Sunday, November 30, 2008

Why the able remain in hiding

The ongoing great bear markets of 2008 have and continue to destroy much wealth all over the world. Many an investor have been severely hurt whether they were invested in stocks and shares, bonds, real properties, commodities, foreign currencies, works of art or antiques. Some lost entire fortunes or their retirement funds. How badly burnt they got themselves, is relative to their means.

Tycoons and owners of quoted companies probably lost much more than the man-in-the-street in terms of quantum. Quite a number of the Forbes Asian billionaires watched their fortunes, measured in stocks; dwindle by 40 to 60% according to Bloomberg. At least, they can do something since they know much about their own companies’ businesses and with it, their very chances of recovery.

It differs with those professional chief executives of global (or your local) giant companies who hang on to their lucrative paid jobs and try to fool their government into throwing more and more money at the huge problems that the incompetent had created. Think of AIG and the rescued casino banks.

If you happen to read some of the balance sheets of the US titans, freely available at Yahoo Finance at a click, you may wonder if their CEOs or their major institutional investors actually read the companies’ financial statements.

While the 2007 Balance Sheet of a titan showed net liabilities in tens of billions which depicts that the company is already insolvent then, its CEO still have the cheek to claim it can survive, if the government pumps in huge sums of money. The financial crises and the stock markets meltdown had actually started in 2008 and not in 2007. So there you go.

Then there is another example where a global bank had financed a gigantic amount of long termed investments with short term loans. The investments amounting to more than a trillion of US dollars in its books is rather frightening and would rank third, in terms of countries’ foreign reserves, behind those of China and Japan. Its CEO has recently ‘fobbed’ that his bank company is still liquid, even though its balance sheet showed that current liabilities exceeding current assets by hundreds of billions.

Without a doubt, the US Fed and the Treasury can make this global bank and others very liquid or solvent by pumping in tens or hundreds of billions.

Already the US government has committed or provided for nine trillion for financial markets liquidity and rescues, a more genteel word than bailouts, as if it really matters now! Together with Europe’s announced bailouts or rescues, the total required funding tops USD 11 trillion, which probably exceeds the combined foreign reserves of the entire world.

Ever wonder how the US and Europe fund that colossal sum designated for the rescues? Who can bail these countries out if and when necessary?

With the huge plunge in assets value and depressed commodity prices after the first half of 2008, renowned economists have started to predict a severe recession or even another Great Depression. The US President had announced why the US needed the USD 700 billion rescue package after its approval. He was told by those in the know that there could be a Great Depression more severe than the 1930s if no such major rescue were pending.

Yet Malaysians are bombarded almost daily that their country’s economy would be alright going forward and why, similar rhetoric to the last four months of 1997 when the Thai Baht was being attacked and rapidly devalued. Obviously, like some other Asian governments, the Malaysian government does not see the necessity to jolt her citizens out of their stupor while the financial tsunami wrecks havoc elsewhere on earth. The Malaysian government may have a valid reason, this time round because of the country’s large foreign reserves.

The KLSE still ranks among the best performers in 2008 amid the battered global stock markets falling less than most. That was one reason why I had not provided a free lunch to Malaysian pensioners or retirees, since the KLCI blue chips may have some ways to fall.

Pensioners could be catching falling knives, even if they have the means and planned lower targets to buy, when the remaining huge foreign funds decide to rush out of the KLSE for a reason or other. By coincidence, British Telecoms recently plunged to an all time low in the London Stock Exchange before rebounding.

Prescient plays a very important part in surviving this financial tsunami and preserving capital for opportunities of a lifetime. But we have to be wary of false prophets.

Amid the worsening global scenario and big corporations failing elsewhere, it peeves me to read in The Star publication an absurd article by the CEO of a tiny Malaysian investment fund which implied that people should not wished for a Great Depression 2 to happen.

If people can ‘wish upon a star’ or pray and get back their recent lost wealth, I am sure billions in the world would do so, if they have not done that already.

When your parts of the world is ruled by or have public quoted corporations run by incompetents, it is best for the able to go into hiding otherwise they could get slaughtered too, so say the ancients and the Yi. Why?

For with the closure of Heaven and Earth on September 15 2008, and without Tao, not even the gods can help.

So it is best that the able remain in hiding to avoid the final cut.

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