FED IS MANIPULATING THE FINANCIAL MARKETS-----By Shan Saeed

FED IS MANIPULATING THE FINANCIAL MARKETS. FINANCIAL REPRESSION WILL HIT THE US ECONOMY BADLY. FED is hiding about inflationary pressures---By Shan Saeed

Ben Bernanke and his team are hiding the true picture from the american public. They have mastered the art of fudging figures. Inflation is currently is in the range of 5 to 7% in USA. FED is manipulating the financial markets with accommodative monetary policy. All markets are manipulated including currency , equity, bond , housing and above all precious metal market like Gold and Silver

The Federal Reserve is understating inflationary pressures to help the government keep its financial commitments to programs like Social Security and Medicare as cheap as possible, because such obligations are indexed to consumer-price indices.

Inflation rates rose 0.4 percent in February from January but core inflation rates, which are stripped of volatile food and energy costs, rose only 0.1 percent. The Fed relies heavily on core inflation when determining monetary policy. They have changed the composition of CPI so many times to hide the true inflationary numbers to people in general

I don't believe a lot of the government numbers, and I think the way they report inflation understates it for the purpose of keeping outlays in terms of Social Security and Medicare costs down. A lot of these costs are indexed to inflation, so if you keep inflation down, you can keep the increased year-over-year costs down. I believe that there are inflationary pressures, the US government understates them, and they'll continue to go higher.

Monetary policy may be pushing up inflation rates. Further accommodation [by the Fed] at this stage of the business cycle could lead us down a very treacherous path that would increase the already-substantial risk of higher inflation. The Fed has flooded the economy with liquidity, injecting some $2.3 trillion into the economy by purchasing assets such as Treasury bonds or mortgage-backed securities from banks with the aim of encouraging investment and hiring.

Such policies eventually stoke inflationary pressures down the road, which makes gold a sound investment. Loose monetary policies also pump up stock prices, which can cut into gold's gains, but that's just a short-term scenario. It is not the mandate of the central bank to revive the equity market. Wrong direction.

In the end, if stock gains stem from Fed meddling and not from some underlying improvement to economic fundamentals, stick with gold, I have advised my clients to take position in real assets. It's the ultimate hedge against inflation, financial repression and debased currencies.

GOLD MARKET INSIGHTS

"During the bull market for stocks in the ’80s and ’90s, when gold was in a bear market, there were certain times when gold outperformed when in the long-term, stocks were outperforming. Now I think the shoe is on the other foot, where gold is outperforming on the long term but you are still going to get these time periods when equities outperform."

While gold may be up around 17 percent on year, stock prices in the companies that mine the metal haven't gained as much, which has left many in the market scratching their heads. That could change. Eventually, if the metal continues to perform well, stock prices will catch up.

"It's really frustrating because we are seeing gold move higher, we're seeing a strong equities market but it's not transferring into the underlying stocks. I think at some point this has to change because you can't keep having a bull market in bullion, you can't have gold go to $2,000, for example, and stocks stay where they are today. Investors will say, 'Why am I going to pay $1,800 an ounce for gold when I can buy this miner priced for $1,200 gold?' Oil is a commodity to watch as well.

OIL MARKET INSIGHTS

Oil prices are surging these days thanks in part to tensions between Iran and the West. The U.S., Western Europe and Israel are working to isolate Iran due to its nuclear ambitions. Europe has set a July 1 date to embargo Iranian crude, while Tehran has said it has already halted some shipments to France and the U.K.
Iran has also threatened to close off the Strait of Hormuz, the narrow waterway connecting oil-rich Persian Gulf countries with the rest of the world, and worries have arisen that Israel may be considering unilateral attacks against Iran with or without the blessing of its allies.

While the Iran factor has pushed up crude prices and U.S. gasoline prices with them, other factors are supporting the commodity as well. For one, demand in growing economic giants like China and India will keep prices high over the long term. Furthermore, loose Fed monetary policies that have sent gold prices soaring will do the same for oil.

Just like money printing [ Quantitative Easing] and monetary stimulus moves up precious metals because it debases the currency, it helps all commodities because you're debasing paper money, adding crude oil prices could approach record-high levels seen in 2008. Oil goes up just because investors are looking for other places to put their money when you debase paper money. I am bullish on Oil

Disclaimer: This is just a research piece and not an investment advice. All financial transactions carry a RISK.

Malaysian growth strategy---Focused and Revisited. By Shan Saeed

Malaysia is one of the leading members of ASEAN countries driving the economic growth of the region. It has transformed itself from low base to high base manufacturing region with strong labor force and business friendly economic climate. The macro fundamentals are strong with sustainable GDP growth comparing with region members and global players. The government is maintaining its focus on economic growth to provide better living standards, improved health care and enhanced productivity of the people to achieve the strategic goal of becoming a developed country. Indeed, there are critics who would like the government to do more and turn around the situation. Governments are not perfect. They have got some shortcomings and they try to improve upon. However, Malaysian government has weathered the global financial storm with some tactical maneuvering and strategic moves for its economy to keep pace with the global environment and to benefit the local entrepreneurs of becoming major players not only regionally but also globally as well. It is quite impressive when local companies are making investment abroad thus sending the signal to the market players about its strategic intent, capture the mind share of the investors, create employment in the foreign country, make effective use of the productive labor force and above all continue to bolster the GDP growth of the foreign country.

Malaysian growth success: Strategic analysis

Let’s analyze how Malaysian growth has progressed and what are the key factors that can add value to the growth trajectory. GDP was maintained at 5% is above average globally speaking. Inflation is well under controlled i.e. 4% taking into account that government provides subsidiary in many areas like many other governments around the world. Major Banks like CIMB and MayBank are spreading their wings and moving into big markets like Indonesia and India. The market cap of both the banks is over $17 billion according to Forbes magazine Jan-2012 issue. Major development in infrastructure and construction is going on with government planning to invest around $450 billion by 2020 and raising funds through Sukuk. This is huge and clearly illustrates the government intention to give a boost to infrastructure development in order to attract foreign direct investment and to lay the ground work for more MNC relocating their operations in the region. Many companies are relocating their operation from China to Malaysia since cost structure in China is not cheap anymore. If you read the book from my Harvard educated friend, “The End of Cheap China” by Shaun Rein, readers will get lot of insight about the Chinese cost mechanism. Real Estate market in malaysia is getting a lot of foreign investment in the shape of Malaysia As Second Home policy. Financial markets are looking to Malaysia as she is turning into herself as the hub / center of Global Islamic Finance in the APAC region. Malaysia currently holds the largest market share of Sukuk issuance amounting to 67% globally. Toyota has issued Sukuk bonds recently for over $150 million to cite a small example. Islamic Finance is getting strong foothold in Indonesia, Japan, France, UK, Singapore and UAE. Malaysia is leading from the front in the Islamic Banking whose market size is over $1.3 trillion globally.

I came across a recent World Bank paper written by Sohrab Rafiq and Albert Zeufack titled “Fiscal Multipliers over the growth cycle” March 2012 in which they concluded that government spending is the only way to boost GDP growth and stimulating economy. They were less enthusiastic about tax cut reforms can boost growth. In my humble opinion, it is not true. Government spending does not stimulate the economy. Careful analysis of leading economists globally and Nobel laureate provide some interesting facts. The debate hinges on the scale of the “fiscal multiplier”. This measure captures how effectively tax cuts or increases in government spending stimulate output. A multiplier of one means that a $1 billion increase in government spending will increase a country’s GDP by $1 billion.
Read the article in the Economist magazine “ Much ado about multipliers” dated 24^th September, 2009 gives you a clear indication the importance of tax cut over government spending to enhance GDP growth. Empirically proven.
The size of the multiplier is bound to vary according to economic conditions. For an economy operating at full capacity, the fiscal multiplier should be zero. Since there are no spare resources, any increase in government demand would just replace spending elsewhere. But in a recession, when workers and factories lie idle a fiscal boost can increase overall demand. And if the initial stimulus triggers a cascade of expenditure among consumers and businesses, the multiplier can be well above one.

The multiplier is also likely to vary according to the type of fiscal action. Government spending on building a bridge or Infra structure development may have a bigger multiplier than a tax cut if consumers save a portion of their tax windfall. A tax cut targeted at poorer people may have a bigger impact on spending than one for the affluent, since poorer folk tend to spend a higher share of their income. Tax cuts are more effective in provide boost to the economic growth going forward. Plus it is the monetary policy that drives the economy and not the fiscal policy. I have attended the lecture series delivered by Christina Romer Ex-Economic Advisor to President Obama titled: " The lessons from great depression" which she read at Brooking institute in March 2009 emphasising the role of monetary policy has in driving the economy for the nation. Malaysian central bank has used the monetary policy in a very strategic and effective manner to stimulate the economy with the right ammunition required for the economy.
Fiscal Multiplier
Crucially, the overall size of the fiscal multiplier also depends on how people react to higher government borrowing. If the government’s actions bolster confidence and revive animal spirits, the multiplier could rise as demand goes up and private investment is “crowded in”. But if interest rates climb in response to government borrowing then some private investment that would otherwise have occurred could get “crowded out”. And if consumers expect higher future taxes in order to finance new government borrowing, they could spend less today. All that would reduce the fiscal multiplier, potentially to below zero. I think Malaysian government is focusing in a strategic manner. GDP does not increase just on the basis on one variable either it is Investment or government spending or Consumption only . 4 factors i.e Consumption, Investment, Government and Net Exports combined together give boost to GDP growth. Prime Minister Najib’s government is focusing and revisiting his strategy to bring about structural reforms to remain on growth path to compete globally with advance economies. So critics and people who write in the newspapers have limited knowledge about basis economics and finance and tend to gain nothing by writing sub-par articles of no economic value. In my humble forecast, Malaysian GDP growth would touch 5% in 2012 taking into account the strong economic reforms and structural measures taken by the government to bring about change to achieve economic prosperity.

Malaysian government is on the right track of attracting foreign investment, focusing on infrastructure development, trained and educated labor force, strong manufacturing base, low inflation, high growth, good governance, sustainable tax structure, good economic climate, stable government and above all Return on Investment is appreciable for any investor and add value for further economic progression.

Disclaimer: This is just a research piece and not an investment advice. All financial transactions carry a RISK

Gold prices to set record highs in 2012 by Shan Saeed

Gold prices may be off from highs seen earlier in 2011 but get ready for a rebound because gold is set to soar again and may break records in 2012. Gold prices broke records in 2011, shooting to over $1,923/oz on 6th September although they have fallen by about 16 percent more recently. Gold appreciated 12% in 2011. As the prognosis for U.S. recovery looks better, the outlook for Europe looks even worse. That scenario allowed the dollar to resume its status as a safe haven asset that it lost amid economic uncertainty, which sent investors running to the yellow metal on fears the dollar was getting too weak. Dollar is a bubble which might bust going forward. Chinese yuan is the next global currency. All big investors are placing bets on Chinese yuan since its appreciation is on the rise for the last 5-years

While Europe [ esp PIIGS] debt crisis looks increasingly worse, investors will still run to dollars early in 2012, but watch out for gold bugs jumping back in later in the year, when inflationary pressures rise in the U.S. as a side effect of loose monetary policies over the last couple of years. Although investors are currently not focused on an inflationary environment, longer term I believe with the amount of stimulus injected globally and higher inflation expectations will continue to support investment demand in gold. Others agree that as long as bad news seeps in from Europe and while the U.S. recovers amid a sea of inflation-fueling liquidity, gold will rise again even if at a more modest pace. The gold price is primarily supported by investment demand. Investors look to gold as a safe haven and the limited supply of the metal could push prices to very high levels in 2012, potentially exceeding $2,000 in the next six months

Disclaimer: This is just a research piece and not an investment advice. All financial transactions carry a RISK.

Currencies can leave monetary union-----By Shan Saee

Currencies can leave monetary union and no harm can be done. It could be devastating in the short run but in the long run, its perfectly normal for the financial markets as they factor in the risk of that particular monetary union.

I have analysed least 87 examples of countries leaving currency unions and establishing their own money since 1940. Establishing an independent currency allowed the country concerned to set more sensible interest rates and exchange rate to help them grow. In every case it gave them more independence, strengthening their ability to make their own decisions free of foreign interference. They can have internal devaluation ---lower price and wages to boost their competitiveness in order to remain float in the global economy. The biggest advantage to the countries leaving Euro zone is they can print money in their own currencies and have control of monetary inflation or deflation i.e. money supply in the financial market

The Euro remains under pressure severe pressure. Its down from 1.43 to 1.32 [ lost 7.5% value against US Dollar] . Leaders in Euro zone are waiting for Mrs Merkel to relent. They just want her to say the ECB can buy up many more EU country bonds, and QE/print the money to do so. The Governor of the Bank of England this week in his press conference explained her reasons very well. He pointed out that a Central Bank has a role as the lender of last resort. That means it acts as the lender who supplies cash to commercial banks in its jurisdiction if they are solvent but in need of temporary loans. They are lent money at a penalty rate to see them through. It is not the job of a Central Bank to act as lender of last resort to countries that have run out of credit and whose solvency is in doubt.

Within Western Europe the latin currency union led by France and the Scandinavian currency union both broke up without great calamity at the time of the First World War. Between 1945 and 2007 according to the Monetary Authority of Singapore 69 countries have left currency unions. This figure leaves out a good number, including the break up of the rouble currency in the early 1990s. It also excludes the split of Czech and Slovak currencies in 1993. It includes the ones which left the sterling area, like New Zealand in 1967 and Ireland in 1979. It happened by agreement with a relatively smooth transition. Some like Bangladesh left the Pakistan union. Others left former colonial unions: Mozambique for example left the Portuguese area in 1977 and Algeria left the French franc area in 1969. Eritrea left Ethiopia. Again these changes caused so little disruption that most have forgotten they ever happened.

The uncertainty about the end game for the Euro continues to damage the markets. The battering of the bonds does make things far worse. It means banks will lose yet more money on what were meant to be safe holdings. This in turn means they will lend less, slowing growth still further. It is surprisingly common for countries to leave common currencies. So, if Greece, Italy , Portugal or Spain leaves the Euro zone, its perfectly normal and will continue to compete globally with their own independent currencies.

Disclaimer: This is just a research piece and not an investment advice. All financial transactions carry a RISK.