Banks face “systemic margin call,” $325 billion hit: JPM
March 8, 2008
NEW YORK (Reuters) - Wall Street banks are facing a “systemic margin call” that may deplete banks of $325 billion of capital due to deteriorating subprime U.S. mortgages, JPMorgan Chase & Co (JPM.N: Quote, Profile, Research), said in a report late on Friday.
JPMorgan, which sent a default notice to Thornburg Mortgage Inc. (TMA.N: Quote, Profile, Research) after the lender missed a $28 million margin call, said more default notices and margin calls were likely. The Carlyle Group’s mortgage fund also failed to meet $37 million in margin calls this week.
“A systemic credit crunch is underway, driven primarily by bank writedowns for subprime mortgages,” according to the report co-authored by analyst Christopher Flanagan. “We would characterize this situation as a systemic margin call.”
The credit crisis that began about a year ago will likely intensify after Friday’s weak February U.S. employment report “that most definitely signals recession,” JPMorgan said.
Indeed, corporate bond spreads widened to a new record on Friday, surpassing levels seen in October 2002 during a boom in bankruptcies following the dot-com crash. U.S. employers cut payrolls in February for a second consecutive month, slashing 63,000 jobs, the biggest monthly job decline in nearly five years, the U.S. Labor Department reported on Friday.
“The weak February employment report points to an economy in recession,” JPMorgan said.
The JPMorgan report included a revised bleaker forecast for subprime-related home prices. The bank now sees prices falling 30 percent, from its prior 25 percent forecast. Those prices have declined 14 percent since mid-2006, JPMorgan said.
The U.S. jobs results also came after the Federal Reserve expanded the amount of its short-term auctions to $100 billion in total in the central bank’s latest effort to ease credit concerns. Ongoing concerns about bond insurers, known as monolines, and their effort to save their top ratings also are weighing on market sentiment.
Not all cardholders are experiencing a reduction in their credit card interest rates.
Since most variable-rate credit cards are tied to the prime rate, which has decreased 2.25 percentage points to 6 percent since September, folks might expect their annual percentage rates to decline.
For variable-rate cardholders who have good, or prime, credit, that's likely the case. The group enjoying interest rate decreases are mainly people with FICO scores above 700. Riskier, or subprime, borrowers may instead face rate increases.
"In general, variable rates are falling because of the federal rate cuts," says Bill Hardekopf, CEO of LowCards.com. Other than Bank of America's and Capital One's recent moves to raise interest rates on some accounts, he cautions that there probably are a "whole bunch of individual cases where rates are increasing based on their credit risk."
In September, the week before the Federal Reserve began its rate-cutting streak, the average variable-rate credit card stood at 13.97 percent. Since then it has fallen 1.47 percentage points to 12.5 percent. (Check the latest rates for all types of loans on Bankrate's Interest Rate Roundup.)
Tightening the screws
Industry analysts say that as the subprime crisis trickles down to the credit card portfolios within financial institutions, some issuers may attempt to offset losses when re-evaluating their credit card accounts.
Not all cardholders are experiencing a reduction in their credit card interest rates.
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Since most variable-rate credit cards are tied to the prime rate, which has decreased 2.25 percentage points to 6 percent since September, folks might expect their annual percentage rates to decline.
For variable-rate cardholders who have good, or prime, credit, that's likely the case. The group enjoying interest rate decreases are mainly people with FICO scores above 700. Riskier, or subprime, borrowers may instead face rate increases.
"In general, variable rates are falling because of the federal rate cuts," says Bill Hardekopf, CEO of LowCards.com. Other than Bank of America's and Capital One's recent moves to raise interest rates on some accounts, he cautions that there probably are a "whole bunch of individual cases where rates are increasing based on their credit risk."
In September, the week before the Federal Reserve began its rate-cutting streak, the average variable-rate credit card stood at 13.97 percent. Since then it has fallen 1.47 percentage points to 12.5 percent. (Check the latest rates for all types of loans on Bankrate's Interest Rate Roundup.)
Tightening the screws Industry analysts say that as the subprime crisis trickles down to the credit card portfolios within financial institutions, some issuers may attempt to offset losses when re-evaluating their credit card accounts.
In terms of how they're dealing with existing lines of credit, "issuers are reacting to their situations very differently," says Bruce Cundiff, research director at Javelin Strategy & Research. Banks smarting from subprime losses may consider "tightening the screws" by not extending lines of credit or approving new accounts, while other financial institutions may have a better tolerance for risk, he says.
In January, Bank of America sent notices to some credit cardholders telling them that their rates would rise to as much as 28 percent, even though many of those cardholders claimed they had a good payment history with the bank.
Bank of America spokeswoman Betty Riess says the bank does periodically review individual accounts for credit risk. "When we review individual accounts for risk, we take into account a customer's performance with us, as well as external credit criteria -- such as taking out numerous loans, using substantially all the credit available to them or defaulting on loans to other lenders. In cases where we ultimately raise a customer's rate based on this analysis, we notify them in advance. They can then call or write us if they want to reject the new rate, and pay off the outstanding balance at the original rate," she says.
Rate adjustments affect only a minority of their cardholders, according to Riess. "In 2007, for example, nearly 94 percent of our credit card customers had the same or a lower rate at the end of the year than they did at the beginning of the year, including 26 percent with lower rates year-over-year," she says. "The 6 percent that had an increase in interest rates includes customers who had two late or over-limit defaults with us in a 12-month period as well as customers who were repriced based on risk."
Last August, Capital One raised the interest rates of some of its cardholders to as much as 28 percent, according to the Los Angeles Times.
Some individual cards have also seen rate increases. According to LowCards.com, the average variable rate on Chase Freedom cards rose 3 percentage points from 14.24 percent in September to 17.24 percent in January. The purchase APR on Blue from American Express went from 12.24 percent in September to 11.74 percent in October, but has climbed back to 12.24 percent. (For the lowest interest rates, check Bankrate's credit card search.)
In the U.K., Citibank-owned Internet bank Egg created outrage in February when it canceled 161,000 credit card accounts it deemed high risk. A week later Barclaycard canceled more than 1 million cards and reduced the credit limits on some existing accounts.
Why your rate may increase
A clause in your terms and conditions may state that the issuer reserves the right to change your rate at any time for any reason. Some creditors may cite "general market conditions" when raising rates, which Hardekopf translates as "their way of saying it's a tough economy out there."
A falling credit score could also trigger a rate increase. Behavior that could cause your score to suffer includes charging high balances, paying late or missing payments.
Issuers may also analyze the revenue brought in from a customer and consider interest income or money made off interchange fees through card usage. Each issuer applies different criteria to determine customers' value.
Concerned consumers should call their issuers and ask what the policy is for increasing interest rates, says Cundiff. Credit card agreements may also indicate the reasons issuers may increase your rate.
In light of tightening credit standards, experts advise not making any moves that issuers could flag as high-risk behavior, such as applying for numerous cards, charging more than 30 percent of your credit limit -- even if you pay off the balance each month -- or transferring balances frequently.
Why your rate may increase
The interest rate on your credit card may increase because:
• Your credit card issuer has a tighter credit situation.
• Your credit score has declined.
• You've applied for too much new credit.
• You are using more than 30 percent of available credit line.
• You've transferred balances to new cards too often.
• Your credit card company practices universal default.
What to do if your rate rises
In these tumultuous times, read every piece of mail from your card issuer, even if it looks like junk mail. A rate adjustment notice may include an option to decline the increase -- by paying off your balance at the old rate and closing the account. You can also check your statement to see if your rate has climbed.
"If it has increased, get on the phone and negotiate," says Gerri Detweiler, credit adviser for Credit.com and author of "The Ultimate Credit Handbook."
Before calling, shop around for competitive offers that you can cite, and check your FICO credit scores. A significant drop in your scores can cause a rate increase.
If you can't get a reduction, work on paying down the balance or transfer it to another low-interest card.
Those considering balance transfers should watch out for pitfalls, such as balance transfer fees that don't have a maximum cap. Learn about other drawbacks by reading the Bankrate feature "5 balance transfer trip-ups."
What the future holds
Cundiff predicts more tightening of credit standards in the coming months and says the possibility exists for issuers to halt the granting of new lines of credit, and to constrict or stop increasing existing lines of credit.
"The credit card industry is extremely competitive," notes Hardekopf, saying that if one card issuer increases fees or rates, competitors may follow suit.
Make sure that if your rate jumps, you try to negotiate the rate or shop around for a lower-rate card.
In the long term, Congress has proposed bills aimed at credit card reform. Rep. Carolyn Maloney, D-N.Y., introduced the Credit Cardholders' Bill of Rights last week, which would abolish many egregious credit card abuses. Among key revisions, the legislation would prohibit applying rate hikes to prior balances, increase advance written notice to 45 days (from 15) and establish a universal deadline before payments are considered late -- 5 p.m. EST on the due date.
Jeannine Kenney, a senior policy analyst at Consumers Union, the nonprofit publisher of Consumer Reports, called the proposal "an important step forward."
She argues that although people generally know that paying late too often will trigger a rate increase, consumers aren't told that getting too close to the limit or making minimum payments or slightly more than the minimum could also prompt a rate hike. "Consumers think they're playing by the rules and then find themselves stuck with the rate hikes," she says. Kenney seeks reform that would prevent issuers from raising interest rates for arbitrary reasons.
Borrowing money has become cheaper for banks after a series of aggressive rate cuts by the Federal Reserve. So why are many people's credit cards growing more expensive?
Hundreds of thousands of Capital One and Bank of America cardholders have been notified in recent months that their interest rates are going up -- in some cases to as much as 28% -- even though they haven't been missing payments.
Cardholders are being told they can "opt out" from the higher rates by paying off their balances and taking their business elsewhere. But that's not really an option for people who may not have thousands of dollars in spare cash sitting in a drawer.
If anything, people's credit card rates should be heading south following repeated cuts in interest rates at the federal level. So far this year, the federal funds rate has been reduced by 1.25 percentage points and now stands at 3%. Further cuts are expected as the economy slides toward recession.
The Fed funds rate is an overnight lending that banks charge to each other. It influences the interest consumers pay for credit cards, home equity lines and car loans.
David Robertson, publisher of an influential credit card trade publication called the Nilson Report, said a number of factors determine rates for plastic, not least the greater risk of delinquencies these days resulting from the credit crunch.
But he said it seems clear that leading banks, having suffered billions of dollars in losses from the mortgage meltdown, are casting about for new sources of revenue.
"They need to raise rates because they can't raise fees anymore," Robertson said. "It's politically untenable."
Politics also seems to be behind a subtle shift in language that's appeared in the terms and conditions of several top card issuers. Increasingly, lawmakers have been taking a skeptical view of banks' long-standing insistence that they can raise people's rates at any time for any reason.
Citibank announced last year that it would no longer make this claim. Instead, the bank now says people's rates may rise because of "general market conditions."
Similarly, Capital One introduced language last year asserting that cardholders' rates could go up "if market conditions change."
More broadly, BofA declares that credit card rates could increase due to "market conditions, business strategies or for any reason."
Betty Riess, a BofA spokeswoman, said "market conditions" could refer to changes in interest rates. She declined to say what else it could refer to.
Pam Girardo, a Cap One spokeswoman, said the phrase "market conditions" was introduced to the company's credit card terms "solely because it is shorter" than other possible wordings.
" 'Market conditions' basically means changes to the rate environment and/or our cost of funds," she said.
If that were the case, though, card rates should be dropping in tandem with the Fed funds rate.
Since that's not happening, it's apparent that "market conditions" can mean virtually anything.
Kind of like "at any time for any reason."
"Issuers are trying to use a new phrase that looks like there's some economic formula being used to raise rates," said Bill Hardekopf, chief exec of LowCards.com credit card comparison website. "But they still have the freedom to do whatever they want."
San Dimas resident David Williams got a taste of this last month when he received a letter from Capital One informing him that his 9.9% annual percentage rate would be jumping to 15.9%.
"I don't make any late payments," he told me. "I have a good credit score. There was no basis for a higher rate."
When Williams, 54, called Cap One to find out the reason for the rate hike, he said he hit a brick wall.
"The service rep couldn't give a solid reason," he said. "Basically, they just did it."
The Nilson Report's Robertson said higher rates reflect a fundamental shift in how card issuers operate.
"The card issuers are moving from a risk-management strategy to a revenue-generating strategy," he said.
"Credit cards are consistently the most profitable retail banking product," Robertson observed. "The growth is not there anymore. And with a recession coming down the pike, there's no expectation of more spending by consumers. The industry needs to raise prices to keep profits where they need to be."
Put that in your market conditions and smoke it.
Ken Clayton, managing director of card policy for the American Bankers Assn., said it's understandable why market conditions would be a factor for rate hikes.
"A card company needs to manage its risks in an ever-changing economic environment," Clayton said. "Lenders need to be able to secure the right to deal with the risks that are posed."
Williams, the Capital One cardholder, said the thing he finds particularly galling is that Cap One comes out ahead no matter what.
"They'll either get more money from me through the higher rate, or they'll get me to pay off my $3,000 balance when I leave as a customer," he said. "They obviously need the money, and they get something out of me either way.
"It's just unfair," Williams added. "The credit card companies always win. They never lose."
PETALING JAYA: The main indices of major stock markets in Asia, Europe and the US have been trending down on bad news related to the state of the US economy, the casualties of the subprime loans crisis and the ever rising price of commodities, especially crude oil.
The KL Composite Index closed at 1,296.33 yesterday, down 3.36 points, or 0.25%, from Thursday but still off its high of 1,516.22 reached on Jan 11. Analysts said the selling of certain stocks earlier in the week was led by foreign funds.
Citigroup Malaysia country research head Choong Wai Kee said in a report on Thursday there were no major surprises in the recent fourth-quarter (Q4) results, with most companies under its coverage reporting satisfactory results that were largely in line with expectations.
He said rising cost pressures was the most worrying sign from the Q4 results.
“Labour, raw material costs such as steel, and building materials have all gone up,” Choong said, adding that if there was difficulty in passing costs to end-buyers or customers, costs were likely to dent profits in the second half.
He said earnings per share (EPS) growth estimates and target prices “are still way too high” as some assumptions were 12 to 18 months old.
Under such conditions, he said, there would be earnings downgrades and target price cuts while “investors are likely to sell into every single rebound and rally”.
Choong said although consensus still projected an EPS growth of 14%, Citigroup was cutting estimates for the second time since last October. “Removing exceptional items, we expect market EPS to grow 8% in 2008,” he said.
So how does one invest in an environment like this?
Phillip Capital Management Sdn Bhd chief investment officer Ang Kok Heng said nobody likes to buy when the markets are down because “you never know when it’s going to hit the bottom and recover.”
“You must spread out your buying. It (a downturn) appears only for a short period so if you wait, it may be too late. Take a position and start accumulating,” he told StarBiz.
Ang said the current volatility did not mean it was the end of the world for investors.
“It really depends on the individual and their risk appetite or expectations, whether they are short-term traders or long-term investors but the current market condition is not for those looking to trade,” he added.
Ang said the situation was likely to remain at least until the US announced its Q1 gross domestic product growth figures next month.
“It may not be good and then there’s the Q2 results and we don’t know if it’s going to be bad or worse, or recovering,” he said.
PETALING JAYA: US hedge funds have become the latest casualty of subprime woes as trading in Carlyle Group’s mortgage-bond fund, Carlyle Capital, was suspended in Amsterdam after creditors forced the sale of some assets.
Carlyle Capital Corp said in a statement that lenders who issued default notices had liquidated some residential mortgage-backed securities held by the fund and might sell more as talks continued.
While subprime woes had previously affected structured investment vehicles based on subprime lending instruments, the credit crunch had now spread to hedge funds and US monoline insurers, said RAM Holdings Bhd chief economist Dr Yeah Kim Leng.
“The banks that had lent to hedge funds are now calling back their money. It’s a kind of credit crunch that seems to be intensifying,” he told StarBiz.
On falling global markets on US recession fears, Aseambankers economist Saifuddin Morat felt that a recession in the US had been forecast since the middle of last year but “the market has not been efficient enough to discount for a recession”.
“It is only unwinding now, just as the subprime mortgage lending problem came to light at about the same time last year but it is only now that banks are making losses,” he said.
Saifuddin said another reason for falling equity markets could be a shifting of funds and investors into commodities such as crude oil.
Crude oil reached a record US$105.97 a barrel for April delivery in New York trade on Thursday but fell 95 US cents to US$104.52 yesterday. Brent crude for April settlement stood at US$101.63 in London at 5pm Malaysian time.
Yeah said the recent record gains in commodities such as crude oil, crude palm oil and gold were also largely due to speculation.
“The fundamentals of these commodities (such as supply and demand) are not so volatile and recent rises are largely due to sentiment as well as fund inflows.”
Yeah believes that global investment funds “which still have money” were looking at alternative investments in developing markets and particularly, commodities.
“There’s a shift from one asset class to another,” he said, adding that the falling US dollar was also part of the reason funds were moving away from equities to commodities.
The recent spike in prices of commodities as well as industrial metals like nickel was due to an “almost immediate switch to commodities in reaction to the decline in the dollar,” Yeah said.
"This is a defining moment, unprecedented in our nation's history" - Anwar Ibrahim
Malaysia vote loosens ruling grip
Sunday, 9 March 2008
Malaysians are surveying the new political landscape a day after voters delivered a blow to the country's half-century-old ruling coalition. In the parliamentary poll the National Front lost its two-thirds majority - needed to make constitutional changes - and control of four state assemblies.
It did, however, win a simple majority, taking 139 out of 219 seats, with three more seats yet to declare.
Prime Minister Abdullah Ahmad Badawi has resisted calls to resign.
Analysts blame ethnic tensions, crime and inflation for a drop in his government's popularity.
Mr Abdullah is urging calm, amid fears there may be violence in the wake of the result.
Opposition figure Anwar Ibrahim hailed the result as a message that it was time for change in Malaysia.
Mr Anwar's Justice Party has 31 seats out of the opposition's 82 so far, making him the leader of the opposition.
Mr Abdullah, in office since 2003, said he would meet the constitutional monarch on Monday and ask to form a new government. He dismissed suggestions that he would now face pressure from party members to step down.
His son-in law, Khairy Jamaluddin, told reporters: "We suffered a lot of losses tonight. But we are going to fight on. We are not going to quit. It is not the end of the world and we are going to get through this."
'Time for change'
The BBC's Robin Brant says no one expected the opposition to do so well across the board.
It is clear, he adds, that people wanted change and Chinese and Indian ethnic minority voters deserted the National Front, in power since 1957.
Before the elections only one state was under opposition control, Kelantan.
The Election Commission confirmed opposition wins in Kelantan as well as Selangor, Perak, Kedah and Penang.
Mr Anwar said the people of Malaysia had spoken.
"Today at the ballot box, you listened to your heart with a lot of conviction that the time for change has arrived..." he said.
"This is a defining moment, unprecedented in our nation's history. Today a new chapter has opened."
Ethnic minorities
Mr Anwar has accused the government of widespread vote-rigging.
Our correspondent says there are many people who have as many suspicions about Mr Anwar as about the National Front's leaders. But, he adds, the claim that Malaysia has free and fair elections is not a just one.
Ethnic minorities make up more than a third of the population. Many complain that government policy has denied them fair access to jobs, education, and housing.
Growing tensions between minority communities and the Malay majority have dominated the election campaign and the government has appealed for calm.
The last time the National Front suffered a big setback, in 1969, it resulted in race riots, dozens of deaths and a state of emergency.
Clashes
Some violence linked to the election was reported in the east of the country on Saturday.
Police in Terennganu State said they had fired tear gas to disperse a crowd of several hundred people protesting at what they saw as vote-rigging.
Supporters of the opposition PAS stopped buses they suspected of carrying National Front coalition supporters pretending to be voters from the district, said local police chief Ayob Yaacob.
He said that 22 people had been arrested and the rest of the crowd ran away.
Malaysia's ruling allies win election among setbacks
(Xinhua) 2008-03-09
KUALA lUMPUR - Malaysia's ruling coalition won the 12th general election held on Saturday, but lost its dominant two-thirds majority in the parliament.
At around 01:30 a.m. local time on Sunday morning, Malaysia's Election Commission (EC) announced that the ruling coalition Barisan Nasional (BN), or National Front, won 127 parliamentary seats, exceeding a simple majority to form a new government.
After the EC's announcement of the BN victory, Malaysian Prime Minister and BN Chairman Abdullah Ahmad Badawi said that he would have a meeting with Supreme Head Mizan Zainal Abidin on Monday to discuss the formation of a new government.
He held up hand of Deputy Prime Minister Najib Tun Razak to mark the BN victory at a press conference, but did not make much comment on the results of the election.
Although the final results have not been revealed as voting at some locations in East Malaysia's Sarawak State has to finish on Sunday, the BN has lost its two-thirds majority in the lower house of the parliament, according to the EC.
It was reported that the BN lost its dominant control of the parliament and the biggest setback after it administered the country for 50 years.
According to the results of 219 seats of the 222-seat lower house of the 12th Parliament announced by the EC so for, the BN has only secured 137 seats, including eight won uncontested, far less than the two-thirds majority line of 148 seats.
In the 11th Parliament which was dissolved on February 13, the BN held 199 of the 219 seats in the lower house.
During the Saturday election, the BN also failed to take back the state of Kelantan from the opposition party -- the Islamic Party of Malaysia (PAS), and even more it lost four other states -- Penang, Kedah, Selangor and Perak.
According to the results revealed by the EC, the opposition parties, mainly including the Democratic Action Party (DAP), the PAS and the People's Justice Party (PKR), have won a simple majority in the state assemblies in the states.
In the last general election, in the total of 13 states in the country, the BN, which also consisted of 14 parties, held dominant seats in the legislative assemblies in 12 ones, excluding Kelantan.
Some leaders or ministers of component parties of the BN also suffered during the election, got lost their parliamentary seats, including Malaysian Indian Congress (MIC) President Samy Vellu, Acting President Koh Tsu Koon of the People's Movement Party, and the incumbent Malaysian Women,Family and Social Development Minister Shahrizat Abdul Jalil.
Many of the first time contestants from the BN also "sank" in the election scenario this year, which was described by some local media as "a political tsunami" or "unprecedented".
Badawi and Najib won their parliamentary seats respectively with a significant margin in their own constituencies.
Malaysia's new government is expected to come into power soon.
KUALA LUMPUR (Reuters) - Malaysia's share market is expected to slide on Monday, gripped by political uncertainty after voters stunned the government with a massive protest vote.
Brokers and fund managers said Malaysian politics was in uncharted waters after Prime Minister Abdullah Ahmad Badawi's coalition registered its worst-ever result, losing a third of its federal seats and five states to the opposition in weekend polls.
"There would be some major initial reaction in the markets," said Pankaj Kumar, chief investment officer at Kurnia Insurance, who helps manage 1.6 billion ringgit ($506 million) in assets.
"The political stability has finally been challenged. The question is, how does Malaysia move forward from here in restoring confidence?"
A sales broker said he expected Malaysia's benchmark stock index, the Kuala Lumpur Composite Index (KLCI) to fall around 50 to 100 points, or up to around 8 percent, on Monday as investors tried to answer that question.
The KLCI index closed down 0.26 percent at 1,296.33 on Friday, in line with regional markets, and has fallen 9 percent since Abdullah called on Feb. 13 for early elections.
Brewing stocks such as Carlsberg Brewery Malaysia Bhd and Guinness Anchor Bhd are likely to be in focus on Monday, given the success of Islamist party PAS, which took control of three state assemblies in Saturday's elections.
Gaming and leisure stocks such as Magnum Corp and Berjaya Sports Toto could also come under pressure.
PAS's policy bans alcohol and gambling and calls for amputations and stonings of non-Muslim thiefs and adulterers, but it has recently tried to soften its stance and broaden its appeal to non-Muslims, who make up more than 40 percent of the population.
Given the scale of its electoral success, winning seats in multi-racial urban areas as well as the Muslim countryside, PAS looks to have attracted many non-Muslim votes on Saturday.
LONG TERM, "NO CONCERNS"
"The market is not going to be so good. There will be major reaction on Monday," said an international-sales broker based in Malaysia. "It would take time for the market to settle down."
Former premier Mahathir Mohamad also warned that investors could now feel unsafe and urged Abdullah to step down as leader.
"I am afraid investors are already showing that this election worries them," Mahathir said. "Now, unless they are blind, I think they will feel very unsafe in the country."
Despite the concerns, several fund managers and brokers said the so-far peaceful acceptance of the poll result was encouraging and perhaps pointed to a new political maturity in this country, which has effectively never known a change of government.
Some said PAS was not necessarily such a big worry, given that it would have to be pragmatic in a multi-racial nation.
"We have no concerns in regards to the election," said Malaysia-based fund manager Gerald Ambrose, of Aberdeen Asset Management, which has $2.2 billion invested in Malaysian stocks.
"We have a long-term investment plan. The different results in the polls would not make any difference in our portfolio."
But Tim Condon, Singapore-based head of Asia Research at investment bank ING, questioned whether the government could still proceed with its spending plans, especially its agenda to harness $325 billion in mostly private capital to create five new economic development zones around the country.
PAS now controls three of the northern and eastern states covered by these plans, raising concerns whether PAS will cooperate with the national government in implementing them.
"The key to the future of the northern and, to some extent, the eastern (zones) is how well the federal government and the state governments can work hand in hand," a source close to the prime minister admitted on Sunday.
Over time, some market commentators said, the new political landscape could improve the investment climate, by quickening reforms, though a lot depended now on how the opposition behaved.
Already, the opposition Democratic Action Party, which won the industrial heartland state of Penang, says it will use its new clout to push for a reform that foreign investors have long demanded: the awarding of government contracts by open tender.
LAWTON, N.D. — Whatever Dennis Miller decides to plant this year on his 2,760-acre farm, the world needs. Wheat prices have doubled in the last six months. Corn is on a tear. Barley, sunflower seeds, canola and soybeans are all up sharply.
“For once, there’s great reason to be optimistic,” Mr. Miller said.
But the prices that have renewed Mr. Miller’s faith in farming are causing pain far and wide. A tailor in Lagos, Nigeria, named Abel Ojuku said recently that he had been forced to cut back on the bread he and his family love.
“If you wanted to buy three loaves, now you buy one,” Mr. Ojuku said.
Everywhere, the cost of food is rising sharply. Whether the world is in for a long period of continued increases has become one of the most urgent issues in economics.
Many factors are contributing to the rise, but the biggest is runaway demand. In recent years, the world’s developing countries have been growing about 7 percent a year, an unusually rapid rate by historical standards.
The high growth rate means hundreds of millions of people are, for the first time, getting access to the basics of life, including a better diet. That jump in demand is helping to drive up the prices of agricultural commodities.
Farmers the world over are producing flat-out. American agricultural exports are expected to increase 23 percent this year to $101 billion, a record. The world’s grain stockpiles have fallen to the lowest levels in decades.
“Everyone wants to eat like an American on this globe,” said Daniel W. Basse of the AgResource Company, a Chicago consultancy. “But if they do, we’re going to need another two or three globes to grow it all.”
In contrast to a run-up in the 1990s, investors this time are betting — as they buy and sell contracts for future delivery of food commodities — that scarcity and high prices will last for years.
If that comes to pass, it is likely to present big problems in managing the American economy. Rising food prices in the United States are already helping to fuel inflation reminiscent of the 1970s.
And the increases could become an even bigger problem overseas. The increases that have already occurred are depriving poor people of food, setting off social unrest and even spurring riots in some countries.
In the long run, the food supply could grow. More land may be pulled into production, and outdated farming methods in some countries may be upgraded. Moreover, rising prices could force more people to cut back. The big question is whether such changes will be enough to bring supply and demand into better balance.
“People are trying to figure out, is this a new era?” said Joseph Glauber, chief economist for the United States Department of Agriculture. “Are prices going to be high forever?”
Competition for Acres
At a moment when much of the country is contemplating recession, farmers are flourishing. The Agriculture Department forecasts that farm income this year will be 50 percent greater than the average of the last 10 years. The flood of money into American agriculture is leading to rising land values and a renewed sense of optimism in rural America.
“All of a sudden farmers are more in control, which is a weird position for them,” said Brian Sorenson of the Northern Crops Institute in Fargo, N.D. “Everyone’s knocking at their door, saying, ‘Grow this, grow that.’ ”
Mr. Miller’s family has worked the Great Plains for more than a century. One afternoon early last month, he turned on the computer in his combination office and laundry room to see what commodity prices were up to.
“Oh, my goodness, look at that,” Mr. Miller said. Barley was $6.40 a bushel, approaching a price that would tempt him to plant more. Soybeans were $12.79 a bushel, up from $8.50 in August.
The frozen earth outside was only a few weeks from coming to life, but Mr. Miller was happily uncertain about what to plant. Last year, the decision was easy for Mr. Miller and everyone else: prices of corn were high because of new government mandates for production of ethanol, a motor fuel. This year, so many crops look like good bets, and there is so little land on which to plant them.
“I’m debating between spring wheat, durum wheat, canola, malting barley, confection sunflowers, oil sunflowers, soybeans, flax and corn,” Mr. Miller said.
The biggest blemish on this winter of joy is that farmers’ own costs are rising rapidly. Expenses for the diesel fuel used to run tractors and combines and for the fertilizer essential to modern agriculture have soared. Mr. Miller does not just want high prices; he needs them to pay his bills.
Until recently, he could expect around $3 a bushel for his wheat — far less than his parents and grandparents received, when inflation is taken into account. Consumption in the United States was dropping as Americans shunned carbohydrates. The export market, while healthy, faced competition.
Now prices have more than tripled, partly because of a drought in Australia and bad harvests elsewhere and also because of unslaked global demand for crackers, bread and noodles. In seven of the last eight years, world wheat consumption has outpaced production. Stockpiles are at their lowest point in decades.
Around the world, wheat is becoming a precious commodity. In Pakistan, thousands of paramilitary troops have been deployed since January to guard trucks carrying wheat and flour. Malaysia, trying to keep its commodities at home, has made it a crime to export flour and other products without a license. Consumer groups in Italy staged a widely publicized (if also widely disregarded) one-day pasta strike last fall.
In the United States, the price of dry pasta has risen 20 percent since October, according to government data. Flour is up 19 percent since last summer. Over all, food and beverage prices are rising 4 percent a year, the fastest pace in nearly two decades.
The American Bakers Association last month took the radical step of suggesting that American exports be curtailed to keep wheat at home, though the group later backed off.
If all this suggests a golden age for American growers, it could well be brief, said Bruce Babcock, an economist at Iowa State University. He predicted that farmers would do their best to ramp up production, possibly to the point of pulling land out of conservation programs so they could plant more. “Give farmers a price incentive, and they’ll produce,” he said.
The Agriculture Department forecasts that world wheat production will increase 8 percent this year. In the United States, spring and durum wheat plantings are expected to rise by two million acres, helping to drive prices down to $7 a bushel, the government said.
Yet the competition among crops for acreage has become so intense that some farmers think the government and analysts like Mr. Babcock are being overly optimistic.
Read Smith, a farmer in St. John, Wash., thinks a new era is at hand for all sorts of crops. “Price spikes have usually been short-lived,” he said. “I think this one is different.”
His example is plain old mustard. Two years ago, Mr. Smith would have been paid less than 15 cents a pound for mustard seeds. As more lucrative crops began supplanting mustard, dealers raised their offering price to 20 cents, then 30 cents, then 48 cents early this year. Mr. Smith gave in, agreeing to convert up to 100 acres of wheat fields to mustard.
Mr. Smith said it was inevitable that supermarket mustard, just like flour, bread and pasta, would become more expensive.
“We’ve lulled the public with cheap food,” he said. “It’s not going to be a steal anymore.”
Bread to Be Had, for a Price
As the newly urbanized and newly affluent seek more protein and more calories, a phenomenon called “diet globalization” is playing out around the world. Demand is growing for pork in Russia, beef in Indonesia and dairy products in Mexico. Rice is giving way to noodles, home-cooked food to fast food.
Though wracked with upheaval for years and with many millions still rooted in poverty, Nigeria has a growing middle class. Median income per person doubled in the first half of this decade, to $560 in 2005. Much of this increase is being spent on food.
Nigeria grows little wheat, but its people have developed a taste for bread, in part because of marketing by American exporters. Between 1995 and 2005, per capita wheat consumption in Nigeria more than tripled, to 44 pounds a year. Bread has been displacing traditional foods like eba, dumplings made from cassava root.
Nigeria’s wheat imports in 2007 were forecast to rise 10 percent more. But demand was also rising in many other places, from Tunisia to Venezuela to India. At the same time, drought and competition from other crops limited supply.
So wheat prices soared, and over the last year, bread prices in Nigeria have jumped about 50 percent.
Amid a public outcry, bakers started making smaller loaves, hoping customers who could not afford to pay more would pay about the same to eat less. Sales have dropped for street hawkers selling loaves. With imports shrinking, mills are running at half capacity.
At Honeywell Flour Mills, one of the largest in Nigeria, executives were glued one recent day to commodity screens. The price of wheat ticked ever upward. “Even when you see a little downturn, you wait for some few hours or a day, and before you know it, it’s gone way up again,” said the production director, Nino Albert Ozara.
Despite the crisis, there is little sense of a permanent retreat from wheat in Nigeria. The mills are increasing their capacity, hoping for a day when supply is sufficient to stabilize prices. “The moment you develop a taste, you are hooked,” said a confident Muyiwa Talabi, director of an American wheat-marketing office in Lagos.
Mr. Ojuku, the man who buys fewer loaves, and one of his fellow tailors in Lagos, Mukala Sule, 39, are trying to adjust to the new era.
“I must eat bread and tea in the morning. Otherwise, I can’t be happy,” Mr. Sule said as he sat on a bench at a roadside cafe a few weeks ago. For a breakfast that includes a small loaf, he pays about $1 a day, twice what the traditional eba would have cost him.
To save a few pennies, he decided to skip butter. The bread was the important thing.
“Even if the price goes up,” Mr. Sule said, “if I have the money, I’ll still buy it.”
Malaysia PM fails to gauge public anger as electoral hammering puts job at risk
By VIJAY JOSHI March 9, 2008
KUALA LUMPUR, Malaysia - Malaysian Prime Minister Abdullah Ahmad Badawi appears to have made his biggest political blunder yet by seeking a fresh mandate amid surging public anger against his administration.
The miscalculation dealt his ruling coalition a string of defeats in Saturday's general elections and could eventually cost Abdullah his job, analysts said.
"He misread the signs. A lot of people were voting against Badawi," said Malik Imtiaz Sarwar, a human rights lawyer and political commentator. "He became the face of the mismanagement of the country. People were beginning to really, really dislike him despite his affable demeanor."
Abdullah's National Front coalition lost its two-thirds majority in the 222-member Parliament for the first time in four decades, winning only a simple majority of 139 seats. The opposition also won control of legislatures in five of Malaysia's 13 states in the biggest electoral upset in the country's history.
The results were seen as a verdict against a string of missteps by Abdullah and his failure to fulfill promises made ahead of 2004 elections which the National Front won in its biggest victory ever.
Analysts say the 68-year-old ignored Malaysia's widening poverty gap and increasing cost of living. Corruption appeared to get worse even though he had promised to eradicate it, while charges of nepotism fizzed around his government.
He made his son-in-law Khairy Jamaluddin one of his advisers. Unconfirmed reports surfaced about a yacht Abdullah bought in Turkey and a house his son purchased in Perth, angering many low income Malaysians.
When the southern state of Johor was struggling after floods in late 2006, Abdullah was in Perth to inaugurate his brother's curry restaurant. Some even criticized him for remarrying less than two years after his first wife died of cancer and then showing public affection toward his new partner.
"At a time when the country is crumbling around us we have to watch his lovey-dovey going-ons with his wife," said Malik. "People don't want to see a lovable teddy bear. They want a tough leader."
Abdullah's next big test will be when he faces the general assembly of the United Malays National Organization, the largest party in the National Front, later this year.
"The reality is that there will be tremendous pressure within UMNO for him (Abdullah) to step down," said Bridget Welsh of the Johns Hopkins University, an expert on Southeast Asia who was in Malaysia to monitor the polls.
The Front is a coalition of 11 small parties and three major ones that represent Malaysia's main ethnic groups _ the majority Muslim Malays who make up 60 percent of the 27 million population, the Chinese at 25 percent and Indians at 8 percent.
Traditionally, Malays have voted for UMNO, the Chinese for the Malaysian Chinese Association and the Indians for the Malaysian Indian Congress. The parties have been given Cabinet posts proportional to the seats they win in Parliament.
The power-sharing arrangement has helped ensure racial stability, and it worked as long as the three races believed only their parties could look after their respective communities' interests.
But the minorities have become increasingly disappointed at the failure of their parties to protect them.
The Chinese and Indians were angry at an affirmative action program, known as the New Economic Policy, that has given Malays preference in jobs, education, business, housing, finance and religion since 1971.
They also worried that their religious rights were being eroded by the government, which has been openly pushing to make society more Islamic. Several Indian temples were destroyed by authorities last year, purportedly for illegal construction, and many courts presiding over religious disputes ruled in favor of Muslims.
Ordinary Malays were also unhappy, with many charging that the benefits of the New Economic Policy were being reaped only by rich and well-connected Malays.
Repressive police tactics also fueled anger. Officers dispersed thousands of people with tear gas and water cannons at a street protest in October to demand electoral and judicial reforms.
Similarly, minority Indians were chased away by the police when they held an unprecedented rally to protest against racial discrimination in November. Five of their leaders were jailed under a law that allows indefinite detention without trial.
One of them contested a state assembly seat from jail and won. It is not clear if he will be allowed to serve.
These frustrations were tapped by the opposition parties, which for the first time set aside their ideological differences and came together to pose a united challenge.
Opposition leader Anwar Ibrahim campaigned on a platform that urged people to look outside race-based politics. His election rallies attracted thousands of people compared to a few hundred by ruling party candidates.
It is clear that the Indian and Chinese minorities abandoned the National Front in droves _ the Chinese party in the coalition won 15 of the 40 seats it contested and the Indian grouping won only three of the nine seats it stood for. Many Malays also voted against UMNO, which won 78 seats compared to 109 in 2004.
Although the opposition parties are also identified by race, they have agreed to build a multiracial alliance where all races will be treated equally.
"What is crucial now is how the opposition works as a coalition. The mandate given to them has created a national opposition for the first time," said Welsh.
Malaysian PM's future bleak after poll shock - analysts
March 9, 2008
KUALA LUMPUR (Thomson Financial) - Malaysian Prime Minister Abdullah Ahmad Badawi faced mounting calls to quit Sunday after his ruling coalition suffered a humiliating setback in elections seen as a referendum on his leadership.
A visibly exhausted Abdullah conceded there was a question mark over his future after the Barisan Nasional coalition turned in its worst ever results Saturday, losing its two-thirds parliamentary majority and four states.
Asked if the outcome was a vote of no confidence in his leadership, which has been criticised as weak and ineffective, Abdullah responded: "Maybe. There are a lot of messages from the people." "There is no pressure at this time," he said when asked if he faced calls for him to resign.
But pressure did come, notably from former premier Mahathir Mohamad, who handed over to Abdullah in 2003 after two decades leading the United National Malays Organisation (UMNO) which dominates the Barisan Nasional coalition.
"My view is he has destroyed UMNO, destroyed the BN (Barisan Nasional) and he has been responsible for this," Mahathir told reporters.
He suggested Abdullah should resign, and admitted he had made a mistake in selecting him as prime minister.
"I think he should accept responsibility for this. He should accept 100 percent responsibility," he said. "I am sorry but I apparently made the wrong choice." Mahathir has previously said he never intended for Abdullah to serve more than one term, and that he should have opted instead for influential deputy prime minister Najib Razak, who is now leader-in-waiting.
"The problem is we (the government) have become so arrogant," said Mahathir, who has been angered that Abdullah dumped several of his pet projects.
"We suppress any opinion that we do not like and they begin to believe in their own reports which are not actually consistent with what is happening in the country." Abdullah won 91 percent of parliamentary seats in the 2004 elections, but analysts said he was being punished this time for high inflation, rising crime and mounting ethnic tensions.
He has also faced flak for failing to act on election promises to eradicate corruption.
Former deputy premier Anwar Ibrahim, who has now emerged as the opposition figurehead a decade after he was sacked and jailed, said the results defeated the "myth" that the ruling party was invincible.
"I can see some leadership turmoil happening in UMNO. They will have to reinvent by focusing on leadership change," he said
Bridget Welsh, a Southeast Asian expert at Johns Hopkins University in the United States, said it was a "very tense" time for the party as it digested a vote that was a mandate for reform.
"The factions in UMNO are already asking for Badawi's resignation and this is a very significant development," said Welsh, who is currently in Malaysia.
"It's going to be very, very difficult for him to stay in power. The warlords in the system will push him because his administration has failed to address the voters' issues." Mukhriz Mahathir, the former premier's son and a member of UMNO's powerful youth wing who was elected to parliament for the first time on the weekend, urged Abdullah to "do the right thing."
"It is yet to be seen what he will do but I think it's a very clear message that there is wholesale dissatisfaction with the prime minister for the way he has been running the country these four years," he said.
"I hope he takes heed of that message and does the right thing," he told Agence-France Presse. "We need to really do some soul searching." Ibrahim Suffian, of the Merdeka Centre research firm, said Abdullah faced a torrid time at UMNO party elections later this year if he did not resign.
"There will be some tough questions asked there," he said.
Under UMNO tradition, Najib is heir apparent to Abdullah and expected to become Malaysia's next prime minister, but Welsh said other contenders could emerge in a leadership battle.
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Banks face “systemic margin call,” $325 billion hit: JPM
March 8, 2008
NEW YORK (Reuters) - Wall Street banks are facing a “systemic margin call” that may deplete banks of $325 billion of capital due to deteriorating subprime U.S. mortgages, JPMorgan Chase & Co (JPM.N: Quote, Profile, Research), said in a report late on Friday.
JPMorgan, which sent a default notice to Thornburg Mortgage Inc. (TMA.N: Quote, Profile, Research) after the lender missed a $28 million margin call, said more default notices and margin calls were likely. The Carlyle Group’s mortgage fund also failed to meet $37 million in margin calls this week.
“A systemic credit crunch is underway, driven primarily by bank writedowns for subprime mortgages,” according to the report co-authored by analyst Christopher Flanagan. “We would characterize this situation as a systemic margin call.”
The credit crisis that began about a year ago will likely intensify after Friday’s weak February U.S. employment report “that most definitely signals recession,” JPMorgan said.
Indeed, corporate bond spreads widened to a new record on Friday, surpassing levels seen in October 2002 during a boom in bankruptcies following the dot-com crash. U.S. employers cut payrolls in February for a second consecutive month, slashing 63,000 jobs, the biggest monthly job decline in nearly five years, the U.S. Labor Department reported on Friday.
“The weak February employment report points to an economy in recession,” JPMorgan said.
The JPMorgan report included a revised bleaker forecast for subprime-related home prices. The bank now sees prices falling 30 percent, from its prior 25 percent forecast. Those prices have declined 14 percent since mid-2006, JPMorgan said.
The U.S. jobs results also came after the Federal Reserve expanded the amount of its short-term auctions to $100 billion in total in the central bank’s latest effort to ease credit concerns. Ongoing concerns about bond insurers, known as monolines, and their effort to save their top ratings also are weighing on market sentiment.
Credit card APRs rise despite Fed rate cuts
By Leslie McFadden • Bankrate.com
Not all cardholders are experiencing a reduction in their credit card interest rates.
Since most variable-rate credit cards are tied to the prime rate, which has decreased 2.25 percentage points to 6 percent since September, folks might expect their annual percentage rates to decline.
For variable-rate cardholders who have good, or prime, credit, that's likely the case. The group enjoying interest rate decreases are mainly people with FICO scores above 700. Riskier, or subprime, borrowers may instead face rate increases.
"In general, variable rates are falling because of the federal rate cuts," says Bill Hardekopf, CEO of LowCards.com. Other than Bank of America's and Capital One's recent moves to raise interest rates on some accounts, he cautions that there probably are a "whole bunch of individual cases where rates are increasing based on their credit risk."
In September, the week before the Federal Reserve began its rate-cutting streak, the average variable-rate credit card stood at 13.97 percent. Since then it has fallen 1.47 percentage points to 12.5 percent. (Check the latest rates for all types of loans on Bankrate's Interest Rate Roundup.)
Tightening the screws
Industry analysts say that as the subprime crisis trickles down to the credit card portfolios within financial institutions, some issuers may attempt to offset losses when re-evaluating their credit card accounts.
Credit card APRs rise despite Fed rate cuts
By Leslie McFadden • Bankrate.com
Not all cardholders are experiencing a reduction in their credit card interest rates.
- advertisement -
Since most variable-rate credit cards are tied to the prime rate, which has decreased 2.25 percentage points to 6 percent since September, folks might expect their annual percentage rates to decline.
For variable-rate cardholders who have good, or prime, credit, that's likely the case. The group enjoying interest rate decreases are mainly people with FICO scores above 700. Riskier, or subprime, borrowers may instead face rate increases.
"In general, variable rates are falling because of the federal rate cuts," says Bill Hardekopf, CEO of LowCards.com. Other than Bank of America's and Capital One's recent moves to raise interest rates on some accounts, he cautions that there probably are a "whole bunch of individual cases where rates are increasing based on their credit risk."
In September, the week before the Federal Reserve began its rate-cutting streak, the average variable-rate credit card stood at 13.97 percent. Since then it has fallen 1.47 percentage points to 12.5 percent. (Check the latest rates for all types of loans on Bankrate's Interest Rate Roundup.)
Tightening the screws
Industry analysts say that as the subprime crisis trickles down to the credit card portfolios within financial institutions, some issuers may attempt to offset losses when re-evaluating their credit card accounts.
In terms of how they're dealing with existing lines of credit, "issuers are reacting to their situations very differently," says Bruce Cundiff, research director at Javelin Strategy & Research. Banks smarting from subprime losses may consider "tightening the screws" by not extending lines of credit or approving new accounts, while other financial institutions may have a better tolerance for risk, he says.
In January, Bank of America sent notices to some credit cardholders telling them that their rates would rise to as much as 28 percent, even though many of those cardholders claimed they had a good payment history with the bank.
Bank of America spokeswoman Betty Riess says the bank does periodically review individual accounts for credit risk. "When we review individual accounts for risk, we take into account a customer's performance with us, as well as external credit criteria -- such as taking out numerous loans, using substantially all the credit available to them or defaulting on loans to other lenders. In cases where we ultimately raise a customer's rate based on this analysis, we notify them in advance. They can then call or write us if they want to reject the new rate, and pay off the outstanding balance at the original rate," she says.
Rate adjustments affect only a minority of their cardholders, according to Riess. "In 2007, for example, nearly 94 percent of our credit card customers had the same or a lower rate at the end of the year than they did at the beginning of the year, including 26 percent with lower rates year-over-year," she says. "The 6 percent that had an increase in interest rates includes customers who had two late or over-limit defaults with us in a 12-month period as well as customers who were repriced based on risk."
Last August, Capital One raised the interest rates of some of its cardholders to as much as 28 percent, according to the Los Angeles Times.
Some individual cards have also seen rate increases. According to LowCards.com, the average variable rate on Chase Freedom cards rose 3 percentage points from 14.24 percent in September to 17.24 percent in January. The purchase APR on Blue from American Express went from 12.24 percent in September to 11.74 percent in October, but has climbed back to 12.24 percent. (For the lowest interest rates, check Bankrate's credit card search.)
In the U.K., Citibank-owned Internet bank Egg created outrage in February when it canceled 161,000 credit card accounts it deemed high risk. A week later Barclaycard canceled more than 1 million cards and reduced the credit limits on some existing accounts.
Why your rate may increase
A clause in your terms and conditions may state that the issuer reserves the right to change your rate at any time for any reason. Some creditors may cite "general market conditions" when raising rates, which Hardekopf translates as "their way of saying it's a tough economy out there."
A falling credit score could also trigger a rate increase. Behavior that could cause your score to suffer includes charging high balances, paying late or missing payments.
Issuers may also analyze the revenue brought in from a customer and consider interest income or money made off interchange fees through card usage. Each issuer applies different criteria to determine customers' value.
Concerned consumers should call their issuers and ask what the policy is for increasing interest rates, says Cundiff. Credit card agreements may also indicate the reasons issuers may increase your rate.
In light of tightening credit standards, experts advise not making any moves that issuers could flag as high-risk behavior, such as applying for numerous cards, charging more than 30 percent of your credit limit -- even if you pay off the balance each month -- or transferring balances frequently.
Why your rate may increase
The interest rate on your credit card may increase because:
• Your credit card issuer has a tighter credit situation.
• Your credit score has declined.
• You've applied for too much new credit.
• You are using more than 30 percent of available credit line.
• You've transferred balances to new cards too often.
• Your credit card company practices universal default.
What to do if your rate rises
In these tumultuous times, read every piece of mail from your card issuer, even if it looks like junk mail. A rate adjustment notice may include an option to decline the increase -- by paying off your balance at the old rate and closing the account. You can also check your statement to see if your rate has climbed.
"If it has increased, get on the phone and negotiate," says Gerri Detweiler, credit adviser for Credit.com and author of "The Ultimate Credit Handbook."
Before calling, shop around for competitive offers that you can cite, and check your FICO credit scores. A significant drop in your scores can cause a rate increase.
If you can't get a reduction, work on paying down the balance or transfer it to another low-interest card.
Those considering balance transfers should watch out for pitfalls, such as balance transfer fees that don't have a maximum cap. Learn about other drawbacks by reading the Bankrate feature "5 balance transfer trip-ups."
What the future holds
Cundiff predicts more tightening of credit standards in the coming months and says the possibility exists for issuers to halt the granting of new lines of credit, and to constrict or stop increasing existing lines of credit.
"The credit card industry is extremely competitive," notes Hardekopf, saying that if one card issuer increases fees or rates, competitors may follow suit.
Make sure that if your rate jumps, you try to negotiate the rate or shop around for a lower-rate card.
In the long term, Congress has proposed bills aimed at credit card reform. Rep. Carolyn Maloney, D-N.Y., introduced the Credit Cardholders' Bill of Rights last week, which would abolish many egregious credit card abuses. Among key revisions, the legislation would prohibit applying rate hikes to prior balances, increase advance written notice to 45 days (from 15) and establish a universal deadline before payments are considered late -- 5 p.m. EST on the due date.
Jeannine Kenney, a senior policy analyst at Consumers Union, the nonprofit publisher of Consumer Reports, called the proposal "an important step forward."
She argues that although people generally know that paying late too often will trigger a rate increase, consumers aren't told that getting too close to the limit or making minimum payments or slightly more than the minimum could also prompt a rate hike. "Consumers think they're playing by the rules and then find themselves stuck with the rate hikes," she says. Kenney seeks reform that would prevent issuers from raising interest rates for arbitrary reasons.
What rate cuts? Use of plastic gets pricier
David Lazarus
February 10, 2008
Borrowing money has become cheaper for banks after a series of aggressive rate cuts by the Federal Reserve. So why are many people's credit cards growing more expensive?
Hundreds of thousands of Capital One and Bank of America cardholders have been notified in recent months that their interest rates are going up -- in some cases to as much as 28% -- even though they haven't been missing payments.
Cardholders are being told they can "opt out" from the higher rates by paying off their balances and taking their business elsewhere. But that's not really an option for people who may not have thousands of dollars in spare cash sitting in a drawer.
If anything, people's credit card rates should be heading south following repeated cuts in interest rates at the federal level. So far this year, the federal funds rate has been reduced by 1.25 percentage points and now stands at 3%. Further cuts are expected as the economy slides toward recession.
The Fed funds rate is an overnight lending that banks charge to each other. It influences the interest consumers pay for credit cards, home equity lines and car loans.
David Robertson, publisher of an influential credit card trade publication called the Nilson Report, said a number of factors determine rates for plastic, not least the greater risk of delinquencies these days resulting from the credit crunch.
But he said it seems clear that leading banks, having suffered billions of dollars in losses from the mortgage meltdown, are casting about for new sources of revenue.
"They need to raise rates because they can't raise fees anymore," Robertson said. "It's politically untenable."
Politics also seems to be behind a subtle shift in language that's appeared in the terms and conditions of several top card issuers. Increasingly, lawmakers have been taking a skeptical view of banks' long-standing insistence that they can raise people's rates at any time for any reason.
Citibank announced last year that it would no longer make this claim. Instead, the bank now says people's rates may rise because of "general market conditions."
Similarly, Capital One introduced language last year asserting that cardholders' rates could go up "if market conditions change."
More broadly, BofA declares that credit card rates could increase due to "market conditions, business strategies or for any reason."
Betty Riess, a BofA spokeswoman, said "market conditions" could refer to changes in interest rates. She declined to say what else it could refer to.
Pam Girardo, a Cap One spokeswoman, said the phrase "market conditions" was introduced to the company's credit card terms "solely because it is shorter" than other possible wordings.
" 'Market conditions' basically means changes to the rate environment and/or our cost of funds," she said.
If that were the case, though, card rates should be dropping in tandem with the Fed funds rate.
Since that's not happening, it's apparent that "market conditions" can mean virtually anything.
Kind of like "at any time for any reason."
"Issuers are trying to use a new phrase that looks like there's some economic formula being used to raise rates," said Bill Hardekopf, chief exec of LowCards.com credit card comparison website. "But they still have the freedom to do whatever they want."
San Dimas resident David Williams got a taste of this last month when he received a letter from Capital One informing him that his 9.9% annual percentage rate would be jumping to 15.9%.
"I don't make any late payments," he told me. "I have a good credit score. There was no basis for a higher rate."
When Williams, 54, called Cap One to find out the reason for the rate hike, he said he hit a brick wall.
"The service rep couldn't give a solid reason," he said. "Basically, they just did it."
The Nilson Report's Robertson said higher rates reflect a fundamental shift in how card issuers operate.
"The card issuers are moving from a risk-management strategy to a revenue-generating strategy," he said.
"Credit cards are consistently the most profitable retail banking product," Robertson observed. "The growth is not there anymore. And with a recession coming down the pike, there's no expectation of more spending by consumers. The industry needs to raise prices to keep profits where they need to be."
Put that in your market conditions and smoke it.
Ken Clayton, managing director of card policy for the American Bankers Assn., said it's understandable why market conditions would be a factor for rate hikes.
"A card company needs to manage its risks in an ever-changing economic environment," Clayton said. "Lenders need to be able to secure the right to deal with the risks that are posed."
Williams, the Capital One cardholder, said the thing he finds particularly galling is that Cap One comes out ahead no matter what.
"They'll either get more money from me through the higher rate, or they'll get me to pay off my $3,000 balance when I leave as a customer," he said. "They obviously need the money, and they get something out of me either way.
"It's just unfair," Williams added. "The credit card companies always win. They never lose."
Investing in a bearish market
By FINTAN NG
March 8, 2008
PETALING JAYA: The main indices of major stock markets in Asia, Europe and the US have been trending down on bad news related to the state of the US economy, the casualties of the subprime loans crisis and the ever rising price of commodities, especially crude oil.
The KL Composite Index closed at 1,296.33 yesterday, down 3.36 points, or 0.25%, from Thursday but still off its high of 1,516.22 reached on Jan 11. Analysts said the selling of certain stocks earlier in the week was led by foreign funds.
Citigroup Malaysia country research head Choong Wai Kee said in a report on Thursday there were no major surprises in the recent fourth-quarter (Q4) results, with most companies under its coverage reporting satisfactory results that were largely in line with expectations.
He said rising cost pressures was the most worrying sign from the Q4 results.
“Labour, raw material costs such as steel, and building materials have all gone up,” Choong said, adding that if there was difficulty in passing costs to end-buyers or customers, costs were likely to dent profits in the second half.
He said earnings per share (EPS) growth estimates and target prices “are still way too high” as some assumptions were 12 to 18 months old.
Under such conditions, he said, there would be earnings downgrades and target price cuts while “investors are likely to sell into every single rebound and rally”.
Choong said although consensus still projected an EPS growth of 14%, Citigroup was cutting estimates for the second time since last October. “Removing exceptional items, we expect market EPS to grow 8% in 2008,” he said.
So how does one invest in an environment like this?
Phillip Capital Management Sdn Bhd chief investment officer Ang Kok Heng said nobody likes to buy when the markets are down because “you never know when it’s going to hit the bottom and recover.”
“You must spread out your buying. It (a downturn) appears only for a short period so if you wait, it may be too late. Take a position and start accumulating,” he told StarBiz.
Ang said the current volatility did not mean it was the end of the world for investors.
“It really depends on the individual and their risk appetite or expectations, whether they are short-term traders or long-term investors but the current market condition is not for those looking to trade,” he added.
Ang said the situation was likely to remain at least until the US announced its Q1 gross domestic product growth figures next month.
“It may not be good and then there’s the Q2 results and we don’t know if it’s going to be bad or worse, or recovering,” he said.
US hedge funds latest casualty
By LOONG TSE MIN
March 8, 2008
PETALING JAYA: US hedge funds have become the latest casualty of subprime woes as trading in Carlyle Group’s mortgage-bond fund, Carlyle Capital, was suspended in Amsterdam after creditors forced the sale of some assets.
Carlyle Capital Corp said in a statement that lenders who issued default notices had liquidated some residential mortgage-backed securities held by the fund and might sell more as talks continued.
While subprime woes had previously affected structured investment vehicles based on subprime lending instruments, the credit crunch had now spread to hedge funds and US monoline insurers, said RAM Holdings Bhd chief economist Dr Yeah Kim Leng.
“The banks that had lent to hedge funds are now calling back their money. It’s a kind of credit crunch that seems to be intensifying,” he told StarBiz.
On falling global markets on US recession fears, Aseambankers economist Saifuddin Morat felt that a recession in the US had been forecast since the middle of last year but “the market has not been efficient enough to discount for a recession”.
“It is only unwinding now, just as the subprime mortgage lending problem came to light at about the same time last year but it is only now that banks are making losses,” he said.
Saifuddin said another reason for falling equity markets could be a shifting of funds and investors into commodities such as crude oil.
Crude oil reached a record US$105.97 a barrel for April delivery in New York trade on Thursday but fell 95 US cents to US$104.52 yesterday. Brent crude for April settlement stood at US$101.63 in London at 5pm Malaysian time.
Yeah said the recent record gains in commodities such as crude oil, crude palm oil and gold were also largely due to speculation.
“The fundamentals of these commodities (such as supply and demand) are not so volatile and recent rises are largely due to sentiment as well as fund inflows.”
Yeah believes that global investment funds “which still have money” were looking at alternative investments in developing markets and particularly, commodities.
“There’s a shift from one asset class to another,” he said, adding that the falling US dollar was also part of the reason funds were moving away from equities to commodities.
The recent spike in prices of commodities as well as industrial metals like nickel was due to an “almost immediate switch to commodities in reaction to the decline in the dollar,” Yeah said.
"This is a defining moment, unprecedented in our nation's history" - Anwar Ibrahim
Malaysia vote loosens ruling grip
Sunday, 9 March 2008
Malaysians are surveying the new political landscape a day after voters delivered a blow to the country's half-century-old ruling coalition.
In the parliamentary poll the National Front lost its two-thirds majority - needed to make constitutional changes - and control of four state assemblies.
It did, however, win a simple majority, taking 139 out of 219 seats, with three more seats yet to declare.
Prime Minister Abdullah Ahmad Badawi has resisted calls to resign.
Analysts blame ethnic tensions, crime and inflation for a drop in his government's popularity.
Mr Abdullah is urging calm, amid fears there may be violence in the wake of the result.
Opposition figure Anwar Ibrahim hailed the result as a message that it was time for change in Malaysia.
Mr Anwar's Justice Party has 31 seats out of the opposition's 82 so far, making him the leader of the opposition.
Mr Abdullah, in office since 2003, said he would meet the constitutional monarch on Monday and ask to form a new government. He dismissed suggestions that he would now face pressure from party members to step down.
His son-in law, Khairy Jamaluddin, told reporters: "We suffered a lot of losses tonight. But we are going to fight on. We are not going to quit. It is not the end of the world and we are going to get through this."
'Time for change'
The BBC's Robin Brant says no one expected the opposition to do so well across the board.
It is clear, he adds, that people wanted change and Chinese and Indian ethnic minority voters deserted the National Front, in power since 1957.
Before the elections only one state was under opposition control, Kelantan.
The Election Commission confirmed opposition wins in Kelantan as well as Selangor, Perak, Kedah and Penang.
Mr Anwar said the people of Malaysia had spoken.
"Today at the ballot box, you listened to your heart with a lot of conviction that the time for change has arrived..." he said.
"This is a defining moment, unprecedented in our nation's history. Today a new chapter has opened."
Ethnic minorities
Mr Anwar has accused the government of widespread vote-rigging.
Our correspondent says there are many people who have as many suspicions about Mr Anwar as about the National Front's leaders. But, he adds, the claim that Malaysia has free and fair elections is not a just one.
Ethnic minorities make up more than a third of the population. Many complain that government policy has denied them fair access to jobs, education, and housing.
Growing tensions between minority communities and the Malay majority have dominated the election campaign and the government has appealed for calm.
The last time the National Front suffered a big setback, in 1969, it resulted in race riots, dozens of deaths and a state of emergency.
Clashes
Some violence linked to the election was reported in the east of the country on Saturday.
Police in Terennganu State said they had fired tear gas to disperse a crowd of several hundred people protesting at what they saw as vote-rigging.
Supporters of the opposition PAS stopped buses they suspected of carrying National Front coalition supporters pretending to be voters from the district, said local police chief Ayob Yaacob.
He said that 22 people had been arrested and the rest of the crowd ran away.
Malaysia's ruling allies win election among setbacks
(Xinhua)
2008-03-09
KUALA lUMPUR - Malaysia's ruling coalition won the 12th general election held on Saturday, but lost its dominant two-thirds majority in the parliament.
At around 01:30 a.m. local time on Sunday morning, Malaysia's Election Commission (EC) announced that the ruling coalition Barisan Nasional (BN), or National Front, won 127 parliamentary seats, exceeding a simple majority to form a new government.
After the EC's announcement of the BN victory, Malaysian Prime Minister and BN Chairman Abdullah Ahmad Badawi said that he would have a meeting with Supreme Head Mizan Zainal Abidin on Monday to discuss the formation of a new government.
He held up hand of Deputy Prime Minister Najib Tun Razak to mark the BN victory at a press conference, but did not make much comment on the results of the election.
Although the final results have not been revealed as voting at some locations in East Malaysia's Sarawak State has to finish on Sunday, the BN has lost its two-thirds majority in the lower house of the parliament, according to the EC.
It was reported that the BN lost its dominant control of the parliament and the biggest setback after it administered the country for 50 years.
According to the results of 219 seats of the 222-seat lower house of the 12th Parliament announced by the EC so for, the BN has only secured 137 seats, including eight won uncontested, far less than the two-thirds majority line of 148 seats.
In the 11th Parliament which was dissolved on February 13, the BN held 199 of the 219 seats in the lower house.
During the Saturday election, the BN also failed to take back the state of Kelantan from the opposition party -- the Islamic Party of Malaysia (PAS), and even more it lost four other states -- Penang, Kedah, Selangor and Perak.
According to the results revealed by the EC, the opposition parties, mainly including the Democratic Action Party (DAP), the PAS and the People's Justice Party (PKR), have won a simple majority in the state assemblies in the states.
In the last general election, in the total of 13 states in the country, the BN, which also consisted of 14 parties, held dominant seats in the legislative assemblies in 12 ones, excluding Kelantan.
Some leaders or ministers of component parties of the BN also suffered during the election, got lost their parliamentary seats, including Malaysian Indian Congress (MIC) President Samy Vellu, Acting President Koh Tsu Koon of the People's Movement Party, and the incumbent Malaysian Women,Family and Social Development Minister Shahrizat Abdul Jalil.
Many of the first time contestants from the BN also "sank" in the election scenario this year, which was described by some local media as "a political tsunami" or "unprecedented".
Badawi and Najib won their parliamentary seats respectively with a significant margin in their own constituencies.
Malaysia's new government is expected to come into power soon.
Malaysia markets tipped to slide after poll drama
By Mark Bendeich
March 9, 2008
KUALA LUMPUR (Reuters) - Malaysia's share market is expected to slide on Monday, gripped by political uncertainty after voters stunned the government with a massive protest vote.
Brokers and fund managers said Malaysian politics was in uncharted waters after Prime Minister Abdullah Ahmad Badawi's coalition registered its worst-ever result, losing a third of its federal seats and five states to the opposition in weekend polls.
"There would be some major initial reaction in the markets," said Pankaj Kumar, chief investment officer at Kurnia Insurance, who helps manage 1.6 billion ringgit ($506 million) in assets.
"The political stability has finally been challenged. The question is, how does Malaysia move forward from here in restoring confidence?"
A sales broker said he expected Malaysia's benchmark stock index, the Kuala Lumpur Composite Index (KLCI) to fall around 50 to 100 points, or up to around 8 percent, on Monday as investors tried to answer that question.
The KLCI index closed down 0.26 percent at 1,296.33 on Friday, in line with regional markets, and has fallen 9 percent since Abdullah called on Feb. 13 for early elections.
Brewing stocks such as Carlsberg Brewery Malaysia Bhd and Guinness Anchor Bhd are likely to be in focus on Monday, given the success of Islamist party PAS, which took control of three state assemblies in Saturday's elections.
Gaming and leisure stocks such as Magnum Corp and Berjaya Sports Toto could also come under pressure.
PAS's policy bans alcohol and gambling and calls for amputations and stonings of non-Muslim thiefs and adulterers, but it has recently tried to soften its stance and broaden its appeal to non-Muslims, who make up more than 40 percent of the population.
Given the scale of its electoral success, winning seats in multi-racial urban areas as well as the Muslim countryside, PAS looks to have attracted many non-Muslim votes on Saturday.
LONG TERM, "NO CONCERNS"
"The market is not going to be so good. There will be major reaction on Monday," said an international-sales broker based in Malaysia. "It would take time for the market to settle down."
Former premier Mahathir Mohamad also warned that investors could now feel unsafe and urged Abdullah to step down as leader.
"I am afraid investors are already showing that this election worries them," Mahathir said. "Now, unless they are blind, I think they will feel very unsafe in the country."
Despite the concerns, several fund managers and brokers said the so-far peaceful acceptance of the poll result was encouraging and perhaps pointed to a new political maturity in this country, which has effectively never known a change of government.
Some said PAS was not necessarily such a big worry, given that it would have to be pragmatic in a multi-racial nation.
"We have no concerns in regards to the election," said Malaysia-based fund manager Gerald Ambrose, of Aberdeen Asset Management, which has $2.2 billion invested in Malaysian stocks.
"We have a long-term investment plan. The different results in the polls would not make any difference in our portfolio."
But Tim Condon, Singapore-based head of Asia Research at investment bank ING, questioned whether the government could still proceed with its spending plans, especially its agenda to harness $325 billion in mostly private capital to create five new economic development zones around the country.
PAS now controls three of the northern and eastern states covered by these plans, raising concerns whether PAS will cooperate with the national government in implementing them.
"The key to the future of the northern and, to some extent, the eastern (zones) is how well the federal government and the state governments can work hand in hand," a source close to the prime minister admitted on Sunday.
Over time, some market commentators said, the new political landscape could improve the investment climate, by quickening reforms, though a lot depended now on how the opposition behaved.
Already, the opposition Democratic Action Party, which won the industrial heartland state of Penang, says it will use its new clout to push for a reform that foreign investors have long demanded: the awarding of government contracts by open tender.
A Global Need for Grain That Farms Can’t Fill
By DAVID STREITFELD
March 9, 2008
LAWTON, N.D. — Whatever Dennis Miller decides to plant this year on his 2,760-acre farm, the world needs. Wheat prices have doubled in the last six months. Corn is on a tear. Barley, sunflower seeds, canola and soybeans are all up sharply.
“For once, there’s great reason to be optimistic,” Mr. Miller said.
But the prices that have renewed Mr. Miller’s faith in farming are causing pain far and wide. A tailor in Lagos, Nigeria, named Abel Ojuku said recently that he had been forced to cut back on the bread he and his family love.
“If you wanted to buy three loaves, now you buy one,” Mr. Ojuku said.
Everywhere, the cost of food is rising sharply. Whether the world is in for a long period of continued increases has become one of the most urgent issues in economics.
Many factors are contributing to the rise, but the biggest is runaway demand. In recent years, the world’s developing countries have been growing about 7 percent a year, an unusually rapid rate by historical standards.
The high growth rate means hundreds of millions of people are, for the first time, getting access to the basics of life, including a better diet. That jump in demand is helping to drive up the prices of agricultural commodities.
Farmers the world over are producing flat-out. American agricultural exports are expected to increase 23 percent this year to $101 billion, a record. The world’s grain stockpiles have fallen to the lowest levels in decades.
“Everyone wants to eat like an American on this globe,” said Daniel W. Basse of the AgResource Company, a Chicago consultancy. “But if they do, we’re going to need another two or three globes to grow it all.”
In contrast to a run-up in the 1990s, investors this time are betting — as they buy and sell contracts for future delivery of food commodities — that scarcity and high prices will last for years.
If that comes to pass, it is likely to present big problems in managing the American economy. Rising food prices in the United States are already helping to fuel inflation reminiscent of the 1970s.
And the increases could become an even bigger problem overseas. The increases that have already occurred are depriving poor people of food, setting off social unrest and even spurring riots in some countries.
In the long run, the food supply could grow. More land may be pulled into production, and outdated farming methods in some countries may be upgraded. Moreover, rising prices could force more people to cut back. The big question is whether such changes will be enough to bring supply and demand into better balance.
“People are trying to figure out, is this a new era?” said Joseph Glauber, chief economist for the United States Department of Agriculture. “Are prices going to be high forever?”
Competition for Acres
At a moment when much of the country is contemplating recession, farmers are flourishing. The Agriculture Department forecasts that farm income this year will be 50 percent greater than the average of the last 10 years. The flood of money into American agriculture is leading to rising land values and a renewed sense of optimism in rural America.
“All of a sudden farmers are more in control, which is a weird position for them,” said Brian Sorenson of the Northern Crops Institute in Fargo, N.D. “Everyone’s knocking at their door, saying, ‘Grow this, grow that.’ ”
Mr. Miller’s family has worked the Great Plains for more than a century. One afternoon early last month, he turned on the computer in his combination office and laundry room to see what commodity prices were up to.
“Oh, my goodness, look at that,” Mr. Miller said. Barley was $6.40 a bushel, approaching a price that would tempt him to plant more. Soybeans were $12.79 a bushel, up from $8.50 in August.
The frozen earth outside was only a few weeks from coming to life, but Mr. Miller was happily uncertain about what to plant. Last year, the decision was easy for Mr. Miller and everyone else: prices of corn were high because of new government mandates for production of ethanol, a motor fuel. This year, so many crops look like good bets, and there is so little land on which to plant them.
“I’m debating between spring wheat, durum wheat, canola, malting barley, confection sunflowers, oil sunflowers, soybeans, flax and corn,” Mr. Miller said.
The biggest blemish on this winter of joy is that farmers’ own costs are rising rapidly. Expenses for the diesel fuel used to run tractors and combines and for the fertilizer essential to modern agriculture have soared. Mr. Miller does not just want high prices; he needs them to pay his bills.
Until recently, he could expect around $3 a bushel for his wheat — far less than his parents and grandparents received, when inflation is taken into account. Consumption in the United States was dropping as Americans shunned carbohydrates. The export market, while healthy, faced competition.
Now prices have more than tripled, partly because of a drought in Australia and bad harvests elsewhere and also because of unslaked global demand for crackers, bread and noodles. In seven of the last eight years, world wheat consumption has outpaced production. Stockpiles are at their lowest point in decades.
Around the world, wheat is becoming a precious commodity. In Pakistan, thousands of paramilitary troops have been deployed since January to guard trucks carrying wheat and flour. Malaysia, trying to keep its commodities at home, has made it a crime to export flour and other products without a license. Consumer groups in Italy staged a widely publicized (if also widely disregarded) one-day pasta strike last fall.
In the United States, the price of dry pasta has risen 20 percent since October, according to government data. Flour is up 19 percent since last summer. Over all, food and beverage prices are rising 4 percent a year, the fastest pace in nearly two decades.
The American Bakers Association last month took the radical step of suggesting that American exports be curtailed to keep wheat at home, though the group later backed off.
If all this suggests a golden age for American growers, it could well be brief, said Bruce Babcock, an economist at Iowa State University. He predicted that farmers would do their best to ramp up production, possibly to the point of pulling land out of conservation programs so they could plant more. “Give farmers a price incentive, and they’ll produce,” he said.
The Agriculture Department forecasts that world wheat production will increase 8 percent this year. In the United States, spring and durum wheat plantings are expected to rise by two million acres, helping to drive prices down to $7 a bushel, the government said.
Yet the competition among crops for acreage has become so intense that some farmers think the government and analysts like Mr. Babcock are being overly optimistic.
Read Smith, a farmer in St. John, Wash., thinks a new era is at hand for all sorts of crops. “Price spikes have usually been short-lived,” he said. “I think this one is different.”
His example is plain old mustard. Two years ago, Mr. Smith would have been paid less than 15 cents a pound for mustard seeds. As more lucrative crops began supplanting mustard, dealers raised their offering price to 20 cents, then 30 cents, then 48 cents early this year. Mr. Smith gave in, agreeing to convert up to 100 acres of wheat fields to mustard.
Mr. Smith said it was inevitable that supermarket mustard, just like flour, bread and pasta, would become more expensive.
“We’ve lulled the public with cheap food,” he said. “It’s not going to be a steal anymore.”
Bread to Be Had, for a Price
As the newly urbanized and newly affluent seek more protein and more calories, a phenomenon called “diet globalization” is playing out around the world. Demand is growing for pork in Russia, beef in Indonesia and dairy products in Mexico. Rice is giving way to noodles, home-cooked food to fast food.
Though wracked with upheaval for years and with many millions still rooted in poverty, Nigeria has a growing middle class. Median income per person doubled in the first half of this decade, to $560 in 2005. Much of this increase is being spent on food.
Nigeria grows little wheat, but its people have developed a taste for bread, in part because of marketing by American exporters. Between 1995 and 2005, per capita wheat consumption in Nigeria more than tripled, to 44 pounds a year. Bread has been displacing traditional foods like eba, dumplings made from cassava root.
Nigeria’s wheat imports in 2007 were forecast to rise 10 percent more. But demand was also rising in many other places, from Tunisia to Venezuela to India. At the same time, drought and competition from other crops limited supply.
So wheat prices soared, and over the last year, bread prices in Nigeria have jumped about 50 percent.
Amid a public outcry, bakers started making smaller loaves, hoping customers who could not afford to pay more would pay about the same to eat less. Sales have dropped for street hawkers selling loaves. With imports shrinking, mills are running at half capacity.
At Honeywell Flour Mills, one of the largest in Nigeria, executives were glued one recent day to commodity screens. The price of wheat ticked ever upward. “Even when you see a little downturn, you wait for some few hours or a day, and before you know it, it’s gone way up again,” said the production director, Nino Albert Ozara.
Despite the crisis, there is little sense of a permanent retreat from wheat in Nigeria. The mills are increasing their capacity, hoping for a day when supply is sufficient to stabilize prices. “The moment you develop a taste, you are hooked,” said a confident Muyiwa Talabi, director of an American wheat-marketing office in Lagos.
Mr. Ojuku, the man who buys fewer loaves, and one of his fellow tailors in Lagos, Mukala Sule, 39, are trying to adjust to the new era.
“I must eat bread and tea in the morning. Otherwise, I can’t be happy,” Mr. Sule said as he sat on a bench at a roadside cafe a few weeks ago. For a breakfast that includes a small loaf, he pays about $1 a day, twice what the traditional eba would have cost him.
To save a few pennies, he decided to skip butter. The bread was the important thing.
“Even if the price goes up,” Mr. Sule said, “if I have the money, I’ll still buy it.”
Malaysia PM fails to gauge public anger as electoral hammering puts job at risk
By VIJAY JOSHI
March 9, 2008
KUALA LUMPUR, Malaysia - Malaysian Prime Minister Abdullah Ahmad Badawi appears to have made his biggest political blunder yet by seeking a fresh mandate amid surging public anger against his administration.
The miscalculation dealt his ruling coalition a string of defeats in Saturday's general elections and could eventually cost Abdullah his job, analysts said.
"He misread the signs. A lot of people were voting against Badawi," said Malik Imtiaz Sarwar, a human rights lawyer and political commentator. "He became the face of the mismanagement of the country. People were beginning to really, really dislike him despite his affable demeanor."
Abdullah's National Front coalition lost its two-thirds majority in the 222-member Parliament for the first time in four decades, winning only a simple majority of 139 seats. The opposition also won control of legislatures in five of Malaysia's 13 states in the biggest electoral upset in the country's history.
The results were seen as a verdict against a string of missteps by Abdullah and his failure to fulfill promises made ahead of 2004 elections which the National Front won in its biggest victory ever.
Analysts say the 68-year-old ignored Malaysia's widening poverty gap and increasing cost of living. Corruption appeared to get worse even though he had promised to eradicate it, while charges of nepotism fizzed around his government.
He made his son-in-law Khairy Jamaluddin one of his advisers. Unconfirmed reports surfaced about a yacht Abdullah bought in Turkey and a house his son purchased in Perth, angering many low income Malaysians.
When the southern state of Johor was struggling after floods in late 2006, Abdullah was in Perth to inaugurate his brother's curry restaurant. Some even criticized him for remarrying less than two years after his first wife died of cancer and then showing public affection toward his new partner.
"At a time when the country is crumbling around us we have to watch his lovey-dovey going-ons with his wife," said Malik. "People don't want to see a lovable teddy bear. They want a tough leader."
Abdullah's next big test will be when he faces the general assembly of the United Malays National Organization, the largest party in the National Front, later this year.
"The reality is that there will be tremendous pressure within UMNO for him (Abdullah) to step down," said Bridget Welsh of the Johns Hopkins University, an expert on Southeast Asia who was in Malaysia to monitor the polls.
The Front is a coalition of 11 small parties and three major ones that represent Malaysia's main ethnic groups _ the majority Muslim Malays who make up 60 percent of the 27 million population, the Chinese at 25 percent and Indians at 8 percent.
Traditionally, Malays have voted for UMNO, the Chinese for the Malaysian Chinese Association and the Indians for the Malaysian Indian Congress. The parties have been given Cabinet posts proportional to the seats they win in Parliament.
The power-sharing arrangement has helped ensure racial stability, and it worked as long as the three races believed only their parties could look after their respective communities' interests.
But the minorities have become increasingly disappointed at the failure of their parties to protect them.
The Chinese and Indians were angry at an affirmative action program, known as the New Economic Policy, that has given Malays preference in jobs, education, business, housing, finance and religion since 1971.
They also worried that their religious rights were being eroded by the government, which has been openly pushing to make society more Islamic. Several Indian temples were destroyed by authorities last year, purportedly for illegal construction, and many courts presiding over religious disputes ruled in favor of Muslims.
Ordinary Malays were also unhappy, with many charging that the benefits of the New Economic Policy were being reaped only by rich and well-connected Malays.
Repressive police tactics also fueled anger. Officers dispersed thousands of people with tear gas and water cannons at a street protest in October to demand electoral and judicial reforms.
Similarly, minority Indians were chased away by the police when they held an unprecedented rally to protest against racial discrimination in November. Five of their leaders were jailed under a law that allows indefinite detention without trial.
One of them contested a state assembly seat from jail and won. It is not clear if he will be allowed to serve.
These frustrations were tapped by the opposition parties, which for the first time set aside their ideological differences and came together to pose a united challenge.
Opposition leader Anwar Ibrahim campaigned on a platform that urged people to look outside race-based politics. His election rallies attracted thousands of people compared to a few hundred by ruling party candidates.
It is clear that the Indian and Chinese minorities abandoned the National Front in droves _ the Chinese party in the coalition won 15 of the 40 seats it contested and the Indian grouping won only three of the nine seats it stood for. Many Malays also voted against UMNO, which won 78 seats compared to 109 in 2004.
Although the opposition parties are also identified by race, they have agreed to build a multiracial alliance where all races will be treated equally.
"What is crucial now is how the opposition works as a coalition. The mandate given to them has created a national opposition for the first time," said Welsh.
Malaysian PM's future bleak after poll shock - analysts
March 9, 2008
KUALA LUMPUR (Thomson Financial) - Malaysian Prime Minister Abdullah Ahmad Badawi faced mounting calls to quit Sunday after his ruling coalition suffered a humiliating setback in elections seen as a referendum on his leadership.
A visibly exhausted Abdullah conceded there was a question mark over his future after the Barisan Nasional coalition turned in its worst ever results Saturday, losing its two-thirds parliamentary majority and four states.
Asked if the outcome was a vote of no confidence in his leadership, which has been criticised as weak and ineffective, Abdullah responded: "Maybe. There are a lot of messages from the people." "There is no pressure at this time," he said when asked if he faced calls for him to resign.
But pressure did come, notably from former premier Mahathir Mohamad, who handed over to Abdullah in 2003 after two decades leading the United National Malays Organisation (UMNO) which dominates the Barisan Nasional coalition.
"My view is he has destroyed UMNO, destroyed the BN (Barisan Nasional) and he has been responsible for this," Mahathir told reporters.
He suggested Abdullah should resign, and admitted he had made a mistake in selecting him as prime minister.
"I think he should accept responsibility for this. He should accept 100 percent responsibility," he said. "I am sorry but I apparently made the wrong choice." Mahathir has previously said he never intended for Abdullah to serve more than one term, and that he should have opted instead for influential deputy prime minister Najib Razak, who is now leader-in-waiting.
"The problem is we (the government) have become so arrogant," said Mahathir, who has been angered that Abdullah dumped several of his pet projects.
"We suppress any opinion that we do not like and they begin to believe in their own reports which are not actually consistent with what is happening in the country." Abdullah won 91 percent of parliamentary seats in the 2004 elections, but analysts said he was being punished this time for high inflation, rising crime and mounting ethnic tensions.
He has also faced flak for failing to act on election promises to eradicate corruption.
Former deputy premier Anwar Ibrahim, who has now emerged as the opposition figurehead a decade after he was sacked and jailed, said the results defeated the "myth" that the ruling party was invincible.
"I can see some leadership turmoil happening in UMNO. They will have to reinvent by focusing on leadership change," he said
Bridget Welsh, a Southeast Asian expert at Johns Hopkins University in the United States, said it was a "very tense" time for the party as it digested a vote that was a mandate for reform.
"The factions in UMNO are already asking for Badawi's resignation and this is a very significant development," said Welsh, who is currently in Malaysia.
"It's going to be very, very difficult for him to stay in power. The warlords in the system will push him because his administration has failed to address the voters' issues." Mukhriz Mahathir, the former premier's son and a member of UMNO's powerful youth wing who was elected to parliament for the first time on the weekend, urged Abdullah to "do the right thing."
"It is yet to be seen what he will do but I think it's a very clear message that there is wholesale dissatisfaction with the prime minister for the way he has been running the country these four years," he said.
"I hope he takes heed of that message and does the right thing," he told Agence-France Presse. "We need to really do some soul searching." Ibrahim Suffian, of the Merdeka Centre research firm, said Abdullah faced a torrid time at UMNO party elections later this year if he did not resign.
"There will be some tough questions asked there," he said.
Under UMNO tradition, Najib is heir apparent to Abdullah and expected to become Malaysia's next prime minister, but Welsh said other contenders could emerge in a leadership battle.
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