Out of Bullets?

How do you restart the economy? At this point, every government policy prescription has been tried. The net result: zero. The economy is struggling and some even expect the economy to show negative growth in the second half. That's unlikely, but certainly possible.

Maybe, just maybe, government policy is the problem, not the solution. The economy, had there been no TARP, no bailouts, no credit and debit card reform, no Obamacare, no demonizing rhetoric from the President, may have been well on the road to recovery by now. The government could well be the problem.

Macroeconomics is no science. When you ask an economist whether he favors spending or tax cuts, his answer tells you whether he is a Republican or Democrat? What kind of science is that? The cold, hard truth is that economists don't know what to do. Obama is now learning that truth to his chagrin.

Obama thought this would all be easy. With folks like Larry Summers, Tim Geithner, and Christina Romer telling him to use the usual Keynesian tactics and to declare personal war on the insurance industry and the financial sector, it was assumed that by the Fall of 2010, the economy would be on the mend. Such nonsense.

Government is the enemy. Banks won't lend because government regulators are forcing them not to lend by raising capital requirements and discouraging loans to anyone but the best credits. Absent this kind of ridiculous government policy, banks would be lending and credit would be available. But, government is blocking that.

There is a similar impact from debit and credit card reforms. These so-called "reforms" have the effect of eliminating credit for middle income Americans and small businesses. Credit card limits have been drastically reduced for many Americans as a result of the Obama debit and credit card reforms. The law of unintended consequences is bearing a bitter fruit.

It is government policy, not the free market, that is denying much-needed credit to the American economy and without that credit, true recovery is not possible.

Meanwhile, the so-called stimulus and other government give-aways to political friends, have ballooned the deficit to unimagined levels. America is now considered one of the most irresponsible countries in the world from a fiscal standpoint.

Just to square the circle, the Obama crowd and their allies in Congress, jammed through Obamacare which not only imposes huge additional future spending at the federal and state levels, but threatens to destroy the best health care system in the world. Quite an accomplishment!

As bad as all of this is, it is reversible. The naivete of Obama, Pelosi, and Reid is now obvious to the public. Nothing they have done has worked and virtually every program they have pushed has been trumpeted with misleading, if not outright false, rhetoric. The economy is staggering, housing is struggling, businesses are frightened of the future (and of Obama) and not hiring.

Fortunately, the public is now wise to the absurd and destructive policies of the Obama Administration and the Democratic Congress. There is hope of changing policies if things go well in November.

Then, hopefully, Congress can begin to reduce the barriers to economic recovery that have been thrown up by the Administration. The economy, if left alone and unhampered with undue regulation and taxation, can recover on its own. It doesn't need stimulus programs or anything else. It needs government to get out of the way and let the natural juices flow.

Reasons for Optimism

Don't let the national political scene get you down. Things are actually beginning to look up. November 2nd is the big day and no matter the result, there is an almost certain feeling that the political environment will get better for business.

Post November 2nd, Obama might change course. Not likely, though, as he seems to have his playbook memorized and can live with declining public approval. More likely, Republicans will block any new anti-jobs legislation that Obama and the Democrats can dream up. Moreover, there seems to real hope of gutting ObamaCare and shifting the health care discussion to a more rational plane. Progress can be made on repealing much of the finreg fiasco. Congresional committees can expose the enormous graft and corruption of the Obama Administration and their Congressional allies.

So, things will be changing for the better by late Fall and I would expect a very different public dialogue in 2011. All in all, I expect a better political environment for business as we approach the new year.

Good things lie ahead.

Genting Malaysia – Drying up

The past two months have seen a slew of activities within the Genting group. Other than the spectacular result shown by Genting Singapore (GENS), Genting seems to be treating unfairly to another son – Genting Malaysia (GENM).

1^st, GENM to buy Genting UK from GENS for £426m or RM2.1bn. (See figure 1)

2^nd, GENM has won a bid to develop and operate Aqueduct racino in New York City. (See figure 2)

Well, the Aqueduct deal appears promising, with its key appeal being its strategic location just two subway stops from the New York subway. However, the UK assets seem to be too expensive for GENM to swallow.

According to CIMB research, the acquisition price seems slightly high at 1.2x price/book value. Recall GENS originally bought these assets back in 2006 for £699m and three impairment charges taken since then have reduced the book value to the current £289m.

No wonder minority shareholders are against the deal. Surprisingly, the proposed acquisition gets the go-ahead signal after a 2-hour session. Anyway, congratulation to Genting’s another successful related party transaction. (I have to say)

And, because of the above two deals, GENM’s net cash hoard of RM5.27bn will be reduced to RM0.8bn (assuming total initial investment cost of US$730m for the Aqueduct deal).

Forget the "Hindenburg Omen"

The latest craze among stock market pessimists is the "Hindenburg Omen.". If you subscribe to this view, you will sell everything you own and retreat to a cave somewhere....immediately. According to "HO," the stock market will get crushed in September and October -- maybe to 5,000 on the Dow, maybe to 1,000!

Don't listen to this silliness. The stock market is cheap and serious Investors should be fully invested. There will soon be an "end-of-Obama" rally, as the enormous political sea-change that will take place on November 2nd gets factored in. There is a real chance of sweeping political change that will bring capitalism back to the US. There are good signs in Europe that even Europe realizes the welfare state must be dismantled.

Things can turn around and it looks more and more like that is where we are headed. So, put on your optimist hat, buy stocks, and enjoy the coming rally.

OSK-UOB Capital Protected World Mining Fund

OSK-UOB Unit Trust Management Bhd:

Following the stabilisation of the global economies after the global financial crisis, we have seen a significant recovery in prices of hard commodities (such as base metal (e.g. copper, aluminum), bulk commodities (e.g. coal, iron ore) and precious metal (gold, silver)). Whilst we do not necessarily expect the same rate of price increase going forward, it is our expectation that such commodity prices are likely to remain well supported from demand growth, particularly from the emerging markets such as China, India and Brazil as well as the western world coupled with supply side constraints which should underpin these commodity prices over the coming years.

OSK-UOB Capital Protected* World Mining Fund (CPWMF) is a 4-year closed-end capital protected fund which aims to provide capital appreciation over the medium term whilst protecting investors’ capital on the Maturity Date.

CPWMF is suitable for investors who:

• have a low risk tolerance;
• seek capital protection*
• seek potential returns from the exposure to the hard commodities sector; and
• have a medium term horizon.

Key Fund features:

Offering period  : 17 Aug - 30 Sept 2010

Min Investment : Rm 1,000

Fund Type        : Capital Protected (close-ended)

Entry Charge    : 2.5%

* This is not a capital-guaranteed fund.

* Disclaimer: This is not a recommendation to buy or sell

Source: OSK-UOB website  

New Economic Model - Urgent !!!

When Prime Minister announced the New Economic Model (NEM) this year, the private sector and investors are welcoming the measures taken by the government towards liberalization. However, things are hanging nowhere, and business community are wondering the implementations part.

Would NEM be implemented as promised? And, when?

Capital Dynamics Group CEO and MD Tan Teng Boo:

"The NEM is a breath of fresh air and has to be implemented quickly and executed in the right way so that the country can attract more foreign funds into the country. Malaysia faced serious economic structural problems in the areas of productivity, efficiency and competitiveness."

Recently, CIMB's Datuk Nazir Razak also share the same view, calling for a fast implementation of NEM to attract FDI into our country.

Lastest call is coming from Dr.Chua (MCA's president) by saying: (TheStar)

"Malaysia would be trapped as a middle-income country if it failed to liberalise its economy and boost investment, and we should achieve the target of high-income nation by 2020, under 10MP and NEM."

Rubber Glove - Growth Industry (still)?

Background

Malaysia is the world’s largest producer and, together with Thailand and Indonesia, commanding world’s market share of 70%. World's and Malaysia's top-3 manufacturers are TopGlove, Supermax, and Kossan.

Recent events

Glove counters were battering down by investors after experiencing a super bull-run since H1N1 outbreak until recently. The near term sentiment was affected mainly because of the following 3 reasons:

1. High latex cost, which accounts for 70% of the bottom line, had hit an all-time high of RM7.78/kg in April as a result of supply concern from El Nino effect.
2. Weakening US$ against RM by 6.4% this year could see earnings contracting, as US accounts for 80% of the export market.
3. Orders slowing down.

Growth-still?

As history shown, glove manufactures are able to pass the operating cost to clients as long as the demand is strong. As for demand side, we can expect demand to stay strong from healthcare industry. Moreover, rising awareness in healthcare standards in emerging countries should help to boost the demand for medical gloves in the long-term.

Seasonally, 2Q tends to be a slower period in terms of orders, and orders should pick up again by end of the year. Meanwhile, latex price has been stabilizing around RM7/kg now. Although still remain high, this could let glove players to price-in their products for the next few months.

Conclusion:

This round of correction presents us an opportunity to accumulate glove jewels, provided that the long-term demand is still intact, and there is no price war between manufacturers as a result of over-expansions.