“Where is that recession?”
The U.S. Federal Reserve has in total made 350 basis points rate cuts since last September to a current Fed rate level of 2% to date. . The Federal Reserve has indicated a stop to the rate cuts for now to prevent a further weakening of the US dollar, which further fuels inflation. The question is now: has the U.S. economy improved?
The U.S. Federal Reserve has in total made 350 basis points rate cuts since last September to a current Fed rate level of 2% to date. . The Federal Reserve has indicated a stop to the rate cuts for now to prevent a further weakening of the US dollar, which further fuels inflation. The question is now: has the U.S. economy improved?
In late April, the Bureau of Economic Analysis in the U.S. reported the Q1 2008 GDP growth remains at 0.6%, unchanged from the Q4 2007 report, although many economists expected the Q1 GDP to be negative. This is suggesting that the U.S. economy is not ‘falling off the cliff’. However, it is quite obvious that the U.S. housing sector is indeed in recession as residential fixed investment dropped by 26.7%, which made an overall reduction to the U.S. GDP by 1.23 percentage points. In short, GDP growth minus housing is an acceptable 1.8%, which illustrates the strength of the economy.
In our opinion, to take the massive hits from both housing and the credit markets and to be still expanding is quite impressive. Economists are now expecting the 2nd quarter growth to be positive as taxpayers will begin receiving money from the Economic Stimulus Package about $150 billion in total in May. Furthermore, should Mr. Ben Bernake take steps today to strengthen the dollar, lower energy and food prices will help the economy and bring more positive numbers back into their economy.
Asian markets have also been positive as investors responded to a slew of more positive U.S. economic data recently. It is most interesting to note that investors know that the credit crunch problem has not been resolved yet… it's just that optimism has outperformed pessimism lately and sentiments seem to be turning more positive. As for China, the largest engine of growth in the Asian region, cut the stock trading transaction tax to 0.1% from 0.3% on April 25th. This is in line with their efforts to increase acitvity in their stock markets, a long-awaited move that rolls back the so-called stamp tax to the rate it was a year ago when Beijing raised it to cool the overheated market. More in initiatives to pump liquidity back into the Chinese markets are expected to be revealed after 2nd half of 2008.Worries about inflation have been keeping the Chinese Central Bank on its toes. Analysts said the central bank would likely implement more tightening measures to curb inflation which they have been doing many times over the last year such as massive crackdown on merchants or producers who are “fixing prices”, announcing sharp new limits on bank lending, and raising interest rates. Domestic inflation was most recently measured over 8% in Feb 2008, the highest annualized rate since 1995. The real culprit in China is the elevated price of food, which is partly the result of one-time supply shortages. The February CPI food component was up a troubling 23.3%. These measures have a lagging effect on food inflation which is expected to slow later in 2008. Inflation is forecasted to moderate to 6% in the 2nd half of 2008.
As for Bursa Malaysia, the local bourse has staged a full comeback to its eve of the general election-day level of 1296 points. This comeback is a 9.7% climb from KLCI lowest level on 17 March at 1173 points. An important point to note is that although it does seem to be a slow climb up the KLCI stairways, there are opportunities for more rewarding growth as the KLCI is still about 18% below its 11th of January 2008 high of 1516.22 points. A point to note is that in any stock market, there will be intermediate rallies and corrections until the market reaches the peak. It isn’t also easy to state a time when this peak’ will happen (to some you ask, has it peaked already? The answer is ‘no’ as the economy hasn’t seen any signs of economic overheating yet). What we need to do is to try to appreciate such periods of ‘volatility’ such as they are the very windows to capitalize on. However, the funny thing is that most investors dislike volatility and prefer to stay on the sidelines until all is clear and safe, which is most of the time…too late. And the peak may not even be 1516 points. It can be well over that level. The world’s richest and most successful investor, Warren Buffet recently answered everyone’s million dollar question on “When is the BEST time to invest?” to which Buffer’s answer was: “I don’t know because I never time the market, but I price the market”. To sum what he meant, it is far more rewarding for us to invest based on values we see in the market than on timing it. Do remember that market prediction is never ACCURATE but attractive valuations in the market are always ACCURATE indicators of rewarding opportunities….like now.
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