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Experts: Developed world is in recession

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Posted by pakdi on November 17, 2008 – 9:40 pm
Filed under Economy & Finance


LONDON - A leading international economic organization on Thursday said the world’s developed economies are in recession and are likely to contract next year.

The Paris-based Organization for Economic Cooperation and Development said gross domestic product is likely to decline by 0.3 percent in 2009 in its 30 member countries, with the U.S. contracting by 0.9 percent, Japan by 0.1 percent and the euro currency area by 0.5 percent.

The latest forecasts represent a sharp downgrade since the last one in June, when the organization forecast member country growth of 1.7 percent in 2009 and indicated that the worst of the financial crisis may have passed.

Meanwhile, China’s industry output growth waned to its weakest in seven years, reinforcing evidence the financial crisis is plunging the world into a painful downturn.

Seeking to limit the fallout from a crisis that began when the U.S. housing market collapsed more than a year ago, Japan said it would offer up to $100 billion to the International Monetary Fund (IMF) for emerging economies.

‘Long-lasting economic crisis’
The impact of the worst financial conditions in 80 years was also felt sharply in Europe’s largest economy, Germany, which contracted by 0.5 percent in the third quarter, putting it in recession for the first time in five years.

“We are going to have to face up to a very difficult and long-lasting economic crisis,” Germany’s Deputy Economy Minister Walther Otremba told Reuters.

Analysts agreed with that grim forecast.

“The headwinds of the financial crisis and the global economic slowdown are blowing right in the face of the German economy,” said Carsten Brzeski of ING Financial Markets.

“Even more worrying, the full impact of the financial crisis still has to unfold,” he said. “If you think today’s numbers are already bad, just wait for the next quarter.”

In China, which has unveiled a 4 trillion yuan ($586 billion) stimulus package, annual industrial output growth slowed to 8.2 percent in October, its weakest showing since Oct. 2001, as the global downturn took its toll.

Job cuts, tumbling markets
Among corporates, British telecoms company BT Group said it was cutting 10,000 jobs at home and overseas.

Stock markets tumbled again in Asia. Tokyo shares slid 5.3 percent and the price of oil hit a 22-month low at $55 a barrel on worries that a recession will curb demand.

China was a rare bright spot, shares ending up 3.7 percent on hopes that the stimulus package would include big spending on housing and railway construction.

Shares in Europe edged higher, breaking a two-day losing run.

Governments around the world have pledged around $4.6 trillion for bank bailouts, credit guarantees and fiscal spending to contain the damage from the financial turmoil.

Leaders of the G20 industrialized and emerging nations will gather in Washington on Friday to decide on the next steps in tackling the crisis.

Japan is prepared to offer foreign reserves worth up to $100 billion to the IMF if the Washington-based lender needs extra funds to help emerging economies, a government source said on Thursday.

Prime Minister Taro Aso will make the proposal at the G20 summit, the source told Reuters.

“Investors are now looking to the G20 Summit this weekend, with hopes of some further policy action,” Patrick Bennett, Asia FX and rates strategist at Societe Generale, wrote in a note.

Awkward time for summit
However, the summit falls at an awkward time politically as President Bush prepares to leave office.

Bush will travel to Wall Street on Thursday to outline his views on the financial markets.

“We should fix the problems we have rather than dismantle a system that has improved the lives of hundreds of millions of people around the world,” White House spokesman Carlton Carroll said in previewing Bush’s remarks.

Some leaders have called for big reforms to the financial system, but the Bush administration has been more cautious.

The president will “emphasize that free market capitalism — especially free trade — is still the best system to create economic growth and lift people out of poverty,” Carroll said.

Washington has backed away from using a $700 billion bailout fund to cleanse bank balance sheets of bad mortgage debt.

U.S. Treasury Secretary Henry Paulson on Wednesday said he preferred instead to focus on buying stakes in banks to encourage them to increase lending.

(Reuters & AP)

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Two Sides of A Coin

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Posted by pakdi on October 31, 2008 – 11:02 am
Filed under Economy & Finance


While global markets struggle to pick up the pieces from what has been dubbed “the worst economic crisis in decades”, the Islamic finance industry was dealt a blow when Standard & Poor’s revealed that more than US$5.6 trillion had been wiped off the value of Shariah compliant equities worldwide during the third quarter of 2008.

However, it added that Shariah investors had benefited from their lack of exposure to financials, which have been the focus of the market selloff. Its Index services vice president Alka Banerjee said: “While equity markets around the world have experienced a tumultuous quarter, Shariah investors continue to be shielded to some extent by the exclusion from their portfolios of financial stocks and other highly leveraged companies, which do not satisfy the strict compliance criteria associated with Islamic law.”

Standard & Poor’s Ratings Services had also revised its outlook on six banks in Gulf Cooperation Council (GCC) countries to stable from positive, which included Islamic banking giant Kuwait Finance House, citing the less supportive environment in which they operated from as a factor.

The financial turmoil has boosted perception of Islamic finance, which is now being considered by many Western countries including the US and even Australia. It was reported that the US government was studying the salient features of Islamic banking to ascertain how far it could be useful in fighting the ongoing world economic crisis.

Prominent Egyptian-born, Qatar-based cleric Sheikh Yussef al-Qaradawi told participants of a recent conference to take advantage of the financial crisis to create a Shariah compliant economic system.

“We have all the wealth… the Islamic nation has all or nearly all the oil and we have an economic philosophy that no one else has,” he said, alluding to the fact that Saudi Arabia holds a substantial portion of the world’s proven crude oil reserves.

The head of theological studies at Doha University shares Sheikh Yussef’s view, saying the global economic meltdown shows the need for a radical and structural reform of the global financial system. He says the system based on the principles of Islam offers an alternative that can reduce risks.

On the flip side, others say that although interest, derivatives and short selling are forbidden under Shariah law, which means that Islamic financial institutions were not burdened any subprime loans, hedge funds or credit default swaps, investing in halal finance would not be a shield against a global financial or even economic crisis.

Our country reports focus on Japan, where the private sector has shown its full commitment to the growth of the Islamic finance industry. The government has now realized the potential of attracting petrodollars from Middle Eastern investors and government officials and industry practitioners are diligently studying Islamic finance.

The first of two market reports paint a dreary picture for Islamic investors saying they were not immune from stock market crashes while Monem Salam, in the other, urges the industry to avoid similar disasters by analyzing the failings of conventional finance instead of displaying a false sense of pride.

“Do not boast. Do not be negative. Show your strength with value-added products,” he advocates.

(Taken from islamicfinancenews.com)

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Buy American, I Am

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Posted by pakdi on October 22, 2008 – 3:15 pm
Filed under Economy & Finance, Investing, Stocks


By: Warren Buffet

THE financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.

So … I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.

Why?

A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.

Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.

A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.

Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.

You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.

Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.

Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”

I don’t like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I’ll follow the lead of a restaurant that opened in an empty bank building and then advertised: “Put your mouth where your money was.” Today my money and my mouth both say equities.

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Investors and Consumers: Don’t Panic

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Posted by pakdi on October 13, 2008 – 10:35 am
Filed under Economy & Finance, Stocks

The question now is: Will the panic move from Wall Street to main street — and if it does, will it make a bad economic situation worse? “The reality is that your relationship with a financial institution is based on trust,” says Gallup Chief Economist Dennis Jacobe. “A lot of people trusted that these big Wall Street investment firms couldn’t go broke. As trust erodes, it creates problems.”

One of those problems is that average people might take their cues from Wall Street, and right now, the Street is a terrible role model. With trillions of dollars lost in the past year and an estimated loss of at least 110,000 jobs in the financial sector since January 2008, market movers are scared.

“Wall Street is really comprised of greed and fear: greed to get as much as they can and fear that they may lose everything,” says Jacobe. “And right now, fear is by far a more dominant feeling. There’s a lack of transparency on the Street because no one knows what assets people have, what losses they’re going to take, and who’s going to be next.”

Good article from Gallup Management Journal.

Bull market happens when greed is everywhere and bear market happens when fear is everywhere.

Full text of the article can be read here.

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Buffett on $5B Goldman Investment

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Posted by pakdi on October 12, 2008 – 6:53 pm
Filed under Economy & Finance, Investing, Stocks

CARL: A lot of people who are watching us Warren, and even people who have just started watching us over the past week or two, look at the stock market every day and are confused. They want to use it as a metric for how we’re doing, or at least the progress we’re making on big issues. I’m guessing you don’t think it’s reflective of anything that’s based in reality right now?

BUFFETT: Well, the stock market in the short — my old boss Ben Graham said that in the short-run the stock market is a voting machine, in the long-run it’s a weighing machine. As a voting machine, it responds to people’s emotions. There’s no literacy test for voting. You vote according to how much money you have, not according to how smart you (are.) So the stock market does some very silly things in the short-run. Over the long-run, it behaves quite rationally. And, you know, five years from now, ten years from now, we’ll look back on this period and we’ll see that you could have made some extraordinary buys. That doesn’t mean it won’t get more extraordinary a week or a month from now. I have no idea what the stock market is going to do next month or six months from now. I do know that the American economy, over a period of time, will do very well, and people who own a piece of it will do well. But they shouldn’t own it on leverage. That’s what people have learned in this period, that you’ve got to be able to play out your hand and it’s a big mistake to let somebody else be in a position where they can sell you out.

Click here if you want to read full transcript of Warren Buffett’s interview with CNBC regarding $5B Goldman Investment

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