- MATTHIAS CHANG ( FORMER POLITICAL SECRETARY TO TUN DR M)
Common sense for making wise decisions before the party is over.
All Central Banks serve the ruling government in every part of the world.
For example, the FED invariably announces and or implements policies that will
favour the incumbent President. To ensure their re-appointment as Chairman,
Greenspan and now Bernanke has to initiate policies that will create the “feel
good” factor to shore up the popularity of the President.
A common strategy is to lower interest rates and have loose monetary policy (i.e.
printing money, digital or otherwise and then deny the threat of inflation by
manipulating the statistics) to spur economic growth.
Accepting this stark reality will help you device the correct investment strategy in
the coming months and the following year.
Recall, how our central bank, Bank Negara painted a rosy picture throughout
2009. Malaysia was in a deep recession but no financial analysts dared talk
about it. There was an agreed silence.
But, just a few days ago, it was announced by Bank Negara that the economy
had an alleged growth of 7.2 percent in 2010 as compared to the -1.7 percent
recession in 2009, a remarkable performance for the economy. One should only
talk about bad news when it is over!
However, it should be noted that growth in the last two quarters of 2010 slumped
when compared to the first half of 2010. To use positive language, growth was
not as robust as before. This is a red flag for things to come in 2011.
Just as in USA, the Malaysian stock market has been propped up by hot money
and loose money. In November 2010, I had warned that the global stock markets
rally will have a massive correction, earliest by end of first quarter of 2011.
But, because of the impending Sarawak state elections and maybe the 13th
General Election, Bank Negara and the Treasury will have to ensure that the
Malaysian stock market stay buoyant and the music continues to play. So be
patient.
If you have solid inside information and have nerves of steel, you can make a
killing. But, do bear in mind that when Dow blows up, whatever props Malaysia
has put in place to support the market will collapse. So it is a matter of fine
timing.
The good times will last till the next General Election barring a sudden major
global hiccup. If you are an insider, you have from now till the 13th General
Elections to make your obscene profits and get out a few days before Parliament
is dissolved.
But once the General Election is over, expect the following:
Reality will be exposed to the fullest extent. There will be calls to unite to
overcome the drastic effects of the final phase of the Global Financial
Tsunami.
Interest rates will shoot up. Loan repayments, especially credit card debts
will be the millstone. Consumer debts will screw up Malaysia big time and
don’t you believe the mantra that consumer debts are under control and
defaults are still manageable.
Banks will demand higher interest rates once the party is over. They always
do. Price Inflation which is already high, will rocket to the stratosphere. Food
items have already gone up by 50% over the last one year.
Don’t be surprised they will go up another 50% at the minimum.
Energy (i.e. oil) has gone up by 40% and will continue to climb higher.
Real estate will collapse, as we are already in a bubble. Those developers
selling link houses for over RM800,000 and bungalows in the multi-million
range (from RM4 million to RM8 million) will be hardest hit. High price plus
high interest rates = massive reduction of buyers = speculators getting
burned and unload = financial bleeding = NPLs = collapse.
Ditto for commercial properties built on the expectation that there will be
sterling growth in 2011 and 2012. They will turn out to be zombies –
millions of sq ft of empty spaces = reduced rentals = chasing fewer tenants
who are looking for bargains = screwed up cash flows = massive defaults =
big NPLs = collapse.
When the stock market collapses, don’t expect banks to lend. They will be
in the recovery mode.
Bloomberg reported that the world’s greatest insider, Warren Buffett has dumped
a huge number of stocks. Now, why would he do that if the stock market is
expected (as promoted by conventional wisdom and stock analysts) to be in a
bull market? He has even sold his stake in the largest bank in the USA – Bank of
America! The following stakes were also disposed:
Nike Inc., Comcast Corp., Nalco Holding Co., Fiserv Inc., Lowe’s Cos., Becton,
Dickinson & Co., Home Depot Inc.
So, if you are in the cash mode and have deep pockets, you will have a lot of
bargains to choose from in every market.
Don’t expect me to spoon feed you. If you do not know what to do after reading
the above, then you are not a smart investor.
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