THE Straits Times Index hit a high of 3,491 last week, just short of its 3,500 downtrend resistance line.
Over the past six trading days, it chalked up an impressive 191-point gain but now appears to be suffering temporary indigestion.
The strong rebound was sparked by a bullish divergence in the RSI which marked the end of the mid-term downtrend.
The near-term downside is likely to be limited to the 3,398 gap, established on Dec 24.
While all indications point to an impending correction, we are not overly bearish over the medium-term trend.
However, the index is likely to fill the gap at 3,398 before it heads higher. Moreover, the 3,400 support also marks the 50 per cent Fibonacci retracement level. In the event this is breached, stronger support lies at 3,300.
The index is also supported by a double-bottom formation with the neckline at 3,621, suggesting the long-term uptrend will resume if the index breaks above resistance at 3,621.
We expect new IPOs to be the key beneficiaries of a run-up. We highlight three recent IPOs: JES international, KTL Global and First Resources.
Backed by strong institutional participation, JES has clawed above its IPO price of 67 cents on the fourth day of listing and looks poised to test its recent high of 77 cents in the near term.
Anchored by a few strategic investors, KTL Global has broken above resistance at 36 cents last week and exceeded our target price of 40 cents.
Nevertheless, we see buying momentum carrying the stock higher in the short term. Rising palm oil prices have lifted First Resources about 20 per cent in the past four days from a low of 99.5 cents. -- Kelive Research
HONG KONG: As 2007 comes to a close, the eyes of the Asian property market are elsewhere.
With U.S. real estate in a definite slump over the subprime crisis and prices showing signs of decline in Britain, France, Spain and Italy, property owners and developers in Asia are wondering if such problems will appear in their region. They have not so far, and 2007 was a solid year for residential property in Asia. But only time will tell whether the region has really "decoupled" from the rest of the world market.
The concerns have left some cautious about prospects. And while 2008 looks set to start strongly in the region, many are hedging their predictions or are anticipating a slowdown in the second half.
"The impact of subprime on the real estate market is our concern in the second half of 2008," and the agency is planning to issue an updated forecast in midyear, said Alva To, the Hong Kong-based head of consultancy for north Asia for the global real estate consulting company DTZ.
The normally staid property market in Singapore was the top performer in Asia for 2007. Luxury property values there were up 56.4 percent year over year in the third quarter, according to data from Jones Lang LaSalle real estate, more than double the pace of increase in Beijing, the second-strongest city, where luxury values rose 25.7 percent.
"Singapore's luxury residential performance was driven by strong underlying investor demand attributed to foreign purchasers, local high net worth individuals and, during the first half of the year, en bloc sellers," Glyn Nelson, the Singapore-based head of operations for Asia real estate intelligence services at Jones Lang LaSalle, explained in an e-mail.
Investors took a new look at the city, where two casino projects were under way, and local buyers were heartened by the city's strong financials. Nelson expects that momentum to continue into 2008, citing Singapore as the top pick for the year in terms of capital value gains, followed by Shanghai and Hong Kong.
Tim Murphy, managing director of the real estate investment company Intellectual Property, is not so heartened about the Lion City, however. He says the Singaporean government's new measures to cool the market - delaying plans for public developments and withdrawing plans to let buyers delay home payments - will cut into results for next year.
"We think there are more profitable places to invest in 2008," Murphy said, citing neighboring Malaysia as "a huge success story of 2007." There, the government suspended capital gains tax on property and is encouraging investment from overseas.
In China, the focus continues to be the government, which still is tinkering with property regulations to prevent overheating. Many of its "austerity measures" took effect during the year, with changes in bank-lending policies making it much harder to get mortgages.
"China slowed down quite significantly," said Buggle Lau, chief analyst at Midland Realty. Transactions in hot markets like Shenzhen, just across the border from Hong Kong, were down 20 percent to 30 percent in the second half of the year, compared to the first half. And values in Shenzhen fell 10 percent to 15 percent in the last few months of 2007.
The market probably merited some cooling - prices in Shenzhen, for example, grew 350 percent in the past three and a half years. And so far, the government has managed to curb growth without producing a crash. "A mild correction definitely is good for the long-term development of the property market in China," Lau said.
Beijing's strong performance for the year is probably explained by an increase in luxury apartment values and rents before the 2008 Olympics, but such increases may not last beyond the Games.
In September, the central People's Bank of China and the banking regulator, the China Banking Regulatory Commission, began requiring anyone seeking a second home loan to put down a deposit of at least 40 percent of the property's value and to pay a 10 percent premium on interest.
Edward Cheung, chief executive for mainland China for DTZ, says the policy produced a significant drop in the amount of residential property sold in top-tier markets. In Shanghai, for example, the amount of property sold in October was less than half that sold in June. "Once buyers have taken in what the policy actually means, purchasing confidence has usually returned to the market, and there is no reason why this should not happen this time around as well," Cheung said.
For once, Hong Kong's property market was pretty stable in 2007. The overall residential market saw gains of about 17 percent, according to preliminary figures from Jones Lang LaSalle, having been up 10.3 percent in 2005 and down 0.4 percent in 2006. Luxury values were up an average of 24.5 percent for the year.
Hong Kong did hit the headlines, though, for setting new records in terms of price. In November, Kerry Properties sold the 7,100-square-foot, or 660-square-meter, penthouse on the 52nd and 53rd floors of its Branksome Crest development in Mid-Levels for 283 million Hong Kong dollars, or $36.3 million. At 40,000 dollars per square foot, it was a record for an apartment in Asia.
Based on Hong Kong's very small supply of residential property, market watchers are predicting a very strong performance. "We have turned maximum bullish on Hong Kong residential, and expect residential prices to rise 50 percent by end-2009," the Merrill Lynch research analysts Keith Yeung, Paul Yau and Kevin Lai wrote in November.
The city's strong fundamentals are the driver, with the economy's rapid growth producing pay raises for the local work force. "Professionals have recently regained bargaining power in the labor market," said Xavier Wong, the head of research for Knight Frank in Hong Kong. "With the middle-class households keen to upgrade their homes, midpriced units worth between 4 million dollars and 10 million dollars are expected to do particularly well."
Property in nearby Macao continues to thrive because of its casino boom. Prices have jumped about 100 percent since 2003. The city has a dire shortage of true luxury development, and international developers are starting to bring higher standards to the market.
Real estate in Japan continues its slow climb out of recession, with the main drivers continuing to be central Tokyo and Osaka, the largest cities. Developers are starting to see signs of opportunity in second-tier cities like Sendai, Fukuoka and Sapporo but they say it is early yet.
Tokyo Midtown, a sprawling project near the trendy Roppongi neighborhood, was the highest-profile new entrant. The project, developed by the Mitsui Fudosan, contains the Park Residences at The Ritz-Carlton, the Tokyo Midtown Residences and the Oakwood Premier Tokyo Midtown residential buildings, as well as shops, restaurants, offices, a medical center and museum.
The luxury villa market took a breather in Thailand in 2007, but not because of subprime problems. The fallout of the 2006 coup that removed Prime Minister Thaksin Shinawatra from power had much more effect, and the uncertainty is expected to continue after the election Sunday in which his allies won a parliamentary majority.
"2007 has been a year of consolidation for Phuket," said David Simister, chairman of the brokerage CB Richard Ellis (Thailand). Prices have shown almost no gain for the year. But, he added, "despite the country's ongoing issues, prices of new developments in Phuket remain solid with no discounting."
SYDNEY - AUSTRALIAN public servants are to lose one of their more unusual perks as part of a crackdown on bureaucratic spending - tax payer-funded massages, reports said on Wednesday.
Officials spent more than A$200,000 (S$252,000) on the rub-downs over two years, Sydney's Daily Telegraph said on Wednesday.
Postal workers spent the most on massages (A$55,000) but senior staff at the Australian Bureau of Statistics were also partial to the treatment, spending A$10,120, while Treasury officials outlayed A$17,000.
The department of former prime minister John Howard, meanwhile, racked up some A$6,000 in massages.
Figures tabled in parliament show bureaucrats spent A$108,710 on massages in 2004 and A$89,000 the following year.
A spokesman for Assistant Treasurer Chris Bowen, who has previously labelled the practice a 'blatant waste of expenditure", said the minister was expected to advise agency heads that tax-payer funded massages must stop.
Other ministers are likely to follow Mr Bowen's lead and scrap the rub-downs as part of new Prime Minister Kevin Rudd's cuts to government spending, the paper said. -- AFP
0416 GMT [Dow Jones] Singapore shares will remain volatile in 2008, with the STI likely to trade sideways until there''s more clarity on the macroeconomic outlook, says DMG in note. "The Singapore bourse is grappling with the prospect of a slowdown in the U.S. economy, while concurrently dealing with the highest inflation rate since 1990. These two factors will negatively impact corporate profitability, resulting in an increasingly tough environment for local stocks in 2008." Tips 3000 as worst case downside for STI in 2008, "this represents a 7-year mean price/book valuation on modest EPS growth assumptions." But adds that if macroeconomic backdrop improves, STI could trade up to 4100 by year-end. (KIG)
Areas that could do with greater disclosures in 2008
By R SIVANITHY
ON PAGE 37 of Indian shipping company Mercator Lines's initial public offer prospectus, the use of funds is expressed in terms of each Singapore dollar invested - 49 cents to acquire a large ship from its parent, 45 cents for business expansion and strategic investments and six cents for IPO expenses.
The company also discusses its expansion and investment plans in detail, so prospective investors know exactly how their money is to be used.
Mercator's disclosures - and those of several other recent listing candidates - illustrates an encouraging if relatively unnoticed trend in the IPO market over the past year towards being more transparent about the use of funds.
Before this, the general practice was to conceal - actively or passively - as much as possible. Companies were reluctant to give too many details about where money was to be deployed.
More, however, can be done. The use of proceeds in terms of each dollar invested should be placed in a prominent position - perhaps on a prospectus cover instead of inside the document. Doing this would eventually encourage investors to ask in every IPO where their money will go, forcing companies to be more accountable when tapping the public for funds.
Placement issues
A related area that would benefit from better disclosure is share placement, especially when the price is at a large discount to the prevailing market.
At present, companies are barred only from placing shares to insiders and related parties. But other than this, there is no requirement to say who receives the shares. While it may not be possible to give details of all recipients, shareholders would surely benefit if companies were to reveal the biggest recipients and why they were given large parcels.
In addition, some discussion on how the quantum of discount was reached would be useful, since there seems to be wide variation. And as with IPO proceeds, a detailed breakdown of the use of placement funds should be provided.
Another area that would benefit from improved disclosure is deals involving profit guarantees.
Several such deals were announced in 2007, which led to large share price rises for the stocks concerned. In many cases, these deals were later called off because previously unhighlighted conditions - clauses in the agreement, buried inside reams of legal jargon - were not met.
It should be a requirement that when a company announces a venture that includes a profit guarantee, it should have to simultaneously disclose upfront all contingencies that could scuttle the deal, so shareholders have a fuller picture of the risks and what could lie ahead.
Furthermore, investors would have noticed that when a deal is announced, the accompanying release can run into several pages. But when it falls through, the announcement is typically brief, usually one or two paragraphs. This imbalance should be addressed.
Short-selling issues
Yet another beneficial disclosure practice would be short-selling positions. The Singapore Exchange and a handful of other financial houses now run scrip borrowing and lending services for investors who have either urgent need for scrip or who wish to take covered short positions.
It should be relatively simple to collate all of this data and release a daily report - in Hong Kong, a short-selling summary is released twice a day - to give investors an indication of the extent of the market's bearishness at any point in time.
Finally, 2008 should see the authorities improve disclosure in the structured warrant segment, following a discussion paper last year on how best to deter short-selling in warrants. Once the best measures are agreed on and short-selling is curbed, issuers will be able to release daily summaries of their market-making activities, thus improving transparency in the warrants segment.
Tung Tai Securities -- Hong Kong stock market ended the last trading session in 2007 with a strong rally on Monday. HSI closed the mid-day session at 27812, up 442 pts. Mid-day turnover reached $43.3B. In the early session, HSI opened 67 pts higher following US markets and further extended gains led by property stocks. It closed the day high (27820)near the mid-session ended. On hopes of further rate cut in Jan 2008, property markets ended higher, which provided strong upward momentum. Technically, although HSI hold above the 10-day MA (27402), it has yet to get rid of the rangebound trading. Trend will further turn clear should it break through and hold above the 50-day MA (28519). It is likely to trade between 27300/28500 area in short term.
Today spot: CNAC yesterday said that Singapore Airlines’ offer to acquire a stake in CEA (670) (buy) was unfair to shareholders and it reserved the right to make a counter-proposal. The move by CNAC is part of an effort to mobilize other shareholders to vote against the offer on January 8. CNAC now directly holds a 12% stake in CEA. It requested that CEA and the bidders present a better proposal. It also said the anti-dilution rights CEA granted to the bidders and a noncompetition clause failed to treat other shareholders equally.
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CSC Securities (HK) Ltd -- Hang Seng index up 442 points on Monday and closed at 27,813 points. Market turnover remained low due to half trading day, amounted to 43.4 billion. Investors were taking profits from recent IPO stocks. Sinoma(1893), China Railway(390), and Xingye Copper(505) dropped 3.59%, 6.68%, 11.87%, respectively.
The DJIA down slightly on Monday. However, major brokers remain neutral to positive view on US market in 2008. We believe positive short-term market atmosphere to be expected.
Looking ahead into 2008, we are bullish on China consumption plays. Starting from 1st January, the mainland will carry out the new labour law, indicating the will of the PRC Government to redistribute wealth among different classes in the society.
Besides, we hold a positive view on local property plays like Sun Hung Kai Property(16) and Midland Holdding(1200) as we expect the –ve interest rate environment in HK to persist.
Overall, we consider China tight macro-economic policy and US subprime worries would remain two major uncertainties of Hong Kong stock market in 2008. We expect a range-bounded trading in Q1 as investors adopt await-and-see policy.
A Subprime User’s Guide, 2007 Edition Commentary by Caroline Baum
Dec. 21 (Bloomberg) -- Anyone looking to reflect on the high points of the year in business and finance can pretty much do it in one, maybe two, words: subprime mess.
How the non-payment of mortgage interest by a homeowner in Ft. Myers, Florida -- and others like him -- morphed into an international credit crisis, heaping such huge losses on Wall Street that its biggest banks had to look overseas for a capital infusion, is a story that will be told for years to come. Maybe Wall Street memories will be longer than the crisis this time around.
For those who may have missed the subprime press coverage or been too intimidated by the acronyms to dive in, herewith is a user’s guide to the subprime year of 2007:
S is for the Subprime loans that were sold to Wall Street, Securitized and snapped up by Structured Investment Vehicles, which ran into trouble funding themselves. All of these ‘‘S’’ characters, independently, may have been well-intentioned initiatives: to encourage homeownership, to transfer risk, to turn a profit. Together, they were a lethal cocktail.
When home prices stopped rising, then started falling, subprime borrowers couldn’t refinance homes they couldn’t afford to begin with. They defaulted on their loans.
In the end, the various intermediaries between borrower (homeowner) and lender (investor), not to mention their divergent interests, is proving to be a hurdle to a timely resolution of the problem.
U is for Unreported losses. Banks have been offering up mea culpas for their third and fourth-quarter losses after a record first half. Commercial and investment banks worldwide have reported writedowns and losses of more than $80 billion so far. Fear of more to come has crimped interbank lending.
One view holds that banks are being aggressive now so they can start the new year with a clean slate and, in some cases, a new CEO. If that’s the case, why do the announced losses continually outpace what was anticipated just a few weeks ago?
B is for Boohoo, Bonus foregone. Morgan Stanley Chief Executive John Mack said he would take a pass on the bonus pool this year following the investment bank’s first-ever quarterly loss. Presumably Mack has a portion of his $42 million 2006 compensation tucked away somewhere, having invested it more wisely and safely than his firm, which wrote down $9.4 billion in mortgage securities in the fourth quarter.
Bear Stearns Cos. CEO Jimmy Cayne and senior executives won’t reward their poor performance with a bonus either. The firm reported its first loss as a public company.
P is for Paulson. That’s Hank Paulson, formerly of Goldman Sachs Group Inc., now of the U.S. Treasury. Paulson has hatched or encouraged one plan after the next to soften the fallout from the mortgage meltdown. (It may be the neighbour’s foreclosed house, but it’s your property that goes down in value.)
The impetus for a bank-backed ‘‘SuperSIV,’’ which would buy high-quality assets from little SIVs and finance them with the banks’ commercial paper, is waning as some financial institutions (Citigroup Inc., HSBC Holdings Plc) assume the liabilities of their SIVs. Other banks have said no thanks.
Another plan proposes to freeze the teaser rates on certain subprime loans. Paulson isn’t getting great reviews. He’ll be long gone before the ultimate votes are in.
R is for Regulation, Recession. The same senators and representatives who prodded lenders to extend credit to low- income folks in the 1970s and 1980s to help them buy homes are now horrified that the objects of their beneficence got put into loans they couldn’t afford.
Congress, which is always passing laws to prevent the last crisis, is considering a host of options from the benign (supporting more regulatory guidance) to the ridiculous (shifting the liability for predatory loans to investors). Heavy-handed measures may end up impeding the revival in residential real estate once inventories and prices come down.
The odds of a recession next year are rising, according to many economists. The Federal Reserve was slow to recognize the magnitude of the subprime problem, and quick to try different tactics, other than a reduction in its benchmark rate, once it did try to get credit flowing again. (If lowering the discount rate doesn’t reduce the stigma of borrowing directly from the Fed, create an anonymous facility for banks to bid for funds.)
I is for Interest rates, which are apt to come down in the new year. Central banks have been busy acting as lenders of last resort. The European Central Bank loaned a record 348 billion euros ($500 billion) for 14 days, which had the effect of reducing interbank rates by 50 basis points.
Once the banking system’s immediate cash needs are met, it will be back to the more mundane job of ministering to the economy.
In the U.S., with market rates still below the federal funds rate, the Fed will have to ease to return the yield curve to a positive slope.
M is for mortgage. See ‘‘S’’ above.
E is for the economy, which will be the biggest loser from the housing bubble gone bust. Today’s economy may be more resilient than in the past, but periods of excess credit creation tend to yield to periods of credit constraint.
From the Great Depression in the 1930s to the savings and loan crisis in the U.S. in the early 1990s to Japan’s lost decade of the 1990s, history suggests that when the banking system is impaired, the economy doesn’t work.
The workout from the credit problems won’t be quick or painless. Ringing out the old year doesn’t mean wringing out the losses from the subprime mess.
New labour law to give workers more rights, raise costs for firms
(HONG KONG) China was to introduce yesterday a new labour law that enhances rights for the nation's workers, including open-ended work contracts and severance pay.
'The government is making the most concerted effort to protect workers' rights is China,' said Auret van Heerden, Geneva-based head of Fair Labor Association, which monitors work conditions in 60 countries. That 'goes against the conventional wisdom that China is leading the race to the bottom'.
Higher costs may drive manufacturers with low margins out of China, damping investment in factories that helped push inflation to a 10-year high. Olympus Corp, the world's No. 4 digital camera maker, and Yue Yuen Industrial (Holdings) Ltd, the biggest maker of shoes for brands such as Nike Inc, are among companies shifting some production to Vietnam to cut costs.
'We are likely to see more factory closures next year,' said Stanley Lau, vice-chairman of the Federation of Hong Kong Industries. The new law will make it more difficult for companies to hire temporary workers, a practice favoured by exporters to cope with fluctuations in orders, he said.
The Labour Contract Law aims to improve job security for workers, making open-ended terms of employment for those who have completed two fixed terms. The legislation limits overtime, sets minimum wages and guarantees one month's pay for each year worked for sacked employees.
The new law 'will definitely raise our costs', said Edmund Ding, spokesman for Hon Hai Precision Industry Co.
Taipei-based Hon Hai, the world's biggest contract manufacturer of consumer electronics, has 61 units in China making products including mobile phones and music consoles.
Some companies have been terminating contracts and asking employees to resign ahead of the introduction of the law.
Huawei Technologies Co, China's largest maker of telecommunications equipment, offered about 7,000 workers new contracts with benefits if they terminated their old agreements, spokesman Ross Gan said in an e-mail. Some employees accepted, while others chose not to sign and left, he said. The move wasn't aimed at evading legislation, Mr Gan said. -- Bloomberg
Eager new officials put China's economic control measures at risk
BEIJING - CHINA'S efforts to curb its red-hot economy are under threat from a batch of eager new leaders at the regional level keen to splash out on investment projects, state media said on Wednesday. The central government has just appointed top officials in major cities such as Beijing, Shanghai, Chongqing and Tianjin as a prelude to more local government reshuffles expected in the first quarter, the China Daily reported.
'Newly appointed local officials may embark on a slew of projects to spur growth,' said Zhu Jianfang, Beijing-based chief economist at CITIC Securities, according to the paper.
'This may counteract the central government's efforts to cool the economy.'
Newly appointed government officials have a history of spending big on prestigious investment projects just after assuming office, aiming for a boost to local employment and tax revenues.
The paper cited figures showing that outstanding loans more than doubled to 1.6 trillion yuan (S$320 billion) in the first half of 2003, after the last major local government reshuffle.
This confirms a more general trend for local government objectives to be at odds with the central authorities, who are more concerned about macroeconomic issues such as the need to curb inflation.
In the first 11 months of last year, local governments approved about 90 per cent of all fixed-asset investment projects, recently released government data showed.
Investment in plant, equipment and other types of fixed assets are considered one of the major factors behind growth that has pushed Chinese inflation to 11-year highs.
The Chinese economy likely expanded by 11.5 per cent in 2007, earlier reports said, with official data due out later in January. -- AFP
BEIJING - CHINA'S debt to the outside world kept rising last year, with higher-risk short-term borrowing taking up a growing share, state media reported Wednesday. China's outstanding foreign debt hit US$345.7 billion (S$502.3 billion) by the end of September, up seven percent from the end of 2006, the China Securities Journal said, citing a statement by the State Administration of Foreign Exchange.
Of this amount, short-term debt - defined as loans with maturities of less than one year - accounted for 57.2 per cent, the paper reported.
At the end of 2006, short-term debt stood at 56.9 per cent of the total, according to earlier data from the State Administration of Foreign Exchange.
Despite the growth in overseas borrowing, China remains in a position to service its debt. It also holds the world's largest foreign exchange reserves.
Fuelled by an enormous trade surplus, China's forex reserves reached US$1.455 trillion in late October, according to the latest figures available. -- AFP
Strong measures will be taken to curb inflation: Hu
BEIJING - CHINESE President Hu Jintao has vowed to implement 'forceful measures' in the new year to curb rising food prices and address a booming real estate market that has seen property prices skyrocket.
Following his speeches on Monday, China's Commerce Ministry said yesterday it had imposed export quotas on flour made from wheat, corn and rice to help stabilise rising domestic prices.
During his visit to a market in the northern port city of Tianjin on Monday, Mr Hu told the surrounding crowd: 'The central government attaches great importance to commodity prices and has made it an important task to stabilise them.
'A series of forceful measures has been taken and will continue to be taken to ensure the normal life of the masses,' Mr Hu was quoted as saying by China Central Television.
Inflation hit an 11-year high of 6.9 per cent in November, according to official statistics. The spike was propelled by an 18.2 per cent rise in food prices.
Mr Hu also vowed to curb rising housing prices to help low-income families and to provide them with better health care benefits.
'The (Communist) Party and government are very much concerned about the housing problem of the low-income masses,' Mr Hu said.
'The central government has made arrangements to speed up the low-rent housing system, improve the affordable housing system and ease the housing difficulties of urban low-income families.'
Mr Hu made the comments as he visited a family at their small rental home in Tianjin and a retirement facility in the city.
The privatisation of housing in China over the last two decades has led to a booming real estate market that has left homes unaffordable for many ordinary working families.
Where to find the additional money to pay the ministers' new raise? 羊毛生在羊身上。
From the Straits Times Forum:
HDB property tax should be cut, not increased
I AGREE completely with Mr Ridzwan Abdullah, 'Wrong time to raise property tax on HDB flats' (ST, Dec 28). It completes a trend of unreasonable price increases in Singapore. When you add up all the increases in 2007 - bus fares, taxi fares, GST, income tax, tax on utility bills, school bus fare hikes, bread prices and all the trigger effect - this property tax increase is insensitive.
HDB flats comprise basic housing for the people. That the property tax for private properties was raised is a lame excuse for the Government to do so for HDB flats.
In fact, judging from the problems we have in HDB estates that the authorities had not tackled satisfactorily - increased noise level, increased fire hazards, dengue problem, dumping of rubbish in corridors - there should be a decrease in property tax.
For the 35 per cent of us who pay income tax, there should be more rebates to cope with the increase cost of living.
0615 GMT [Dow Jones] STOCK CALL: Deutsche Bank keeps STX Pan Ocean''s Singapore-listed shares (V33.SG) at Buy with S$3.88 targer price after company announces Korean regulations amended to allow shareholders to migrate/transfer shares between SGX, KRX. Notes, however, company warning of some limitations on migration and inability to predict how long migration will take. Notes price gap between Korean-listed (028670.SE), Singapore shares appears to have narrowed following announcement, but highlights Korean stock still at sharp premium. "We think this gap will narrow and hence we are maintaining our Buy recommendation on the STX Pan Ocean listed in Singapore. However, it is worthwhile noting that STX Pan Ocean Singapore''s 2008 P/E valuation of 7.5X is now significantly higher than Pacific Basin''s (2343.HK) 5.3X FY08." Singapore share down 1.1% at S$3.60; Korean listed share down 6.2% at KRW2,805 (S$4.31). (LES)
[Dow Jones] Marc Faber of Gloom Boom & Doom Report advises investors to steer clear of financial stocks, defer new commitments to equities (especially emerging market stocks), and instead buy sugar, cotton and gold; in market comment, Faber notes he's never experienced equity bull market without financial stocks rising, so across-the-board collapse of financial stocks "is a very negative sign for the overall health of the stock market." Emerging market stocks particularly vulnerable following outperformance over past few years; "In an environment of relative global tightening of liquidity I am afraid that emerging stock markets could be deserted by foreign investors as seems to have begun in the case of Asia." Gold could pull back to $750/oz, but outlook strong, as central banks have no option but to print money, he says; "In my opinion, the gold bull market will come to an end when Sovereign Wealth Funds - sick and tired of their investments in financial stocks - will finally purchase gold - probably at above $3000 per ounce." (AMS)
Meghmani - also submitted proposal to SEBI for fungibility approval – KELIVE
The stock of Meghmani broke above 40 cents today. We believe the likely catalyst is the record high stock price established in Indian exchanges for the dual-listed stock. Meghmani's shares is currently trading above 45 Rp in India. Based on a ratio of 1 share = 2 SDS listed on SGX, that translates to an equivalent price of S$0.833/share. At 41 cents/SDS, the Singapore-listed counterpart is currently trading at a 50% discount to the India side. First resistance to look out for is $0.46 and the next resistance at $0.545. STX Ocean recently set a precedence for dual-listed stocks to become fungible across exchanges after South Korean authorities made changes to its listing regulations. On the same note, Meghmani has also submitted proposal to SEBI for similar approval. Share fungibility allows investors to arbitrage dual-listed stocks, thus narrowing of the price disrecrepancy that currently exists across both exchanges.
Dec. 28 (Bloomberg) -- In this season of stock taking, the picture past and future for financial markets is far from pretty. The reason? Subprime.
If you didn’t know what subprime meant at the start of the year, it was hard to avoid its meaning by year end.
The big question now is what will the subprime crisis and ensuing credit crunch cost. In mid-July, Federal Reserve Chairman Ben Bernanke told the Senate Banking Committee that estimates of losses associated with subprime-credit products were $50 billion to $100 billion. Those numbers ‘‘are far too low,’’ Jan Hatzius, New York-based chief U.S. economist at Goldman Sachs Group Inc., said in a mid-November report.
Based ‘‘on historical default and loss patterns in different home-price environments,’’ he estimates U.S. losses will be roughly $400 billion.
Assuming that U.S. and European residential property prices fall 5 percent to 10 percent over the next year, investors in non-prime mortgages and securities linked to them -- including banks, hedge funds, asset managers and mortgage insurers -- stand to lose between $350 billion and $500 billion, according to London-based consultants Independent Strategy. Adding in expected losses from prime mortgages would lift the tally to more than $650 billion.
Yet these loss projections tell only part of the story. The other portion relates to the impact of the losses on the willingness and ability of so-called leveraged investors, institutions that finance their activities with borrowed funds, to keep lending. These include banks, broker-dealers, government- sponsored enterprises, savings institutions and hedge funds.
Ripple Effect
A September 2007 study by Tobias Adrian of the Federal Reserve Bank of New York and Hyun Song Shin of Princeton University, published by the New York Fed, found that leveraged investors, particularly banks and brokers, seek to maintain constant capital ratios. As such, when they lose money, they scale back lending to keep their capital ratios -- assets divided by equity or risk-free capital, such as cash -- from falling.
U.S. commercial banks on average have capital ratios of 10 percent, which means that for every $1 of capital lost, they reduce lending by $10. Thus, assuming that $200 billion of the projected $400 billion mortgage-credit loss is borne by leveraged institutions, the supply of credit will decline by $2 trillion, Hatzius said. ‘‘The likely mortgage-credit losses pose a significantly bigger macroeconomic risk than is generally recognized.’’
Pulling Back
Meanwhile, Independent Strategy figures that banks will have to shrink lending by 15 percent to 20 percent to return their capital ratios to pre-crisis levels, and hedge funds and brokers by $18 to $25 for every $1 lost. ‘‘A 10 percent reduction in global bank lending would damage corporate investment and consumer-spending growth, adding significantly to the risk of economic recession,’’ the firm said in a Nov. 15 report.
Apart from a decision to supply wads of money to relieve the logjam in global credit markets, the performance of central banks has been anything but sterling. They woke up late to the subprime mortgage mess, and some people still doubt that they fully grasp the risks involved – especially following the Federal Reserves’ decision to cut its federal funds rate by 25 basis points to 4.25 percent on Dec. 11, when the market was looking for more.
‘‘The timid move by the Fed was very disappointing and even appalling in the wake of intense financial-market turmoil,’’ Chen Zhao, Montreal-based head of global strategy at BCA Research Ltd., wrote to clients on Dec. 12. ‘‘The most troubling aspect of yesterday’s decision is that it reveals a lack of coherent strategy and focus at the Fed.’’
Restoring Credibility
The Fed also has been struggling to restore its credibility and retain its consumer-protection status in the face of congressional criticism that it was lax in overseeing mortgage lenders. Last week, the U.S. central bank proposed various rules barring deceptive loan practices and making lenders responsible for determining whether borrowers can afford their mortgages.
Duh! Like the Fed never realized that some lenders might be unscrupulous, or that there were folks who couldn’t compute whether they could afford a mortgage. This from an institution whose New York district bank publishes comic books -- that’s right, comic books -- to explain topics such as how the banking system creates money and the meaning and purpose of monetary policy.
The situation in Europe isn’t much brighter.
With banks balking at lending to one another out of fear of not being repaid -- effectively turning the economy’s motor oil into sludge -- Jean-Claude Trichet, head of the European Central Bank keeps talking about raising interest rates to battle inflationary pressures.
More Liquidity
The massive injections of liquidity by the Fed, ECB and other major central banks have succeeded in lowering interbank lending rates -- for now. But central bankers, especially Trichet, continue to insist that these operations are separate from monetary-policy decisions. ‘‘Reduced stress in money markets will not deliver a cure for financial markets, which are absorbing the pain of substantial credit losses,’’ wrote Bruce Kasman, chief economist at JPMorgan Chase & Co. on Dec. 21.
Now that we all know what subprime means, let’s hope it plays a less destructive role in 2008 and becomes a word we can afford to forget. If not, it may become a synonym for the next recession.
Singapore's GDP Unexpectedly Shrinks on Weaker Output (Update6)
By Shamim Adam
Jan. 2 (Bloomberg) -- Singapore's economy unexpectedly contracted for the first time in 4 1/2 years as factory output slowed, suggesting Asia's export-dependent markets may face increased risks from weaker global growth.
Gross domestic product shrank an annualized 3.2 percent last quarter after adjusting for inflation, from a revised 4.4 percent expansion in the previous three-month period, the trade ministry said today. Economists expected a 3.1 percent gain.
Singapore is first in Asia this year to report fourth- quarter figures, giving analysts an insight into how turmoil in global markets and the subprime-mortgage crisis in the U.S., the region's biggest export destination, may affect Asian economic expansion. South Korea and Taiwan have already warned easing demand for semiconductors, mobile phones and computers portends weaker growth in 2008.
``We definitely should expect to see more softness in exports in the next couple of quarters, and that's bad news for electronics-heavy Asian economies,'' said Kit Wei Zheng, an economist at Citigroup Inc. in Singapore. ``That means slower growth for Singapore and the rest of Asia.''
The Singapore dollar rose 0.2 percent to S$1.4391 per U.S. dollar as of 3:40 p.m. in Singapore. The benchmark Straits Times Index fell 1 percent to 3,446.47.
Asia is twice as reliant on exports as the rest of the world, with 60 percent of overseas sales ultimately destined for the U.S., Europe and Japan. China and South Korea are due to report fourth-quarter GDP numbers later this month, while Japan and Taiwan are scheduled to release theirs in February.
Factory Output
Singapore's manufacturing climbed 0.5 percent in the last three months of 2007 from a year earlier, the smallest increase in 18 quarters. Output growth slowed from a revised 10.3 percent in the July-September period as pharmaceutical plants produced fewer drugs, the trade ministry said.
The Asian Development Bank last month said growth in emerging East Asia in 2008 will be 8 percent, half a percentage point lower than last year.
From a year earlier, Singapore's $132 billion economy grew 6 percent in the fourth quarter after gaining a revised 9 percent in the previous three months. Economists were expecting 7.7 percent growth.
``There's no imminent turnaround in electronics and we're unlikely to see a recovery in the next six months,'' said Irvin Seah, an economist at DBS Group Holdings Ltd. in Singapore. ``Pharmaceuticals, a key support for manufacturing, has been losing steam.''
Electronics Slump
Singapore's electronic exports have dropped each month since February, mired in the worst slump in five years. South Korea yesterday lowered its growth forecast for 2008, pointing to the likelihood of slowing exports. Taiwan is also predicting an easing in overseas shipments this year which it said will make its growth target ``highly challenging.''
Hynix Semiconductor Inc. Chief Executive Officer Kim Jong Kap last week told employees of the world's second-largest maker of memory chips, based in Ichon, South Korea, that ``a difficult period'' is foreseen for the first quarter or the first half.
South Korea's exports rose a less-than-expected 15.5 percent in December from a year earlier, the Commerce Ministry reported today. Overseas shipments are forecast to increase 11.6 percent in 2008, the ministry said.
Singapore's services industry climbed 8.3 percent from a year earlier, matching the growth rate in the previous three- month period.
Stocks Tumble
Economists said demand for financial services probably eased as the rout in global credit markets increased risk aversion and the city-state's government implemented measures to cool the property market.
Global stock markets have lost $1.6 trillion in value since October and the collapse of the subprime-mortgage market in the U.S. triggered more than $80 billion in writedowns among the world's largest banks.
``Singapore's financial services industry has been affected by the shadow of the subprime problem,'' Seah said. ``Investors are more cautious and that has slowed down activity.''
The island's burgeoning construction industry prevented a wider contraction in the economy last quarter as companies such as Exxon Mobil Corp. set up new plants and property developers build new office towers and condominiums. Southeast Asia's fourth-largest economy reported a record S$16 billion ($11 billion) in fixed-asset investments last year.
Inflation Worries
Construction surged 24.4 percent from a year earlier, after a revised 19.2 percent gain in the three months ended September.
The economy advanced 7.5 percent in 2007, easing from a 7.9 percent rate of expansion the year before. The government expects growth to be between 4.5 percent and 6.5 percent in 2008.
Singapore's growth had raised concern the economy is overheating, with consumer prices rising at the fastest pace in more than 25 years. Policy makers expect inflation to be between 3.5 percent and 4.5 percent this year, accelerating from a forecast average of 2 percent in 2007.
The figures today are computed from data for October and November. Revised numbers, including nominal gross domestic product, will be released next month.
An Australian snake which mistook four golf balls for a clutch of chicken eggs has been saved from a slow, painful death by emergency surgery.
The balls had been placed in a chicken coup by a couple in Nobby’s Creek in New South Wales in the hope that they would encourage their hens to nest.
But the ruse also fooled the wild carpet python, which slid into the coop and swallowed the plastic balls in the hope of a tasty meal. It was later found nearby, lumpy and bloated, and rushed to the nearby Currumbin Wildlife Sanctuary.
The balls were removed from its intestine by senior vet Michael Pyne, who said yesterday [wed] that the snake was making a speedy recovery.
“Those golf balls weren’t moving any further; they were stuck where they were,” Dr Pyne said.
“If it hadn’t been found, it would have died for sure. During the surgery we could see the name of the golf balls through the intestine because [it was] so stretched.”
The sanctuary regularly treats injured reptiles which come off worst after encounters with cars, pets and lawnmowers.
The snake - nicknamed Augustus - is expected to make a full recovery and should be released back into the wild later this month.
The Japanese public has dubbed 2007 the “Year of Deception.” Expected Japanese GDP growth for the year has been revised down from 2.1% to 1.3% and the stock market has fallen by 10%. I’ll return to whether the Japanese are right later, but the concept itself appears more generally applicable. There has in recent years been an excessively snake-oil-salesman quality to the policies and promises of politicians, monetary authorities and financial intermediaries.
In the United States for example, the country’s economic policymaking since 1995 has involved not just a “Year of Deception” but a decade of it. In examining the record, one is tempted to quote Mary McCarthy’s verdict on Lillian Hellman’s autobiography: “Every word she writes is a lie, including “and” and “the.” Some examples:
In 1996, the Bureau of Labor Statistics adopted “hedonic pricing” by which price statistics were “corrected” for improvements in quality. There were two problems with this. First, it counted quality improvement in the tech sector by raw processing power, which experience has shown to be wrong: functionality of tech equipment rises at best logarithmically with processing power. Second, it did not include the additional costs imposed on consumers by companies as a result of such innovations as automated telephone answering systems, which hugely increase the time and effort expended in conducting necessary consumer transactions. The result of hedonic pricing was to reduce consumer price increases by close to 1% per annum, producing an entirely spurious decline in reported inflation and a corresponding increase in “real” Gross Domestic Product growth.
The second deception chronologically, though in many respects the most important, was Fed Chairman Alan Greenspan’s “recognition” in 1997 that a new era of faster productivity growth had dawned, so higher stock prices and lower interest rates were justified. Part of this “acceleration” was just random fluctuation (much of which was eliminated in later statistical revisions), part was the result of increasing capital intensiveness in the US economy, caused by lower real interest rates and part was the effect of hedonic pricing, which artificially inflated GDP growth, and hence productivity. The reality, when you look at the series over a long term, was that well over 100% of any rise in productivity in the late 1990s can be explained by these factors. The “miracle” was a mirage and lower interest rates and higher stock prices were wholly unjustified, inevitably leading to huge misallocations of capital.
As the bubble intensified, in 1999-2000, the Fed moved to the pretense that it was impossible to know when a bubble was taking place, so monetary authorities couldn’t burst it. One may well in that case ask what is the point of having a monetary authority; an automatic system, whether a “Gold Standard” or a fixed monetary growth rule, would cause interest rates to rise in a bubble, thus deflating it automatically. Of course a monetary authority can deflate a bubble, as has happened many times; the Fed under Alan Greenspan and Ben Bernanke has however been a thoroughly political institution that doesn’t want to incur the temporary unpopularity from doing so.
Connected with the last point is the monetary authorities’ obfuscation of the monetary basis, both domestic and international, of their job. From 1993, the Fed abandoned the entirely sound Paul Volcker-era practice of money supply targeting, which had successfully brought inflation down with only moderate pain. Allegedly, in the new world of technology, monetary aggregates were no longer accurate enough to steer policy by. It is no coincidence that immediately after this change, the Fed embarked on its program of reckless expansion of M3 money supply, by almost 10% per annum for a decade when nominal GDP was growing at only 5-6%. The Bundesbank and initially the European Central Bank resisted this laxity, but since Jean-Claude Trichet took over the ECB in November 2003 that too has been printing money supply, in its case M2, as if its Directors were paid by the banknote. Then in March 2006 the Fed compounded this error by the unparalleled arrogance of ceasing to report M3, presumably hoping that by this means its monetary misdeeds would go unnoticed.
In 1999-2000, Wall Street sold dot-com and telecom stocks to investors on the basis of non-existent earnings. They were aided in this by corporate top management, which proceeded to pay itself vast sums by means of stock options, while pretending these had no cost to shareholders. Again, deception.
In the political arena, one may note the “bait and switch” tactic of the George W. Bush administration in foreign policy. Bush came to office promising to pursue a “modest” foreign policy, avoiding expansionist Democrat “nation building.” Needless to say, the 9/11 attacks, similar in kind albeit larger in scale to a myriad terrorist attacks in Europe, were used as an excuse for a 180 degree reversal of this, inaugurating a foreign policy that would have fulfilled Woodrow Wilson’s wildest power fantasies. The policy merits of this switch are still being determined (though at this stage one has doubts); what is clear is that a single act by a small group of fanatics caused a complete reversal of the program on which Bush had been elected.
On public spending, too, the electorate can reasonably claim to have been sold a false bill of goods. The Republican Congresses elected after 1994 initially pursued an admirably tight fiscal policy. However after Newt Gingrich was replaced as Speaker of the House of Representatives by Dennis Hastert in December 1998, Hastert and Tom DeLay proceeded to go hog-wild at the public trough, using it for innumerable corrupt pork-barrel schemes, to which Bush joined fatuous and counterproductive public spending boondoggles like the “No Child Left Behind Act.” It is little wonder Hastert and DeLay were thrown out in 2006; the electorate reasonably felt that if it wanted wasteful public spending and inventive new social programs, it could get them from the Democrats, traditionally expert in such matters.
After the stock market bubble burst, the Fed cut interest rates viciously, decimating the income of US savers and thereby causing a savings dearth and a huge balance of payments deficit. The Fed justified this by claiming to see a “deflation” for which there was no evidence whatever, as retail prices continued rising gently, stock prices remained overvalued by historical standards and house prices were soaring. Once again, deception was used to justify a mistaken policy.
In January 2004 and through June 2007, the Bush administration announced that a top priority would be to legalize the 12 million illegal immigrants who had mysteriously appeared in the country. No significant attempt was made to enforce immigration laws, either at the borders or more importantly among employers. The administration spent a huge effort claiming, entirely contrary to the evidence, that uncontrolled low-skill immigration had no effect on the earnings of domestic workers of modest attainments. The reality was that, however useful the illegal immigrants in erecting millions of ugly, unnecessary houses for which there would soon be no market, by doubling or more the supply of unskilled labor the immigration had the obvious economic effect of depressing low-skill wage rates to subsistence levels. Again, breathtaking and unjustifiable deception.
In housing itself, the modern housing finance market has been built on deception. Instead of assessing a credit risk and making a loan, the modern housing financier merely collects a fee and passes the risk off to some unknown investor, preferably a foreign bank. Needless to say, this has resulted in a substantial percentage of housing loans being entirely fraudulent. It is increasingly becoming clear that a large proportion of modern finance rests on similar deceptions, with asset backed commercial paper, securitization in general, and much of the derivatives market resting solely on aggressive obfuscation of economic reality in pursuit of fees.
To return to the Fed (who may have been thinking I had finished with it), its recent activities have rested on two further deceptions. First, it pretends loudly that “core” inflation, stripping out food and energy, is all it needs to worry about. This is economically nonsense, and it knows it to be so – naturally when the economy is overheating food and energy prices are the first to rise, providing valuable signals of inflation in general. Second, the Fed and the ECB have now decided that the inevitable illiquidity in the interbank market following exposure of the banking system’s defalcations in housing and elsewhere can be cured by cutting interest rates aggressively and pumping $600 billion of taxpayer money into the banking system. Needless to say, such activities do not restore a systemic confidence that has proved itself unjustified; they simply prop up the stock market and cause an increase in inflationary pressure, pushing oil prices up over 30% in four months. Again, it’s quite literally a confidence trick, which will be exposed during 2008.
Turning now to Japan, whose people came up with the “year of deception” line, one is puzzled to find where the deception lies. Yes, economic growth in 2007 will be 1.3% compared with the 2.1% projected, but that is a modest difference, caused partly by the fiscal tightening in Japan’s 2007 budget, which was both essential to fiscal stability and in the long run economically beneficial as it reduces the burden of Japan’s excessive government debt.
There is a certain amount of deception in the monetary area. The Bank of Japan has kept its key interest rate at 0.5%, on the pretence that deflation is rampant. In reality, with energy and commodity prices having increased so rapidly, Japan is now suffering significant inflation, so its short term rates are negative in real terms. For the health of the economy, and above all the income of Japan’s numerous hard-saving retirees, Japan’s short term interest rates should be increased to a more normal 2.5-3% as soon as possible. Nevertheless, it does not appear that the damage done by this mistake has yet been severe, so one can hope it will promptly be corrected.
A third example of alleged “deception” is the loss of 50 million pension records by the Japanese government. However, the responsible minister resigned, as is proper, and Britain shortly thereafter, by losing 25 million social security records of its own, proved that this was not a Japanese problem, but a universal problem of placing excessive reliance on computer systems managed by incompetent government bureaucracies. One can also ask oneself where there is more risk of serious identity theft: in a country with almost no immigration and a well-established domestic criminal class that helpfully identifies itself by means of tattoos, or a country that has completely lost control of its borders, and sold most of the prime real estate in its capital to the Russian mafia.
Naturally, a primary reason the Japanese investor class regards 2007 as a “year of deception” is that the Tokyo stock market has dropped 10%, the only large market to have done so. However, in a year of a major international financial crisis, in which several medium sized banks have collapsed and $600 billion in emergency funds has been pumped into the interbank market, it may reasonably be questioned why any of the world’s stock markets should have risen.
It appears that the Tokyo stock market is currently the only major market in the world that is NOT ruled by deception!
Former wall street broker and HSX co-founder, Max Keiser, investigates the US economy and reveals how the American officials have maintained the image of a strong dollar since coming off the Gold Standard. We hear from authors and leading economists who claim Former wall street broker, Max Keiser, investigates the US economy and reveals how the American officials have maintained the image of a strong dollar since coming off the Gold Standard. We hear from authors and leading economists who claim that central banks have been helping to manipulate the gold markets and keep the prices down.
How will all this unravel? Max looks at the current US debt levels, the shift away from the dollar as a reserve currency and the move to price oil in Euros.
China's tax revenue exceeded 4.94 trillion yuan (670 billion US dollars) in 2007, up 31.4 percent year-on-year, the State Administration of Taxation (SAT) said Tuesday.
Xiao Jie, head of the SAT, said the increase was one of the largest in any year since the reform and opening up policy adopted in 1978. He ascribed the increase to stable economic growth and surging industry profits.
Xiao forecast that tax revenue would rise further in 2008, driven by strong economic momentum.
This article appeared in the Wall Street Journal on December 27, 2007.
Central banks ended the year with a spectacular injection of liquidity to lubricate the economy. On Dec. 18, the European Central Bank alone pumped $502 billion -- 130% of Switzerland's annual GDP -- into the credit markets. The central bankers also signaled that they will continue pumping "as long as necessary." This delivered plenty of seasonal cheer to bankers who will be able to sweep dud loans and related impaired assets under the rug -- temporarily.
But the injection of all this liquidity coincided with a spat of troubling inflation news. On a year-over-year basis, the consumer-price and producer-price indexes for November jumped to 4.3% and 7.2%, respectively. Even the Federal Reserve's favorite backward-looking inflation gauge -- the so-called core price index for personal consumption expenditures -- has increased by 2.2% over the year, piercing the Fed's 2% inflation ceiling.
Contrary to what the inflation doves have been telling us, inflation and inflation expectations are not well contained. The dollar's sinking exchange value signaled long ago that monetary policy was too loose, and that inflation would eventually rear its ugly head.
This, of course, hasn't bothered the mercantilists in Washington, who have rejoiced as the dollar has shed almost 30% of its value against the euro over the past five years. For them, a maxi-revaluation of the Chinese renminbi against the dollar, and an unpegging of other currencies linked to the dollar, would be the ultimate prize.
As the mercantilists see it, a decimated dollar would work wonders for the U.S. trade deficit. This is bad economics and even worse politics. In open economies, ongoing trade imbalances are all about net saving propensities, not changes in exchange rates. Large trade deficits have been around since the 1980s without being discernibly affected by fluctuations in the dollar's exchange rate.
So what should be done? It's time for the Bush administration to put some teeth in its "strong" dollar rhetoric by encouraging a coordinated, joint intervention by leading central banks to strengthen and put a floor under the U.S. dollar -- as they have in the past during occasional bouts of undue dollar weakness. A stronger, more stable dollar will ensure that it retains its pre-eminent position as the world's reserve, intervention and invoicing currency. It will also provide an anchor for inflation expectations, something the Fed is anxiously searching for.
The current weakness in the dollar is cyclical. The housing downturn prompted the Fed to cut interest rates on dollar assets by a full percentage point since August -- perhaps too much. Normally, the dollar would recover when growth picks up again and monetary policy tightens. But foreign-exchange markets -- like those for common stocks and house prices -- can suffer from irrational exuberance and bandwagon effects that lead to overshooting. This is precisely why the dollar has been under siege.
If the U.S. government truly believes that a strong stable dollar is sustainable in the long run, it should intervene in the near term to strengthen the dollar.
But there's a catch. Under the normal operation of the world dollar standard which has prevailed since 1945, the U.S. government maintains open capital markets and generally remains passive in foreign-exchange markets, while other governments intervene more or less often to influence their exchange rates.
Today, outside of a few countries in Eastern Europe linked to the euro, countries in Asia, Latin America, and much of Africa and the Middle East use the dollar as their common intervention or "key" currency. Thus they avoid targeting their exchange rates at cross purposes and minimize political acrimony. For example, if the Korean central bank dampened its currency's appreciation by buying yen and selling won, the higher yen would greatly upset the Japanese who are already on the cusp of deflation -- and they would be even more upset if China also intervened in yen.
Instead, the dollar should be kept as the common intervention currency by other countries, and it would be unwise and perhaps futile for the U.S. to intervene unilaterally against one or more foreign currencies to support the dollar. This would run counter to the accepted modus operandi of the post-World War II dollar standard, a standard that has been a great boon to the U.S. and world economies.
The timing for joint intervention couldn't be better. America's most important trading partners have expressed angst over the dollar's decline. The president of the European Central Bank (ECB), Jean Claude Trichet, has expressed concern about the "brutal" movements in the dollar-euro exchange rate. Japan's new Prime Minister, Yasuo Fukuda, has worried in public about the rising yen pushing Japan back into deflation. The surge in the Canadian "petro dollar" is upsetting manufacturers in Ontario and Quebec. OPEC is studying the possibility of invoicing oil in something other than the dollar. And China's premier, Wen Jiabao, recently complained that the falling dollar was inflicting big losses on the massive credits China has extended to the U.S.
If the ECB, the Bank of Japan, the Bank of Canada, the Bank of England and so on, were to take the initiative, the U.S. would be wise to cooperate. Joint intervention on this scale would avoid intervening at cross-purposes. Also, official interventions are much more effective when all the relevant central banks are involved because markets receive a much stronger signal that national governments have made a credible commitment.
This brings us to China, and all the misplaced concern over its exchange rate. Given the need to make a strong-dollar policy credible, it is perverse to bash the one country that has done the most to prevent a dollar free fall. China's massive interventions to buy dollars have curbed a sharp dollar depreciation against the renminbi; they have also filled America's savings deficiency and financed its trade deficit.
As the renminbi's exchange rate is the linchpin for a raft of other Asian currencies, a sharp appreciation of the renminbi would put tremendous upward pressure on all the others -- including Korea, Japan, Thailand and even India. Forcing China into a major renminbi appreciation would usher in another bout of dollar weakness and further unhinge inflation expectations in the U.S. It would also send a deflationary impulse abroad and destabilize the international financial system.
China, with its huge foreign-exchange reserves (over $1.4 trillion), has another important role to play. Once the major industrial countries with convertible currencies -- led by the ECB -- agree to put a floor under the dollar, emerging markets with the largest dollar holdings -- China and Saudi Arabia -- must agree not to "diversify" into other convertible currencies such as the euro. Absent this agreement, the required interventions by, say, the ECB would be massive, throwing the strategy into question.
Cooperation is a win-win situation: The gross overvaluations of European currencies would be mitigated, large holders of dollar assets would be spared capital losses, and the U.S. would escape an inflationary conflagration associated with general dollar devaluation. For China to agree to all of this, however, the U.S. (and EU) must support a true strong-dollar policy -- by ending counterproductive China bashing.
Women are not that different from men. They feel desire for sex just as much, but they express it in different ways. The Chosun Ilbo asked modern women what turns them on and how to spot the signs.
The famous line in the film “One Fine Spring Day” is, “Want some ramen before you go? …Why don’t you stay tonight?” It comes as the heroine, played by Lee Young-ae, seduces Yoo Ji-tae when he drives her home after work. Some people may think it rare for women to ask a man first. But the days of the modest, obedient woman who waits for the man to make the first move are long gone. Women no longer hesitate to follow their natural instincts. Holding back is bad for mental hygiene, they say.
Where men have their 30-second principle -- that’s how often they think about sex -- women also frequently feel the urge. In sexual medicine, there is a principle of equal sexual desire, the theory that there is no difference in sexual desire between men and women. The difference being, perhaps, that men can have sex whether or not their partner is ready while women just can’t when they are not in the mood. All men need to do, then, is accept their spouse’s desires just as they are -- and fulfill them.
When women feel like having sex differs from person to person. Biologically, experts agree that women tend to feel the strongest desire just before or after their periods and around the time they are ovulating. Indeed, some women want sex more during their periods because of the onslaught of hormones. At the same time, women are more sensitive to psychological or emotional conditions than mere biological drives. Lee Myeong-hee (35), a publicist and housewife, says she would like her husband to be more understanding when they have sex. She feels like making love to her husband when she senses how much he loves her, she confesses, such as when his voice sounds particularly warm over the phone or when he hugs her after a long day at work.
While men are capable of getting worked up watching pornography or explicit sex scenes, that does not necessarily work for women. Newlywed Kang Won-ju (29) confesses that she felt most like having sex when she and her now-husband were watching a melodrama or a film about puppy love while on a date. In other words, romance and the sight of beautiful couples in love is more of a turn-on than the graphic nitty-gritty of a sex scene.
But one thing is clear: today’s women are more honest and demanding of their husbands. They no longer have any qualms about expressing what they want for fear of seeming depraved or looking like a “nymphomaniac.” One woman admits she sometimes quarrels with her husband when he doesn’t make love to her often enough -- a complaint once thought to be the exclusive domain of dissatisfied men.
Jan. 2 (Bloomberg) -- Selling soybeans at their highest prices in three decades and corn while it flirts with the 1996 peak is a money-losing trade, according to Goldman Sachs Group Inc. and Deutsche Bank AG.
Corn at $4.55 a bushel is ``cheap,'' Frankfurt-based Deutsche Bank says. Goldman Sachs in New York expects soybeans to rise 29 percent in 2008, the best investment in commodities. Investors who followed the banks' advice and bought raw materials last year profited as the Standard & Poor's GSCI Index advanced 33 percent, beating the 3.5 percent gain in the S&P 500 Index and the 9.1 percent return from U.S. Treasuries, according to data compiled by Merrill Lynch & Co.
Rising wealth from Shanghai to Sao Paulo is leading to better diets and straining corn and soybean supplies just as record energy prices boost sales of biofuels. Even after rising 17 percent in 2007, corn costs about $2 a bushel after adjusting for inflation, compared with a $7.80 high in 1974.
``We are in the early stages of a rally that could last 20 years'' in agriculture, said Christopher Wyke, product manager at London-based Schroders Plc, which manages $3.5 billion in commodities and is buying more corn and soybean contracts while reducing energy holdings. ``Prices are historically cheap.''
Not since the Soviet Union harvest failures of the 1970s have food prices risen so quickly. European Central Bank President Jean-Claude Trichet said Dec. 19 that the region faced a ``more protracted'' period of elevated inflation than expected because of food and oil prices.
Falling Inventories
World soybean inventories will plunge 23 percent in the 2007-2008 marketing season to 47.3 million tons from a record 61.1 million the previous year, the U.S. Agriculture Department estimates.
Soybean consumers face a ``large deficit'' in supplies because of increasing sales to China and production of biofuels, according to Goldman Sachs, the world's biggest securities firm.
``There are still good investment opportunities in the oilseed,'' Goldman analysts led by Jeffrey Currie said in a Dec. 11 report.
Goldman predicts soybeans will reach $14.50 a bushel. Investors who buy $10 million of November contracts on the Chicago Board of Trade would earn $2.9 million should the forecast prove accurate. A hedge fund that borrowed money to increase the bet using margin could turn that $10 million into about $59 million.
Corn Versus Wheat
Soybeans for March delivery jumped as much as 31.25 cents, or 2.6 percent, to $12.455 a bushel today on the Chicago Board of Trade and were at $12.40 as of 8:51 a.m. local time.
The bank forecast December 2008 corn prices will increase 12 percent to $5.30 a bushel from $4.735 now. Goldman recommended buying corn and selling wheat in a ``spread'' trade to exploit changes in the relative value of the crops.
Corn for March delivery climbed as much as 6.5 cents, or 1.4 percent, to $4.62 a bushel today in Chicago, the highest since June 1996.
Rallies in agricultural markets historically last about two years, boosting prices by 135 percent, according to Michael Lewis, the London-based global head of commodities research at Deutsche Bank. Prices may climb as much as 250 percent during three to four years in this cycle, he said. The rally in agriculture markets started in the fourth quarter of 2006.
Farmers are planting more acres to take advantage of the price rise, which could damp gains. The U.S. national corn yield has more than doubled to 153 bushels an acre in 2007 from 71.9 in 1974, while the soybean average has jumped 74 percent to 41.3 bushels from 23.7 in 1974, government statistics show.
`Battle for Land'
Droughts from Ukraine to Australia have cut crop yields, sending prices for wheat to a record in December and soybeans to a 34-year high. Corn rose to $4.62 a bushel in Chicago trading today, the highest since 1996. Farmers are planting more wheat at the expense of corn, soybeans and cotton.
Wheat farmers worldwide may increase plantings by 4 percent, the London-based International Grains Council said in November. In the U.S., the world's largest wheat exporter, growers will sow 64 million acres (26 million hectares) in the year ending May 31, up 6 percent, the Agriculture Department said in October.
``We'll continue to see a battle for land between the grains,'' said Matthew Sena, an analyst at New York-based Castlestone Management LLC, which oversees $800 million. ``The run-up in wheat prices will prevent a dramatic supply response for soybeans and corn.''
Biofuels Demand
Castlestone invests about $100 million in commodities, and Sena said the fund has been adding to its corn and soybean holdings while cutting investments in wheat.
Demand for biofuels, made from corn, oilseeds and sugar, is growing as countries seek to cut their dependence on fossil fuels after oil rose to a record $99.29 a barrel in November. Demand is straining the availability of farmland as well as water supplies.
``The severity of these factors means that there's a better chance of this being the longest and biggest agricultural rally ever,'' said Colin Waugh, portfolio manager at New York-based Galtere International Fund, which manages $1.3 billion in commodities and related investments.
The biggest winners from the U.S. energy bill signed by President George W. Bush on Dec. 20 may be companies including Archer Daniels Midland Co. of Decatur, Illinois, and Sacramento- based Pacific Ethanol Inc. The legislation requires biofuels production to increase to 36 billion gallons in 2022 from 7.5 billion in 2012.
Population Growth
U.S. ethanol prices at $2.2157 a gallon on average are 11 percent cheaper than New York wholesale gasoline futures at $2.4908 a gallon.
Crop prices ``will show a tendency to go up, and the reason is the growing world population, changing food patterns and limited availability of land,'' said Martin Richenhagen, chief executive officer of Agco Corp., the second-largest U.S. maker of tractors and combines after Deere & Co. ``This is good news for the farmer.''
Higher food prices may cause faster inflation. U.S. consumer prices increased 0.8 percent in November, the most in more than two years. Inflation in the 13-nation euro region accelerated to 3.1 percent in November, the fastest since 2001, according to Eurostat. Japan's core consumer prices rose at the fastest pace in more than nine years in November.
Tortilla Prices
Developing nations will feel the greatest pain. The cost of corn tortillas in Mexico, where shortages in 2006 boosted inflation, may rise 13 percent this year, according to Gruma SAB, the world's largest maker of corn flour. Food prices in China, the fastest-growing economy, increased 18.2 percent in November.
The rise in crop prices is creating the ``risk of social unrest,'' said Roland Jansen, whose $129 million Mother Earth Resources fund in Liechtenstein gained 28 percent in 2006, more than double the returns of commodity indexes. ``We've already seen it happen, like in Mexico. China will probably release stocks to pacify the population. There's a real danger of unrest there.''
28 comments:
CHART POINT
Market to consolidate gains
THE Straits Times Index hit a high of 3,491 last week, just short of its 3,500 downtrend resistance line.
Over the past six trading days, it chalked up an impressive 191-point gain but now appears to be suffering temporary indigestion.
The strong rebound was sparked by a bullish divergence in the RSI which marked the end of the mid-term downtrend.
The near-term downside is likely to be limited to the 3,398 gap, established on Dec 24.
While all indications point to an impending correction, we are not overly bearish over the medium-term trend.
However, the index is likely to fill the gap at 3,398 before it heads higher. Moreover, the 3,400 support also marks the 50 per cent Fibonacci retracement level. In the event this is breached, stronger support lies at 3,300.
The index is also supported by a double-bottom formation with the neckline at 3,621, suggesting the long-term uptrend will resume if the index breaks above resistance at 3,621.
We expect new IPOs to be the key beneficiaries of a run-up. We highlight three recent IPOs: JES international, KTL Global and First Resources.
Backed by strong institutional participation, JES has clawed above its IPO price of 67 cents on the fourth day of listing and looks poised to test its recent high of 77 cents in the near term.
Anchored by a few strategic investors, KTL Global has broken above resistance at 36 cents last week and exceeded our target price of 40 cents.
Nevertheless, we see buying momentum carrying the stock higher in the short term. Rising palm oil prices have lifted First Resources about 20 per cent in the past four days from a low of 99.5 cents. -- Kelive Research
Outlook Asia: After a solid '07, what's next?
By Alex Frew McMillan
December 28, 2007
HONG KONG: As 2007 comes to a close, the eyes of the Asian property market are elsewhere.
With U.S. real estate in a definite slump over the subprime crisis and prices showing signs of decline in Britain, France, Spain and Italy, property owners and developers in Asia are wondering if such problems will appear in their region. They have not so far, and 2007 was a solid year for residential property in Asia. But only time will tell whether the region has really "decoupled" from the rest of the world market.
The concerns have left some cautious about prospects. And while 2008 looks set to start strongly in the region, many are hedging their predictions or are anticipating a slowdown in the second half.
"The impact of subprime on the real estate market is our concern in the second half of 2008," and the agency is planning to issue an updated forecast in midyear, said Alva To, the Hong Kong-based head of consultancy for north Asia for the global real estate consulting company DTZ.
The normally staid property market in Singapore was the top performer in Asia for 2007. Luxury property values there were up 56.4 percent year over year in the third quarter, according to data from Jones Lang LaSalle real estate, more than double the pace of increase in Beijing, the second-strongest city, where luxury values rose 25.7 percent.
"Singapore's luxury residential performance was driven by strong underlying investor demand attributed to foreign purchasers, local high net worth individuals and, during the first half of the year, en bloc sellers," Glyn Nelson, the Singapore-based head of operations for Asia real estate intelligence services at Jones Lang LaSalle, explained in an e-mail.
Investors took a new look at the city, where two casino projects were under way, and local buyers were heartened by the city's strong financials. Nelson expects that momentum to continue into 2008, citing Singapore as the top pick for the year in terms of capital value gains, followed by Shanghai and Hong Kong.
Tim Murphy, managing director of the real estate investment company Intellectual Property, is not so heartened about the Lion City, however. He says the Singaporean government's new measures to cool the market - delaying plans for public developments and withdrawing plans to let buyers delay home payments - will cut into results for next year.
"We think there are more profitable places to invest in 2008," Murphy said, citing neighboring Malaysia as "a huge success story of 2007." There, the government suspended capital gains tax on property and is encouraging investment from overseas.
In China, the focus continues to be the government, which still is tinkering with property regulations to prevent overheating. Many of its "austerity measures" took effect during the year, with changes in bank-lending policies making it much harder to get mortgages.
"China slowed down quite significantly," said Buggle Lau, chief analyst at Midland Realty. Transactions in hot markets like Shenzhen, just across the border from Hong Kong, were down 20 percent to 30 percent in the second half of the year, compared to the first half. And values in Shenzhen fell 10 percent to 15 percent in the last few months of 2007.
The market probably merited some cooling - prices in Shenzhen, for example, grew 350 percent in the past three and a half years. And so far, the government has managed to curb growth without producing a crash. "A mild correction definitely is good for the long-term development of the property market in China," Lau said.
Beijing's strong performance for the year is probably explained by an increase in luxury apartment values and rents before the 2008 Olympics, but such increases may not last beyond the Games.
In September, the central People's Bank of China and the banking regulator, the China Banking Regulatory Commission, began requiring anyone seeking a second home loan to put down a deposit of at least 40 percent of the property's value and to pay a 10 percent premium on interest.
Edward Cheung, chief executive for mainland China for DTZ, says the policy produced a significant drop in the amount of residential property sold in top-tier markets. In Shanghai, for example, the amount of property sold in October was less than half that sold in June. "Once buyers have taken in what the policy actually means, purchasing confidence has usually returned to the market, and there is no reason why this should not happen this time around as well," Cheung said.
For once, Hong Kong's property market was pretty stable in 2007. The overall residential market saw gains of about 17 percent, according to preliminary figures from Jones Lang LaSalle, having been up 10.3 percent in 2005 and down 0.4 percent in 2006. Luxury values were up an average of 24.5 percent for the year.
Hong Kong did hit the headlines, though, for setting new records in terms of price. In November, Kerry Properties sold the 7,100-square-foot, or 660-square-meter, penthouse on the 52nd and 53rd floors of its Branksome Crest development in Mid-Levels for 283 million Hong Kong dollars, or $36.3 million. At 40,000 dollars per square foot, it was a record for an apartment in Asia.
Based on Hong Kong's very small supply of residential property, market watchers are predicting a very strong performance. "We have turned maximum bullish on Hong Kong residential, and expect residential prices to rise 50 percent by end-2009," the Merrill Lynch research analysts Keith Yeung, Paul Yau and Kevin Lai wrote in November.
The city's strong fundamentals are the driver, with the economy's rapid growth producing pay raises for the local work force. "Professionals have recently regained bargaining power in the labor market," said Xavier Wong, the head of research for Knight Frank in Hong Kong. "With the middle-class households keen to upgrade their homes, midpriced units worth between 4 million dollars and 10 million dollars are expected to do particularly well."
Property in nearby Macao continues to thrive because of its casino boom. Prices have jumped about 100 percent since 2003. The city has a dire shortage of true luxury development, and international developers are starting to bring higher standards to the market.
Real estate in Japan continues its slow climb out of recession, with the main drivers continuing to be central Tokyo and Osaka, the largest cities. Developers are starting to see signs of opportunity in second-tier cities like Sendai, Fukuoka and Sapporo but they say it is early yet.
Tokyo Midtown, a sprawling project near the trendy Roppongi neighborhood, was the highest-profile new entrant. The project, developed by the Mitsui Fudosan, contains the Park Residences at The Ritz-Carlton, the Tokyo Midtown Residences and the Oakwood Premier Tokyo Midtown residential buildings, as well as shops, restaurants, offices, a medical center and museum.
The luxury villa market took a breather in Thailand in 2007, but not because of subprime problems. The fallout of the 2006 coup that removed Prime Minister Thaksin Shinawatra from power had much more effect, and the uncertainty is expected to continue after the election Sunday in which his allies won a parliamentary majority.
"2007 has been a year of consolidation for Phuket," said David Simister, chairman of the brokerage CB Richard Ellis (Thailand). Prices have shown almost no gain for the year. But, he added, "despite the country's ongoing issues, prices of new developments in Phuket remain solid with no discounting."
Aust officials lose free massages
Wed, Jan 02, 2008
SYDNEY - AUSTRALIAN public servants are to lose one of their more unusual perks as part of a crackdown on bureaucratic spending - tax payer-funded massages, reports said on Wednesday.
Officials spent more than A$200,000 (S$252,000) on the rub-downs over two years, Sydney's Daily Telegraph said on Wednesday.
Postal workers spent the most on massages (A$55,000) but senior staff at the Australian Bureau of Statistics were also partial to the treatment, spending A$10,120, while Treasury officials outlayed A$17,000.
The department of former prime minister John Howard, meanwhile, racked up some A$6,000 in massages.
Figures tabled in parliament show bureaucrats spent A$108,710 on massages in 2004 and A$89,000 the following year.
A spokesman for Assistant Treasurer Chris Bowen, who has previously labelled the practice a 'blatant waste of expenditure", said the minister was expected to advise agency heads that tax-payer funded massages must stop.
Other ministers are likely to follow Mr Bowen's lead and scrap the rub-downs as part of new Prime Minister Kevin Rudd's cuts to government spending, the paper said. -- AFP
0416 GMT [Dow Jones] Singapore shares will remain volatile in 2008, with the STI likely to trade sideways until there''s more clarity on the macroeconomic outlook, says DMG in note. "The Singapore bourse is grappling with the prospect of a slowdown in the U.S. economy, while concurrently dealing with the highest inflation rate since 1990. These two factors will negatively impact corporate profitability, resulting in an increasingly tough environment for local stocks in 2008." Tips 3000 as worst case downside for STI in 2008, "this represents a 7-year mean price/book valuation on modest EPS growth assumptions." But adds that if macroeconomic backdrop improves, STI could trade up to 4100 by year-end. (KIG)
Areas that could do with greater disclosures in 2008
By R SIVANITHY
ON PAGE 37 of Indian shipping company Mercator Lines's initial public offer prospectus, the use of funds is expressed in terms of each Singapore dollar invested - 49 cents to acquire a large ship from its parent, 45 cents for business expansion and strategic investments and six cents for IPO expenses.
The company also discusses its expansion and investment plans in detail, so prospective investors know exactly how their money is to be used.
Mercator's disclosures - and those of several other recent listing candidates - illustrates an encouraging if relatively unnoticed trend in the IPO market over the past year towards being more transparent about the use of funds.
Before this, the general practice was to conceal - actively or passively - as much as possible. Companies were reluctant to give too many details about where money was to be deployed.
More, however, can be done. The use of proceeds in terms of each dollar invested should be placed in a prominent position - perhaps on a prospectus cover instead of inside the document. Doing this would eventually encourage investors to ask in every IPO where their money will go, forcing companies to be more accountable when tapping the public for funds.
Placement issues
A related area that would benefit from better disclosure is share placement, especially when the price is at a large discount to the prevailing market.
At present, companies are barred only from placing shares to insiders and related parties. But other than this, there is no requirement to say who receives the shares. While it may not be possible to give details of all recipients, shareholders would surely benefit if companies were to reveal the biggest recipients and why they were given large parcels.
In addition, some discussion on how the quantum of discount was reached would be useful, since there seems to be wide variation. And as with IPO proceeds, a detailed breakdown of the use of placement funds should be provided.
Another area that would benefit from improved disclosure is deals involving profit guarantees.
Several such deals were announced in 2007, which led to large share price rises for the stocks concerned. In many cases, these deals were later called off because previously unhighlighted conditions - clauses in the agreement, buried inside reams of legal jargon - were not met.
It should be a requirement that when a company announces a venture that includes a profit guarantee, it should have to simultaneously disclose upfront all contingencies that could scuttle the deal, so shareholders have a fuller picture of the risks and what could lie ahead.
Furthermore, investors would have noticed that when a deal is announced, the accompanying release can run into several pages. But when it falls through, the announcement is typically brief, usually one or two paragraphs. This imbalance should be addressed.
Short-selling issues
Yet another beneficial disclosure practice would be short-selling positions. The Singapore Exchange and a handful of other financial houses now run scrip borrowing and lending services for investors who have either urgent need for scrip or who wish to take covered short positions.
It should be relatively simple to collate all of this data and release a daily report - in Hong Kong, a short-selling summary is released twice a day - to give investors an indication of the extent of the market's bearishness at any point in time.
Finally, 2008 should see the authorities improve disclosure in the structured warrant segment, following a discussion paper last year on how best to deter short-selling in warrants. Once the best measures are agreed on and short-selling is curbed, issuers will be able to release daily summaries of their market-making activities, thus improving transparency in the warrants segment.
Stock Market Overview:
2nd January, 2008
Tung Tai Securities -- Hong Kong stock market ended the last trading session in 2007 with a strong rally on Monday. HSI closed the mid-day session at 27812, up 442 pts. Mid-day turnover reached $43.3B. In the early session, HSI opened 67 pts higher following US markets and further extended gains led by property stocks. It closed the day high (27820)near the mid-session ended. On hopes of further rate cut in Jan 2008, property markets ended higher, which provided strong upward momentum. Technically, although HSI hold above the 10-day MA (27402), it has yet to get rid of the rangebound trading. Trend will further turn clear should it break through and hold above the 50-day MA (28519). It is likely to trade between 27300/28500 area in short term.
Today spot: CNAC yesterday said that Singapore Airlines’ offer to acquire a stake in CEA (670) (buy) was unfair to shareholders and it reserved the right to make a counter-proposal. The move by CNAC is part of an effort to mobilize other shareholders to vote against the offer on January 8. CNAC now directly holds a 12% stake in CEA. It requested that CEA and the bidders present a better proposal. It also said the anti-dilution rights CEA granted to the bidders and a noncompetition clause failed to treat other shareholders equally.
**********************************
CSC Securities (HK) Ltd -- Hang Seng index up 442 points on Monday and closed at 27,813 points. Market turnover remained low due to half trading day, amounted to 43.4 billion. Investors were taking profits from recent IPO stocks. Sinoma(1893), China Railway(390), and Xingye Copper(505) dropped 3.59%, 6.68%, 11.87%,
respectively.
The DJIA down slightly on Monday. However, major brokers remain neutral to positive view on US market in 2008. We believe positive short-term market atmosphere to be expected.
Looking ahead into 2008, we are bullish on China consumption
plays. Starting from 1st January, the mainland will carry out the
new labour law, indicating the will of the PRC Government to
redistribute wealth among different classes in the society.
Besides, we hold a positive view on local property plays like Sun Hung Kai Property(16) and Midland Holdding(1200) as we expect the –ve interest rate environment in HK to persist.
Overall, we consider China tight macro-economic policy and US subprime worries would remain two major uncertainties of Hong Kong stock market in 2008. We expect a range-bounded trading in Q1 as investors adopt await-and-see policy.
A Subprime User’s Guide, 2007 Edition
Commentary by Caroline Baum
Dec. 21 (Bloomberg) -- Anyone looking to reflect on the high points of the year in business and finance can pretty much do it in one, maybe two, words: subprime mess.
How the non-payment of mortgage interest by a homeowner in Ft. Myers, Florida -- and others like him -- morphed into an international credit crisis, heaping such huge losses on Wall Street that its biggest banks had to look overseas for a capital infusion, is a story that will be told for years to come. Maybe Wall Street memories will be longer than the crisis this time around.
For those who may have missed the subprime press coverage or been too intimidated by the acronyms to dive in, herewith is a user’s guide to the subprime year of 2007:
S is for the Subprime loans that were sold to Wall Street, Securitized and snapped up by Structured Investment Vehicles, which ran into trouble funding themselves. All of these ‘‘S’’ characters, independently, may have been well-intentioned initiatives: to encourage homeownership, to transfer risk, to turn a profit. Together, they were a lethal cocktail.
When home prices stopped rising, then started falling, subprime borrowers couldn’t refinance homes they couldn’t afford to begin with. They defaulted on their loans.
In the end, the various intermediaries between borrower (homeowner) and lender (investor), not to mention their divergent interests, is proving to be a hurdle to a timely resolution of the problem.
U is for Unreported losses. Banks have been offering up mea culpas for their third and fourth-quarter losses after a record first half. Commercial and investment banks worldwide have reported writedowns and losses of more than $80 billion so far. Fear of more to come has crimped interbank lending.
One view holds that banks are being aggressive now so they can start the new year with a clean slate and, in some cases, a new CEO. If that’s the case, why do the announced losses continually outpace what was anticipated just a few weeks ago?
B is for Boohoo, Bonus foregone. Morgan Stanley Chief Executive John Mack said he would take a pass on the bonus pool this year following the investment bank’s first-ever quarterly loss. Presumably Mack has a portion of his $42 million 2006 compensation tucked away somewhere, having invested it more wisely and safely than his firm, which wrote down $9.4 billion in mortgage securities in the fourth quarter.
Bear Stearns Cos. CEO Jimmy Cayne and senior executives won’t reward their poor performance with a bonus either. The firm reported its first loss as a public company.
P is for Paulson. That’s Hank Paulson, formerly of Goldman Sachs Group Inc., now of the U.S. Treasury. Paulson has hatched or encouraged one plan after the next to soften the fallout from the mortgage meltdown. (It may be the neighbour’s foreclosed house, but it’s your property that goes down in value.)
The impetus for a bank-backed ‘‘SuperSIV,’’ which would buy high-quality assets from little SIVs and finance them with the banks’ commercial paper, is waning as some financial institutions (Citigroup Inc., HSBC Holdings Plc) assume the liabilities of their SIVs. Other banks have said no thanks.
Another plan proposes to freeze the teaser rates on certain subprime loans. Paulson isn’t getting great reviews. He’ll be long gone before the ultimate votes are in.
R is for Regulation, Recession. The same senators and representatives who prodded lenders to extend credit to low- income folks in the 1970s and 1980s to help them buy homes are now horrified that the objects of their beneficence got put into loans they couldn’t afford.
Congress, which is always passing laws to prevent the last crisis, is considering a host of options from the benign (supporting more regulatory guidance) to the ridiculous (shifting the liability for predatory loans to investors). Heavy-handed measures may end up impeding the revival in residential real estate once inventories and prices come down.
The odds of a recession next year are rising, according to many economists. The Federal Reserve was slow to recognize the magnitude of the subprime problem, and quick to try different tactics, other than a reduction in its benchmark rate, once it did try to get credit flowing again. (If lowering the discount rate doesn’t reduce the stigma of borrowing directly from the Fed, create an anonymous facility for banks to bid for funds.)
I is for Interest rates, which are apt to come down in the new year. Central banks have been busy acting as lenders of last resort. The European Central Bank loaned a record 348 billion euros ($500 billion) for 14 days, which had the effect of reducing interbank rates by 50 basis points.
Once the banking system’s immediate cash needs are met, it will be back to the more mundane job of ministering to the economy.
In the U.S., with market rates still below the federal funds rate, the Fed will have to ease to return the yield curve to a positive slope.
M is for mortgage. See ‘‘S’’ above.
E is for the economy, which will be the biggest loser from the housing bubble gone bust. Today’s economy may be more resilient than in the past, but periods of excess credit creation tend to yield to periods of credit constraint.
From the Great Depression in the 1930s to the savings and loan crisis in the U.S. in the early 1990s to Japan’s lost decade of the 1990s, history suggests that when the banking system is impaired, the economy doesn’t work.
The workout from the credit problems won’t be quick or painless. Ringing out the old year doesn’t mean wringing out the losses from the subprime mess.
Business Times - 02 Jan 2008
New labour law to give workers more rights, raise costs for firms
(HONG KONG) China was to introduce yesterday a new labour law that enhances rights for the nation's workers, including open-ended work contracts and severance pay.
'The government is making the most concerted effort to protect workers' rights is China,' said Auret van Heerden, Geneva-based head of Fair Labor Association, which monitors work conditions in 60 countries. That 'goes against the conventional wisdom that China is leading the race to the bottom'.
Higher costs may drive manufacturers with low margins out of China, damping investment in factories that helped push inflation to a 10-year high. Olympus Corp, the world's No. 4 digital camera maker, and Yue Yuen Industrial (Holdings) Ltd, the biggest maker of shoes for brands such as Nike Inc, are among companies shifting some production to Vietnam to cut costs.
'We are likely to see more factory closures next year,' said Stanley Lau, vice-chairman of the Federation of Hong Kong Industries. The new law will make it more difficult for companies to hire temporary workers, a practice favoured by exporters to cope with fluctuations in orders, he said.
The Labour Contract Law aims to improve job security for workers, making open-ended terms of employment for those who have completed two fixed terms. The legislation limits overtime, sets minimum wages and guarantees one month's pay for each year worked for sacked employees.
The new law 'will definitely raise our costs', said Edmund Ding, spokesman for Hon Hai Precision Industry Co.
Taipei-based Hon Hai, the world's biggest contract manufacturer of consumer electronics, has 61 units in China making products including mobile phones and music consoles.
Some companies have been terminating contracts and asking employees to resign ahead of the introduction of the law.
Huawei Technologies Co, China's largest maker of telecommunications equipment, offered about 7,000 workers new contracts with benefits if they terminated their old agreements, spokesman Ross Gan said in an e-mail. Some employees accepted, while others chose not to sign and left, he said. The move wasn't aimed at evading legislation, Mr Gan said. -- Bloomberg
2008年1月2日
德銀發表研究報告，維持中鋁(2600.HK)「沽售」評級，並將目標價由15元下調至12.9元，反映收益預測下降，料中鋁會受人民幣升值及鋁價下跌等因素所影響。
報告預期，人民幣對美元匯價將由今年的7.4元上升至明年7元，至09年更會攀升至6.5元；該行亦將今年鋁價由原先預計每噸2726美元，下調至2665美元；同時，為反映中鋁發行股份完成併購包頭鋁資產，該行將中鋁股數額外增加4.95%。綜合有關因素，中鋁07-09年每股收益將減少17%、20%及36%。
纽约: Aluminum Corp of China Ltd(ACH)US$50.64 -0.00 (-1.9%)
上海: Aluminum Corp CHN 'A' CNY1(SHA 601600)RMB38.55 -0.84 (-2.13%)
香港: Chalco(2600.HK)HK$5.50 -0.60(-3.73%)
Eager new officials put China's economic control measures at risk
BEIJING - CHINA'S efforts to curb its red-hot economy are under threat from a batch of eager new leaders at the regional level keen to splash out on investment projects, state media said on Wednesday.
The central government has just appointed top officials in major cities such as Beijing, Shanghai, Chongqing and Tianjin as a prelude to more local government reshuffles expected in the first quarter, the China Daily reported.
'Newly appointed local officials may embark on a slew of projects to spur growth,' said Zhu Jianfang, Beijing-based chief economist at CITIC Securities, according to the paper.
'This may counteract the central government's efforts to cool the economy.'
Newly appointed government officials have a history of spending big on prestigious investment projects just after assuming office, aiming for a boost to local employment and tax revenues.
The paper cited figures showing that outstanding loans more than doubled to 1.6 trillion yuan (S$320 billion) in the first half of 2003, after the last major local government reshuffle.
This confirms a more general trend for local government objectives to be at odds with the central authorities, who are more concerned about macroeconomic issues such as the need to curb inflation.
In the first 11 months of last year, local governments approved about 90 per cent of all fixed-asset investment projects, recently released government data showed.
Investment in plant, equipment and other types of fixed assets are considered one of the major factors behind growth that has pushed Chinese inflation to 11-year highs.
The Chinese economy likely expanded by 11.5 per cent in 2007, earlier reports said, with official data due out later in January. -- AFP
China's foreign debt keeps growing
BEIJING - CHINA'S debt to the outside world kept rising last year, with higher-risk short-term borrowing taking up a growing share, state media reported Wednesday.
China's outstanding foreign debt hit US$345.7 billion (S$502.3 billion) by the end of September, up seven percent from the end of 2006, the China Securities Journal said, citing a statement by the State Administration of Foreign Exchange.
Of this amount, short-term debt - defined as loans with maturities of less than one year - accounted for 57.2 per cent, the paper reported.
At the end of 2006, short-term debt stood at 56.9 per cent of the total, according to earlier data from the State Administration of Foreign Exchange.
Despite the growth in overseas borrowing, China remains in a position to service its debt. It also holds the world's largest foreign exchange reserves.
Fuelled by an enormous trade surplus, China's forex reserves reached US$1.455 trillion in late October, according to the latest figures available. -- AFP
2008-01-02
曾淵滄：長期持有5隻大藍籌
2007年結束了，以恒生指數來看，這是很不錯的一年，恒指上升39%，是03年港股開始上升以來表現最好的一年。可惜，07年結束時的恒指與兩個月前最高時比較，是下跌了12%。如果你在00年年底至今仍然採用長期持有的戰略，你應該滿意你的賬面的投資回報，但是07年是驚駭動盪的一年，股市在短短的12個月裏出現3次大震盪，第一次是年初的2月、3月，第二次是7月、8月，第三次是11月至今。3次大震盪，把信心不夠的人淘汰出去，3次大震盪，把高價追入的人殺個片甲不留。因此，07年儘管恒指是上升39%，但是賺不到錢的股民卻不少，虧損者也不少。股市從03年開始上升，從07年年初開始，我就採取保守戰略，堅持不增加新的投資，同時開始收割一些不打算長期持有的股。這包括建滔化工（148）、國泰（293）、麗星郵輪（678）、中電信（728）、網通（906）、神華（1088）、兗煤（1171）、錦江酒店（2006）、中交建（1800）、長江生命科技（8222）。上述股票全是在07年之前買入，在07年賣光，或僅保留小部份。其中運氣最好的是麗星郵輪，在何鴻燊宣佈入股後以幾乎最高價賣光。
買中鐵沽中交建
另一隻賣到好價的股是建滔化工，建滔化工分拆建滔積層板（1888），我分析其關係後，得到的結論是：整個上市計劃對母公司建滔化工非常有利，很明顯的這是母公司的套現計劃，於是我還增持建滔化工，之後也趁高價將新買的及原有的全部賣掉，獲利不錯。中電信、網通，是炒3G概念，但等了一年又一年，等得不耐煩，賣掉算了，只保留龍頭電訊股，即中移動（941）。中交建是最遲放棄的，這是因為中鐵（390）上市，我覺得中鐵會比中交建好，但又不想投入新的資金，就決定股換股。我決定長期持有不變的長實（001）、控（005）、中石油（857）、中移動、國壽（2628）等5隻股。在07年裏，長實與控皆有增持，都是在07年3月份趁低價買入，長實增持的股價是96元，而控是135元，上述5隻股都是打算長期持有的。因此，賬面上是賺是虧都無所謂。此外，電盈（008）、新世界發展（017）、銀娛（027）、嘉國（173）、中石化（386）、工行（1398）、中銀香港（2388）、中行（3988）、交行（3328）的股數除嘉國外，在過去一年則不增也不減。
Strong measures will be taken to curb inflation: Hu
BEIJING - CHINESE President Hu Jintao has vowed to implement 'forceful measures' in the new year to curb rising food prices and address a booming real estate market that has seen property prices skyrocket.
Following his speeches on Monday, China's Commerce Ministry said yesterday it had imposed export quotas on flour made from wheat, corn and rice to help stabilise rising domestic prices.
During his visit to a market in the northern port city of Tianjin on Monday, Mr Hu told the surrounding crowd: 'The central government attaches great importance to commodity prices and has made it an important task to stabilise them.
'A series of forceful measures has been taken and will continue to be taken to ensure the normal life of the masses,' Mr Hu was quoted as saying by China Central Television.
Inflation hit an 11-year high of 6.9 per cent in November, according to official statistics. The spike was propelled by an 18.2 per cent rise in food prices.
Mr Hu also vowed to curb rising housing prices to help low-income families and to provide them with better health care benefits.
'The (Communist) Party and government are very much concerned about the housing problem of the low-income masses,' Mr Hu said.
'The central government has made arrangements to speed up the low-rent housing system, improve the affordable housing system and ease the housing difficulties of urban low-income families.'
Mr Hu made the comments as he visited a family at their small rental home in Tianjin and a retirement facility in the city.
The privatisation of housing in China over the last two decades has led to a booming real estate market that has left homes unaffordable for many ordinary working families.
Where to find the additional money to pay the ministers' new raise? 羊毛生在羊身上。
From the Straits Times Forum:
HDB property tax should be cut, not increased
I AGREE completely with Mr Ridzwan Abdullah, 'Wrong time to raise property tax on HDB flats' (ST, Dec 28).
It completes a trend of unreasonable price increases in Singapore. When you add up all the increases in 2007 - bus fares, taxi fares, GST, income tax, tax on utility bills, school bus fare hikes, bread prices and all the trigger effect - this property tax increase is insensitive.
HDB flats comprise basic housing for the people. That the property tax for private properties was raised is a lame excuse for the Government to do so for HDB flats.
In fact, judging from the problems we have in HDB estates that the authorities had not tackled satisfactorily - increased noise level, increased fire hazards, dengue problem, dumping of rubbish in corridors - there should be a decrease in property tax.
For the 35 per cent of us who pay income tax, there should be more rebates to cope with the increase cost of living.
Yum Shoen Liang
0615 GMT [Dow Jones] STOCK CALL: Deutsche Bank keeps STX Pan Ocean''s Singapore-listed shares (V33.SG) at Buy with S$3.88 targer price after company announces Korean regulations amended to allow shareholders to migrate/transfer shares between SGX, KRX. Notes, however, company warning of some limitations on migration and inability to predict how long migration will take. Notes price gap between Korean-listed (028670.SE), Singapore shares appears to have narrowed following announcement, but highlights Korean stock still at sharp premium. "We think this gap will narrow and hence we are maintaining our Buy recommendation on the STX Pan Ocean listed in Singapore. However, it is worthwhile noting that STX Pan Ocean Singapore''s 2008 P/E valuation of 7.5X is now significantly higher than Pacific Basin''s (2343.HK) 5.3X FY08." Singapore share down 1.1% at S$3.60; Korean listed share down 6.2% at KRW2,805 (S$4.31). (LES)
DJ MARKET TALK: Avoid Stocks, Buy Sugar, Cotton, Gold - Faber
[Dow Jones] Marc Faber of Gloom Boom & Doom Report advises investors to steer clear of financial stocks, defer new commitments to equities (especially emerging market stocks), and instead buy sugar, cotton and gold; in market comment, Faber notes he's never experienced equity bull market without financial stocks rising, so across-the-board collapse of financial stocks "is a very negative sign for the overall health of the stock market." Emerging market stocks particularly vulnerable following outperformance over past few years; "In an environment of relative global tightening of liquidity I am afraid that emerging stock markets could be deserted by foreign investors as seems to have begun in the case of Asia." Gold could pull back to $750/oz, but outlook strong, as central banks have no option but to print money, he says; "In my opinion, the gold bull market will come to an end when Sovereign Wealth Funds - sick and tired of their investments in financial stocks - will finally purchase gold - probably at above $3000 per ounce." (AMS)
Meghmani - also submitted proposal to SEBI for fungibility approval – KELIVE
The stock of Meghmani broke above 40 cents today. We believe the likely catalyst is the record high stock price established in Indian exchanges for the dual-listed stock. Meghmani's shares is currently trading above 45 Rp in India. Based on a ratio of 1 share = 2 SDS listed on SGX, that translates to an equivalent price of S$0.833/share. At 41 cents/SDS, the Singapore-listed counterpart is currently trading at a 50% discount to the India side. First resistance to look out for is $0.46 and the next resistance at $0.545. STX Ocean recently set a precedence for dual-listed stocks to become fungible across exchanges after South Korean authorities made changes to its listing regulations. On the same note, Meghmani has also submitted proposal to SEBI for similar approval. Share fungibility allows investors to arbitrage dual-listed stocks, thus narrowing of the price disrecrepancy that currently exists across both exchanges.
Subprime’s Hidden Cost Is Shrinking Leverage
Commentary by Michael R. Sesit
Dec. 28 (Bloomberg) -- In this season of stock taking, the picture past and future for financial markets is far from pretty. The reason? Subprime.
If you didn’t know what subprime meant at the start of the year, it was hard to avoid its meaning by year end.
The big question now is what will the subprime crisis and ensuing credit crunch cost. In mid-July, Federal Reserve Chairman Ben Bernanke told the Senate Banking Committee that estimates of losses associated with subprime-credit products were $50 billion to $100 billion. Those numbers ‘‘are far too low,’’ Jan Hatzius, New York-based chief U.S. economist at Goldman Sachs Group Inc., said in a mid-November report.
Based ‘‘on historical default and loss patterns in different home-price environments,’’ he estimates U.S. losses will be roughly $400 billion.
Assuming that U.S. and European residential property prices fall 5 percent to 10 percent over the next year, investors in non-prime mortgages and securities linked to them -- including banks, hedge funds, asset managers and mortgage insurers -- stand to lose between $350 billion and $500 billion, according to London-based consultants Independent Strategy. Adding in expected losses from prime mortgages would lift the tally to more than $650 billion.
Yet these loss projections tell only part of the story. The other portion relates to the impact of the losses on the willingness and ability of so-called leveraged investors, institutions that finance their activities with borrowed funds, to keep lending. These include banks, broker-dealers, government- sponsored enterprises, savings institutions and hedge funds.
Ripple Effect
A September 2007 study by Tobias Adrian of the Federal Reserve Bank of New York and Hyun Song Shin of Princeton University, published by the New York Fed, found that leveraged investors, particularly banks and brokers, seek to maintain constant capital ratios. As such, when they lose money, they scale back lending to keep their capital ratios -- assets divided by equity or risk-free capital, such as cash -- from falling.
U.S. commercial banks on average have capital ratios of 10 percent, which means that for every $1 of capital lost, they reduce lending by $10. Thus, assuming that $200 billion of the projected $400 billion mortgage-credit loss is borne by leveraged institutions, the supply of credit will decline by $2 trillion, Hatzius said. ‘‘The likely mortgage-credit losses pose a significantly bigger macroeconomic risk than is generally recognized.’’
Pulling Back
Meanwhile, Independent Strategy figures that banks will have to shrink lending by 15 percent to 20 percent to return their capital ratios to pre-crisis levels, and hedge funds and brokers by $18 to $25 for every $1 lost. ‘‘A 10 percent reduction in global bank lending would damage corporate investment and consumer-spending growth, adding significantly to the risk of economic recession,’’ the firm said in a Nov. 15 report.
Apart from a decision to supply wads of money to relieve the logjam in global credit markets, the performance of central banks has been anything but sterling. They woke up late to the subprime mortgage mess, and some people still doubt that they fully grasp the risks involved – especially following the Federal Reserves’ decision to cut its federal funds rate by 25 basis points to 4.25 percent on Dec. 11, when the market was looking for more.
‘‘The timid move by the Fed was very disappointing and even appalling in the wake of intense financial-market turmoil,’’ Chen Zhao, Montreal-based head of global strategy at BCA Research Ltd., wrote to clients on Dec. 12. ‘‘The most troubling aspect of yesterday’s decision is that it reveals a lack of coherent strategy and focus at the Fed.’’
Restoring Credibility
The Fed also has been struggling to restore its credibility and retain its consumer-protection status in the face of congressional criticism that it was lax in overseeing mortgage lenders. Last week, the U.S. central bank proposed various rules barring deceptive loan practices and making lenders responsible for determining whether borrowers can afford their mortgages.
Duh! Like the Fed never realized that some lenders might be unscrupulous, or that there were folks who couldn’t compute whether they could afford a mortgage. This from an institution whose New York district bank publishes comic books -- that’s right, comic books -- to explain topics such as how the banking system creates money and the meaning and purpose of monetary policy.
The situation in Europe isn’t much brighter.
With banks balking at lending to one another out of fear of not being repaid -- effectively turning the economy’s motor oil into sludge -- Jean-Claude Trichet, head of the European Central Bank keeps talking about raising interest rates to battle inflationary pressures.
More Liquidity
The massive injections of liquidity by the Fed, ECB and other major central banks have succeeded in lowering interbank lending rates -- for now. But central bankers, especially Trichet, continue to insist that these operations are separate from monetary-policy decisions. ‘‘Reduced stress in money markets will not deliver a cure for financial markets, which are absorbing the pain of substantial credit losses,’’ wrote Bruce Kasman, chief economist at JPMorgan Chase & Co. on Dec. 21.
Now that we all know what subprime means, let’s hope it plays a less destructive role in 2008 and becomes a word we can afford to forget. If not, it may become a synonym for the next recession.
Meghmani's price in India here:
http://www.bloomberg.com/apps/quote?ticker=MEGH:IN
Exchange rate is 27.38 and then divide by 2.
Singapore's GDP Unexpectedly Shrinks on Weaker Output (Update6)
By Shamim Adam
Jan. 2 (Bloomberg) -- Singapore's economy unexpectedly contracted for the first time in 4 1/2 years as factory output slowed, suggesting Asia's export-dependent markets may face increased risks from weaker global growth.
Gross domestic product shrank an annualized 3.2 percent last quarter after adjusting for inflation, from a revised 4.4 percent expansion in the previous three-month period, the trade ministry said today. Economists expected a 3.1 percent gain.
Singapore is first in Asia this year to report fourth- quarter figures, giving analysts an insight into how turmoil in global markets and the subprime-mortgage crisis in the U.S., the region's biggest export destination, may affect Asian economic expansion. South Korea and Taiwan have already warned easing demand for semiconductors, mobile phones and computers portends weaker growth in 2008.
``We definitely should expect to see more softness in exports in the next couple of quarters, and that's bad news for electronics-heavy Asian economies,'' said Kit Wei Zheng, an economist at Citigroup Inc. in Singapore. ``That means slower growth for Singapore and the rest of Asia.''
The Singapore dollar rose 0.2 percent to S$1.4391 per U.S. dollar as of 3:40 p.m. in Singapore. The benchmark Straits Times Index fell 1 percent to 3,446.47.
Asia is twice as reliant on exports as the rest of the world, with 60 percent of overseas sales ultimately destined for the U.S., Europe and Japan. China and South Korea are due to report fourth-quarter GDP numbers later this month, while Japan and Taiwan are scheduled to release theirs in February.
Factory Output
Singapore's manufacturing climbed 0.5 percent in the last three months of 2007 from a year earlier, the smallest increase in 18 quarters. Output growth slowed from a revised 10.3 percent in the July-September period as pharmaceutical plants produced fewer drugs, the trade ministry said.
The Asian Development Bank last month said growth in emerging East Asia in 2008 will be 8 percent, half a percentage point lower than last year.
From a year earlier, Singapore's $132 billion economy grew 6 percent in the fourth quarter after gaining a revised 9 percent in the previous three months. Economists were expecting 7.7 percent growth.
``There's no imminent turnaround in electronics and we're unlikely to see a recovery in the next six months,'' said Irvin Seah, an economist at DBS Group Holdings Ltd. in Singapore. ``Pharmaceuticals, a key support for manufacturing, has been losing steam.''
Electronics Slump
Singapore's electronic exports have dropped each month since February, mired in the worst slump in five years. South Korea yesterday lowered its growth forecast for 2008, pointing to the likelihood of slowing exports. Taiwan is also predicting an easing in overseas shipments this year which it said will make its growth target ``highly challenging.''
Hynix Semiconductor Inc. Chief Executive Officer Kim Jong Kap last week told employees of the world's second-largest maker of memory chips, based in Ichon, South Korea, that ``a difficult period'' is foreseen for the first quarter or the first half.
South Korea's exports rose a less-than-expected 15.5 percent in December from a year earlier, the Commerce Ministry reported today. Overseas shipments are forecast to increase 11.6 percent in 2008, the ministry said.
Singapore's services industry climbed 8.3 percent from a year earlier, matching the growth rate in the previous three- month period.
Stocks Tumble
Economists said demand for financial services probably eased as the rout in global credit markets increased risk aversion and the city-state's government implemented measures to cool the property market.
Global stock markets have lost $1.6 trillion in value since October and the collapse of the subprime-mortgage market in the U.S. triggered more than $80 billion in writedowns among the world's largest banks.
``Singapore's financial services industry has been affected by the shadow of the subprime problem,'' Seah said. ``Investors are more cautious and that has slowed down activity.''
The island's burgeoning construction industry prevented a wider contraction in the economy last quarter as companies such as Exxon Mobil Corp. set up new plants and property developers build new office towers and condominiums. Southeast Asia's fourth-largest economy reported a record S$16 billion ($11 billion) in fixed-asset investments last year.
Inflation Worries
Construction surged 24.4 percent from a year earlier, after a revised 19.2 percent gain in the three months ended September.
The economy advanced 7.5 percent in 2007, easing from a 7.9 percent rate of expansion the year before. The government expects growth to be between 4.5 percent and 6.5 percent in 2008.
Singapore's growth had raised concern the economy is overheating, with consumer prices rising at the fastest pace in more than 25 years. Policy makers expect inflation to be between 3.5 percent and 4.5 percent this year, accelerating from a forecast average of 2 percent in 2007.
The figures today are computed from data for October and November. Revised numbers, including nominal gross domestic product, will be released next month.
Last Updated: January 2, 2008 02:46 EST
Hungry snake snacks on golf balls
An Australian snake which mistook four golf balls for a clutch of chicken eggs has been saved from a slow, painful death by emergency surgery.
The balls had been placed in a chicken coup by a couple in Nobby’s Creek in New South Wales in the hope that they would encourage their hens to nest.
But the ruse also fooled the wild carpet python, which slid into the coop and swallowed the plastic balls in the hope of a tasty meal. It was later found nearby, lumpy and bloated, and rushed to the nearby Currumbin Wildlife Sanctuary.
The balls were removed from its intestine by senior vet Michael Pyne, who said yesterday [wed] that the snake was making a speedy recovery.
“Those golf balls weren’t moving any further; they were stuck where they were,” Dr Pyne said.
“If it hadn’t been found, it would have died for sure. During the surgery we could see the name of the golf balls through the intestine because [it was] so stretched.”
The sanctuary regularly treats injured reptiles which come off worst after encounters with cars, pets and lawnmowers.
The snake - nicknamed Augustus - is expected to make a full recovery and should be released back into the wild later this month.
Decade of Deception
The Bear's Lair, by Martin Hutchinson
December 31, 2007
The Japanese public has dubbed 2007 the “Year of Deception.” Expected Japanese GDP growth for the year has been revised down from 2.1% to 1.3% and the stock market has fallen by 10%. I’ll return to whether the Japanese are right later, but the concept itself appears more generally applicable. There has in recent years been an excessively snake-oil-salesman quality to the policies and promises of politicians, monetary authorities and financial intermediaries.
In the United States for example, the country’s economic policymaking since 1995 has involved not just a “Year of Deception” but a decade of it. In examining the record, one is tempted to quote Mary McCarthy’s verdict on Lillian Hellman’s autobiography: “Every word she writes is a lie, including “and” and “the.” Some examples:
In 1996, the Bureau of Labor Statistics adopted “hedonic pricing” by which price statistics were “corrected” for improvements in quality. There were two problems with this. First, it counted quality improvement in the tech sector by raw processing power, which experience has shown to be wrong: functionality of tech equipment rises at best logarithmically with processing power. Second, it did not include the additional costs imposed on consumers by companies as a result of such innovations as automated telephone answering systems, which hugely increase the time and effort expended in conducting necessary consumer transactions. The result of hedonic pricing was to reduce consumer price increases by close to 1% per annum, producing an entirely spurious decline in reported inflation and a corresponding increase in “real” Gross Domestic Product growth.
The second deception chronologically, though in many respects the most important, was Fed Chairman Alan Greenspan’s “recognition” in 1997 that a new era of faster productivity growth had dawned, so higher stock prices and lower interest rates were justified. Part of this “acceleration” was just random fluctuation (much of which was eliminated in later statistical revisions), part was the result of increasing capital intensiveness in the US economy, caused by lower real interest rates and part was the effect of hedonic pricing, which artificially inflated GDP growth, and hence productivity. The reality, when you look at the series over a long term, was that well over 100% of any rise in productivity in the late 1990s can be explained by these factors. The “miracle” was a mirage and lower interest rates and higher stock prices were wholly unjustified, inevitably leading to huge misallocations of capital.
As the bubble intensified, in 1999-2000, the Fed moved to the pretense that it was impossible to know when a bubble was taking place, so monetary authorities couldn’t burst it. One may well in that case ask what is the point of having a monetary authority; an automatic system, whether a “Gold Standard” or a fixed monetary growth rule, would cause interest rates to rise in a bubble, thus deflating it automatically. Of course a monetary authority can deflate a bubble, as has happened many times; the Fed under Alan Greenspan and Ben Bernanke has however been a thoroughly political institution that doesn’t want to incur the temporary unpopularity from doing so.
Connected with the last point is the monetary authorities’ obfuscation of the monetary basis, both domestic and international, of their job. From 1993, the Fed abandoned the entirely sound Paul Volcker-era practice of money supply targeting, which had successfully brought inflation down with only moderate pain. Allegedly, in the new world of technology, monetary aggregates were no longer accurate enough to steer policy by. It is no coincidence that immediately after this change, the Fed embarked on its program of reckless expansion of M3 money supply, by almost 10% per annum for a decade when nominal GDP was growing at only 5-6%. The Bundesbank and initially the European Central Bank resisted this laxity, but since Jean-Claude Trichet took over the ECB in November 2003 that too has been printing money supply, in its case M2, as if its Directors were paid by the banknote. Then in March 2006 the Fed compounded this error by the unparalleled arrogance of ceasing to report M3, presumably hoping that by this means its monetary misdeeds would go unnoticed.
In 1999-2000, Wall Street sold dot-com and telecom stocks to investors on the basis of non-existent earnings. They were aided in this by corporate top management, which proceeded to pay itself vast sums by means of stock options, while pretending these had no cost to shareholders. Again, deception.
In the political arena, one may note the “bait and switch” tactic of the George W. Bush administration in foreign policy. Bush came to office promising to pursue a “modest” foreign policy, avoiding expansionist Democrat “nation building.” Needless to say, the 9/11 attacks, similar in kind albeit larger in scale to a myriad terrorist attacks in Europe, were used as an excuse for a 180 degree reversal of this, inaugurating a foreign policy that would have fulfilled Woodrow Wilson’s wildest power fantasies. The policy merits of this switch are still being determined (though at this stage one has doubts); what is clear is that a single act by a small group of fanatics caused a complete reversal of the program on which Bush had been elected.
On public spending, too, the electorate can reasonably claim to have been sold a false bill of goods. The Republican Congresses elected after 1994 initially pursued an admirably tight fiscal policy. However after Newt Gingrich was replaced as Speaker of the House of Representatives by Dennis Hastert in December 1998, Hastert and Tom DeLay proceeded to go hog-wild at the public trough, using it for innumerable corrupt pork-barrel schemes, to which Bush joined fatuous and counterproductive public spending boondoggles like the “No Child Left Behind Act.” It is little wonder Hastert and DeLay were thrown out in 2006; the electorate reasonably felt that if it wanted wasteful public spending and inventive new social programs, it could get them from the Democrats, traditionally expert in such matters.
After the stock market bubble burst, the Fed cut interest rates viciously, decimating the income of US savers and thereby causing a savings dearth and a huge balance of payments deficit. The Fed justified this by claiming to see a “deflation” for which there was no evidence whatever, as retail prices continued rising gently, stock prices remained overvalued by historical standards and house prices were soaring. Once again, deception was used to justify a mistaken policy.
In January 2004 and through June 2007, the Bush administration announced that a top priority would be to legalize the 12 million illegal immigrants who had mysteriously appeared in the country. No significant attempt was made to enforce immigration laws, either at the borders or more importantly among employers. The administration spent a huge effort claiming, entirely contrary to the evidence, that uncontrolled low-skill immigration had no effect on the earnings of domestic workers of modest attainments. The reality was that, however useful the illegal immigrants in erecting millions of ugly, unnecessary houses for which there would soon be no market, by doubling or more the supply of unskilled labor the immigration had the obvious economic effect of depressing low-skill wage rates to subsistence levels. Again, breathtaking and unjustifiable deception.
In housing itself, the modern housing finance market has been built on deception. Instead of assessing a credit risk and making a loan, the modern housing financier merely collects a fee and passes the risk off to some unknown investor, preferably a foreign bank. Needless to say, this has resulted in a substantial percentage of housing loans being entirely fraudulent. It is increasingly becoming clear that a large proportion of modern finance rests on similar deceptions, with asset backed commercial paper, securitization in general, and much of the derivatives market resting solely on aggressive obfuscation of economic reality in pursuit of fees.
To return to the Fed (who may have been thinking I had finished with it), its recent activities have rested on two further deceptions. First, it pretends loudly that “core” inflation, stripping out food and energy, is all it needs to worry about. This is economically nonsense, and it knows it to be so – naturally when the economy is overheating food and energy prices are the first to rise, providing valuable signals of inflation in general. Second, the Fed and the ECB have now decided that the inevitable illiquidity in the interbank market following exposure of the banking system’s defalcations in housing and elsewhere can be cured by cutting interest rates aggressively and pumping $600 billion of taxpayer money into the banking system. Needless to say, such activities do not restore a systemic confidence that has proved itself unjustified; they simply prop up the stock market and cause an increase in inflationary pressure, pushing oil prices up over 30% in four months. Again, it’s quite literally a confidence trick, which will be exposed during 2008.
Turning now to Japan, whose people came up with the “year of deception” line, one is puzzled to find where the deception lies. Yes, economic growth in 2007 will be 1.3% compared with the 2.1% projected, but that is a modest difference, caused partly by the fiscal tightening in Japan’s 2007 budget, which was both essential to fiscal stability and in the long run economically beneficial as it reduces the burden of Japan’s excessive government debt.
There is a certain amount of deception in the monetary area. The Bank of Japan has kept its key interest rate at 0.5%, on the pretence that deflation is rampant. In reality, with energy and commodity prices having increased so rapidly, Japan is now suffering significant inflation, so its short term rates are negative in real terms. For the health of the economy, and above all the income of Japan’s numerous hard-saving retirees, Japan’s short term interest rates should be increased to a more normal 2.5-3% as soon as possible. Nevertheless, it does not appear that the damage done by this mistake has yet been severe, so one can hope it will promptly be corrected.
A third example of alleged “deception” is the loss of 50 million pension records by the Japanese government. However, the responsible minister resigned, as is proper, and Britain shortly thereafter, by losing 25 million social security records of its own, proved that this was not a Japanese problem, but a universal problem of placing excessive reliance on computer systems managed by incompetent government bureaucracies. One can also ask oneself where there is more risk of serious identity theft: in a country with almost no immigration and a well-established domestic criminal class that helpfully identifies itself by means of tattoos, or a country that has completely lost control of its borders, and sold most of the prime real estate in its capital to the Russian mafia.
Naturally, a primary reason the Japanese investor class regards 2007 as a “year of deception” is that the Tokyo stock market has dropped 10%, the only large market to have done so. However, in a year of a major international financial crisis, in which several medium sized banks have collapsed and $600 billion in emergency funds has been pumped into the interbank market, it may reasonably be questioned why any of the world’s stock markets should have risen.
It appears that the Tokyo stock market is currently the only major market in the world that is NOT ruled by deception!
People And Power: Death of the Dollar
Former wall street broker and HSX co-founder, Max Keiser, investigates the US economy and reveals how the American officials have maintained the image of a strong dollar since coming off the Gold Standard. We hear from authors and leading economists who claim Former wall street broker, Max Keiser, investigates the US economy and reveals how the American officials have maintained the image of a strong dollar since coming off the Gold Standard. We hear from authors and leading economists who claim that central banks have been helping to manipulate the gold markets and keep the prices down.
How will all this unravel? Max looks at the current US debt levels, the shift away from the dollar as a reserve currency and the move to price oil in Euros.
2008年首个交易日，人民币汇率突破7.30关口
中证网 2008-01-02 16:45:32
2008年首个交易日，人民币汇率中间价承接近期的走高势头，突破7.3关口，以7.2996再创汇改以来新高，单日升值幅度为50个基点。
中国人民银行授权中国外汇交易中心公布，2008年1月2日银行间外汇市场美元等货币对人民币汇率的中间价为美元对人民币7.2996元，1欧元对人民币10.6611元，100日元对人民币6.5306元，1港元对人民币0.93534元，1英镑对人民币14.4904元。
刚刚过去的2007年中，人民币汇率屡屡经历加速升值，但同时也呈现出明显的双向波动特征。年中最后一个交易日，人民币对美元汇率中间价报7.3046，较上年末的7.8087累计升值5041个基点，年升值幅度达到6.9%。
2008年，由于继续面临贸易顺差居高不下等压力因素，人民币汇率将保持走高的趋势。
Tax revenue up 31.4% in 2007 on buoyant economy
Xinhua News Agency
January 2, 2008
China's tax revenue exceeded 4.94 trillion yuan (670 billion US dollars) in 2007, up 31.4 percent year-on-year, the State Administration of Taxation (SAT) said Tuesday.
Xiao Jie, head of the SAT, said the increase was one of the largest in any year since the reform and opening up policy adopted in 1978. He ascribed the increase to stable economic growth and surging industry profits.
Xiao forecast that tax revenue would rise further in 2008, driven by strong economic momentum.
A Rescue Plan for the Dollar
by Ronald McKinnon and Steve H. Hanke
This article appeared in the Wall Street Journal on December 27, 2007.
Central banks ended the year with a spectacular injection of liquidity to lubricate the economy. On Dec. 18, the European Central Bank alone pumped $502 billion -- 130% of Switzerland's annual GDP -- into the credit markets. The central bankers also signaled that they will continue pumping "as long as necessary." This delivered plenty of seasonal cheer to bankers who will be able to sweep dud loans and related impaired assets under the rug -- temporarily.
But the injection of all this liquidity coincided with a spat of troubling inflation news. On a year-over-year basis, the consumer-price and producer-price indexes for November jumped to 4.3% and 7.2%, respectively. Even the Federal Reserve's favorite backward-looking inflation gauge -- the so-called core price index for personal consumption expenditures -- has increased by 2.2% over the year, piercing the Fed's 2% inflation ceiling.
Contrary to what the inflation doves have been telling us, inflation and inflation expectations are not well contained. The dollar's sinking exchange value signaled long ago that monetary policy was too loose, and that inflation would eventually rear its ugly head.
This, of course, hasn't bothered the mercantilists in Washington, who have rejoiced as the dollar has shed almost 30% of its value against the euro over the past five years. For them, a maxi-revaluation of the Chinese renminbi against the dollar, and an unpegging of other currencies linked to the dollar, would be the ultimate prize.
As the mercantilists see it, a decimated dollar would work wonders for the U.S. trade deficit. This is bad economics and even worse politics. In open economies, ongoing trade imbalances are all about net saving propensities, not changes in exchange rates. Large trade deficits have been around since the 1980s without being discernibly affected by fluctuations in the dollar's exchange rate.
So what should be done? It's time for the Bush administration to put some teeth in its "strong" dollar rhetoric by encouraging a coordinated, joint intervention by leading central banks to strengthen and put a floor under the U.S. dollar -- as they have in the past during occasional bouts of undue dollar weakness. A stronger, more stable dollar will ensure that it retains its pre-eminent position as the world's reserve, intervention and invoicing currency. It will also provide an anchor for inflation expectations, something the Fed is anxiously searching for.
The current weakness in the dollar is cyclical. The housing downturn prompted the Fed to cut interest rates on dollar assets by a full percentage point since August -- perhaps too much. Normally, the dollar would recover when growth picks up again and monetary policy tightens. But foreign-exchange markets -- like those for common stocks and house prices -- can suffer from irrational exuberance and bandwagon effects that lead to overshooting. This is precisely why the dollar has been under siege.
If the U.S. government truly believes that a strong stable dollar is sustainable in the long run, it should intervene in the near term to strengthen the dollar.
But there's a catch. Under the normal operation of the world dollar standard which has prevailed since 1945, the U.S. government maintains open capital markets and generally remains passive in foreign-exchange markets, while other governments intervene more or less often to influence their exchange rates.
Today, outside of a few countries in Eastern Europe linked to the euro, countries in Asia, Latin America, and much of Africa and the Middle East use the dollar as their common intervention or "key" currency. Thus they avoid targeting their exchange rates at cross purposes and minimize political acrimony. For example, if the Korean central bank dampened its currency's appreciation by buying yen and selling won, the higher yen would greatly upset the Japanese who are already on the cusp of deflation -- and they would be even more upset if China also intervened in yen.
Instead, the dollar should be kept as the common intervention currency by other countries, and it would be unwise and perhaps futile for the U.S. to intervene unilaterally against one or more foreign currencies to support the dollar. This would run counter to the accepted modus operandi of the post-World War II dollar standard, a standard that has been a great boon to the U.S. and world economies.
The timing for joint intervention couldn't be better. America's most important trading partners have expressed angst over the dollar's decline. The president of the European Central Bank (ECB), Jean Claude Trichet, has expressed concern about the "brutal" movements in the dollar-euro exchange rate. Japan's new Prime Minister, Yasuo Fukuda, has worried in public about the rising yen pushing Japan back into deflation. The surge in the Canadian "petro dollar" is upsetting manufacturers in Ontario and Quebec. OPEC is studying the possibility of invoicing oil in something other than the dollar. And China's premier, Wen Jiabao, recently complained that the falling dollar was inflicting big losses on the massive credits China has extended to the U.S.
If the ECB, the Bank of Japan, the Bank of Canada, the Bank of England and so on, were to take the initiative, the U.S. would be wise to cooperate. Joint intervention on this scale would avoid intervening at cross-purposes. Also, official interventions are much more effective when all the relevant central banks are involved because markets receive a much stronger signal that national governments have made a credible commitment.
This brings us to China, and all the misplaced concern over its exchange rate. Given the need to make a strong-dollar policy credible, it is perverse to bash the one country that has done the most to prevent a dollar free fall. China's massive interventions to buy dollars have curbed a sharp dollar depreciation against the renminbi; they have also filled America's savings deficiency and financed its trade deficit.
As the renminbi's exchange rate is the linchpin for a raft of other Asian currencies, a sharp appreciation of the renminbi would put tremendous upward pressure on all the others -- including Korea, Japan, Thailand and even India. Forcing China into a major renminbi appreciation would usher in another bout of dollar weakness and further unhinge inflation expectations in the U.S. It would also send a deflationary impulse abroad and destabilize the international financial system.
China, with its huge foreign-exchange reserves (over $1.4 trillion), has another important role to play. Once the major industrial countries with convertible currencies -- led by the ECB -- agree to put a floor under the dollar, emerging markets with the largest dollar holdings -- China and Saudi Arabia -- must agree not to "diversify" into other convertible currencies such as the euro. Absent this agreement, the required interventions by, say, the ECB would be massive, throwing the strategy into question.
Cooperation is a win-win situation: The gross overvaluations of European currencies would be mitigated, large holders of dollar assets would be spared capital losses, and the U.S. would escape an inflationary conflagration associated with general dollar devaluation. For China to agree to all of this, however, the U.S. (and EU) must support a true strong-dollar policy -- by ending counterproductive China bashing.
When Girls Want Sex
Women are not that different from men. They feel desire for sex just as much, but they express it in different ways. The Chosun Ilbo asked modern women what turns them on and how to spot the signs.
The famous line in the film “One Fine Spring Day” is, “Want some ramen before you go? …Why don’t you stay tonight?” It comes as the heroine, played by Lee Young-ae, seduces Yoo Ji-tae when he drives her home after work. Some people may think it rare for women to ask a man first. But the days of the modest, obedient woman who waits for the man to make the first move are long gone. Women no longer hesitate to follow their natural instincts. Holding back is bad for mental hygiene, they say.
Where men have their 30-second principle -- that’s how often they think about sex -- women also frequently feel the urge. In sexual medicine, there is a principle of equal sexual desire, the theory that there is no difference in sexual desire between men and women. The difference being, perhaps, that men can have sex whether or not their partner is ready while women just can’t when they are not in the mood. All men need to do, then, is accept their spouse’s desires just as they are -- and fulfill them.
When women feel like having sex differs from person to person. Biologically, experts agree that women tend to feel the strongest desire just before or after their periods and around the time they are ovulating. Indeed, some women want sex more during their periods because of the onslaught of hormones. At the same time, women are more sensitive to psychological or emotional conditions than mere biological drives. Lee Myeong-hee (35), a publicist and housewife, says she would like her husband to be more understanding when they have sex. She feels like making love to her husband when she senses how much he loves her, she confesses, such as when his voice sounds particularly warm over the phone or when he hugs her after a long day at work.
While men are capable of getting worked up watching pornography or explicit sex scenes, that does not necessarily work for women. Newlywed Kang Won-ju (29) confesses that she felt most like having sex when she and her now-husband were watching a melodrama or a film about puppy love while on a date. In other words, romance and the sight of beautiful couples in love is more of a turn-on than the graphic nitty-gritty of a sex scene.
But one thing is clear: today’s women are more honest and demanding of their husbands. They no longer have any qualms about expressing what they want for fear of seeming depraved or looking like a “nymphomaniac.” One woman admits she sometimes quarrels with her husband when he doesn’t make love to her often enough -- a complaint once thought to be the exclusive domain of dissatisfied men.
Jan. 2 (Bloomberg) -- Selling soybeans at their highest prices in three decades and corn while it flirts with the 1996 peak is a money-losing trade, according to Goldman Sachs Group Inc. and Deutsche Bank AG.
Corn at $4.55 a bushel is ``cheap,'' Frankfurt-based Deutsche Bank says. Goldman Sachs in New York expects soybeans to rise 29 percent in 2008, the best investment in commodities. Investors who followed the banks' advice and bought raw materials last year profited as the Standard & Poor's GSCI Index advanced 33 percent, beating the 3.5 percent gain in the S&P 500 Index and the 9.1 percent return from U.S. Treasuries, according to data compiled by Merrill Lynch & Co.
Rising wealth from Shanghai to Sao Paulo is leading to better diets and straining corn and soybean supplies just as record energy prices boost sales of biofuels. Even after rising 17 percent in 2007, corn costs about $2 a bushel after adjusting for inflation, compared with a $7.80 high in 1974.
``We are in the early stages of a rally that could last 20 years'' in agriculture, said Christopher Wyke, product manager at London-based Schroders Plc, which manages $3.5 billion in commodities and is buying more corn and soybean contracts while reducing energy holdings. ``Prices are historically cheap.''
Not since the Soviet Union harvest failures of the 1970s have food prices risen so quickly. European Central Bank President Jean-Claude Trichet said Dec. 19 that the region faced a ``more protracted'' period of elevated inflation than expected because of food and oil prices.
Falling Inventories
World soybean inventories will plunge 23 percent in the 2007-2008 marketing season to 47.3 million tons from a record 61.1 million the previous year, the U.S. Agriculture Department estimates.
Soybean consumers face a ``large deficit'' in supplies because of increasing sales to China and production of biofuels, according to Goldman Sachs, the world's biggest securities firm.
``There are still good investment opportunities in the oilseed,'' Goldman analysts led by Jeffrey Currie said in a Dec. 11 report.
Goldman predicts soybeans will reach $14.50 a bushel. Investors who buy $10 million of November contracts on the Chicago Board of Trade would earn $2.9 million should the forecast prove accurate. A hedge fund that borrowed money to increase the bet using margin could turn that $10 million into about $59 million.
Corn Versus Wheat
Soybeans for March delivery jumped as much as 31.25 cents, or 2.6 percent, to $12.455 a bushel today on the Chicago Board of Trade and were at $12.40 as of 8:51 a.m. local time.
The bank forecast December 2008 corn prices will increase 12 percent to $5.30 a bushel from $4.735 now. Goldman recommended buying corn and selling wheat in a ``spread'' trade to exploit changes in the relative value of the crops.
Corn for March delivery climbed as much as 6.5 cents, or 1.4 percent, to $4.62 a bushel today in Chicago, the highest since June 1996.
Rallies in agricultural markets historically last about two years, boosting prices by 135 percent, according to Michael Lewis, the London-based global head of commodities research at Deutsche Bank. Prices may climb as much as 250 percent during three to four years in this cycle, he said. The rally in agriculture markets started in the fourth quarter of 2006.
Farmers are planting more acres to take advantage of the price rise, which could damp gains. The U.S. national corn yield has more than doubled to 153 bushels an acre in 2007 from 71.9 in 1974, while the soybean average has jumped 74 percent to 41.3 bushels from 23.7 in 1974, government statistics show.
`Battle for Land'
Droughts from Ukraine to Australia have cut crop yields, sending prices for wheat to a record in December and soybeans to a 34-year high. Corn rose to $4.62 a bushel in Chicago trading today, the highest since 1996. Farmers are planting more wheat at the expense of corn, soybeans and cotton.
Wheat farmers worldwide may increase plantings by 4 percent, the London-based International Grains Council said in November. In the U.S., the world's largest wheat exporter, growers will sow 64 million acres (26 million hectares) in the year ending May 31, up 6 percent, the Agriculture Department said in October.
``We'll continue to see a battle for land between the grains,'' said Matthew Sena, an analyst at New York-based Castlestone Management LLC, which oversees $800 million. ``The run-up in wheat prices will prevent a dramatic supply response for soybeans and corn.''
Biofuels Demand
Castlestone invests about $100 million in commodities, and Sena said the fund has been adding to its corn and soybean holdings while cutting investments in wheat.
Demand for biofuels, made from corn, oilseeds and sugar, is growing as countries seek to cut their dependence on fossil fuels after oil rose to a record $99.29 a barrel in November. Demand is straining the availability of farmland as well as water supplies.
``The severity of these factors means that there's a better chance of this being the longest and biggest agricultural rally ever,'' said Colin Waugh, portfolio manager at New York-based Galtere International Fund, which manages $1.3 billion in commodities and related investments.
The biggest winners from the U.S. energy bill signed by President George W. Bush on Dec. 20 may be companies including Archer Daniels Midland Co. of Decatur, Illinois, and Sacramento- based Pacific Ethanol Inc. The legislation requires biofuels production to increase to 36 billion gallons in 2022 from 7.5 billion in 2012.
Population Growth
U.S. ethanol prices at $2.2157 a gallon on average are 11 percent cheaper than New York wholesale gasoline futures at $2.4908 a gallon.
Crop prices ``will show a tendency to go up, and the reason is the growing world population, changing food patterns and limited availability of land,'' said Martin Richenhagen, chief executive officer of Agco Corp., the second-largest U.S. maker of tractors and combines after Deere & Co. ``This is good news for the farmer.''
Higher food prices may cause faster inflation. U.S. consumer prices increased 0.8 percent in November, the most in more than two years. Inflation in the 13-nation euro region accelerated to 3.1 percent in November, the fastest since 2001, according to Eurostat. Japan's core consumer prices rose at the fastest pace in more than nine years in November.
Tortilla Prices
Developing nations will feel the greatest pain. The cost of corn tortillas in Mexico, where shortages in 2006 boosted inflation, may rise 13 percent this year, according to Gruma SAB, the world's largest maker of corn flour. Food prices in China, the fastest-growing economy, increased 18.2 percent in November.
The rise in crop prices is creating the ``risk of social unrest,'' said Roland Jansen, whose $129 million Mother Earth Resources fund in Liechtenstein gained 28 percent in 2006, more than double the returns of commodity indexes. ``We've already seen it happen, like in Mexico. China will probably release stocks to pacify the population. There's a real danger of unrest there.''
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