US Stocks Up, Dow At Highest Level In Six Weeks

NEW YORK: Wall Street's March rally gained momentum on Thursday - this time, thanks to surprisingly good earnings from some major consumer brands.

Strong demand for government debt at the Treasury Department's latest auction also lifted stocks. Investors had been nervous about the government's ability to fund its economic stimulus and financial bailout programs.

Best Buy Co., ConAgra Foods Inc., and Dr Pepper Snapple Group Inc. all turned in quarterly profits that beat analysts' modest expectations.

The Dow Jones industrial average rose 174 points Thursday to finish at its highest level in nearly six weeks.

The index has surged 21 percent since hitting a nearly 12-year low on March 9.

Market analysts are quick to point out that an advance of that size can quickly collapse, especially in an uncertain economic environment.

Kevin Kramer, chief operating officer at West End Financial Advisors, an asset management company in New York, contends unemployment, limited access to credit and heavy loads of debt will keep curbing growth.

"Just because things aren't getting worse doesn't mean they're getting better," Kramer said.

"You stopped the flow of blood out of my body, but it doesn't mean I'm going to survive."

But with the end of the first quarter quickly approaching, money managers are fearful of missing out on the recent rally, the magnitude of which usually occurs over the course of many years.

David Waddell, senior investment strategist and chief executive of Waddell & Associates, said he has seen some "seller's remorse" among his clients who sold stocks too low in the first two months of the year.

That can move people back into buying mode. "One thing that many people are beginning to believe is that the market is going to bottom in 2009," Waddell said.

The Dow jumped 174.75, or 2.3 percent, at 7,924.56, its highest close since Feb. 12.

The Standard & Poor's 500 index rose 18.98, or 2.3 percent, to 832.86.

The Nasdaq composite index rose 58.05, or 3.8 percent, to 1,587.00. - AP

UMNO's Golden Keris 'Retired' As The Party Seeks Renewal

UMNO has "retired" a famous "keris" that used to be brandished at party events because the gesture was regarded as ethnically divisive.

Hishamuddin Hussein, the leader of the party's influential and sometimes hot-headed youth wing, shot to fame for waving the keris above his head at annual meetings of the United Malays National Organisation.

But the resulting outcry, and elections a year ago that saw the UMNO-led coalition deserted by ethnic Chinese and Indians, have made such displays of Malay nationalism less acceptable.

Hishamuddin, who is stepping down after 11 years in the role, was today presented with the keris. It is now his for safe-keeping, after he delivered his last address to youth wing members at this UMNO get-together.

He raised the golden weapon to face level, but did not wave or unsheath it, and placed it back on its pillow while UMNO members dressed in traditional costume and black "songkok" hats cheered "Allahuakbar" or "God is great".

Hishamuddin, the son of a former prime minister, is now vying to become one of three party vice-presidents. He was in tears by the end of the event.

"This is our culture. Now the keris has been handed over to me for my personal care. The keris is no longer in the youth wing. I hope this is a closure to what has been disputed and misunderstood before," he told reporters.

The dagger issue became particularly divisive at the party's 2006 assembly, when it was linked with ultra-nationalist rhetoric that emerged there.

Some delegates said that Malays, who dominate the population of the multi-racial country, must be willing to fight "to the last drop of blood" to defend their rights.

Another speaker warned minorities to stop questioning the rights of the Malays and not to test their patience.

The fiery tone sparked concerns about the economic and religious rights of Malaysia's sizeable ethnic Chinese and Indian communities, and further strained race relations which have deteriorated in recent years.

The following year, Hishamuddin defied calls for restraint by again unsheathing the dagger and holding it aloft to thunderous applause, in a gesture widely seen as aggressive and inflammatory.

He subsequently apologised for the move, saying he did not intend to hurt the feelings of non-Malays.

Malaysia's population of more than 26 million consists of about 60 percent Malays but the economy is largely controlled by ethnic Chinese, who make up some 26 percent of the population. - AFP

Malaysia's Next Leader Calls For Radical Overhaul

Malaysia's next premier Najib Razak on Tuesday warned the ruling party it must embark on a radical overhaul to win back public support, or face the end of its half-century grip on power.

Najib's address to the United Malays National Organisation (UMNO) at the start of a landmark meeting where it will elect a new leadership, is an attempt to set a new direction for the party which was humbled in March 2008 polls.

"What is at stake is nothing less than the very fate of UMNO," said Najib, the current deputy premier, who is to succeed Prime Minister Abdullah Ahmad Badawi shortly after the five-day assembly concludes.

"Clearly, the results of that general election have been the worst in the history of our party," he said, after the UMNO-led coalition lost five states and a third of parliamentary seats to the opposition.

"It is an awful and bitter truth, but a truth nonetheless and one which we must accept," he told the party, which has floundered since the polls which redrew Malaysia's political landscape.

"We gather here tonight not to wallow in sadness nor to lament our fate. But as a party, we are here today but for one singular purpose, that is to chart the way forward for UMNO and our struggle," he said.

"The decision we collectively make at this assembly will determine the future of our party: whether we continue to shape and mould history, or just become an entry in the annals of history."

The assembly was launched with a speech by Abdullah, who is to step down after a disappointing six years in power during which he failed to implement promised political reforms including tackling corruption.

UMNO delegates will Thursday anoint Najib as the new UMNO president, and cast their votes for key roles including deputy president and heads of the youth and women's wings.

In line with UMNO custom, Najib is succeeding Abdullah unopposed. The party chief traditionally becomes prime minister and leader of the Barisan Nasional coalition of race-based parties.

Najib urged the delegates to choose wisely as they select the new leadership, and to reject vote-buying which is endemic in the party.

"We must resolve to eradicate money politics right down to the roots. If not, we will all be collectively responsible for the demise of this beloved party of ours."

He called for a new attitude within the party, which is seen as self-interested and out of touch, and said it must embrace a new generation of voters who are "better informed, very demanding and highly critical."

He urged members to embrace online media, which have become a phenomenon in Malaysia, successfully exploited by the opposition, which has been shut out of the government-linked mainstream media.

"Like it or not, we cannot regard the new media as our enemy," he said, in comments that came shortly after party officials said they had barred several online news portals from covering the UMNO assembly.

Despite the talk of reform, there are concerns that from its position of weakness, the party may reject calls for liberalisation and instead choose to shore up its support among conservatives.

Political observers say recent events, including sedition charges against an opposition veteran for criticising a Malay royal ruler, and the banning of two opposition newspapers, indicate a hardline approach could be in the offing.

Najib is expected to be sworn into power by the king in the first days of April but no date has been announced, giving rise to speculation that Abdullah may be reluctant to step down.

After emerging from his speech to delegates, the outgoing leader defended the lack of a formal plan.

"I know what I am supposed to do. There is no need to disturb me," he told reporters. - AFP

Obama Says US$3.6 Trillion Budget Will Create Jobs, Cut Deficit

WASHINGTON President Barack Obama says his ambitious US$3.6 trillion budget will put economic recovery on a stronger foundation that ensures the nation doesn't face another crisis in 10 or 20 years.

At a prime-time news conference Tuesday (Wednesday morning Malaysian time) Obama said: "We will recover from this recession."

Defending his budget from Republican critics and some in his party, Obama said his spending plan will lead to new energy jobs and less dependence on foreign oil.

He said it invests in education, health care and makes the tough choices to cut the deficit in half by the end of his first term.

He says the budget should not continue past policies that have led to "narrow prosperity and massive debt" - a rebuke to Republicans.

Other pointes he made:

Obama says he's not ready to comment on a proposal from some Senate Democrats to scrap his middle-class tax cut after 2010.

Obama says he hasn't yet seen what changes are coming out of the House and Senate.

But he delivered his bottom-line on the budget at a Tuesday evening news conference.

Obama said the budget must move toward health care reform and include an energy policy that frees the U.S. from dependence on foreign oil.

He also says he's looking for investment in education and a reduction in the deficit.

Obama said a middle-class tax cut is already in place through the recovery package for at least two years.

And he said he never expected Congress to approve his plan without some changes. - AP

Obama is defending his decision to wait a few days before expressing his anger over the bonuses paid out to executives at troubled insurer AIG.

Critics questioned why the president seemed days behind the populist anger over the $165 million that were distributed to executives of the company bailed out with federal tax dollars.

Said Obama: "It took us a couple days because I like to know what I'm talking about before I speak."

Obama says he can save money on defense and veterans programs by targeting the way the military buys its equipment.

He says the country can remain safe and make sure veterans have the services they deserve.

Obama says too often in recent years, returning veterans haven't been given what they need in such areas as treatment for post-traumatic stress and serious brain injuries.

He says he wants to serve those veterans and reduce military spending by keeping close tabs on the way contractors and lobbyists do business.

He told reporters at a Tuesday evening news conference that he's already targeted $40 billion in procurement savings, and that he'll continue to look for ways to reduce wasteful spending on multibillion-dollar weapons systems.

At a time when millions of Americans are losing their jobs and their homes, President Barack Obama says he's "heartbroken" that any children are without a roof over their heads.

Obama says the "most important thing" that he can do for those children is make sure that their parents have jobs. And he again pointed to his plan to save or create 3.5 million jobs through his economic stimulus package.

He says in the meantime, he wants to work with states to help those who are "falling through the cracks."

He said there needs to be a "change in attitude" in the country, so that it isn't seen as "acceptable" for children and families to be homeless. - AP

How Do You Measure A Company’s Financial Health?

Personal Investing - By ooi Kok Hwa

Altman’s Z-Score helps investors determine the bankruptcy risk of a firm

DESPITE the recent strong stock market rally as a result of the current tough economic environment, some investors may still doubt the financial health of some listed companies.

At present, apart from some common financial ratios such as debt-to-equity and interest coverage ratios, investors are looking for a ratio that can provide an indicator on the potential bankruptcy risk for any listed companies.

In this article, we will look into a method called Altman’s Z-Score, which can help us determine the bankruptcy risk of a company.

The Altman’s Z-Score Method was developed by Dr Edward I. Altman in 1968. It is a multivariate formula to measure the financial health of a company on whether it will enter into bankruptcy in the coming two years.

This method uses five common business ratios: earnings before interest and tax (ebit)/total assets ratio; sales/total assets ratio; market value of equity/market value of total liabilities; working capital/total asset ratio and retained earnings/total assets.

The Z-Score is computed using a weighted system based on the formula below:-

Z= 3.3X1 + X2 + 0.6X3 + 1.2X4 +1.4X5

Where:

X1 = ebit/total assets

X2 = sales/total assets

X3 = market value of equity/total liabilities

X4 = working capital/total assets

X5 = retained earnings/total assets



According to Altman, if the score is 3.0 or above, bankruptcy is not likely. If the score is 1.8 or less, potential financial embarrassment is very high.

A score between 1.8 and 3.0 is the grey area where the company has a high risk of going into bankruptcy within the next two years from the date of the given financial figures.

Hence, we can conclude that we should look for companies with higher Z-Scores for investing.

We have computed Z-Scores for two listed companies, Company A and Company E. Company A is consumer-based whereas Company E is property-based. We notice that Company A has a strong Z-Score value of 5.78 versus a very low 0.62 for Company E. Based on Z-Score, Company A is very unlikely to go bankrupt (5.78>3.00) whereas the chances of Company E going into bankruptcy is very high (0.62<1.80).

The reason behind the very low Z-Score value for Company E was because it had a very low market value over its total liabilities as compared to the high market value for Company A. In fact, Company E is currently having financial difficulties and is under PN17 (Practice Notes 17).

In short, companies with higher profit margins, sales, market value, working capital and retained earnings against their total assets will command a higher Z-Score.

This method is popular in the Western countries where some accountants found it quite reliable and accurate.

In the Malaysian context, according to a user manual published by Dynaquest Sdn Bhd, they found that the cut-off at around 1.5 is a better measurement of the likelihood of bankruptcy as compared to the 1.8 stated by Altman.

It may appear that companies selling at higher market value are safer than companies with lower market value. However, sometimes we may be tempted to nibble companies with lower stock prices.

We should be aware that the current very low stock prices for certain companies may indicate to us that the coming financial results of these companies might be quite disappointing.

However, we should be aware that Z-Score does not apply to every situation. We may want to use additional financial ratio like debt-to-equity ratio to complement this method.

Are Asia’s economic woes just beginning?

In Perspective - Baljeet Grewal


The risks of a deeper downturn are intensifying

WHEN written in Chinese, the word “crisis” is represented by two key characters: one represents danger and the other represents opportunity. Whilst Asia will remain best placed globally to take advantage of any potential upswing in fundamentals, the near term outlook remains desolate. The financial crisis has now unraveled into an economic crisis which it caused; and Asia gives the best evidence.

Asian banks did not, as a rule, purchase or invest in substantial toxic debt or subprime products. Leverage was readily available. And yet, the region will not remain unscathed from the ongoing crisis.

The global economy, now supported at its core by the overextended US consumer, finds itself stalling, susceptible to any number of potential external shocks. Ultimately, the economic malaise created by this convergence of events will take years to unwind.

Also, geopolitical events become volatile in a world of economic insecurity, leading to political upheaval and protectionism. A positive outcome to this process is dependent wholly on liquidation of excess credit and consumption.

In Asia, the prospect of sluggish growth and depleting consumer confidence now debunks any notion of “decoupling” from the United States. In fact, more and more, 2009 is seeing a ‘recoupling’ of Asian dynamics with the global economy, underlying similar economic traits of the West. Whilst governments in the region advocate that Asia is well-placed to withstand financial instability, the risks of a deeper downturn are intensifying.

In its economic evolutionary process, the boom bust cycles in Asia have been unprecedented in terms of volatility in the prices of commodities, currencies, real estate and stocks.

Although all global crises have been different, in terms of its impact on Asia, many have shared common features. They begin with capital inflows from foreigners swayed by tales of economic enchantment. This generates low real interest rates and a widening current account deficit.

As a result, domestic borrowing and spending surge, particularly investment in property. Asset prices soar, borrowing increases and the capital inflow grows. Finally, a correction occurs, capital floods out and the banking system is burdened with debt.

With variations, this story has been repeated time and again. It has been particularly common in emerging economies. But it is also familiar to those who have followed the US economy in the last eight years.

The case for a much more resilient Asia this time round has been conditional on strong domestic demand, and room for policy maneuvering to expand consumption and spending. But Asian countries are mostly net producers, while the US is a net consumer. A reduction in global demand means a reduction in global supply.

The credit crisis and the ensuing tidal wave of economic recession have triggered reduced global demand. With this, Asia could potentially bear the brunt of the problem through reduced global supply.

The US, as a consequence of the crisis, is currently undergoing a period of seismic economic adjustment in which consumption and investment relative to GDP are crash landing, and as a result, savings will increase (over time). This, in the long run will imply a reduction in the US current account deficit and, hence, a reduction in Asian current accounts and trade surpluses (read: reduction in exports).

Given that China is the US’s second-largest importer and the country with which the US has the largest bilateral trade deficit with, China – the bastion of Asia’s economic hope – is likely to bear a large part of the adjustment.

Other export driven economies like Taiwan, South Korea and Malaysia will see varying degrees of this adjustment impact trade and growth. The danger is that with the combination of external shocks, a fall in asset and commodity prices and demand shrinking, the Asian consumer is not able on its own to spend its way out of the crisis.

Faced with the daunting prospect of dismal growth, Asian economies have no other choice: with demand shrinking in Western markets, either domestic demand must compensate, or supply must shrink. Reflating domestic demand will mean entire export industries will have to turn inward and serve domestic sectors – a process which will take decades given that Asian industries are “intermediate” in nature. Above all, domestic demand cannot replace export demand given the relatively low per capital income in most of emerging Asia.

The key to a recovery lies with government intervention. Asia needs to spend its way out of a crisis. While no singular government spending will fill the gap to reflate an economy, a concerted effort by Asian governments to get fiscal, and collectively, may work. Policy measures have thus far been domestically driven and reactionary.

A more coordinated effort within the region in disseminating fiscal spending and its target sector will serve to boost confidence especially through fiscal measures that offer the prospect of resuscitating growth and disposable incomes. Close scrutiny will show that most crisis situations are either opportunities to advance, or stay stagnant. As such, the prospect for a collective Asian voice is now more pressing than ever.

The global economy is more than the sum of its parts – and so policy direction becomes crucial. It’s near impossible to predict whether policymakers will succeed in preventing the recession turning into a prolonged economic calamity, and lay the foundations for a sustainable recovery.

But what we can predict with near certainty is that policy will matter a great deal in 2009.

Uncertain Times For Property

By EDY SARIF


Industry players express mixed feedback on market outlook

THE property outlook in Malaysia remains uncertain with industry players giving mixed feedback.

The Malaysian Institute of Estate Agents (MIEA) president K. Soma Sundram believes the local real estate industry is still resilient.

“Based on the feedback from our members, they are still doing business as usual, in fact some of them are doing much better. We are not in recession yet, the only thing that is happening now is that investors are adapting a wait-and-see attitude,” he said.

“Though the market around KLCC area is expected to go down by 15% to 20%, other places such as Bangsar, Subang Jaya and Damansara Heights are still maintaining their prices,” he added.

People with cash were still on the lookout for properties, Soma noted.

“First-time buyers for example, are still looking for affordable properties to buy or invest in and real estate agents need to adapt to tap this market and offer suitable locations for them to close more deals,” he said.

Soma said with developers giving out more incentives and doing more promotions, there were still plenty of jobs for real estate agents.

Zerin Properties executive Lalitha Anandarajah, who has been covering sales and leasing of office space in the past few months, said there had been an increase in demand for office spaces, and almost 70% of the enquiries were businesses looking to shift to more competitive rentals.

“There has also been an increase in demand for furnished offices to defray costs on renovation,” she said.

But at Venture Properties, senior negotiator Gary Lee is beginning to feel the impact of the economic slowdown.

“The number of cases has reduced since three to four months ago as the result of the slowdown in the global economy and this include local and foreign parties,” he said.

A real estate agent covering both office and residential sales/lease said the market had made a turn for the worse.

“Some of my clients aborted plans to secure new premises. It is not a good sign. Even expatriates looking for houses to rent are looking for more short-term agreements,” she said.

Another real estate agent said the market was extremely slow especially for the high-end residential units.

She said there were still expatriates coming in but their budget was now much lower.

“Honestly speaking, I don’t see many European expatriates coming in to the country compared with the previous years.

“Right now, I have to change my strategy by expanding my network and focusing on condominiums with much lower rent,” she said.