Monday, 29 August 2011

Economic Policy Confusion

Isn't it obvious that the politicians have no idea why the economy is staggering? After the arrogance of January, 2009, when the exuberant victors of the 2008 election proceeded to toss away $ 800 billion in a foolish waste of money known as "the stimulus."

The Obama folks assumed that throwing taxpayer money in the direction of Obama political allies (mostly state employee union members) would magically get the economy back on track. Why the Obama folks thought that, no one knows?

Then the Obama team began the process of erecting roadblocks (think Dodd Frank, Obamacare, the Credit Card Reform act, stifling regulations from the EPA and the NLRB) that would virtually guarantee that the economy had no real chance of recovery.

Now, Obama promises to come up with a new package to deal with the "jobs problem." This would be comical were it not so tragic. Putting up more roadblocks does not remove the original roadblocks.

This economy will not get out of its own way until the roadblocks are dismantled and real market forces are permitted to function again -- especially in the labor market.

Bernanke's comments on Friday were ridiculous. It is time that Bernanke return to academia. Bernanke's Fed is arguably the worst in the history of the Federal Reserve and its results on the economy are there for all to see.

The usual response by defenders of Obama and Bernanke is to say that things would have been much worse had they not done what they did. Really? When, other than the last time policies like these were tried in the 1930s, were things ever this bad.

The Reagan recovery in the 1980s shows how to get it done. Get the government off the back of the citizenry. That is the solution. The government is not the answer. The government is the problem and until it changes course (or gets changed), America will continue its slide into irrelevance.

Sunday, 28 August 2011

The Jobs Problem

If cell phones cost $ 10,000 apiece and required $ 1,000 monthly service bills, who would own them? Well, no doubt, Warren Buffett would own one and perhaps Bill Gates and Barrack Obama as well.

But, what about the average guy. Would he own a cell phone at those prices? What if the economy was very strong, would most folks get a cell phone, if these were the costs?

The answer is pretty obvious. At that price, very few people would be interested.

This is the fundamental jobs problem in the US. Because of government mandates, the anticipation of Obamacare, litigation fears, OSHA rules, threat of unionization, a blithering variety of employment taxes, family leave laws, American labor is priced out of the market for most businesses. There are some businesses for which price is not an issue: Wall Street, the movies, professional sports, working at the White House, etc. But, for most private businesses who do the bulk of hiring in the US, labor is just way too expensive thanks to the various levels of government.

If you are a movie star and a sports celebrity (or even a reality show star), then these are not your problems. The wealthy don't really have a problem in this brave new Obama world. They are a-ok. That is why the Buffetts of the world strongly support the Obama program. It doesn't hurt rich people. It is the average guy or girl who has no real hope in the Obama economy, not the rich guy. The rich guy, like Buffett, is having a ball. this is fun for him.

The average American worker is simply not affordable anymore and it has nothing to do with with wage and salary and has everything to do with government. All of these programs to "help the average guy" have made the average guy way too expensive.

Unemployment is not going to go away in the US. This is the new reality. Those who are protected from the problem, like Warren Buffett, will continue to cheerlead for the programs that devastate middle and lower income Americans. "Let them eat cake" has a certain ring to it for the Buffett-Obama class. But, for the rest of America, life will stay pretty grim. I wonder how long Obama and Buffett can blame all of this on George Bush -- 10 years? 20 years?

Saturday, 27 August 2011

4 Components of Economic Growth (August 2011)

So far, equity markets are down anywhere between 10-20% and bond yields in a number of major markets are reaching historic lows. Although it is difficult and nerve racking, investors should understand some of the forces behind what's creating this volatility and how they're likely to play out in the near term.

When will market rebound?
Again, we simply cannot answer that million-dollar question. If I know, I won't be writing this article here telling you all stories and facts. We should have a longer term view, especially during volatile times when fears dominating the marketplace.

So, what are some of the driving forces behind?
If we go back to basics, the 4 components that really drive economic growth are Government, Consumer, Corporate, Import & Export. If we look at each individually, we can do better opinion, by analyzing them.

Since 2008, governments have played an increasingly dominant role in the markets that we're familiar with. They are expanding monetary policy, expanding fiscal policy, bailing out companies, regulating companies or buying companies. Who else can replace the government now? Of course, NO one. The government are now a fact of life in the markets and investment as we know it. Example, the Citigroup bailout had actually turned out to be a very profitable investment for US Government. Undeniably, we have to understand each movements of government in order to make returns from.

However, Government cannot runaway from political issues which may confused the markets. Everyday, we guessed what is Obama or Bernanke going to say next, what's ECB going to do, when is our next general election? As the market continues to test Governments and its policy continue to evolve, we are due for continued uncertainty and volatility in the market.

We as a consumer are going through a difficult time, especially in developed markets. We faced with higher taxes, unemployment and inflation, all eroding our disposable income which in turn makes spending power and confidence lower. Market falls because of lower consumption/retail figures, and this will further enhance fear in the eyes of the consumer in return.

This is what ETP of Malaysia means: Private investment with Government facilitation. However, corporates is talking about managing their costs and having a good solid balance sheets with cash to avoid problems in downturns. Right now, they are the healthiest of the 3 domestic components towards economic growth. Government is indebted more than corporates. Companies with strong balance sheets are in a better positions in expanding, be it organically or through acquisitions, like what Google doing right now (taking over Motorola).

Picture taken from
Lastly, developing countries are the main growth drivers in international trades. Still, they are growing, albeit slower pace. We need to keep an eye of it and it's impact between developing and developed countries.

In summary, we should not over-react given the volatility of the market. In fact, we should take this as an opportunity to take on good solid companies for long-term investing. I still see a lot of good companies trading at single digit P/E, some with good dividend yield too. Should you forego the chances?

What Do Markets Assume?

There are very scary stories out there: 1) a European debt crisis; 2) Incredibly slow economic growth in Western countries; 3) A potential for Asian economic growth to top out. Does this mean stocks cannot do well?

Surely "the market" knows what we know. How much worse news is yet to come?

Greece will default. Has the market fully factored that in? While the initial shock of a Greek default would likely cause stocks markets to skid, the reality is that a Greek default could be the harbinger of good news to come. The sooner that defaults and workouts become the order of the day in Europe, the sooner Europe can begin to heal its economic woes.

Why are defaults and workouts therapeutic for Europe? The reason is that politicians will never be able to reverse the spending and entitlement train. They just won't be able to do it. Instead, a default will let the market itself force the necessary reforms on Europe. It won't be possible for Europe to access debt markets in the future unless Europe begins to tackle its unaffordable spending and entitlement programs. Market discipline will solve a problem that politicians have no hope of solving. This is good. So, defaults are good news not bad news and defaults are coming soon.

What about the US? It is unlikely that the US is headed for a recession. Try as it might to strangle the economy, Obama and his allies will not be completely successful in their efforts to destroy the American economic engine. Besides, unless Obama shifts ground and does it quickly, he will be a one-termer and his successor is likely to to do a complete about face on the Obama agenda. This is good news as well, whichever way it shakes out. The hide tide of government intrusion and regulation in the economy may be just over the horizon. In any event, a downturn in GDP isn't likely. Slow growth, not negative growth, is probably our future for the next year or two until the cavalry arrives.

All of this suggests that stocks are probably a good buy for the long term investor. For the short term investor, who knows? But, for the long term investor, this is probably a historic opportunity to own equities.

Thursday, 25 August 2011

All Eyes on Bernanke...Why?

Whatever Ben Bernanke has to say on Friday is irrelevant to the grand picture. The American economy is stuck in a quagmire that Ben Bernanke cannot do anything about. He can make things worse, indeed he has already. But, can Bernanke do anything that can help? What can Bernanke can do that will convince a business to shoot itself in the foot by hiring someone in a world of massive regulation, litigation and mandates? Not much.

But, I guess the press has to talk about something. So, the Bernanke sideshow continues.

Wednesday, 24 August 2011

Europe and US Face Similar Problem

The "Greek Problem" is really no different than what might be called the "California Problem" in the US. The 50 states of the US are in a common currency, yet each state has its own "fiscal policy." This is essentially the same as the situation in Europe wherein European countries (excepting Switzerland) are banded together in a common currency -- the Euro. Each country has its own fiscal policy.

Greece (and California) are eventually going to be unable to continue financing their outstanding debt. There is no scenario possible that would permit either Greece or California to fund their outstanding debt over any significant future time period. The only way to postpone a default in either place is for someone to step in and bail them out and let them continue to expand their indebtedness.

That's why politicians will soon be clamoring for the US government to bail out California, just as many are pushing the concept of Eurobonds in Europe to bail out Greece (and Spain and Italy and on and on).

These bailouts permit profligate countries to expand their indebtedness and postpone making the decisions that would be required to put their financial house in order. This only makes the impact of the ultimate default (which will come in any event) that much worse. Meanwhile, along the way, to entice the bailer to do the bailout, Greece and eventually California, will be asked to enact "austerity" measures that their populations will not support. Greeks will eventually reject the austerity measures and proceed to a default "workout" on their own. Three is no way that Greeks will, voluntarily, agree to the kind of austerity that the bailout folks will want to impose on them. Ditto for California.

In the US, there is a growing list of states that will join California in the rush to get a federal bailout. Essentially, the idea is to have states like Texas and Alaska, who haven't behaved stupidly with their spending, provide the money to bail out the delinquents like California, Illinois, New York, etc. This is the same idea as having Greece saved by the frugal German taxpayer.

All of this, as it takes place, rewards those who made bad decisions and punishes those who made good decisions. Ultimately, it won't work anyway as the bailer and the bailee will all be forced to some kind of debt default. Pity the poor bondholders who fall for all of this. They will be big losers.

But, there are other losers as well. The citizens of Greece and California and other profligate places will face economic paralysis as they put on the austerity straight jacket, which the bailers will insist upon. There will be a global economic paralysis brought on by the foolish idea that those who made good decisions should pick up the tab for those who made decisions. Foolish economic policy by the Eurozone and US politicians will cause a lengthy period of economic pain which will end with massive defaults through the Western economic structure.

It is possible that the citizens of Europe and the US might wake up before this situation develops too far along the bailout road. We shall see. The optimistic scenario is bolstered by the rise of the tea party and the focus of current debate upon the problems of sovereign debt. So, maybe, just maybe, the Western world will stop the bailout process before it goes too far and is irreversible.

Monday, 22 August 2011

A Bad Idea Can Do Some Real Damage

What we are experiencing now are the fruits of the "too big to fail" mentality. In the US, the crisis of the Fall of 2008 began with the government orchestrating a purchase by JP Morgan of Bear Stearns with a $ 29 billion guarantee by the US government. That was the beginning. Before they were done the politicians had bailed out half the financial system, even those who did not wish to be bailed out.

Now the European politicians are doing the same thing. Greece was too big to fail. Now, Spain and Italy are too big to fail. Germany and France are, no doubt, to big to fail too, but there is no one left big enough to bail them out.

This is all ridiculous. No one is too big to fail. The world would not have come to an end if the various financial institutions that were liquidity starved had been permitted to fail in 2008 (or provided some orderly form of Chapter 11 bankruptcy). There was absolutely no reason to protect bondholders from the risks that they had assumed. They should have suffered not the taxpayer. Ditto today for Greece, Ireland, Italy, Spain, and Portugal and, if it gets that far, Germany and France.

Bondholders take risks too. Why shouldn't they pay the price, if they have taken a foolish risk.

By not letting the chips fall where they may, the Western economies now face austerity programs, zombie institutions, and economic stagnation for generations. Is this price worth paying just to protect a few bondholders?

The problem is that politicians love this. It makes folks like Tim Geithner feel really powerful to wander around distributing taxpayer funds to those in need. But, it is very bad economic policy and we are paying a horrendous price for such bad policy.

Sunday, 21 August 2011

Reasons for Optimism

Reading this blog and following the markets can get one down after a while. So, what is there to feel good about. Several things.

First and most important, the world is now fully cognizant of the profligate ways of the Western economies. This is a plus.

Second, the Asian economies and some scattered others are motoring along quite nicely and they are not enacting the kind of poison pill social policies that destroyed the Western economies. At least not yet.

Third, government bureaucrats have not yet caught up with technology, though they are trying to. It is still possible to come up with a new technological idea and put it out there without drowning in red tape (which is what happens to you in the bricks and mortar economy).

Fourth, the global warming folks are losing their audience, though they still have President Obama dutifully in attention.

Fifth, left-leaning Americans are mad at Obama.

Sixth, Paul Ryan might run for President

So, rejoice, buy stocks.....all is not lost

Martha's Vineyard

There is no reason why the President should not have a vacation and enjoy it without the press (and Maxine Waters) villifying him for taking time off to be with his family. The focus on the President's trip to Martha's Vineyard shows the bankruptcy of the modern media.

The problem is not that the President is taking a vacation. He doesn't need to hurry back, call Congress back into session, and then inflict more damage on the US economy. Better that he enjoy himself at Martha's Vineyard and leave us alone. Would that his EPA and his NLRB would do the same.

Our problem is not too little attention from the President, but too much attention. The Credit Card "Reform" Act, Obamacare, Dodd-Frank as well as various direct administrative acts by government agencies have all but guaranteed that the US economy will remain mired in stagnation for a generation. This is what happens when Obama takes an interest in our welfare. Lets hope he forgets all about us. We will have a better chance for an economic recovery if he stays away. Perhaps he can take Harry Reid and Nancy Pelosi with him to Martha's Vineyard.

Oil & Gas: Why Malaysia is different? (21 Aug 2011)

With oil prices hovering around USD80-85 per barrel currently, what is the outlook for Malaysia oil & gas (O&G) industry? Dubbed as "Black Gold", crude oil is one of investors favorite asset classes, which is highly volatile. Here, we examined the implications of lower oil prices, current scenario of the industry, and sustainability of oil price going forward. Feel free to share this out via our Facebook page (

What drags down oil prices?
As most of you already know, US and Europe is main culprit for the sliding oil prices. High debt issues still lingering the global economy since 2008 global financial crisis. As such, the potential slowdown in the global economy as per investors perception, droves oil prices lower to current level.

What is the implications?
Actually, the correction of oil prices is driven by sentiment of traders, whom thinking that the demand is going ton be weak soon. What would you do if you're a CEO of Shell? Cutting back on oil exploration spending, re-evaluating the feasibility of planned projects, or even delaying some of them. At worst, you already seen it during 2008 financial crisis, where KNM battling for survival when a few of its clients delaying projects.

Oil prices outlook?
We believe the price of crude oil will trend lower in tandem with easing demand as industrial activities slow down. OSK had revising downwards their oil price forecasts for FY11 and FY12 to USD85-95/barrel and USD80-90/barrel respectively. Immediate resistance at USD90/barrel, while support at USD70/barrel.

Why Malaysia is different?
Unlike other countries, local O&G players are more dependent on our big boss - Petronas. Why? Because, Petronas is the one who is feeding the local players by dishing out marginal oil fields contracts and higher capex committed for next 10 years. No matter how global oil prices trend, Petronas is the growth engine of local players.

Target Price by OSK Research dated 19 Aug 2011

Buy or Sell?
Based on our reasons given above, we should Buy those companies which have strong relationship with Petronas (higher chances of getting contracts) and Sell those companies with excessive foreign contracts. This assumption is correct if oil prices are trending lower. As such, I picks Kencana (strong relationship and earnings) and Dialog (sound business with recurring income).

Saturday, 20 August 2011

The Focus on Jackson Hole

Once again all eyes are pointed in the wrong direction. The Federal Reserve's annual conclave is this coming week in Jackson Hole, Wyoming. Nothing of any significance can possibly emerge from this gathering.

But for the media, this is the big event. The media can pretend that somehow, someway it matters what happens and what gets said in Jackson Hole. This is complete nonsense.

The American economy's problems cannot be fixed by applying any strategies from the Federal Reserve. The Fed has done enormous damage to the American economy in the last three years, in part because it was handmaiden to an Administration and a Congress intent upon destroying the private sector economy. Ben Bernanke has only one goal -- getting himself reappointed by Obama as Fed chairman. Nothing else really matters to Bernanke at this point. Greenspan behaved in a similar fashion when Clinton was President. There is nothing new about a Fed Chairman playing the politics of survival.

But fixing the economy is an entirely different matter, unrelated to anything that might transpire in Jackson Hole. What the economy needs is breathing space. It won't get that breathing space. What it will get is more regulation, more litigation, more taxes and more demonizing rhetoric about millionaires, billionaires, special interests, etc. This Administration is all about finding the enemy and exposing the enemy to its political base. This Administration has little or no interest in economic recovery. Economic recovery shows the triumph of capitalism, not an outcome that this President shows much interest in.

So, forget the politics. Take a course on microeconomics. Learn why business hire employees. Ponder why raising the minimum wage does not create jobs. (If you think raising minimum wages is a good thing, why not raise it to a $ 1,000 per hour. That ought to make everyone wealthy!). Ponder why Obamacare and its mandates make business lose interest in having US employees and even US facilities. Ponder why litigation to protect the rights of virtually every group one can find a definition for saps the energy of businesses who might otherwise wish to grow and expand. Ponder why Sarbanes-Oxley and Dodd-Frank are destroying the American financial institutions so that they can be replaced by their equivalents in Asia. If you wanted to destroy the American economic engine, you could not dream up a better set of government policies than these. And, they are working. Capitalism is being annhilated in the US economy and is being replaced by government bureaucracy. We are switching places with China in every respect.

Outsourcing and replacing labor with capital is the sensible business policy when faced with the politics of big government interference in free markets. This is the future.

It is worth repeating that stocks can do fine in this environment. The main impact of Obama policies is to dramatically increase the inequality of opportunity, the inequality of income and the inequality of wealth. Buffett should like that.

Friday, 19 August 2011

A State of Denial

Both the US and Europe are loath to acknowledge the facts on the ground. Governments in the US and Europe have, for half a century, pushed entitlement programs, erected massive regulatory edifices, and sold bonds to finance what taxpayers will not and cannot pay for. Now what?

You still see calls for politicians to act. Haven't they done enough?

When will the press and the politicians admit the cold hard truth. The policies enacted in Europe and the US are not affordable and are pushing their economies into permanent economic stagnation. The Krugman view that all one needs is a new dose of massive government spending has been tried by every country in the Western world. That it failed miserably spurs Krugman on to demand more of the same. Krugman is comfortable. He has a job. This is all "academic" to him. And, he's having fun to boot.

But the economic malaise that the world is stuck in is a direct result of the policies of Western governments for the past half century. Sticking your head in the sand is not the route to intelligent policy. It is time to admit failure.

Only free markets provide economic growth. Shutting down free markets in Western countries has lead to what we are now observing. Pretending that politicians can "fix" this so it all works is ridiculous.

The Cost of Dodd-Frank

Senator Chris Dodd and Congressman Barney Frank know little about economics and less about financial services. Nevertheless, their names adorn one of the worst pieces of legislation in American history -- the Dodd-Frank bill. This bill, one of the first of Obama Administration's body blows to the American eoonomy, is now bearing fruit in massive layoffs at the major banks in the US.

What Dodd-Frank does is shift the center of the financial service world from the US to Asia. What Dodd-Frank doesn't do is provide any reform whatever to the delivery of financial services in the US. Dodd-Frank enshrines "too big to fail" as the cornerstone of US bank regulatory policy. Dodd-Frank is an absurd, suicidal act imposed upon the financial services by ignoramuses who don't understand the purpose or operation of a financial service industry. It's a lawyer's dream and country's nightmare.

Check out the bank stocks. This year they are down from 35 percent to 60 percent, pretty much across the board. Pick up a newspaper. Banks are laying off employees in the US in huge numbers.

I wouldn't be a bit surprised if this was the purpose of the "envy crowd." Crush American financial services so that you don't see those rich Wall Streeters around anymore. The rest of the country is just collateral damage in this assault on what used to be the dominant financial service country in the world.

Thursday, 18 August 2011

All The Bad News is Going to Get Worse

Don't expect the bad news to end any time soon. As long as politicians continue to try to sweep things under the rug, both in the US and in Europe, markets will swoon from time to time.

But, the markets have priced much of this in. The markets are not fooled by the politicians. The truth is that Europe and the US have both put their economies in straight jackets for the foreseeable future. The desire to do good has accomplished what sworn enemies could never achieve -- the decline of the Western economies. We are watching that unfold before our eyes. This means periodic slamming of markets.

But, the larger companies will survive this onslaught. They are in cahoots with the politicians in any event. It is the small companies and the middle and lower income groups who will bear the brunt of the unwinding of the European-US pipedreams.

All of this protection for minorities, for the disenfranchised, etc., simply entrenches the wealthy, like Warren Buffett and Bill Gates. None of this really affects them and their wealth will survive this. Obama will live to a ripe old age and will be worth hundreds of millions of dollars, if not billions, in the late stages of his life. They've got it made.

The ones that lose are those trying to make their way in this sea of red tape and mixed signals. Anyone who wants to start a business or build a career starting from ground zero has no real shot in the world that is now the Eurozone. The US is rapidly becoming its twin. The real losers will be the minorities, the low skilled, the poor and the middle class. They have no future in the world that their great champions have created for them. That's why Buffett likes this and is its most visible cheerleader. He and other rich folks have nothing to lose in this brave new world.

Economist Thomas Sowell wrote a great book entitled "The Vision of the Annointed," where he describes in detail the process by which do-gooders destroy the opportunities for poor folks. Now we are seeing Sowell's vision play out on the world stage.

But, stocks will do fine and so will Warren Buffett.

No Inflation....Just 6 Percent

So Bernanke sees no inflation, nor do any of the major economists working with the Obama Administration. The CPI rose at an annualized rate of six percent in the month of July. How's that for no inflation.

The bankruptcy of Bernanke's and Obama's policies are unfolding in the only logical direction that such policies can take us: rising inflation and a weak and stagnant economy.

Politicians Busy Solving Europe's Problems

You knew when various European countries banned short selling that the politicians were beginning to panic. Fix it! Fix it!

What is unfortunate is that folks in the investment community are on the sidelines urging them on. They want the taxpayers, once again, to step up and bankroll the banks, governments and whoever else has made serious, gigantic, mistakes and need financial help. Why? Why not let them go under? Why not force Greece, Spain, Portugal, Italy, whoever to do workouts with their creditors. The creditors loaned them money (or bought the debt with eyes wide open). Why is this the taxpayers' (of other countries) problem?

The usual tactic to justify putting taxpayers on the hook is to argue that, absent a bailout, the world is coming to an end. Really? How do they know that? Are they objective in this assessment?

The ECB should quit meeting. Merkel and Sarcozy should take a 16 month vacation. Let the profligate borrowers go bust or do workouts with their lenders and leave the taxpayers alone.

New Fund: OSK-UOB Agriculture Fund

With the world population slated to increase, particularly from the emerging markets like India and China, coupled with the increase in per capita income in the developing nations and an improvement in lifestyle, the demand for food, and in turn agricultural commodities, will see an upward rise. Moreover, with rising income, meat consumption is also expected to increase and therefore more grains, wheat and other soft commodities are needed to feed the poultry demand, thus also creating demand for agricultural commodities. 

However, despite the expected increase in demand, supply factors remain constrained due to land and water scarcity caused by urbanisation. Climate has also proven to be very unpredictable in the recent past, with increasing frequency of extreme weather events. This makes the planning and production of crops harder, especially when the supply of agricultural commodities is concentrated in a few countries.

This mismatch in demand and supply factors is expected to move prices of agricultural commodities upwards. OSK-UOB has therefore established this Fund so as to capitalise on this potential price increase in the agricultural commodities sector.

The Cultivating Fund

The OSK-UOB Agriculture Fund (AGRI) is an open-ended, growth fund which aims to achieve long term (5-7 years) capital appreciation through an over-the-counter derivative instrument in the form of a swap agreement that is linked to the agricultural commodities sector. 

The Fund seeks to achieve its investment objective by investing up to 100% of its Net Asset Value into fixed income instruments and up to 10% of its Net Asset Value as capital payment for exposure to an over-the-counter (OTC) derivative instrument in the form of a swap agreement with a counterparty that offers exposure to the performance of one of 3 indices, the Contag Beta Agriculture Excess Return Index-Beta Index, the Contag Beta Agriculture Excess Return Index-Alpha Index and the Contag Beta Agriculture Excess Return Index-Alpha Beta Index ("Contag Indices") that are linked to the agricultural commodities sector.

More on Contag Indices
The Contag Indices provide exposure to agricultural commodities by referencing exposure to certain commodity futures over time. They use the Contag contract selection methodology to select a maturity for each commodity futures on a monthly basis. Each of the Contag Indices invests in the same underlying commodities as included in the S&P GSCI™ Agriculture Official Close Index Excess Return (the “GSCI”) which currently as at 11 June 2011, by way of example, comprise exposure to the following underlying commodities but which may change in accordance with the GSCI’s own rules: sugar, cocoa, coffee, corn, cotton, Kansas wheat, soybeans and wheat. The workings of the Contag Indices are elaborated further in the Prospectus (page 18-20).


AGRI is suitable for investors who: 


seek investment opportunities in the agricultural commodities sector;
seek capital growth;
have a long term investment horizon; and 
have an appetite for risk to gain higher returns.

Source: OSK-UOB Investment Management

Tuesday, 16 August 2011

CLSA Top 5 Picks during volatile times (16 Aug 2011)

After an unexpected AAA rating downgrades and an expected correction, KLCI is coming down from its peak of 1,597 points in early July. CLSA come out with a timely report highlighting 5 stocks which investors should focus on even during volatile times. These stocks have resilient earnings, clear earnings visibility and are supported with dividend yields.

CLSA: YTD major indices performances as at 08 Aug 2011.

Which are the counters?

Axiata - Turning into a cash cow
  • Axiata's earnings will remain resilient during downturn as EBITDA is dominated by cellcos in Malaysia and Indonesia where price competition is muted these days.

  • From a highly geared company in 2008, Axiata is now turning into a cash cow with forecast yield rising to 10% in FY13. CLSA is expecting dividend yield of 3.6% for FY11, translating into total shareholders return of 10%.

Gamuda - Risk discounted
  • The 22% share price fall from 52-week high has discounted its Vietnam investment risk. US$600m market cap loss is more than its US$350-400m investment to date.

  • FY12 earnings are underpinned by high-margin construction orderbook worth RM2.7bn, unbilled property sales of RM1bn and recurrent infrastructure earnings.

  • MRT project news flow catalyst. Potential 26% upside to RM4.20 target.

Genting Malaysia - Growth, value and net cash
  • Its investment thesis remains geared towards growth as the UK casinos rebounds off a low base and the New York facility begins maiden contributions.

  • Gaming revenue, particularly in Malaysia, is uncorrelated with economic health. Balance sheet remains robust and it is among the most attractively valued gaming stocks globally.

Maybank - Resilient dividend yield
  • Regional expansion strategy through Kim Eng acquisition is earnings accredited.

  • Rising productivity and cross-selling activities will improve ROE and regaining domestic market share in profitable loan segments and investment bank deals.

  • High net yield of over 6% in FY12, supported by dividend reinvestment plan.

TM - Potential for special dividend
  • TM is recording strong growth for HSBB and this product could turn EBITDA positive earlier than expected.

  • Management undertakes active capital management and we are expecting special dividend of 3.3% from recent sale of Axiata shares.

Source: CLSA article dated 09 Aug 2011

Now Germany

You knew that, sooner or later, the German economy would slow under the onslaught of the bailouts demanded for the rest of Europe. The economies of both Germany and France are beginning to get crushed under the weight of the profligacy of the rest of Europe. In actuality, neither Germany nor France were in good shape to begin with. Only by comparison with the rest of Europe, did Germany and France look like winners. Both economies are long-run losers.

Unless the bailout game plan is reversed soon, there isn't much hope for economic growth in Europe. Unfortunately, the European culture has long ago adapted to the idea that everyone is entitled to everything. That worked as long as population increases and gullible bond buyers could fuel the pipe-dream. That's over now. Nothing short of a complete dismantling of the welfare state offers any hope of economic growth for Europe. This spells political upheaval, the beginnings of which we are already observing.

It will be interesting to see what happens next, but this movie will not have a happy ending.

Monday, 15 August 2011

Watch The Money Supply

The money supply (M2) is growing again and at a very fast clip. This means three things: 1) The economy will not fall back into recession; 2) Asset markets are headed up, not down; 3) Inflation is going to pick up.

What growth in M2 does not necessarily imply: 1) a major increase in GDP growth; 2) any substantial improvement in employment levels.

So, watch for stagflation and watch for asset prices to move up.

Sunday, 14 August 2011

It Takes a Year to a Year and a Half

On CNBC this week, one businessman commented during an interview that "if you want to build a new house in California, the permitting process takes a year to a year and half." The situation is much worse if you want to construct a commercial building.

Given the half life of products these days (think how recently Iphone, Ipad, etc. have come to dominate our lives), any business wishing to move product in a hurry will do what Apple did -- have it manufactured in China.

It isn't realistic to expect a company like Boeing to get into a protracted multi-year argument with the National Labor Relations Board over whether or not they can locate a plant in South Carolina. Isn't it simpler to avoid that discussion entirely and to build the plant in China or Brazil or somewhere where government rules are not totally unreasonable?

The answer is obvious and points the way to the future.

What Next?

Can the stock market do well if the real economy is likely to stagnate? That is the question.

The European debt crisis will ultimately lead to sovereign defaults that may leave no country unscathed. The US will probably use inflation as its default method of choice. So might Europe. But, Europe will witness a rolling pattern of workouts, country by country. The Euro itself should survive. The survival of the Euro, to me, was never in question. After all, if California defaults which is very likely, such a default would not threaten the US dollar.

There will be sovereign defaults within the US among cities and states.

Eventually, all the bad sovereign debt will be written off. It is just a matter of time and place.

What will equity markets do during that time? Some debt default is already priced-in; priced-in both in the debt market itself and presumably in equity markets as well.

The Asian crisis of 1997, which was largely a (private) debt crisis was overcome within three to five years. But, then Asia had no one to bail them out (and hence to prolong the process). They were lucky.

Unfortunately, Western countries are obsessed with the idea that bailouts actually work. Most Westerners think, incorrectly, that the bailouts in the Fall of 2008 saved the US economy. There is no reason to believe this, but most people do believe it. As a result, bailouts have become the policy of choice, both in the US and in Europe.

So long as bailouts are seen as the way out of the Western nations' debt problems, economic growth will be elusive. Equity markets could still improve in that environment, but probably won't run away on the upside.

Friday, 12 August 2011

The Fed Can't Do It

The Fed has promised an extremely low interest rate environment until June 2013. It won't happen. First of all, the Fed does not have the power that must economists and pundits ascribe to it. If treasury yields want to go up, there isn't much the Fed can do about it. Even if they buy a ton of treasuries, eventually the markets will overwhelm the Fed's pocket book.

Inflation is coming. The money supply is growing rapidly and will continue to grow rapidly unless the Fed unwinds QE2, which it is not likely to do.

So, take advantage of the low rate environment while it lasts. It won't last two years.

The Group of Eight

Last night eight Republicans participated in a debate monitored by Fox News. The debate was held in Ames, Iowa as a lead into the Iowa "straw poll," that takes place on Saturday. Who won?

With Obama collapsing in the polls, you would think the field would be full of outstanding candidates, but if you watched this group of eight it was difficult to pick a winner. None of these folks seem up to the task for differing reasons.

The overriding issue of curbing big government was addressed only by Ron Paul. The other seven seemed to favor some limits on government, but, in other ways, seemed to favor expanding government's reach in ways that they like. Ron Paul is delightfully honest, but it is hard to see him as a serious candidate, even though his idea content is higher than any candidate in recent memory.

Rick Perry is riding to the rescue on Saturday, but he has so many enemies in Republican circles that it is hard to see how, even if nominated, he could pull the party together enough to give Obama a real race to the finish line.

So, for now, weak though he is, Obama looks like he could easily defeat anyone in the current crowd.

Thursday, 11 August 2011

New Fund: OSK-UOB Taiwan Opportunity Fund

Taiwan has recovered strongly from the global economic downturn with a growth of 10.8% in 2010. According to Global Economic Prospects, January 2011 by World Bank, Taiwan’s gross domestic product is tipped to grow 5% in 2011. Taiwan is a beneficiary of Asia’s growth, in particular that of China’s. Following the liberalization policies of Taiwan’s new administration towards China, Taiwan’s economy has become increasingly linked with China’s.

Foreseeing a significant growth prospects for Taiwan in the next few years, OSK-UOB has therefore established a Fund that is structured to benefit from these potential opportunities through a swap agreement which will provide exposure to Taiwan’s capital markets as represented by the Taiwan Taiex Index (“TWSE”). This Fund will provide investors with an opportunity to participate in the potential benefits from this outlook on the Taiwan economy in the next three years.

About the Fund

This is a 3 year close-ended growth fund which aims to achieve medium term capital appreciation. It seeks to achieve its investment objective by investing 90% of its NAV into fixed income instruments and the remaining 10% as capital payment for exposure to an over the over-the-counter (OTC) derivative instrument in the form of a swap agreement.

Swap Agreement?
The Fund's potential returns will principally be derived from the swap agreement through its exposure to the performance of TWSE over a 3 year period and also from an enhanced payout if certain criteria are met at the maturity of the Fund. As such, the Swap Counter-party will charge a swap fee of 1% per annum of the notional amount.

How to calculate the return, which consists of Enhanced return?
Investors are entitled to the enhanced return at maturity, if the following conditions are fulfilled:
  1. the final average level of TWSE is greater than the initial reference level, and

  2. the lowest level is below the initial reference level of TWSE

What is the downside risk?
First, this is NOT a capital protected or guaranteed fund, although 90% of its NAV is in fixed income instruments. The Fund may lose all its assets under the swap agreement (limited to investor's investment amount only) if:
  1. the TWSE declines 100% from its initial reference level determined, or

  2. the TWSE declines close to 100% from its initial reference level determined and USD appreciates against RM.

Source: OSK-UOB Investment Management Berhad

Life in the Dependency Economy

The vast majority of Americans now are "dependent" upon others for the most significant parts of their economic life. The entitlements are just the beginning. Most Americans feel "entitled" and don't ask who pays. Somehow, "the government" is an adequate answer to this question. Young folks emerge from American universities with the idea that "the rich" and the "big corporations" can somehow provide funding for all manner of projects that they find worthy. All of this is economic absurdity.

As long as most folks believe they don't have to pull on the oars, they won't pull on the oars. That's why the Greek riots (and now London riots) are so instructive. These folks do not believe that they need to work themselves to provide the elaborate lifestyle that they plan to live.

Compare the attitude of Asians. No one in an Asian culture believes that they are "entitled" to anything. The modern Asian attitude is similar to the attitude of Americans in the nineteenth century. They see opportunity to work, to save, and to improve the lives of themselves and their children. They see this opportunity as something that they can create, not something that are "entitled to." That is why the Chinese savings rate exceeds 50 percent while western savings rates are, at best, single digits.

So, what will be the outcome? The western nations no longer have the energy to move the dial. They expect the dial to settle comfortably somewhere that will provide for their needs. It won't. The rude awakening is that the Asian nations will not provide indefinitely for the lifestyle the western countries think they deserve. Instead the Asian nations, by individual effort not by government largesse, will grow and develop and surpass the West.

The idea that Americans, left and right, cannot even agree to move the age of eligibility of social security and medicare out to reflect the obvious demographics that are crushing these systems shows the welfare mentality in clear relief. By the time the US figures out that the entitlements need to be reigned in, it will likely to be too late to reign them in without directly reducing benefits for folks that depend upon them. This is the legacy of the welfare state -- a state of denial bordering on idiocy. No rational human remotely familiar with the facts would take the current line espoused by Obama and Pelosi. The entitlements cannot be saved by taxing the rich. That is pure idiocy.

The US is a pampered society that refuses to face the cold hard numbers that promise economic stagnation and economic decline. Fortunately for the world, there are other countries that don't see things this way.

Wednesday, 10 August 2011

Leave The Markets Alone

Today's stock market loss of over 500 points, reversing Tuesday's 500+ point gain, has led to calls for action by various agencies of the government. Enough!

Let the markets sort themselves out. That's what they do best, when left alone. There is too much "what will the Fed do now?" This attitude forces politicians into action, just when they should remain silent.

Politicians don't know, any more than anyone else, why markets go up or down. There isn't any real news in the stock market since the slide began to accelerate last Thursday. We already knew (before last Thursday): 1) Europe was a basket case; 2) The US has a debt implosion; 3) GDP growth in the US was virtually non-existent 4)the President hasn't got a clue. This we all knew well before the market drifted below the 12,000 mark. The only new piece of news was the S&P downgrade. But, who did that surprise? (Other than Geithner, of course, who is surprised by everything).

The politicians should keep their hands off. We don't need more policy. We don't need calming statements. We don't need the ECB to do something. Let markets do their thing and keep the politicians on the sidelines. Haven't they done enough?

A Bankrupt Fed Policy

All eyes were on Bernanke yesterday. The usual coterie of hysterical media folks -- Jim Cramer comes to mind -- were screaming loudly that the Fed needs to do something. Yes, the Fed needs to do something....go on vacation. The idea that the central bank can offset the sledghammering that the Obama Administration has done to this economy is ludicrous. All Bernanke is doing is angling for reappointment, nothing else.

The Fed is bankrupt (literally) and the US treasury is bankrupt. Bernanke and Geithner should be retired. They are the architects of the worst economic recovery since the 1930s. No policy at all is better than foolish policy.

The government needs to get out of the way, not come up with some new dumb idea that the media can focus on as a panacea for our economic troubles. Only free markets can get us out of our troubles, not more big government.

Tuesday, 9 August 2011

The Stock Market

The stock market should be bought here. No one has made any serious money by holding stocks since March of 2000. That is more than eleven years of nothing, except occasional dividends. Stocks will do better over the next eleven years. Long term investors should own this market here.

That doesn't mean that stocks won't go lower. They probably will. But, picking a bottom is a fool's game. The economic environment always looks terrible when it is a good time to buy stocks. Otherwise, it would not be a good time to buy stocks.

Agreed that the Obama Administration and the Democratic Congress of 2009-10 have done everything they possibly can to destroy the American economic engine and have, in part, succeeded. But, help may be on the way. It isn't clear that the American worker will survive the Obama debacle, but American business might. American business can outsource, can expand plant and equipment and can sell its products to the rest of the world. The US is probably entering a long run period of economic stagnation, but that doesn't necessarily spell doom for the stock market.

Americans have chosen to price themselves out of the labor market by adopting an absurd litigation environment and onerous mandates and America has chosen to impose upon itself unaffordable retirement and health care schemes. But, the rest of the world, especially the part of the world that is growing, has not been so foolish. American business can, over time, link itself to the growing parts of the world. This is not encouraging for the future standard of living for the average American, but, for the investor, the non-western world can provide solace.

So, close your eyes, swallow hard, say a prayer and buy stocks.

Monday, 8 August 2011

US rating cut: Should we buy now? (9 Aug 2011)

To answer that million dollar question, please let us examine the whole situation. First, what actually caused the market to slump? Second, the correction is short or long-term? In the end, it depends on how gut are you as an investor in this sentiment driven market.

What actually caused the market to slump?
Panic selling is my answer. Simple and straight to the point. Investors are so scared that they can't figure out what is going to happen after S&P downgraded US long-time AAA rating. This was the first time US was being downgraded. No previous record for investors to forecasts, so dump first la. Herd mentality is playing a very crucial role now (again).

Short or Long-term correction?

As mentioned, panic selling also means short-term correction. People are throwing their assets at a discounted price for the sake of getting their sleepless night away. After awhile, then only they realized that the actual situation is not as bad as they think. Then, investors will come back to the "playground".

The panicky Good news?
While bear market set the stage last week, US did reported a few surprising announcements as below:
  1. unemployment rate fell slightly in July to 9.1% as compare to 9.2% in previous month

  2. payroll salary is increasing again in July (boosting consumer spending going forward)

  3. 2nd quarter corporate earnings are better than many analysts forecast

  4. After all, only S&P cut US rating while Moody's and Fitch still maintain the AAA rating

  5. Commodities price came down so much which would put less pressure on inflation

Despite the good news, seems like the market was conquered by negative vibes successfully distributed by S&P. Finance Malaysia believes the market will sooner or later realized that the world economy is actually still recovering, albeit slowly. Investors will come back again in medium term owing to a few catalysts to rejuvenate investors' sentiment. Who knows QE3 is in the making?

Some Positives; Time to Buy

The S&P downgrade is a salutary event. It spotlights the problems with US government finances. This is all to the good. In the midst of the downdraft today, President Obama gave a brief statement that exhibited a total lack of understanding of US debt problems. The stock market followed the Obama comments with an almost immediate drop of another 200 points. Overall the markets lost nearly seven percent by the time the smoke had cleared.

But most folks get it, even if the President doesn't.

No longer can politicians pretend that the debt issue can be swept under the rug or buried in a sea of class warfare.

It must be time to buy stocks again.

Disaster after US rating downgrade? (8 Aug 2011)

The news that S&P downgrading US credit rating shows that rating agencies are doing their job fairly. Previously, rating agencies were blamed by Greece and Europe countries for downgrading their ratings when Greece facing rising debt issue. Though, US did not spare this round when S&P downgrade US AAA rating to AA+ (one notch lower).

What would be the implications?
Normally, the downgraded currency will slump, sovereign bonds will become less attractive by carrying higher degree of risk, hence pushing up the yields. Does US follow these theory? NO.

Why US is different?
USD will not fall much like Euro. First, USD is one of the safest asset, along with gold, during economic uncertainties. That's why USD was chosen as the world's most widely traded currency. During uncertainties (like now), investors are scare and they pull-out from equities around the world. But, where did they put the cash? USD is the answer mainly because it is widely used globally and of high liquidity.

Bond Yield will not jump like Greece's. Second, when the demand for USD is still there, US treasury bonds' yield will remain (or even fall). Continuing from previous question, where would you place your money, if it must be denominated in USD? Treasury bond or Cash Deposit? Definitely treasury bonds which still can give you around 2.5% yield (10 years US treasury).

The remaining AAA rated currency by there of the largest rating agencies.

How is the currency market would be?
Finance Malaysia believes that USD will weaken against major currencies which were rated AAA, but will strengthen against other non-AAA countries (including Malaysia). You may refer to the table above to gauge which currency should perform better in the near term.

Do The Numbers

The present value of our social security and medicare liabilities can be conservatively estimated at $ 66 trillion. How do we deal with that?

Lets tax the rich! If we raise taxes, ala the Obama plan to eliminate the Bush tax cuts for the rich, we will gain $ 770 billion in revenues over the next ten years. That assumes, of course, that business folks don't alter their plans after getting socked with this tax increase. So, let's assume we tax the rich. That gets us $ .7 trillion. That leaves $ 65.3 trillion to go.

What next?

Well, perhaps bondholders will step up and buy $ 65.3 trillion more in our debt to fund our retirement and health care. You think the Chinese will do that?

Here are some more numbers. A twenty two year old college graduate might work 40 years and then retire at 62 and collect social security (that's right, three-quarters of Americans take the early retirement option at 62 (now 63), so 62 (now 63) is relevant age, not 65). So, they don't work from zero to age 25 and then they don't work from age 63 to 83. That's 45 years of no work and 40 (41) years of work. And, they plan to live at, more or less, the same lifestyle in all of these periods. Really? Since the typical American doesn't remotely save enough to do this, who will step up to the plate? That's where the $ 65.3 trillion shortfall comes in. Who will put this money up?

What eventually will happen is that the US will dishonor it's pledge to its senior citizens. It won't have any choice. It will not have the money or the borrowing capacity to come up with $ 65.3 trillion.

So, S&P is right.

Only politicians and hack journalists think this is do-able if only the tea party would go away or if only we could "tax the rich."

CNBC Hysterics

This morning's CNBC features Jim Cramer, of all people, calling for "bold" action by the ECB (European Central Bank). This is so absurb, it makes you wonder if Cramer is paying attention.

The world is drowning in sovereign debt and Cramer wants the ECB to step up and buy debt, effectively print money, and permit the current absurdity to continue unabated.

It's time for these countries to take their medicine. Yes, it will be painful, but not nearly as painful as it will become if nothing is done. Ditto for the US.

Forget about the immediate impact upon the stock market. That is totally irrelevant.

It is time to face the facts. The government spending in the western economies cannot be sustained. Period. Blame Standard and Poor. Blame the ECB. Blame the Tea Party. Blame whoever you want.

But, facts are facts. The western economies will ultimately default one way or another. The sooner they begin to do workouts and reduce their government spending, the sooner their economies can begin the process of real economic recovery.

Don't listen to the silly folks who are focused on where stocks may or may not trade today, this week, this month, or this year. That doesn't matter.

More Nonsense from Politicians

Geithner is complaining about Standard and Poor. The G-7 says that they will take "concerted" action, whatever that means. The ECB says they will buy Spanish and Italian bonds. These folks still don't get it.

Politicians believe that all they need to do is "calm the waters." If that worked, it would have already worked. The world is drowning in sovereign debt. The US national debt is spiraling out of control. "Calming the waters" might get you through a day or two, but that is about it. Sooner or later the cold hard facts of the numbers intrudes.

The size of government needs to be reduced in the western economies and the entitlement programs need to be phased out. The western countries cannot afford these things anymore and bondholders won't fund them. All the discussion by Geithner, the G-7, and the ECB is irrelevant and distracting.

Sunday, 7 August 2011

Quadruple A

Warren Buffett is at it again. He has now declared that Standard and Poor was "wrong" to lower America's debt rating from AAA to AA+ and that it should be AAAA. This bizzare statement was offered to Bloomberg in an interview yesterday.

Buffett has famously urged Congress to raise tax rates, knowing full well that he will never pay them. Buffett, like other rich folks, can shift his assets around to avoid the tax man, so he could care less what the tax rates are.

Buffett wants everyone to see him as a modest, unassuming man who did well. That, of course, is nonsense. The son of a well-to-do Nebraska Senator (Republican, at that), Buffett has always had it pretty easy. He is definitely a smart guy, but he lives like a potentate, flying around is his private jet, hobnobbing with the wealthy and the far left as he issues absurd statements like his "AAAA" statement today.

No amount of obfuscation by Buffett hides the cold hard facts. The rating agencies are right on. US debt is in deep trouble. The US has $ 66 Trillion in unfunded liabilities in its entitlement programs. Buffett thinks that is okay and merits a "AAAA" rating. S&P doesn't agree. S&P is right.

Shoot the Messenger

Listen to the outcry! The politicians have now decided that Standard and Poor is to blame for the near term financial chaos. Those evil folks at S&P should not have downgraded US debt (or not used the "process" that they used to downgrade US debt).

These are the same politicians who complained when the rating agencies were late to the party in the 2007-2008 crisis. Many of of these politicians blamed the rating agencies as contributors to that crisis, when they failed to downgrade weak debt.

So....damned if you do, damned if you don't. What does this tell you? It tells you that politicians (and central bankers) are looking for someone to blame for their own mistakes.

In both cases, the same facts prevail. Government created the current crisis just as surely as government created the 2007-2008 crisis. Politicians, who are mainly to blame, look for others to blame.

This "shoot the messenger" strategy is followed by both US and European politicians and central bankers alike. That strategy, they hope, will keep the public from the real truth -- the US and Europe are drowning in sovereign debt and have taken no steps to deal with the problem.

So, here they go again....blame the rating agencies.

Saturday, 6 August 2011

Only Geithner is Surprised

The S&P downgrade of US debt from AAA to AA+ comes as no surprise to anyone but Treasury Secretary Geithner who, as recently as a week ago, declared that there was "no chance" of a downgrade. Has he been living in a cave? Did he listen to the rating agency executives' testimony to Congress two weeks ago? Geithner has no credibility if he is surprised by the downgrade. He is either an idiot or he is uninformed (perhaps both).

The markets were certainly aware that this outcome was on the way. S&P had said, weeks ago, that unless $ 4 Trillion of credible debt reduction was accomplished and soon, the downgrade was highly likely. So, you have to wonder what the deal is with Geithner? Is this the guy advising the President and setting Administration policy.

It's one thing to have crackpot views, which seems rampant in this Administration. It is quite another thing to be uninformed and incompetent.

Geithner should step down and let someone who, at the very least keeps themselves informed of what is going on, come in to advise this apparently hopelessly befuddled President.

Friday, 5 August 2011

A Better Employment Number

Today's employment report is marginally better than the market anticipated, showing 150,000 plus additional private sector jobs for the month of July. That number would be anemic, historically, for an economic recovery number. You need nearly 250,000 a month to put a dent into unemployment. The fall in the rate from 9.2 to 9.1 occurred only because so many folks gave up looking for a job and thus are no longer counted among the unemployed. But, that said, this morning's number was not disastrous, just merely discouraging.

Unfortunately, this is as good as it gets. That's the sad state of affairs for the US economy. We now face stagnation for a generation (or possibly generations) until economic policy does an about face (which it might not do).

Governments Not Helpful

We are now reduced to bemoaning the obvious fact that governments are powerless to do anything about the current economic trauma. Why do we think this way? Governments have never had any real power to spur economic growth. Mostly, governments just get in the way.

But, over the years, a largely ignorant media has trumpeted the idea that governments are the solution to economic problems and much of the public now looks to government to solve their economic problems. Gradually, it is sinking in that government may be the problem, not the solution.

It is appealing to look to government to solve all problems -- provisions for old age, health care, education, whatever. But, government solutions to these problems sap the vitality of the economic system and the energy of its citizenry. Folks stop saving; students quit taking education seriously, citizens overeat...why not? We are all victims. It's not our fault, says the media. Let the government rescue us from ourselves!

Only individual effort, in the long run, makes any real difference. That's what the Asian economies know. Look at the effort that Asian students put in to their educational pursuits. The top students at practically every American university have Asian last names. Why? Because these kids know that they must make that effort themselves. Government is not going to do it for them. But, Americans and Europeans don't see it that way. They are convinced that they have already done their heavy lifting and now they look to government to solve their problems and provide for them.

The President's almost childish faith in the role of the big government belies the reality that his policies have turned the most powerful economy the world has ever known into a pathetic shell of its former self. Admittedly, he has had a lot of help from his Republican colleagues. They too think the government can solve our problems. It was the Bush Administration that proposed the prescription drug bill, no child left behind, the TARP and many other counter-productive policies. So, you can't blame all of this on President Obama. He's just one of the crowd.

It's time to take a second look at why our culture has lost its punch. Too much government. Too much class warfare. Not enough making people responsible for themselves and their families. The Asians see this clearly and the future is theirs. We are witnessing an historic shift in power. Ironically, a county emerging from communism is pointing the way to individual initiative, while a country born in a commitment to the individual is surrendering itself to the clutches of the collective.