Tuesday, March 3, 2009

Falling off the cliff

sheep_off_cliff.jpg picture by robertretallick .
Pix from here

reports: Malaysia’s corporate earnings are “decelerating rapidly” and will worsen this year, reflecting the global recession that will erode profits at plantations, banks and transport operators, RHB Research Institute Sdn said.

“Earnings are falling off the cliff and will likely worsen over the next two to three quarters,” RHB said in a report today. “Malaysian companies have yet to feel the full-blown effect” of economic decline and “the market is poised for a downshift.”

RHB Research expects corporate earnings to shrink 14 percent this year, more than the 8.7 percent contraction predicted two months ago, it said. Earnings shrank 2.8 percent last year after expanding 22 percent in 2007, RHB said. The benchmark stock index risks “breaking” the 801 level and may fall to 750 in the coming months, it said.

Sounds pretty bleak.


Mat Cendana said...

A bit off-topic here.
There's one economics site that I've come across and whose newsletter I'm subscribing to - The Daily Reckoning http://www.dailyreckoning.com This is one sample of what I'm getting:

The articles and essays may look `out-dated', but the essence of the matter isn't. BTW this interest in economics has come about from following this site actually:-)

de minimis said...

Bro Mat C

Thanks for the tip. I have added the url link to my blog list. I like Daily Reckoning's perspective which is more punchy and insightful than mainstream news.

Anonymous said...

That is a solid pic. Very good, one could write a whole essay with that headline and that pic alone.

Yes our corporate sector is plunging feet first into this recession. When they are neck deep in water, perhaps then the good old CEO will awake from his slumber.

de minimis said...


Thanks for your comment. Perhaps the corporate sector is plunging head first? :D

Mat Cendana said...

Going to take advantage of your free expert advice to ask about this one. It's from the Daily Reckoning's latest email (I don't have business reading it right now, with real work not completed yet. But as you had observed, the punchy and insightful writing - it pulled me in)

It's about Obama's US budget of $3.6 trillion. It's a deficit budget (this one I understand). But the remark of the following - What's the problem here?

*** The deficit is going to equal more than 12% of U.S. GDP...the age of big government is back...and more!

Okay, the 12% of US GDP. I presume it's "too big"... What are the implications, and what should it be then? Ours is a deficit budget too, right?

de minimis said...

Bro Mat C

"Deficit" means debt. "Deficit spending" means spending using borrowed money.

All govts have an annual income. This income comes from sources such as income tax, customs duties, stamp duties etc. For example, the annual govt income is RM300 billion.

If the govt produces an annual budget spending of exactly RM300 billion, we call it a "balanced budget".

If the govt's annual budget spending is less than RM300 million, we call the amount not spent a "budget surplus".

If the govt annual budget spending exceeds RM300 billion, it is called a "deficit budget". The "deficit" is the amount of spending that exceeds the RM300 billion income.

The "deficit" has to be financed, just like any debt. It has to be repaid.

The fear and grave concern is always about how govts can finance budget deficits.

They can increase taxes (always unpopular).

They can use Petronas money (already being done!).

They can issue more government bonds aka govt IOUs (this is where the U.S. is worried that China has so many of its IOUs already).

They can sell govt assets (M'sian govt keeps talking about selling land).

You can imagine how worrying deficit budgets are to economists. Macam mana nak bayar hutang? That is the billion, billion Ringgit question.

I haven't gotten around to blogging about this. But, you've actually asked a very pertinent question.

Just to scare you even more, the M'sian govt has been in budget deficit spending mode since 1998!!! Even with Petronas contributing to 30% of the M'sian govt's annual budget, we have been in deficit.

The time is very near when the bloated Malaysian Civil Service and all sorts of govt spending will have to be curbed because the nation cannot afford to become a permanent debtor state. This is the same issue that dogs the U.S.

By the way, just to make it even worse, excessive budget deficits causes inflation. Prices become higher and higher. If income is still low due to lack of education, training and excessive use of cheap foreign labour, the people will feel the pinch.

That is why I very much believe that Malaysian needs Tengku Razaleigh Hamzah as Prime Minister or, at the very least, Minister of Finance. Tengku is the only political leader that has demonstrated in speech and writing that he understands economics and, therefore, the longer term grave peril that Malaysia's profligate deficit spending is causing.

So, why do I not criticise the stimulus packages? Because between the Devil and the deep blue sea; between budget deficit and a situation where unemployment is rising and businesses may close - budget deficit is a lesser evil.

Sorry, bro, if this has spoiled your day or, confused you even more :D