Economy downturn... Is recession approaching ?
We know that every 10 years or so there is a expectation of recession which cause world turmoil, economist predicted the worse is yet to come. Composite Indexes and CPI is depreciating badly that no quick fix can be applied. Policy makers, Investors and stakeholders are debating how much damage could the downturn cause, but none could bravely make any decision.American economy has in recent years aided by a global web of finance so elaborate that no one seems capable of fully comprehending it. That makes it all but impossible to predict how much the economy can be expected to fall before it stabilizes (NYTIMES). Although many quick measures are being undertaken, it is difficult to undermine the huge investment that need to be made to restore the current situation "amicably" , US is shouting for campaigns and luring people by giving tax rebates & slashing interest rates. The construction Industry is threatened as the building of new houses as dropped to 50% since the peak of 2006-2007. The sales of new house has fallen much faster thus causing over supply to demand, this dragdown the value of houses much lower. There is a expectation many firms will tend to hide or delay in giving reporting on losses they made to erode more anxiety.
Malaysia doesn’t escape from the domino effect that US had created, although we don’t read much on the newspaper, KLCI is good enough to show how the WALL STREET downward spiral is circling to sweep the ecomomy of Malaysia, A pinch in US will cause pain in all other Countries. The worst recession ( same as what happened in 1930’s) is predicted to happen in 2008-2009.
The banking panics put downward pressure on economic activity in two ways. First, they put fear into the hearts of depositors. Many people concluded that cash in their mattresses was wiser than accounts at local banks (people save money in such way during World War II). The three researchers show that the leading economists at the time, at competing forecasting services run by Harvard and Yale, were caught completely by surprise by the severity and length of the Great Depression. What’s worse, despite many advances in the tools of economic analysis, modern economists armed with the data from the time would not have forecast much better. In other words, even if another Depression were around the corner, you shouldn’t expect much advance warning from the economics profession (N.Gregory Mankiew).Let’s hope for the best and safeguard our job, save/invest money in trusted and reliable banking & investment firm.
Globally..the economic situation does look bleak. Although with all the rescue plans initiated by many countries around the world...sentiments is still negative and many countries are already in recession. Malaysia for that matter is surely not shielded from all this and it is just a matter of time before we will feel the effects. Research analysis says that the effects may be felt in the 1st and 2nd quarter of 2009 when companies announces lower then expected profit due to decline in consumer demand. International broker house, UBS forecasted a 0% economic growth for next year. Already several semiconductor companies in Malaysia are cutting the production hours thus reducing employee salaries as most of their exports are to US, local banks are more stringent in loan applications, inflation is high even with the lower oil prices. Many are afraid to invest because of the volatility and are staying on the sidelines. However, there is a silver lining to all this…as this is a time to invest in battered down blue chips. Investors should look at the long term as the market will eventually rebound but this may take some time. This has been proven during the 87 & 97 financial crisis, dot-com crisis, 9/11, SARS etc. However carefully analysis must be done by investors. Investors should go for defensive stocks or non-cyclic and focus on the long term returns. Companies which have track records for giving high or consistent dividend yields even at difficult times should be looked at. Investor should continue to maintain the golden rule of “Buy when the market is Low and Sell when the market is High” and as Warren Buffett says “Be greedy when everyone is fearful and fearful when everyone is greedy”.
Comment by fabian — November 7, 2008 @ 2:11 am