Banking sector sees 19pc earnings growth this year
Published: 2010/01/09
The banking sector expects an earnings growth of 19 per cent this year, premised on lower provisions supported by overall improved operating income.
HwangDBS Vickers Research, in its focus on the banking sector, said corporates have switched to the bond market for funding, adding that this served as an impetus for non-interest income expansion.
"We forecast a 10 per cent growth in non-interest income in 2010 and consumer loans will drive loans growth this year as corporates turn to the bond market to raise funds," the report added.
HwangDBS Vickers Research also expects SME loans utilisation to recover this year.
"Judging from loan applications and approvals by banks, we gather that the pipeline will be healthy," it said, projecting loans growth in 2010 between 8 and 9 per cent.
The research house said the top pick for Malaysian banks was CIMB because of its key proxy to Malaysian capital markets and regional expansion.
"We also like Hong Leong Bank for its reach in China which could spice up earnings growth as well as its regional aspirations.
"Hong Leong Bank is currently in talks to acquire EON Capital which is currently tagged for a merger and acquisition activity", the report said.
HwangDBS Vickers Research added there could be further room for earnings upgrade for selected banks such as Hong Leong Bank and RHB Capital when overnight policy rates move up.
For Maybank, there could be an upside on stronger Bank Internasional Indonesia earnings while Public Bank stood out as an excellent proxy of a quality bank.
"Public Bank loans growth still outpaces industry average while asset quality is still the best among peers," it said.
However, HwangDBS Vickers Research pointed out there were key risks to the sector's earnings.
"Key risk to earnings would be slower-than-expected drop in GDP growth which could potentially lead to slower recovery in overall earnings," it added.
As for Dubai's debt woes, it said not all Malaysian banks were exposed to the Middle East, nevertheless, a check with banks revealed that total exposure was less than RM200 million per bank.
HwangDBS Vickers Research said there was significant pick up in interest for banking stocks in 2009, which on the average, outperformed the FTSE Bursa Malaysia Kuala Lumpur Composite Index by 83 per cent. - Bernama
Wednesday, 27 January 2010
Rubber glove sector downgraded
Rubber glove sector downgraded
Published: 2010/01/27
MIDF Research has downgraded the rubber glove sector to "Neutral" from "Overweight" due to concerns over sustainability of global glove demand growth, expected excess glove production capacity and earnings margin sustainability.
"After the remarkable surge in 2009, the price momentum carried through in 2010 with a 15.9 per cent - 30.3 per cent year-to-date," it said in a research note today.
However, moving forward, MIDF Research said the returns prospect of glove companies are expected to be less promising from the risk-reward perspective.
The research house said the market is expecting global glove demand to hit about 150 billion pieces this year, with a growth rate of eight to 10 per cent annually.
"Although we also anticipate glove demand to continue rising, mainly from developing countries, there is a risk that the growth demand will be lower, considering that the domestic glove production and export values last year were not as high as reflected by consensus estimate of eight to 10 per cent per annum," it said.
For the cumulative 11 months last year, production volume and export value grew by only 2.0 per cent year-on-year and 0.8 per cent year-on-year to 42 billion pieces and RM6.46 billion, respectively.
"In addition to lower volume, the slower growth in export value was also attributable to lower average selling price in tandem with the lower average latex price in 2009," MIDF Research said.
It said there was no guarantee that lower average selling price would lead to higher demand and export volume, adding that the diminishing threat of the H1N1 viral outbreak would be a drag on demand.
MIDF Research said glove makers were expanding their production capacity more aggressively this year with an average increase of 26.6 year-on-year growth.
"An additional capacity of 15 billion pieces of glove is expected to be available by the second half of this year. In 2011, the glove makers planned to expand their capacity by another 16 billion pieces of glove," it said.
MIDF Research said earnings margin should be safeguarded in the first half of this year given the higher plant utilisation rate and better pricing power.
"We believe margin sustainability is highly dependent on the issues of demand sustainability and excess production capacity," it added. - BERNAMA
Published: 2010/01/27
MIDF Research has downgraded the rubber glove sector to "Neutral" from "Overweight" due to concerns over sustainability of global glove demand growth, expected excess glove production capacity and earnings margin sustainability.
"After the remarkable surge in 2009, the price momentum carried through in 2010 with a 15.9 per cent - 30.3 per cent year-to-date," it said in a research note today.
However, moving forward, MIDF Research said the returns prospect of glove companies are expected to be less promising from the risk-reward perspective.
The research house said the market is expecting global glove demand to hit about 150 billion pieces this year, with a growth rate of eight to 10 per cent annually.
"Although we also anticipate glove demand to continue rising, mainly from developing countries, there is a risk that the growth demand will be lower, considering that the domestic glove production and export values last year were not as high as reflected by consensus estimate of eight to 10 per cent per annum," it said.
For the cumulative 11 months last year, production volume and export value grew by only 2.0 per cent year-on-year and 0.8 per cent year-on-year to 42 billion pieces and RM6.46 billion, respectively.
"In addition to lower volume, the slower growth in export value was also attributable to lower average selling price in tandem with the lower average latex price in 2009," MIDF Research said.
It said there was no guarantee that lower average selling price would lead to higher demand and export volume, adding that the diminishing threat of the H1N1 viral outbreak would be a drag on demand.
MIDF Research said glove makers were expanding their production capacity more aggressively this year with an average increase of 26.6 year-on-year growth.
"An additional capacity of 15 billion pieces of glove is expected to be available by the second half of this year. In 2011, the glove makers planned to expand their capacity by another 16 billion pieces of glove," it said.
MIDF Research said earnings margin should be safeguarded in the first half of this year given the higher plant utilisation rate and better pricing power.
"We believe margin sustainability is highly dependent on the issues of demand sustainability and excess production capacity," it added. - BERNAMA
Merrill recommends specific stock picking
Merrill recommends specific stock picking
By Chong Pooi Koon
Published: 2010/01/27
Merrill Lynch Wealth Management thinks Malaysia is rather fully valued, so the strategy has to be specific stock picking
MERRILL Lynch Wealth Management, which rates China and Hong Kong as its top markets for stocks this year, says it sees limited upside potential for Malaysian shares although selected companies like rubber glove makers can outperform.
"We think Malaysia is rather fully valued, so the strategy has to be specific stock picking," its chief investment officer for Asia Pacific, Stephen Corry, said in a media interview in Kuala Lumpur yesterday.
He said banks with exposure to the improving capital market activities as well as rubber glove makers are likely to perform this year. He did not name the stocks due to the bank's policy.
Merrill Lynch, now a unit of Bank of America following a merger, believes that overall, stocks and commodities will give better returns than bonds and cash this year.
A muted recovery in developed economies will lead to low core inflation and steep yield curves this year, acording to Merrill Lynch.
In contrast, rising longer-term interest rates will make government and corporate bonds less attractive.
"Retail investors are pursuing two strategies as we can see. They believe there could be deflation, so they bought fixed income, specifically A-grade corporate papers. They also thought there could be inflation, that's why they like emerging stocks and commodities.
"People are buying inflation and deflation but they are not buying low inflation and equity, so that's where we see opportunity. That's part of reasons why we think the MSCI All-Country World Index could reach 350 this year, roughly 15 to 20 per cent upside," Corry said.
The combination of huge policy stimulus from governments, a steep yield curve and low volatility are factors that contribute to its bullish view on shares.
Merrill Lynch likes stocks from Europe, Asia as well as emerging market consumer shares.
Emerging market is a secular growth story, Corry said, while European shares are now cheaper than US stocks in terms of price-earnings multiple.
http://www.btimes.com.my/Current_News/BTIMES/articles/scorry-2/Article/
By Chong Pooi Koon
Published: 2010/01/27
Merrill Lynch Wealth Management thinks Malaysia is rather fully valued, so the strategy has to be specific stock picking
MERRILL Lynch Wealth Management, which rates China and Hong Kong as its top markets for stocks this year, says it sees limited upside potential for Malaysian shares although selected companies like rubber glove makers can outperform.
"We think Malaysia is rather fully valued, so the strategy has to be specific stock picking," its chief investment officer for Asia Pacific, Stephen Corry, said in a media interview in Kuala Lumpur yesterday.
He said banks with exposure to the improving capital market activities as well as rubber glove makers are likely to perform this year. He did not name the stocks due to the bank's policy.
Merrill Lynch, now a unit of Bank of America following a merger, believes that overall, stocks and commodities will give better returns than bonds and cash this year.
A muted recovery in developed economies will lead to low core inflation and steep yield curves this year, acording to Merrill Lynch.
In contrast, rising longer-term interest rates will make government and corporate bonds less attractive.
"Retail investors are pursuing two strategies as we can see. They believe there could be deflation, so they bought fixed income, specifically A-grade corporate papers. They also thought there could be inflation, that's why they like emerging stocks and commodities.
"People are buying inflation and deflation but they are not buying low inflation and equity, so that's where we see opportunity. That's part of reasons why we think the MSCI All-Country World Index could reach 350 this year, roughly 15 to 20 per cent upside," Corry said.
The combination of huge policy stimulus from governments, a steep yield curve and low volatility are factors that contribute to its bullish view on shares.
Merrill Lynch likes stocks from Europe, Asia as well as emerging market consumer shares.
Emerging market is a secular growth story, Corry said, while European shares are now cheaper than US stocks in terms of price-earnings multiple.
http://www.btimes.com.my/Current_News/BTIMES/articles/scorry-2/Article/
Malaysia may raise interest rates in the first half of the year
Malaysia may raise interest rates in H1: Citi
Published: 2010/01/27
Malaysia may raise interest rates in the first half of the year, said Citigroup Inc, which brought forward its estimated timing of an increase from the fourth quarter, after the central bank said borrowing costs can’t be kept “too low.”
The central bank may boost the overnight policy rate by 25 basis points at the next policy meeting on March 4, followed by another 25 basis points on May 13, Citi said.
Meanwhile, CIMB Group Holdings Bhd says Malaysia’s central bank may raise interest rates “sooner than expected” following yesterday’s monetary policy statement by Bank Negara Malaysia.
The central bank’s overnight policy rate may start rising in the first half of this year from the current level of 2 per cent and reach 2.5 per cent by year-end, CIMB said. -- Bloomberg
Published: 2010/01/27
Malaysia may raise interest rates in the first half of the year, said Citigroup Inc, which brought forward its estimated timing of an increase from the fourth quarter, after the central bank said borrowing costs can’t be kept “too low.”
The central bank may boost the overnight policy rate by 25 basis points at the next policy meeting on March 4, followed by another 25 basis points on May 13, Citi said.
Meanwhile, CIMB Group Holdings Bhd says Malaysia’s central bank may raise interest rates “sooner than expected” following yesterday’s monetary policy statement by Bank Negara Malaysia.
The central bank’s overnight policy rate may start rising in the first half of this year from the current level of 2 per cent and reach 2.5 per cent by year-end, CIMB said. -- Bloomberg
Sometimes stock picking can really work out great.
Stock Picking 101
posted in Bricks and Mortar Business |
It’s time for fund managers to “return to their natural stock-picking tendencies,” said Citigroup chief global equity strategist Robert Buckland. “Just when the bear market (and subsequent rebound) has bullied us all into being very macro is the time when a good contrarian should be moving micro.” Over the last few years, the financial advisory business has been playing it close to the vest to protect as much of their clients’ investments as possible. They’re hesitant to move away from safe options because everyone is fearful of market fluctuations these days. However, some analysts say it’s precisely this strategy that’s holding us back. Stock picking is slowly but surely coming back into favor again, offering higher yields and better deals for people who know when to get in and when to get out.
Sometimes stock picking can really work out great. For instance, financial advisory professionals who advised their clients to put money into MacDonald’s fast food chain in 1992 are now enjoying 25% returns each year. Similarly, insightful investors who sunk $10,000 into Microsoft’s stocks back in 1986 would have earned 35,000% back on their investment over an 18-year period! So by 2004, that initial investment would have become a nice $3.5 million, which would be an ideal retirement cushion!
There are many different types of stock picking strategies. Some of the most common include
Stock picking can be done by individuals or by professionals. Top financial advisors work to assist clients in selecting a winning stock portfolio. While these individuals are undoubtedly more experienced in watching economic market fluctuations, they are still human and ultimately fallible. One should not simply entrust an enormous sum of money with a financial advisor, without looking over the periodic statements and watching the DOW/NASDAQ activity. All investing is a gamble, so expectations should be clear when getting started. Perhaps the best advice is still “don’t put all of your eggs in one basket!”
As a leading expert in the field of anxiety disorders and panic attacks, Beth Kaminski is always on the lookout for how to end panic attacks. Visit her site for more information on her treating panic disorder and much more.
http://growthbyaction.com/bricks-and-mortar-business/2145-stock-picking-101
posted in Bricks and Mortar Business |
It’s time for fund managers to “return to their natural stock-picking tendencies,” said Citigroup chief global equity strategist Robert Buckland. “Just when the bear market (and subsequent rebound) has bullied us all into being very macro is the time when a good contrarian should be moving micro.” Over the last few years, the financial advisory business has been playing it close to the vest to protect as much of their clients’ investments as possible. They’re hesitant to move away from safe options because everyone is fearful of market fluctuations these days. However, some analysts say it’s precisely this strategy that’s holding us back. Stock picking is slowly but surely coming back into favor again, offering higher yields and better deals for people who know when to get in and when to get out.
Sometimes stock picking can really work out great. For instance, financial advisory professionals who advised their clients to put money into MacDonald’s fast food chain in 1992 are now enjoying 25% returns each year. Similarly, insightful investors who sunk $10,000 into Microsoft’s stocks back in 1986 would have earned 35,000% back on their investment over an 18-year period! So by 2004, that initial investment would have become a nice $3.5 million, which would be an ideal retirement cushion!
There are many different types of stock picking strategies. Some of the most common include
- Fundamental Analysis,
- Qualitative Analysis,
- Value Investing,
- Growth Investing,
- GARP Investing,
- Income Investing,
- CAN SLIM,
- Dogs of the Dow and
- Technical Analysis.
Stock picking can be done by individuals or by professionals. Top financial advisors work to assist clients in selecting a winning stock portfolio. While these individuals are undoubtedly more experienced in watching economic market fluctuations, they are still human and ultimately fallible. One should not simply entrust an enormous sum of money with a financial advisor, without looking over the periodic statements and watching the DOW/NASDAQ activity. All investing is a gamble, so expectations should be clear when getting started. Perhaps the best advice is still “don’t put all of your eggs in one basket!”
As a leading expert in the field of anxiety disorders and panic attacks, Beth Kaminski is always on the lookout for how to end panic attacks. Visit her site for more information on her treating panic disorder and much more.
http://growthbyaction.com/bricks-and-mortar-business/2145-stock-picking-101
How to Value a Stock like Buying a Business
How to Value a Stock like Buying a Business
Major task of a right stock market investor, especially value investor, is the valuation of stocks. There are thousands of methods available to evaluate a stock or a business to identify the best in it before taking an investment decision. For an ordinary investor, valuation is not so easy as it pronounces. Most of the stock investors or emerging investors feels stock valuation required high knowledge in numerical. It is just a myth. If you study the approach and characters of world famous investors, you could find none of them have above average numerical skills to evaluate the stocks or a business to invest. Great investor Warren Buffett can be a best example on this.
There are multiple stages to get knowledge. It begins with our school and collage study. Next level is from our experiences and final level is from the life itself. These rules are highly applicable to stock investors too. There is no investor in this world that is ahead of any mistakes or errors with their selection or investments. Success of these investors totally lies on how they avoid the same mistake not happening again to them in the rest of their investing career. In this sense, mistakes are the best tools to learn real investment and reach to maximum success.
This article highly intend to ordinary investors who have basic skills and average with numerical. Of course, numerical skills required to an extent, but not to an expert level. An ordinary investor can select a right stock same like buying a new business. It is so easy to understand and simple to apply.
Suppose you are looking for a good business to buy in your locale and receives an offer from a local business owner to buy his business.
1. When did you start this business and what is your product or service?
2. How familiar and comfortable the public is, with your product or service?
3. What was the total capital employed to start this business and what is its present status?
4. How many owners or stake holders involved into this business?
5. Do you have any loans or other debts? If yes, from where and how much?
6. Who all are your immediate competitors in the area doing same business?
7. What is their market share compare with your business?
8. What is the profit you have received from the beginning year till today?
9. Does your business have any kind of legal issues or judicial cases against?
10. How qualifies and efficient your employees are?
11. What you have done to market your products or service?
12. What is the real cost associated to manufacture each product and what would be the real profit if sell the same?
13. Why do you want to sell the business now?
Of course the above are 13 simple questions anyone can easily ask to a business owner who presently want to sell his business to you. it is not highly complicated questions or not required much efforts to prepared. Only common sense required to ask these questions because each of the answers to these questions either makes you close to buy the business or take away from the buying decisions. Another truth is, you will get answers to these questions. But it is your duty to confirm the received information are true. Slightly complicated areas like profit and spending areas that can cover using your average numerical skills.
If you are a real buyer, what would you do after getting answers to all these questions? You may buy or may not buy. Why? there would be some solid information about the company that may support your decision or take away from the decisions. If you are able to identify the same easily, then why don't apply the same skills to evaluate a stock or business to invest. It is so easy isn't it?
Answers to the above questions pointing its fingers to some of the best information about the company as follows:
I still wonder, why don't people able to pick right stocks or businesses to invest by asking these questions against them? It is so easy to identify if one spend little time to research. All the information about these questions are easily available from the company websites or stock exchange sites where companies filing their information. Along with collecting such highly useful information, add little commonsense to confirm the suitability of a stock or business for you to invest.
In this article, I have given an idea to only identify the stock. There are various article available in the data base of this blog to give you knowledge to understand the right time to buy or sell. I have simplified the buying information of a business with number of articles and you can easily collect them by clicking on the label named 'investment' under this blog.
Now it is your turn. I have given an idea and shared some experience from life on that idea to make you understandable how I am picking the stocks. I have also given the idea to you to improve much better than me and take better decisions than me by using your own sense.
http://www.investinternals.com/2010/01/stock-valuation.html
Major task of a right stock market investor, especially value investor, is the valuation of stocks. There are thousands of methods available to evaluate a stock or a business to identify the best in it before taking an investment decision. For an ordinary investor, valuation is not so easy as it pronounces. Most of the stock investors or emerging investors feels stock valuation required high knowledge in numerical. It is just a myth. If you study the approach and characters of world famous investors, you could find none of them have above average numerical skills to evaluate the stocks or a business to invest. Great investor Warren Buffett can be a best example on this.
There are multiple stages to get knowledge. It begins with our school and collage study. Next level is from our experiences and final level is from the life itself. These rules are highly applicable to stock investors too. There is no investor in this world that is ahead of any mistakes or errors with their selection or investments. Success of these investors totally lies on how they avoid the same mistake not happening again to them in the rest of their investing career. In this sense, mistakes are the best tools to learn real investment and reach to maximum success.
This article highly intend to ordinary investors who have basic skills and average with numerical. Of course, numerical skills required to an extent, but not to an expert level. An ordinary investor can select a right stock same like buying a new business. It is so easy to understand and simple to apply.
Suppose you are looking for a good business to buy in your locale and receives an offer from a local business owner to buy his business.
- If you don't have any interest on his business, you will certainly reject that offer.
- But if you have interest, you will proceed with further.
- Whether buying or not, you will approach him to know more about the business to understand whether it is suitable to your interest or not.
- the next step would be preparing a set of questions to ask to the present owner to identify how much this business meets your requirements.
1. When did you start this business and what is your product or service?
2. How familiar and comfortable the public is, with your product or service?
3. What was the total capital employed to start this business and what is its present status?
4. How many owners or stake holders involved into this business?
5. Do you have any loans or other debts? If yes, from where and how much?
6. Who all are your immediate competitors in the area doing same business?
7. What is their market share compare with your business?
8. What is the profit you have received from the beginning year till today?
9. Does your business have any kind of legal issues or judicial cases against?
10. How qualifies and efficient your employees are?
11. What you have done to market your products or service?
12. What is the real cost associated to manufacture each product and what would be the real profit if sell the same?
13. Why do you want to sell the business now?
Of course the above are 13 simple questions anyone can easily ask to a business owner who presently want to sell his business to you. it is not highly complicated questions or not required much efforts to prepared. Only common sense required to ask these questions because each of the answers to these questions either makes you close to buy the business or take away from the buying decisions. Another truth is, you will get answers to these questions. But it is your duty to confirm the received information are true. Slightly complicated areas like profit and spending areas that can cover using your average numerical skills.
If you are a real buyer, what would you do after getting answers to all these questions? You may buy or may not buy. Why? there would be some solid information about the company that may support your decision or take away from the decisions. If you are able to identify the same easily, then why don't apply the same skills to evaluate a stock or business to invest. It is so easy isn't it?
Answers to the above questions pointing its fingers to some of the best information about the company as follows:
- First question points its finger to the reputation of the company. How old it is and how established it is in the market.
- Second question is to understand how popular the product or services to the people or markets.
- Third is to get information about its total worth or assets.
- Fourth, information of its stake holders and how much each of them holding.
- Fifth, is the company suffering from debt or has any debt that is unmanageable.
- Sixth gives information about the competitors.
- Seventh is to understand the monopolistic position of the company.
- Eighth, year to year profit growth and thus earnings growth.
- Ninth, understand legal issues against companies that may lead to shutdown or lead to bankruptcy.
- Tenth is to the managerial efficiency of the company and work force capacity.
- Eleventh, company network information to promote the product.
I still wonder, why don't people able to pick right stocks or businesses to invest by asking these questions against them? It is so easy to identify if one spend little time to research. All the information about these questions are easily available from the company websites or stock exchange sites where companies filing their information. Along with collecting such highly useful information, add little commonsense to confirm the suitability of a stock or business for you to invest.
In this article, I have given an idea to only identify the stock. There are various article available in the data base of this blog to give you knowledge to understand the right time to buy or sell. I have simplified the buying information of a business with number of articles and you can easily collect them by clicking on the label named 'investment' under this blog.
Now it is your turn. I have given an idea and shared some experience from life on that idea to make you understandable how I am picking the stocks. I have also given the idea to you to improve much better than me and take better decisions than me by using your own sense.
http://www.investinternals.com/2010/01/stock-valuation.html
Britain is out of recession at last – but are you?
Britain is out of recession at last – but are you?
While the nation’s output of goods and services grew in the final quarter of last year, according to the latest official figures, many people will be wondering whether their own finances are actually in better shape.
By Richard Evans
Published: 9:33AM GMT 26 Jan 2010
For many the answer will be no.
Recovery can bring its own problems; for a start, rising demand tends to stoke inflation, which could prompt the Bank of England to raise interest rates – good news for savers, but not something that hard-pressed home owners would welcome.
“The danger is that, with a return to growth, Britons will underestimate the hardships of recovery,” said Stephen Barber of Selftrade, the stockbroker.
So what are the prospects for our personal finances as the economic recovery takes hold?
Tax
With Britain borrowing record amounts of money, many expect public spending cuts or tax rises – or both – as the Government attempts to balance the books. Income tax could have to rise by as much as 5p in the pound, said Mark Dampier of Hargreaves Lansdown, the asset manager.
“We have been living through a phoney war, mainly because of the electoral cycle. No political party has the heart or the courage to tell it as it really is,” he said. “So we won’t get a real Budget until after the election and this will probably be worse than the infamous 1981 Geoffrey Howe Budget. So the real war will begin probably some time in July.
“What can we expect? I strongly suspect that the big tax takers – basic-rate tax and VAT – will rise, VAT to 20pc and basic-rate tax by 2p to 5p in the pound.”
He added: “The high level of government and consumer debt makes me feel quite pessimistic. It took over 300 years for us to have £380bn worth of public debt. It has taken this government 12 years to bring it to £850bn. Reducing it will mean a huge shock to our finances – the recession is not over for most of us.”
Adrian Shandley of Premier Wealth Management said: “After the election taxes will rise and, if this is coupled with a rise in interest rates and inflation, individuals could find themselves much worse off, with higher mortgage payments, higher taxes and a lower real value of their wages.”
Interest rates and inflation
Commentators are divided on the likelihood that interest rates will rise from their current unprecedented lows. Mr Dampier said official rates were unlikely to rise this year because a tough post-election Budget “would equate to a significant interest rate rise”.
But he pointed out that you don’t need the Bank of England to put up official rates for mortgage costs to rise. Lenders are by and large able to change their standard variable rates at will, while Skipton Building Society recently abandoned a pledge to keep its SVR within three percentage points of Bank Rate.
“Money is very expensive at the moment even though base rates are at a 311-year low,” Mr Dampier said. “While for home owners with a tracker mortgage 2009 probably proved to be rather good in terms of income, I think for the consumer who has kept their job the recession is only just about to start. I believe people are going to be in for a real shock. They have got used to a standard of living that goes up every year. I expect that standard of living for the next four or five years to fall.”
Ros Altmann, a governor of the London School of Economics, said interest rates would have to start rising at some point. “They cannot possibly stay at these low levels as the economy picks up,” she said. “But I fear that the Bank of England might keep rates too low for too long. This leads to a significant risk of rising inflation – indeed inflation is already well above the official target – and once inflation takes hold it may not be easy to bring it back under control.”
Higher interest rates might seem like good news for savers, who would finally see better returns on their money, she said. But if inflation rose faster than interest rates, pensioners’ and savers’ incomes would not keep up with increasing household bills. “Rising rates also means higher mortgage rates, which will put further pressure on many households’ incomes.”
Vicky Redwood of Capital Economics, the consultancy, said rises in interest rates looked unlikely. “So at least mortgage costs should stay low. But house prices still look overvalued and could start to fall again, leaving more households in negative equity,” she added.
Investments
While you would expect the end of a recession to be good news for the stock market, it’s worth bearing in mind that markets generally look ahead, so much of the good news will already be “in the price”. So instead of simply expecting the FTSE100 to soar, investors may have to be selective if they want to profit, experts say.
“A return to growth does not mean a return to pre-credit crunch investment strategies,” Mr Barber said. “Investors would do well to build portfolios which are both defensive and which take advantage of the new opportunities in Britain and across the world.”
Mr Dampier agreed, saying: “I think it becomes a real stock picker’s market. There are some areas of the stock market – high yielding defensives and special situations – which I think could blossom through a difficult time in the economy. But the general indices may well tread water.”
Bond investors may have to be more careful, Ms Altmann warned. “As the Bank of England begins to unwind its policy of quantitative easing, it will have to try to sell gilts. This will push bond yields up and prices down. Bond investors would lose money, while rising yields could also unsettle the stock market later on.”
Jobs
An immediate improvement in employment prospects is unlikely, experts say. Ms Redwood said: “Jobs will remain hard to find, with employers likely to remain nervous about hiring when the economic recovery is still sluggish. In fact, we expect unemployment to start rising again and it could even reach 3m.
“Even if employment holds up, that is only likely to be because firms are controlling costs by cutting or freezing pay instead. For many people, it will still feel very much like a recession.”
Ms Altmann agreed. She said: “Companies will not suddenly rush to recruit new staff until they are more confident that the recovery will last, so unemployment is likely to stay high and pay will not increase much if at all for most of us.”
Household bills
There is further bad news for consumers when it comes to council tax and household energy bills. “We can expect council tax to rise further as we are paying for the public sector pensions,” Mr Dampier said. “Utility bills will continue to rise, not only because of rises in commodity prices but also because of environmental taxes.”
http://www.telegraph.co.uk/finance/personalfinance/consumertips/7077807/Britain-is-out-of-recession-at-last---but-are-you.html?utm_source=tmg&utm_medium=TD_rec&utm_campaign=pf2701am
While the nation’s output of goods and services grew in the final quarter of last year, according to the latest official figures, many people will be wondering whether their own finances are actually in better shape.
By Richard Evans
Published: 9:33AM GMT 26 Jan 2010
For many the answer will be no.
Recovery can bring its own problems; for a start, rising demand tends to stoke inflation, which could prompt the Bank of England to raise interest rates – good news for savers, but not something that hard-pressed home owners would welcome.
“The danger is that, with a return to growth, Britons will underestimate the hardships of recovery,” said Stephen Barber of Selftrade, the stockbroker.
So what are the prospects for our personal finances as the economic recovery takes hold?
Tax
With Britain borrowing record amounts of money, many expect public spending cuts or tax rises – or both – as the Government attempts to balance the books. Income tax could have to rise by as much as 5p in the pound, said Mark Dampier of Hargreaves Lansdown, the asset manager.
“We have been living through a phoney war, mainly because of the electoral cycle. No political party has the heart or the courage to tell it as it really is,” he said. “So we won’t get a real Budget until after the election and this will probably be worse than the infamous 1981 Geoffrey Howe Budget. So the real war will begin probably some time in July.
“What can we expect? I strongly suspect that the big tax takers – basic-rate tax and VAT – will rise, VAT to 20pc and basic-rate tax by 2p to 5p in the pound.”
He added: “The high level of government and consumer debt makes me feel quite pessimistic. It took over 300 years for us to have £380bn worth of public debt. It has taken this government 12 years to bring it to £850bn. Reducing it will mean a huge shock to our finances – the recession is not over for most of us.”
Adrian Shandley of Premier Wealth Management said: “After the election taxes will rise and, if this is coupled with a rise in interest rates and inflation, individuals could find themselves much worse off, with higher mortgage payments, higher taxes and a lower real value of their wages.”
Interest rates and inflation
Commentators are divided on the likelihood that interest rates will rise from their current unprecedented lows. Mr Dampier said official rates were unlikely to rise this year because a tough post-election Budget “would equate to a significant interest rate rise”.
But he pointed out that you don’t need the Bank of England to put up official rates for mortgage costs to rise. Lenders are by and large able to change their standard variable rates at will, while Skipton Building Society recently abandoned a pledge to keep its SVR within three percentage points of Bank Rate.
“Money is very expensive at the moment even though base rates are at a 311-year low,” Mr Dampier said. “While for home owners with a tracker mortgage 2009 probably proved to be rather good in terms of income, I think for the consumer who has kept their job the recession is only just about to start. I believe people are going to be in for a real shock. They have got used to a standard of living that goes up every year. I expect that standard of living for the next four or five years to fall.”
Ros Altmann, a governor of the London School of Economics, said interest rates would have to start rising at some point. “They cannot possibly stay at these low levels as the economy picks up,” she said. “But I fear that the Bank of England might keep rates too low for too long. This leads to a significant risk of rising inflation – indeed inflation is already well above the official target – and once inflation takes hold it may not be easy to bring it back under control.”
Higher interest rates might seem like good news for savers, who would finally see better returns on their money, she said. But if inflation rose faster than interest rates, pensioners’ and savers’ incomes would not keep up with increasing household bills. “Rising rates also means higher mortgage rates, which will put further pressure on many households’ incomes.”
Vicky Redwood of Capital Economics, the consultancy, said rises in interest rates looked unlikely. “So at least mortgage costs should stay low. But house prices still look overvalued and could start to fall again, leaving more households in negative equity,” she added.
Investments
While you would expect the end of a recession to be good news for the stock market, it’s worth bearing in mind that markets generally look ahead, so much of the good news will already be “in the price”. So instead of simply expecting the FTSE100 to soar, investors may have to be selective if they want to profit, experts say.
“A return to growth does not mean a return to pre-credit crunch investment strategies,” Mr Barber said. “Investors would do well to build portfolios which are both defensive and which take advantage of the new opportunities in Britain and across the world.”
Mr Dampier agreed, saying: “I think it becomes a real stock picker’s market. There are some areas of the stock market – high yielding defensives and special situations – which I think could blossom through a difficult time in the economy. But the general indices may well tread water.”
Bond investors may have to be more careful, Ms Altmann warned. “As the Bank of England begins to unwind its policy of quantitative easing, it will have to try to sell gilts. This will push bond yields up and prices down. Bond investors would lose money, while rising yields could also unsettle the stock market later on.”
Jobs
An immediate improvement in employment prospects is unlikely, experts say. Ms Redwood said: “Jobs will remain hard to find, with employers likely to remain nervous about hiring when the economic recovery is still sluggish. In fact, we expect unemployment to start rising again and it could even reach 3m.
“Even if employment holds up, that is only likely to be because firms are controlling costs by cutting or freezing pay instead. For many people, it will still feel very much like a recession.”
Ms Altmann agreed. She said: “Companies will not suddenly rush to recruit new staff until they are more confident that the recovery will last, so unemployment is likely to stay high and pay will not increase much if at all for most of us.”
Household bills
There is further bad news for consumers when it comes to council tax and household energy bills. “We can expect council tax to rise further as we are paying for the public sector pensions,” Mr Dampier said. “Utility bills will continue to rise, not only because of rises in commodity prices but also because of environmental taxes.”
http://www.telegraph.co.uk/finance/personalfinance/consumertips/7077807/Britain-is-out-of-recession-at-last---but-are-you.html?utm_source=tmg&utm_medium=TD_rec&utm_campaign=pf2701am
Forget bubble fears
Questor share tips: forget bubble fears, Templeton Emerging Markets remains a buy
Questors does not believe emerging markets have quite become a bubble yet and recommends buying Templeton Emerging Markets.
Published: 5:30AM GMT 26 Jan 2010
Are emerging markets in a bubble or not? This is the debate that has been raging for a couple of months now. Although there is the chance that a bubble may emerge, Questor feels we are not there yet – and Citigroup agrees.
“Asset price gains in emerging markets have been particularly strong recently, although we’re not convinced that it’s right to talk about bubbles just yet,” according to economist David Lubin. “There is little to suggest that the price appreciation we’ve seen in emerging equity markets exhibits the kind of characteristics seen in previous equity market bubbles,” he added
However, this does not mean it is all plain sailing. By their nature, emerging markets are volatile and risky. There is a valuation risk once stimulus packages are withdrawn later this year.
Valuations are also likely to be supported by a wave of money as investors continue to releverage into risk positions. Some commentators have suggested selling part of their holdings and running with the rest of the investment. This is a perfect strategy for cautious investors.
However, for now Questor is comfortable maintaining a buy stance on Templeton Emerging Markets Investment Trust, which was recommended on January 5 last year and is up 78pc compared with a market up 16pc.
As of January 22 the funds net asset value stood at 542.97p.
http://www.telegraph.co.uk/finance/newsbysector/epic/tem/7073100/Questor-share-tips--forget-bubble-fears-Templeton-Emerging-Markets-remains-a-buy.html
Questors does not believe emerging markets have quite become a bubble yet and recommends buying Templeton Emerging Markets.
Published: 5:30AM GMT 26 Jan 2010
Are emerging markets in a bubble or not? This is the debate that has been raging for a couple of months now. Although there is the chance that a bubble may emerge, Questor feels we are not there yet – and Citigroup agrees.
“Asset price gains in emerging markets have been particularly strong recently, although we’re not convinced that it’s right to talk about bubbles just yet,” according to economist David Lubin. “There is little to suggest that the price appreciation we’ve seen in emerging equity markets exhibits the kind of characteristics seen in previous equity market bubbles,” he added
However, this does not mean it is all plain sailing. By their nature, emerging markets are volatile and risky. There is a valuation risk once stimulus packages are withdrawn later this year.
Valuations are also likely to be supported by a wave of money as investors continue to releverage into risk positions. Some commentators have suggested selling part of their holdings and running with the rest of the investment. This is a perfect strategy for cautious investors.
However, for now Questor is comfortable maintaining a buy stance on Templeton Emerging Markets Investment Trust, which was recommended on January 5 last year and is up 78pc compared with a market up 16pc.
As of January 22 the funds net asset value stood at 542.97p.
http://www.telegraph.co.uk/finance/newsbysector/epic/tem/7073100/Questor-share-tips--forget-bubble-fears-Templeton-Emerging-Markets-remains-a-buy.html
Buy and Hold vs. Market Timing: Some personal observations
Short term traders do not hold their stocks for too long. They often take their profit. They then plough them back into another new trade when they perceive the upside is better than the downside. They are not the buy and hold types. To them, rightly so, buy and hold is a very dangerous strategy, especially so too if they are not picking carefully the stocks they trade in. Short term trends are totally unpredictable. They react to graphs depicting volumes and prices; searching for and attributing meanings to these.
When the market is on the uptrend, everyone benefits. Postings were similarly optimistic. "Why I like stock XXX?" "Why I like stock XYZ, very much?"... Blah. Blah. Blah. Now that the market has shown some volatilites and uncertainties, the postings turned pessimistic. "Beware the black swan..." Blah. Blah. Blah. Such thinking is typical of a market timer.
Yet, the reality is: No one can predict the market with any certainty. If he can, he will own the world. But one should invest with some knowledge of the probabilities of likely outcomes. Even more importantly, is knowing the consequences arising from these probabilities, however unlikely these maybe. Nassim Taleb is right to point these "fatal downsides" of unintelligent or emotional investing in his two classic books.
Let me share with you a "well known' secret. Do you know that the richest persons in the world are all mostly "buy and hold" type investors? Look at the KLSE bourse. Who owns the major wealth in the KLSE? Lee family of KLK, Lim family of Genting, Yeoh family of YTL, Teh family of PBB, Lim family of TopGlove, Lee family of IOI, ....... They are the major shareholders of the good quality successful companies. Do they buy and sell their shares in their companies regularly? Do they make more of their money from trading their shares or from holding onto their shares over a very very long period?
Buy and hold is safe. It is very safe for those with a long term investing horizon. However, there is one provision: You need to be in the right stock. You will need to be a stock-picker. Pick the good quality successful companies and you will have few reasons to sell them.
Buy and hold is certainly very safe for selected stocks. Do not react emotionally to price volatilities. Price volatility is your friend to be taken advantage of: giving you the opportunity to buy these companies at a bargain and to sell them if they are overpriced. Often, the price is correct and fair, and you need not do anything. For the super-rich whose wealth are locked in a "buy and hold" mode for umpteen years in their good quality successful companies, this strategy has benefitted them immensely. If they can grow rich, so can you. After all, you can be a co-owner in their companies. Think about this and you may wish to follow them too, buying into their companies at fair or bargain prices. For this, you will need to be rewired appropriately.
When the market is on the uptrend, everyone benefits. Postings were similarly optimistic. "Why I like stock XXX?" "Why I like stock XYZ, very much?"... Blah. Blah. Blah. Now that the market has shown some volatilites and uncertainties, the postings turned pessimistic. "Beware the black swan..." Blah. Blah. Blah. Such thinking is typical of a market timer.
Yet, the reality is: No one can predict the market with any certainty. If he can, he will own the world. But one should invest with some knowledge of the probabilities of likely outcomes. Even more importantly, is knowing the consequences arising from these probabilities, however unlikely these maybe. Nassim Taleb is right to point these "fatal downsides" of unintelligent or emotional investing in his two classic books.
Let me share with you a "well known' secret. Do you know that the richest persons in the world are all mostly "buy and hold" type investors? Look at the KLSE bourse. Who owns the major wealth in the KLSE? Lee family of KLK, Lim family of Genting, Yeoh family of YTL, Teh family of PBB, Lim family of TopGlove, Lee family of IOI, ....... They are the major shareholders of the good quality successful companies. Do they buy and sell their shares in their companies regularly? Do they make more of their money from trading their shares or from holding onto their shares over a very very long period?
Buy and hold is safe. It is very safe for those with a long term investing horizon. However, there is one provision: You need to be in the right stock. You will need to be a stock-picker. Pick the good quality successful companies and you will have few reasons to sell them.
Buy and hold is certainly very safe for selected stocks. Do not react emotionally to price volatilities. Price volatility is your friend to be taken advantage of: giving you the opportunity to buy these companies at a bargain and to sell them if they are overpriced. Often, the price is correct and fair, and you need not do anything. For the super-rich whose wealth are locked in a "buy and hold" mode for umpteen years in their good quality successful companies, this strategy has benefitted them immensely. If they can grow rich, so can you. After all, you can be a co-owner in their companies. Think about this and you may wish to follow them too, buying into their companies at fair or bargain prices. For this, you will need to be rewired appropriately.
The Economic Climate (12): The UNPREDICTABLE Economic Climate and the Investor
From the Great Depression to 1995, US had nine recessions. So in your lifetime, you're likely to be subjected to a dozen or more.
Each time it happens, you'll hear from the reporters and the TV commentators that the country is falling apart and that owning stocks is too risky.
The thing to remember is that we've wiggled out of every recession since the one that turned into the Great Depression.
Reviewing the period from the Great Depressions to 1995 shows that
The seasoned investor realizes that stock prices may drop
You have to have faith that inflation will cool down eventually, and that recessions will thaw out.
Each time it happens, you'll hear from the reporters and the TV commentators that the country is falling apart and that owning stocks is too risky.
The thing to remember is that we've wiggled out of every recession since the one that turned into the Great Depression.
Reviewing the period from the Great Depressions to 1995 shows that
- the average recession lasts 11 months and 1.62 million jobs are lost, while
- the average recovery lasts 50 months and 9.24 million jobs are created.
The seasoned investor realizes that stock prices may drop
- in anticipation of a recession, or because
- Wall Street is worried about inflation
You have to have faith that inflation will cool down eventually, and that recessions will thaw out.
The Economic Climate (11): Fed and Money Supply
The agency in charge of climate control is the Federal Reserve System, also known as the Fed.
It has a special way of heating things up and cooling things down - not by blowing on them, but by adding and subtracting money. Given its huge importance, it's amazing how few people know what the Fed is all about.
In a survey from several years ago, some people said the Federal Reserve was a national park, while others thougth it was a brand of whiskey.
In fact, it's the central banking system that controls the money supply. (Monetary policy)
Whenever the economy is cooling off too much, the Fed does 2 things.
(1) It lowers the interest rates that banks must pay when they borrow money from the government.
(2) The Fed also pumps money directly into the banks, so they have more to lend.
If the economy is too hot, the Fed can take the opposite approach: raising interest rates and draining money from the banks.
This causes the supply of money to shrink , and interest rates go higher.
It has a special way of heating things up and cooling things down - not by blowing on them, but by adding and subtracting money. Given its huge importance, it's amazing how few people know what the Fed is all about.
In a survey from several years ago, some people said the Federal Reserve was a national park, while others thougth it was a brand of whiskey.
In fact, it's the central banking system that controls the money supply. (Monetary policy)
Whenever the economy is cooling off too much, the Fed does 2 things.
(1) It lowers the interest rates that banks must pay when they borrow money from the government.
- This causes the banks to lower the interest rates they charge to their customers, so people can afford to take out more loans and buy more cars and more houses.
- The economy begins to heat up.
(2) The Fed also pumps money directly into the banks, so they have more to lend.
- This pumping of money also causes interest rates to go down.
If the economy is too hot, the Fed can take the opposite approach: raising interest rates and draining money from the banks.
This causes the supply of money to shrink , and interest rates go higher.
- When this happens, bank loans become too expensive for many consumers, who stop buying cars and houses.
- The economy starts to cool off.
- Business lose business, workers lose jobs, and store owners get lonely and slash prices to attract customers.
The Economic Climate (10): The Government and the Fed
The US federal government is much bigger than it was during the last Great Depression.
Back then, it didn't have much economic clout.
An important divide in US: As of 1992, more people worked in local, state, and federal governments than in manufacturing. This so-called public sector pays so many salaries and pumps so much money into the economy that it keeps the economy out of the deep freeze.
The dark side of this story is that the government has gotten out of whack, with huge budget deficits that
The agency in charge of climate control is the Federal Reserve System, also known as the Fed.
Back then, it didn't have much economic clout.
- There was no welfare, no social security, no housing department, none of the hundreds of departments that exist today.
- In 1935, the entire federal budget was $6.4 billion, about 1/10th of the total US economy.
- In 1995, it was $1.5 trillion, and nearly 1/4 of the total economy.
An important divide in US: As of 1992, more people worked in local, state, and federal governments than in manufacturing. This so-called public sector pays so many salaries and pumps so much money into the economy that it keeps the economy out of the deep freeze.
- Whether business is bad or good, millions of government employees, social security recipients, and welfare recipients still have money to spend.
- And when people get laid off, they get unemployment compensation for several months while they look for another job.
The dark side of this story is that the government has gotten out of whack, with huge budget deficits that
- soak up investment capital and
- keep the economy from growing as fast it as once did.
The agency in charge of climate control is the Federal Reserve System, also known as the Fed.
The Economic Climate (9): Goldilocks climate, the perfect situation doesn't seem to last.
The perfect situation for companies and their investors is the Goldilocks climate: not too hot and not too cold.
But whenever we get into a Goldilocks climate, it doesn't seem to last.
Most of the time, the economy is either heating up or cooling down, although the signals are so confusing that it's often hard to tell which way we're headed.
The government can't control a lot of things, especially the weather, but it has a big effect on the economic climate.
Of all the jobs the federal government does, from fighting wars to fighting poverty, it may be that its most important job is keeping the economy from getting too hot or too cold. It it weren't for the government, we might have had another Great Depression by now.
But whenever we get into a Goldilocks climate, it doesn't seem to last.
Most of the time, the economy is either heating up or cooling down, although the signals are so confusing that it's often hard to tell which way we're headed.
The government can't control a lot of things, especially the weather, but it has a big effect on the economic climate.
Of all the jobs the federal government does, from fighting wars to fighting poverty, it may be that its most important job is keeping the economy from getting too hot or too cold. It it weren't for the government, we might have had another Great Depression by now.
The Economic Climate (8): Cold Climates and Recession
Reviewing the recessions in US since World War II to 1995: all last an average of 11 months, and cause an average of 1.62 million people to lose their jobs.
In a recession, business goes from bad to terrible.
Companies that sell soft drinks, hamburgers, medicines - things that people either cannot do without or can easily afford - can sail through a recession unscathed.
Companies that sell big-ticket items such as cars, refrigerators, and houses have serious problems in recessions. They can lose millions, or even billions, of dollars, and unless they have enough money in the bank to tide them over, they face the prospect of going bankrupt.
Many investors have learned to "recession-proof" their portfolios.
In a recession, business goes from bad to terrible.
Companies that sell soft drinks, hamburgers, medicines - things that people either cannot do without or can easily afford - can sail through a recession unscathed.
Companies that sell big-ticket items such as cars, refrigerators, and houses have serious problems in recessions. They can lose millions, or even billions, of dollars, and unless they have enough money in the bank to tide them over, they face the prospect of going bankrupt.
Many investors have learned to "recession-proof" their portfolios.
- They buy stocks only in McDonald's, Coca-Cola, or Johnson & Johnson, and other such "consumer growth" companies that tend to do well in cold climates.
- They ignore the likes of General Motors, Reynolds Metals, or U.S. Home Corp. These are examples of "cyclical" companies that suffer in cold climates.
- sell expensive products,
- make parts for expensive products, or
- produce the raw materials used in expensive products.
Tuesday, 26 January 2010
The Economic Climate (7): The economy has gone from hot to cold in a matter of months.
A hot economy can't stay hot forever. Eventually, there's a break in the heat, brought about by the high cost of money. With higher interest rates on home loans, car loans, credit-card loasn, you name it, fewer people can afford to buy houses, cars, and so forth. So they stay where they are and put off buying the new house. Or they keep their old clunkers and put off buying a new car.
Suddenly, there's a slump in the car business, and Detroit has trouble selling its huge inventory of the latest models. The automakers are giving rebates, and car prices begin to fall a bit. Thousands of auto workers are laid off, and the unemployment lines get longer. People out of work can't afford to buy things, so they cut back on their spending.
Instead of taking the annual trip to Disney World, they stay home and watch the Disney Channel on TV. This puts a damper on the motel business in Orlando. Instead of buying a new fall wardrobe, they make do with last year's wardrobe. This puts a damper on the clothes business. Stores are losing customers and the unsold merchandise is piling up on the shelves.
Prices are dropping left and right as businesses at all levels try to put the ring back in their cash registers. There are more layoffs, more new faces on the unemployment lines, more empty stores, and more families cutting back on spending. The economy has gone from hot to cold in a matter of months. In fact, if things get any chillier, the entire country is in danger of falling into the economic deep freeze, also known as a recession.
Suddenly, there's a slump in the car business, and Detroit has trouble selling its huge inventory of the latest models. The automakers are giving rebates, and car prices begin to fall a bit. Thousands of auto workers are laid off, and the unemployment lines get longer. People out of work can't afford to buy things, so they cut back on their spending.
Instead of taking the annual trip to Disney World, they stay home and watch the Disney Channel on TV. This puts a damper on the motel business in Orlando. Instead of buying a new fall wardrobe, they make do with last year's wardrobe. This puts a damper on the clothes business. Stores are losing customers and the unsold merchandise is piling up on the shelves.
Prices are dropping left and right as businesses at all levels try to put the ring back in their cash registers. There are more layoffs, more new faces on the unemployment lines, more empty stores, and more families cutting back on spending. The economy has gone from hot to cold in a matter of months. In fact, if things get any chillier, the entire country is in danger of falling into the economic deep freeze, also known as a recession.
The Economic Climate (6): Price of Money (Interest rate) rise in hot economy
With new stores being built and factories expanding all over the place, a lot of companies are borrowing money to pay for their construction projects. Meanwhile, a lot of consumers are borrowing money on their credit cards to pay for all the stuff they've been buying. The result is more demand for loans at the bank.
Seeing the crowds of people lining up for loans, banks and finance companies follow in the footsteps of the automakers and all the other businesses. They, too, raise their prices - by charging a higher rate of interest for their loans.
Soon, you've got the price of money rising in lockstep with prices in general - the only prices that go down are stock prices and bond prices.
A hot economy can't stay hot forever. Eventually, there's a break in the heat, brought about by the high cost of money. With higher interest rates on home loans, car loans, credit-card loasn, you name it, fewer people can afford to buy houses, cars, and so forth. So they stay where they are and put off buying the new house. Or they keep their old clunkers and put off buying a new car.
Seeing the crowds of people lining up for loans, banks and finance companies follow in the footsteps of the automakers and all the other businesses. They, too, raise their prices - by charging a higher rate of interest for their loans.
Soon, you've got the price of money rising in lockstep with prices in general - the only prices that go down are stock prices and bond prices.
- Investors bail out of stocks because they worry that companies cannot grow their earnings fast enough to keep up with inflation.
- During the inflation of the late 1970s and early 1980s, stock and bond prices took a big fall.
A hot economy can't stay hot forever. Eventually, there's a break in the heat, brought about by the high cost of money. With higher interest rates on home loans, car loans, credit-card loasn, you name it, fewer people can afford to buy houses, cars, and so forth. So they stay where they are and put off buying the new house. Or they keep their old clunkers and put off buying a new car.
The Economic Climate (5): Inflation in a hot economy
The main worry is that a hot economy and too much prosperity will lead to inflation - the technical term for prices going up.
One price hike leads to another, as businesses and workers take turns trying to match the latest increase.
- Demand for goods and services is high, which leads to a shortage of raw materials, and possibly a shortage of workers.
- Whenever there's a shortage of anything, the prices tend to go up.
- Car manufacturers are paying more for steel, aluminum, and so forth, so they raise the prices of cars.
- When employees begin to feel the pinch of higher prices, they demand higher wages.
One price hike leads to another, as businesses and workers take turns trying to match the latest increase.
- Companies are paying more for electricity, raw materials, and workers.
- Workers take home bigger paychecks but they lose the advantage because everything they buy is more expensive than it used to be.
- Landlords are raising rents to cover their increased costs.
The Economic Climate (4): The Hot Climate
The Hot Economic Climate
Business is booming, and people are crowding into stores, buying new cars, new couches, new VCRs, new everythings. Merchandise is flying off the shelves, stores hire more clerks to handle the rush, and factories are working overtime to make more products.
When the economy reaches the high-heat phase, factories are making so many products that merchandise is piling up at every level: in the stores, in the warehouses, and in the factories themselves. Store owners are keeping more goods on hand, so they won't be caught short.
Jobs are easy to find, for anybody who's halfway qualified, and the help-wanted ads in the newspapers go on for several pages. There's no better time for teenagers and recent college grads to enter the workforce than in the middle of a hot economy.
It sounds like the perfect situation:
The main worry is that a hot economy and too much properity will lead to inflation.
Business is booming, and people are crowding into stores, buying new cars, new couches, new VCRs, new everythings. Merchandise is flying off the shelves, stores hire more clerks to handle the rush, and factories are working overtime to make more products.
When the economy reaches the high-heat phase, factories are making so many products that merchandise is piling up at every level: in the stores, in the warehouses, and in the factories themselves. Store owners are keeping more goods on hand, so they won't be caught short.
Jobs are easy to find, for anybody who's halfway qualified, and the help-wanted ads in the newspapers go on for several pages. There's no better time for teenagers and recent college grads to enter the workforce than in the middle of a hot economy.
It sounds like the perfect situation:
- Businesses of all kinds are ringing up big profits;
- the unemployment lines are getting shorter; and
- people feel prosperous, confident, and secure in their jobs.
- That's why they're buying everything in sight.
The main worry is that a hot economy and too much properity will lead to inflation.
The Economic Climate (3): Hot, cold and warm or Goldilocks climate
In the economic climate, there are 3 basic conditions:
A hot climate makes investors nervous.
A cold climate depresses them.
What they're always hoping for is the warm climate, also known as the Goldilocks climate, when everything is just right.
But it is hard to maintain the Goldilocks climate. Most of the time, the economy is moving toward one extreme or another: from hot to cold and back again.
- hot,
- cold and
- warm.
A hot climate makes investors nervous.
A cold climate depresses them.
What they're always hoping for is the warm climate, also known as the Goldilocks climate, when everything is just right.
But it is hard to maintain the Goldilocks climate. Most of the time, the economy is moving toward one extreme or another: from hot to cold and back again.
The Economic Climate (2): Farmers and the Weather
At one time, when 80% of the population owned farms or worked on farms, the economic climate had everything to do with weather.
If a drought burned up the crops, or they drowned in the rain, farmers couldn't make money. And when the farmers had no money, the local general store wasn't doing any business, and neither were the suppliers to the general store. But when the weather was favourable, farms produced a record harvest that put cash in farmers' pockers. The farmers spent the money at the general store, which put cash in the store owner's pockets. The store owners would restock the shelves, which put cash in the suppliers' pockets. And so on.
No wonder the weather - and not the stock market - was the favourite topic at lunch counters and on street corners. Weather was so important to people's livelihood that a book of homespun predictions, The Farmer's Almanc, was a perennial bestseller. You don't see any weather books on the best-seller lists today. But books about Wall Street make those lists quite often.
Today, with less than 1% of the population involved in farming, the weather has lost much of its influence. In the business world, people pay less attention to the weather report and more attention to the reports on
In the economic climate, there are three basic conditions:
If a drought burned up the crops, or they drowned in the rain, farmers couldn't make money. And when the farmers had no money, the local general store wasn't doing any business, and neither were the suppliers to the general store. But when the weather was favourable, farms produced a record harvest that put cash in farmers' pockers. The farmers spent the money at the general store, which put cash in the store owner's pockets. The store owners would restock the shelves, which put cash in the suppliers' pockets. And so on.
No wonder the weather - and not the stock market - was the favourite topic at lunch counters and on street corners. Weather was so important to people's livelihood that a book of homespun predictions, The Farmer's Almanc, was a perennial bestseller. You don't see any weather books on the best-seller lists today. But books about Wall Street make those lists quite often.
Today, with less than 1% of the population involved in farming, the weather has lost much of its influence. In the business world, people pay less attention to the weather report and more attention to the reports on
- interest rates,
- consumer spending, and
- so forth, that come out of Washington and New York.
In the economic climate, there are three basic conditions:
- hot,
- cold, and
- warm.
Subscribe to:
Posts (Atom)