Smart Investing/Trading for the week ending November 28 2008

US markets update and outlook





Stocks seek more gains on hopes worst is past
U.S. jobs report on tap along with interest rate decisions in Europe

MarketWatch: Stocks will enter the month of December with a sense of optimism that much of the dismal environment for corporate profits has already been discounted by the market, even as upcoming reports, including the key jobs report on Friday, are expected to show the economic picture is still worsening.

Next week, "we'll have a slew of economic numbers, including what I expect to be a rise to 6.7% in unemployment in November," said Peter Cardillo, market economist at Avalon Partners. However, "the market has already priced in another quarter or two of real bad economic news, and that things could start to stabilize in the second quarter" of next year, he said.

Dow's best 5-day gain ever

The market gained on so-called Black Friday, marking its fifth-straight session of gains, with grim prospects for retailers failing to dent optimism at the traditional start of the U.S. holiday-shopping season. The Dow Jones Industrial Average finished up 102 points, or 1.2%, at 8,829. While the blue-chip average fell 5.3% for the month of November, it jumped 9.2% over the past week. Even more impressive, the Dow gained 1,277 points, or 17%, in just five sessions, marking its best five-day percentage gain since 1932, and its best five-day point gain on record. The S&P 500 Index rose 8 points, or 1%, to 896 Friday. The broad index fell 7.4% in November, but it surged 12% for the week. The Nasdaq Composite Index gained 3 points, or 0.2%, to 1,535. The technology-heavy index jumped 11% for the week and had a monthly loss of 10.8%.

A turning point for the market seemed to start a week ago, with the market gaining more confidence as President-elect Barack Obama began unveiling his economic team. On Wednesday, Obama appointed former Federal Reserve Chairman Paul Volcker to head a newly created White House advisory post. "The pool of people the president-elect has chosen has been greeted well," said Ken Tower, market strategist at Quantitative Analysis Service. "Restoring confidence is an important step for the markets and the economy." Adding to the positive tone, the government stepped in to bailout Citigroup Inc., which allowed shares of the ailing bank to rebound 120% over the past week after plunging below $4 amid fear about its future. And continued hopes for a bailout of the U.S. auto industry also helped shares of General Motors Corp. to rebound over 70%.

On Tuesday, GM, Ford Motor Co. , Chrysler and other automakers will post what are again expected to be dismal U.S. sales for the month November. Over the past week, the Federal Reserve also announced it would spend $800 billion to buy debt in order to lower borrowing costs for consumers and home buyers. The move helped to send the yields on 10-year government bonds, which are used to benchmark mortgages, below 3% to their lowest level on record. "The market is getting the message that we're looking at a stabilization process," said Avalon's Cardillo. "The credit markets are likely to be behaving in a more normal way towards the end of the year." On Thursday, Fed Chairman Ben Bernanke is also expected to speak on housing at a Fed conference in Washington.

Data, central banks

On Monday, the Institute for Supply Management will release its manufacturing survey for November. Construction spending figures for October will also be released. Tuesday will feature U.S. auto sales while Wednesday will bring the November ADP employment survey of the private sector, productivity figures for the third quarter and the ISM's November survey of the service sector of the economy. Also on Wednesday, the Fed is expected to release its Beige Book of economic conditions, which is "likely to paint an even bleaker picture than the October report," as it captured a near seizure in credit markets "and the resulting knock-out punch to consumers and businesses," said Sal Guatieri, senior economist at BMO Capital Markets. On Thursday will be weekly jobless claims. Federal Reserve Chairman Ben Bernanke is also expected to speak on housing at a Fed conference in Washington. Also on tap, the European Central Bank and the Bank of England are expected on Thursday to make decisions on interest rates. Friday will bring the jobs report. BMO Capital expects the economy to have shed 350,000 jobs in November, and the unemployment rate to have risen to 6.8%, from 6.5% in October.

Weekly KLSE Plantation Index Update and Outlook

ICap: From a technical standpoint, the Plantation Index is now trying to engineer a rebound as it has been consolidating for about a month. Its weekly stochastic oscillator has finally strengthened to the neutral position after being flattish for three months. Its weekly MACD is also showing an initial uplift from the deep bearish territory. It looks like there is potential for further recovery. The Plantation Index has been moving in tandem with oil price, and thus, it is crucial for oil price to regain its glory to boost up the index. Are we still far away from this or is the selldown in commodity prices overdone?


* GM ends an endorsement deal with Tiger Woods worth USD7m per year to cut cost in order to survive in the prevailing market condition. Tiger has been with GM for the last 8 years.

* Malaysia's economy posted a growth of 4.7% in Q3(Q2 6.7%)

* Zeti: Malaysia will not slip into recession.

* BT: Genting getting more downgrades from research houses. Citi TP for Genting RM3.79 (from RM3.88) and JP Morgan TP RM3.70 (from RM6.40)

Happy Franksgiving!

According to Wikipedia, thanksgiving is a harvest festival. Traditionally, it is a time to give thanks for the harvest and express gratitude in general. It is primarily a North American holiday which has generally become a national secular holiday with religious origins. Here is an interesting article about thanksgiving, or rather franksgiving and its relevance to the era of Great Depression. Why you may ask? Kindly read on......

Franksgiving - one more lesson from the Great Depression

Faced with the scale of the current financial crisis, many economists have turned to the Great Depression to look for policy lessons. Tyler Cowen, a professor at George Mason University, shared his thoughts on the topic recently in the New York Times. His take? The New Deal Didn't Always Work, Either. Faced with an unprecedented crisis, Roosevelt experimented with a mix of policies, and some worked and some did not.

Here's one of the (now long-forgotten) policies that did not work: Franksgiving. Nowadays, the U.S. celebrates the holiday of Thanksgiving on the fourth Thursday of November. It wasn't always that way, though. Traditionally, Americans celebrated Thanksgiving on the last Thursday of November. Every few years, there are five Thursdays in the month of November, and 1939 was one of those years. Unfortunately for retailers, this meant that the Christmas shopping season would be very short.

Enter Lew Hahn, general manager of the National Retail Dry Goods Association. He suggested that the date of Thanksgiving be moved forward to help boost retail sales. In late October 1939, Roosevelt announced that Thanksgiving would be on November 23 rather than November 30. National outcry ensued, and Thanksgiving was christened with the name Franksgiving (after Roosevelt's first name). Alf Landon, Roosevelt's opponent in the preceding election, compared Roosevelt's actions to Hitler's:

"If the change has any merit at all, more time should have been taken working it out... instead of springing it upon an unprepared country with the omnipotence of a Hitler."

The result? At least according to Wikipedia(no citation is given), the Commerce Department found no significant expansion of retail sales. The only lasting consequence is that Congress eventually changed the law to establish the fourth Thursday of November as Thanksgiving. This year Thanksgiving falls on the 27th, so Americans will have just under four weeks for holiday shopping. Perhaps it won't be enough to revive the global economy, but it's better than only three weeks.

By Ryan Hann (http://psdblog.worldbank.org/psdblog/2008/11/franksgiving--.html)

* Violence brewing in Asia- India and Thailand.

* Financial markets seem to be on the rise again? Defying the gloomy economic pictures and technical charts....

* FT.com: The cost of shipping dry bulk commodities such as iron ore, coal and grains plunged to a near 22 year low on Wednesday. The Baltic Dry Index fell 5.1% to 762, lowest since January 1987. The index has tumbled 93.5% from all time high of 11,793 points in May.

*TheStar: Local steel makers are making provisions for their inventories following sharp decline in prices of raw materials and finished products. Perwaja wrote off RM120.2m while Choo Bee RM22.3m.

* Bloomberg: The People's Bank of China yesterday cut its 1 year lending rate by 108 basis points to 5.58%. Slow growth is worrisome in China.

* Bloomberg: China's foreign reserves now top US2T!

Bailouts bring the bottom in sight?

The recent series of bailout plans brokered by governments have somewhat sooth and relaxed the nerves of many wary investors. Citigroup's financial woes were taken calmly by investors as they correctly predicted that the Government will step in. Is the worse over and have the bailouts bring bottom in sight as hailed by many analysts recently? In the short term, yes but for the longer term, I really doubt so. The financial rut is far from over and many economies have just begun feeling the pinch of global slowdown. The drop in property prices in China and unemployment woes will probably be the next big issues to unfold. Others even boldly predicted the collapse of USD and long dated US bonds etc.

Interestingly, we are beginning to witness the calling off of large Merger and Acquisition activities which were proposed earlier before the financial crisis went global. Yesterday, we were made known the calling off of the proposed USD66b takeover bid by BHP for its rival miner Rio Tinto. BHP's shares rose 10% in the early trading in London yesterday while Rio's shares dropped 40%. Also, as announced after trading hours yesterday, MISC's RM3.2b reverse takeover of Ramunia also fall apart. Similarly MISC's shares price went up 6% today's afternoon while Ramunia's went limit down twice with a 53% drop. Although the buyers above(BHP and MISC) cited other reasons for the failed plan, it is a known fact that the both the M&As failed due to the continued declining of commodities prices and turmoil in the financial markets. Take oil for an example. The price is now 40% below its opening price for the year while it has dropped 60% of its July peak.

So if the above two examples are of any indication M&As activities were to slow down or coming to a stand still, how can the financial markets have reached its bottom yet and our worse woes are over?

* TheMalaysianInsider: Tourism Malaysia will advertise "Malaysia-Truly Asia" through Australian Football club Carlton Blues's jersey for AUD1m? Currently, the Blues are ranked 11 of the AFL's standing.

* US Q3's GDP growth falls 0.5% amidst sharpest contraction in consumption since 1980.

* Bloomberg: Fed risks "spitting in the wind" with the new USD800b pledge.

* Indonesia considering a USD3b crisis loan to help the county whether the global financial crisis.

More on Bursa Trade Securities

As mentioned last week, Bursa Trade Securities, a new trading system for Bursa will be implemented next week, Monday December 1 if this Saturday's final test run goes smoothly. Since this new system, the fourth for Bursa, is new to everyone, it would be advisable for Bursa to quickly and aggressively inform the public and the users (brokers, remisiers, dealers and investors who may be trading from the internet or simply for viewing purposes only) the salient features of the system. Like any new systems, familiarisation is needed for brokers and investors. Borrowing the words from Bursa's general advertorial out only today, "Investors should note that understanding and utilising an extremely fast system requires added vigilance and care on their part to reduce transactional errors"

The practical features of Bursa was mentioned here before and it would be good to relook at them again. Below are further practical features/information on Bursa Trade that I am aware of recently and wish to share with you. Like anyone else, I am totally new with this system and you may have to verify yourself the correctness of the information provided below or may want to add further comments on the features of the system here.

1) For Remisiers/Dealers-your trading screen needs to be reset again (one off only) to incorporate some additional fields eg Theoretical Opening Price and Theoretical Closing Price, Odd Lots/Buyin and Stock Status-which provides details of Reserves and Suspension details.

2) For Internet Users-your e-broking houses will guide you via their website to a new trading platform.

3) Odd lots orders will need to be carried forward to the next trading session unlike the previous system.

4) Off market trades (or DBT-Direct Business Trade)

-No more upper/lower limit 10% of price to be traded for shares RM1 and above. The limit has been lifted to 15% in the new system. For share price below RM1, the upper and lower limit has been changed to 15 sen.

-Any trades more than 15% up to 99% in price requires Bursa's approval which will come within 3 market days(previously 10 market days).

-If DBT is to be done between 830am to 10am, PriceWap(information available from Trading Department) will be used while after 10am, VolWap will be used (available on the trading screen, calculated hourly).

-DBT can be done during lunch time.ie 1230-230pm.

-once DBT is done, the buyer/seller cannot be amended anymore.

5) Trade cancellations

-According to circulars from Bursa RR10 and RR11, there are 3 ways Bursa can cancel trades in the market. (i) If it is Bursa's own mistake, 2) If both parties (buyer/seller) agree to cancel the trade -but a penalty of RM1,000 per cancellation must be borne by the party who did the mistake and 3) If Bursa suspects the trade is tantamount to manipulation, market rigging and no change in beneficial ownership. Bursa can cancel the trade at anytime before T+3.

Kindly also refer to http://www.bursatrade.com/ for further information.

* Snows bury Northern Europe!! (picture China Daily)

* Bloomberg: London, Midtown Manhattan, Tokyo office rents post first drop since 2002.

* Bloomberg: Qantas says profit may fall 64% in this financial year.

* TheEdge: Temasek agrees to subscribe at least USD542m of Standard Chartered's Rights Issues. It currently owns 19% of the bank.

* This is worrisome. World Bank says China's 2009 GDP growth expected to slow to 7.5% (from 9.2%) as economic crisis spread. (CNBC)

* Finally BNM did what other central banks have been doing. OPR has been reduced by 25 basis points to 3.25%. Also the SRR has been reduced to 3.5% from 4%. The last SRR cut was in September 1998. According to analysts, the reduction will affect mainly banking and consumer related sectors.

* MISC's proposed RTO of Ramunia is off due to unsatisfactory due diligence findings!!! This is going to be bad for Ramunia and shareholders. Seems that everyone is caught unaware!!

Technical Analysis - November 24 208

S&P500 (800, last week 873 or -8.37% w.o.w )

Finally, the daily indicators have all succumbed to the selling pressure during last week. The daily MACD and Histogram have all shown a negative signal for the last 4 trading sessions while the daily Parabolic SAR is showing bearishness. For the weekly readings, the indicators continued to show weakness. Sell again on the rebound. Support is around 750 and resistance at 850.

KLSE CI (867, last week 882 or -1.7% w.ow)

The daily MACD remains in the positive but continues to weaken. However the Parabolic SAR which was positive the week before has turned negative for the last 2 trading sessions suggesting a downtrend is on the way. The daily ADX and DMIs are still giving a sell signal. The weekly charts are still in a negative territory. If the S&P500 index continues to give a SELL signal, the index will without doubt follow suit. The index is expected to trade between 830 and 950.

HangSeng (12,659, last week 13,543 or -6.5% w.o.w )

The daily indicators eg MACD are at a cross road now. If the index does not go up for the next 2 trading sessions, it will without doubt generate a SELL signal. As such it is crucial that the index perform well in the next few trading sessions. The weekly charts are still in a negative territory. If the S&P500 index continues to give a SELL signal, the index will without doubt follow suit. Support is seen at 12,000 and resistance at 14,000.

Nikkei 225 (7,911, last week 8,462 or -6.5% w.ow)

Just like the HangSeng, the daily indicators eg MACD are at a cross road now. If the index does not go up for the next 2 trading sessions, it will without doubt generate a SELL signal. As such it is crucial that the index perform well in the next few trading sessions. The weekly charts are still in a negative territory. If the S&P500 index continues to give a SELL signal, the index will without doubt follow suit. The index is expected to trade between 7,000 and 8,800.

* "D" is a dirty word in the finance world? Deflation, Deficit, Debt, Depression, Down, Dive, Devalue, Deleverage.....

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* AFP: IMF says global crisis will get worse and economic situation won't improve until 2010. So far, it has helped in financial distress countries like Iceland, Hungary, Ukraine, Serbia and Pakistan. Next in line would be Lativa. It has spent 1/5 of its USD250b fund in these countries in the last 2 weeks.

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* It will not stop till there is blood in the street? Now seen in Iceland after the economy fall apart with a banking collapse in October and its currency-Krona- has lost half of its value since January. I believe there will be more social unrest soon in many other less well "prepared" countries.

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* Will BNM cuts the OPR rate of 3.5% held since 30 months ago in their last rates meeting for this year? Half of the economists surveyed by TheEdge says so while another half says it will only cut in the 1Q2009.

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* BT: Goldman Sachs' s forecast on Genting International -maintains Neutral- TP 0.45 SG cents from 0.56 SG cents..

* YahooFinance: CitiGroup which will shed more than 50,000 jobs will get a USD306B loan guarantee and a USD20b of government cash.

Smart Investing/Trading for the week ending November 21 2008

Weekly US markets update and outlook

Stocks look for respite in holiday-shortened week
Obama's picks of Geithner, Clinton, Richardson seen reducing uncertainty

Marketwatch: U.S. stocks will start next week with investors looking for some respite after reports of key nominations to the administration of President-elect Barack Obama helped stem heavy selling that had slammed the market to 11 year lows.In particular, the nomination of Tim Geithner, currently the head of the New York Federal Reserve, as the next treasury secretary, seemed to find immediate approval from Wall Street, judging by a market rally that saw the Dow industrials jump nearly 500 points Friday. "That's good news," said Robert Pavlik, market strategist at Oaktree Asset Management. "Now we have a team that can come together and start coming up with a plan. The foundation has been laid to start addressing the situation." The New York Times reported that Sen. Hillary Clinton has accepted Obama's nomination to be secretary of state. NBC news reported that besides Geithner, the president-elect has selected Bill Richardson, a former energy secretary under President Bill Clinton, as his nominee for commerce secretary.

An avalanche of reports on the economy next week, which will be shortened by the Thanksgiving holiday on Thursday, could also provide further evidence of the depth of the recession. But "there's a possibility that we have a decent week because there won't be many people at their trading terminals," said Paul Nolte, director of investments at Hinsdale Associates. On Friday, the Dow Jones Industrial Average jumped 494 points, or 6.5%, to 8,046, following the reports. But the rally still barely made a dent in the week's heavy losses, which left the Dow 6.5% lower, the S&P 500 index down 6.3%, and the Nasdaq Composite, off 8.7%.

On Thursday, stocks took a nosedive, with the S&P 500 ending at its lowest level in more than 11 years, battered by mounting worries about the fate of U.S. automakers and Citigroup Inc. Citigroup shares plunged 50% over the past week, slumping 20% on Friday alone, even after reports that the bank might put itself for sale.

"When a major institution has to consider selling itself up or selling assets at a discount value, that's not a good sign," Pavlik said. Financial stocks have taken another round of hits after current Treasury Secretary Henry Paulson said he would not spend more of the $700 billion from the Trouble Assets Relief Program. Meanwhile, Congress postponed debates on aid to the Big Three automakers -- General Motors Corp., Ford Motor Co. and Chrysler Corp. -- further fueling fears about the economy just a day after Federal Reserve officially said the U.S. was in recession.

Following Thursday's plunge, the S&P, the market benchmark most followed by professional investors, had lost nearly 52% since its record high close on Oct. 9, 2007. "Have we discounted the worst? I hope so," Nolte of Hinsdale Associates said. "But I don't know. Not only when you look at the problems in banking, but the technical picture in the market is not yet healthy." Investors scrambled for a safe haven as concerns mounted about the health of financials and the economy, sending gold futures back above $800 an ounce, up 6.6% for the week. On the other hand, economic concerns drove oil futures to plunge 13% on the week.

Economic data

Of particular interest for the market next week will be housing data -- October existing home sales on Monday, new home sales on Wednesday, and the S&P/Case-Shiller home price index for September on Tuesday. Tuesday will also bring the Conference Board's consumer confidence index for November. Wednesday will be data-heavy, with weekly jobless claims, another reading of third-quarter growth, personal income data, a manufacturing survey from the Chicago region in November, and durable goods order for October. "Worries about automakers, the weak economy, massive layoffs and weak consumer spending, it will still be the same next week," Pavlik said. "But [the market has] declined so much, that some people might be willing to step in just because stocks seem cheap."

Weekly KLSE CI Technical update and outlook

ICap on daily KLSE CI. The increased level of volatility has been seen across the global markets and when it is coupled with weakening fundamentals, it makes it extremely hard to predict when the bear will end. Meanwhile, its daily MACD's bullish signal is now waning, accompanied by its stochastic oscillator that has turned down amid the declining trading volume. The KLSE CI is unlikely to move out from the downtrend soon.

* Do the predominently Muslim countries like Indonesia, Middle East, Pakistan or Turkey allow their Muslim countrymen practice Yoga?? (read here for Malaysia's top Islamic body's ruling)

* Bloomberg: The Aussie/NZ dollars dropped to their 5 year and 6 year low respectively. 1 AUd: 60.76 US cents, 1 NZD: 52.39 US cents. The RBA has been active lately in the money market. In fact for the month of October, almost USD2b worth of AUD was bought to prop up the currency.

* Argentine Senate approves takeover of USD24B in pensions resulting opposition crying out "cash grabbing" by the government.

* BT: Bruce Willis to sue Vinod Sekhar(Petra) and Imran Tunku Jaafar saying USD900,000 of the USD2m he invested in a "green rubber" venture wasn't returned to him! He seems to be of the opinion, "If you don't sue and make it public, you will not get your money back"!

* Japan's central bank has left its key interest rate unchanged at 0.3%.

* First Dr M, now Najib?......Call for changes in the world financial markets architecture....via another Bretton Woods. Yes, details please????(discussed here before)

An economic prespective

I have read a very interesting article recently by Professor M. Pettis(Beijing University) that touches on the economic conditions leading to the Great Depression and the similarity that he found with the situation we are in right now. He says the trade imbalances are the main culprit and this has lead to the current economic crisis which is similar to that of the 1920s but stopped saying we are going into the 1930s scenario. He also discussed what went wrong then and what countries can do now regarding economic policies and management. His conclusions may be thought provoking and at best for his own consumption and is subject to further discussions/arguments.

I have basically summarised his article as follows(hopefully I have covered his findings/conclusions exactly what he means):-

Great Depression- US(and Latin America) vs. Europe

Current ----------- China vs. US

In the pre-Great Depression era, US has been increasing its current account surpluses and central bank reserves. It has excess savings and and production capacity and is also a big net exporter. Europe on the other hand are directly the opposite, with hugh current account deficit resulting trade imbalances which according to economists need to rebalance and adjustments.

During this period, the US instead of expanding aggressively via fiscal spending has decided (in 1937) going against it. It did not follow what Keynes demanded ie "industrial overcapacity requires save less and consume more" and "high savings reduced the multiplier effects of investment on the economy".

Also during this period, as countries having current account deficit try to stimulate their own growth to stay afloat, barriers of trade were imposed in Europe (especially in Germany) resulting countries with current account surplus eg US suffered far worse than the deficit ones, ie the Great Depression.

In the current economic situation, China has replaced the US in terms of current account surplus, reserves, production capacity, net exports and savings. The US in fact has become the direct opposite of what it was during the Great Depression era. China as we all know is trying to simulate its economy fiscally with the proposed RMB4T plan but accordingly, only 1/4 of the amount will be real fiscal expenditures while others will come from banks, companies and municipal government spending.

The professor proposes the onus is on China now to resolve the global demand problem by expanding its market domestically. (this is exactly what China is trying to do now). He felt that what China is doing now egs giving export rebates or market rumouring about depreciating its currency to boost its exports will not help to solve the world's trade imbalances. He also added that the high saving rates must decline amongst the Chinese but acknowledges it will be quite impossible. He felt that the US can carry on with its fiscal expansion but the risk is it will be further be in debt. He concluded that if the excess-savings countries do not boost domestic demand aggressively, the political and even economic argument for a rise in trade protectionism could become irresistible. The economic pain may not be "so much" for the US but for China!

* picture from The Malaysian Insider: I did not even bother finding out further what this guy have to say.

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* Bloomberg: Deflationary worries on the table again! Deflation-"prolonged declined in prices, hurting the economy by making debts harder to pay off and lenders reluctant to extend credit" Japan is the only country to suffer this phenomenon in modern times.

* Strong. The HKMA bought USD300m in New York on Wednesday night(Thursday morning in HK) and inject HKD2.325b(USD300m) into the local interbank market to defend the peg system. HKD hits its upper limit band several times today of 1USD :HKD7.75

* Weak: Indonesian Rupiah hits a decade low today 1USD:12,350 Rupiah. Ringgit at its 2 year low 1USD: RM3.605

* Also week....oil price nearing USD50 per barrel, a 22-month low. (This was Merrill Lynch's earlier prediction).

* TheStarBiz: YTL's Boss (with a war chest of RM12b), "we have an army of people combing through deals".

* Shah Rukh Khan not coming to receive his Datukship?

Bursa Trade Securities on Dec 1, 2008

Bernama: Bursa Malaysia Bhd is expected to launch its new trading platform for the securities market called Bursa Trade Securities on Dec 1, 2008. Its chief executive officer Datuk Yusli Mohamed Yusoff said the new trading platform will mark the completion of the exchange’s integrated trading system that will provide greater accessibility for both local and international investors as well as enhance trading efficiency and transparency in the market. RM100 million has been invested on the new system.

Yusli said the new trading system is a scalable platform that has the potential to support future initiatives and innovative products such as multi-currency products. He said the introduction of Bursa Trade Securities will also enable the implementation of Direct Market Access (DMA) for equities which should be operational next year.

Yusli also added that the date Dec 1, 2008 is the target date subject to a successful pre-live implementation on the Saturday of November 29. Bursa Trade (refer here for more details of its features) was supposed to be implemented on July 28 but was subsequently postponed due to unknown reasons, four days before it went live.(refer here)

* Hell and high water for Filipino seamen-interesting read here (Piracy and hijacking occurrence in East Africa at all time high 2008 to date: 96, 2007: 31, 2006: 10)

* FT.com: The official measure of consumer prices for the UK last month dropped 0.7 percentage points year-on-year to a lower than expected annual rate of 4.5 per cent, down from 5.2 per cent in September. The fall in inflation was the first in 15 months and the largest one-month drop since the Consumer Price Index began in 1997.

* BT(Singapore): HKMA steps into the HK market twice this morning injecting about USD600m to stem an appreciating HKD.

* FT.com: China has finally overtaken Japan as the largest foreign holder of US government debt. The latest monthly Treasury International Capital (Tic) data showed that China’s holdings of Treasury bills, notes and bonds rose to $585bn in September from $541.4bn in August. In contrast, Japan’s holdings fell to $573.2bn from $586bn. (previous article refer here-Panic, You sell, I sell)

The chickens of irresponsibility are coming home to roost

Interesting read. Excerpts from Dr. Enzio von Pfeil's November 18, 2008, appearance on CNBC Asia, Worldwide Exchange(SeekingAlpha.com):

Asian economies are in technical recession - how does that impact your investment strategy and asset allocation?

Investors have discounted this mess for the past six months.
Thus, I have no major changes to my investment strategy/asset allocation.

What are some investment themes up to the first half of 2009?

The next bubbles that have to burst are:
Long-dated bonds, on account of the rising US and other budget deficits, and
The dollar itself.

Which markets and sectors do you especially like?

No markets, as the global Economic Time™ is virtually the same everywhere: the chickens of irresponsibility are coming home to roost. If one must be in markets, then invest in “vital” sectors like consumer staples, food, healthcare. At least, they won’t get hurt as much because people still have to have these products and services.

Current earnings so far - what's your outlook going forward?

Earnings will go down even more. The Economic Clock™ is clanging for:
Excess demand for money, and
Excess supply of goods.

Under such a scenario, it is impossible for corporate earnings to improve. Indeed, “layoffs” news has just reached our shores in Hong Kong. This implies that neither turnover nor margins can rise.

Is there anything else you may want to highlight?

Obama’s influence on China and vice versa. It seems like Obama will have to go protectionist, as many of his voters expect this. Meanwhile, Chinese officials will start taking their wrath out on the local operations of U.S. multinationals – something which my most recent book, Trade Myths: Globalization and the Trade Balance Fallacy, warns of.

Bond blow out.

Seems like markets are not quite aware of the extent of public debt that is being created now that the chickens of irresponsibility have come home to roost.

Cost push stagflation.

We have been bleating on about this since Spring 2006, so at some point this will occur. This will hit particularly those countries/areas whose currencies have fallen the most against the US dollar, e.g. Euroland (rapidly morphing into Neuroland).

* Fuel prices down for the 5th time: Now Ron 97 is RM2 per litre(from RM2.15), Ron 92 and Diesel RM1.90 (from RM2.05). Wonder what will be the outcome if our government were cool headed then and did not raise the fuel price drastically a few months ago?

* Taiwan is to liberalise casinos operation as it is set to allow permits by year end for 3 resort casinos to shore up its economy. The resort casinos will be located in Penghu island.

* BT: CIMB Aviva has offered a voluntary layoff scheme to its permanent employees, one of the earliest to do so since the economic slowdown in Malaysia this year.

: Bloomberg: Jerry Yang-Yahoo's co founder and CEO to step down soon. A true gentleman indeed!

Technical Analysis - November 17 2008

S&P500 (873, last week 931 or -6.2% w.o.w )

Due to some heavy sell down during last week, the daily indicators like MACD and MACD Histogram have weakened substantially but continued to stay slightly above water during the week. To make matter worse, the daily Parabolic SAR shows a selling signal 3 trading days ago. As noted last week, the daily ADX and the DMIs are not positive yet. For the weekly readings, the indicators continued to show bearishness. If the index continues to show weakness in the next 2 sessions, it will turn the daily indicators into selling mode again. As mentioned weeks ago, the index will have an uphill task to recover and it will be good if it could form a short term bottom around 850 to 950 levels, before going up further. Support is around 800 and resistance at 950.

KLSE CI (882, last week 894 or -1.34% w.ow)

The daily MACD and Parabolic SAR are still positive during the week. However, the daily ADX and DMIs do not show any bullish signal yet. The weekly charts are still in a negative territory. The immediate task for the index is to determine a short term bottom and ideally it should be at 800-850 levels. If the S&P500 index was to turn negative in the next 2 sessions, the index will without doubt follow suit. The index is expected to trade between 830 and 950.

HangSeng (13,543, last week 14,243 or -4.91% w.o.w )

Despite heavy selling during last week, similar to KLSE CI and Nikkei 225 technical charts, the daily indicators like MACD, MACD Histogram and Parabolic SAR continues to register a bullish signal. The daily ADX and the DMIs have not turned positive yet. The weekly charts are still in a negative territory. If the S&P500 index was to turn negative in the next 2 sessions, the index will without doubt follows. Like the other indices, the HangSeng index has plenty of work to do and it is best if it will be able to form short term bottoms around 11,000 to 13,000. Support is seen at 13,000 and resistance at 15,500.

Nikkei 225 (8,462, last week 8,583 or -1.41% w.ow)

The daily indicators like MACD, MACD Histogram and Parabolic SAR continues to register a bullish signal. However, the weekly indicators continue to show weakness. Like other indices, the Nikkei needs to find its short term bottom and preferably it should be at levels 7,500 and 8,300.The index will likely take the cue from the S&P500 for the next direction. The daily index has plenty of work cut out and it is best to regain some strong support at levels mentioned above. The index is expected to trade between 8,200 and 9,500.

* Japan is officially in recession after registering an annualised fall of 0.4% in the 3Q GDP growth (2nd Q -0.3%). The last recession was in 2001. The news follow earlier official announcements of recession in affected countries egs Singapore, NZ, Euro Zone and HK.

* Green Packet's 3Q net loss was RM10.3m. Hwang DBS Vickers cuts target to RM0.53 from RM0.70. It foresees company remaining in the red for FY08-FY09. The share price closed at RM0.73 at 5.00pm today.

* China Daily: Unemployment on the rise. Statistics in China showed that about six million students will graduate from universities and colleges next year and some 800,000 of this year's graduates are still awaiting job offers.

Smart Investing/Trading for the week ending November 14 2008

Weekly US markets update and outlook

Stocks turn to intervention talks, data
G20 meeting, talk of auto bailout and more economic reports on tap

MarketWatch: Investors will turn their attention next week to economic data and the possibility of further intervention by U.S. and foreign leaders as woes pile up for the American auto industry at home and many industries around the globe. Wall Street saw more heavy losses over the past week as increasingly dire economic reports and corporate outlooks confirmed that the global economic slump is now hitting most industries.

"Investors channeled their nervous energy away from the credit markets and are now obsessing over the direction of the economy," said Jack Ablin, chief investment strategist at Harris Bank. "Unfortunately, most of their fears are being realized, as economic arrows point lower." The Dow Jones Industrial Average fell 337 points to end at 8,497 on Friday, leaving it down 5% for the week. The S&P500 fell 38 points to 873 Friday, ending the week 6.2% lower. Hopes about consumer spending faded after a steeper than expected 2.8% drop in retail sales in October, weak outlooks from Best Buy and JC Penney while Circuit City filed for bankruptcy.

Besides retail sales, there were little key U.S. economic data. But on Friday, the eurozone officially entered into its first recession since the single currency was launched nearly 10 years ago. The Nasdaq Composite fell 79 points to 1,516, after a stiff 7.9% drop over the past week. Technology issues were hit after dire outlooks from chipmaker Intel, computer-maker Dell, cellphone maker Nokia and Sun Microsystems "Corporate earnings are also weighing on equities," Ablin said.

Third-quarter earnings at S&P 500 companies are now expected to be down 18.4% from a year ago, compared with expectations for a drop of 13% just last week, according to Thomson Financial. And expectations for the fourth quarter continue to be revised lower. As financial firms began reporting huge write downs late last year, comparisons with this quarter are easier, with and analysts on average forecasts earnings to have grown 20.6%. But that's still down from 24% just last week, and excluding financials, earnings are expected to fall 4.6% year on year.

New lows for the market On Thursday, stocks rallied after a slide that led the Dow industrials below 8,000 to test their Oct. 10 lows, while the S&P 500 slumped to new five-year lows. The move led the market to snap back in a more than 900-point swing that gave the Dow its third highest point gain on record. The move left some market analysts confident that stocks can, at least, hold within a trading range within the coming months. "We are still taking a constructive view on the market that we are in a bottoming or stabilizing period," said Ken Tower, market strategist at Quantitative Analysis Service. "We've seen the market come down extremely hard and the economic data has been coming in way worse than consensus estimates for several weeks," he said.

Next week is also likely to deliver more bad economic numbers.
On Monday will be industrial production and capacity utilization figures for October, and the release of a November manufacturing report from the New York region, the Empire State Index. On Tuesday, the October producer price index will be released, to be followed by the consumer price index on Wednesday. Also on Wednesday, data on housing starts for October will be released, along with the minutes of the Federal Reserve's last meeting.

The central bank has already aggressively slashed its interest rate to 1% but markets have failed to react in the usual way, with many economists and analysts suggesting that the scope of the global crisis gives monetary policy little traction.

Global interventions?

Early in October, many central banks around the globe delivered emergency rate cuts together to try and halt panic selling in financial markets. "Could we now see coordinated fiscal policy moves in the wake of this weekend's G-20 meeting? There is certainly a compelling case for robust fiscal action," said Doug Porter, U.S. economist at BMO Capital Markets. The G20, which includes the Group of Seven most industrialized countries and increasingly influential emerging market economies, meets Saturday.

Little concrete global action is expected, but after China on Monday announced a $586 billion economic stimulus package, the stage could be set for further announcements by countries. BMO's Porter noted that most of the G7 countries have either already unveiled plans, or laid out their intentions, to stimulate their economies, save for France and Canada. Brazil, the largest Latin American economy, might be the next in line. As for the U.S., while Congress is believed to be working on a more comprehensive stimulus package, much attention so far has centered on possible aid for the ailing auto industry. Next week, Congress will hold a hearing on government support for General Motors, Ford and Chrysler.

Weekly KLSE Technical Outlook

ICap: Although the weekly KLSE CI indicators have attempted to turn around around ahead of the US election results, the momentum remains weak and the stochastic oscillator is still hovering in the oversold position. Apparently, the fact that the bears have quickly regained control over the direction is a clear signal of the anxieties over the global economic conditions. Hence, ICap thinks that high volatility will still be driving the KLCI.

* Yippee!! Happy Holidays! Nov 15 2008 - Jan 4 2009 (Picture taken in Losong, Kuala Terengganu. This photo was ranked amongst the "World's Best Photo of Nikon" (details here)

* TheStar: Rajen Devadason's(CFP, CEO Wealth Creation & Financial Planner) comment on the move by EPF to automate the employees deduction to 8% from 11% on 1 January 2009 unless a form is filled by the employees to state otherwise, "The bottom line is that the smartest, most numerate people in Malaysia are opting for 11% while the uninformed will probably permit the default". (also refer here for similar discussion). Yes, please do your part and help to inform and educate the uninformed. Tell your brothers, sisters, friends, uncles, aunties, your tea lady, gardener, colleagues, guards and everybody earning salary. It is not good to have more now and less tomorrow.

* Morality hitting another low for ousted PM Thaksin....divorcing wife to keep fortune intact?....well, desperate times require desperate measures. Will Taiwan's A Bian follows such style too?

Too big for anyone?

Speaking at the launch of Carrefour hypermarket 's price cut campaign yesterday, Najib said to fellow Malaysian, " Malaysia can ride out economic downturn". However, his comforting statement was virtually "ridiculed" by Dr Mahathir when the former PM latter said that " I have no confidence in Obama, so what about Najib, because this (economic challenges) is too big, too big for Najib and too big for Obama". Dr Mahathir believes that no countries will be spared and they are heading into a worldwide recession unless changes are made to the international system. Although I have never been a fan of Dr Mahathir, I tend to agree with him that the world economies are heading towards recession. However, I believe the changes to be made in the international system may not come so soon and that simple to avoid the impending recession.

The current international system which enables currencies to float and move freely was established after the ending of Bretton Woods system(established after WWII and after the Great Depression). Briefly, the new system came about after President Nixon suspended dollar's convertibility to gold in 1971 to get more money to fight the Vietnam war resulting all other major currencies were left unpegged to USD and floated freely. It further resulted to the more frequent printing of money and over the years set financial markets into further deregulation and development of variants of futures, options, swaps or derivatives. The combination of cheap money, deregulation, global imbalances, the US housing bust and credit clog, further risky financial innovation and greedy bankers with the view of maximising profits causes the existing system to break; which is what we are experiencing right now.

How much the changes and reforms could be made in the existing system's architecture is still a mystery but some leaders from EU (detail here) have been calling a change via Bretton Woods II in the coming Nov 15 G-20's summit in Washington. Perhaps the details would be revealed out then. I believe in order for the changes to be made, we need to have strong and charismatic leaders today to solve issues and bringing law and order. Do we have them today? The new system if ever proposed must be fair and not skewed towards any particular country economically and financially and must not be seen as a deterrent to financial innovation with a view of further improvement. It is easy to be a critic but to give constructive criticism is another matter.

* Good luck! November and December months are examination months for most of the senior highs! Good luck to the SPM, STPM and under graduate candidates! Also, today is South Korea's college entrance examination...a 9 hour examination....an exam that is very crucial to secure limited entries to universities. Coincidentally, the UPSR results are also out today!

* RBS: Sell yuan, buy HKD as China's economy is expected to contract faster than expected and since HKD is pegged to the USD which is considered to be stronger as it is viewed as a stable and safe currency like the yen.

* Bloomberg: Jim Rogers: Global financial markets have yet to bottom after this rout. Bonds investment is terrible as economic problems may persist until 2010.

* Oil hits its 22 months low at USD55 per barrel.

* Collapse of Big 3 auto makers- Chrysler, Ford and GM have severe repercussion to the US economy. It may eliminate up to 3m jobs and deprive governments more than USD150b in tax revenue. An estimated USD25b is needed to keep the industry afloat. Despite the criticism, I believe the Fed will be able to use the existing USD700b cash to bailout the auto industry and other non bank business too.

* China Daily: A senior government official says the China's stimulus plan is aimed to guarantee at least 9% economic growth over the next 2 years. To avoid further meltdown, the property prices and employment must be in tact, but this is very tough indeed.

* World Bank is set to provide USD100b in new aid to developing countries.

* FT.com: Iceland's rescue plan flounders?

*BT(Singapore): A study concluded that in London, for every 1 financial job there are 2 persons eyeing for it. Morgan Stanley, Goldman Sachs are all cutting down staff. There is one place that may be interested in hiring...KAF-SeaGroatt-Campbell (refer here).