Monday 30 March 2009
Short-term gains but long term pains likely
Last week’s column raised the likelihood of a play on the major indices because of probable quarter-ending window-dressing. To be honest, the play that did materialise has caught us and many others by surprise, virtually erasing all of the Straits Times Index’s loss for 2009.
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Short-term gains but long term pains likely
By R SIVANITHY
31 March 2009
Last week’s column raised the likelihood of a play on the major indices because of probable quarter-ending window-dressing. To be honest, the play that did materialise has caught us and many others by surprise, virtually erasing all of the Straits Times Index’s loss for 2009. Moreover, as a result of the heightened liquidity and momentum that have built up and because there are still two more trading days for index fixing before the quarter actually ends, our guess is that the STI should remain firm for the near-term, but will come under some pressure afterward. In this regard, traders may wish to note that the index started the year at 1,746, almost exactly at the 1,745.66 that it ended at on Friday, so if any propping up does occur, it will likely ensure this level is not breached.
This much is relatively easy to figure out. It’s beyond the next week that things get a bit more hazy. There seems to be a feeling in some circles that the bottom has been reached and it’s probably sunny skies ahead - Fed officials on Friday for example, spoke of the economic data picking up possibly by mid-year, while some analysts have been quoted as referring to ‘inflection points’ implying that markets have turned. Our take on all this is the same as it’s been for months now - if you print enough money and pump enough cash into zombie banks, car companies, insurance giants and a hugely leveraged consumer-driven economy, even the worst of blood-sucking undeads should twitch into some semblance of life.
But it will not result in a lasting, durable recovery; in fact, it is possible that the subsequent fallout will be worse than before because of the disappointment that will ensue.
This is what is happening now in the US - thanks to an estimated US$3 trillion that the Federal Reserve and Treasury are injecting into America’s economy (without accountability, a topic we’ll leave for another column), people are starting to think that the worst is over and Wall Street, whose run over the past fortnight was also probably aided by window-dressing, has tried the get the bullish bandwagon running again.
The truth of the matter is that although the bandwagon might trundle along for a while yet - possibly even a few more months - it cannot sustain because of the flimsiness of the underlying economic recovery that is being engineered, especially when the engineers are ex-Wall Street types.
Rather than rely on Fed officialdom and investment bankers, both who have a vested interest in claiming a recovery is imminent, our preference is for independent observers who operate beyond the sphere of Wall Street and politics.
One outspoken critic of the latest US bank bailout plan is Princeton academic Paul Krugman, 2008’s Nobel Prize winner for economics, who has openly said that the plan will not work and when it fails, Congress will probably not approve any more money for the Obama administration.
In his Friday New York Times commentary titled ‘The market mystique’, Prof Krugman correctly points out that the government is in effect bribing the private sector to buy toxic assets with its proposed public-private partnership and also correctly criticises the ‘quick-fix’ mentality behind the entire rescue effort that is trying to get banks back to where they were a few years ago.
‘As you can guess, I don’t share that vision. I don’t think this is just a financial panic; I believe that it represents the failure of a whole model of banking, of an overgrown financial sector that did more harm than good,’ said Prof Krugman.
Interestingly, Citigroup’s FX Technicals said basically the same thing in its Friday market commentary: ‘We honestly still think that people do not get the seriousness of this ‘economic deleveraging’ taking place . . . this is not a deleverage of the past five-six years, but of 25-30 years worth of excess,’ it said.
The unit goes on to say that the US and entire global economy has been operating like a massive hedge fund for the past three decades, supplementing stagnant real incomes with cheap credit and asset market appreciation to maintain a lifestyle and illusory wealth creation that would otherwise not have been possible.
The worry is this - that model of the world is clearly unsustainable going forward yet everyone (led by Wall Street-backed US officialdom) is doing their best to engineer a quick return to that model as possible. It will probably result in a short-term uptick in the numbers and the market will respond, but when - not if - the next collapse comes, it’s difficult to see how an even bigger rescue can be mounted.
China Stocks Optimism ‘Overdone,’ Morgan Stanley Says
March 27 (Bloomberg) -- China stock investors’ optimism over a rebound in growth is “overdone” and shareholders will endure “pain” as government measures to stimulate the economy fail to stem the slide in earnings, Morgan Stanley said.
Profits of companies on the CSI 300 Index, measuring so- called A shares listed in Shanghai and Shenzhen, will tumble an average 15.4 percent in 2009, Morgan Stanley analysts Jerry Lou, James Cao and Allen Gui wrote in a note today. Earnings for companies on Hong Kong’s Hang Seng China Enterprises Index will plunge 26.6 percent, they said.
“The poor-quality GDP growth, driven by policy stimulus, won’t make much difference to the earnings recession path in 2009,” they said. “Recent market optimism, triggered by early recovery of several macro indicators, we believe is overdone.”
Earnings fell 31 percent in the second half of 2008, compared with growth of 147 percent in the first half, according to the full-year results of 537 companies, the report said. Companies may report “deep investment losses” considering the domestic stock market tumbled in the second half of 2008, the analysts wrote.
China’s urban fixed-asset investment jumped 26.5 percent in the first two months from a year earlier, new lending quadrupled in February and vehicle sales rose 25 percent as the government implements a 4 trillion yuan ($585 billion) stimulus package.
Economic Recovery
People’s Bank of China Governor Zhou Xiaochuan said in an article on the central bank’s Web site that “leading indicators are pointing to recovery of economic growth.”
The Shanghai Composite Index has advanced 30 percent this year, the second best after Peru among 89 global stock gauges tracked by Bloomberg, on speculation the government’s stimulus package will help nation’s economy overcome the global recession.
Chinese industrial companies’ profits sank 37 percent in the first two months from a year earlier to 219.1 billion yuan, the statistics bureau said today. Profits expanded 16.5 percent in the same period last year.
“Even if the economy achieves the 8 percent GDP growth target set by the government, it will mean very little to corporate earnings growth,” according to Morgan Stanley.
Singapore church pays princely sum to leader
Agence France-Presse - 3/30/2009 3:22 AM GMT
A Singapore-based church paid one of its leaders more than 500,000 dollars (329,000 US) in its last financial year, a report said Monday.
The New Creation Church, which raised 19 million Singapore dollars in just one day in February for the construction of its new premises, paid one employee between 500,001 and 550,000 dollars in the financial year ended March 31, 2008, the Straits Times said.
It said the church did not confirm if the money was paid to its leader, Senior Pastor Joseph Prince.
But New Creation's honorary secretary, Deacon Matthew Kang, was quoted by the newspaper as saying it was the church's policy to "recognise and reward key contributors... and Senior Pastor Prince is the main pillar of our church's growth and revenue."
Kang also described Prince as "the key man responsible for bringing in about 95 percent of our church's income," and added "he has enriched the church and not the other way around."
Two other employees of the church were paid between 150,001 and 200,000 dollars, but no names were given, the report said.
One of Singapore's fastest growing churches, New Creation had an income of 55.4 million dollars and net assets of 143.36 million dollars in its last financial year, according to its website.
Singapore is a predominantly ethnic Chinese society with deep Buddhist and Taoist traditions, but Christians here are known as a devout, close-knit and relatively affluent community.
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