Long term interest rate set to skyrocket?

Here is an interesting article which discusses the implication of China's USD586b "stimulus plan" on the future interest rate trend. Just when we thought global interest rate is on a downward trend and will continue to stay low for a long period, here is the argument why it should be on an uptrend in the coming future. So will this be bad news for the stock makets but good news to the currency investors?

SeekingAlpha.com: Over the weekend, China announced a USD586billion "stimulus plan" for its slowing economy. China is in a precarious position as the world economy grinds to a halt. Out of its 1.3 billion people, most have not participated in the economic boom the greater country has experienced.

Let me know if this sounds familiar - the rich have gotten richer, while the poor have stayed, well, relatively poor. As a side note, you can see there is nothing unique, wrong, or evil about this phenomenon that has taken place in the US. It's the way of nature - the greater the progress, the more of a gap that develops between the haves and have nots - a topic we could explore at great length in and of itself.

Back to China: the majority of the population still lives in the countryside, and the majority of the population is still poor. And they do not like seeing their fellow countrymen get rich without their fair share (sound familiar again?) To this point, the Chinese government has been able to pacify the masses with sufficient government bread and circuses, as long as the economy continues to hum. But the Chinese state, as currently constituted, may not be able to survive a deep recession, at least without a potential revolution from its countryside.

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Historically, most Chinese uprisings originate from the countryside. Expect the Chinese government to do whatever is necessary to prevent a severe slowdown. They must establish domestic demand for their products and stop relying on exports, and they must do it soon. I think they'll be able to hold things together. Unlike the US, the balance sheet of China (both consumers and the greater government) is quite plush right now. The Chinese save a lot of their money, and they have sufficient capital to get through this - not to mention if/when they really catch on to credit cards, which we saw evidence of earlier this summer.

So what does this all have to do with interest rates in the US? The Chinese government will have less money to stash in US Treasuries - which will put a significant dent in the demand for US Treasuries - which should send rates up, up, and up.

And how about the supply side of the equation? Looks like that's about to skyrocket also. From Bloomberg:

The US government's borrowing needs will almost double to $2 trillion this fiscal year, prompting the Treasury to revive three-year notes and hold more frequent sales of 10- and 30-year debt.

Add these to reasons that I previously outlined, and it appears we have a recipe for skyrocketing long term interest rates.

Note: I am afraid most economies will be able to withstand rising interest rate so soon especially the growth engines are not firing at all cylinders yet. One of the other available option not to raise interest rate would be to continue printing more money AGAIN......but watch out for the creeping inflation! We really have a big problem in hand.

* We have another 1b shares traded today, the 3rd time this month...but this time the market slides by almost 10 points (with 192 gainers, 367 losers ...)

* Bloomberg: China's inflation cooled to 4% in October, the slowest pace in 17 months. (September 4.6%).

* Las Vegas Sands(LVS)'s Singapore project to be delayed to 2010. LVS however managed to get commitment worth USD2.14b and will halt the remaining Macau's project.

* Cheaper "roti" and teh tarik by 10 sen....let's boycott those that does not reduced their price...the price should be reduced futher!

Technical Analysis - November 10 2008

S&P500 (931, last week 969 or -3.92% w.o.w )

The daily indicators like MACD, MACD Histogram and Parabolic SAR have continued to be positive during the week. However the daily ADX and the DMIs are not positive yet. For the weekly readings, the indicators have not turned bullish. As mentioned last week, 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 900 and resistance at 1,050.

KLSE CI (894, last week 864 or +3.5% w.ow)

The daily MACD and Parabolic SAR have turned slightly 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. The index is expected to trade between 830 and 950.

HangSeng (14,243, last week 13,969 or +1.96% w.o.w )

Similar to other markets, 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. 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 (8,583, last week 8,577 or +0.07% 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 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.

* Bloomberg: China has on Sunday announced a USD586B stimulus plan to boost its economy and as the world heads toward recession. This amount is approximately 1/5 of China's GDP last year and is very substantial. The earlier forecast in August was USD400b.

* Due to the plan above, crude oil futures jumped over USD3 to USD64 per barrel today.

*G20's current plan for the world: Cut interest rate and start spending!

* Bloomberg: Fitch Downgrades its debt ratings on Russia, South Korea and Mexico. On soverign ratings, countries that have their rating cut are Bulgaria, Hungary, Kazakhstan and Romania. Countries that have their outlook lowered are Malaysia, Chile and South Africa.

* Reuters: Japan's foreign exchange reserve account going down further: Oct end USD977.7b (September end USD995.9b)

* TheStar: Oil and Gas companies still have enough contract in hand. Egs KNM -contract value RM4.6b -duration 2 years, Coastal -RM1.7b-3 years and Tanjong Offshore-RM1.5b-4 years.

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* Berkshire posted its 4th quarterly decline due to 1)hurricanes on insurance operations and 2) battered stock markets on investments.

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* Kenanga's economist pointed out that recessions period in the US from 1950-2004 as defined by the National Bureau of Economic Research on average lasted for 10.3 months, the last one in March 2001 ends in November 2001 or 8 months. The longest was 16 months ie July 1981 to November 1982 and November 1973 to March 1975. The shortest was only for 6 months ie January 1980 to July 1980. You do your own assesment on this one in 2008...Any interesting guestimates you like to share?

Smart Investing/Trading for the week ending November 7 2008

Weekly US markets update and outlook

Choppy markets look for surety
On light week for data, attention could focus on next administration's strategy



MarketWatch: The economy and the next U.S. president's plans to fix it will likely dominate markets in the coming week. After a volatile five sessions highlighted by the U.S. presidential election, a dismal October jobs report and a cash crunch at General Motors Corp. investors can look forward to a lighter week, at least as far as scheduled news items. The sparse calendar will allow traders to focus on new information about the depth of the U.S. recession. "The market's trying to digest how bad it can get," said Michael Gibbs, managing director in equity strategy at Morgan Keegan & Co. Glum headlines from Detroit may further sour the outlook. On Friday, GM announced a $2.5 billion loss for the third quarter and said may have to halt assembly lines to deal with a cash shortfall. Also of special attention: president-elect Barack Obama's initial moves to counter what he called "the greatest economic challenge of our lifetime."

On Friday, three days after beating Republican contender Sen. John McCain in their race for the White House, Obama briefly addressed his priorities after meeting with his top economic
advisers. With his inauguration three months away, the Illinois senator's efforts are largely limited to supporting fellow federal lawmakers as they discuss a second stimulus package. He can name the appointees that will eventually make the big decisions, however. Of particularly interest is his choice to replace Treasury Secretary Henry Paulson. "The market is wrestling with so much uncertainty now, anyone with a solid financial background, would be a positive," Gibb said.

Markets in the coming week will also get a dash of earnings from the retail sector, which has already said sales floundered even more than analysts anticipated last month. A handful of retailers will report earnings, including Wal-Mart Stores Inc Starbucks Corp., Nordstrom Inc. and Penney Co. Inc.. With the exception of Wal-Mart Thursday, analysts are anticipating all will report a drop in operating profits. That's in keeping with a 14% decline in third-quarter earnings S&P 500 companies are on track to report, says Thomson Reuters. American International Group, Inc. and Microsoft Corp. are also scheduled to report earnings, on Monday and Tuesday, respectively.

Tuesday holiday

Economic releases are few next week, in part because the federal government will close for the Veteran's Day holiday Tuesday. Bond markets and banks are also mostly closed that day. Stock markets, energy and metals futures, and currencies will all trade normally. The biggest dose of economic data comes Friday, when the University of Michigan releases its consumer sentiment index for November and the U.S. government will report retail sales for October.

KLSE CI Update and Outlook

ICap: THe KLSE CI is below its 30-day, 50-day and 50-week moving averages. Its daily MACD has turned bullish but its DMI is bearish.

As the buying interst emerged, the KLCI has been advancing for about 2 weeks, albeit within a defined downtrend. Accompanying sharp reversal pattern is an upswing of its daily indicators. Since the weekly and monthly technical readings are still lagging, more encouraging developments are needed for a significant breakout of the descending channel. Would the US new president able to revive the world's largest economy and hence reverse the global bear markets?



* Still making news. Dr Sheikh: "I am a millionaire? I wish I were"..........One thing I am sure, you have spent millions of dollars. Where is the so called "space experiment report" ah?

* IMF: Expectations of a new Bretton Woods system overhyped! "Things are not going to change overnight"

Genting International- Some Updates

The recent news on Las Vegas Sands in financial trouble rattled many investors in general (details here), which include shareholders of Genting International. As you probably aware both Las Vegas Sands and Genting International were contracted to built and operate the only two intergrated resorts and casinos in Singapore. Any negative news from each party or the industry itself will surely create a panic. The worries were made worse when Moody's Investors Service has yesterday given a negative rating outlook for the gaming sector in Asia-Pacific over the next 12 to 18 months and this includes casinos and resorts in Australia, Malaysia and Macau. Basically, Moody's reported the gaming industry is facing increasing operating pressures due to slowing macro-economics, causing cutbacks in discretionary spending , regulatory changes affecting visitations and intense local competition. While Las Vegas Sands may be in a worse footing than Genting International, I do not think Singapore will allow the proposed casinos to fail and every effort will be provided to make sure the casinos will be built on time and a success in 2009(Las Vegas Sands) and 2010(Genting International). Below is a timely report by AmResearch which provide some simple comparisons between Las Vegas Sands and Genting international.

Las Vegas Sands Corporation (LVS) may default on debt and face bankruptcy, according to a Bloomberg report today. LVS, which had US$8.8bil in long-term debt as at end-June said in a regulatory filing that it probably will not be able to meet the requirements of loans arranged by financial institutions like Citigroup Inc and Goldman Sachs Group.LVS also said that should it fail to raise capital, then the group would need to immediately suspend portions, if not all, of its ongoing global development projects and consider other alternatives. This is in spite of the fact that just at the end of last month, LVS had said that the development of the Marina Bay Sands integrated resort cum casino (IR) project remains on track. Also, the Singapore Tourism Board had said last month that it was monitoring the situation and was holding talks with LVS.

We believe that Genting International Ltd (GIL) would not face the same financial predicament as LVS. The reason why LVS is being financially stretched is because of its huge regional expansion. LVS is not only developing casinos in the United States, it is also operating in Macau while in the middle of the Marina Bay Sands IR construction project in Singapore. In comparison, GIL faces construction risk only in Singapore. GIL’s casinos in Britain are already well in place. In fact, the group closed two of these casinos in 1HFY08 as part of a rationalisation and streamlining exercise. GIL had said many times that the “Resorts World at Sentosa” IR project would be completed within the budgeted cost of S$6bil and targeted completion timeline of 1Q2010. As at end-June 2008, GIL was in a net cash position of S$136.9mil. However, after taking into account the S$4.2bil borrowings for the IR project, we estimate GIL’s net borrowings at S$4.06bil. This translates into a net gearing position of 1.2x. In contrast, LVS’s net gearing was 3.5x as at end-June 2008. LVS recorded a net loss of US$8.8mil in 1HFY08.

We believe that the negative developments on the global casino front would affect Genting Bhd and GIL’s share prices. Hence, we maintain our HOLD recommendation on Genting Bhd. But, we recommend a BUY on Resorts World Bhd for its safe and recurring cash flows from domestic casino operations and healthy cash reserves of US$1.2bil.

For more information of GIL, a 54.4% owned subsidiary of Genting Bhd, details here.(Highlight Gent Int)

* BT(Singapore): Down sizing at no frill online finance firm Tune Money after poster boy CEO Tengku Zafrul resigns?

* Now IMF approves 12.3b Euro loan for Hungary.

* Court orders RPK to be freed today!

* Will the October's Non Farm Payroll declined by an anticipated 200k for the first time since March 2003 (September -159k)? Will the unemployment rate forecast to reach the highest level since June 2003? (September 6.1%)

* Yesterday BOE slashed its benchmark rate by 1.5 percentage points to 3% while ECB lowered its rate by a half point to 3.25%.

* More rate cuts. Bloomberg: South Korea cuts rates for the 3rd time in a month to stave off recession. It cuts interest rates by a quarter point today to 4%.

* TheEdge: Oil dives towards USD60 per barrel. Indonesia will reduce gasoline prices by 8.3% on December 8 and will introduce monthly adjustments for gasoline price. The new price will be RM1.75 per litre from RM1.90 (after conversion).

* What a volatile market today....like other Asian markets, our market went -26 points to -2 points for closing...it is really painful to sell in the morning and to see the price rose back in the evening.

Can he seize the moment?

Picture:CNN

Obama and Najib have something in common. Both will be the future leaders of their respective countries during a world of financial crisis. How they tackle problems during these trying times will determine their future political survival. Like other world leaders, both have to think out of the box and come out with radical ways and measures to stimulate their respective economies. Whatever steps they take, the priority of the governments now is to ensure the economy continues to grow, protect the livelihood of millions and ensure social stability. Below is an interesting article that discussed about ways governments respond to slowing economies, economic implications of Budget deficits and how we can get more returns from the money spent/or going to be spend and on assets owned to narrow the deficit. I personally feel that if we continue to go on with Budget deficits and only with government pump priming measures with no significant contributions from the private sectors, the future of the younger generation will be much tougher and gloomier. Pump priming measures are supposed to be temporary and not for mostly 12 years in a row! Something needs to be done now and it must be done fast and effective!

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The Financial Daily: When signs show that an economy is heading for a sharp slowdown, authorities around the world will respond in two ways to prevent a recession — lower interest rates to encourage private spending and/or injecting a fiscal stimulus by way of higher government spending.

On the back of the global financial turmoil, central banks across the globe have cut rates aggressively, the latest being the Reserve Bank of Australia (RBA) which slashed its benchmark rate by 0.75% to 5.25%, the lowest since March 2005.

Bank Negara Malaysia (BNM), on the other hand, has not responded in a big way. Some may ask why, but there is a reason for it. Up until six months ago, Western economies have been raising interest rates to curb rising inflation fuelled by the sharp rise in the price of crude oil. While that was happening, BNM was in holding mood, even as inflation in Malaysia spiked up, drawing criticisms from some quarters as savers were earning negative interest on their savings. What this means is because BNM was somewhat “ahead of the curve”, it would rather wait it out a while longer before pushing rates down further. Stability in the currency market and a cooling off in inflation will help.

This leaves fiscal stimulus as the option that needs to be used immediately, which was what Finance Minister and Deputy Prime Minister Datuk Seri Najib Razak announced on Tuesday. Some may question if RM7 billion is enough, but there is a limit to how much governments can spend their way out of economic trouble and this has to do with their financial capacity. For instance, the Australian government had taken advantage of the economic boom of the past several years to build up a big budget surplus that is now being put to use. That is why even as it recently announced that it will give A$10.4 billion (RM25.6 billion) to pensioners, homeowners and families despite shrinking revenue, it will still have a budget surplus of A$5.4 billion in fiscal year 2008/2009, compared with an earlier projection of A$21.7 billion.

Malaysia, on the other hand, has run budget deficits since the 1997/98 financial crisis, meaning that even as the economy grew at an average of 5% to 6% since coming out of the crisis, we did not save for a rainy day.

Our budget deficit is 4.8% in 2008 and was to be cut to 3.6% next year. But because economic conditions have changed, the government now has to spend more while revenue shrinks. Hence the 2009 deficit will remain at 4.8%.

The rule of thumb is a government which has budget deficits of more than 5% over a few years could face a downgrading of their ability to repay loans, meaning they will have difficulty borrowing or have to pay more in interest.

This we must try to avoid, although some believe in times of crisis we should not worry too much about it. Still, the government needs to tread carefully. Which is why given the government’s own constraints, apart from allowing Malaysian workers to tap their retirement savings to spend now via an option to cut EPF contribution by three percentage points, Najib has to try and get more value and returns from the money the government spends and assets it owns.

The two most obvious are the decision to unlock the value of assets, in particular land in strategic locations, by offering them to the private sector to develop. Najib said the government can earn several billion ringgit from this.

The second, and more important in the long run, is the commitment Najib gave that a “ large portion” of government procurements will be done by open competitive bidding. Even contracts targeted for bumiputeras will also be given out after competitive bidding among bumiputera companies.

The devil, of course, is in the details. But we support the decision because it is something this newspaper has pushed for. It opens up opportunities to those who are currently not able to participate in government jobs, it encourages competition among bumiputera companies and this, over time, will build up their capacity to eventually compete without the need for preferential treatment.

Open, competitive bidding will shave at least 20% off what the government now pays for services and products it procures. That can add up to several billion ringgit a year, which comes in handy during a downturn. We hope Najib can make this commitment a reality and do so in a transparent manner. He has to resist the lobbyists and supporters who are lining up for handouts.

Now is not an ideal time for anyone to take over the management of the economy, but we believe Najib can do well by simply doing what is right and sensible. Najib must seize the moment to liberalise the economy further, cut the fat and wastage, and tear down the remaining barriers to investments. He should unleash the energy of the private sector, not necessarily through the lop-sided privatisation of the 1990s, but in a more equitable manner that gives fair returns to both the government and the private sector.

* Bloomberg: Wells Fargo to raise USD10b to fund Wachovia deal.

* ECB is expected to cut interest rate by 50 basis point to 3.25% today resulting the further weakening of Euro.

* Nobel Prize for Economics : Nazir Tun Razak :Mahathir should be considered a nobel prize for the way he handled and bravely implemented drastic changes during the Asian financial crisis some 10 years ago! This year winner was Paul Krugman.

* Volume has gone! The volume for today was only 490m shs compared to the earlier 2 days of >1b shs.....

Watch out for the volume

(click chart for larger version)

It has been a while since our market's daily volume exceeds 1 billion shares. As I checked back, the 1 billion mark was last recorded sometime back in January 2008, almost 9 months ago. Some of the brave hearted investors/traders would have already gone into the sea since the last few trading sessions braving stormy and violent waves. For the brave, they were rewarded handsomely(so far), for the less brave, they were contemplating to joining in the fun. Is it really safe going into the water and continue to swim, hopefully without encountering hugh and violent waves or sharks? This is probably the question in many people's mind these days.

Fundamentally, nothing really change except investors' confidence came back stronger and there are some improvement in the bankers' lending activities. Concerted effort by countries(eg interest rate cuts) together with their financial stimulus plans and financial aids from IMF do help to alleviate the worries of market participants. There is a general consensus that the markets have probably seen its worst in the last 2 weeks and markets have bottomed. The world's economy however remains in the doldrums egs EU countries technically in recession and many countries like Malaysia cutting back its growth forecast ie from 5.4% to 3.5%. In fact some analysts like UBS are predicting zero growth for Malaysia next year in view of declining demand from G7 countries etc. In general, the prediction for the next year is very gloomy indeed and economies will at best register a small growth or a "stand still" growth.

So back to the question of whether it is safe to go back into the market?

In my opinion, the market right now is at best a trading market only. It is great to place your trades in early or low and square off the trades later and higher, if we are lucky enough! The daily MACD for the KLCI(and the rest of the world leading markets) are now slightly bullish(refer above charts) and it would be good if trend indicators eg ADX is to show such positive indications soon. This will reinforces the confidence of investors/traders to go into the markets in the short term. For the longer term, I am of the opinion the markets will not be better than now as we still have to ride through this long term bearish cycle first, probably another year from now? Volatility will be back and confidence will be at its low again. Meanwhile, while the sun is smiling at us again, let us all enjoy a break from "selling pressure" and make some money in the markets! Remember to look out for any decline in the volume as it may indicates "sell"! Good Luck!

* If Obama wins the US presidential election, will the bankers/insurers etc brace for more regulations in the industry? You bet.

* Bloomberg: Australia's Central Bank cuts key interest rate by 75 basis points to 5.25%(its third reductions in many months).

* BT: Credit Suisse: Malaysian banking stocks most expensive and will maintains its "UnderWeight" call on the banks.

* The Standard: South Korea's reserves fall by most since 1997. The reserves dropped to USD212.3b in October from USD239.7b in September. The reasons were due to selling of USD to aid banks struggling to access overseas funds and defending the Korean won.

* Rio Tinto admits China's demand slowing down.

* RM7b enough or not to stimulate Malaysia's economy? See details

Technical Analysis - November 3 2008

S&P500 (969, last week 877 or +10.5% w.o.w )

The long awaited technical rebound came in last week. The daily indicators like MACD, MACD Histogram and Parabolic SAR have all turned positive during the week. However the daily ADX and the DMIs are not positive yet. For the weekly readings, the indicators have not turned bullish. 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. It may have some selling pressure this week as its daily Stochastic Oscillators are slightly overbought. Support is around 960 and resistance at 1,050.

KLSE CI (864, last week 859 or +0.58% w.ow)

The daily and weekly technical indicators remained weak. Although the daily Parabolic SAR has turned slightly positive, the index performance is generally without much strength last week as compared to other markets. However, if the US and regional markets continued to perform better, the index will prop up along the way too. The immediate task for the index is to determine a short term bottom and ideally it should be at 800-850 levels. The index is expected to trade between 830 and 920.

HangSeng (13,969, last week 12,618 or +10.7% w.o.w )

The long awaited technical rebound came in last week. The daily readings for the index have turned slightly bullish. The daily MACD has a first crossover and a positive MACD Histogram on Friday. The daily ADX and the DMIs have not turned positive yet. The weekly charts are still in a negative territory. 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. It may have some selling pressure this week as its daily Stochastic Oscillators are slightly overbought. Support is seen at 12,500 and resistance at 15,500.

Nikkei 225 (8,577, last week 7,649 or +12.1% w.ow)

The long awaited technical rebound checked in last week. For the last 2 days of the week, daily indicators like MACD, MACD Histogram and Parabolic SAR registers a slight 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 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. It may have some selling pressure this week as its daily Stochastic Oscillators are slightly overbought.

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* Bloomberg: South Korea unveils a USD10.8b stimulus package for 2009 to prevent the economy from registering the first recession in a decade.

* Bloomberg: India cuts its repurchase rate to 7.5% from 8% and reduced the amount of deposits required to set aside as reserves to 5.5% from 6.5%, and amount required to keep in government bonds to 24% from 25%

* Despite the reduction of another 15 sen in fuel price last week, no traders reduced food prices....how now?

Smart Investing/Trading for the week ending October 31 2008

US Markets Update and Outlook

Hopes are 'worst October' signals worst is past
U.S. presidential elections, key economic data on tap


MarketWatch：Investors will start the month of November in the hope that the worst is behind for stocks, with credit conditions showing continued signs of improvement as governments around the world intervene to support financial markets. "We are seeing some easing of the credit crisis," said Paul Nolte, director of investments at Hinsdale Associate. "But we'll continue to have lousy economic numbers for at least the next three to six months, if not more, and earnings will be the same."

While the U.S. presidential elections on Tuesday are not seen as a major wildcard, a slew of mostly bad economic data will culminate with Friday's employment report, expected to show the economy lost 200,000 jobs in October. "As for the elections, the market will appreciate a decisive victory -- if one candidate comes out strongly ahead, instead of making us stay up until three in the morning like we saw over the last few elections," Nolte said. "Anyway, economic policies taken by either candidate won't have any impact until the end of next year."

Bad month, good week

Strong gains over the past week have left market strategists hopeful that the market made a solid low earlier in October. On Friday, The Dow Jones Industrial Average gained 144 points to finish at 9,325. The S&P 500 gained 14 points to 968, while the Nasdaq Composite climbed 22 points to 1,720. The Dow rallied a whopping 11.3% for the week, even as it plunged 14.1% for the month, its worst October since the stock market crash of 1987. The S&P posted a monthly decline of 16.9% -- its worst month since 1987, but a weekly gain of 10.5%. The Nasdaq slumped 17.7% in October, its worst month since 2001, but it rose 10.9% from last Friday's close.

"This is marking a real change in market behavior," said Ken Tower, market strategist at Quantitative Analysis Service. "It's not only the stock market rallying but [evidence that] the pressure is coming off of the money markets." The London interbank offered rate, or Libor, for three-month dollar loans fell for a 15th consecutive day on Friday. And data released Thursday showed the commercial paper market, a crucial source of funding for corporations, grew for the first time in seven weeks. The month of October had started with the Treasury almost failing to convince Congress to pass its $700 billion rescue plan for the financial system, after the collapse of Lehman Brothers accelerated the credit crisis and stocks tumbled around the world.

Help came in the form of global governmental injections of capital into major banks and financial institutions but it still took several weeks, and many rate cuts from central banks, including the Federal Reserve, for credit markets - and for stocks to start showing signs stabilization. "It's safe to say that few market participants will mourn the end of October 2008, a month that will certainly find a prominent place in the financial market history books," said Doug Porter, senior analyst at BMO Capital Markets. "But even with a spirited late-month rally, stocks around the world will be licking their October wounds for some time to come," he wrote in a note.

Market looks past bad numbers

With this in mind, the week's market gains came along with mostly dire data, signaling that the U.S. economy has already started to contract. On Thursday, the Commerce Department estimated the U.S. economy contracted by 0.3%, the most since the end of the last recession in late 2001, as consumer spending declined at the fastest rate in 28 years. "We've had a lot of negative economic surprises," Tower of Quantitative Analysis said. "Given the cautious nature of the recent market gains, I wouldn't recommend investors chase the market on the way up."

"We've had a sign that perhaps the worst of this might be behind us and we're in a period of stabilization now," he said. "But a bull market? I don't think so."

On Monday, investors will parse key data from the Institute for Supply Management's October index, which is expected at 41.5%, another confirmation that the manufacturing sector is in recession. Auto sales data for October will also be released that day. General Motors is the worst performing stock of Dow's 30 components, having now fallen 24.9% year to date. On Tuesday, factory orders for September will be released. Wednesday brings the ADP private-sector survey of the jobs market, along with the ISM's service-sector survey for October. Weekly jobless claims data on Thursday will also be parsed for any clues about Friday's jobs report.

Earnings

With 327 of the S&P 500 companies having reported quarterly results, earnings so far are expected to have fallen 11.7% in the third quarter from the year earlier, according to Thomson Financial. At the start of the quarter, on July 1, expectations were for earnings to rise 12.7%. "That's a combination of analysts cutting estimates and companies missing," said John Butters, an earnings analyst at Thomson. Predictably, financials are the worst performers, with earnings in the sector down 94% year on year.

With the sell-off in commodities accelerating over the past month, crude-oil futures on the New York Mercantile Exchange tumbled 33% during October, marking their biggest monthly percentage drop since trading began in 1983. On the upside, consumers can finally say they paid less at the pump than a year ago: Average retail prices fell 31% by the end of the month to $2.504 a gallon, or 14% lower than the same time last year, says AAA.

KLSE CI Technical Update and Outlook

ICap: The KLSE CI is below its 30-day, 50-day and 50-week moving averages. Both its daily MACD and DMI are bearish.

On the KLCI's monthly index. The monthly stochastic oscillator is severely oversold, suggesting that the KLCI has been pushed down to an unjustifiably low level. Given the global market weakness and panic, it is not surprising that the KLCI is trading at such extremely low stochastic values. In the past, such extreme overselling has coincided with the start of a bull market. ICap sees the same salivating trend happening again.

* To Dr Setev Shaaribu, people says "life begins again", I hope yours (and family's) will also begin again too...sorry....life is always unfair.....this is a fact. period.

* Good bargain?...Hypermarkets get free publicity from the media worth millions of ringgit by slashing prices on certain goods but not across the board.......Consumers, don't be too happy!

* TheStar readers to Melaka CM: Are single mothers seen as desperate that they have to be taken as a 2nd wife? Don't you have better things to do than to pay men RM1k to take 2nd wife? What a stupid idea? Why only these ideas come from Malaysia?

* TheStar: Please grow up, will you? see details.

* Japan's interest rate has been cut to 0.3% from 0.5% last Friday.

The richest men in China

Forbes: The Year of the Rat has been a rough one for China's richest, with fortunes being dragged down amid a 60% plunge in mainland stocks and a 50% drop in Hong Kong shares in 2008. The combined net worth of the 400 richest dropped to $173 billion from $288 billion. The top 40 lost $68 billion, or 57%. The minimum net worth slipped $20 million to $180 million. We found 24 billionaires, down from a record 66 in 2007. These losses would have been greater had it not been for the renminbi's 10% appreciation against the dollar.

Last year's wealthiest person, real estate heiress Yang Huiyan, is this year's biggest loser. Her net worth dropped $14 billion to $2.2 billion, still enough to rank third. There were plenty of other notable losers. The head of Nine Dragons Paper, Yan Cheung, who was China's richest person in March 2007 and one of just 10 self-made billionaire women in the world, is now worth $265 million.

Meanwhile, Larry Yung, a member of one of the country's most celebrated business families (his late father Rong Yiren was the nation's vice president), lost more than half a billion dollars in one day recently after his Citic Pacific conglomerate announced $2 billion in losses from unauthorized currency bets.

Cheung Chung Kiu, the boss of C.C. Land, a developer focused on Chongqing, has lost 98% of his fortune. Ranked No. 26 last year, he is off our list of the richest Chinese entirely. "You can't really believe it," says fellow property developer Zhang Xin of the upheaval. Zhang, who runs Soho China, is ranked 19th this year, worth $1.2 billion, one-third as much as she was in 2007.

Below are the top 10 richest people in China for the 2008 survey. Although their fortune is considered average compared to the rich guys in the US and the fact that net worth has taken a beating, they have "time" on their side. They are all so young.

1) Liu Yongxing (age 60) USD3b - East Hope Group

2) Wong Kwong Yu (39) USD2.7b - Gome Electrical Appliances

3) Yang Huiyan (27) USD2.22b - Country Gardens

4) Liu Yong ha (57) USD2.2b - New Hope Group

5) Zhou Chengjian and family (43) USD2b - Metersbonwe

6) Zhang Jindong (45) USD1.8b - Suning Appliances

7) Robin Li (40) USD1.7b - Baidu.com

8) Du Shuanghua (43) USD1.6b - Rizhao Steel

9) Ma Huateng (37) USD1.58b - Tencent

10) Zhou Furen and family (57) USD1.55b - Xiyang Group

Refer here for the list of richest men in China.

* Markets in HK and S.Korea jumped more 11% today as China, HK, Taiwan and US cut interest rate. The Fed reserve also cuts its interest rate by 50 basis point to 1% yesterday. Further buying was fueled by Fed opens swaps of USD30b each with South Korea, Brazil, Mexico and Singapore. This expands Fed's effort to unfreeze money markets to emerging nations for the first time. Or could the surge in the markets is just a long overdue technical rebound?

* The Star: Anwar has filed an emergency motion calling for the setting up of a royal commission to investigate the government's decision to spend on 3 controversial projects- High Speed Broadband RM11.31b, Maybank's BII purchase RM4.26b and 12 EC725 Cougar helicopters RM1.7b. Verdict: Motion denied?

Hurt, Dazed and Confused

The Dow jumps nearly 900 points this morning, the 2nd largest gain ever. Both the Dow and S&P500 index jumped almost 11% each. The Asian markets also reacted wildly but seems to tapper off towards the closing. Off late, there has been heightened volatility ("wild and violent, Hot and Cold") in the financial, commodities and currency markets. I am not really confident that this record breaking jump represents a turnaround as the problems are far from over– although as in every hugh rally there was no shortage of market commentators hailing the bottom of the market. I believe world markets are still too rattled and there is still likely to be more pressure on liquidity and prices and lack of confidence in general. Investors are basically hurt, dazed and confused. It is noteworthy to keep an eye on South Korean and Russian markets too.

Below is an a very good article which discusses about the return of volatility in the markets and what are its implications.

FT.com(A few days ago): A couple of years ago – or before banks started to go bust – economists sometimes liked to talk about a phenomenon they christened The Great Moderation. This was the idea that the 21st-century financial system and global economy had become so stable and sophisticated that dramatic swings in activity had seemingly disappeared. Volatility, in other words, was supposed to be an issue of the past.

These days a new phrase is needed to describe these Not-So-Moderate-After-All times (the Great Panic, perhaps?). On Friday, the Chicago Board Options Exchange Volatility Index, the Vix, rocketed 32.1 per cent to 89.53, as equity markets suffered another dramatic sell-off. The gyrations of the yen, euro, sterling and dollar have also been wild, pushing levels of currency volatility to heights barely seen in decades.

This has at least two crucial implications for the financial world. First, as volatility returns with a vengeance to the investing world, many market players are experiencing a profound psychological shock. After all, in recent years many investors had bought into the “Great Moderation” argument, either deliberately or by intellectual osmosis. Many of them had never before seen a world where almost all asset classes could swing wildly in value. What has happened recently has left many investors and bankers utterly dazed and confused. No wonder some senior policy makers argue in private that one of the biggest problems dogging the financial system is a dire shortage of investors with enough courage to buy assets now trading at distressed levels. On one level the absence of scavengers might seem “irrational”, given that plenty of cash-rich institutions still exist. On another level it makes perfect sense, given how shell-shocked many institutions now seem – and the sheer difficulty of predicting what other disorientated investors might do next.

The second, more tangible implication of the return of volatility relates to the models that banks and hedge funds use to measure their assets. When banks extend credit to hedge funds, they often use so-called “value at risk” models (VAR) to measure the risks attached to such loans. These models typically assess the riskiness of an asset by measuring how its market price has moved in the past. During the Great Moderation, this approach cast a fabulously flattering light on the investment world, creating the impression that it was safe for banks to extend massive volumes of credit to hedge funds. Moreover, since banks typically use VAR to measure the risk attached to their own assets too, these models also seduced banks into feeling complacent about their own risks.

Now, this process has gone violently into reverse: as volatility surges, VAR models are showing that the risk attached to almost any transaction has exploded upwards. Thus banks are selling assets and slashing loans to the funds – in turn sparking more fire sales and increasing volatility in all asset classes. It is a vicious trap that does much to explain why the market upheavals have infected so many asset classes, ranging from subprime to sterling to Shanghai shares.

It is hard to see how policymakers can halt this spiral quickly. In recent days, some senior policymakers have been quietly talking to the banks, and encouraging them to “think about the wider system” before they cut credit lines to hedge funds. But policymakers are reluctant to order banks to stop selling assets or squeezing hedge funds, let alone directly bail out any hedge funds. Instead, they appear to hope – if not pray – that injections of capital will lessen the need for banks to readjust themselves to their VAR models in such a violent manner.

It is to be hoped such prayers will be met. If so, this deleveraging storm should gradually blow itself out in the coming months. But it remains a delicate war of investor psychology and computer models. What is crystal clear is that it was sheer madness for financiers ever to have relied so heavily on these VAR models during the first seven years of this decade – particularly when they were so badly distorted by a false belief that the Great Moderation would always last.

* How much will the Fed cut the fund rate? 100, 75 or 50 basis? We will know tonight!

* Iceland's interest rate shot up to 18% from 12% after being accepted as IMF's recipient. Good Luck!....

* TheStar: Hawkers and restaurants will not be reducing food prices? How now Najib?

* AFP: China's 800m farmers are being hit by the global financial crisis as commodity prices dive and expectation is high that next year could be even worse...

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* Mahathir and his statements AGAIN.....argh.....