March 2009 World economic and property articles

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Malaysian Stimulus Plan

Second Stimulus Package Highlights

Following are highlights of the second stimulus package tabled by Deputy Prime Minister and Finance Minister Datuk Seri Najib Tun Razak in the Dewan Rakyat today:

* Government unveils RM60 billion second stimulus package to insulate the economy from slipping into recession;

* Housebuyers given tax relief on interest paid on housing loans up to RM10,000 a year for three years;

* Additional RM200 million for pulic low-cost housing scheme for low-income earners;

* RM1.6 billion fund to promote investments;

* RM200 million to repair and maintain roads and drains;  

* RM150 million for renovation, maintenance and repairs to welfare homes, fire and rescue stations, firemen living quarters and public toilets in mosques, suraus and tourist spots;

* Government to issue syariah-compliant Savings Bonds amounting to RM5 billion this year;

* RM1.95 billion to build and upgrade facilities in 752 schools, particularly in rural areas, Sabah and Sarawak of which RM300 million will be used to improve facilities in government-aided religious schools, Chinese and Tamil schools and mission schools;

* RM230 million allocated to increase electricity supply coverage and water supply in rural areas particularly in Sabah and Sarawak.

* RM350 million allocated for rural road construction.

* Government will provide RM500 million for maintenance of public infrastructure projects, with emphasis to Sabah and Sarawak;

* RM1.2 billion allocated for providing infrastructures and increasing economic activities in Sabah and Sarawak;

* RM300 million for micro-credit programme under AgroBank to assist farmers and agro-based businesses in rural areas and RM50 million for cottage industries.

* RM2 million Fishermen's Welfare Fund to be established and managed by the Malaysian Fisheries Development Authority;

* RM20 million will be provided to improve facilities of day-care centres for the elderly, improve management of women shelter homes and increase facilities for child care centres;

* Existing tax exemption under the retrenchment benefit will be increased to RM10,000 from RM6,000 for each completed year of service;

* Government to establish a Working Capital Guarantee Scheme totalling RM5 billion to provide working capital to companies with shareholder equity below RM20 million;

* Government to establish a Financial Guarantee Institution with an initial RM1 billion in paid-up capital to provide credit to companies intending to raise funds from the bond market. Bonds totalling RM15 billion will be raised under this facility;

* Rights issues by listed companies will no longer need approval from the Securities Commission;

* To encourage takeovers and mergers, the Code on it will no longer be applied to private limited companies;

* Only the Securities Commission has to be informed of any amendments to the terms and conditions of bonds and sukuk issuance;

* Convertible and exchangeable bonds will be exempted from mandatory rating requirements;

* Permanent resident status will be considered for high networth individuals bringing more than US$2 million for investment or savings in Malaysia as an effort to bring high networth and skilled individuals;

* High-skilled foreign professionals may also be considered for Permanent Resident status;

* Government to provide RM2 billion to assist implementation of projects through Private Finance Initiative and public-private partnerships. Private firms to be invited to bid for the funds;

* Government proposes to increase the number of scholarships for entry into local private universities;

* Government-linked Companies to set up 10 not-for-profit private schools;

* The services sector will be further liberalised to woo more investments, bring in more professionals and technology and strengthen competitiveness;

* Foreign Investment Committee to adopt a more liberal approach to bring positive changes and nurture a more investor-friendly environment to attract more investments including foreign direct investment;

* RTM to be allocated RM20 million to implement several projects to develop the local music industry;

* All government procurements will be made through open tenders or restricted tenders except for specific cases.

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 From todays Star reporting on an interview with the Malaysian Treasurer,

"But unlike the Singaporeans, Thais, Japanese, Chinese and South Koreans, we have taken a rather complacent attitude towards the economic crisis. It has not helped that some leaders kept giving assurances that Malaysia would be spared, which only provided false hope."

  Quite a sobering interview. Full Story below:

The coming ‘Great Recession’
Comment by WONG CHUN WAI

The Government has thrown a RM60bil lifeline for the country to try and prevent it from slipping into a recession. But with the world economic climate looking more gloomy than ever, there are concerns that it may not be able to halt the downward trend.

IT was already 9.30pm when Datuk Seri Najib Tun Razak walked into his home.

He had missed dinner with the editors he had invited for the briefing on the RM60bil mini-budget to stimulate the economy.

The Deputy Prime Minister appeared drained. His wife, Datin Seri Rosmah Mansor, asked if he had eaten.

Just some noodles, he said, adding that he had been with Prime Minister Datuk Seri Abdullah Ahmad Badawi since 3pm to go through the economic package.

As he began giving the editors a scenario of the doom-laden global economy, some of his listeners looked stunned. As he picked on the keropok on the table, it became obvious that some of those at the table had failed to see the dark clouds before the financial tsunami that is now approaching Malaysian shores.

There is no escaping the storm in an inter-connected globalised economy.

With many countries going bankrupt and their financial institutions collapsed, American billionaire Warren Buffet gave the most appropriate description — the American economy has fallen off a cliff. The US economy will eventually recover although a rebound could rekindle inflation worse than that experienced in the late 70s, he said.

He regarded the US economy as close to the worst-case scenario and added that the economy can’t turn around on a dime.

In short, it is already in free-fall and no one is sure when it will hit the ground but the US has certainly dragged the rest of the world down with it.

The grim fact is that the Malaysian exports would slump drastically with lower prices for key commodities, including palm oil and crude oil and a sharp drop in demand for electronic and electrical products.

Our foreign direct investments would be reduced by at least 50% while our stock market has already taken a beating, even before the financial crisis.

Manufacturing, particularly in the electronics sector, has already been badly affected and retrenchments have begun.

As the World Bank revised the global growth rate to 0.5%, Malaysia, like the rest of the world, has made changes to its own forecasts, expecting growth this year, even with the stimulus package, to be between -1% and +1%.

The fall has become faster than what has been expected. If we avoid the recession this year, it will be only narrowly.

Now, the International Monetary Fund expects that the global economy will contract this year, with its managing director Dominique Strauss-Kahn calling the crisis a “Great Recession”.

The fact is that a recession would have been inevitable had this economic package not come into place. The RM60bil is to stop the slide but even with the money, many see the situation as touch and go.

Singapore, for example, has already declared itself in a recession with possibly a 10% contraction. That’s how bad it could be.

But unlike the Singaporeans, Thais, Japanese, Chinese and South Koreans, we have taken a rather complacent attitude towards the economic crisis. It has not helped that some leaders kept giving assurances that Malaysia would be spared, which only provided false hope.

This is not about politics. Many European leaders have come clean by declaring they have no idea how to respond to the problem because this is unprecedented, with Chinese Premier Wen Jiabao declaring that this is the most difficult year of the century.

Besides calling their people to be resilient and to face up to the challenges, many European leaders have said that their stimulus package would at best buy them time and ease the difficulties.

Najib must be saluted for being honest about the prospects ahead. It will be gloom and doom.

But the bright side, whatever little there is, in Malaysia is that liquidity is still strong in Malaysia with excess funds of over RM250bil in circulation.

The savings by Malaysians have been good and the prudent practices inculcated have helped. The highly regulated practices in our banking industry, which had been frowned upon in the past, have turned out to be of help.

The immediate concern will be on how fast the funds are disbursed to the relevant sectors so jobs can be created and the spillover effects felt by Malaysians.

There is no room for wastage and leakage. There will be little patience for any act of impropriety and incompetency with the financial tsunami fast approaching.

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Hi All
This set of articles just relates to the UK, specifically the housing market.


UK House prices 'could drop another 55%' and leave Britain bankrupt
House prices could slump by another 55 per cent, a respected City forecaster warns.
It also predicts a deep recession lasting throughout next year and a 'very real probability' that Britain will go bankrupt.
The report leaked yesterday from financial analysts Numis Securities says that the collapse in house prices is not 'anywhere near over'.
They have already fallen 21 per cent from their peak, but the report says they will slump further by up to 55 per cent if the over-correction in prices is as bad as in the early 1990s.
http://www.dailymail.co.uk/news/article-1161317/House-prices-drop-55-leave-Britain-bankrupt.html

BBC: Will QE work?
"And the device of authorising the Bank of England to buy up a huge proportion of these IOUs has apparently reduced the cost of all that borrowing to an astonishing degree. Which seems a bit bananas, since surely all we're talking about here is one arm of the state buying debt issued by another arm of the state. Surely if markets were rational and efficient, there would be no impact on gilt prices, or yields or interest rates at all. Isn't there a kind of Ricardian equivalence going on here, where nothing of economic substance has actually changed? It seems to me that this policy only works on the basis that markets are irrational and short-termist." Exactly what I have been saying for ages, so if I'm wrong, at least I'm not the only one.
http://www.bbc.co.uk/blogs/thereporters/robertpeston/2009/03/will_qe_work.html

Rich list Billionaires hit by economic crisis
The financial crisis is taking its toll on the world's richest people, wiping 332 names off Forbes magazine's "rich list" of world billionaires.
http://news.bbc.co.uk/2/hi/business/7938227.stm

FT: Britons take whatever work they can
The recession is forcing British workers back into tough low-paid jobs that have been the preserve of migrant labour since the expansion of the European Union’s borders in 2004... “It’s just happened recently,” she said. “It’s what I’d call older, middle-aged people who have been in work for 10, 15, 20 years in one place and now with the climate as it is, they are made redundant and willing to take on anything. It is heart-breaking.”
http://www.ft.com/cms/s/0/fb5bc8c0-0daa-11de-a10d-0000779fd2ac.html

MoneyWeek: UK house prices will plummet: look at this scary chart
If you're thinking of getting back into the British housing market – don't. Any recovery in confidence helped by low interest rates and money pumping will be short-lived, says Dominic Frisby. In the longer run, prices are headed nowhere but down.
http://www.moneyweek.com/investments/property/uk-house-prices-will-plummet-look-at-this-scary-chart-14664.aspx

SPREFS: House Prices Only 35% Higher by 2028?
The derivative market took the “statistical blip” that was the increase in the Halifax HBOS (err, Lloyds) HPI from Dec-08 to Jan-09 in its stride. Forward prices for one thru three years were little changed but average UK house price for five years hence fell £4,795 to £119,864. Basically the derivative market expects the average UK house price to 20% lower than current prices by 2010, 31% lower than current in 2012 (the low) and 28% lower than current five years.
http://www.sprefs.com/UserFiles/Mar-09.pdf - BTW Its a PDF

Times: Welcome to the inescapable era of no money
We know we're broke, shame the government doesn't and keeps spending money like there's no tomorrow. There is a tomorrow however, it's just we'll be begging for scraps.
http://www.timesonline.co.uk/tol/comment/columnists/daniel_finkelstein/article5883988.ece

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UK House prices 'could drop another 55%' and leave Britain bankrupt

That's a shocker! Things do look very bad indeed..

cheers

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Hi Rag

Yes the economic situation in the UK is worrying, hence all the stories that state that the UK will be in hardest hit county in the developed world. Mortgage lending one of the many reasons for the housing market grinding to a halt, to give you an example I rang one the the Building Societies in the UK and asked what the procedure to get a 50% mortgage was, I was told that currently that it would not be possible to lend to me, I then said okay what about a 25% mortgage, the answer was still no, however they then told me that if I buy the property without using their funds they would be happy to remortgage and lend me money against it!  - thats how hard it is to get a mortgage to buy a property in the UK!

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While all of the posts that CA submits talk of doom and gloom (and maybe they are right), lets not forget, except for one Economist, not one other "expert" predicted this only 9 months ago.  It is now easy for the "experts" to jump on the bandwagon and give their "expert" opinion. What to believe or not believe? The track record of these so called experts is not one that gives much confidence.

Cheers

Brian

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Hi Brian

I totally agree, I remember back in September when Credit Suisse went on TV and told everyone that $200 a barrel for oil was likely at the end of 2008 and since then they make no mention of the statement and but keep spouting off about every other aspect of the slowdown. Others said $2000 an ounce for Gold by end of 2008, then there was pound to bounce back to $1.60+

The majority of these advisers/gurus/journalists have a job to do and a job to keep so they will say whatever feathers their nest the best, investment advisers talk of upturns, bulls bears and donkeys, but more importantly now is the best time to buy stocks! the journalists look for sensationalism, UK housing market to drop another 55% (yeah right!), the ministers say whatever they think the nation should be thinking (as far as they are concerned)etc etc...

When I sold up in the UK in 2006 (property completed in Oct 2006) I said to many senior people in the FS industry that the property market and the economy was going to tank and I was going to Malaysia to avoid the worst of it, almost everyone I spoke to said that I was talking out of my backside! I just looked at what information was to hand and made my own judgement, thats what everyone needs to do, look at the information available and make their own decisions based on it, not what is posted here by me or printed in the papers or broadcast on TV. With me I find the more I read, the easier it is to spot the BS and whos saying things for the sake of saying things.

The only thing for certain is some countries in the Developed world are going to have a very bad time, and its no ones fault but their own, other countries will get it rougher than usual due to the knock on effect, I personally still think that here in Malaysia is a good place for me to be while its all going on  

Cheers

Paul

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hi

With me I find the more I read, the easier it is to spot the BS and who's saying things for the sake of saying things.

I agree, and on various issues. The more I read, the more the angles and contradictions become clearer. I then need to drop it all for a while, remind myself that misery, like happiness, is optional, and go smell the bougainvillea.

But I make the choice to stay informed about matters that concern and interest me. If I hadn't kept myself informed then, last year, my cash in Kaupthing would have disappeared faster than an Icelandic glacier. I'm monitoring RBS. The UK government owns it but I don't trust Gordon. I need belt, braces, and several rolls of velcro.

IMHO, Malaysia is OK and a very nice place to be. If the political situation can get sorted-out with some sort of goodwill then it will be better than OK. I'm still considering going back to the UK and that's not because of anything wrong with Malaysia. I'd like to be able to work out both.

Reading these articles, plus knowing that the journalists have to write something and that gloom (like gossip) sells, I also try to evaluate for myself. And I ask around.

Meanwhile, please keep up the articles. They contain "falling off the cliff" news and that's what I want. The good news I can get from my bank manager because that's the only news he's got. At the moment he's still bullish on structured products!

I regard these articles as a really, really convenient and informative selection service for all interested members. Some of the links have led towards even more interesting links, and that always a great bonus.

regards, Scott

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Our worries are over! Obama says it's not as bad as we think 

Obama: Economic crisis 'not as bad as we think'

Confronting misgivings, even in his own party, President Barack Obama mounted a stout defense of his blueprint to overhaul the economy Thursday, declaring the national crisis is "not as bad as we think" and his plans will speed recovery.

Challenged to provide encouragement as the nation's "confidence builder in chief," Obama said Americans shouldn't be whipsawed by bursts of either bad or good news and he was "highly optimistic" about the long term.

http://www.breitbart.com/article.php?id=D96SP30G5&show_article=1

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If you don't have time,  omit the first 5 minutes.
http://www.thedailyshow.com/full-episodes/index.jhtml?episodeId=220533

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Telegrath: French Sony workers held company chief executive hostage overnight
The head of Sony France was held hostage overnight by furious factory workers whilst in Clairoix, north of Paris, the head of German tyre giant Continental's plant was pummelled with raw eggs after unexpectedly announcing that 1,210 workers were to lose their jobs.
http://www.telegraph.co.uk/news/worldnews/europe/france/4986546/French-Sony-workers-held-company-chief-executive-hostage-overnight.html

Citywire: Sharp UK rate rises ahead, MPC member hints
A member of the Bank of England's Monetary Policy Committee has said interest rates could rise rapidly to counter inflation when the current downturn is dealt with. Delivering a speech last night discussing stability and monetary policy, Kate Barker said she was aware that – having cut interest rates drastically to 0.5% and introduced quantitative easing to combat flagging growth and the risk of deflation – sharp rises could be on the cards further down the line. She said: 'I recognise that at some point this stimulus may need to be unwound, possibly rapidly, to avoid an overshooting of inflation.'
http://www.citywire.co.uk/adviser/-/news/market-and-shares/content.aspx?ID=332682&re=4925&ea=118560

BBC: Administration for Australia bank
Australia's second largest investment bank, Babcock & Brown, has gone into administration after it was unable to deal with its massive debt levels.
http://news.bbc.co.uk/2/hi/business/7941179.stm

MoneyWeek: Will Britain go bankrupt?
"Having been sellers of gilts for 10 years, British banks have bought a net £30bn-worth in the last three months – the most since data started in 1997. While there's still some cash left in the banks' vaults, expect the government to grab what it can. It all means that sterling assets – from houses to conventional gilts to stocks exposed mainly to the domestic economy will keep crumbling."
http://www.moneyweek.com/news-and-charts/economics/will-britain-go-bankrupt-14669.aspx

Telegraph: Norway to use oil billions to buy UK commercial property
In a way, the UK provides a saving facility to the world, a trend which looks to continue. Whether Norwegian, Chinese etc, if your nation wants to defer consumption and save, then use the UK, buy up gilts, guaranteed commercial debts, collapsed commercial property. At the same time, for the UK population to save becomes more and more impossible. On the plus side, this would seem to end with lots of jobs for UK workers as those savings are eventually spent, but of course we won't be able to keep what we produce. As far as gilts go, Norway seems a little reticent on their purchases of government debt....
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/4979607/Norway-to-use-oil-billions-to-buy-UK-commercial-property.html

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 Thanks Paul
Just a clarification for others. Babcock and Brown is not a bank. It was a highly leveraged infrastucture investor. It has been mortally wounded for at least twelve months and finally died this week.
Australia's four banks are amongst the world's strongest.
Cheers
 

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The Daily Show: Jon Stewart interviews Jim Cramer
The feud between Jon Stewart (Daily Show) and Jim Cramer (Mad Money) finally came to a head last Thursday when Cramer agreed to be interviewed on The Daily Show. Stewart rips into Cramer mercilessly. Definitely worth a watch. Sample quotes: "I understand you want to make finance entertaining, but it's not a f***ing game." / "To pretend that this was some sort of crazy once-in-a-lifetime tsumani that nobody could have seen coming is disingenuous at best and criminal at worst." / "All the incentives of these companies were for short-term profit, and they burned the house down with our [pension savings] and walked away rich as hell." / "In what world is a 35-to-1 leveraged position sane?" / "When are we going to realise in this country that our wealth is work?"
http://www.thedailyshow.com/

Daily Mail: New blow for Vorderman as she quits property firm hit by slump
TV star Carol Vorderman has become the latest victim of the credit crunch after a property company she fronted was forced to start winding down. The former Countdown presenter and her agent attended a crisis meeting with executives at Carol Vorderman Overseas Homes last week, telling them they were no longer willing to have her name and face associated with the firm. The firm is now being ‘run down into dormancy’, according to its director Terry O’Connor.
http://www.dailymail.co.uk/tvshowbiz/article-1162078/New-blow-Vorderman-quits-property-firm-hit-slump.html

Guardian: China 'worried' about safety of US assets
OK, not the usual material but interesting, I suggest: '"We have lent a huge amount of money to the US. Of course we are concerned about the safety of our assets. To be honest, I am definitely a little worried." In rare comments on another country's financial health, he added: "I'd like to take this opportunity here to implore the United States ... to honour its words, stay a credible nation and ensure the safety of Chinese assets."' Remember; when America seezes ...
http://www.guardian.co.uk/world/2009/mar/14/china-us-economy

Barrons: After Rally a 50% sell off
A good trend analysis. I like the fact the guy is apologetic about being so bearish suggesta no sensationalism I guess. The initial rally predicted would run through the G20 meet perhaps with the market temporarily buying into the BS that will emerge from this.
http://online.barrons.com/article/SB123638344892658021.html?mod=googlenews_barrons

This Money: How to Sell Your Home in a Buyers Market
I know we have read it before but it is good to see it being repeated. IF YOU WANT TO SELL YOUR HOUSE YOU ARE GOING TO HAVE BE REALISTIC take the 2007 price and knock off 30% . RECOVERY is not round the corner and this week the press have said there could be 40% falls by the end of the year (last weekend Guardian / Observer etc + the Numis Report (Daily Mail / Telegraph etc) predicting possible 55% falls from here (that is 75% in total). Reducing your home 30% now still leaves your buyer possibly losing 20% as well. Therefore selling your house 30% off does not make it a BARGAIN property but a realistically priced one for now.Realistically priced soon will mean prices HAVING to fall in line with wages they have to lose 40 / 50 % of their value, the UK can't afford anything else
http://www.thisismoney.co.uk/mortgages/article.html?in_article_id=480430&in_page_id=8&ito=1565

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Independent: The Englishman's castle in ruins
Mr Pidgley, CEO of Berkeley, says that the housing market "is somewhere along the bottom" of its economic cycle, meaning prices shouldn't collapse much further. Paul Pedley of the Home Builders Federation says, "I have been in this industry for 30 years, and housing is now as affordable as I can ever remember. But we need confidence to come back into the market. Confidence will inevitably return, as housebuilding never really loses a customer. The need for new homes is gradually getting pent up, and when the market improves and that demand is finally released, there will be rampant house-price inflation."
http://www.independent.co.uk/news/business/analysis-and-features/the-englishmans-castle-in-ruins-1645226.html

The guardian: UK Job centre crisis as ten bid for each vacancy
Startling new figures have revealed that on average there are 10 jobseekers for every vacancy advertised in the UK. In one area of the south-east, 60 workers are available for each job. This week, as unemployment is expected to burst through the 2 million barrier, The Observer can reveal that the spectre of mass unemployment is forcing the government to reinforce job centres, with civil servants diverted from child maintenance and disability claims.
http://www.guardian.co.uk/business/2009/mar/15/job-centres-unemployment-vacancies

Times: Could UK house prices really fall another 55%
It can be a good sign that you are approaching some sort of turning point when forecasts start to look bonkers. City firm Numis claimed this week that house prices could drop by another 55%. Hyperbole grabs headlines. I have to say I find it unconvincing. Even at current prices, interest in the market is increasing. RICS says numbers of new buyer inquiries rose in February for the fourth month in a row. At the same time, surveyors are reporting an upsurge in valuations as potential sellers look to put their homes on the market. Many decide not to proceed, though; as a result, many estate agents have a shortage of properties to sell. Buyers are keener, but face significant financial constraints. Sellers do not want to sell in a weak market. Spring is here, but it doesn’t yet feel like it.
http://business.timesonline.co.uk/tol/business/economics/article5909781.ece

Telegraph: Rural revolt gathers pace as upmarket new homes vandalised
Protesters daubed "No More 2nd Homes", "Greed" and "Go Away" on buildings in a picturesque village where many of the properties are empty for large parts of the year. It comes amid growing concern in some parts of the countryside that wealthy city workers are pricing locals out of the housing market and turning communities into "ghost villages" by buying up homes that they visit rarely.
http://www.telegraph.co.uk/earth/countryside/4995829/Rural-revolt-gathers-pace-as-upmarket-new-homes-vandalised.html

BusinessWeek: A Simple Guide to the Banking Crisis
Why is the banking crisis so hard to solve? We stood and watched while Hank Paulson and Ben Bernanke fumbled with their response in the fall. Now we are being treated to the distressing spectacle of Tim Geithner struggling as well to articulate a clear policy for dealing with zombie banks. How come these smart and powerful men can’t get a handle on the problem? I want to lay out 5 simple propositions which will help you understand why the banking crisis is so intractable. Then I will explain what happens next.
http://www.businessweek.com/the_thread/economicsunbound/archives/2009/03/a_simple_guide.html?campaign_id=rss_daily

The Independent: £40,000 each: The personal cost of the downturn
The worst economic slowdown in three-quarters of a century has wiped £40,000 from the wealth of every adult in the United Kingdom, a national total of almost £2 trillion; that is £2,000bn, or £2,000,000,000,000. The research into the destructive effects of the recession by the accountant PricewaterhouseCoopers for The Independent shows that the fall in the value of property and shares owned by British households between July 2007 and February 2009 has reached the equivalent of 18 months-worth of national output – a colossal destruction that will take many years to recover from and threatens the retirement plans of millions of Britons.
http://www.independent.co.uk/news/uk/home-news/16340000-each-the-personal-cost-of-the-downturn-1645727.html

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Oh Joy, the first good news I have had on the economic front. All I need know is to hear that Oprah has been "done" for tax evasion and my day will be complete.

Daily Mail: New blow for Vorderman as she quits property firm hit by slump
TV star Carol Vorderman has become the latest victim of the credit crunch after a property company she fronted was forced to start winding down. The former Countdown presenter and her agent attended a crisis meeting with executives at Carol Vorderman Overseas Homes last week, telling them they were no longer willing to have her name and face associated with the firm. The firm is now being ‘run down into dormancy’, according to its director Terry O’Connor.

I like the bit about the executives not wanting her face associated with the firm, I wouldnt want her face on Andrex. May be they could give the position to Nigella Lawson , I wouldnt object to that.