risk of loan default.

Having said that, it seems the so-called downside risk has been transferred to investors in the Minibonds case. The current infrastructure uses incentives to reward star relationship managers but humiliates non-performers. In the world of survival of the fittest, many relationship managers are under pressure to deliver the magic sales numbers. Perhaps subconsciously, I surmise, they downplay the risk of investment products while delivering their impeccably honed sales pitch.

Yes, for Singapore to move up as an international financial hub, 'caveat emptor' should be the principle mooted. However, while this remains as a guiding principle, it should not be the cardinal rule that overrides the spirit of transparency and governance, and the sanctity of the trust of people in banking institutions. For years, banks have been upheld as the epitome of integrity , underscored by the highest form of governance to allocate credit to the bloodline of the economy. The word credit has a Latin root meaning 'to believe'.

In short, integrity and competence have to be intertwined to lend credibility to a bank, that is, the relationship manager. These are two quintessential traits of a credible relationship manager. To have one without the other is a fiasco.

Given the current financial turmoil, with an urgent need to review the financial infrastructure of the international banking system, local banks should take time to soul-search whether they deliver value in the goods they bring to customers. Second, it is time for them to mull over their top-down approach in their strategy of increasing fee-based income, and whether this has shortchanged internal processes in order to fast-track profit.

The process of delivering the trade-off between risk and return with clarity should be in place. In this way, the consumer can then assess the ratio and make his own judgement and so take ownership of the outcome.

The explicit guarantee by the Government on all deposits will last until 2010, and banks should take this time to restore confidence or else the role reversal will continue. Banks which conduct KYC, Know Your Customers, will see themselves scrutinised, as customers are now conducting KYB, Know Your Bank.

Angela Hoe (Ms)

Five warning signs that your job is on the chopping block

Knowing a pink slip may be ahead allows you to prepare

WASHINGTON (MarketWatch) -- More than 750,000 jobs have disappeared from the U.S. economy this year and workers face the prospect of plenty more layoffs to come as a continuing credit crunch and weak consumer demand hamper firms trying to maintain payrolls.

The good news is that workers can look for red flags for approaching layoffs, and knowing that a job loss is coming is a first step to getting back on your feet, experts say. Here are five omens that may signal your position is on the line.

1. Others are losing their jobs
Even if colleagues have been let go, workers are often surprised when it's their turn to get called into the boss's office. You are not immune. If others are losing their jobs you may too, even if your boss says different.

"It's dangerous to assume that management has a crystal ball about these things. Situations can change very rapidly," said Monica Parker, founder of LeavingTheLaw.com, which helps unhappy layers find new work. "I don't think that people are going out of their way to deceive others. It could be that they are lacking information, or circumstances change."

The bottom line is that you need to be aware of the possibility of a layoff.

"It doesn't help to close your eyes to the situation and hope that it won't be you," Parker said. "There's this sense that it's going to be someone else. But, in fact, it's you. It's a very tough thing."

Depending on a company's policies, workers at greatest risk of layoffs may be those who were most recently hired. Other targets are workers who aren't getting the job done.

"If management sees that you are not following through with your responsibilities, that's a big piece of it -- if they don't see potential in you to advance," Parker said.

2. Hiring freeze
Vanishing job postings on Internet sites can also send a layoff signal.

"You have the ability to hire, and all of a sudden your manager says 'wait,'" said Melissa Fireman, co-founder of Washington Career Services, a career management firm.

Workers should look at whether colleagues are taking on more or less work, and whether some are being asked or told to leave.

Manny Avramidis, senior vice president for global human resources at American Management Association, said the newly budgeted positions that never get filled are the first to go, then replacement spots that used to be posted and have disappeared, and then come the retirements that seem to be welcomed by management and are not filled.

Even as businesses trim around the edges, some departments are at lesser layoff risk, and there won't necessarily be cuts across the board, he added. Workers that contribute directly to revenue may be safer.

"For example, a telemarketer selling product usually stays around," Avramidis said. "If you start to see budget dollars going away, and the people who supported those dollars are going away, there is [cause for] concern."

Workers should remember that layoffs don't translate to losses for a firm's entire work force, he said.

"As long as a business doesn't go out of business, they'll have to retain staff. The leaders know that when they get through this recession, they'll need employees," Avramidis said.

3. Training budgets cut, projects slow down
Even large companies may cut training budgets, a red flag that financial concerns could lead to layoffs.

"They are not going to train because they are not sure if everyone is going to be there," Fireman said.

While there are certain critical initiatives or projects that need to go forward if a company wants to keep up production, workers should watch out when project spending slows, Avramidis said.

"From an employee's standpoint, anytime they see an organization cutting back on its spending and cutting back on activities, as well as staff or initiatives around them, they need to think through the details and figure out at what point does it reach my desk," Avramidis said.

4. Office gossip
Conventional wisdom calls for taking office gossip with a grain of salt. But sometimes it makes sense to listen to what your co-workers are saying and doing, Parker said.

"It's helpful to listen to gossip. It makes sense to notice what the talk is and to notice how people's responsibilities or jobs are being redefined," Parker said.

Fireman said workers should be careful about gossip, but that it does make sense to keep a "temperature reading" on your boss.

"If you do have a good relationship, ask how things are looking for the next quarter," Fireman said. "When I have heard from people who have a good relationship with their boss, the boss says to them it's a good time to start looking."

5. Company is missing targets
While some management may be less than forthcoming about missed targets for financial performance, workers can investigate a company's health by checking out the budget.

"That will tell them a story they want to know," Avramidis said. "[Companies] have a budget they are trying to achieve. An organization usually only has so much tolerance in how much they want to tap into reserves, like an individual tapping into a savings account."

A major sign of approaching layoffs is a business that isn't performing well. Especially at publicly traded companies, performance is critical, because firms that don't perform to an expected level, even during recessionary times, will be forced to cut back.

Tips for keeping your job:

* Make yourself irreplaceable. Be very clear about what you responsibilities are, and make sure you are meeting them. Pick up additional responsibilities. Make sure your supervisors and colleagues are aware of your capabilities.

* Continue to build your skills. Look for opportunities at your company and elsewhere.

* Don't seem paranoid or anxious. Keep working at your current output level, and try to focus on getting the job done.

Japan government:Singapore and South Korea economy weak

TOKYO -- Two economic reports on the state of Japan painted a bleak picture for the world's second-largest economy, with expectations of sluggish growth as the financial environment continues to deteriorate.

Japan's government cut its overall assessment of both the domestic and overseas economies in a new monthly report issued Monday, saying the downward trend will be likely to continue as financial conditions in the U.S. and Europe worsen.

The government cut its view of the domestic economy in its October report for the first time in two months, saying the economy "has weakened further."

It also cut its assessment of the global economy to "slowing down," while judging the U.S. economy is "in a recession." It was the most pessimistic view of the U.S. since December 2001.

The October report also downgraded the assessment of Asia's economies, noting "a weak tone" in some areas, particularly Singapore and South Korea.

The government said the downward momentum of the world-wide economy could further accelerate if financial conditions continue to deteriorate.

"Attention should be given to the risks that economic conditions will become more severe due to the worsening financial crisis and to large fluctuations in the stock and foreign exchange markets," the report said.

The grim picture of the domestic and overseas economies provides justification for a new economic stimulus package expected from the administration of Prime Minister Taro Aso.

At the same time, the Bank of Japan Monday downgraded its core economic assessment of the nation's regional economies in its October report, with all nine regions cutting their economic views for the first time in the report's brief history.

"Economic growth has been sluggish in general, mainly due to the effects of earlier increases in energy and materials prices and weaker growth in exports, although there were some regional differences," the central bank's quarterly Regional Economic Report for October showed.

Eight of the nine regions had lowered their assessments in the previous report, issued in July, but Monday's report marked the first time all nine regions lowered their economic views since the bank started releasing the so-called sakura report in April 2005.

Assessments differed by region, but the overall trend is clearly downward. The BOJ last downgraded its overall assessment of regional economies in April, and in July maintained that the domestic economy was "slowing" due to the effects of high energy and raw material prices.

The BOJ also revised down its assessments of some major economic items. Corporate sentiment has grown more cautious, the report found, and business investment has been falling overall, though it remained flat in some regions, the report showed.

FIRE SALE: OWNERS DUMP CONDOS

The Electric New Paper : 20 October 2008
FIRE SALE: OWNERS DUMP CONDOS
Agents: Some clients give as much as 20 per cent discount
FOR sale: Luxurious multi-million-dollar apartments, not quite for a steal, but with a hefty discount.
By Elysa Chen

FOR sale: Luxurious multi-million-dollar apartments, not quite for a steal, but with a hefty discount.

Stock market losses have forced some property owners to resort to 'fire sales' for a quick return to liquidity. And because the property market is almost flat, they have had to let go of their property at huge discounts.

Property agent Henry Neo receives one SMS a day from different clients asking him to sell their homes.

Mr Neo, who has been a property agent for close to 20 years, said: 'The Asian financial crisis of 1997 and this crisis are real challenges.

'It's a tsunami of the stock market.'

Two or three of the 50 clients he is servicing now are what he calls 'desperados' - people who had their fingers burnt so badly in the stock market they need to sell their houses. The situation is worse for those who opted for deferred payment schemes, said Mr Neo, because some are no longer eligible for loans, and cannot meet payments once the developers issue the Temporary Occupation Permit (TOP). 'They have to get rid of their properties before TOP, so they would be giving even more discounts.'

Noting that the high-end property market seems to be hit the hardest, Mr Neo said: 'My colleagues who specialise in high-end properties are not doing well. They do not have any transactions at all.'

Mr David Cheang, senior vice-president of the Resale Division at HSR Property Group, noted that two out of every 10 clients are affected by the stock market crash, and are selling their property investments to 'get more liquidity'.

A property agent who declined to give his full name said one of his clients had made such losses on the stock market that he was selling his 27th floor freehold apartment at the Twin Regency for a mere $1.05 million, though its market price is $1.3 million.

Last year, he had sold another unit, on the 29th floor of the same condominium, for $1.4 million.

It is the same story for Mr Felix Young, 35, a property agent specialising in high-end condominiums. Some of his clients are prepared to go as low as 20 per cent below their offer price.

He had taken out an advertisement for five properties, all high-end condominium units in the city.

Apartments at The Sail at Marina Bay, which were going for $2,000 psf are now being offered for sale at $1,450 psf, said Mr Young. But even such a huge discount is failing to entice buyers, who are asking for $1,100 psf. That is because even with such discounts, the two-room apartment costs about $1.3 million.

In the current climate, not many people would be able to shell out that kind of money because they could be sitting on huge paper losses in the stock market.

Mr Young said: 'Buyers have the sentiment that the property market will cool even more, and prices will drop further.'

And because of this, said Mr Young, there has been a significant drop in transactions - up to 70 per cent for high-end properties that people buy for investments.

Most buyers also know developers' launch price for the condominiums and are holding out until they can get a unit at that price.

He said: 'These days, when buyers call me, they ask me if I have any owners who are 'bleeding'.'

Bleeding is a term that is used to describe owners who over-committed themselves financially and need to sell their properties in a hurry.

Mr Young said: 'Many of my clients' bank loans are kicking in soon, so they need to release the properties quickly, before TOP. 'They are stuck because they can neither sell their property, nor rent it out to cover their mortgages, as the rental market has slowed down a lot.'

Japan in economic stagnation

TOKYO - JAPAN'S economy is expected to remain stagnant for a while as a global economic slowdown weighs on exports, the country's central bank chief said on Monday.

Corporate earnings in Asia's largest economy are shrinking and companies are cutting their capital investment, Bank of Japan governor Masaaki Shirakawa told a meeting of the central bank's branch managers.

'The economy of our nation is currently stagnant due in part to slower exports stemming from the lingering effects of high energy and material prices and a slowdown in overseas economies,' he said.

Business confidence remains cautious while consumption has turned softer due to inflation and sluggish wages, Mr Shirakawa said.

'Looking ahead, it is highly probable that the economy will remain stagnant as it has become clear that overseas economies continue to slow down,' he said.

Japan's economy suffered its worst contraction in seven years in the second quarter of this year and many analysts believe it is already in recession, which is usually defined as two straight quarters of negative growth.

Mr Shirakawa said, however, that the Japanese short-term money market was more sound than those of the US and in Europe.

'The Bank of Japan will continue our efforts to secure the stability of financial markets,' he said.

Japanese banks have been less severely hit so far by the global financial crisis compared with many of their Western peers. -- AFP

20m more jobless by 2009?

GENEVA - THE financial crisis could lead to a 20 million increase in the number of unemployed world-wide by the end of 2009, International Labour Organisation chief Juan Somavia warned on Monday.

Estimates from the ILO indicate that the 'number of unemployed could rise from 190 million in 2007 to 210 million in late 2009,' said Mr Somavia.

The population of working poor living on less than a dollar a day could rise by 40 million, and those on two dollars a day by over 100 million, added the ILO.

But Mr Somavia said these projections 'could prove to be underestimates if the effects of the current economic contraction and looming recession are not quickly confronted.'

Thousands of jobs have already been slashed on Wall Street and other financial centres as banks collapse or are forced to merge due to the credit crunch.

But the ILO said that the axe was likely to reach ordinary working people, with sectors including construction, the automotive industry, tourism, services and real estate to bear the brunt of the financial storm.

'This is not simply a crisis on Wall Street, this is a crisis on all streets. We need an economic rescue plan for working families and the real economy, with rules and policies that deliver decent jobs,' he said.

Unemployment rates have been rising throughout the world.

Hong Kong earlier on Monday said its jobless rate rose to 3.4 per cent for the three months to Sept, compared to 3.2 per cent in the three months to Aug.

Meanwhile, the US reported earlier this month that it had lost 159,000 jobs in Sept.

Mr Somavia called for 'prompt and coordinated government actions to avert a social crisis', and said he welcomed calls for 'better financial regulation and a global surveillance system of checks and balances.' -- AFP

Yahoo planning layoffs

WASHINGTON - YAHOO plans to announce significant cost cuts, including layoffs, possibly as early as Tuesday when the troubled Internet firm announces its third-quarter results, The Wall Street Journal reported on Monday.

The newspaper, citing 'people familiar with the matter,' said that the exact number of jobs to be cut was not clear but it would be more than the 1,000 jobs the Sunnyvale, California-based company announced it was cutting in Jan.

The newspaper said some managers in Yahoo, which had 14,300 employees as of the end of Jun, had been asked to identify operating budget cuts of around 15 per cent.

Yahoo has been losing ground on the Web to companies such as Google, MySpace and Facebook, and was the target earlier this year of a failed takeover bid by US software giant Microsoft.

Its share price has shed more than 40 per cent over the past three months and was trading on Monday at US$12.58 (S$18.60) .

In a bid to reverse its fortunes, Yahoo has rolled out several new products and entered into an advertising tie-up with Google but the deal has yet to receive a green light from US Justice Department anti-trust regulators.

The Wall Street Journal said Yahoo's board was also considering a deal with Time Warner Inc.'s AOL which would see AOL folded into Yahoo and with Time Warner taking a minority stake.

The weak economy has also hurt Yahoo as advertisers cut back on spending, the newspaper noted, adding that the cutbacks 'appear to be hitting Yahoo's business harder than some of its competitors.'

''Advertisers are reducing spending for display ads, the graphical ads that make up much of Yahoo's revenue, faster than other segments such as search ads, Google's stronghold,' The Wall Street Journal said.

Yahoo is to announce its third-quarter results on Tuesday after Wall Street ends trading for the day. -- AFP

Factory shuts, 1,500 jobless

BEIJING - A HONG KONG-LISTED appliance maker shut its southern China factory on Monday, state media reported, making it the latest victim of the world economic slowdown's impact on Chinese manufacturing.

The closure of Bailingda Industrial Co.'s electrical appliance factory in the export hub of Shenzhen has left 1,500 employees jobless, Xinhua news agency reported.

It follows the failure on Friday of another Hong Kong-listed firm, toymaker Smart Union, which shut its factory in the nearby city of Dongguan in Guangdong province, throwing about 7,000 out of work.

The situation has highlighted the growing risk of instability in China's coastal manufacturing hubs as factories face financial difficulties leading to large-scale layoffs.

Xinhua said more than 1,000 of the laid-off Bailingda employees had gathered outside the factory on Sunday, demanding government intervention to secure unpaid wages.

The report made no mention of any disturbances.

It said worried Guangdong labour authorities were considering setting up a fund to help workers laid off by factory closures.

Smart Union owes its workers at least six weeks' wages each, Hong Kong's South China Morning Post newspaper has reported, citing a company employee.

The Smart Union workers crowded around the factory's gates last week seeking news of their jobs and unpaid salaries, prompting the local government to warn them against escalating their action.

Experts have warned of increasing pain in China's coastal manufacturing regions due to the world economic crisis, particularly in the main export markets of the United States and Europe.

Rising labour and raw materials costs and the appreciation of China's yuan currency, which makes Chinese-made goods more expensive overseas, are also seen as factors.

Chinese state press reported last week that more than half of the nation's toy exporters - about 3,631 enterprises - had gone belly up in 2008.

China's economy is heavily dependent on overseas demand for its cheap manufactured goods. The factories that make them provide work for tens of millions of poor Chinese. -- AFP

Signs of tough times ahead

Jayaram Perumpilavil sees an economic storm gathering on India's horizon.

In New Delhi

FOR most Indians, the global economic meltdown has until now been something that concerned ‘them’, not ‘us’. Even the news of the share market crash and fortunes being wiped out overnight has not caused them their sleep, as only a minuscule percentage of the 1.1 billion population has ventured into shares and mutual funds.

“What’s the fuss?” most wondered when Sensex, or the Bombay Stock Exchange Sensitive Index, soared from 12,500 mark in April last year to over 20,500 in early January. They asked the same question when the market tumbled to 10,527.85 points, its lowest close since mid-2006.

Even news of a non-resident Indian in Los Angeles, reduced from millionaire to pauper in the economic meltdown, shot dead his wife, three children and mother-in-law before taking his own life, or a family of four in Mumbai committed mass suicide after they lost everything in the share market, did not come as a shock.

Not surprising, really, in a country where farm suicides due to crop failure or mounting debts are not uncommon. Failed business, of late, has also been a cause of suicides.

In perhaps, the strangest fallout of the market crash, a 34-year-old housewife in the western city of Ahmedabad, who has been trading regularly and making a huge profit until recently, complained to a counselling service that her husband of 10 years is threatening to divorce her after she lost three million rupees.

But there have been straws in the winds that everything is not normal.

For once, those irritating calls on your cell phone, from telemarketers at all odd hours offering unsolicited loans, credit cards, insurance policies and attractive holiday packages have almost stopped, if not altogether. You almost miss them because those calls, though unwelcome, did give one a feeling of self-importance.

For some time now prices of almost everything have been going up – vegetables, meat, soaps, detergents, you name it. Popular restaurants, where one had to wait for a table if you have not booked one in advance, are less crowded. So are the footfalls at the malls.

Retailers report a 40 per cent drop in sales, even though Deepawali, one of India’s biggest festival, is just a week away. Normally, this is the time when there is a surge in sales because people not only buy for themselves but also to give gifts to relatives and friends.

Tourist operators report of bulk cancellations from the US and Europe that would affect a whole lot of people who depend on the tourist industry for their livelihood.

There is unease and uncertainty among the 1.5 million employees of the thriving business process outsourcing centres, or call centres, because of fears that the crisis in the US could lead to job losses. Already, according to reports, the mood in the industry has turned from cautious optimism at the beginning of this year to palpable apprehension.

Wipro Technologies Ltd., one of India’s top IT company, last month asked hundreds of its US employees to go on no-pay leave after it lost two of the biggest customers, Lehman Brothers and Merrill Lynch. According to reports since the middle of this year, the company had recalled many Indian employees from the US back to their bases in India.

But what probably brought home the seriousness of the creeping crisis was when TV channels showed pictures of scores of cabin crew of Jet Airways, India’s largest private airlines, protesting in front of the airlines office in Mumbai against the summary termination of their services.

In one blow, the airlines fired 1,900 staff. Many of the protesters who were shouting “We want our jobs back” had tears in their eyes. Some said they found they had lost their jobs only when they called the airlines office to find out why the company pick-up vehicles had not come to fetch them to work. Many of the cabin crew, all in their early 20s, said they had taken loans to do courses for airhostesses and other airline jobs and also to pay a security deposit of Rs. 55,000 (S$1,650) to Jet Airways.

This story, of course, had a happy ending. Less than 48 hours after they were sacked, Jet Airways chairman Naresh Goyal reversed the order and told all employees to report for work. He said he “could not sleep, could not bear to see their suffering,” though it is widely believed that it is political pressure that prompted his U-turn.
But while the Jet Airways story ended on a happy note, it could just be the signal of the gathering storm on the India’s economic horizon.

Like some other market writers, I feel the heavy hand of history resting on me as I report on the calamitous events tossed up by the year-old global financial crisis.
I am no stranger to financial crises. In fact, I have seen plenty of calamities in the local financial market over the past 22 years, and I can still remember some with clarity.

I started working in 1986, just months after five stockbroking firms folded and the local bourse was closed for an unprecedented three days to clean up the mess caused by massive fraud over 'forward contracts' in refrigerator maker Pan-Electric.
On Oct 19 the following year - known as Black Monday - and exactly 21 years today, Wall Street suddenly plunged by 23 per cent, giving market players an early taste of how a squall on Wall Street could transform into a mighty tempest worldwide.

As the crash reverberated around the globe, Singapore's Straits Times Index nosedived 25 per cent in a day.

Hong Kong fared even worse. Its stock exchange battened down the hatch and refused to open for four days as it waited for the financial storm to abate. When it finally re-opened for trading, the Hang Seng plunged 33.3 per cent.

At that time, I had a good friend in Hong Kong, then in his late 20s, whose pastime included dabbling in Hang Seng Index (HSI) futures contracts.

He had everything going for him - a good job, a steady girlfriend and plans to get married.

But the plunge marred his life forever. He lost about HK$1 million (S$190,630 today) in HSI futures and was made a bankrupt because he was unable to pay up. He lost his job soon after, and his girlfriend left him.

Over the years, my friend's misfortune is never far from my mind each time I encounter a crisis confronting the financial markets. One small misstep is all that is needed to drive a person to the brink of despair.

My friend had taken what he regarded to be a calculated risk. He had paid up the 5 per cent deposit on his HSI contracts and anticipated that he would lose all of it only in the worst-case scenario.

The global stock market plunge caused losses to snowball to six times the original deposit he had put up, and he was required to pay the difference.

But the crash in October 1987 was a breeze compared with the gale-force winds lashing financial markets since August last year.

Wall Street titans Lehman Brothers and Bear Stearns have been swept away, while Merrill Lynch fled into the bosom of the Bank of America.

Even big commercial banks have not been spared. US-based Washington Mutual failed, and European bank Fortis was carved up.

So, while we pray that the global financial tempest will bypass us, it would be naive not to try to take some precautions.

For most Singaporeans, the biggest asset is their house, a wise choice considering the vast destruction of value taking place in other asset classes such as stocks, oil and commodities.

But during the recent property boom, many Singaporeans had bought condos under a deferred payment scheme that was stopped only last October.

Under the scheme, a home buyer had to fork out only the stamp duty and 10 per cent of the purchase price upfront. He needed to pay the remaining 90 per cent only when the flat was given its temporary occupation licence (TOP).

It would be wise for these buyers to consider lining up financing for their houses now.

There is a strong likelihood that banks may scale back their lending and tighten the criteria for getting a loan as the job market becomes rougher.

Worse, those hoping to get a loan to pay the remaining 90 per cent of the purchase price may be unsuccessful because of plummeting property prices.

A simple example: Let's say you bought a condo for $1 million. You opted for deferred payment and place a downpayment of $100,000.

At TOP, you are unable to get a loan, and the developer is forced to sell off the condo for $700,000.

After deducting the downpayment, there is still a shortfall of $200,000 that you must pay him.

In extreme cases, you may face bankruptcy if you fail to work out some payment arrangement - the same plight that had befallen my friend.

How about investments in the stock market? Is this an asset class to be avoided completely?

It is clear that we are living through a period that will certainly be described as the second great stock market crash in history. The first great crash occurred nearly 80 years ago, with the calamitous collapse of Wall Street in 1929.

This appalling financial carnage may make us too scared to spot any buying opportunities thrown up by the big plunge in stock prices.

The late investment guru Benjamin Graham, who survived the 1929 crash unscathed, suggested a way to profitably invest under such depressed market conditions.

Rather than try to time the market, he advised investors to look exactly at what a company is worth and how much it would be worth if worst should come to the worst.
If the company is so cheap that its value stays almost the same even if it were to go out of business, then you have a 'margin of safety' in your investment, he said.
For me, his sage advice is the guiding philosophy behind all my investments.

Way back in 1986, when Singapore was mired in a deep economic recession, I started building up my nest egg after buying 1,000 shares in the then Singapore Bus Services for $3,000.

The company seemed like a safe bet, paying a steady dividend with the income earned from providing transport to thousands of Singaporeans every day. It also offered concession passes to shareholders.

Despite the ups and downs over the years, I have kept the stock with me. The original investment has since grown to $30,000 in value.

China's economy showing cracks

SHANGHAI - CHINA'S strong economy appeared to put the nation on the global high ground when the financial tsunami first struck last month, but as the storm continues to rage, that position is looking less sure.

After five years of annual double digit economic growth, and with more than US$1.9 trillion (S$2.81 trillion) in foreign reserves as well as a closed financial system that protected it from toxic US assets, China seemed insulated from the crisis.

But with thousands of workers already being laid off as exports shrink, the property market slowing and the stock market low on confidence, the world's fourth biggest economy is clearly starting to hurt amid the global downturn.

'People are starting to see the pain, that is in business and also in the labour market. It's not as easy to get a job as it was a few months ago,' Beijing-based World Bank economist Louis Kuijs told the wires agencies.

'The bigger the economic crisis - the recession in the US and in Europe - the more it will be felt in China,' he said.

China's leaders, for their part, have said the country's best strategy is to keep the economy growing.

'If a large country of 1.3 billion people can keep up stable and relatively fast economic growth, that's a big contribution to the world,' Premier Wen Jiabao said.

On Monday, China will release its third quarter gross domestic product figure.

China's GDP growth is expected to shrink to 9.1 per cent in the third quarter from 10.1 per cent in the second, according to a forecast by Goldman Sachs.

If accurate, it would mark the first time China's quarterly GDP growth has fallen below 10 per cent since the end of 2005.

But a fall in the third quarter figure would mostly reflect government policies to moderate growth, Goldman Sachs said, not the US crisis.

Morgan Stanley predicts full-year GDP growth will shrink to 9.8 percent and to 8.2 percent in 2009 - still above Beijing's official 8.0 target.

However, if property markets melt down across the country, the economy could see a hard landing with GDP growing less than seven per cent, Morgan Stanley said.

Its economists estimate there is about a one in four chance of that.

Independent Shanghai-based economist Andy Xie is more pessimistic, saying a property crash is imminent because prices are too high and developers have borrowed heavily and built too much.

He points to Guangdong province, south China's economic engine, where property prices have already crashed.

The booming city of Shenzhen has experienced one of the deepest corrections, with prices down 40 per cent in August from a peak a year earlier.

'The economy is going to go through a rough patch. All these bubbly things are going to bounce back on people,' he said.

Officials said this week that industrial output growth in the Shanghai metropolitan area slowed to six per cent on year in September, compared with an average of 11.5 per cent on year growth for the first three quarters.

And exporters, who accounted for 40 per cent of China's GDP last year, are already being hit hard.

In one of the highest profile examples, a toy maker that sold to US giants Mattel and Disney announced last week it had gone bust due to the global economic crisis, leaving up to 7,000 people jobless.

Exporters across a wide range of industries are increasingly voicing pessimism about their immediate futures.

Analysts widely expect China's leaders will speed up infrastructure projects around the country to stimulate the economy in a downturn, as well as push ahead with their long-term plans to boost domestic consumption.

The Ministry of Finance has 2.7 trillion yuan (S$591 billion) deposited in the central bank to help fund a stimulus package, Standard Chartered economist Stephen Green wrote in a research note. -- AFP

Stay positive: Recession

RECESSIONS are never pleasant to go through, especially for the less educated and low-wage earners. We will soon witness job losses and their impact on families and, in turn, on communities and other businesses.

During a recession, consumer spending will dip and any business that relies on it will find it tough going. We need to examine how to minimise the pain of the common people who are hardest hit and how to leverage on this unprecedented challenge to prepare for the future.

First, we should not talk people down to a deeper level of recession than necessary. Self-employed and low-skilled workers are most likely to be affected by the situation. However, urging everyone to tighten their belts as if economic mayhem is approaching will make even those who do not feel a lot of pain, act as if they do. Many will skimp on their regular budget - refrain from dining out, reduce shopping to bare necessities and forgo taxis trips. These social behaviours will have an immediate and dire impact on the many workers employed in these sectors.

The message in this recession should therefore be: 'Avoid profligacy and exercise prudence in spending.'

Second, in a recession, the first instinct of a company is to cut down on training and development of employees. Such a strategy is shortsighted because the need for talent has never been greater. This recession will inevitably end and the stiff competition for talent will be a business challenge for the foreseeable future. Companies should not cut back too drastically on talent management practices or they may find themselves woefully unprepared for the future.

Third, don't stuff your money under your pillow and be afraid to invest. This crisis is one of confidence that scaled the tipping point, resulting in a herd-instinct reaction - fear and panic. Scientists have indicated that humans have a neutral network in the brain that generates the human tendency towards optimism. The future is open to interpretation. We have an inherent tendency to distance ourselves from past negative events and move closer to positive ones. So if you have spare resources you do not require in the next few years, this is the ideal time to invest prudently. We are no Warren Buffetts but in order not to fall flat, simply remember three words - diversify, diversify, diversify.

Dr Edmund Lam

Coping with joblessness: A personal account

I COUNT myself lucky to have survived two tough years of unemployment with mounting financial problems during the period after 9/11 right up to the Sars epidemic. My family had just returned from overseas as we were away for a year on study purposes. The situation was made worse when we decided to buy a private house burdened with a mortgage loan.

Although my wife works, it was tough to make ends meet with only one income. We also had a young daughter to raise. I faced sleepless nights trying to meet the minimum income payments to all my credit facilities (one credit card and one other credit facility) especially when the bank account dried up. There was a unforgettable day when my ATM bank account showed a balance balance of less than $20. The worst moments of my life came when I had to borrow cash from friends to tide over. This is when you realise who your true friends are and whether they will stand by you when you are almost down and out. To this day, I am thankful to many who helped me financially in a willing manner.

During that period, I hovered between desperation and panic. Naturally, relations with my wife was not the best.

After about six months of unemployment, I realised the first step was to manage my emotional health above all else. I realised that, if I could manage my emotions better and stay positive, I had a better chance of coming out of my financial crisis stronger. I also drew up a timetable so my days could pass by fruitfully. When one does not work, one has much free time to idle and often negativity floods our minds. I hope to share some personal experiences and strategies and, if possible, help some who are depressed and affected by the current financial crisis. I dare not say these strategies are surefire solutions but at least they can provide hope to the depressed and fuel optimism in those who are unemployed. For readers who are still employed and unaffected, it is a good time to prepare for retrenchment as it will come like a thief without any warning. When unemployment hits, we may be too shocked to face up to it.

- Share your tensions and frustrations with your family. Our loved ones are the closest to us and they yearn to share in our happy and sad moments. By cutting them out of our darkest moments, we deny them a chance to support and help us. Though my wife did not speak to me much during that tough period, her unwavering support and toughness to hang in there with me helped me to tide through that difficult period.

- Seek help if things are too overwhelming. I was fortunate to have many good friends and a good support group in a church that met weekly. They gave me the platform to raise my needs and shared my frustrations. It was a relief for me to know that people cared how I felt. It would be disastrous to face unemployment alone. So learn to share and be humble.

- Network more than ever. Many jobseekers stayed at home due more to depression than anything else. Like many, I sent e-mail messages to prospective employers and attended countless interviews, to no avail. Much later, I managed to secure a part-time job through a meeting with a long-lost friend. Although it paid only $6.50 an hour, finally I was relieved to know there was income coming in after 20 months of unemployment. More important, my self-esteem was boosted by the part-time work. That experience helped me land a full-time job six months later. To this day, I am eternally grateful to the friend who recommended me. My life turned around after that. So don't stay at home - go out and move around. Opportunities are out there, but if we stay at home we cannot seize them.

- Think positive. This is easier said than done, but very important for one to stay on top of the situation. I read a lot of motivation books during that period, so my mind was full of positive thoughts. This was often done immediately after I woke and right before I slept. This helped me start and end the day with the right frame of mind. If not, our mind is always filled with negative and depressing thoughts.

- Indulge in physical activities. I turned to jogging daily more to occupy my ample free time than anything else. However, I discovered after every run I felt light hearted and positive about my situation. My mind was also free when I jogged and it was very therapautic. I later realised that, when one exercises, feel-good chemicals called endorphins are released and this help one stay calm and relaxed. I still run regularly and have taken part in the annual Standard Chartered Marathon.

- Spend time with your loved ones. I began to spend a lot of time with my mother and daughter, who stay at home. This not only took a lot of the free time I had but also allowed to indulge in meaningful activity. I must say my mother remained the most influential person during that dark period, allowing me to recover fully.

- Face the situation bravely. I learnt to face relatives and friends when I met them. It was sometimes difficult as I had difficulty explaining why I was still unemployed after so many months. It could even be depressing if questions were raised insensitively. So I prepared my answers before I met relatives and friends in social gatherings so I would not be caught unprepared. I also realised that such meetings can be used for networking purposes.

I hope this will help many who may be laid off in the coming months. Remember the world will not end and you are not alone. The dark moments will pass you by but the important thing is to hang in there and face up to challenges. What does not kill you will make you stronger. You will end up stronger mentally than before when you are baptised in the fiery fire of unemployment.

Gilbert Goh

China's growth slowing

BEIJING - CHINA'S economy is on a sound footing despite the current global economic turmoil, although growth and tax revenues are slowing, state media on Sunday cited a Cabinet meeting as concluding.

Figures on Monday are likely to show that China's annual gross domestic product growth dipped below 10 per cent in the third quarter from 10.1 per cent in the second quarter and 11.9 per cent in all of 2007.

'Generally speaking, unfavourable international factors and natural disasters domestically have not changed the basic situation of our economic development,' the official Xinhua news agency said, summarising a meeting held by Premier Wen Jiabao.

The worst winter weather in half a century swept southern China in January and February, while a devastating earthquake in Sichuan in May killed more than 70,000.

'Our country's economy has the ability and vigour to withstand risk,' the Chinese-language report said.

Inflation was coming under control, food production was rising and more new jobs were being created, it said.

Yet Xinhua said the effects of the worldwide financial crisis were gradually being felt in China, which would pose 'new problems'.

'Mainly it is the obvious trend of slowing economic growth, falling growth in corporate profit and fiscal income, and continued fluctuations and ebbs in the capital markets,' Xinhua said.

'We must ... adopt flexible and prudent macroeconomic policies, come out as soon as possible with targeted measures for tax, loans and foreign trade, to maintain stable and fairly rapid economic growth,' it added.

Xinhua said the government would increase export tax rebates on clothing, textiles and machinery and raise investment in the agricultural, energy and transport sectors.

China increased refunds of value added tax paid by exporters of textiles and garments as recently as late July to 13 per cent from 11 per cent.

Banks would be encouraged to lend more to small and medium-sized companies, and investment in fixed assets would be maintained at a 'reasonable' level, Xinhua added.

The Chinese government has repeatedly voiced confidence that it can keep its economy and financial markets stable despite in the face of the global meltdown. It has also said it is willing to work with other countries to help tackle the crisis. -- THOMSON REUTERS

US economy will rebound

WASHINGTON - PRESIDENT George W. Bush reassured Americans Saturday about the long-term health of the economy, insisting that the United States is still 'the best place in the world to start and run a business'.

'In the long run, the American people can have confidence that our economy will bounce back,' the US president said in his weekly radio address.

'America is the best place in the world to start and run a business, the most attractive destination for investors around the globe, and home to the most talented, enterprising, and creative workers in the world.'

The comments came as new data showed construction starts on new US homes slumped an additional 6.3 per cent in September to the lowest level since the recession in 1991.

Housing starts fell to an annualised rate of 817,000. That was down 31.1 per cent from a year ago in the latest evidence of the bursting of the housing bubble that has ravaged the US economy and led to the global financial crisis.

In hope of halting the downward slide, the US government is now using a portion of the 700 billion dollars authorised by Congress to inject capital directly into troubled banks by purchasing their equity shares.

'These actions will take more time to have their full impact,' Mr Bush cautioned.

'But they are big enough and bold enough to work.'

The president argued that the United States remained a country where all people have the freedom to realise their potential and pursue their dreams. -- AFP

How to survive the next depression?

Let me make it clear at the start: I don't think we're headed for another Great Depression.

Many of you disagree. More than half the people polled in a recent CNN survey believe an economic depression is either very likely (21%) or somewhat likely (38%).

I do believe that a recession is probable, that it may be severe and that many people will lose their jobs in the coming months.

But I don't think we'll return to a time when:

* The official unemployment rate was 25%, with many more people who either gave up looking for work or who involuntarily worked part time.



* Bank failures wiped out the life savings of millions of customers.



* One-third of the nation was, as President Franklin D. Roosevelt famously put it in his 1937 inaugural address, "ill-housed, ill-clad, ill-nourished."



This 12-year period of economic disruption and widespread poverty was unprecedented in our nation's history. From it sprang many of the safety nets -- including Federal Deposit Insurance Corp. coverage, Social Security, unemployment insurance and food stamps -- that, though overburdened now, will continue to keep our most vulnerable citizens from falling into the destitution that characterized the Great Depression.

Still, I think we're in for a rough ride. And the smart steps to take now are virtually the same whether you think what's coming is a run-of-the-mill downturn or a once-in-a-lifetime cataclysm.

Such as:
Implement your austerity budget
Pretend you just lost your job. Whatever expenses you'd cut in that situation, cut them now and use the savings to build up your emergency fund and pay off your toxic debt, such as credit cards.



"If you'd shut off the cable (after losing your job), shut it off now," says Sheryl Garrett, founder of the Garrett Planning Network, which represents fee-only financial planners who charge by the hour. "Only spend money on essentials."

If you need some inspiration, check out "Could you stop spending for a month?" Many people find they can save hundreds of dollars a month just by changing their food purchases: eating at home instead of dining out, cooking more meatless meals, reusing leftovers and shopping with coupons.
Erase that toxic debt
You know you should have done it long ago. Credit card debt is expensive and leaves you vulnerable to the ever-changing whims of credit card companies, which have been raising interest rates with abandon.



Now, though, shedding credit card balances may be critical. If you still have a job, Garrett says, use it to pay off this cancerous debt.

"Go ahead and get serious about it. Be a grown-up," Garrett says. "Realize you aren't going to get bailed out by a 0% credit card offer or another mortgage refinance."

If you're seriously behind -- if you can't pay the minimums or if you're getting collection calls -- make appointments with a legitimate credit counselor and a bankruptcy attorney. Between the two, you'll learn your options for dealing with truly difficult debt. Don't panic. Historical data show that, short of another Great Depression, investors who hold on for 5 years don't lose much money, even in a bear market, says MSN Money's Jim Jubak.
Keep your emergency exits open
Once you've paid off the cards, don't close them. Not only can closing accounts hurt your credit scores -- which have become all-important lately for getting loans -- but you may need access to that credit in an emergency.



The same holds true for other lines of credit, including home-equity lines. If you've got access to those, try to keep them open and unused so they're available in case of emergency.
Try to stay employed
No kidding, right? But here's exactly what that looks like: Volunteer for extra work, nab high-profile assignments, keep higher-ups apprised of your victories and value to the company.



Don't complain, and steer clear of people who do. And if you're on irredeemably rocky ground, tune up that resume now and start networking.
Pile up cash

In bad times, cash is king. Your emergency savings will pay the bills if you lose your job and will generally help you sleep better at night. Set up automatic transfers into a high-yield, FDIC-insured savings account and add any windfalls you get along the way.



If you've been prepaying any low-rate, tax-deductible debt -- such as a mortgage or a federal student loan -- consider suspending those extra payments and putting the money into your savings instead to boost your financial flexibility.
Prepare for inflation

The Federal Reserve and other central banks will flood our financial system with cash as they try to encourage lenders to lend. Once the economy starts to turn around, all that cash sloshing around in the system could spark inflation that might be tough to bring under control.



To protect clients, financial-planning firm Evensky & Katz of Coral Gables, Fla., has been adding TIPS (treasury income protected securities) to the fixed-income side of its portfolios, says Taylor Gang, the firm's vice president.

"We feel that the long-term risk is likely to be inflation," Gang said, "and we construct portfolios with this in mind."

But the firm isn't telling clients to abandon stocks. Far from it.

"Through exposure to equities, clients own securities that are likely to appreciate in value," Gang said, "and outpace inflation over time."

To repeat:
Stay invested in stocks

This advice is hard for many people to stomach. They feel that if only they'd gotten out of the market weeks or months ago, they'd feel so much better now.



That's probably why so many are raiding their retirement funds, cashing them out or refusing to contribute. A recent AARP survey found that 20% of workers 45 or older had stopped contributing to their retirement funds in the past year and that 13% are tapping their accounts to pay day-to-day expenses.

These are exactly the wrong moves. While the current market turmoil may mean a delayed retirement for many people (see "How to retire in bad times"), failing to fund your retirement accounts could mean no retirement at all.

And the problem with getting out of the market is that you won't know when to get back in. Markets usually turn around well before the actual economy starts improving, and they typically advance so rapidly that people who aren't already invested miss most of the gains.

Besides, it's not like most of us need the money right now. Many of us have decades to go before we'll tap our retirement funds. These losses we're seeing are purely theoretical unless we act to make them real, by selling in a panic.

And if inflation does kick in, it will be even more important to have the inflation-beating returns that only stocks can provide. Furthermore:
Don't ignore your asset allocation

It may feel like diversification hasn't worked, since all classes of U.S. and foreign stocks have taken it in the teeth lately. But this synchronized performance is temporary, says financial planner Ross Levin of Accredited Investors in Edina, Minn. Eventually, a rebound will begin, and some of the most-beaten-down sectors will bounce back the strongest.



"Rebalancing is critical during these periods," Levin recently told his clients in a quarterly newsletter. "By systematically rebalancing, you are forcing yourself to buy low."

Learn some old-school skills

Plant a garden. Plan your meals. Repair rather than toss. Barter or trade rather than buy. Throw a potluck.



You'll save money, help the planet and combat that feeling that you're the helpless pawn of economic forces greater than you.
Construct your Plan B

If the bottom does drop out of our economy, you probably won't wind up on the street. Maybe you'd move in with your in-laws or rent out rooms in your home (as many previously affluent families did during the Depression). Honing your backup plan can be surprisingly therapeutic, particularly for people who tend to get all catastrophic.



Instead of fearing the worst, in other words, you plan for it -- then hope to be surprised

Weak US growth for yrs?

MICHIGAN - US ECONOMIC growth could be restrained for a few years by contagion from unprecedented problems in financial markets, a top Federal Reserve policy-maker said on Thursday.

'We should anticipate further declines in employment and softness in most components of demand for goods and services,' said Mr Gary Stern, president of the Minneapolis Federal Reserve Bank and a voting member of the US central bank's monetary policy-setting Federal Open Market Committee this year.

In a speech at Michigan Tech University, Mr Stern said fixing the financial system was more important than assigning blame at this point, given the 'contagion effect' between the financial system and the broader economy.

'It's that process, that spillover effect, that's my concern,' he said. 'The real economy is adversely affected'.

'Jobs and living standards are affected.'

In recent months Mr Stern has repeatedly compared the current downturn to the early 1990s recession, but on Thursday said the outcome could be worse.

'In view of the scope and severity of the recent financial shock, the restraint on economic activity stemming from credit market headwinds could exceed the experience of the 1990s.'

He termed the 1990-1991 recession 'brief but not especially mild.' Mr Stern did not indicate whether he favoured another big cut to the federal funds rate at the FOMC's next scheduled meeting on Oct 28-29.

Financial markets currently see a cut of either one-quarter or one-half percentage point from the current 1.5 per cent level of the benchmark overnight lending rate.

'Depending on how one reads the data, financial headwinds restrained the pace of the ensuing expansion of the early 1990s from 12 to 36 months. Something similar is certainly conceivable today,' Mr Stern said.

Mr Stern said the economy faces pressure from the ongoing decline in home prices and high inventories of unsold houses, a string of drops in payrolls, the negative wealth effect of a falling stock market and deterioration in credit availability.

Asked whether the housing downturn was near to an end, Mr Stern said it was hard to generalise across the nation.

'Housing markets are heterogeneous, and if you generalise you risk missing something,' he said.

Economic growth in 2007 and the first half of 2008 'do not tell the whole story', he concluded.

On a more cheerful note, Mr Stern said the bulge in energy and commodity prices that peaked in July 'is apparently behind us' and that inflation should recede'.

That comment came on a day when September US consumer inflation was reported unchanged and core prices, stripped of food and energy, rose an unexpectedly low 0.1 per cent.

Mr Stern said the Fed's actions to date, from severe rate cuts to massive efforts to pump liquidity into the financial system, had been on target but not yet successful in restoring stability and would take time.

Getting the dosage right
The Treasury's massive package to support the banking system is notable for having the flexibility to tackle complex problems, Mr Stern said.

'Knowing what the appropriate medicine is, what the appropriate does is hard to know in advance,' Mr Stern said.

New financial regulations will also likely be on the agenda once the crisis has passed, but Mr Stern said warned against a reflexive tendency to pass restrictive new laws that could stifle innovation.

'It's important that we get the incentives right, get risk taking right,' he said.

Rethinking approach to bubbles
Mr Stern said that in light of the toll that the housing market crisis and its aftermath had taken on the economy, it was worth another think about how the Fed dealt with developing asset bubbles, including preemptive interest rate hikes.

'Identification of excesses in asset prices, although challenging, does not appear to be beyond the realm of possibility,' he said.

Actions taken to rein in bubbles - when increases of certain asset prices seemingly outstrip economic fundamentals - 'are likely to require raising interest rates earlier and probably more than otherwise would be the case' and would likely be unpopular, Mr Stern said. -- REUTERS

Hedge funds could fall victim

LONDON - HEDGE funds could be the next victims of the international financial crisis, French Finance Minister Christine Lagarde said in an interview published on Friday.

'Initially everybody thought the hedge fund sector would be the first one to actually cause the collapse,' she told Britain's Daily Telegraph newspaper.

'They are vastly unregulated, they have been operating at the fringes, at the margin, and we need to be careful that there is no contamination effect,' she was quoted as saying.

Hedge funds guarantee profits for their clients in return for large fees, as opposed to traditional investment funds, which usually only promise to outperform the overall market.

Ms Lagarde did not give any details to the Telegraph on proposals to deal with the situation regarding hedge funds.

'One thing at a time,' she said.

'We are working on that at the moment but I don't have the tools and the fixing and the solutions on hand.'

On the decline in the stock markets - in recent days indexes around the world have touched their lowest points in years - Ms Lagarde insisted that declines were not related to multi-trillion-dollar banking rescue plans unveiled by American and European governments over the past week.

'They are going down for other reasons. A lot of traders and investors expect the economy to go south and, as a result, that companies will not generate the level of profit they expected when they invested in those stocks,' Ms Lagarde told the newspaper.

Asked whether France was in a recession, she said: 'The problem is addressing the roots of the problem. We have fixed the toothache but not the root canal.' -- AFP

Buffet says 'Buy American'

NEW YORK - WARREN Buffett, the world's richest man according to Forbes magazine, said on Friday in a newspaper commentary that he is buying US stocks even though the American economy is in a 'mess'.

Mr Buffett, 78, who has become known as the 'Oracle of Omaha' because of his fortune building skills, said he has been buying into US companies even as 'fear spreads'.

'The financial world is a mess, both in the US and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher,' the head of Berkshire Hathaway Inc conglomerate wrote in the New York Times.

'In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary,' Mr Buffett added.

'So ... I've been buying American stocks. This is my personal account I'm talking about, in which I previously owned nothing but US government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy).'

'If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in US equities.'

The reason, he said, is a key maxim in his outlook - 'A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful.'

'Most certainly, fear is now widespread, gripping even seasoned investors.'

'To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation's many sound companies make no sense,' Mr Buffett said.

'These businesses will indeed suffer earnings hiccups, as they always have.'

'But most major companies will be setting new profit records five, 10 and 20 years from now.' Mr Buffet stressed that he could not predict how the market would ride out its roller-coaster days in the short-term.

But he said 'what is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up.'

'So if you wait for the robins, spring will be over.'

Mr Buffett has supported Democrat Barack Obama in the race for the White House. But both Mr Obama and his Republican rival John McCain say they agree he would make a good treasury secretary.

Mr Buffett, who is noted for his personal frugality despite his huge fortune, has said in the past he believes the financial markets should be more tightly regulated.

According to Forbes magazine's annual wealth list published in March, Mr Buffett saw his worth jump from US$52 billion (S$77 billion) last year to US$62 billion, pushing Microsoft co-founder Bill Gates out of first place. -- AFP

Economic outlook uncertain: PM

PRIME Minister Lee Hsien Loong said on Friday Singapore had fallen into recession and that the economic outlook over the next 12 months was uncertain.

'The current global financial turmoil has clouded Singapore's economic outlook. Our economy has gone into recession,' Mr Lee said at the opening of a research and development facility.

'We must expect slower growth and greater uncertainty at least over the next year.'

Singapore last week eased monetary policy for the first time in five years after advance data showed its trade-reliant economy contracted for a second consecutive quarter in the July-September period.

The city-state's economy shrank an annualised, seasonally adjusted 6.3 per cent in the third quarter, after declining 5.7 per cent in the preceding quarter.

The Southeast Asian nation last sank into a recession - defined as two consecutive quarters of economic contractions - in 2002 in a global downturn after the Sept 11, 2001 attack. -- THOMSON REUTERS

Buffett Makes a Bullish Bet

By the tickerspy.com Staff

Warren Buffett's extremely active 2008 has continued.

After high-profile investments in Goldman Sachs (NYSE: GS - News) and GE (NYSE: GE - News), Buffett made a lower-profile move last week when a unit of his company, Berkshire Hathaway (NYSE: BRK-A - News, BRK-B - News), sold puts in railroad Burlington Northern Santa Fe (NYSE: BNI - News), according to filings with the SEC.

The puts have strike prices of $77 and $80 and expire in December. By selling the puts, Berkshire has pocketed a premium and is obligated to purchase Burlington Northern at $80 and $77 if the stock is trading below those prices on the day the option expires. Essentially, Buffett is betting that Burlington Northern is unlikely to drop below around $71, his effective cost basis if the $77 puts are exercised. (His cost basis on the $80 puts is around $73).

The bottom line is that Buffett appears to be maintaining his bullish view of railroads, a view that he has held since early 2007 when he first disclosed investments in the sector.

Looking at Buffett's holdings from the start of Q3, Burlington Northern is joined by the other two railroads he has been investing in: Norfolk Southern (NYSE: NSC - News) and Union Pacific (NYSE: UNP - News).

Among Buffett's end-of-Q2 holdings, these railroads have been among the laggards so far. Rebounding financials have done best since mid-summer, including Bank of America (NYSE: BAC - News), U.S. Bancorp (NYSE: USB - News), Wells Fargo & Company (NYSE: WFC - News), and SunTrust Banks (NYSE: STI - News).

Looking at tickerspy.com's graph charting the performance of Berkshire's end-of-Q2 holdings during Q3, it's clear that Buffett's ability to stick with the financials that are most likely to weather the storm has served him well. His recent bullish bet on railroads bears watching, though.

However, investors won't be sure of where Buffett stands now until next month, when the deadline for Q3 filings hits.

Banks Admit Bailout Won't Work

From ClusterStock.com, Oct. 17, 2008:

So much for that story. A few days ago, when Hank Paulson called the heads of the nine families to Washington and shoved cash down their throats, he announced that the banks would use this new taxpayer cash to lend. They won't, of course. They'll hoard it like a starving family who has just been given a grocery cart full of food.

And after a few days of silence, even the banks are finally admitting that. So it's back to the drawing board for Paulson & Co.

Next steps? Find a way to force the banks to write their assets down to nuclear winter levels, so 1) private investors don't have to worry about getting sandbagged and therefore invest more in the banks, and 2) the banks know they won't be forced to take more multi-billion dollar losses. Only then will the banks begin to lend again. And at that point, the only challenge will be finding people and companies to lend to, in an economy headed straight into the tank.)

NYT: , John Thain, the chief executive of Merrill Lynch, said on Thursday that banks were unlikely to act swiftly. Executives at other banks privately expressed a similar view.

“We will have the opportunity to redeploy that,” Mr. Thain said of the new capital on a telephone call with analysts. “But at least for the next quarter, it’s just going to be a cushion."...

“I don’t think that the market wants to see that capital being put to work to leverage the business up again,” said Roger Freeman, an analyst at Barclays Capital, which acquired parts of the now-bankrupt Lehman Brothers last month. “My expectation is it’s quarters off, not months off, before you see that capital being put to work.”...

Jamie Dimon, the chairman and chief executive of JPMorgan, said his bank was in a stronger position to use the money than some of its competitors.

“It’s clear that the government would like us to use the capital,” Mr. Dimon said on a conference call with analysts on Wednesday. “If you are a bank that is filling a hole, you obviously can’t do that.”

Who is "a bank that is filling a hole"? Seven of the nine that just got taxpayer money.

Central Banks Failing to Solve Crisis - Depression on the Way

A few weeks ago, I mentioned that the central banks had put up collectively $3 trillion worth of stimulus/backing to financial markets. I also noticed that the big bailouts had about only a one day boost to the financial markets till they did a thumbs down.

Now, as of Monday Oct 13, the Europeans came up with a mammoth 1.3 trillion Euro bailout package (close to $ 2 trillion worth). The markets rallied for ONE day. Then, add another unlimited Fed dollar swap package to anyone (they trade dollars to central banks who need them for their currency because those central banks need dollars for people leaving foreign markets). So using my rough math, since August 07, the central banks have now put out over an astonishing $5 trillion plus worth of what is mostly short term liquidity (loans to financial institutions).

And, with all that money, the markets are down Wednesday across the world again? Only two days after the Europeans add almost $2 trillion worth of backing to their financial system? And the Fed had just added unlimited dollar swaps?

What the heck is going on?

Relentless deleveraging

What is going on is relentless deleveraging of over $1000 trillion of financial leverage (it’s more than that but the figure gets the idea across. So, over a period of a year, the US and ECB /Europe alone have added $5 trillion worth of financial backing to the world, but that is against $1000 trillion deleveraging – the bailout efforts are simply miniscule compared to what is driving markets down – at a ratio of 1000 to 5 so far. The bailouts and liquidity injections simply cannot work.

And, the markets relentlessly tail down, even within a day or two of major new bailout announcements. I think this kind of makes the point. Which is that $5 trillion is not near enough to stop $1000 trillion from deleveraging worldwide.

Gold, USD, and oil here

And then, we see gold and silver and precious metals selling off big at times, but gold kind of holds its own. But basically, gold is being tugged between big selling for money for margin calls on big investors like hedge funds. Then gold comes back a week later. Gold is reacting most strongly to the credit crisis worldwide, as big investors flee into the most secure ‘money’ they can find.

And even though the initial epicenter of the real estate collapse and the banking crisis is in the US, the USD is strengthening too. One reason is that people are selling emerging/foreign markets and repatriating that back to the US in dollars. Another is that the USD is still regarded as a safer haven than most. Just take a look at the Ruble and Russian markets – way way down, but last year regarded as a possible resource currency financial haven. Well, that sure proved wrong.

Resource sector

And then, the resource sector is just getting killed. And so are the resource nations stocks. And, get this, China is slowing markedly. Not to mention the China stock markets are WAY down from their highs, like 70% or so down from a year or two ago. But, didn’t we hear that China and the emerging economies would carry the world economy if the US/West slowed? Well, I think that theory has been definitively debunked.

And, with this slowing in the West, and now about a year later in developing economies like China and Russia and South America, the resource sectors are getting creamed. Miners and also oil/energy stocks are getting creamed. But didn’t we hear that these sectors were the new future and in the middle of a ten year plus bull market only a year ago?

I think a lot of this is simpler than that. Frankly, a year ago, we stated over and over that the imminent slowing of US and world economies would lead to a China slowdown, and a resource correction. But it was worse than that even. The collapsing credit markets (imploding is a better characterization, frankly) have put a choke hold on every imaginable economic activity.

And guess what, the next shoes to drop in the US, EU, Asia will be huge layoffs, as the economic stats will start to show big economic declines in consumer and business activity in coming months. In fact, those bad data are now showing up now.

Realization

And, when markets finally wake up to the fact that, despite new gigantic bailouts by governments, it’s not working, it’s definitely not working, and financial institutions are still afraid to loan money out. The realization is that it’s basically over, the cake is baked.

Or, to be more clear, the markets are not going to recover, and are going down far more.

Now, after the totally unprecedented actions in the last two weeks, particularly the announcements Monday by the Europeans and the Fed, with another what $2 to 3 trillion thrown at the problem, the markets this week are just crashing.

And now we get back to the original point, that every time a new huge bailout is announced, all that money appears to be good for a mere one day rally in financial markets.

Of course, to be fair, the Fed and others say it takes time to get all that money out and working in the system. But, do we have the time now? And frankly, can the huge bailouts even work in the end?

It’s already being stated that, even with the huge infusions to all these world banks and financial institutions, the financial institutions still won’t lend but are merely holding on desperately to the money- Lest they be the next Lehman or whatever.

Central banks cannot replace the economy

Now, Sarkozy and others in the EU are talking about a new Bretton Woods agreement. So now they want to replace /reform the entire world monetary system too? Do you think that will solve the problem? So, now after committing what is rapidly going to be $10 trillion and counting of public backing, which is not working, they will think up anything to try to stop what they fear, a total world financial collapse.

But, no matter what they try, no matter how big, nothing works. The reason is that the Central Banks cannot replace the economy. They can try to stimulate it, but they cannot even come close to replacing millions of people working, borrowing and lending.

And the way things are going, with every bigger bailouts (that European $2 trillion move Monday was amazing) it would seem they are going to bankrupt their own government finances along with their collapsing economic sectors. They will stop at nothing to avoid what they fear, a total economic collapse. And after that, comes the currency collapses? With the way they are handling this, that appears to be in the cards.

It’s already being stated that the US fiscal situation has been severely degraded by all these bailouts. The USD is still holding, but till when?

Effects on the Euro

Then, consider the effect of all this on the Euro. First, when it became clear that there would be no EU wide consensus on a fix, the Euro fell. Then some of the big nations did come up with a $2 trillion backing Monday. But, the fact is, there is no real coordinated EU wide policy on this situation. Even if the Fed is acting wildly, it at least has a unified policy for the USD. But the EU is not so.

And this definitely calls the Euro in question. So then, we get calls for a new Bretton Woods agreement. (The Bretton Woods agreement was where the USD was used to back the collapsing European currencies during WW2. It stayed in effect after WW2 till the US went off the gold standard in 1971).

New world currency?

But, this time, the USD is not really able to back the world’s currencies. Some new form will be invented. The trouble is, what currency is able to step into that gap? None that I can see.

So, will this relentless bailout mentality lead us all ultimately to a new world currency? A single new world currency, or one that the major economies subscribe to?

That may sound preposterous but I don’t think it’s quite that unlikely.

What really concerns me

What really concerns me is another Great Depression. And, we are actually closely following the script of that time. First, economic and financial crashes. Then big public bailouts. Then economic activity collapses. Then we have a grinding depression.

And, in a depression, we get huge unemployment, and even food shortages. In fact, I wonder if we will see something like what happened in Iceland this week, where the stores are running out of food and everything because there is no foreign exchange. They won’t accept the Iceland Krona. So, Iceland can’t import food.

Lest you think that problem is isolated to that island nation, in the Great Depression millions starved in the US and Europe and elsewhere, even in big food producing countries. One reason is that big food producers sell their food for foreign currency – ie export it. The natives be damned. That’s what happened in Argentina in the early 2000’s.

And, god forbid, there can be a big war after the depression. This is exactly what happened in the 1930’s/40’s.

So, batten down the hatches, and be super cautious. Don’t believe the financial TV that seems to be always saying the bottom is here. I don’t believe that for a minute. The credit crisis is just grinding away at the world economies like a big wood chipper. The next quarter or two, we will see big declines in economic activity, and also big layoffs all over the world.

The Prudent Squirrel newsletter is our financial and gold commentary. Subscribers get 44 newsletters a year on Sundays, and also mid week email alerts as needed. We alerted our subscribers April 20 that the USD was bottoming. We have been warning of a big commodity and resource correction for months. We even warned for several years that gold and silver bullion would become unavailable in the inevitable economic crises. The email alerts include quick notification of important financial news developments by email. Subscribers tell us that the alerts alone are worth subscribing for.

I had one potential subscriber ask me if the newsletter has much more content than these public articles, ie, if it was worth subscribing. The answer is that the public articles have less than 10% of our research and conclusions that subscribers see, not to mention the subscriber email alerts of important breaking financial news. We have anticipated many significant market moves in the last year, such as imminent drops in world stock markets within days of them happening, and big swings in the gold markets within days of them occurring. We have also made a number of good calls on big currency swings, such as with the USD, the Euro and the Yen.

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The financial crisis will soon abate, but the real crisis will soon begin

By Steve Saville

Below is an extract from a commentary originally posted at www.speculative-investor.com on 9th October, 2008.

In an essay first published in 1969 and recently re-published at http://mises.org/story/3127, Murray Rothbard summarises the causes and cures of economic depressions by drawing on the Business Cycle theory developed by the great Austrian economist Ludwig von Mises. Here's an excerpt from this essay:

"Mises, then, pinpoints the blame for the cycle on inflationary bank credit expansion propelled by the intervention of government and its central bank. What does Mises say should be done, say by government, once the depression arrives? What is the governmental role in the cure of depression? In the first place, government must cease inflating as soon as possible. It is true that this will, inevitably, bring the inflationary boom abruptly to an end, and commence the inevitable recession or depression. But the longer the government waits for this, the worse the necessary readjustments will have to be. The sooner the depression-readjustment is gotten over with, the better. This means, also, that the government must never try to prop up unsound business situations; it must never bail out or lend money to business firms in trouble. Doing this will simply prolong the agony and convert a sharp and quick depression phase into a lingering and chronic disease. The government must never try to prop up wage rates or prices of producers' goods; doing so will prolong and delay indefinitely the completion of the depression-adjustment process; it will cause indefinite and prolonged depression and mass unemployment in the vital capital goods industries. The government must not try to inflate again, in order to get out of the depression. For even if this reinflation succeeds, it will only sow greater trouble later on. The government must do nothing to encourage consumption, and it must not increase its own expenditures, for this will further increase the social consumption/investment ratio. In fact, cutting the government budget will improve the ratio. What the economy needs is not more consumption spending but more saving, in order to validate some of the excessive investments of the boom. [Emphasis added]

Thus, what the government should do, according to the Misesian analysis of the depression, is absolutely nothing. It should, from the point of view of economic health and ending the depression as quickly as possible, maintain a strict hands off, "laissez-faire" policy. Anything it does will delay and obstruct the adjustment process of the market; the less it does, the more rapidly will the market adjustment process do its work, and sound economic recovery ensue."

Clearly, in response to the current financial crisis the US government -- and most other governments, for that matter -- is doing exactly what Mises and other great economists of the "Austrian School" claim should NOT be done. Specifically, the US government is trying to prop up unsound business situations; it is bailing out and lending money to business firms in trouble; it is attempting to prop up prices; it is trying to inflate again in order to boost the economy; and it is rapidly increasing its own expenditures.

The "Austrians" have considerable credibility because their basic theories have never been logically refuted and have been validated, time and time again, by real world occurrences. For example, in early 1929 the two leading Austrian economists of the day, Mises and Hayek, predicted that a great crash was about to occur. Mises, at the time, turned down a prestigious job with a bank because he foresaw a global banking crisis and did not want his name associated with any bank. After the crash the Austrians then warned that the large increases in spending and the various other government interventions implemented in order to stimulate the economy would turn a financial collapse into a very lengthy depression. They were again proven right. As an aside, it is often stated, as if it were a fact, that President Hoover employed a hands-off approach in response to the financial collapse of 1929-1932, thus sowing the seeds of the drawn-out depression that followed. However, nothing could be further from the truth. The fact is that Hoover was not a true believer in free markets and in response to the crash he ramped up the US Government's involvement in the economy, so much so that during the 1932 Presidential election campaign Hoover was labeled a "spendthrift" by F.D.Roosevelt, his opponent. Of course, the 16% increase in government indebtedness on Hoover's watch during 1931-1932 now looks miserly compared to the 1200% increase in Federal debt presided over by Roosevelt during 1933-1945, but at the time it was one of the largest peace-time increases ever.

There were many financial crises in the US prior to the 1930s. The main factor that differentiated the 1930s from earlier periods of crisis -- the thing that transformed a financial collapse into an economic depression lasting more than a decade -- was the government's response to the crisis. Never before had the government tried so hard to fight the contraction by ramping up its own spending, and never before had the US economy performed so poorly. Strangely, most economists seem incapable of linking the dismal economic performance with the large increase in government intervention, and, as a result, most economists still think that increased government intervention and spending is the answer (although they often disagree on the details). The Japanese thought it was the answer during the 1990s, and thus managed to transform what should have been a sharp 1-3 year adjustment into a 10-15 year period of economic stagnation. And now it's widely considered to be the appropriate response to the current woes in the US.

Given that it is being 'egged on' by high-profile economists, investors, hedge-fund managers, businessmen, journalists, TV personalities, politicians and even newsletter writers of almost all stripes, it's a virtual certainty that the US government will continue to 'fight' the current crisis by implementing inflationary policies and inserting itself ever-deeper into the fabric of the economy. In fact, it is now rare for a week to go by without the announcement of some new large-scale government intervention. This week's main intervention -- to date, anyway, but there are still three days left in the week -- is the decision of the Fed/Treasury combination to provide an unlimited amount of short-term funding to non-financial companies via the Commercial Paper market.

The world's financial markets are embroiled in a crisis of epic proportions, but with or without government 'help' the financial crisis will soon become less intense. Perhaps the many actions being taken by the government in an effort to 'soften the blow' will cause the immediate crisis to dissipate earlier than would otherwise be the case, but these actions will certainly do longer-term damage by siphoning real savings into non-productive endeavours. Always bear in mind that the government doesn't have any real savings of its own, so the only way the government can help an unhealthy corporation is to divert savings away from healthy corporations. This diversion often occurs via inflation (increasing the money supply), and is therefore unseen by most observers.

We can't say for certain that the actions being taken to counteract the financial crisis will lead to a drawn-out economic depression, but we can say that the actions greatly increase the risk of such an outcome. Furthermore, we can say that similar policy moves have, in the past, been followed by drawn-out economic depressions.

Further to the above, we think it makes sense to prepare for a very lengthy period of slow, or no, economic growth. In general terms, this should involve strengthening one's balance sheet. More specifically, it SHOULD involve staying (or getting) out of debt and COULD involve building up exposure to gold and income-producing investments other than bonds (energy trusts, for instance). Fortunately, a good balance-sheet-strengthening opportunity is likely to present itself over the next 6 months because the immediate crisis will probably soon give way to a multi-month stock market rebound and the ILLUSION that policy-makers have managed to ignite a sustainable recovery.

Suicide Rates May Rise in Japan, Korea Amid Turmoil

By Jason Gale and Kanoko Matsuyama

Oct. 15 (Bloomberg) -- Job losses caused by the global credit crunch may compel more people to kill themselves in Japan, South Korea and Hong Kong, according to a researcher who studied suicide rates during Asia's currency crisis a decade ago.

Suicides climbed about 40 percent among men in all three locations in 1998 compared with a year earlier, and rose about 20 percent among women, said Shu-sen Chang, a psychiatrist with the U.K.'s University of Bristol. The increases correlated with a surge in unemployment and an economic slump triggered by currency devaluations in Asia in mid-1997, he said.

``Around the time of the recession, we saw an acute rise in the unemployment rate and these changes seemed to be associated with the economic crisis and the rise in the suicide rate,'' Chang said in a telephone interview yesterday. ``We concluded that changes in unemployment rates might contribute to some of the rise in the suicide rate.''

The current turmoil in financial markets risks creating a new wave of suicides in Asia, particularly among working-age men, Chang said. The region accounts for 60 percent of the world's suicides, according to the World Health Organization. Hong Kong opened 24-hour hotlines this week to counsel people with ``emotional and family problems'' from personal financial crises.

``Just like with the stock market, people panic -- they jump to the conclusion that all is lost,'' said Adrian Wang, a psychiatrist whose practice in Singapore has attracted more patients ``expressing fears and concerns about their future'' during the past two weeks.

`No Way Out'

``Suicide occurs when you feel that all doors are closed and there is no way out except to end your life,'' Wang said by telephone today. ``There usually is a way out, but depression casts such a negative light on things that you feel there is no way out of the hole you have dug yourself into.''

Only one in four people in Japan with depressive illness seeks medical help for the condition, according to Fuji Keizai Co., a Tokyo-based research company. Even so, sales of antidepressants will reach 88.9 billion yen ($875 million) this year, quadruple the value in 1999, when mood stabilizers were first sold in Japan.

In 1998, the number of suicides per 100,000 people in Japan soared 34 percent from a year earlier, according to statistics by the National Police Agency.

``More middle-aged men, including company executives, committed suicide from bankruptcies starting in 1998,'' Yukio Saito, director of Japan's Federation of Helplines, said by telephone. ``The number of suicides remains at this level because of continuing problems with economic conditions in Japan.''

The country's economy is heading toward a recession and has contracted in 10 of the past 40 quarters.

Money Worries

Financial problems are among motivating forces in about half the suicides in Asia, compared with 20 percent to 30 percent in Europe and North America, said Paul Siu-Fai Yip, director of Hong Kong's Centre for Suicide Research and Prevention.

Hong Kong's economic growth slowed to 4.2 percent in the second quarter, the slowest pace in almost five years, as exports, investment and domestic consumption weakened.

``We've learned from the past and are preparing ourselves'' for the possibility of more suicides, Yip said in a telephone interview today. ``If the recent drop of the Hong Kong economy continues, our suicide rate may climb.''

The world's largest financial institutions have posted $636 billion of losses and writedowns since the collapse of the U.S. subprime-mortgage market. Banks worldwide have slashed more than 137,000 jobs since June 2007, as companies including Lehman Brothers Holdings Inc. collapsed.

Loan Sharks

In South Korea, television actor Ahn Jae Hwan, 36, was found dead in his car in an assumed suicide in September. Police are investigating Ahn's death after magazine Sisa In cited his widow as saying she had been threatened by loan sharks after Ahn failed to repay debts that may have amounted to 3 billion won to 6 billion won ($2.4 million to $4.8 million).

Four weeks later, actress Choi Jin Sil, 39, committed suicide at her Seoul home amid Internet rumors that she was one of the people who had lent Ahn money, according to police. Choi was one of the most famous stars for two decades in South Korea, which has the highest suicide rate among developed nations, according to a June 2008 report by the Organization for Economic Cooperation and Development.

Chang's study, which is under review for publication, will be presented at an international meeting on suicide prevention in Hong Kong later this month, he said. It's based on an analysis of suicides from 1985 to 2006 in Japan, Hong Kong, South Korea, Singapore, Taiwan and Thailand.

'We're All Hosed': A Wall Street Insider on the Economic Crisis

by Laura Rowley

Earlier this week I interviewed a veteran banker at a major Wall Street investment firm, seeking an insider's view on what caused the current economic crisis, what life is like for people on Wall Street, and what's ahead for the economy.

On condition of anonymity, the banker provided a blunt assessment of the risks taken, mistakes made, and the toll of the financial destruction. Here are the highlights:

Q: What's the cause of the economic crisis from your perspective?

A: There is an awful lot of blame to go around on Wall Street, in Washington, and in the irresponsible behavior of individuals. But stepping back, the critical error was that everyone [thought] there would not be a substantial, nationwide decrease in real estate prices. The whole subprime debacle was predicated on the fact that people said, "Well, this borrower is not really credit worthy and can't afford the house, but in four years it will be up 20 percent or more."

It was widely believed that if you had bad mortgages from different geographic areas that all those [real estate markets] weren't going to go down together. You had a pool of 100 bad mortgages from borrowers with low income or bad credit, that were each a piece of [expletive]. The idea was you put them together and now it's not a piece of [expletive]. People believed that through geographic diversification you can diversify risk. That was what undergirded the entire breakdown, and this was not a 3-year phenomenon, it was building for 10 years. Fannie Mae and Freddie Mac were absurdities; those firms were recklessly and incompetently run.

Q: What role did the rating agencies play?

A: The rating agencies facilitated this by giving investment-grade ratings to the securities. In the stretch for yield, you could [buy] AA-rated corporate bonds and earn 50 basis points over Treasuries, but if you bought AA-rated mortgage-backed securities you'd get 150 basis points. From the buy side, there was a real breakdown in their fiduciary obligation, because they overly relied on ratings agencies and didn't do their own research.

Rating agencies are incredibly powerful; you can't do debt financing without them. You have to play by their rules. They hold themselves out as these objective providers of ratings advice, but they are human beings, and [rating structured finance deals] was a higher-margin profit [center] for them. But I think [the bad ratings] were more due to sheer incompetence than being bribed.

Q: But weren't these the so-called "smartest guys in the room"?

A: These are not the smartest guys in the room. The ratings agencies don't pay as well, so people working there are using it as platform to get on the Street, or they work there because they're tired after a career on the Street, or they couldn't get hired on the Street.

Q: But wasn't leverage the real problem? Lehman was leveraged about 30 to 1 when it collapsed.

A: The investment banks were imprudently leveraged, but what killed Lehman and Bear was they had bad assets. You can survive a painful downturn -- and believe me, de-leveraging has been painful for everyone, but you can survive. Wachovia was only levered ten times, but had terrible exposure [to bad mortgages] and therefore couldn't raise capital. In hindsight Lehman shouldn't have been leveraged 30 times, but in a bull market having [a leverage ratio] of 25 times is not necessarily crazy. The real issue is asset quality.

Q: What's your view of the government's $700 billion-plus bailout?

A: I think Paulson was well intentioned around the notion of moral hazard, but he was wrong. I think if he could redo it, he would have saved Lehman. The devastation of Lehman failing -- the implication of their failure is hard to predict. I think you're seeing it play out in the stock market and the credit markets; I think you're going to see some hedge funds go out of business. Some of it has already been made public and some will come soon, but there are a lot of implications of Lehman reflected in the capital markets.

Q: What about the move to backstop the commercial-paper market and guarantee money market funds?

A: I think it's unfortunate, but it's one of the situations where the government has to step in. You've got to have confidence in the basic functioning of the banking system. The risk borne by the government is quite small, and the benefits are incredibly high. Unlike industrial companies, where bankruptcy works well, it does not work well at all in the financial system and Lehman is a poster child in that regard. If you're one of the big car companies and you go bankrupt, you can keep making cars; it's an ongoing business. With financial institutions, so much of what you do is predicated on confidence -- business literally evaporates overnight.

Q: What do you say to the taxpayers who didn't participate in the borrowing frenzy of the last few years, who saved diligently and are now paying the price with their tax dollars? And who may have to pay it again when the baby boomers retire and the government raises taxes to bail out people who haven't saved?

A: I also lived very conservatively and did not borrow, and I think we're all going to get hosed. But the reality is it's in our interest that the economy doesn't melt down. I'm a right-wing free market [supporter], and the last person to ask for government intervention, but if we allow a breakdown in the financial system you're going to have a depression. It's like the military -- incredibly expensive, but the cost of not doing it is far worse.

Q: What about the characterization that the greedy Wall Street bankers made their millions in the boom and left others holding the bag?

A: Everyone on Wall Street wants to make as much money as he can -- we're not missionaries. But no one thought, "Let's do this loan because we know it won't blow up for a while, and we can get fees today or get this year's bonus." Because everyone knows his stock position at a firm is worth far more than this year's bonus.

Look at the stock prices and the value of Bear, Lehman, Merrill, Morgan Stanley, Goldman, Deutsche Bank -- that's hundreds of billions of dollars evaporating, and a good chunk of that was owned by employees. For most employees that was the majority, and in some cases all, of their net worth, because of deferred compensation. People read these big numbers that bankers make in good years, but much of it you don't have yet, it's locked up for three to five years; you thought you made $2 million but you actually made $1 million. It's huge value destruction for people who work on Wall Street.

There are thousands of unemployed bankers with no prospects to get a job. And on Wall Street, if you're out a year or two, it's as if you never worked there. There's a real bias toward young people. If you're in your mid- to late 40s and you're shot, and you don't get a job in 12 to 18 months, you may never work on the Street again.

But I don't feel bad for anybody on Wall Street, because we knew what we signed up for when we got the job. No one complains in the good years, and you have to live your [financial] life accordingly. The guys who bought big houses or a second house or who lived a lifestyle they couldn't afford -- some of those guys have a very tough next couple of years, because they'll be caught on the wrong side of the spiral.

Q: What do you see ahead? Should long-term investors be buying equities?

A: I think the equity markets will recover before the credit markets will. I think you're going to see much more cautious lending. The U.S. continues to have the best, most innovative workforce, and the core fundamentals are good. There could be more legs down, but over a long period of time as long as we maintain our free markets and have reasonable capital gains taxes and a framework where risk-taking is rewarded, you'll still get the best risk-adjusted rewards in the U.S.

Next Victim of Turmoil: Your Salary

by David Leonhardt

It is possible, for the first time in weeks, to imagine that the credit crisis may be about to ease. But one of the big lessons of the last year has been not to underestimate the severity of the economy's problems. Those problems are not just about housing or Wall Street.

What, then, will the next stage of the downturn be about? It is likely to revolve around the worst slump in worker pay since — you knew this was coming — the Great Depression. This slump won't be anywhere near as bad as the one during the Depression, but it also won't be like anything the country has experienced in a long time.

Income for the median household — the one in the dead middle of the income distribution — will probably be lower in 2010 than it was, amazingly enough, a full decade earlier. That hasn't happened since the 1930s. Already, median pay today is slightly lower than it was in 2000, and by 2010, could end up more than 5 percent lower than its old peak.

If you look back at poll results over the last few decades, you will see that nothing predicts the public mood quite like income growth.

When incomes are growing at a good clip, as they were in the mid-1980s and late '90s, Americans are upbeat. When incomes stagnate, as they did in the early '80s, early '90s and in the last several years, people get worried about the state of the country. In the latest New York Times/CBS News poll, 89 percent of respondents said that the country had "pretty seriously gotten off on the wrong track," a record high.

So it's reasonable to expect that the great pay slump of the early 21st century is going to have a big effect on the next several years. Falling pay will weigh on living standards, consumer spending and economic growth and will help set the political atmosphere that awaits the next president.

The events of the last several weeks have removed any serious doubt that the economy is in a recession. In a recession, businesses cut back on their workers' hours, hand out raises that don't keep pace with inflation and often skip paying bonuses. These cuts in hours and pay are the main way that a downturn affects families, because only a small share of workers actually lose their jobs.

As the chart next to this column makes clear, every recent recession has brought an effective pay cut of somewhere between 3 and 7 percent for the typical family. The drop typically happens over a period of about three years, lasting longer than the recession officially does, as pay fails to keep up with inflation.

The recent turmoil — the freezing up of credit markets, the fall in stock markets, the acceleration of layoffs — has made it unlikely that the coming recession will be a particularly mild one.

"The biggest hit will be in 2009," Nariman Behravesh, the chief economist of Global Insight, a research and forecasting firm, told me, "and it probably won't be until 2011 until we see any kind of pay gains."

What will make this recession different, no matter how deep or shallow it is, is that it's following an expansion in which most families received little or no raise. The median household made $50,200 last year, slightly less than the $50,600 that the equivalent household earned in 2000, according to the Census Bureau. That's the first time on record that income failed to set a new record in an economic expansion.

Why has it happened? There is no single cause.

Medical costs have risen rapidly, which means that health insurance premiums take up a bigger chunk of workers' paychecks than they used to. Some of this money goes to good use; it pays for treatments that weren't available even a few years ago. But some of it, the part that disappears into the inefficient American health care system, is clearly wasted.

And in the last couple of years, the value of the typical worker's benefits package has stopped growing. Since 2005, benefits packages have become slightly smaller, notes Jared Bernstein of the Economic Policy Institute. So health benefits can't come close to explaining the recent pay stagnation.

The bigger factors are probably some combination of the following: new technologies, global trade, slowing gains in educational attainment, the rise of single-parent families, the continued decline in unionization and the sharp increase in inequality, which has concentrated income gains at the top of the ladder. Your political views will probably determine the relative weights that you assign to those causes. Economic research hasn't yet definitively answered the question.

Whatever the cause, though, the effects of the pay slump are going to be significant. Households have already begun to cut back their spending, and they will do so even more next year. Mr. Behravesh predicts that inflation-adjusted consumer spending in 2009 will be somewhere between flat and down 1 percent. If he's right, it would be the first year that consumer spending didn't grow since 1980, which just happens to be the last time that the country suffered through a deep recession.

The pay slump will also make it harder for people to pay off their loans. Last week, Bank of America reported that its losses on consumer credit had tripled over the last year.

In all, banks around the world have acknowledged $600 billion in losses as part of the financial crisis. The latest International Monetary Fund analysis suggests they still have another $800 billion in losses ahead of them — and a good chunk of them will occur in this country.

It's always possible, of course, that some bit of good and unexpected economic news is just around the corner. The situation also seemed pretty dire in the mid-1990s, until the Internet boom came along and incomes then started rising at their fastest pace since the 1960s.

But you would have to be a pretty zealous optimist to forecast a repeat of that story. For two decades, consumer spending has been an enormous driver of economic growth, thanks in good measure to a long bull market, a housing bubble and a boom in consumer debt.

The bull market, the housing bubble and the debt boom have all ended — and now paychecks are shrinking, too.

At some point, the next big economic engine will indeed arrive. It always does. This time, however, it's going to have some stiff head winds to overcome.

Worries over economy spread; global markets sink

By Jeannine Aversa, AP Economics Writer
Fears of a darkening global economy send markets around the world into a funk

WASHINGTON (AP) -- Fears of recession are trumping fears of inflation.

A crucial barometer of inflation came in flat last month, temporarily halting Wall Street's slide. But stocks dropped again in morning trading Thursday, with the Dow Jones industrial average falling more than 300 points. Stock prices fell globally, too. Credit markets remained tight and oil prices declined to a nearly 14-month low.

"The market is just very worried about a severe international economic downturn," said David Moore, commodity strategist at Commonwealth Bank of Australia in Sydney. "They're thinking that oil consumption will be weaker than expected."

After more than a month of unprecedented government intervention, it's unclear what policymakers can do next to calm markets. Treasury Secretary Henry Paulson said Thursday that he's not proud of the mistakes leading up to the crisis, but insisted the administration is pursuing the right course to end it.

Federal Reserve Chairman Ben Bernanke has left the door open for another rate cut, saying Wednesday that inflation pressures are moderating, but the Fed's emergency half point cut on Oct. 8, which brought its target short-term rates to 1.5 percent, did little to affect the actual rates banks charge borrowers and each other, which remain dramatically higher.

The availability of short-term commercial paper loans -- that businesses use to buy supplies and pay workers -- fell for the fifth straight week, according to the Federal Reserve.

On Wednesday, the Dow saw its 20th triple-digit swing in the past 23 trading sessions, an unprecedented run of volatility. The Dow has finished higher on only one day this month. The loss of 733 points was the second-worst ever for the average, topped only by a 778-point decline Sept. 29.

Stocks lost $1.1 trillion Wednesday. Since Oct. 9, 2007, when the Dow high topped 14,000, investors have lost $8.3 trillion from pension funds, college savings plans, 401(k)s and other investments.

The U.S. economy is suffering from a litany of woes: falling wages, weak consumer spending, tight credit, slumping home prices and rising job losses. While the number of new people signing up for unemployment benefits last week dropped, new claims still totaled 461,000 -- a figure associated with deep troubles in employment conditions.

Citigroup Inc. said Thursday it had cut 11,000 jobs in the fourth quarter, bringing its job cuts for the year to 23,000.

The economy might not recover until 2010, Donald Kohn, vice chairman of the Federal Reserve, said Wednesday evening.

Coming economic data on housing, consumer spending, manufacturing and employment are "apt to show either stagnation at depressed levels or substantial further deterioration," Goldman Sachs economist Seamus Smyth said in a report.

The plunge in stocks put the nation's economic anxiety front-and-center as the two major presidential candidates, Sens. Barack Obama and John McCain, squared off in their final debate Wednesday night in Hempstead, N.Y.

McCain used the debate to accuse Obama of waging class warfare by advocating tax increases designed to "spread the wealth around." The Democrat denied it, and countered that he favors tax reductions for 95 percent of Americans.

Earlier this week, after governments around the world announced plans to use trillions of dollars to prop up banks, including a U.S. plan to buy about $250 billion in bank stocks, the market appeared to be turning around -- or at least calming down.

Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke have expressed confidence that the government's radical efforts to stabilize the financial system and induce banks to lend again will eventually help the economy.

But Bernanke warned that even if financial markets calm, the nation will not snap back to economic health quickly.

"Stabilization of the financial markets is a critical first step, but even if they stabilize as we hope they will, broader economic recovery will not happen right away," Bernanke told the Economic Club of New York on Wednesday.

President Bush plans to speak on the financial crisis early Friday -- before U.S. markets open -- at the U.S. Chamber of Commerce headquarters across from the White House. Officials said the speech wasn't intended to put forward new policy actions, but rather would give the nation a more detailed explanation of what the government is doing to combat the crisis.

Some analysts believe the economy jolted into reverse in the recently ended third quarter, while others predict it will shrink later this year or early next. The classic definition of a recession is back-to-back quarters of shrinking economic activity.

Leaders of the world's top economic powers, the Group of Eight, said they would meet "in the near future" for a global summit to tackle the financial crisis. The group comprises the United States, Japan, Germany, France, Britain, Italy, Canada and Russia.

British Prime Minister Gordon Brown said the meeting could be held next month. He said the discussions should include not only the world's richest nations but also major emerging economies such as China and India.

The current financial crisis began more than a year ago in the United States when lax lending standards on certain home mortgages came home to roost. Foreclosures skyrocketed, mortgage securities soured and financial companies racked up huge losses.

Associated Press writer George Jahn in Vienna, Austria and Ellen Simon in New York contributed to this report.

World financial developments

A LOOK at financial developments and what happened in some stock markets around the world on Wednesday:
Iceland
Iceland's central bank slashed official interest rates by 3.5 percentage points as it warned that the collapse of its banking system will lead to a 'very sharp' contraction in the Nordic nation's economy. The central bank, Sedlabanki, also said it will carry out daily auctions in the foreign exchange market to ensure supplies of foreign currency to the increasingly isolated island country.

Greece
Greece has pledged up to 28 billion euros (S$56 billion) to help its banking sector weather the financial crisis. Finance Minister George Alogoskoufis stressed that the measures were temporary and that the government aimed to not burden taxpayers. Under the rescue package, up to 8 billion euros will be issued in bonds to boost liquidity. Banks will also be allowed to ask for up to 5 billion euros in state capital in exchange for shares, the minister said.

Germany
German Chancellor Angela Merkel urged lawmakers to support her government's planned financial rescue package, worth up to 500 billion euros, arguing that dangers to market stability have not yet been banished. The German package foresees up to 400 billion euros in lending guarantees for banks, and both houses of parliament are expected to vote Friday. Germany's DAX ended 337.56 points, or 6.5 per cent, lower at 4,861.63.

HONG KONG
Mr Donald Tsang, Hong Kong's chief executive, said the meltdown was even worse than the 1997 Asian financial crisis and would take a far bigger toll on the global economy. Hong Kong's Hang Seng Index lost 834.58 points, or nearly 5 per cent, to close at 15,998.30 after rising more than 13 per cent the previous two days.

Brazil
Brazil's Ibovespa stock index plunged 11.4 per cent to 36,833, triggering the automatic 30-minute suspension of mid-afternoon trading. Vale do Rio Doce, the world's largest iron ore miner, lost 15.2 per cent, while state-run oil company Petrobras fell 12 per cent as crude hit a 13-month low. Together, the two companies comprise 34.5 per cent of the Ibovespa. Last week, the index lost 25 per cent of its value, but had its biggest one-day gain in a decade on Monday.

Britain
British Prime Minister Gordon Brown called for sweeping change in global financial institutions as European Union leaders sought to expand their efforts to rescue their banking system to all 27 member countries at a summit.

The Group of Eight major industrial nations announced in Brussels, Belgium that they will hold a global summit - perhaps as early as November in New York - to forge common action to prevent another economic meltdown. -- AP

How deep will the recession be?

WASHINGTON - WITH recession fears for the US economy growing by the day in the wake of a global financial crisis, analysts are pondering the questions of how deep and how wide the downturn will be.
Most economists say the extraordinary efforts by Washington and other governments to stem the credit crisis appear to be helping confidence but will not prevent recession in the world's biggest economy.

Those fears were hammered home on Wednesday with unusually bleak reports on US retail sales, which represents the bulk of US economic activity, and a key regional manufacturing index.

Mr Carl Weinberg, chief economist at High Frequency Economics, said that even if credit flows are restored, the troubles are not over for the entire global economy.

'The world economy is still headed into a recession despite the global financial market rescue effort,' Mr Weinberg said.

'The decline will be deep and protracted. It has already started. Nowhere is the economic house in greater disorder than Euroland, although some may argue that Japan is a bigger mess.'

On Tuesday, San Francisco Federal Reserve president Janet Yellen became the first central bank official to acknowledge that a recession is probably underway in the United States.

Ms Yellen said she expected essentially no growth at all in the third quarter and 'an outright contraction' in the fourth quarter.

'Indeed, the US economy appears to be in a recession,' she said.

Reinforcing those fears, the Commerce Department reported that US retail sales - a key to economic activity - slumped 1.2 per cent in September, the sharpest drop since August 2005 and weaker than market expectations.

'People have dropped shopping. This happened even before the total meltdown in the stock markets. What is ominous is that the declines in spending were broad-based,' said Mr Joel Naroff at Naroff Economic Advisors.

Mr Naroff said it is only a matter of time before the recession becomes official.

'The real issue is how long this will last and how deep a slump will it be,' he said.

'The answer to that is not clear as it depends upon how fast the rescue plans that have been announced are actually implemented and work. That is likely to take time.'

Mr John Ryding at RDQ Economics said the latest reports show recessionary levels for both the consumer and manufacturing activity, an ominous sign for overall economic output and a sharp drop in gross domestic product (GDP).

Mr Ryding predicted a contraction of 0.5 per cent in the third quarter and a 2.5 per cent drop in the fourth quarter.

'Retail sales levels in September are unlikely to have captured the full impact of the intensification of the credit crisis and we look for further declines in the fourth quarter,' Mr Ryding said. 'We have a full-blooded consumer recession as sales in September fell across the board.'

Amid the grim backdrop, House of Representatives Speaker Nancy Pelosi said she would ask lawmakers to return after the November 4 election for a lame-duck session to consider a US$150 billion (S$222 billion) stimulus package, following a US$168 billion plan approved earlier this year.

'Congress must try again,' Mrs Pelosi said.

'I have asked the chairs of relevant committees to schedule hearings in the coming weeks on the key provisions of a fiscally responsible recovery package to get our economy moving again.'

The Fed's Beige Book said US economic activity weakened in September across the country with few bright spots and businesses 'more pessimistic' about the outlook.

The report, to be used by its policymakers for their October 28-29 meeting on interest rates, offered no surprise in its survey of the past few weeks during a period of heightened market turmoil and tight credit.

The report said activity 'weakened in September across all 12 Federal Reserve districts'.

Fed chairman Ben Bernanke said in a speech on Wednesday that a recovery from the financial crisis 'will not happen right away' but that the US economy will eventually emerge 'with renewed vigour'.

On Tuesday, US authorities unveiled plans to inject billions of dollars into banks to ease a global credit crisis in the first programme of its kind since the Great Depression.

The announcement provided a brief thaw in credit markets although it remained unclear how quickly it would jump-start interbank lending needed to fund corporate activity that fuels the economy.

Ms Sara Kline at Economy.com said there have been only modest declines in Libor - the interbank lending rates seen as crucial in the credit crisis.

These rates 'will need to fall further to have a significant impact,' Ms Kline said. 'The lack of confidence among financial institutions will weigh on the real economy through reduced credit availability to businesses and households.' -- AFP

Pay yourself first: Does it really work?

by Ma. Salve Duplito

MANILA, PHILIPPINES - If financial planners are to be believed, the road to wealth is paved with things like "paying yourself first" -- a clever way of saying automatic savings should be at the top of your priorities. In other words, pay yourself first before you pay the electric, telephone, cable television and other bills.

It sounds deceptively simple. You"ll find financial gurus David Bach (Start Late, Finish Rich), George Clason (who wrote the 1926 classic The Richest Man In Babylon) and Efren Ll. Cruz (Pwede Na: The Pinoy Guide to Personal Finance) preaching that if the government can automate taxes, you can do the same thing with personal savings.

That means you set aside a chunk of your income automatically every month even before you see your paycheck, and put the money in a "no-touch" investment account and leave it there to grow. Then live on what is left of your income, even it means switching to cheaper brands, taking the jeepney, canceling magazine subscriptions or doing extra work.

Some financial professionals go as far as saying this principle is the golden rule of personal finance. Started early, it allows you to earn interest from interest (magic of compounding). It begins the discipline of saving. Forced to live on a smaller income, it makes you conscious of your lifestyle choices. It gives you the satisfaction that giving up certain perks now means your golden age will truly be that: happy and secure.

It is also easier said than done. That money could be used for many other things. It can pay for gas, the grocery bill this month, tuition, or the new computer Junior needs -- all necessities, really. Some of us have tried to do it once or twice before, or an unforeseen emergency caused us to dip into the kitty. That normally becomes the end of the story.

There's also the hard nosed reality Filipinos have to deal with: almost half of the population live below the poverty line and many are in debt.

How in the world can people who live on minimum wage pay themselves first?

Perhaps the more crucial question would be, does this really work in the Philippines where poverty is high, interest on savings are extremely low and loan sharks are more accessible than banks?

"Paying yourself first is for everybody," says Cruz in an interview.

As chairman of Personal Finance Advisors, Cruz has worked with hundreds of individuals and organizations on how to build personal wealth. He once shared how a janitor who worked in Quezon City built a sizeable savings by religiously socking away money and doing other odd jobs. He says that when most people say they don"t have enough income to save, the truth is they are just living beyond their means.

When that"s the case, people spend first and then save what is left of their income. That almost always ends up in zero savings or living in debt. The key is to jump in through forced savings, and live on what's left.

"In preparing for a financial event, the fastest way to accumulate funds is to save, which is paying yourself first. Investment only hastens such accumulation, but everything starts from saving," he says.

The strategy, however, goes beyond just savings. It also means looking at what's left to spend on and adjusting your lifestyle even if it means cutting the cable connection or chucking the mobile phone.

Needs commitment
It needs a lot of commitment. It also requires much creativity. To make it work, all consumer debt should be fully paid.

"It has to start from taking a serious look at how money is spent, then maybe rearranging the family budget to allow for such savings, and even assessing whether the family income is really enough. Paying off debt is part of rearranging the family budget," Cruz says.

Most Filipino families will have to attack both sides of the equation. If expenses can no longer be squeezed, then increase income by doing extra work or starting a small business on the side. That's Cruz' holistic approach to building wealth.

To make the "pay yourself first" strategy work, financial experts say you have to make saving painless. Here are some tips to make this happen:

1. Pay your debts. There"s no use trying to build up wealth if you are paying 42 percent per annum on consumer loans, or even more to the "5-6" operator next door. Just paying off your credit cards frees up P42 out of every P100 in your budget. That"s truly a painless way to save money.

2. Automate savings. Open a separate account and arrange with your bank to transfer funds automatically at a certain day of the month. If you don"t see the money, don"t touch it, saving it becomes painless. If your bank can't do this for you, transfer your money to another one.

3. Transfer the funds to a higher-yielding savings, trust or investment account. Better still if the funds are locked in. You can look, but not touch. Reevaluate every year if returns match your goals, but stay clear of scams that offer returns that are too good to be true. Invest only in vehicles you understand.

4. Pretend you didn't get a bonus or a raise. You"ve lived on your income for a year, how much more difficult would it be to live on the same amount this year? Take out a small amount of fun money (say 5 percent), then add the rest to your investment account.

5. Invest unexpected windfalls. Filipinos are great at planning, especially when it"s about spending some unexpected commissions, gifts, inheritance, earnings from a sideline or other kinds of sudden windfalls. Get out of the habit of spending money you have not yet received. Instead, sock it all away and make it grow. Filipino blogger Digerati Life (http://www.thedigeratilife.com) shared how this technique has helped her make great progress in her savings program.

6. Look for new ways to earn more. Sidelines and "rackets" (make sure they are legal) increase the amount you pay yourself regularly. Ask businessmen friends what needs they have that you can provide. Perhaps you can earn extra by sharing your expertise among your friends. This is the age of knowledge workers -- Swarovski and jewelry makers are not the only ones who can make a living out of their spare time.

This article was first published in The Philippine Daily Inquirer on August 24, 2008.

Financial meltdown hits ivory towers

By Justin Pope, AP Education Writer
As financial meltdown rocks even sturdy ivory towers, colleges will have to cut back

For many colleges, the last 15 years have been a golden age. Philanthropy and Americans' grudging tolerance for high tuition fueled an unprecedented boom -- investments in everything from gyms, dorms and labs to faculty and expanded financial aid.

Now, suddenly and like the rest of us, many colleges are faced with toning down their ambitions, at least in the short term.

The financial meltdown is forcing institutions to tear up budget plans and prepare for a simultaneous hit to their three major revenue sources -- government funding, donations and tuition. At the same time, they're having to find more money for one of their major budget items -- financial aid -- or risk seeing students drop out.

"They're coming in and saying, 'I need a little more help,'" said Jerry Cebrzynski, financial aid director at Lake Forest College outside Chicago, which cut several class offerings and froze last year's operating budget in part to make more aid available. "I think we're seeing just the tip of iceberg."

Cebrzynski recently managed to find another $5,000 for one family where the father lost his job and the mother has cancer.

"We'll do what we can with this year's budget and honestly operate with a deficit, a larger deficit than we thought," he said.

In many ways, colleges have an enviable position. They can afford to invest for the very long term. Many have endowments to cushion the blow of downturns, and demand for higher education holds up or even grows when the economy goes south. That's why you hardly ever hear of an accredited college going under.

But the financial events of recent weeks have been momentous enough to shake even sturdy ivory towers. Giant Boston University and tiny (but wealthy) Grinnell College in Iowa are among those delaying big projects, while numerous schools will postpone fundraising campaigns.

"I'm not going to press people now for a lot of funding. The time just wouldn't be right," said John Fry, president of Franklin & Marshall College in Pennsylvania, who moved about $1 million from other programs to bolster aid this year. Fry says a fundraising campaign will likely be delayed and scaled back, and it will likely focus more on financial aid.

Generally, Fry says F&M is in good shape, but he's glad it recently finished several big projects. Now isn't the time to start one. And asking parents to pay substantially more next year would be "unseemly," he said, echoing the thoughts of several presidents interviewed this week.

The worries for private colleges include falling endowments and cost-conscious students passing them over for cheaper alternatives. For public universities, state funding is almost always cut in a recession.

But for colleges, this isn't just a predictable replaying of past downturns. In the mild 2001 recession, for instance, colleges weren't badly hurt because home values held up, notes John Nelson, who follows higher education finances for Moody's Investors Service. But with home prices plunging, home equity may no longer be a reliable last resort for parents to tap for tuition bills.

A totally unexpected problem this time: interest rates in the variable rate bond market, where colleges borrowed cheaply for years, have jumped from 1 or 2 percent to as high as 10 percent. If credit markets don't thaw, some colleges could spend millions more than they planned simply servicing their own debt.

Most terrifyingly, earlier this month, about 200 colleges were shocked to find that a liquidity crunch prevented them from retrieving more than 10 percent of the $1 billion they held in a supposedly safe short-term fund offered by investment adviser Commonfund. Now up to 40 percent can't be retrieved.

In tough times, the colleges with the largest endowments -- there were 76 with at least $1 billion last year -- tend to fare the best. They can spend money to scoop up talented students and faculty while everyone else buckles down.

And at a time when major gift announcements have virtually halted, it was just another day at the office for Harvard, which this week announced its largest individual gift ever -- $125 million.

But other institutions will have to find their own balance between their long-term missions and short-term reality.

"We don't want to forget our aspirations," said Thomas Ross, president of Davidson College in North Carolina, a relatively well-off liberal arts school. "The minute you stop planning for the future and thinking big and having aspirations, that's the time when you suffer the most.

"Are we going to have to delay some things? Maybe so," he said. "I don't know I would call it retrenchment so much as a different pacing of activity."

Still, one of the strengths of American higher education is its variety, and one of the most exciting developments of the last 15 years was the sheer number of the schools of all shapes and sizes that, like Franklin & Marshall, have expanded their ambitions.

Now, like the rest of us, they will have to play it safer, at least for a while.

Get ready to board the next wagon after banking

By Matthew Lynn

IT'S time to empty the wine bottles, clean the ashtrays and do something about the stains on the carpet. The party is over. The investment-banking boom, which ran from the mid-1980s until the start of the credit crunch, has now ended. There's no point in thinking you'll get another job. There won't be any.

Even though the industry will survive in some shape or form, it will be a shadow of its former self. It's time to start a whole new career, preferably one that offers lots of money and lets you swagger about the world like a king. The places to look are Africa, advertising, the environment, water, and organising live events.

In every generation, there is a 'top-dog' career. It is a profession where there are more opportunities and cash than anywhere else. In the early 20th century, it was automobiles. Then it was electrical goods, and later chemicals and synthetics. If you go back far enough, it was probably tulips or pyramids.

Just think about the line in the film 'The Graduate,' when Mr McGuire pulls aside Benjamin Braddock, played by Dustin Hoffman, and looks at him seriously. 'I just want to say one word to you, just one word' he says. 'Plastics.'

For the past quarter-century, that one word would have been 'banking'. So what single word would Mr McGuire use in 2008? Here are five possibilities.

Africa: We all know that the continent is in a mess. Many of its economies are in chaos, many of the governments are corrupt and inept and, in some cases, populations are falling. In countries such as Zimbabwe, the economy has all but collapsed amid hyperinflation. Yet, the world can't just ignore Africa. It has vast mineral wealth and huge quantities of underused land that are needed for food and bio-fuels.

On top of that, there is the humanitarian challenge. Over the next two decades, Africa must be integrated into the global economy. Infrastructure needs to be rebuilt, industries nurtured, and trade restored to improve living standards and deliver resources to the world. Once that process gets started, the natural wealth of the continent means it should boom.

The environment: A few doubters aside, not many people question climate change anymore. It is a growing problem. Yet, we are still at the foothills of switching to a post-carbon economy. Everything from travel to manufacturing to food production and household heating needs to be re-engineered. Forget about complex derivatives. If you can get involved in designing a better internal combustion engine, the world will open up for you.

Advertising: Traditional marketing is dead. There is no point in producing witty one-minute ads for television when everyone is watching YouTube. Newspaper advertising is irrelevant when people grab news stories off the Internet. But that doesn't mean companies shouldn't market their products anymore.

In a hypercompetitive global economy, brands will be more important than ever. Your product needs a character that keeps its customers loyal as much as before. To make that happen, the advertising industry requires re-invention. All the old rules need to be ditched, and new ones created. When it happens, there will be lots of new jobs for smart young marketing executives.

Water: The basics of life don't come much more fundamental. Yet, the stuff is in increasingly short supply.

'Unless we take action, water will be the next global crisis, emerging from the shadow of climate change and today's food and fuel crises,' Lars Thunell, chief executive officer of the World Bank's International Finance Corp, said at a conference in Stockholm in August.

As we grow richer, we use and waste more water. Plenty of it falls from the sky, especially here in England, but storing and transporting it will be a huge challenge. As the world comes to grips with that, another new set of openings will be created.

Live events: New technology isolates people. Broadband allows them to work from home, while online social networking replaces mixing with friends. But humans are social animals. They like to go out.

Look at the way live music has boomed as CD sales have collapsed. Anything that involves getting people out of the house and bringing them together in new ways will be huge. How about stadium karaoke events? Or mass tug-of-wars? They could be as big as sub-prime mortgages.

As one career fades, another takes its place. Banking may no longer be the way to make your fortune. But there's always another wagon ready to roll. It's just a question of figuring out which platform and grabbing your seat before the train leaves. -- Bloomberg

The writer is a Bloomberg News columnist. The opinions expressed are his own.

This article was first published in The Business Times on October 10, 2008.

Buffett-style investing shines

VANDERMIR C.T. SAY started investing when he was 12 years old. That was 22 years ago. He recalls picking stocks the way he would play darts. Not anymore. For the last decade or so, Vandermir has become a Warren Buffett-follower, investing only in good companies at good prices and buying them for the long haul.

In the last couple of months, amid cascading losses in markets all over the world, Buffett's value investing philosophy has attracted.

The fact that Buffett, the world's richest man according to Forbes magazine, has emerged as Wall Street's knight in shining armor after injecting funds into Goldman Sachs and General Electric a week ago has most likely upped the ante significantly on value-style investing.

And if the sale of Buffett's first and only authorized biography 'The Snowball: Warren Buffett and The Business Of Life' written by Alice Schroeder (editor of Berkshire Hathaway's layman-friendly annual reports) is any indication, the interest is just heating up. Just days after it hit bookstores in Sept. 29, the book has claimed a top spot on Amazon's best-selling book list.

Say, the Chartered Financial Analysts of the Philippine's new president, explains that value-style investing is based on very simple principles. 'All we look for are good businesses at good prices,' he says.

What makes a good business? One that you're absolutely sure will make good money in the next, say, 20 years and run by highly capable management with high integrity. That means you only invest in businesses you understand -- a trademark Warren Buffett philosophy.

In this day and age of extremely volatile markets, the value investor is unfazed because he buys and holds for as long as he needs the investment. He is not concerned about fluctuations. His life is relatively simpler and less harried because for him, Wall Street can wallow in its own toxic securities.

Contrast that with an investor who makes money from trading stocks or bonds and who had to watch his portfolio drop more than 20 percent in the last couple of weeks, asking himself every morning, 'Is this ever going to end?'

In fact, Say says, some value investors he knows who have the extra cash are now revving up for acquisitions. After all, prices are low and whether in good or bad times, a good business is a good business.

'In general, what is happening is good for us because the crisis is pushing down prices. My job now is to look for good businesses,' Say says.

Whether in stocks and bonds, Say says good opportunities in the market are starting to emerge. He declines to say what are good buys, but gives tips: Look for businesses that are managed by people with high integrity and find companies that respect the rights of minority shareholders. Those two criteria alone will shorten the list of good bargains out there in the market, he says.

'Right now, Buffett can buy almost anything in the market, but look at companies that he is buying. Goldman and GE, companies that are being run very well - Integrity is important, the goodness of a person is important. What if you meet some guy with no integrity but you can probably make $200 million, you should say no. Why go through all that stress? There are better ways to make money,' he adds.

These may sound like dreamy principles in a day and age where everything is measured by money and returns. But it also uncannily explains why Wall Street is tottering like a drunken lunatic in a suit: Greed is the root cause of the subprime mortgage problem. Even more greed by investment bankers and hedge fund managers blew that out of proportion through derivatives instruments disclosed in legalese language very few understood.

'Buffett and Charles Munger (Buffett's business partner) have attacked derivatives three or more years ago. Munger said comparing derivatives to a sewer is an insult to sewers. Now in this crisis, what is the value of his advice? Multibillion dollars because what are the key to the problems now? Derivatives,' Say explains.

That said, Say doesn't see the popularity of value investing to stay for long. 'It is the flavor of the year, but if you are asking if it will generally be much more popular than before, I would guess not. Buffett learned from Benjamin Graham more than 50 years ago. It is not a secret; it has been around for a long time. But it has never been a popular style,' he says.

Reading annual reports and understanding what makes a business tick takes a lot of patience. It's based on analysis, and not a quick tip to make a quick buck by flipping a stock or bond. Adhering to those principles and being disciplined is the hardest part, says Say, because old habits die hard.

'There are a number of value investors here in the country. They are in the minority, as well as with any other market, even in the US,' he says.

And do they make more money than the flippers? Say knowingly smiles, and says, yes, they are wealthy.

The 32-year-old investor tries to emulate Buffett not just in investing but also in the way he lives. Buffett, the shy billionaire who is also called the Oracle of Omaha, still lives in his house in Nebraska that he built more than 50 years ago, doesn't have a driver, is brand loyal, and highly values integrity. Say uses an old model mobile phone and says his passion is helping people live better lives.

'My clients have been calling me about the book (Snowball) when it came out, and they were very excited about it. It's like our Harry Potter,' he says with childish excitement.

Now's the time to make low risk, high return investments

Investors are ignoring the intrinsic value of a company, which is a longer-term variable. By Tan Teng Boo


LOW risks, high returns?

Benjamin Graham estimated that only one out of every 100 investors who were invested in the stock market in 1925 survived the 1929-1932 stock market crash.

While this shows the severity of the crash, what interests us most is the one investor who survived. Benjamin Graham, the father of fundamental analysis and the teacher of billionaire Warren Buffett, lost heavily in the 1930 Great Depression. However, due to his value investing style, he survived. He probably is the one in a hundred. What made him succeed when so many others failed?

Today, we are bombarded with plenty of grave news and scary developments from the US and Europe that send chills down our spines. We are constantly told that the US-generated financial crisis happens only once in a lifetime. This article is not about how serious the financial crisis is or will be or what should or could have been done. This article is more forward-looking and hopefully more constructive.

Modern finance theory tells us that to earn high returns, we need to take high risks. Unfortunately, the end result of such an approach is inevitably tragic as often, the high risks taken produce no returns or, worse, negative returns.

As a fund manager, our approach is diametrically opposite, that is, low risks, high returns. While this may sound oxymoronic, a closer look will show that it makes plenty of sense, especially in the current environment where so many think that the world is coming to an end.

In the current circumstances, petrified investors watch in horror the almost daily plunge in share prices. There seems to be no end to the carnage. What is forgotten by or unknown to investors is that it is precisely this type of environment that one can make low risk, high return investments. What do we mean?

Amid all the fears and worries, it is so easy for investors to know everything about price and nothing about value. This overlooked truism comes from Oscar Wilde. While he is certainly not a famous investor, what he says aptly describes the paralysis that is gripping the financial markets. Many investors are focused on what will happen in the next few months. In so doing, investors ignore the intrinsic value of a company, which is a longer-term variable.

Plunges in the share price do not affect the intrinsic value of a company. As the share price falls below the intrinsic value, these market plunges instead create investing opportunities. Central to value investing is the concept of a margin of safety and central to having this margin is to buy companies at prices which are below their long-term intrinsic values.

Investors should not worry about calculating the exact values; they are just approximations. As Benjamin Graham puts it correctly, 'It is quite possible to decide by inspection that ... a man is heavier than he should be without knowing his exact weight.'

What is critically important is for investors to have a margin of safety. The current fear and panic give investors precisely that. It is precisely because share prices have dropped so sharply while the longer-term intrinsic values of many companies have not, that one can have this safety margin. To be able to sleep soundly, short-selling and derivatives are to be avoided. That lowers risks without compromising our returns.

If investors adopt this conservative approach, then, the current atmosphere of fears and worries can actually be exciting. Instead of being frozen in fear that the world is near its end, we can guarantee that the bear market will end. Do not aim for the precise market bottom. Just make sure that when you invest, you have a sufficient margin of safety, then tell yourself that you are seeing an investing opportunity that happens only once in a lifetime. Okay, we may be exaggerating but you get the drift.

The writer is managing director of a fund management firm, Capital Dynamics (S) Pte Ltd.

South Korea could be the next Iceland

股市汇市双暴跌 专家称韩国恐成“亚洲版冰岛”2008年10月12日06:10
[我来说两句(2)] [字号：大 中 小] 来源：中国新闻网

　　近日来有关北欧国家冰岛面临经济破产的消息震惊了全球。虽然这次亚太地区受国际金融危机的冲击相对较小 ，但不少专家和媒体认为同样实行开放式金融市场的韩国有可能成为“亚洲版的冰岛”。

　10号，韩国首尔股市综合指数以1241.47点报收，结束了“跌跌不休”的一周。

在过去的5个交易日里，首尔股市总跌幅逼近15%，股指也创下27个月来新低。据韩联社统计，今年以来韩国 股市市值已经累计“缩水”300万亿韩元，约合2290亿美元。与此同时，韩元不断贬值的趋势也没有停止的 迹象。

　　kbs电视台11号报道说，由于无法忍受股价暴跌和汇率动荡带来的痛苦，不少韩国人10号聚集到银行门 口举行抗议示威活动，甚至还出现了证券公司职员自杀事件。

　　随着韩元持续疲软，那些身背美元或日元贷款的中小企业度日维艰，只能看着所需偿还的本金和利息越滚越多 。而韩国银行为了保证外汇储备，禁止了部分到期外币贷款的延期，不少企业面临破产的命运。

　　而在韩国第二大银行友利银行购买基金的投资者，目前本金都只剩下了20%，人们指责银行违 背承诺。

　　同一天，一名大型证券公司营业员被发现在首尔旅馆中自杀，警察取证后推断，死者最近代理的客户损失惨重，他 无法承受众多的责难，选择结束了自己的生命。
　　随着韩国经济状况的恶化，一些观察人士担心，韩国可能会成亚洲的冰岛。

Paulson warns emerging markets not immune to turmoil

WASHINGTON (Reuters) - Treasury Secretary Henry Paulson said on Saturday that emerging market countries are not immune to the most serious global economic risks in recent memory and must be careful in their policy choices.

In prepared remarks before the International Monetary Fund's steering committee, Paulson also urged the IMF to stay focused on its core missions, including currency surveillance and helping low-income countries avoid a return to debt distress.

Paulson said the financial turmoil, commodity price shocks and housing price declines were causing a "sharp slowdown in economic growth."

"The largest advanced economies are feeling this most acutely. Emerging market countries have made impressive strides in strengthening fundamentals, enabling their economic growth to accelerate and their economies to be better cushioned against external shocks," Paulson said.

"Nevertheless, emerging markets are not immune from the global financial stress, and policy-makers need to be especially attentive to implementing measures to support noninflationary growth, enhance economic resilience, and ensure sound financial systems," he said.

Paulson reiterated that the United States was taking a number of steps to stem the crisis, including the creation of a $700 billion program that would allow the Treasury to purchase mortgage assets and take equity stakes in financial institutions.

He said the IMF must focus on implementing its recent decision to increase exchange rate surveillance.

"This will require IMF staff to apply its considerable technical expertise to make tough judgments and the (IMF) board to ensure IMF assessments are clearly and candidly conveyed," he said.
Paulson said the fund must resist seeking "creative" ways to boost lending for its own sake, and said he would take a skeptical view of any fund proposals to significantly increase the upper limit individual countries are allowed to borrow.

But the United States remains supportive of a short-term stabilization tool, such as a standby arrangement, for low income countries and is open to a well designed liquidity instrument for middle income countries.

He also called for continued cooperation between the IMF and the multilateral Financial Action Task Force to combat money laundering, terrorist financing, weapons proliferation finance and other financial crimes, and urged nations to implement United Nations sanctions against Iranian institutions.

(Reporting by David Lawder; Editing by Tim Ahmann)

Rush to guarantee deposits

PARIS/WASHINGTON - ACROSS the globe, countries on Sunday rushed to guarantee bank deposits to combat the global credit crisis.

Australia
Australia will guarantee all bank deposits for three years and guarantee wholesale funding to Australian banks, Australian Prime Minister Kevin Rudd said.

Australian will also make an extra A$4 billion (S$3.82 billion) available for mortgage-backed securities to help maintain liquidity for non-bank lenders, Mr Rudd told reporters, adding the measures were part of an international response to the crisis.

A government spokesman later said the Australian move was being coordinated with neighbouring New Zealand.

Under the plan, all deposits in Australian banks, building societies and credit unions, would be guaranteed by the Australian government for the next three years.

Read also:
Australia to guarantee deposits

New Zealand
New Zealand's government said it would guarantee all retail bank deposits for a period of two years in a bid to reassure savers amid ongoing global financial turmoil.

'The deposit guarantee is designed to give assurance to New Zealand depositors,' Finance Minister Michael Cullen said in a statement.

'The New Zealand banking system remains sound. We want to ensure that ordinary New Zealanders feel that their deposits are safe in the current uncertain international financial market conditions.'

The deposit guarantee is an opt-in scheme in the form of a 'bilateral contractual agreement between the Crown and the individual institutions,' the statement said.

The government of Prime Minister Helen Clark is offering the scheme for an initial two-year period, it said, adding that this would 'give time to see how well international financial markets stabilise in the months ahead.'

Gulf Arabs
Gulf Arab states also took measures, including a rare Saudi interest rate cut and a pledge by the United Arab Emirates to protect national banks and guarantee deposits.

The UAE cabinet also decided to ensure that no local bank will be exposed to credits risks and to guarantee inter-bank lending among all banks operating in the country, state media WAM said.

The UAE, the first oil-rich Gulf country to take drastic measures to protect depositors from the global financial meltdown, will also pump the necessary liquidity into the banking system if required, WAM said.

Read also:
UAE guarantees bank deposits

Portugal
Portugal's finance minister announced on Sunday that his government was offering a 20-billion-euro (S$39 billion) state guarantee for banks endangered by the global financial crisis.

'These state guarantees will be up to 20 billion euros,' Fernando Teixeira dos Santos said.

While calling Portugal's financial system 'solid,' the minister said the measure was necessary due to the global crisis that has dried up lending between banks and threatened the wider economy.

France
The French government will on Monday propose a law designed to offer a state guarantee for banks endangered by the global financial crisis, a ruling party deputy said on Sunday.

Gilles Carrez, a senior member of the parliamentary finance committee, told AFP that the law would be unveiled at an emergency cabinet meeting called by

A second ruling party parliamentary source said that the law would be brought to a parliamentary vote 'sometime during the week.'

Mr Sarkozy is due to address the nation in a televised speech on Monday that will follow the emergency cabinet meeting.

Bonus boys face big squeeze

LONDON - WHILE world leaders argue over how to avert a global financial meltdown, politicians and commentators seem able to agree on one thing: the era of the mega-bonus is over, for now at least.

Even a former insider who for years benefitted from the eye-popping bonuses on offer in the City - London's financial district - agrees they promote the kind of risk-taking which helped produce the current crisis.

'I sold my soul to the devil working in the City, and I got a damn good price for it,' Mr Geraint Anderson, a former investment bank analyst and now a columnist for a free London afternoon paper, told AFP.

But he admits he 'became greedier, more money obsessed,' and ultimately realised he had to get out - which he finally did this this year, when he wrote a no-holds-barred book about the drug- and booze-fuelled bonus culture.

It would appear Britain's leaders agree there is a problem - British Prime Minister Gordon Brown, who as chancellor oversaw a decade-long economic boom fuelled by rivers of cash flowing through the City - has made his views clear.

'I think we've got to look at where there has been irresponsible behaviour, and I've said for some time that we need reforms in the system. We've got to clean up the financial system,' he said last week.

Both the leaders of Britain's two biggest opposition parties have called for a ban on bonuses for senior executives at banks who make use of a government rescue package announced last week.

Of course one might expect politicians to pick on the mega-bucks bonus boys - and it is, everwhemingly, young men - amid the current turmoil.

As people struggle to pay basic bills, there is little public sympathy for their plight.

But finance minister Alistair Darling insists there needs to be a clampdown - and has made discussing executive remuneration one of the conditions tied to banks being able to access the 500-billion-pound (S$1.3 trillion) plan.

'It's essential that bonuses don't result in people being encouraged to take on more and more risk without understanding the damage that might be done, not just to their bank, but to the rest of us in the wider economy,' he said in a recent speech.

In Mr Anderson's view, the problem is not so much the size of the bonuses - Barclays President Bob Diamond pocketed around 40 million pounds in bonuses in 2006 and 2007 combined - though he concedes they do encourage rule bending or breaking.

To him, the more serious issue is the structure of bonuses, specifically the fact that a large portion is typically handed over in cash.

'You get most of your bonus in a single go, most of it in cash, so you therefore don't care about the long-term implications of your actions... What we need is a system of renumeration which encourages longer-term thinking.'

'If banks can be encouraged, across the world, to basically give you bonuses that crystallise over a three or four-year period, then you are more likely to consider the long-term implications of your actions,' he said.

Mr Darling - who spent this weekend in Washington in crisis talks with his G7 and other counterparts - echoed this view in a recent speech.

'Bonuses should encourage good long-term decisions, not short-term reckless ones,' told the ruling Labour Party's annual conference in Manchester last month.

In the short-term, at least, bonuses seem to be on the way down - research published last week by the Centre for Economics and Business Research (CEBR), a think-tank, estimated that total bonuses awarded in London would drop to 3.6 billion pounds in 2008, down from their 2006 peak of 8.8 billion pounds.

'This is not the end of the bonus system,' CEBR's chief economist said.

'But with shareholders, likely to include the government in some cases, and the FSA (Financial Services Authority) breathing down employers' necks and a labour market with plenty of people available, it is unlikely that we will see bonuses paid on the scale of the past four years in the forseeable future.'

Mr Anderson, who was awarded a half-million-pound bonus in his last year as an analyst at investment bank Dresdner Kleinwort acknowledges that changing the bonus culture will be difficult.

'If we try to impose this system in London, then people will move to New York - geography is less important than perhaps it used to be,' he said.

And what of the future for investment banks and the bonus system? The 36-year-old is gloomy.

'In my opinion, Wall Street and the City have been like Wild West casinos in the past few years,' said Mr Anderson, who previously wrote an anonymous column for the Evening Standard newspaper in the British capital.

'The party's over now, and the hangover's going to be really nasty.' -- AFP

High-flyers feel the crunch

SYDNEY - LUXUARY car dealer Normal Elkordi has never seen it this bad - financial high-flyers feeling the pinch of the global economic meltdown scrambling to sell their Ferraris for a loss.

'We're not talking Holdens or Fords here, we're talking Aston Martins, we're talking Ferraris,' he told AFP. 'I've never seen it like this before.'

As anxiety grips world financial markets and stock prices crash, the Sydney-based dealer is seeing increasing numbers of young executives come into his showroom, hoping to offload their near-new prestige autos.

'These blokes have probably lost a lot of money in shares, their bonuses come on shares. Their expenses are through the roof,' Mr Elkordi said.

'A lot of them are upfront. I'm not saying they can't make the repayments and they are going to get repossessed, it's just they have to get rid of that debt.'

Indications are that the mood will also infect Asia, a significant market for luxury cars, as the full impact of the financial turmoil stemming from the United States is felt.

'I would say it (the crisis) has not reached Asia... as it has reached America or Europe, but it will,' a figure in the regional luxury car industry, who asked not to be named, told AFP in Singapore.

'The question is: will it be as big here?'

Luxury makes have been targeting Chinese customers both in Hong Kong and mainland China over the past few years with spectacular results, but there are signs the crisis is beginning to bite.

Hong Kong has more Rolls-Royce cars per capita than anywhere else in the world, but the super-rich have stayed away in the past few weeks, a period which is normally busy for the famous marque.

'Our customers aren't so much directly affected by the economic downturn but they are putting on hold luxury items like HK$ 7 million cars (S$1.34 million),' Mr Leon Roy, the general manager of Rolls-Royce Motor Cars Hong Kong, told the South China Morning Post.

However, a spokesman for Ferrari in the Asia-Pacific region said they expected sales growth to remain strong in China.

'As our president said at the launch of the California model recently, ours is a niche brand and if you are the type of person who can afford to wait 10-15 months for a car, you can still afford it,' the spokesman told AFP.

He said they expected some of the long waiting lists for the cars to be trimmed during the crisis, but do not see sales dipping.

Audi Singapore managing director Reinhold Carl, however, told The Straits Times, '2009 will be a tough year for the car industry and the speed of growth for Audi in Singapore will be affected somewhat.'

Mr William Choo, commercial director for Lexus at Borneo Motors in Singapore, was quoted as saying buyers might switch to smaller, cheaper models next year.

But Simon Rock, managing director of BMW agent Performance Motors, said, 'We expect to sell more cars on the whole next year.'

Sydney's Elkordi said cars are more easily dispensed with than other items and sellers are willing to give them up despite the likelihood of loss.

In the last month he has taken on six or seven cars from sellers in this situation and turned away three or four more, he said.

'You can imagine a gentleman has bought a new Ferrari at AUDS$507,000 (S$497,447). If he was to sell that car to me today, I would be paying probably AUD$370,000 to AUD$380,000 for that car if it's 12 months old, only because... who am I going to sell them to? That's the problem.

'That's why at the moment, I've got over five million dollars sitting on the floor and we're not selling any cars of our own.'

The dealer, who has worked the market for 17 years, said the credit crunch had crippled the luxury sector - from property to cars and boats - and he was now catering to more people buying cars for 150,000 dollars rather than the 250,000 dollars of a year ago.

Sydney's principal Ferrari and Maserati dealer Tony Graziani agreed it was now a 'buyer's market' for prestige autos but said he had received no cancelled orders for his luxury Italian motors.

Speaking from a showroom floor filled with gleaming cars, Mr Graziani said the mood of the times was uncertainty and some buyers admitted the situation was very different from two years ago.

'We're not happy, we would like it not to happen,' he said of the deepening global financial crisis. 'But overall we're not too bad.'

Mr Andrew McKellar, head of Australia's Federal Chamber of Automotive Industries, said a sense of caution was pervading the industry after a record 2007 in which one million new vehicles were sold Down Under for the first time.

'We are certainly no exception to other sectors in the economy,' he said.

'If asset prices suffer, if growth in the economy slows, if there are concerns about employment then clearly that will have an impact in the market place.'

As the Australian International Motor Show opened in Sydney on Thursday without high-end brands Audi, BMW and Mercedes Benz, Elkordi said he didn't expect the market to improve anytime soon.

'I've been told it's going to be worse. Everyone that you're talking to, no one is positive, there's only negative,' he said. -- AFP

China cenbank: growth to slow as crisis hits exports

WASHINGTON, Oct 12 - China's economy will slow down next year as exports are hit by a global downturn that will follow the financial crisis, a central bank official said on Sunday.

Central bank deputy governor Gang Yi forecast China's GDP growth would slow down to 9 percent in 2009 from an expected 10 percent this year, "due to the external and internal situation."

He said the economy will be basically supported by domestic consumption and foreign investment, while the contribution of exports will likely be zero or negative.

"This financial crisis is really having an impact everywhere in the world and of course it will have an impact on China," Yi told an investor conference in Washington, on the sidelines of the International Monetary Fund/World Bank meetings.

He stressed, however, that the Chinese banking system remained sound.

All that money you've lost _ where did it go?

By ERIC CARVIN,Associated Press Writer AP - Sunday, October 12

NEW YORK - Trillions in stock market value _ gone. Trillions in retirement savings _ gone. A huge chunk of the money you paid for your house, the money you're saving for college, the money your boss needs to make payroll _ gone, gone, gone.

Whether you're a stock broker or Joe Six-pack, if you have a 401(k), a mutual fund or a college savings plan, tumbling stock markets and sagging home prices mean you've lost a whole lot of the money that was right there on your account statements just a few months ago.

But if you no longer have that money, who does? The fat cats on Wall Street? Some oil baron in Saudi Arabia? The government of China?

Or is it just _ gone?

If you're looking to track down your missing money _ figure out who has it now, maybe ask to have it back _ you might be disappointed to learn that is was never really money in the first place.

Robert Shiller, an economist at Yale, puts it bluntly: The notion that you lose a pile of money whenever the stock market tanks is a "fallacy." He says the price of a stock has never been the same thing as money _ it's simply the "best guess" of what the stock is worth.

"It's in people's minds," Shiller explains. "We're just recording a measure of what people think the stock market is worth. What the people who are willing to trade today _ who are very, very few people _ are actually trading at. So we're just extrapolating that and thinking, well, maybe that's what everyone thinks it's worth."

Shiller uses the example of an appraiser who values a house at $350,000, a week after saying it was worth $400,000.

"In a sense, $50,000 just disappeared when he said that," he said. "But it's all in the mind."

Though something, of course, is disappearing as markets and real estate values tumble. Even if a share of stock you own isn't a wad of bills in your wallet, even if the value of your home isn't something you can redeem at will, surely you can lose potential money _ that is, the money that would be yours to spend if you sold your house or emptied out your mutual funds right now.

And if you're a few months away from retirement, or hoping to sell your house and buy a smaller one to help pay for your kid's college tuition, this "potential money" is something you're counting on to get by. For people who need cash and need it now, this is as real as money gets, whether or not it meets the technical definition of the word.

Still, you run into trouble when you think of that potential money as being the same thing as the cash in your purse or your checking account.

"That's a big mistake," says Dale Jorgenson, an economics professor at Harvard.

There's a key distinction here: While the money in your pocket is unlikely to just vanish into thin air, the money you could have had, if only you'd sold your house or drained your stock-heavy mutual funds a year ago, most certainly can.

"You can't enjoy the benefits of your 401(k) if it's disappeared," Jorgenson explains. "If you had it all in financial stocks and they've all gone down by 80 percent _ sorry! That is a permanent loss because those folks aren't coming back. We're gonna have a huge shrinkage in the financial sector."

There was a time when nobody had to wonder what happened to the money they used to have. Until paper money was developed in China around the ninth century, money was something solid that had actual value _ like a gold coin that was worth whatever that amount of gold was worth, according to Douglas Mudd, curator of the American Numismatic Association's Money Museum in Denver.

Back then, if the money you once had was suddenly gone, there was a simple reason _ you spent it, someone stole it, you dropped it in a field somewhere, or maybe a tornado or some other disaster struck wherever you last put it down.

But these days, a lot of things that have monetary value can't be held in your hand.

If you choose, you can pour most of your money into stocks and track their value in real time on a computer screen, confident that you'll get good money for them when you decide to sell. And you won't be alone _ staring at millions of computer screens are other investors who share your confidence that the value of their portfolios will hold up.

But that collective confidence, Jorgenson says, is gone. And when confidence is drained out of a financial system, a lot of investors will decide to sell at any price, and a big chunk of that money you thought your investments were worth simply goes away.

If you once thought your investment portfolio was as good as a suitcase full of twenties, you might suddenly suspect that it's not.

In the process, of course, you're losing wealth. But does that mean someone else must be gaining it? Does the world have some fixed amount of wealth that shifts between people, nations and institutions with the ebb and flow of the economy?

Jorgenson says no _ the amount of wealth in the world "simply decreases in a situation like this." And he cautions against assuming that your investment losses mean a gain for someone else _ like wealthy stock speculators who try to make money by betting that the market will drop.

"Those folks in general have been losing their shirts at a prodigious rate," he said. "They took a big risk and now they're suffering from the consequences."

"Of course, they had a great life, as long as it lasted."

Search: Irate investors rally in Singapore, demand money back

SINGAPORE, Oct 11, 2008 (AFP) - About 600 angry investors who lost their savings because of the global financial turmoil gathered in Singapore on Saturday, urging the central bank to help them recover their money.

Many of the investors who trooped to the city-state's Speakers' Corner were retirees who invested their life savings in financial products linked to collapsed US investment bank Lehman Brothers and other institutions.

Tan Kin Lian, the former chief of a Singapore insurance cooperative who organised the gathering, urged the investors to bond together so that they will have a bigger chance of being heard.

He urged them to make individual affidavits and file their complaints as a group before the financial institution where they invested their money.

"If 20, 30 or 40 people make an affidavit at the same time, it will have a stronger impact," Tan said.

The crowd included those who invested in "Lehman Minibonds" and "Merrill Lynch Jubilee Notes". There were also those who invested in "high notes" with Singapore's DBS Bank and Morgan Stanley "pinnacle notes."

Lehman Brothers collapsed last month and its counterpart Merrill Lynch was bought out in a Wall Street meltdown that accelerated a global credit crisis.

Investors interviewed by AFP said they felt "cheated" and "betrayed" because the banks did not fully inform them of the risks when they were offered the financial products.

They also urged the Monetary Authority of Singapore (MAS), the de facto central bank, to order an independent investigation into the sale of credit-linked securities and to help them recover their money.

A 60-year-old woman said she risked losing 125,000 Singapore dollars (84,000 US) in life savings invested in DBS Bank "high notes", which promised a higher interest rate than fixed deposits.

"I am a retiree, this is my retirement money," she told AFP.

"I feel very cheated. I feel beaten up and eaten up. The bank must compensate us to bring back the confidence of investors and restore the image of the bank."

Speakers' Corner, the only place where protests are allowed under strict guidelines, usually attracts activists from Singapore's tiny political opposition.

Analysts say retrenchments expected as early as December

SINGAPORE : Singapore’s economy is expected to grow by only 3 per cent this year.
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Ahmad’s wife is a homemaker. The family spends about S$300 every month for household needs.

When Ahmad was unemployed for two months, he applied to six companies for a job. But he only received one call back.

Since then, he has been tapping on what little savings he has to support his family of four. But the fear of losing his job lingers with the poorer economy today.

And while the good news is that Asia is not at the epicentre of this current crisis, it is little comfort to the average worker.

Irvin Seah, economist, DBS Bank, said: "At least for the next four quarters or so, we should prepare ourselves mentally for a slower growth and a softer labour market.

"You would probably see your bonuses not coming in, fresh graduates will probably have difficulties finding good—paying jobs and those who would like to seek for better opportunities will find it extremely difficult. So to put it (simply), we are in for a rough ride ahead."

Mr Seah added: "We have been through some difficult times during the Asian Financial Crisis. And if you compare to those days, the banking sector, the structure of the banking sectors in Asia has certainly become a lot stronger. Banks are much more robust and better capitalised nowadays — I am referring to the Asian banks.

"So we are definitely in a much better position, and I believe that as long as for the US and the Eurozone, (if) they are able to find solutions to the problems, then I guess Asia should be able to ride off this difficult times and emerge even stronger."

Community organisations are bracing to help needy residents. North West Community Development Council is starting a kitchen cooperative, which will be operational by the end of the year.

Teo Ho Pin, Mayor, North West District, said: "This kitchen is basically to provide jobs to our residents. At the same time, it is also a business, where we bake Malay kuehs, pastries to sell and to cater to various functions.

"It will also provide hot meals for needy residents. And one of the kitchens will be located at Bukit Panjang CC, and that will cater to about maybe 100 residents in Bukit Panjang town."

Dr Teo added: "We are expecting more residents to come forward to the CDC for assistance. So what we have done at Northwest CDC is that we have geared up in our various assistance schemes. So in terms of our job assistance schemes now, we are focusing on helping our residents to switch careers or move into (a) new industry, especially the service industry.

"So we have worked out various schemes... recently we had a career exploration scheme, where we actually provide opportunities — working with employers — to give our job seekers opportunities to have a work trial.

"That means going to the company to work for a couple of days, then if the employers and job seekers... find that they can match, then we will support in terms of providing training, subsidies, and they will undergo a proper training course to upgrade their skills, and we will also help them transit into their new work environment."

The CDC also plans to offer hot meals to needy residents. With the downturn, it is expecting the number of applications for social assistance to go up from 600 to 800 a month. — CNA/ms

Insurers: next to be hit?

NEW YORK: After banks, are insurers next?

Yamato Mutual Life Insurance, a Japanese insurer, filed for bankruptcy protection yesterday, while in the United States, insurance stocks like Prudential Financial and Hartford Financial Services have plunged more than 30 per cent in the last five days.

When the government bailed out American International Group (AIG), there was little talk of a widespread downturn in the insurance industry.

AIG was seen as unique because it was a large issuer of a type of derivatives contracts that were far less prevalent at other insurers. Those derivatives brought AIG to the precipice.

But now a wave of losses is moving throughout the insurance industry, caused by the seize-up of the credit markets and shares across the board plunging in value.

'Insurance companies tend to focus on high-quality investments,' said insurance analyst Douglas Meyer at Fitch Ratings. When the declines were mainly in the lower-quality investments, he said, the industry was relatively sheltered from harm.

Now though, 'the depths of the current credit crunch is starting to affect the high-grade securities, so that's starting to affect the insurance companies more'.

Prudential Financial, for one, said on Thursday that operating income from its financial-services businesses would be no more than US$375 million (S$555 million) in the third quarter, compared with US$907 million in the third quarter last year. Along with other investment losses, Prudential will write down investments on securities in Lehman Brothers, AIG and Washington Mutual. Prudential, which will issue its third-quarter earnings on Oct 29, also said it was suspending a stock buy-back programme to conserve capital.

For now, analysts do not see insurers in precarious situations. But if investment losses keep mounting, they will start eating away at insurers' capital. Even insurers with conservative investment portfolios, like MetLife, are not immune. The investment losses will also pose a problem for insurers with big retirement divisions, especially life insurance companies. They deal in investment products that guarantee their customers a certain rate of return. Now, the insurers will have to make those payments out of their diminished assets.

Insurers whose business models involve large amounts of short-term paper, or other obligations that are maturing soon, also risk being caught short if the credit markets stay frozen. If they have to start selling securities to produce the cash to pay their obligations, they could end up dumping them in a market that has many sellers and almost no buyers.

That was what felled Yamato Life in Japan. But Japanese officials and analysts were quick to play down the risk to other insurers in the country. Yamato, a small unlisted insurer, had invested in hedge funds and real estate investment trusts (Reits) to boost returns, in stark contrast with the conservative strategies most Japanese financial institutions have followed since a 1990s asset price crash.

Fitch, though, lowered its outlook for the US life insurance sector to negative from stable at the end of last month. It said some insurers had delayed recognising unrealised investment losses this year, in hopes their impaired assets would regain value. But that has not happened, so the industry is likely to write down more impaired assets in the coming months.

Weaker institutions may have trouble raising new money if their capital is eroded, and the US government may be unwilling to help more insurers after rescuing AIG. That suggests a consolidation and reshaping of the industry is in store.

NEW YORK TIMES

Financial crisis unprecedented

WASHINGTON - THE financial crisis sweeping the global economy is one of the most serious challenges ever, leading to a sharp slowdown in growth, US Treasury Secretary Henry Paulson said on Saturday.

'As we meet today, risks to the global economic environment are the most serious and challenging in recent memory,' Mr Paulson told the International Monetary Fund annual meeting.

'The financial turmoil over the last year, coupled with significant ongoing financial deleveraging, commodity price shocks and necessary adjustments in housing and other markets are causing a sharp slowdown in economic growth,' he said, according to the prepared text of his speech.

Mr Paulson said that while the crisis was affecting the main advanced economies most acutely, emerging market countries, despite recent progress made, 'are not immune from the global financial stress.' The secretary said this 'is a very challenging period for the United States, as well as the global economy', noting that with the credit markets frozen, the financial crisis was now spreading into the wider economy.

'These extraordinary events require a global response and financial officials from around the world are working together, taking action individually and collectively as necessary, to address these challenges.'

The focus of policy was on five areas - providing liquidity, strengthening capital, protecting investors, enlarging the macroeconomic response and improved regulation.

Mr Paulson said that 'once we are past this difficult period, we must turn our attention to longer-term reforms to modernise our outdated financial regulatory structure and address other weaknesses'.

Turning to the IMF itself, Mr Paulson said 'a strong and effective IMF is firmly in the interest of the United States and the international community' but cautioned it against casting its net too wide.

'As it reviews its lending role, the Fund must keep its core mission in mind and resist seeking creative ways to boost lending for its own sake. We are skeptical of proposals to significantly increase access levels for lending.'

The IMF and World Bank are holding their annual meetings in Washington this weekend against a backdrop of untold upheaval as a credit crunch sparked by the US subprime home loan collapse undermines the accepted norms of financial life.

The crisis has so far overshadowed the meetings. -- AFP

S'pore is in recession

SINGAPORE has slipped into recession and the Government has revised its 2008 growth forecast to around 3 per cent from a previous estimate of 4 to 5 per cent.
The economy shrank at an annualised, seasonally adjusted rate of 6.3 per cent in the third quarter, according to third quarter advance estimates released by the Ministry of Trade and Industry on Friday morning, pushing the export-dependent economy into its first recession since 2002.

The government also revised down its 2008 growth forecast to around 3 per cent from a previous estimate of 4 to 5 per cent.

Economists had expected the Republic to narrowly escape a recession in the third quarter by growing 1.1 per cent, lifted by a slight improvement in electronics output.

A recession is often defined as two consecutive quarters of economic contractions.

The deepening financial crisis, which sparked banking crises in the United States, Iceland, Britain, Germany and Ireland, is threatening to drag the world economy into recession.

The advance estimate, based largely on July and August data, gives an early indication of the economy's performance during the July-September period.

MTI said the Singapore economy is estimated to contract by 0.5 per cent in the third quarter, than a year ago.

On a seasonally adjusted, annualised quarter-on-quarter basis, real GDP declined by 6.3 per cent, following a 5.7 per cent decline in the previous quarter.

On the outlook for the year, MTI said since the revised GDP forecast in August, 'external economic conditions have deteriorated more than expected and some sectors of the economy have weakened significantly on account of industry-specific or domestic factors.

'The worsening of the financial crisis in the US in recent weeks has deepened the credit crunch, making it more difficult for businesses to sustain economic activities. With unemployment on the rise and house prices continuing to fall, US consumer sentiment has weakened further and will affect demand for exports from Asia and the rest of the world.'

It added that Singapore's export-oriented sectors, such as manufacturing, will be affected, noting that Europe is also facing severe strains in the banking sector, tighter credit conditions, and adjustments in housing prices.

Growth in major economies such as Germany, France, Italy and the UK has dipped sharply in the second quarter.

Growth forecasts for several Asian economies, such as China, India and South Korea, have been revised downwards since the start of the year.

The estimates showed that Singapore's manufacturing sector continued to be weighed down by the negative growth in biomedical sciences, as pharmaceutical companies are still producing a mix of pharmaceutical ingredients with values lower than compared to a year ago.

The precision engineering and chemicals clusters have also slowed, because of weaker external demand.

The construction sector grew by 7.8 per cent in the third quarter, compared to the 18.3 per cent growth in the first half of 2008. Despite a strong pipeline of construction projects, a shortage of contractors, a tight labour market for engineers and project managers, and longer waiting times for equipment, have delayed the realisation of these projects.

MTI said the financial services sector is likely to see slower growth in the coming months as the ongoing global financial crisis has heightened uncertainties for sentiment-sensitive segments such as stocks trading and fund management activities.

'Taking into account the slowdown in the global economy and key domestic sectors, MTI has revised the 2008 GDP growth forecast to around 3 per cent. The inflation forecast of 6 - 7 per cent for 2008 remains unchanged,' it said.

Switching to Cash May Feel Safe, but Risks Remain

by Ron Lieber

It’s a question we’ve all asked in our darker moments of late: Why not just put all of our investments in cash, 100 percent, just for a little while, until things calm down?

Some people already seem to be acting on that instinct. In the first six days of October (through Monday), investors pulled $19 billion out of mutual funds that invest in United States stocks, matching the outflows for the entire month of September, according to TrimTabs Investment Research.

“What clients are looking for is safety,” said John Bunch, president of retail distribution at TD Ameritrade. “They are seeking solutions that are backed by the federal government. Specifically, F.D.I.C-insured money funds and certificates of deposit. All of it is under the umbrella of, ‘Am I safe and insured?’ ”

By fleeing for the comfort of safe and insured, however, investors with a time horizon beyond a few years may be doing real damage to their long-term finances. If you’re tempted to make a big move to cash right now, you’re doing something called market timing. It’s an implied statement that you’ve figured out the right moment to get out of stocks — and will also know the right time to get back in.

So let’s dispense with the first part straightaway. The right time to move out of stocks was a year or so ago, before various stock indexes the world over fell by one-third or more.

If you missed that opportunity, you’re hardly alone.

But if you sell now, you’ll be locking in your losses. And once you’re in cash, there isn’t much upside. In fact, with interest rates low, you’re likely to lose money in cash, because inflation will probably eat up the after-tax returns you earn from a savings or money-market account.

A guarantee of a small loss may sound good right now. But if you’re not bailing out of stocks once and for all, how will you know when it’s time to get back in? The fact is, any peace of mind you gain by being on the sidelines now will turn into a migraine once you see how much you can harm your portfolio over time by missing just a bit of any rebound.

H. Nejat Seyhun, a professor of finance at the Ross School of Business at the University of Michigan, put together a study in 2005 for Towneley Capital Management, where he tested the long-term damage that investors could do to their portfolios if they missed out on the small percentage of days when the stock market experienced big gains.

From 1963 to 2004, the index of American stocks he tested gained 10.84 percent annually in a geometric average, which avoided overstating the true performance. For people who missed the 90 biggest-gaining days in that period, however, the annual return fell to just 3.2 percent. Less than 1 percent of the trading days accounted for 96 percent of the market gains.

This fall, Javier Estrada, a professor of finance at IESE Business School in Barcelona, published a similar study in The Journal of Investing that looked at equity markets in 15 nations, including the United States. A portfolio belonging to an investor who missed the 10 best days over several decades across all of those markets would end up, on average, with about half the balance of someone who sat tight throughout.

So moving to cash right now is just fine as long as you know precisely when to get back into stocks (even though you didn’t know when to get out of them).

At some point, stocks will indeed fall enough that investors will remove the money from their mattresses and put it to work, causing prices to rise significantly. But, as Bonnie A. Hughes, a certified financial planner with the Enrichment Group in Miami, put it to me, there won’t be an e-mail message or news release that goes out when this is about to happen. It will be evident only afterward, on the few days when the market surges.

And it gets worse for those who think they won’t have any trouble investing in stocks again later. Medium- or long-term investors who are considering a big move into cash right now are probably making an emotional decision, at least in part. For those who follow through, the same instincts will probably hurt when trying to figure out when to reinvest in stocks.

“The emotional forces that drove them out of the market aren’t likely to let them back in ‘until things are better,’ ” Dan Danford of the Family Investment Center in St. Joseph, Mo., said in an e-mail message. “And for most people, things won’t feel better again until the market has already moved back up.” In fact, he added, plenty of people may not allow themselves to get back in until the market has already risen significantly.

That situation is worth considering if you think your mood, or returns, can’t get any worse. “People feel worse missing out on the bounce-back that will inevitably come than they do hanging in there through the down period,” said Elaine D. Scoggins, a certified financial planner with Merriman Berkman Next in Seattle.

The truly downbeat do not see the bounce as inevitable. This outlook is essentially a bet that our current predicament is so different that the equity markets won’t bounce back at all, even though they survived 1929, the Great Depression, 1987 and a major terrorist attack. I do not believe that the markets are in some kind of permanent decline, and I haven’t found an expert who does.

That said, some retirees, or those close to leaving the work force, may be well-off enough to leave stocks behind for now. If the tumult in the economy and the decline in the markets have altered your risk tolerance, then it may make sense to move to a portfolio of Treasury bills, certificates of deposit and money market funds.

Michael G. Coli, 56, of Crystal Lake, Ill., decided to take his 401(k) money out of the market in February. As an investor in his sons’ pizza restaurants, he noticed that an increasing number of customers were relying on credit cards. And as the owner of a winter home in Naples, Fla., he witnessed the housing market dive. Taken together, he decided to pull his retirement money, which he would need in five years, from the Vanguard Balanced Index Fund and move it all into certificates of deposit.

“I had the feeling the economy was not on real firm ground,” Mr. Coli said. “I decided to get out and put it all in C.D.’s, and that is where I’ve been ever since.”

If you can’t afford to live off the proceeds of cash investments (or dividends from your investment in your kids’ pizza joints), you may have no choice but to hold on to whatever stocks you have left. Then, you can hope for a rebound that will allow you to live out your later years more comfortably. Selling now and moving to cash could mean guaranteeing a lower standard of living for the rest of your life, because you’d be locking in your losses.

But if you’re a bit younger, try to think of your investment portfolio in the same way you consider the value of your home, if you own one. After all, if you’re not moving anytime soon, your home is a long-term investment, too.

“Today’s price is not your price. Your price is 10 or 20 years from now,” said Thomas A. Orecchio, of Greenbaum & Orecchio, a wealth management firm in Old Tappan, N.J. “Unfortunately, stock market investors don’t always see things that way.”

Stock market plunging into pit of despair

By Michael Liedtke, AP Business Writer
A year after soaring to record high, stock market plunges into pit of despair


SAN FRANCISCO (AP) -- Could it be just a year ago that jubilant investors were celebrating record highs in the stock market?
It almost seems inconceivable now as both Wall Street and Main Street stare into a seemingly bottomless pit of despair that has swallowed up $8.3 trillion in shareholder wealth during the past 366 days.


"We aren't dealing with a fundamental economic issue any longer," said James Paulsen, chief investment strategist for Wells Capital Management. "We are dealing with fear. And that doesn't respond to economic medicine."

That hasn't stopped the U.S. government from trying to find a remedy.

In a series of moves aimed at avoiding the mistakes that culminated in the Great Depression nearly 80 years ago, the government already has committed to spend more than $1 trillion to prop up ailing banks and other lenders during the past month of turmoil.

But none of it seems to be working, which only seems to be scaring people even more, especially after the nation's leaders spent nearly two weeks painting a gloomy picture of the economic outlook to persuade Congress to approve a $700 billion bailout of the banks.

"I think right now there are just some very powerful negative images that are alive in many people's minds -- images of the Depression, images of people selling apples," said George Loewenstein, a behavioral economist at Carnegie Mellon University. "The images of the downside are just so salient in people's minds, and nobody has presented an upside image yet."

The quarterly 401(k) statements that are starting to arrive in the mail will only serve as another grim reminder of the financial carnage. And it has gotten worse since the quarter ended in September, with the Dow Jones industrial average tumbling every day so far this month.

In this week alone, the Dow Jones has plummeted by 17 percent, bringing the total decline to 39 percent since the stock market's most famous bellwether peaked at 14,164.53 on Oct. 9 a year ago.

The downturn translates into a paper loss of $8.3 trillion, based on figures measured by the Dow Jones Wilshire 5000 Composite Index, which tracks 5,000 U.S.-based companies' stocks and represents almost all stocks traded in America.

There are some logical reasons why stocks aren't worth as much as they were a year ago.

For starters, the U.S. economy appears to be in a recession for the first time since 2001. To make matters worse, this contraction looks like it could be particularly painful, with home prices in their steepest slide since the Great Depression and banks in their shakiest condition since the savings-and-loan crisis of the 1980s and early 1990s wiped out thousands of federally insured institutions.

"It's not just psychology," Santa Clara University finance professor Meir Statman said of the stock market sell-off. "There are some things happening in the world that are pretty scary. We have every right to be scared."

And some economic doomsayers still think it could get a lot worse.

"The economy has been in terrible shape for a long time. It was built on an illusion before this," said Mike Stathis, an investment consultant who wrote a book called "America's Financial Apocalypse." "I think people are starting to recognize what's coming, so why wait around for it to get worse?"

Major mutual fund companies like The Vanguard Group, Fidelity Investments and T. Rowe Price all reported sharp increases in phone calls this week as some individual investors bailed out of the market and others sought words of reassurance.

"It's consistent with the climate we're in. Obviously in times of significant market volatility, investors are interested in our thoughts about what they should be doing," Fidelity spokesman Vin Loporchio said. "We try to reinforce our message about long-term investing."

Paulsen said he believes the U.S. government has sounded even more alarms by announcing one different approach to the financial crisis after another in recent weeks.

"It made them seem scared and it made them seem like they didn't know what they were doing," he said. "I think we have reached a point where the Treasury and the Federal Reserve have to just stop and send out this message: 'We have done enough and we think it's going to work.'"

When the government first announced its $700 billion proposal to buy back money-losing mortgages from banks on Sept. 19, the stock market surged. Since then, the Dow Jones has plummeted 25 percent.

Until they get some credible words of reassurance, investors are likely to be on edge -- much like a soldier suffering from post-traumatic stress, said Michal Ann Strahilevitz, a marketing professor at Golden Gate University in San Francisco who studies investor psychology.

"We've been so traumatized over the past few weeks that every little thing that happens, we overreact," she said.

With more gloom seemingly around every corner, investors run the risk of pulling their money out of stocks just when the market may be poised to bounce back. The 39 percent decline from the Dow Jones' high already exceeds the drop experienced in the typical bear market, suggesting it may be not much longer before the sell-off bottoms out.

When investors act purely on emotion, there is greater chance of them sabotaging their financial goals, said Stuart Ritter, a certified financial planner at T. Rowe Price.

"The opposite side of irrational exuberance is irrational pessimism, and neither one is a good path to your financial goals," Ritter said.

John Dorfman, portfolio manager of the Dorfman Value Fund, is preparing for a rally after the United States picks its next president in the Nov. 4 election. "I see a lot of bargains out there," Dorfman said.

Even the generally pessimistic Stathis hasn't given up all hope. As more investors fled the market late Thursday, he bought 900 shares of Pfizer Inc.

AP Business Writers Dave Carpenter in Chicago, Candice Choi in New York, Mark Jewell in Boston and David Pitt in Des Moines, Iowa contributed to this story.

Where's the bottom?

CHICAGO - THE bear market that is ravaging investor portfolios is now one of the worst in modern US history and has wiped out more than US$7 trillion (S$10.3 trillion) in shareholder value, with no bottom clearly in sight.

When it stops and how far it drops, no one can predict with any accuracy - a painful uncertainty underscored by Wall Street's giddy mood at the moment the steep descent began.

A year ago on Thursday, Wall Street was celebrating the fifth anniversary of a bull market that had created US$10 trillion in shareholder wealth since 2002.

The Dow Jones industrial average and the Standard & Poor's 500 index hit all-time highs on October 9, 2007.

A headline in USA Today captured the prevailing sentiment: 'Market's run could keep going for a while.'

In fact, the party was over. The subprime mortgage problem that was laid bare by a decline in home values developed into a much broader credit crisis that toppled giant banks and financial institutions.

Panicked investors have been fleeing from stocks. The S&P is down 37 per cent from its peak of 1,565 a year ago, closing at 985 on Wednesday, and the Dow has tumbled 35 per cent from 14,164 to 9,258.

Most experts don't see a recovery until there's greater stability in the housing market, banks are lending freely and employment improves.

Unlike other periods that saw precipitous drops, this one is rooted in foundering credit markets. That makes predictions more difficult than if the plunge were based on company profits or stocks alone.

'When you have an environment like this where the crisis is so deeply rooted from the credit standpoint, it adds an extra layer of ambiguity and ultimately of uncertainty,' said Mr Mark Freeman, portfolio manager for Westwood Holdings Group.

'That is what the markets are struggling with.' No turnaround is seen before 2009 or later. And there is a wide divergence of opinion on the future of this bear market, which feels unlike any other because of the US$700 billion federal bailout and the collapse of investment banks.

Even with the Federal Reserve and other major central banks around the world slashing interest rates on Wednesday, experts were hesitant to call a bottom.

'Technical indicators tell us that we're overdue for at least a short-term bounce,' said Ms Liz Ann Sonders, chief investment strategist for San Francisco-based brokerage Charles Schwab.

'That doesn't tell us that the bear market is necessarily over.'

This bear market - a term often defined as a prolonged drop in stock prices of 20 per cent or more - already is harsher than most of the 10 bear markets since the 1930s.

Those markets have lasted an average of about 16 months from peak to trough, with average stock losses of 31 per cent, based on S&P data.

Since the record 83 per cent plunge in 1929-32, the current market is exceeded only by the drops of 49 per cent in 2000-02 during the tech stock implosion and 48 percent in 1973-74 during a recession and energy crisis.

The magnitude of this decline is close to that of the dot-com collapse earlier this decade, but this time, it's not just retirement accounts and stock portfolios that are being hurt.

Increasingly, the availability of loans and credit is drying up, too.

Mr Rob Arnott, chairman of Research Affiliates in Newport Beach, California, thinks the big difference this time is that Americans are feeling increasing pain apart from the stock market.

'People who have home equity lines and use them to pay for holidays or buy a car are finding that their loan facilities are getting pulled. That affects the way they look at their own spending'.

He predicts another six to nine months for this bear market.

Some are far more pessimistic.

Mr Jim Cramer, the normally bullish host of CNBC's 'Mad Money' program, caused a stir on Monday when he warned investors to take whatever money they need for the next five years out of the market now.

On Tuesday, he called it 'the most horrible market that I've ever seen.'

Money manager Peter Schiff, who has long espoused the bleakest of market views, said the Dow has a good chance to sink to 7,500 or lower.

He expects the bear market to last another five years or more. That would signal a possible loss of at least 20 per cent more in shareholder value.

'Everybody wants to think there's a government solution to spare us the pain,' said Mr Schiff, who runs the investment firm Euro Pacific Capital in Darien, Connecticut.

'There is no government solution. All there is is more pain.' One wild card is that a recession - unofficially defined as a decline in the gross domestic product for two or more consecutive quarters - could seriously crimp consumer spending, which accounts for two-thirds of US economic activity.

Without that money flowing into the economy, a rally in stocks may be unlikely.

Once the bear market ends, investors could still have a long wait to recover their losses.

After a stock market index falls 33 per cent, it has to rise 50 per cent just to get back to where it started.

It took 12 1/2 years for the S&P to recover its losses from the devastating three-year period ending in 1932, and four years for it to make up all of the decline from the 2000-02 market plunge.

Still, the tumbling price of stocks has also raised potential long-term buying opportunities.

Prof Dan Seiver, a finance professor at San Diego State University, said many stocks are now cheap by fundamental evaluation methods.

Investor panic, he said, is a sign the bear market may be closer to the end than the beginning.

'The only time you get cheap stocks is when the world looks awful,' he said. 'Nobody's going to give you cheap stocks when everything looks good.' -- AP

US economy nears recession

MADRID - IT APPEARS increasingly likely that the US economy will enter into a recession, European Union Monetary Affairs Commissioner Joaquin Almunia said on Thursday.

The risk of a recession in the world's largest economy exists and should 'become our central scenario', the former Spanish employment minister said at an economic conference in Madrid.

The International Monetary Fund predicted in its latest World Economic Outlook on Wednesday that economic growth in the US will screech to a virtual halt in 2009, increasing by just 0.1 per cent.

That would be its worst showing since 1991, when the country was pulling out of a recession.

The IMF said the country was 'at the centre of the financial storm' and its economy was 'slowing down rapidly'.

Many economists believe the US economy will probably contract in the final three months of this year and the first three months of next year, meeting a classic definition of a recession. -- AFP

Crisis may hit S'pore hard

ECONOMISTS have painted a grim picture of the economic outlook here, warning that Singapore will not be unscathed by the financial carnage sweeping rapidly across the United States and Europe.

'This downturn will be unlike previous downturns,' CIMB-GK economist Song Seng Wun told about 100 senior and middle-management staff of small businesses on Thursday at a business outlook seminar organised by the Singapore Business Federation (SBF).

'The private consumption slowdown in the US and Eurozone may have a significant knock-on impact on the rest of the world.'

Mr Song believes the expected sharp fall in global trade and financial flows could lead to Singapore's worst economic performance ever.

He predicted that in the worst-case scenario, Singapore's economic output could shrink between 3 per cent and 5 per cent next year from this year.

OCBC Bank economist Selena Ling was less pessimistic but maintained that the Government was likely to downgrade its official economic growth forecast of 4 per cent to 5 per cent for this year.

The Ministry of Trade and Industry releases its advance economic growth estimates for the third quarter today.

'What we're seeing now is that Asia is at an inflection point. Growth is slowing down,' said Ms Ling, citing broad-based weakness in the manufacturing sector, weakness in electronics and lacklustre performances in the biomedical and pharmaceuticals segments.

In his speech on Thursday, Mr Lee Yi Shyan, Minister of State for Trade and Industry, urged small businesses not to stop venturing abroad despite the economic slowdown.

'These challenging economic times also provide new opportunities for Singapore companies to venture overseas to seek opportunities in emerging markets such as Latin America, the Middle East, Russia and Vietnam,' Mr Lee said.

The Korean Banks in trouble.

By Miyoung Kim and Rhee So-eui - Analysis

SEOUL (Reuters) - As the global financial crisis picks off victims among U.S. and European financial institutions, analysts fear South Korea's banks could be the next casualties.

The concerns have come as something of a shock to ordinary South Koreans, repeatedly told by officials that the prudence born from the misery of the Asian financial crisis a decade ago had largely inoculated what is now Asia's fourth-largest economy from another economic catastrophe.

Officials are backing words with deeds, offering to provide access to hefty foreign exchange reserves and additional funding support if necessary to ride out the crisis, efforts analysts expect to avoid a meltdown.

"We expect the Korean government to step up its efforts to alleviate the dollar funding problem, which would provide some relief to the market," Standard Chartered analysts said on Thursday, maintaining their stable outlook on the Korean banks.

But signs are growing that the banking system faces tough times and the finance minister has already warned that South Korea's banks are having difficulty raising foreign currency because of a tightening global credit squeeze.

At the heart of the problem is a banking sector with inadequate funding structures, an inflated loan book and deep exposure to the wobbly property and construction sectors and struggling small- and medium-sized companies, which could sour loan portfolios rapidly in a sharp economic slowdown.

"Banks have overly expanded their lending assets for years in spite of a tough funding environment ... their unabated growth has finally boomeranged and is now squeezing their profitability and borrowers' liquidity as well," said Jun J. Lee, an analyst at Korea Investment & Securities.

The loan-to-deposit ratio of commercial banks, including certificates of deposit, reached 103 percent at end-September as they lent money at a staggering pace during the last few years, even though South Koreans increasingly switched their savings into property and stocks from banks.

It is far above the around 80 percent in most other Asian economies, according the Merrill Lynch data.

At the four biggest Korean banks -- Kookmin (060000.KS: Quote, Profile, Research, Stock Buzz), Woori (053000.KS: Quote, Profile, Research, Stock Buzz), Shinhan (055550.KS: Quote, Profile, Research, Stock Buzz) and Hana (086790.KS: Quote, Profile, Research, Stock Buzz) -- the ratio ranged between 149 and 181 percent in the second quarter of 2008, according to Moody's Investors Service.

The high ratio means lending at these banks was far higher than the pace at which deposits grew, leaving them reliant on the fickle short-term money markets where liquidity has dried up and cost of borrowing continues to soar.

As they struggle to refinance existing debt and fund dollars for an economy that relies heavily on global trade, their fundamental strength such as strong asset quality and small delinquencies provide little help.

"A higher dependency on wholesale funding instruments has negatively affected Korean banks' fundamental strength in terms of earnings and funding structures," Standard & Poors' Ratings Services said on Tuesday.

"Failure to address the issue (of foreign liquidity funding) in a timely manner could deteriorate banks' credits."

Shares of Woori, Shinhan and Hana have all tumbled more than 30 percent in the past month, compared to an 11 percent fall in the broader market.

South Korea might have mitigated the current dollar squeeze if it had gone ahead with a planned sovereign bond when the credit market was more forgiving and demand was still strong.

But last month it shelved a $1 billion sovereign bond because of a global rise in risk aversion. Many domestic banks followed suit, delaying bond sales over high borrowing costs.

South Korea's risk premium, however, has since risen further, with the cost of protection against a default on Korea's 5-year sovereign debt soaring nearly eight-fold this year to 310 basis points. An investor would need to pay $310,000 a year to insure $10 million of South Korean bonds against default.

By comparison, insuring similar bonds in Malaysia, rated one notch below South Korea at A-minus, costs around $200,000.

"Banks could have raised more funds earlier this year. They missed the opportunity... We do need to see whether the situation improves or not. But it's more likely to deteriorate," said Leo Wah, senior analyst at Moody's Financial Institutions Group.

Investors are now closely watching the property market and small- and medium-sized firms for any signs of further distress in the system that might trigger capital outflows and more currency selling.

Analysts pointed out that more than 250 construction companies went bust in January-August, while the number of unsold homes is rising and consumer debt is high.

MEASURES IN PLACE?

To address banks' liquidity problems, the government has so far allocated $15 billion to the foreign exchange swap market and state-run Export-Import Bank of Korea (KEXIM) and also pledged to allow banks access to the country's foreign exchange reserves, the world's sixth-largest at nearly $239 billion.

Top policy makers also rushed to calm investors, saying local banks would have few problems raising funds through selling their foreign currency assets and their asset quality remains solid.

"We think banks have the ability to deal with the current situation," said Joo Jae-seong, head of the banking service division at the Financial Supervisory Service.

Despite repeated reassurances, the won, one of the world's worst performers, has plunged over 30 percent this year and money market rates are still soaring.

"Investors are nervous," said Alaistair Chan, a Moody's Economy.com analyst.

"Government words and action, in an attempt to calm financial markets, have lately had the opposite effect, and may risk creating a self-fulfilling downward cycle."

Japan Machinery Orders Dive as Recession Looms.

Japan's core private-sector machinery orders tumbled 14.5 percent in August, four times more than expected, in a bad sign for capital spending as the nation's economy spirals toward a recession.

Tokyo stock prices failed to gain ground despite Wednesday's joint interest rate cuts by central banks around the world, with worries about the financial crisis and global economy dominating.

A day after the Nikkei plunged 9 percent, Japanese Prime Minister Taro Aso instructed senior ruling party officials to consider a new emergency package to cope with the global financial uncertainty, Kyodo news agency reported.

Credit crisis hits Canada

By Rob Gillies, Associated Press Writer
Canadian finance minister looking for ways to keep credit flowing

TORONTO (AP) -- The global credit crisis is starting to restrict the ability of Canadians to obtain loans for mortgages, cars and investments, Canada's finance minister said Thursday.

Finance Minister Jim Flaherty said he is looking to increase liquidity in the market but declined to release details.

In an indication of the uncertainty in the markets, Canada's private banks declined to pass on to consumers the full half percentage point cut in interest rates announced by central banks around the world.

The banks cut interest a quarter of a point instead, the first time since the Asian financial crisis in 1997 that they haven't followed what Canada's central bank has done.

Flaherty pointed out that Australia's banks only passed along 80 of the 100 basis point cut their central bank made this week.

"What I've said to the banks is do as much as possible in the present circumstances," Flaherty said.

Flaherty said they are not looking at a rescue package or bailout of the Canadian banks. He said he has "absolutely no concern about the health of our Canadian financial institutions. I have concerns about the availability of credit."

Flaherty called the news conference in advance of his meetings with other G7 ministers in Washington -- meetings he called the most important he's attended since becoming finance minister.

"We have to ensure that credit continues to be available," Flaherty said. "I'm concerned about that. I know many Canadians are because it affects the costs of mortgages, it affects the costs of car loans, it affects loans to small business, the ability of business to invest and reinvest."

Prime Minister Stephen Harper has maintained that Canada will avoid the mortgage meltdown and banking crisis that are hitting the United States and Europe hard.

Harper's Conservative party has been sliding in the polls since he said during an election debate last week that Canadians weren't concerned about their jobs or their mortgages.

Harper said Tuesday the stock market was overreacting to bad news and that stocks were cheap.

The prime minister called early elections for Oct. 14 in hopes his party can increase its numbers in the 308-seat Parliament.

Crisis to dent China, Brazil growth - IMF chief

WASHINGTON, Oct 9 - China will not be immune from the global financial crisis but its overall rate of growth should remain high, IMF Managing Director Dominique Strauss-Kahn said on Thursday.

"It would be very surprising if a power like China would just be looking at the crisis from a balcony without being very concerned," Strauss-Kahn told a press conference ahead of the fall meeting of the International Monetary Fund and the World Bank.

"Nonetheless, rate of growth will remain very high," Strauss-Kahn said, adding it was important that China continue to shift its economy to one fueled more by domestic demand than by exports.

Brazil, another fast-growing economy in recent years, will also take a hit from the crisis but its strong economic fundamentals will help it weather the storm, he said.

Strauss-Kahn conceded that governments and international policymakers had done a poor job of forecasting the extent of the financial woes now facing the world.

"I think it is fair to say that all of us have underestimated the strength of the financial crisis ... What appears is the roots of this crisis are deeper than expected," Strauss-Kahn said.

However, the IMF forecasts global recovery should begin near the end of 2009, he said.

Prepare for tougher times

WASHINGTON - WITH world attention trained on resolving a financial crisis in Western economies, World Bank President Robert Zoellick said the poverty-fighting institution is warning developing countries to prepare for tougher times.
In an interview with Reuters ahead of weekend meetings of world finance ministers, Mr Zoellick said business failures, bank emergencies and balance of payments crises are all possible in developing countries as the crisis spreads.

He said a growing financial squeeze, together with higher food and fuel prices, will only make it more difficult for governments in developing countries to protect the poor.

A new World Bank report prepared for the meetings warns that high food and fuel prices will increase the number of malnourished people around the world in 2008 by 44 million to over 960 million.

The World Bank chief said the bank had identified around 28 countries that could face fiscal difficulties. He said he would release the details later on Thursday ahead of weekend meetings of finance leaders in Washington.

'What we're now moving into is the phase where one has to look more broadly at the danger of developing country growth and there it depends on policies they take and the support we and others can give them,' Mr Zoellick told Reuters.

'Over the medium and long term, I remain optimistic about the possibilities of sub-Saharan Africa being a pole of growth, but it won't happen automatically, it will require their actions and the right investments,' he added.

Mr Zoellick said the World Bank was working with developing countries to make them aware of the services the bank could provide to help prepare contingency plans and support countries whose banking systems may come under strain.

STAKES ARE HIGH

The financial crisis threatens to undo much, or in some cases all, of the progress made in many developing countries over the past several years to lift growth and reduce poverty and disease.

Between 1997 and 2007, 17 countries in Sub-Saharan Africa grew on average 6 per cent, most of them non-oil producers. Another 8 countries, all oil producers, grew on average 8 per cent over the same 10 years.

Mr Zoellick told a news conference earlier there was frustration, fear and anxiety at the difficulties economies may now encounter from a crisis that began in the United States.

Better economic management, fewer conflicts, and prospects of high returns on investments have attracted more private sector interest into developing countries.

Among those investors has been China, Brazil, India and Gulf countries, spurring so-called south-south investment where one emerging economy invests in another.

Mr Zoellick said that despite ripple effects from the financial crisis into emerging economies, he was confident China would continue to invest in natural resources in Africa, while Gulf states look to investments in agriculture.

'While we're dealing with today's problems, you have to keep your eye on tomorrow (and) take the problem and turn it into an opportunity,' he said.

Just as Western central banks and China took unprecedented coordinated action to cut interest rates on Wednesday to restore calm to markets, he hoped they would do the same when it comes to helping the developing world deal with effects from the financial crisis, but also the 'human crisis' of increasing malnourishment.

The same countries could help by contributing to a World Bank fund to assist developing countries struggling with higher food and fuel prices and that would provide fertiliser to small farmers and energy to the poor.

There would also be a need for developed countries to help the World Bank and International Monetary Fund support governments facing balance of payments needs and challenges to do with climate change and trade, he said.

'We can play a role but we need the developed countries to also act in coordinated action to support that.' -- THOMSON REUTERS

Explaining the financial crisis

Goh Eng Yeow explains why the credit crunch is out of control.
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IT IS not surprising to find that many people in Singapore still fail to understand the nature of the grave financial crisis confronting the US and Europe.

Take this email which I had received from a reader after writing a column lamenting that the lack of strong leadership to tackle the global credit crunch crisis.

I had mentioned that taking a personal loan is still a breeze for many of us.

But the reader felt that I was implying that banks here are lending to people without carefully checking their credit ratings.

For one thing, it betrayed a lack of understanding on the checks and balances placed on the local banking system.

Here is my reply: If you have a steady income and pay your bills on time like the rest of us, any bank here should be happy to extend a loan to you if you should need it. This is their bread and butter business.

There are ways to check if you are creditworthy. You have to furnish your pay-slip. The credit bureau, which tracks your credit card payments and your record in paying up any other loan commitments, has to give you a clean bill of health.

If you fail to pass any of these criteria, it is imprudent to lend you even a cent.

Therein lies the roots of the massive crisis facing the US banking system. There was massive fraudulent lending to people with doubtful credit records. The checks and balances on creditworthiness was completely absent.

The lack of accountability was also appalling. The US bank, which extended the loan, did not keep it on its books. Instead, it sold off the loan to an investment bank on Wall Street which then offloaded it as a high-quality bond to other financial institutions around the world. That was how the rest of the world became ensnared in what was a primarily US banking problem.

The problem has grown so bad that that investors have lost confidence in all sorts of financial institutions in United States and Europe - whether it is a big commercial bank, a huge insurer or a Wall Street investment bank.

In particular, the collapse of US investment bank Lehman Brothers had sent a massive shock wave across global financial markets. It was supposed to be solid and deemed to be too big to fail. After Lehman's death, banks in the US and Europe are so scared of making another bad loan that they have stopped lending altogether. They would rather sit on their cash.

This has started to hit ordinary folk in the United States in a big way. Even creditworthy borrowers - those who passed the criteria I mentioned just now - have problems getting loans. If even triple-A rated General Electric, the world's largest conglomerate, experiences hiccups with its short-term fundings, you know that there is a serious credit crunch problem.

If this continues to snowball, there will be serious repercussions.

In a worst case scenario, there will be another economic depression: Companies fold up because they can't get a loan to pay creditors, while waiting for their own debtors to pay up. That will throw people out of work. They start spending less because they have no jobs and they can't go to a bank to get a loan to tide over their cashflow problems. In turn, that sprawls further company failures as consumption crashes.

So what are Western governments doing about it?

In the US, the Fed is getting into direct lending itself. It is paying US banks an interest for parking their money there, and recycling them as loans to cash-strapped corporate borrowers.

The British government has decided to go one step further. It is offering 50 billion pounds to shore up the capital bases of British banks and another 200 billion pounds in guarantees on their loans.

In a nutshell, it is telling banks: Go out and lend. We will guarantee that you get your money back. And its message to jittery investors: We are putting taxpayers' money on the line investing in the banks. We are in all these together and we will make sure they don't lend foolishly.

Will it work ? It may, but it will take time for confidence to come back.

Before I end this entry, let me share some thoughts on why some banks are so badly-hit by the massive financial panic.

Take UK banks. On average, they lend out $1.50 for every $1 in deposit they collect. But they only put up about six cents in capital to back each dollar of loan, in case some of them turn bad and it does happen occasionally.

By contrast, Singapore banks lend out only 80 cents or 90 cents for every $1 they collect from depositors. They are also required to put between 12 cents and 14 cents in capital for every $1 of loan.

I'll leave you to draw your own conclusions from the comparison.

Recession looms for Singapore: economists

SINGAPORE, Oct 8, 2008 (AFP) - Singapore appears headed for its first recession since 2002 as the city-state suffers from a US economy wilting under its worst financial crisis since the Great Depression, economists say.

Southeast Asia's wealthiest economy in terms of GDP per capita is heavily dependent on trade, which makes it sensitive to hiccups in developed economies, particularly key export markets the US and Europe.

The crisis that began last year in the US subprime, or higher-risk, mortgage sector is now infecting European shores, and Singapore may very likely find itself in an extended downturn, economists said.

They expect this Friday's release of preliminary economic data for the third quarter to confirm Singapore is in a technical recession, generally defined as two consecutive quarters of quarter-on-quarter contractions in economic output.

"We are pencilling in the worst for Singapore.... We might see two straight years of (economic) contractions (from 2009 to 2010)," said Song Seng Wun, a regional economist with CIMB-GK Research.

While the last technical recession came six years ago, the most recent full-scale recession was in 2001 when the economy contracted 2.4 percent during the year.

After years of growth, signs of a slowdown emerged with recent disappointing trade data and contractions in the important manufacturing sector, which includes the country's export-dependent electronic and pharmaceutical industries.

In August, key non-oil domestic exports fell for the fourth straight month, with electronic shipments continuing a decline begun in February 2007, and manufacturing dropped by 12.2 percent.

The August fall in output followed a 21.5 percent decline the previous month.

In the second quarter to June, Singapore's economy contracted 6.0 percent on an annualised, quarter-on-quarter basis and the negative trend likely extended into the third quarter, said economists.

"Things are bad globally," said Kit Wei Zheng, Citigroup's vice president for regional economics and market analysis.

"There are a lot of downside risks and in such a scenario, one cannot hope for a quick recovery," he said in Singapore.

Kit is optimistically forecasting a fourth-quarter recovery, with full-year growth at 2.8 percent.

Song said his revised 2009 forecast would likely be for negative growth.

He said that given the rarity of the global crisis, "the numbers we may be looking at may be once in a century for Singapore."

According to economists' calculations, more than two-thirds of the country's economy, valued at 243.17 billion Singapore dollars in 2007 (166.46 billion US), is driven by external demand.

The island nation has no significant domestic economic drivers to lean on because its market of almost five million is simply too small, said economists.

"If the world is in a recession, there is little that we can boost," said Song. "Our plan B is really to try to make the local population bigger."

Economists from Credit Suisse also see Singapore's economy slowing further next year.

"Signs that growth will be lower in 2009 than in 2008 are everywhere... lower job and income growth, falling asset prices, and flat to negative export growth," they said in a report.

"By sector, the global financial turmoil could hit financial services growth hard, exports are likely to drag down manufacturing, and the biomedical sector is expected to remain under pressure from competition from generic drugs."

In early August Singapore's government cut its forecast for economic growth this year to between four and five percent.

But Finance Minister Tharman Shanmugaratnam warned this week that the country could be stuck in an economic downturn that may last "several quarters" as the global crisis evolves.

"It is now an economic crisis," he was quoted as saying Monday in The Straits Times.

"So globally the economy is slowing down. This is a fact that we cannot escape."

Airlines may not survive crisis

SOME airlines will not survive the worsening global economic situation, an industry association said on Wednesday, warning that the next 12-18 months will be 'extremely difficult' for Asia-Pacific carriers.

Passenger numbers are falling as Americans and Europeans curtail travel plans and the current financial market turmoil undermines consumer confidence, the Association of Asia Pacific Airlines (AAPA) said in a statement monitored on its website.

'The biggest challenges right now are weakening passenger demand, particularly for first and business class travel, and continuing uncertainty about the global economic outlook,' AAPA director-general Andrew Herdman said.

'Asian carriers are therefore bracing themselves for a period of continued turbulence, hopefully without losing sight of their long term strategic goals and future growth opportunities.

'The next 12-18 months will be extremely difficult times for airlines and some won't survive the current crisis.'

He added that the association 'remains extremely cautious about prospects for the airline industry in 2009'.

While fuel prices have recently declined, they are still 25 per cent higher than last year, Mr Herdman said.

The crisis, which began in the US subprime, or higher-risk, mortgage sector, has been routing global financial markets and there are signs the impact is affecting other economic sectors such as manufacturing, tourism and property.

AAPA is a trade association of international airlines based in the region, including Air New Zealand, All Nippon Airways, Asiana Airlines, Cathay Pacific Airways, Singapore Airlines and Malaysia Airlines.

The other members are China Airlines, Dragonair, EVA Air, Garuda Indonesia, Japan Airlines, Korean Air, Philippine Airlines, Qantas Airways, Royal Brunei Airlines, Thai Airways and Vietnam Airlines. -- AFP

IMF sees major downturn

WASHINGTON - THE International Monetary Fund, in its bleakest forecast in years, said on Wednesday the world economy was set for a major downturn with the United States and Europe either in or on the brink of recession.

The IMF said a still-developing financial upheaval - the most violent since the 1930s - would exact a heavy economic toll as markets wrestle with a crisis of confidence and global credit is choked off.

The IMF's assessment was written before a coordinated interest-rate cut of half a percentage point delivered by the US Federal Reserve, European Central Bank, Bank of England, Switzerland, Canada and Sweden on Wednesday.

China also cut its key rate 27 basis points and its reserve requirements for banks by half a percentage point.

The IMF's new chief economist, Mr Olivier Blanchard, said the coordinated drive was a step in the right direction but more action may be needed as the world economy slows.

'Fifty basis points is nothing,' Mr Blanchard told a news conference, adding that monetary policy was only part of the answer and further measures were needed to clear up clogged credit markets.

'More is needed, in particular in Europe, at this point,' he said.

In its twice-yearly World Economic Outlook, the IMF slashed its 2009 forecast for world growth to 3 per cent, which would be the slowest pace in seven years, from a July projection of 3.9 per cent, and warned that a recovery would be unusually slow.

It said growth this year would come in at 3.9 per cent, a touch below the 4.1 per cent it projected in July.

While it was unusually weak, Blanchard stayed clear of calling the 3 per cent forecast for global growth a recession.

'Our position is that it is not useful to use the word recession when the world is growing at 3 percent. That being said, 3 percent is a very low number,' he said.

Mr Blanchard also said there was little chance of a global depression, provided that leaders quickly adopt coherent policies to address market distress.

'If the right policies are in place, then the probability of a 'Great Depression' is extremely small,' he said.

Mr Blanchard said leaders in Europe were having 'some difficulty' agreeing on how to deal with the crisis but the financial markets were forcing them to move quickly.

If they succeed, 'the risk of a 'Great Depression' is nearly nil,' he added.

Crisis spread; emerging economies hit
The IMF blamed lax economic and regulatory policies for the current global woes, saying they probably allowed the global economy to 'exceed its speed limit'.

At the same time, market flaws combined with policy shortcomings to allow stresses to build.

Now, the global economy is about to pay the price.

The IMF had believed developing economies could largely steer clear of any painful spillover from the credit mess stemming from the deep US housing slump. But no longer.

In its latest report, the global economic watchdog warned emerging and developing economies are also slowing, in some cases to rates well below trend.

At the same time, the combination of soaring food and fuel prices has pushed inflation to levels unseen in a decade, the IMF said, exacting an especially heavy toll in the developing world where families' spending on food is high.

In advanced economies, oil price increases have also been felt, but underlying price pressures appear to be contained.

The immediate challenge for policy-makers is to stabilize credit markets, while nursing economies through the global downturn and keeping inflation under control, the fund said.

It sees the US economy screeching to halt and warned a recession was increasingly likely.

For all of next year, it projects US growth of just 0.1 per cent. The near-term course of the US economy, the IMF said, will largely depend on the effectiveness of recent government initiatives to combat the spreading credit crisis.

In Europe, the crisis has stalled growth, and interest-rate cuts and decisive government action to restore confidence to prevent a lasting slowdown are needed, the report said.

The fund said growth in the euro zone was set to slow to 1.3 per cent in 2008, easing to a scant 0.2 per cent in 2009.

Asian powers China and India will also experience slower growth on weaker exports, but should continue to be supported by solid private consumption, it said.

Growth in China is likely to come in at 9.7 per cent this year and 9.3 per cent in 2009 - compared to 11.9 per cent in 2007, the IMF said. India will grow 7.9 per cent this year and slow to 6.9 per cent in 2009, it said. -- THOMSON REUTERS

Grim symbol of crisis

LOS ANGELES - THE murder-suicide of a Los Angeles financial manager who shot dead five members of his family before killing himself has highlighted the psychological toll of the economic meltdown.

The bodies of Mr Karthik Rajaram, a 45-year-old business school graduate, and his wife, three children and mother-in-law, were discovered at his home in an upmarket gated community on Monday.

In a letter to police, Mr Rajaram said he had been driven to murder because of his dire economic situation: already unemployed for several months, his remaining finances were reportedly wiped out by Wall Street's collapse.

His tragic case has become a grim symbol of the US financial crisis.

Or as Los Angeles deputy police chief Michael Moore put it, 'a perfect American family destroyed by a man stuck in a rabbit hole of absolute despair'.

The Los Angeles case came less than a week after a 90-year-old woman in Ohio shot herself as she was about to served an eviction notice on the home she has lived in for the past 38 years.

The two harrowing incidents have drawn attention to the mental-health impact associated with the most serious US financial crisis since the Great Depression of the 1930s, experts say.

Chicago-based psychologist Nancy Molitor told AFP the numbers of people seeking help because of finance-related anxiety had skyrocketed.

'In my 20 years of practice I have never seen anything like this, the anxiety is through the roof,' Ms Molitor told AFP, estimating she had seen a 50 per cent increase in volume of calls.

The sense of bewilderment caused by financial crisis was comparable to the effect of the September 11, 2001 terrorist attacks, Ms Molitor said, impacting people of varying ages and backgrounds.

'This compares to 9/11 in terms of the impact, definitely. And it's significant that it isn't a Wall Street crisis as I see it - it's affecting the entire consumer economy, and almost every individual that I see.

'It's not just affecting adults, it's affecting the children. I had one 14-year-old who came to see me and said 'I'm worried my parents are going to go broke, because they're arguing more.'

'It's filtered down to almost every household I deal with. I've never seen something that has affected such a wide range of people.'

Ms Molitor said the problems varied greatly: affluent people who had lost a million dollars; couples fretting over the ability to pay for college tuition, or in one case, a 79-year-old woman who 'couldn't afford to die.'

'I thought she was kidding,' Ms Molitor said. 'But she told me 'I used to have a pretty good inheritance that I could leave my three children. If I die tomorrow they're going to get half of what they were going to get.''

Dr Judith Bardwick, a professor of clinical psychiatry at the University of California, San Diego, said the tidal wave of grim economic headlines had exacerbated widespread feelings of impotence in an era of job insecurity.

'It is a sense of fear, depression and anxiety that says no matter how hard or well I work, I have no control over my future,' Dr Bardwick said. 'So the present stinks and the future will be worse. And there's no one to help me.

'In a period of fiscal crisis, in which very visibly major institutions fail or are bailed out, and the market is riding a rollercoaster, the number of people who have these despairing views of life will naturally increase.'

The fact that the macroeconomic causes of the meltdown were not easily explained added to the sense of impotence, Ms Molitor said.

'It's a perfect storm because what breeds anxiety is a fear of the unknown,' she explained.

'I had a very bright person with a PhD in economics who said to me 'Even I don't get it. And if I don't get it, how is the average person managing a household supposed to get it?''

'There's a sense of total helplessness, which if it goes on long enough becomes hopelessness. And if that goes on long enough it becomes depression.'

In Los Angeles, authorities are urging anyone in despair to seek professional help immediately.

Mr Ken Kondo, a spokesman for the Los Angeles County Department of Mental Health, said a 24-hour service was available for anyone seeking help.

'One in five people in the United States will experience mental illness and these stressors from the economic crisis could trigger that,' Mr Kondo said.

'What we're saying is that people should talk to friends and family members, don't try and handle it by yourself. And if they feel chronically depressed or suicidal, seek professional mental health help right away.' -- AFP

Hard times for lux gds industry

CRAMANT (France) - SAVOURING a rustic lunch of tuna salad, veal stew, and red wine, Mr Benoit Gouez, chief vintner at Champagne house Moet & Chandon, took a long view of the financial crisis rocking the global economy.

'We are more than two centuries old and crisis and wars and problems, we have known them all in the past, and we are still here,' he said as pickers harvested the latest crop of Champagne grapes outside.

Moet & Chandon survived even tougher times during the French Revolution, when the aristocracy stopped buying Champagne, and the house learned to turn adversity into success by discovering how to prosper through exports.

As fortunes evaporate overnight in the maelstrom hitting world markets, it is the high end of the retail market - sports cars, haute couture, fine wines, Swiss watches, yachts - that might be expected to take the hardest and most immediate hit.

But many people in luxury goods are feeling relatively unfazed, confident that the highest echelons of wealth will always have disposable cash.

'In our opinion it's probably when the times are hard that people really like or need to dream more and luxury products are never more necessary as in the tough periods,' Mr Gouez said.

In fact, the Champagne house's unofficial motto - trotted out by staff on many occasions during a recent visit - is: 'When times get tough, you need Champagne.' Recent numbers may belie the optimism.

Champagne sales fell 2.6 per cent in the first eight months of the year to 165 million bottles, according to figures from Champagne winegrowers committee CIVC. Domestic sales were down 4.2 per cent to 89 million bottles, while exports fell 0.67 per cent to 76 million bottles.

Exports to the US have been hit particularly hard, plunging 22 per cent to 6.5 million bottles in the first six months of the year, the most recent period for which detailed export statistics are available.

There are abundant signs, however, that the luxury goods market is holding up - for now.

Ferrari expects 2008 to be another record breaking year, with 'more or less constant' sales in US and Europe topped up by growth in countries such as Russia, China and the United Arab Emirates, CEO Amedeo Felisa said.

Despite the financial crisis, some 6,000 people have expressed interest in buying Ferrari's new California, a coupe-cabriolet with a retractable hard top, which retails for around euro179,000 (S$361,672) in Europe - even before Ferrari opened its book for orders.

No Lamborghini orders have been canceled. Giorgio Armani is going ahead with a fashion hotel in central Milan. And even as Wall Street imploded last month, LVMH - maker of fancy luggage and fine liqueurs - bought Dutch mega-yacht builder Royal van Lent.

'It is true that for sure we have some signals of crisis in some specific markets and in some specific niches,' said Bain & Co luxury analyst Claudia D'Arpizio. 'But overall if we take the world ... as a complete market place, the situation is still good.'

She added that the crisis has left unscathed the 'absolute consumer' whose super wealth will remain remarkably stable in good times and bad. And emerging economic powers like China and India, while vulnerable to the financial turmoil, remain growth markets for the luxury sector.

'Even if some people are hit by the crisis, there are still more people drinking Champagne than ten years ago,' said Moet & Chandon's Gouez. 'The world has never before seen so many people being able to afford so many luxury products.'

While sales have slipped at Italy's high-end Damiani jeweler, CEO Guido Damiani is confident the dip won't be too deep.

'It's just enough for the winds to change a little, and the well-to-do will start buying again,' said Damiani CEO Guido Damiani.

Still, it appears that the financial chaos has taken some of the froth out of fashion - even if it doesn't show in the price-tag.

Stressed times call for relaxed looks, and that's what the top fashion houses presented to the world during their recent womenswear shows in Milan and Paris for their spring/summer 2009.

Designers went for bolder color palettes to portray a sense of optimism, and stuck to more practical styles that could better weather uncertain buying habits.

Mr Mario Boselli, head of Milan's Fashion Chamber, said that while there were fears buyers might skip the shows, more than 2,000 globe-trotting buyers showed up alongside more than 1,200 journalists from 40 countries - demonstrating unabated interest in the Milan runway.

One of those buyers, Saks Fifth Avenue chief merchandising officer Ron Frasch, acknowledged in Paris that it was an unpredictable moment.

'This is a tough one, this is maybe the worst I've ever seen,' Mr Frasch said.

'Clearly, the ones who are in the best position are the ones who have the strongest brand names. The ones who have the most difficulty are the ones who are either beginning to develop or trying to get their goods onto the market. It's really tough to add new brands right now.'

The bottom line is that no one knows how long the crisis will last.

While the world's luxury makers say they have the stuff to weather this crisis, they also acknowledge it is like none they have witnessed it the past.

The consumer crash after the Sept 11 terror attacks was a one-time event that wasn't repeated, and consumers slowly but surely returned to their old ways.

The current financial meltdown, on the other hand, is something that has been advancing in stages since last year's subprime crisis.

Large-scale buyers of high-end fashion won't admit they are buying less. But a sign of the times: more promotions of designer wear in department stores, creating a conflict with the designers themselves who sell their creations at full price sometimes just a few doors down.

Lamborghini's one-year waiting period makes it unlikely that its customers are buying on a whim of momentary well-being. CEO Stephan Winkelmann said during a recent interview at the carmaker's Sant'Agata headquarters that no orders have been canceled - and they weren't expecting any.

'So far we are managing quite well. We always produce below demand, so you have a buffer, an alert system,' Mr Winkelmann said. -- AP

As Global Markets Plunge, How Bad Can Crisis Get?

As global markets continue to tumble, many investors are worrying just how bad things can get. The answer: Pretty bad.

Watching market benchmarks like the Dow 10,000 fall by the wayside are bad enough. But what may be worse is the realization that while stocks eventually will recover, those hurt by the credit crisis may not.

And that, indeed, may be the true legacy of the current financial crisis.

"People can handle a stock market that goes down. Emotionally you don't like it, it hurts you, but you have some optimism that it will come back," says Dennis J. Barba, managing partner of the Oxford Group of Raymond James. "When you need to borrow money and you can't, that's something you might not be able to overcome as a business or individual. To me, that's the scariest thing of what would happen."

Investment advisers are counseling clients essentially to stay out of the markets. This is neither a buying nor a selling opportunity, they say, except for those who desparately need to liquidate.

"If we can't get confidence back in the credit markets, I don't see how equity markets move that much higher," says David Twibell, president of wealth management for Colorado Capital Bank.

Is global meltdown here? See video at left.

Still, "I think we have gone to a point where history isn't a particularly good guide anymore," Twibell says. "Based on historical patterns, we should see a bounce here."

Dire predictions abound: Some see a steep recession, others go so far as to predict a depression. Though it wouldn't be on the scale of what gripped the US in the 1930s, a depression would still inflict severe damage across the economic spectrum.

"Just the speed of communication would lend itself toward a more rapid decline than the 1930s and a more rapid recovery," says Martin Weiss, president of Weiss Research. "Suffice it to say that what used to happen in months can now happen in hours. It's a whole different time perspective. And that's a good thing. The longer it's drawn out the more opportunity it has to spread."

For Investors

* VIX at Record High on Credit Panic
* You Can Trade This Volatility
* Avoiding a Global Meltdown
* Three Ways to Benefit From Downturn
* Cramer: Stay Away From BRIC Plays
* Video: Gold to Dip to $750, Then Soar to $1,400

Weiss sees a government still unable to grasp the depth of the credit problems and without a concrete plan to solve them beyond market meddling. And while the focus is on bailing out bad banks, it should be on working with good banks that have the power to rescue the economy from its ills, he says.

Weiss also scoffs at the Federal Deposit Insurance Corp's estimate that only 117 banks are in danger of failing. In fact, he says, the number is closer to 1,500 because the FDIC's list doesn't include large banks that have failed or been forced to merge this year.

The only solution, he says, is for the government to watch its own back—by making sure government-backed securities don't suffer the same contagion that has been afflicting private debt—and by letting the free market take care of business.

"What they're going to have to do is abandon all their rescue efforts. It sounds almost unthinkable now, but that's what they should be doing and be forced to do," Weiss says. "They're going to be down to a situation where they're going to have to say it's either us or them."

Investors Getting Panicky

To be sure, the lack of volume present in Monday's stock slide suggests a more orderly selloff than might be expected. The low volume points more to a lack of buyers than an onslaught by sellers.

Much of the selling, indeed, is being attributed to hedge fund managers bailing of out positions as their fiscal year comes to a close and institutional funds looking for safety amid the storm.

"Every time I've seen a bad market like this you have to get everybody scared out of their minds and ready to throw in the towel before it ends," Barba says. "I can tell you that hasn't happened. We haven't had 30 people call saying they want to dump everything."

Still, the fear lurks, and Barba notes that he has had people calling up to say "I can't sleep at night anymore."

The market's most oft-cited gauge of fear, the CBOE Volatility Index (Chicago: VIX), soared past 50 today for the first time in nearly 20 years.

It's simple uncertainty that seems to be driving behavior right now as market pros can find virutally no models or patterns of history that provide a roadmap through the current crisis.

"We've got such an extreme amount of fear and angst in this market, you would expect we would see a bottom getting put in and we would move a bit higher for a period of time," says Twibell of Colorado Capital Bank. "I'm not sure when we get that."

Even another move by the Fed to cut its key lending rate is unlikely to have much impact, most analyts say, though there is some optimism that a coordinated effort among the world's central banks to provide liquidity could help.

"I think we're probably going to even lower than 10,000 (in the Dow). It looks like the global meltdown is upon us," Dave Rovelli, managing director of US equity trading for Canaccord Adams, said on CNBC.| See video above.

Global central bank action could help, Rovelli added, but "until that happens, I don't think we go higher. Maybe we'll have a bear market bounce, but that's about it."

How Wall Street's Meltdown Will Affect Your Career

by Rachel King

As the economy worsens, what happens to your career? Headhunters say accountants are safe -- ad execs, not so much.

Wall Street's woes could creep into every aspect of the job market, but some folks have more to fear than others, career experts say.

If you're a freshly hired middle-manager with a company that's about to be swallowed up in a merger, make sure your resume is up to date. But if you're an accountant who specializes in corporate risk reduction, now might be your time to make a power move.

In this turbulent market, says Mitchell Feldman, president of A.E. Feldman and Associates, a New York-based executive placement firm, "the real answer is that all employees are vulnerable right now."

Recruiters interviewed by FastCompany.com cited energy, green technology, and healthcare as the most recession-proof fields right now.

In the financial sector, according to Peter Crist, chairman of Crist Associates, an international executive search firm, strategic advising and private equity will continue to grow, along with new departments at financial services companies dedicated to credit- and debt-oriented services--to prevent further fiascoes.

Fields that aren't so safe include public relations, marketing and advertising--anything that can be seen as an "extra," says Jeanne Branthover, managing director of Boyden Global Executive Search. Jobs in retail, restaurants and service are also at risk, headhunters predict. Corporate law could go either up or down, say recruiters, but there will be plenty of work for attorneys in rewriting and reinterpreting the rules of Wall Street. "Finance, legal, compliance, and risk management professionals will continue to be in demand given the changing regulatory landscape," says Jeffrey Warren, co-head of Russell Reynolds Associates' financial services sector in the Americas.

"Retail banking is a safe haven with steady revenue streams and stable deposits as funding sources," Warren adds. "Any proven retail banking executives with the ability to grow businesses and develop people will be highly sought after."

No matter what your industry, headhunters say your seniority plays a key role in your job security--and not necessarily in the ways you'd expect.

Crist says those who have been in their jobs for seven to twelve years are in the safest zone. Less tenured employees, like associates and assistant vice presidents are often cut first; also vulnerable are those above the 12-year mark, he says, because their higher salaries can be a target for budget cutters.

Corporate consolidations and takeovers usually result in job cuts, with suddenly redundant administrative and middle-management positions the first to go. "If you are in a mid-level position with some moderate management accountability and no real internal or external senior interface responsibilities or visibility you will likely be in trouble," says Mickey Matthews, vice president of the North American branch of Stanton Chase International, an executive search consulting firm.

Matthews adds that "less tenured employees--or those who have jumped from company to company and not entrenched themselves in the culture and politics of their current company" are on shaky ground as well.

But volatility in the job market also presents opportunities, recruiters are quick to note. Feldman says he received a phone call on Monday morning from a hedge fund that fired an entire trading desk, and asked his firm to find replacements who understand market psychology. "A lot of musical chairs are going on right now," he says. "You have to be at right place at the right time."

Also poised to advance are junior employees who may be asked to fill bigger shoes. "With attrition, there will be an opportunity for those remaining standing to pick up more responsibility, accountability and possibly senior projects," Matthews predicts. "Some more junior people will have to be promoted sooner than normal to mid-level roles."

As for those just starting out on their careers, Feldman has three letters of advice: CPA. "It is the most valuable certificate coming out of college, and the least risky," he says. "They don't have to do it their whole career."

The securest roles are not always the most glamorous. "There are functions in companies that will always be necessary," adds Kim Bishop, vice chairman of Slayton Search Partners, "like accounting, legal support and sales."
Copyrighted, Mansueto Ventures LLC. All rights reserved.

Asian firm workers better off

MANILA (Philippines) - ASIAN employers are more likely to keep employees during an economic downturn than US companies, for whom layoffs is the top choice for coping with a slump, an international management consulting company said on Monday.

Watson Wyatt Worldwide said a survey of 1,380 employers, including 450 Asian companies, found 61 per cent of Asian employers ranked organisational restructuring - reorganising company operations to make them more efficient - as their top choice in dealing with economic difficulties.

The same percentage said a hiring freeze would be their second choice, and 46 per cent said slowing the rate of salary increases would be a third choice, the survey found, but layoffs were not among the top three choices for Asian firms.

Many Asian companies have learned from their experience during the 1997-1998 financial crisis that knee-jerk reactions like layoffs mean they will scramble and compete to get new talents when the economy recovers, said Ms Rachelle Arcebal, the company's strategic rewards director for Asia Pacific.

'With attraction and retention challenges in Asia Pacific surpassing every other region covered in the survey, companies will naturally explore other options before letting go of their employees particularly their top performers and those possessing skills critical to their business,' Ms Arcebal said.

In contrast, firing workers was the top contingency plan among 52 per cent of US employers surveyed, while 46 per cent said restructuring was their first choice in coping with a downturn.

A third of US companies surveyed for the study, to be fully released later this year, said they have no formal contingency plans - twice more than the 15 per cent of Asian companies without such formal contingency plans, said Ms Laura Sejen, a director of Watson Wyatt Worldwide, a global management consulting company.

If economic conditions continue to weaken as a result of the global financial turmoil, many companies will evaluate their staffing levels, pay programs and overall organizational structures, Ms Sejen said.

'We know from previous recessions and economic slowdowns that those companies that have contingency plans in place will be in a much better position to weather the storm and bounce back when the economy improves,' she said.

Ms Sejen warned that layoffs lead to a loss of the company's institutional memory, and alternative approaches like reduction in the work week could be a better option. -- AP

Deflation may be next threat

WASHINGTON - As countries around the world fight the worst financial crisis since the 1930s, one danger is looming larger by the day: deflation.

With asset markets tumbling, commodity prices plunging the most in 50 years and banks keeping a tighter grip on credit, the ingredients for a sustained period of falling prices are coalescing, Bloomberg News reported on Monday.

While inflation is still a concern for many policy makers only months after oil and food prices peaked, the risk is their patchwork of rescue and stimulus packages will fail, and prices will start to fall throughout the broader economy.

'The ghost of deflation could be dragged out of the closet again in coming months,' says Mr Joerg Kraemer, chief economist at Commerzbank AG in London.

A global recession is already looking more likely, with the credit freeze stirring memories of Japan's decade-long struggle with deflation in the 1990s. So European Central Bank President Jean-Claude Trichet and Bank of England Governor Mervyn King may be forced to follow Bernanke, whose Fed has chopped its benchmark rate by 3.25 percentage points since August 2007 to 2 per cent - its most aggressive round of easing in two decades.

According to Bloomberg, the deflation scenario might go like this: Banks worldwide, stung by $588 billion (S$815.3 billion) in writedowns related to toxic assets - especially mortgage-related securities - will further reduce the flow of credit, strangling growth. That will push house prices lower, forcing additional losses and making banks even more reluctant to lend.

As the credit crisis worsens, businesses will find it almost impossible to raise prices.

Prices are already falling in parts of the world economy. Home values dropped more than 10 per cent in the UK and in the US in the past year.

Oil, copper and corn drove commodities toward their biggest weekly decline since at least 1956 on Oct 3, with the Reuters/Jefferies CRB Index of 19 raw materials tumbling 10.4 per cent. The Baltic Dry Index, a measure of commodity shipping costs, has dropped 75 per cent since May.

'We are certainly more worried about deflation than inflation,' says Mr David Owen, chief European economist at Dresdner Kleinwort Group Ltd in London. Central bankers need to 'get rates down and keep them there for quite some time', he says.

Aggressive Easing
Mr Trichet said Oct 2 that European policy makers have considered reversing their decision in July to raise their benchmark rate by a quarter point to 4.25 per cent. Forty-six of the 61 economists surveyed by Bloomberg News expect the Bank of England to cut its key rate by at least a quarter point Oct 9 from 5 per cent.

The Fed has already responded to one deflationary scare this decade. With inflation approaching 1 per cent in 2003, then- Chairman Alan Greenspan slashed its rate to a 45-year low of 1 per cent and kept it there for a year, which its critics say helped fuel the property and credit boom that is now unraveling.

This time, the crisis is an increasingly dysfunctional banking system that may not be able to continue making loans that grease economic activity, said Bloomberg.

Such a pullback, combined with slowing growth and falling asset and commodity prices, makes deflation more of a threat, Owen says.

Restricting Credit
Spooked by the collapse of Lehman Brothers Holdings Inc and other institutions, banks are restricting access to credit. The London interbank offered rate, or Libor, they charge each other for three-month loans in dollars rose to 4.33 per cent on Oct, 3, the highest since January.

Not all economists share Owen's gloomy outlook. Some say Mr Bernanke and other central bankers have learned the lessons of Japan and the Great Depression so well they will do everything necessary to head off trouble.

Former Fed Governor Lyle Gramley says that while deflation is a risk 'if we were to go into a very, very prolonged recession and nobody did anything about it,' he is 'not worried', because he's confident the Fed will act 'very, very, very aggressively'.

Commerzbank's Kraemer says the Fed might also consider further easing collateral requirements or purchases of government bonds 'as a last resort'.

Mr Kraemer says he thinks a slowdown in inflation is more likely than deflation. The surge in commodity prices earlier this year drove inflation in the US, Europe and Asia to the strongest pace in at least a decade. Strategists have pointed to Paulson's rescue plan as an additional risk.

Japanese core consumer prices, which exclude fresh food, climbed 2.4 per cent in August from August 2007. The US core rate, which strips out food and energy, rose 2.5 per cent from a year earlier.

Still, deflationary forces are mounting in the US and other parts of the world economy, said Bloomberg. In Britain, the Nationwide Building Society says house prices have dropped 12.4 per cent in the past year as banks restrict the supply of mortgages, putting the economy on course for its first recession since the early 1990s.

Deflationary Consequences
'The risk we must be careful not to underestimate is the deflationary consequences of the credit crisis,' Bank of England Deputy Governor John Gieve said last month.

In the US, prices manufacturers paid for materials last month plunged the most since at least 1948, with the Institute for Supply Management's index dropping 23.5 points to 53.5 points.

The breakeven rate on US 10-year Treasuries, a measure of price expectations, dropped to 1.5 per cent from 2.6 per cent in July. Japan is the only country whose bond market implies a lower inflation rate than the US.

All this is likely to make the Fed resume rate cuts, says Mr Robert Dye, a senior economist at PNC Financial Services Group in Pittsburgh, Pennsylvania.

'If we're going over a cliff, we're not going to go over a cliff with a 2 per cent federal funds rate,' he says. 'What's the point of holding back?'

Gloom engulfs corporate India

NEW DELHI - INDIA'S corporate optimism has sunk on worries about the global economy and weakening demand, according to a new survey on Monday, as the stock market and rupee fell to fresh lows.

Some 57 per cent of the 348 firms in the cross-sector survey reported Asia's third-largest economy had grown 'moderately to substantially worse' in the first quarter of the financial year.

In the same April-June period last year, just 12 per cent believed the business climate had deteriorated, the survey by the Federation of Indian Chambers of Commerce and Industry (FICCI) said.

The findings came days ahead of the start of India's quarterly reporting season and as the stock market fell to a two-year-low amid concerns about the world credit crisis while the rupee hit a five-year low against the dollar.

The BSE benchmark 30-share Sensex index tumbled 469.65 points or 3.75 per cent on Monday to hit an intraday low of 12,056.67 - a level last seen in October 2006 - as risk-adverse investors continued to pull out funds.

The outward flow of investment pushed the rupee down to 47.35 to the dollar, its weakest level since April 2003.

As of Friday, Indian shares had lost more than 38 per cent so far this year on overseas fund outflows of US$9.17 billion (S$13.38 billion). During the same period last year, overseas funds bought US$13.62 billion dollars' worth of Indian stocks.

More than 50 percent of those companies surveyed forecast India's economy would remain the same or worsen over the next two quarters.

The global financial crisis along with 'the high cost of credit, reduced availability of funds and weak demand have created added hardship for the Indian corporates in a globalised market,' the FICCI said.

Earlier, Indian policymakers insisted it would largely escape fallout from the US-led financial turmoil thanks to its still mainly insulated economy.

But lately, policymakers have changed their tune, with the government's Economic Advisory Council warning no country can 'expect to emerge unscathed'.

Interest rates at seven-year peaks aimed at wrestling down double-digit domestic inflation have hit borrowing costs, weakening demand and corporate expansion. -- AFP

Bank failures will rise

SAN FRANCISCO - HERE'S a safe bet for uncertain times: A lot of banks won't survive the next year of upheaval despite the US government's US$700 billion (S$1 trillion) plan to restore order to the financial industry.

The biggest question is how many will perish and how they will be put out of their misery - in outright closures by regulators scrambling to preserve the dwindling deposit insurance fund or in fire sales made under government pressure.

Enfeebled by huge losses on risky home loans, the banking industry is now on the shakiest ground since the early 1990s, when more than 800 federally insured institutions failed in a three-year period.

That was during the clean-up phase of a decade-long savings-and-loan meltdown that wound up costing US taxpayers US$170 billion to US$205 billion, after adjusting for inflation.

The government's commitment to spend up to US$700 billion buying bad debts from ailing banks is likely to save some institutions that would have otherwise died, but analysts doubt it will be enough to avert a major shakeout.

'It will help, but it's not going to be the saving grace' because a lot of banks are holding construction loans and other types of deteriorating assets that the government won't take off their books, predicted Stanford Financial analyst Jaret Seiberg. He expects more than 100 banks nationwide to fail next year.

The darkening clouds already have some depositors pondering a question that always seems to crop up in financial panics despite deposit insurance: Could it possibly make more sense to stash cash in a mattress than in a bank account?

'It sounds like a joke,' said business owner Mauricoa Quintero as he recently paused outside a Wachovia Bank branch in Miami. 'But it sounds safer than the turmoil out there right now.'

Not as many banks are likely to fail as in the S&L crisis, largely because there are about 8,000 fewer today than there were in 1988.

But that doesn't necessarily mean the problems won't be as costly or as unnerving; banks are much larger than they were 20 years ago, thanks to laws passed in the 1990s.

'I don't see why things will be that much different this time,' said Mr Joseph Mason, an economist who worked for the US Treasury Department in the 1990s and is now a finance professor at Louisiana State University.

'We just had a big party where people and businesses overborrowed. We had a bubble and now we want to get back to normal. Is it going to be painless? No.'

With more super-sized banks in business, fewer failures could still dump a big bill on the Federal Deposit Insurance Corp, the government agency that insures bank and S&L deposits.

The FDIC's potential liability is rising under a provision of the bailout that increases the deposit insurance limit to US$250,000 per account, up from US$100,000.

Using statistics from the S&L crisis as a guide, Mr Mason estimates total deposits in banks that fail during the current crisis at US$1.1 trillion. After calculating gains from selling deposits and some of the assets of the failed banks, Mr Mason estimates the clean-up this time will cost the FDIC US$140 billion to US$200 billion.

The FDIC's fund currently has about US$45 billion - a five-year low - but the agency can make up for any shortfalls by borrowing from the US Treasury and eventually repaying the money by raising the premiums that it charges the healthy banks and S&Ls.

Through the first nine months of the year, 13 banks and S&Ls have been taken over by the FDIC - more than the previous five years combined.

The FDIC may be underestimating, or least not publicly acknowledging, the trouble ahead. As of June 30, the FDIC had 117 insured banks and S&Ls on its problem list. That represented about 1 percent of the nearly 8,500 institutions insured as of June 30.

Entering 1991, about 10 per cent of the industry - 1,496 institutions - was on the FDIC's endangered list.

Although the FDIC doesn't name the institutions it classifies as problems, this year's June 30 list didn't include two huge headaches - Washington Mutual Bank and Wachovia. Combined, WaMu and Wachovia had more than US$1 trillion in assets; the assets of the 117 institutions on the FDIC's watch list totalled US$78 billion.

Late last month, WaMu became the largest bank failure in US history, with US$307 billion in assets, nearly five times more, on an inflation-adjusted basis, than the previous record collapse of Continental Illinois National Bank in 1984.

The FDIC doesn't expect WaMu's demise to drain its fund because JP Morgan Chase agreed to buy the bank's deposits and most of the assets for US$1.9 billion.

Regulators dodged another potential bullet by helping to negotiate the sale of Wachovia's banking operations to Citigroup Inc. in a complex deal that could still end up costing the FDIC, depending on the severity of future loan losses.

On Friday, a battle of banking giants erupted when Wachovia struck a new deal with Wells Fargo without government help, and Citigroup demanded that it be called off.

The banking outlook looks even gloomier through the prism of Bauer Financial Inc., which has been relying on data filed with the FDIC to assess the health of federally insured institutions for the past 25 years.

Based on its analysis of the June 30 numbers, Bauer Financial concluded that 426 federally insured institutions are grappling with major problems - about 5 per cent of all banks and S&Ls.

About 15 per cent of the banks on Bauer's cautionary list have more than US$1 billion in assets. Not surprisingly, the troubles are concentrated among banks that were the most active in markets where free-flowing mortgages contributed to the rapid run-up in home prices that set the stage for the jarring comedown.

By Bauer's reckoning, the largest numbers of troubled banks are in California, Florida, Georgia, Illinois and Minnesota.

'It's important for people to remember that not all these banks are going to fail, just because they are on this list,' said Ms Karen Dorway, Bauer Financial's president. 'Many of them will recover.'

Mr James Barth, who was chief economist of the regulatory agency that oversaw the S&L industry in the 1980s, doubts things will get as bad as they did then.

'It's scary right now, but it's not as scary as a lot of people are making it out to be,' said Mr Barth, now a senior fellow at the Milken Institute, a think tank.

The tumult is creating expansion opportunities for healthy banks.

Industry heavyweights like JP Morgan, Citigroup and Bank of America have already rolled the dice on major acquisitions of financially battered institutions in hopes of becoming more powerful than ever.

Smaller players like Clifton Savings Bank in New Jersey are bragging about their relatively clean balance sheets to lure depositors away from rivals that are wrestling with huge loan losses. The bank, with about US$900 million in total assets, says just one of its 2,300 home loans is in foreclosure.

'There is going to be a flight to quality,' predicted Mr John Celentano Jr., Clifton Savings' chief executive. 'People are going to start putting their money in places that were being run the way things are supposed to be run: the old-fashioned way.' -- AP

A lot of humility will return

Some wise words from Richard Hartung, a former banker who wrote a piece for Weekend Today. The following is (apparently) only available in the printed edition of this weekend’s Today:

“The market will reprice itself… A boom tends to over-reward everybody as young executives rush in to become investment bankers, private bankers, property agents, stockbrokers, remisiers, personal bankers, etc. During a boom, the good returns from transactions fail to separate the wheat from the chaff, and even the incompetent gets rewarded. Now that the market has been brought back to earth, the system can start redistributing jobs according to real talent again. Young investment bankers will be laid off and the remaining will need real talent to survive. A lot of humility will return.”

受金融风暴影响 香港楼价下跌成交减少

（香港中通社电）金融海啸引发的金融股市大动荡，令全球经济前景转为黯淡。香港楼市在过去三个月下跌10%，而业内人士预料，楼价持续受压，至年底楼价将再有一成的降幅。

　　据地产中介机构公布的数据显示，过去的一周香港二手楼成交量下跌11%，成交量创2006年12月以来的新低。

　　花旗昨日发布报告称，对房地产业更加看淡，预计房地产公司的盈利将被继续下调，这将给股价带来进一步的压力。

　　预计香港房地产市场的螺旋式下降将继续。

　　高盛前日的报告也预计，香港住宅地产价格的下跌速度要快于早前该行的预期。

Outlook remains bleak

NEW YORK - THE United States government may have enacted a landmark US$700 billion (S$1 trillion) bank bailout, but jittery investors remain doubtful if it is able to contain a panic that began on Wall Street and spread to become a global financial crisis.

'This probably comes a bit too late. If this had been done earlier, it probably would have had a much bigger impact in restoring confidence,' said economist Anna Piretti, at BNP Paribas, of the plan passed by the US House of Representatives last Friday (early yesterday morning, Singapore time).

Stocks, which had been higher before the vote, dropped, with the S&P 500 index closing at its lowest level in almost four years. The Dow declined 157.47 points, or 1.5 per cent, to 10,325.38. The dollar was also in retreat.

Signs of a looming recession continue to spook investors,and analysts cautioned that it was still unclear whether the US bailout plan would work as advertised.

US Treasury Secretary Henry Paulson said he would move quickly to buy up distressed assets from banks. But Mr David Kelly, chief market strategist of JPMorgan Asset Management, said: 'There are more questions than answers out there still. Even if the banks do participate, how willing will they be to make new loans into the economy if they can get rid of the bad ones?'

In signs of the spreading crisis, the state of California said it was running out of money, France said the world stood on the 'edge of the abyss', and European leaders were split yesterday as they headed for a summit to seek a collective response to the banking sector's difficulties.

A collapse in the US housing market and resulting bad mortgages have shattered confidence in the financial sector, with banks across the US and Europe needing support from governments or outside investors.

Interbank lending and credit to businesses and private individuals have all but seized up.

A Labour Department report last Friday that the US economy lost 159,000 jobs last month added to the gloom. Some economists are predicting the US economy will contract in the months ahead. Those developments did not bode well for the corporate earnings that investors watch closely, creating a dour outlook.

'Investors still have to face some significant challenges in the broad economy that can't be magically removed by a group of our congressional leaders,' said Bessemer Trust's chief investment officer Marc Stern.

Analysts said it might take several days before the effect of the Bill's approval could be seen on the credit markets.

On Friday afternoon, the signals were mixed: High-yield bonds eased slightly but Treasury bills moved against expectations, becoming more expensive as investors remained nervous about emerging from the safety of government notes.

It was too soon to tell whether interest rates that banks charge one another for overnight loans - a crucial measure of the flow of credit to businesses and consumers - would fall.

Said market strategist Douglas Peta of the bailout plan: 'Credit is the lifeblood of the economy. Until the short-term funding markets start behaving regularly, and until banks are willing to play their role in the system, the direction in stocks is going to be down.'

New York Times, Reuters

More banks may get help

LONDON - BRITAIN'S Treasury chief said on Sunday that he is ready to step in to save any more banks that get into trouble.

Alistair Darling said the government was willing to take 'pretty big steps that we wouldn't take in ordinary times' to help Britain weather the credit crunch.

In the past year the government has acted to nationalise struggling mortgage lenders Northern Rock and Bradford & Bingley.

Darling told the BBC that the government also had provided billions of pounds (dollars) in support to the banking sector.

He said it was 'important to take generalised action as well as being ready to take particular action if you get a particular problem with an individual bank.'

Europe is struggling to respond to the financial crisis that originated in the US housing sector.

The leaders of Britain, France, Germany and Italy called for coordinated action after an economic crisis summit Saturday, but offered few concrete proposals and shied away from the sort of huge banking bailout passed by the US Congress a day earlier.

Britain's new Business Secretary, Peter Mandelson, on Sunday criticised Ireland and Greece, which have angered other European Union countries by unilaterally guaranteeing all depositors' savings in their banks.

Mr Mandelson said European countries should act together because their economies are interdependent.

'We are all in this together,' he told Sky News. -- AP

China can bear financial crisis

BEIJING - CHINA'S economy is strong enough to withstand the impact of the global financial crisis and may even help the world by maintaining fast growth, Premier Wen Jiabao was quoted as saying on Sunday.

'Our economic fundamentals haven't changed, and the economy is moving in the direction we expected,' Mr Wen was quoted as saying by the state-controlled Xinhua news agency.

'The strength of our financial institutions has generally increased, and their ability to make money and withstand risk has risen. Market liquidity is ample and the financial system is stable and safe,' he said.

'This will help us withstand any negative external impact. We're full of confidence in the development of the economy, and in the stability of the financial system.' Mr Wen, who made the remarks during an inspection tour to south China's Guangxi Zhuang region, said the best way his nation could help would be by ensuring fast economic growth at home.

'If a large country of 1.3 billion people can keep up stable and relatively fast economic growth, that's a big contribution to the world,' he said, according to Xinhua. -- AFP

HEAVILY exposed to the global economy, Singapore will see an economic slowdown that will last not just one or two quarters, but 'several quarters', said Finance Minister Tharman Shanmugaratnam on Sunday.

In tandem, unemployment is expected to increase.

But he also sounded a note of optimism, saying with its strong fundamentals, Singapore will ride out the crisis - and emerge better than most countries.

Mr Tharman was addressing some 300 grassroots leaders and residents of Toa Payoh East, after a three-hour walkabout which saw him, among other things, opening an exercise corner for the elderly.

Accompanied by MPs from the Bishan-Toa Payoh GRC including Toa Payoh East MP Josephine Teo, it was his first ministerial walkabout since taking charge of the finance portfolio this year.

During the 80-minute dialogue that followed, residents asked 13 questions ranging from foreign talent to greater rewards for grandparent caregivers.

But the focus was on the darkening economic outlook amid increasingly gloomy news from the United States - and the world - on what some have termed 'the worst financial crisis since the 1930s'.

So grassroot leader Raymond Teo, 39, wanted Mr Tharman's opinion of the US$700 billion (S$1 trillion) package to bail out the US troubled financial institutions, and how it impacts Singapore.

The minister expressed relief the US Congress had supported the package as it is a step forward.

But it is 'not a full solution' in addressing the real malaise - shortage of capital in the banks, he noted. This, the new US President would have to work out when he takes over in Jan.

And because the problems are 'deep and extensive', it will take 'a year or two' before the world emerges from the crisis, he later told reporters.

Meanwhile, the crisis has moved into what he calls 'its second phase'.

'It's no longer just a financial crisis,' he said. 'It is now an economic crisis.'

15 Things You Need to Know About the Panic of 2008

15 Things You Need to Know About the Panic of 2008
A crash course in why it happened, how it's strangling the nation's finances and how it might work itself out.
By Fred W. Frailey, Editor, Kiplinger's Personal Finance

1. It all began with cheap money. To prop up ailing economies early in this decade, central banks in the U.S. and Japan kept interest rates unusually low, which encouraged speculation. In the U.S., the Federal Reserve lowered the federal funds rate -- the rate that banks charge each other for overnight loans and a barometer for the cost of borrowing money on a short-term basis -- from 6.5% in 2000 to 1% by mid 2003. Cheap money quickly ignited a sharp rise in home values in virtually every corner of the country.

2. Financial magicians made subprime loans golden. Banks and mortgage companies fed speculation in home prices by offering cheap credit to all comers, including those who would not normally qualify. What to do with these subprime loans? Package them with thousands of high-grade loans to sell to investors. To make the subprime loans attractive, underwriters bought insurance policies guaranteeing that the loans would be repaid. With insurance on the loans, credit-rating agencies stamped such paper as triple-A-rated debt.

3. The global economy became infected with poisoned debt. The loans came to investors as collateralized-debt obligations, or CDOs. A CDO is a huge package of loans sold in assorted segments -- known as tranches -- with varying interest rates and levels of risk. Buried inside the least-risky tranches were those subprime mortgages masquerading as triple-A-rated debt because of their insurance policies. Companies that wrote the insurance policies on these mortgages assumed that default levels would be minuscule.

4. So much for those assumptions. Home prices tipped downward, setting off a chain reaction. All bubbles eventually burst. The Fed began raising short-term interest rates in 2003, eventually boosting the federal funds rate to 5.25% by the summer of 2006. As a result, adjustable-rate mortgages (particularly the subprime variety) began to reset at far higher interest rates, and in July 2006 the rise in home prices abruptly stopped. In fact, home values began a descent that continues to this day, in many communities averaging a loss of 15% to 30%. As borrowers realized their homes were worth less than the amount they owed on their mortgages, the default rate shot up.

5. Rating agencies lowered their assessment of those supposedly triple-A subprime loans to junk levels. The investment and commercial banks, pension funds, and other institutions that had bought the supposedly safe, triple-A-rated CDO tranches woke up to find their investments tainted by those poisonous subprime loans, which began to default at alarming rates. Holders of these CDOs found it all but impossible to know what they were really worth. And when they tried to sell them, there were few buyers -- the beginning of a seize-up of U.S. debt markets.

6. A wave of write-downs on the value of those loan packages commenced. Financial accounting standards require banks and investment companies to "mark to market" the value of their assets each day. If it's impossible to value a security because there is no market for it, too bad -- make a smart guess. Starting in 2007, one financial institution after another announced a series of quarterly write-downs of hard-to-value and unsalable CDOs that turned into a financial tidal wave.

7. Financial institutions were revealed as vastly undercapitalized. As the quality of their debt portfolios deteriorated, investment banks wrote off billions of dollars of bad assets each quarter, causing their reserves to shrivel. Commercial banks are leveraged with perhaps ten times as much in assets as capital. But some investment banks leveraged themselves more than 30 to 1, to the point that should anything go seriously wrong with those assets, their businesses could fail. The same held true of Fannie Mae and Freddie Mac, which own or guarantee more than $5 trillion in mortgage debt.

8. A cloud of suspicion and distrust enveloped financial markets. Surprised by these developments, investors large and small realized that stocks of supposedly stable financial institutions were in fact ticking time bombs and began selling their shares. Banks, which routinely lend each other money overnight, curtailed those loans because they began to lose faith in the value of the collateral the borrowing banks were offering.

9. The gathering storm set off a sickening wave of failures. One of the first banks to fail was California's IndyMac, which was a leader in subprime lending. Countrywide, the biggest mortgage lender, sold itself to Bank of America to avoid insolvency. This spring, Bear Stearns, the most overextended of the investment banks, failed, and the government arranged a forced marriage with JPMorgan Chase. Then in September, to avert a collapse of Fannie Mae and Freddie Mac, the government seized control of them by putting them in a conservatorship that made Uncle Sam the explicit guarantor of mortgages they owned or insured.

10. Lending of all sorts started to freeze up. First to coagulate, last winter, was the market for auction-rate securities. These are long-term debt securities whose interest rates are regularly reset, so that they behave more like short-term notes. With no buyers, investors in these notes were stuck. By September, even overnight loans among banks had dried up. And despite hundreds of billions of dollars in cash that central banks around the world pumped into banks' coffers, few banks put that money to work for fear it would be needed to shore up their own finances. Recently, investors began withdrawing tens of billions of dollars from supposedly supersafe money-market funds, which invest in, among other things, short-term corporate debt.

11. And government could not steady the boat. Nothing that Washington tried -- lowering interest rates, flooding the economy with gazillions of dollar