Here's a sobering perspective on how we can view life, the universe and everything else (to borrow a phrase from Douglas Adams), the KLCI has fallen below 1,000 points as I write this. And, it had nothing to do with whether Malaysian publicly listed companies were doing well or, badly in their day-to-day operations. It has everything to do with a distant land called the United States of America and, in particular, a road called Wall Street.
Throughout the world, in every nation, street and back alley, life carries on unwittingly and inevitably. But the dark clouds gathering in Wall Street affects everyone. The only difference in how it affects us is the degree of it.
While Malaysian political actors go at each other with hammer and tongs, I am very, very certain that many neck-tied stockbrokers, remisiers, fund managers and retail investors are s****ing bricks. To them, the underbelly of life has burst open in the unkindest way possible. Mind you, they are merely in the frontline. The waves will wash all over the Malaysian economy in one way or another. The tempurung is being blown away, no place to hide, no way to ignore.
Such is the nature of globalisation. It stirs bad memories of the past decade, when Malaysia caught a bad flu called the Asian Contagion. The difference today, from that past decade, is that this is a financial pandemic that is taking global proportions. This may be a monster in the making, though I hope not.
Michael Bloomberg's scary caution
New York Mayor and billionaire founder of the financial news behemoth, Bloomberg News, is reported as having just warned that a next wave of financial pain may come from overseas if foreign entities stop buying U.S. debt. Why is the purchase by foreigners of U.S. debt so important? Well, the U.S. Fed cannot be printing money indefinitely. That will cause hyperinflation, of course. It's done by Third World countries. But this is not an option for the world's largest and greatest economy. So, financing the U.S. government's financial ability to arrest the collapse of the U.S. economy, especially financial institutions, is a high priority.
But, here's the dilemma of cause and effect. As share prices collapse in Wall Street, to has an ugly and negative influence on stock markets everywhere else. Wall Street is the barometer of global economic confidence. Forget China. China is light years away from acquiring the pervasive financial influence that the U.S. has achieved over the past half-century.
So, falling share prices wipes out wealth. If a share price falls from RM5 per share to RM1.50 per share, the investor has just lost RM4.50. Poof! Wealth has disappeared.
Absent that wealth outside of the U.S., foreign countries will be that much "poorer" and, therefore unable to have the disposable wealth to invest in U.S. Treasury Bills which will be used to support (or bailout) ailing financial institutions.
Scenarios?
There are too many scenarios to consider. Many of them bleak, naturally. The challenge is now for the U.S. to cushion the economic blows as best it can. At this point, whatever that is good for the U.S. is truly good for the world.
In the context of Malaysia, the key issues will be how the 4.6% GDP budget deficit will be financed; whether Bank Negara will raise the OPR by at least 25 basis points to restore some strength to the battered Ringgit; and, whether economic reforms of any sort are going to be considered. Oh! And, of course, the political thing...
Throughout the world, in every nation, street and back alley, life carries on unwittingly and inevitably. But the dark clouds gathering in Wall Street affects everyone. The only difference in how it affects us is the degree of it.
While Malaysian political actors go at each other with hammer and tongs, I am very, very certain that many neck-tied stockbrokers, remisiers, fund managers and retail investors are s****ing bricks. To them, the underbelly of life has burst open in the unkindest way possible. Mind you, they are merely in the frontline. The waves will wash all over the Malaysian economy in one way or another. The tempurung is being blown away, no place to hide, no way to ignore.
Such is the nature of globalisation. It stirs bad memories of the past decade, when Malaysia caught a bad flu called the Asian Contagion. The difference today, from that past decade, is that this is a financial pandemic that is taking global proportions. This may be a monster in the making, though I hope not.
Michael Bloomberg's scary caution
New York Mayor and billionaire founder of the financial news behemoth, Bloomberg News, is reported as having just warned that a next wave of financial pain may come from overseas if foreign entities stop buying U.S. debt. Why is the purchase by foreigners of U.S. debt so important? Well, the U.S. Fed cannot be printing money indefinitely. That will cause hyperinflation, of course. It's done by Third World countries. But this is not an option for the world's largest and greatest economy. So, financing the U.S. government's financial ability to arrest the collapse of the U.S. economy, especially financial institutions, is a high priority.
But, here's the dilemma of cause and effect. As share prices collapse in Wall Street, to has an ugly and negative influence on stock markets everywhere else. Wall Street is the barometer of global economic confidence. Forget China. China is light years away from acquiring the pervasive financial influence that the U.S. has achieved over the past half-century.
So, falling share prices wipes out wealth. If a share price falls from RM5 per share to RM1.50 per share, the investor has just lost RM4.50. Poof! Wealth has disappeared.
Absent that wealth outside of the U.S., foreign countries will be that much "poorer" and, therefore unable to have the disposable wealth to invest in U.S. Treasury Bills which will be used to support (or bailout) ailing financial institutions.
Scenarios?
There are too many scenarios to consider. Many of them bleak, naturally. The challenge is now for the U.S. to cushion the economic blows as best it can. At this point, whatever that is good for the U.S. is truly good for the world.
In the context of Malaysia, the key issues will be how the 4.6% GDP budget deficit will be financed; whether Bank Negara will raise the OPR by at least 25 basis points to restore some strength to the battered Ringgit; and, whether economic reforms of any sort are going to be considered. Oh! And, of course, the political thing...
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