GDP OF 6% IS FINE - By Nik Zafri

I'm not working with Bank Negara but when "smart" people (who is also not employed with Bank Negara as well) started to question Malaysia's targeted GDP of 6%, they are overlooking inflation, money flooding in without control, rising consumer demand and escalating commodity costs.

Before questioning the credibility of Bank Negara Governor, Tan Sri Zeti, I would like to point some things out for the sake of discussion.

We should consider inflation based on CPI (*energy, food etc) - which is the inflation's benchmark to determine our financial market.

(*I'm looking into the volatility of these prices translated from what I see on the field myself - people at ALL levels especially the medium income and the poor ones rather than sitting comfortably in an air-con office suite and thinking how to get publicity by criticizing Bank Negara)


GDP represents total aggregate output of our economy. As a market watcher, I told the investors that "WE MUST PLAY SAFE" - do not be too ambitious - so 6% is FINE by the standard of investors as the figures have been adjusted for inflation.

Let's say Gross GDP calculated 6% higher than last year, inflation measured 2% over the same period, thus : net growth over the period is reported as 4%.

Investors will look into GDP's annual growth - the primary stock performance driver - in order to determine whether 'to invest or not to invest'. Yes, it's true that if there in no change or a decline in the overall economic output, investors will translate these datum into companies inablity to make profit

So how about TOO MUCH GDP Growth? (or not 'trying to play safe' - take some risk) Definitely inflation will increase - killing the gains in the stock market hence our RM is also devaluated. So here we can see what will happen - more and more crime might happen, prices of food my go 'sky high' and unaffordable, more unemployment, more controlled of financing/loan/grants etc.

Furthermore it sounds good to increase GDP by linking to lowering unemployment rate but it will be out of control when supply decrease faster while services and goods' aggregate demand increase, constraint in the labour market that will result in company raising salary - where will this all end? Consumers definitely - in the form of price going higher. (Yes, in some way, some people are making profits out of these - maybe that's the reason they are restless seeing 6% GDP)

We should learn from what is happening around the world especially from the US. Almost all the US economists will agree with me that GDP growth causes inflation and inflation begets hyperinflation. The process can become a self-reinforcing feedback loop. Everyone in the world will start spending money which they know will be less valuable in due course. So...more increase in GDP = more price increase! Inflation are non-linear - 10% inflation is much more that twice as harmful as 5% inflation.

With that I rest my case.
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FOR READING PLEASURE

How are we doing today? Mr. World Economics?
By Nik Zafri - Oct 7, 2009

Ok..to start with - Oil (Asia)...Source NYME - November benchmark crude up 63 cents - $71.51 by 12.30 pm and contract settled at $70.88 - a rise of 47 cents. For US (Dow Jones gaining 1.4%), it's the best achievement and a good sign for prospects of more corporate profits.

A sign of recovery? Perhaps - Oil markets & equities are being driven by this recovery.

There is another paradox though - if crude inventories fall, oil prices may rise further and price will fall if crude stocks rise. I hope if this happens, the strong financial market will back it up.

Global Economic Stimulus Package - I'm glad that our global economy now can withstand higher borrowing cost - despite there are talks about interest hike yet world Governments spending and offers of low interest rates are now emerging.

Next - Inflation vs interest rate hikes. Some countries in the Asia-Pacific Region expected a building trend of inflation (Australia recently raise their key interest rates (official cash rate by 25 basis points to 3.25%) - which is OK to them) due to recent hike 'Downunder' - there is a possibility that 'everyone else' will follow this trend.

Thus, if there is a plan to raise interest...I can understand why (we must be fair to the Banking and Financial instititutions as well) but please monitor the inflation possibilty..if there is such sign (in Malaysia specifically), please control it.

Bonds - Reports came to me that in some countries - Traders are buying after the fall. Yields are retreating (on the benchmark one decade bond yield now closing lower - During the early deals, it's rising due to lacking of buyback news - something to look at before )

Before I move on : Anyone heard of the so called secret talks between the Gulf states? I heard stories about China and Russia are replacing oil trading with dollar which may have caused the decline is USD?

Next - USD vs Gold vs other currency - I think everyone is noticing that USD is falling against major currency. Thus gold are rallying on the bullion markets and silver surges higher. (Dollar is now the 'arc nemesis' to gold = Gold is used for safe hedge against inflation whenever the Dollar is down)

The Star Global Malaysians Forum

nikzafri-11 January 2006 at 9:48pm wrote:

Someone very wise** once told me (in 1998) - during my 'downfall' (** - Ybhg Tuan Haji Ahmad bin Che Din of Taman Merdeka, Selama, Perak - my mentor) 1. Invest in Gold 2. Invest in Agricultural Products Not long after that, the Honourable Tun Dr. Mahathir started to talk about prospects of 'Dinar Emas and Gold Coins'. In 2005, YAB Prime Minister, Dato Seri Abdullah Ahmad Badawi gave further and stronger emphasis on expanding the prospects of Biotechnology (focus : agricultural). It's not something to be too serious about or 'hitting the panic button' scenario but it's something worth pondering. ----------------------------- Today, as reported in the Star : http://thestar.com.my/news/story.asp?file=/2006/1/11/nation/13075088&sec=nation Rising value of gold makes it a good investment By EDWARD RAJENDRA edward@thestar.com.my KLANG: Step aside, athletes. Businessmen are going for gold these days. Federal and Selangor Indian Goldsmith Association adviser N.P. Raman believe that businessmen and cash-rich people were purchasing gold for investment. “It is business logic to include gold in a diversified investment portfolio. Gold can act as a hedge against inflation. Keeping your assets in gold is sound economic sense,” he said. Yesterday, the gold price stood at RM2,090 an ounce, compared with RM1,617 on June 5 last year. Raman said that for those with cash, gold was a good buy as long-term savings, and added that gold coins would be a better choice. “A person who buys gold coins now would get the market price of the day when he decides to sell it,” he said. Going by the market trend now, Raman said, the price of gold was expected to escalate. “Right now, it is about RM70 a gram, and is expected to hit RM100 per gram in two to three months,” he said. Raman operates from Jalan Tengku Kelana, where scores of goldsmiths are located. Most of them are worried that middle-income people, who form the bulk of their customers, will not be able to afford gold now. “For Indians, the period between mid-January and March 15 is an auspicious time for weddings. It is a time for a roaring business but now couples are resorting to simple three-pound gold chains instead of nine pounds. Their buying power has weakened,” he said. Nik It's not something to be too serious about or 'hitting the panic button' scenario but it's something worth pondering.

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Here it comes again :

http://biz.thestar.com.my/news/story.asp?file=/2006/2/3/business/13290549&sec=business

Gold hits 25-year high in London

LONDON: Gold rose to a 25-year high in London as gains in crude oil prices increased speculation that inflation will accelerate, eroding the value of assets such as stocks and bonds.

Gold rose 18% last year in London as investors bought the metal as a hedge against record oil prices stoking inflation.

Oil rose before the United Nations' atomic watchdog meets today to consider referring Iran's nuclear programme to the Security Council, which may impose sanctions the second largest exporter in the Organisation of Petroleum Exporting Countries (Opec).

nikzafri - 02 January 2006 at 5:41pm wrote:
http://www.globalmalaysians.com/forum/forum_posts.asp?TID=465&PN=1
3) ...Have a 'cushion to fall on' in the case of inflation...

“Rising oil prices will continue to keep gold prices buoyant this year, as it's likely to lead to inflation,” Ross Norman, an analyst at TheBullionDesk.com, said in an interview yesterday.

Gold for immediate delivery rose as much as US$3.85, or 0.7%, to US$573.20 an ounce, the highest since January 1981. It traded at US$572.99 at 10:09am London time.

The situation in Iran was a “double whammy” for the gold market, Norman said.

“It increases geopolitical tension as well as oil prices, both of which are good for gold,” he added.

Crude oil for March delivery rose as much as 63 US cents, or 1%, to US$67.19 a barrel in electronic trading on the New York Mercantile Exchange.

World gold prices are likely to rise to US$610 an ounce by March/April, but this is unlikely to deter Indians from importing the same amount of the precious metal in 2006 as last year, according to the head of the country's leading bullion trade body.

Mukul Sonawala, president of the Bombay Bullion Association, said on Wednesday that gold could see a small correction before it rose again.

He said a price of US$540 per ounce would provide a buying opportunity.

“There is inherent strength in the market,” Sonawala told Reuters. “All the fundamental factors are pointing to that.” – Agencies
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Posted: 24 February 2007 at 3:34pm

My Gold Fact Sheet

Gold price indicates:

a) inherent value
b) quoted currency relative strength

On Supply/Demand

- the price will always be stable and doesn't seem to be much effected by even reduction in supply or in net selling by the bank,

- demand - be it raw material or investment) still going high - (you can simply based on sales of jewellery - ask my wife)

- supply - production results, hedging by mining companies, scrap/net sales by bank -all still going steady

Investment

As Portfolio diversifier. All over the world, calculation is based on standard
returns correlation/volatility.

And of course - Gold is a Reserve Asset.

What? There's more?

- inflation seem to have not much effect on Gold as well,
- Gold is all time purchasing power indicator,
- Gold's liquidity power is guaranteed,
- in case anything happen (even market crash), gold will come to the rescue
- provide confidence, insurance, assurance and security (try keeping them, or perhaps buy a genuine Rolex at least, you'll know)

END OF LINE....

Agriculture

(Search the NET..you'll know)

The Star Global Malaysians Forum - Posted: 19 May 2006 at 9:17pm

I'm sure you all have seen the headline today in the Star - Stock Market Plunge (all over the world!) I'm not commenting so much on this but the following are some interesting views of mine that you may want to read.

There are too many intellectual views on inflation all over the globe but most of these ‘speculations’ if not treated carefully could be extremely misleading. Of course, inflation happens… and off late this issue tends to be ‘connected’ to the ever rising global crude oil price although this is not only the cause..

Returning to the basics, when services and products/goods prices started to experience a certain rate of increase or we start loosing our purchasing power (or your money becomes worth less than before) then it is very safe to define that ‘these are signs of inflation’. Measuring inflation is usually benchmarked to a basket of services and products/goods on our side and on the production side mainly known as PPI and CPI. Again, these only serve merely as guides as they are still based on conventional random analysis, sampling and ‘playing with a bunch of datum’. But then, how come the CPI rate has remained stable (example in KLCI) despite these rising prices? It’s not just energy alone, there are other rising items as well. Think of other commodities such as health and education. Don’t forget the property market (prices,mortgage,taxes and maintenance)

US Federal Reserve rate hike? This is nothing new!. From my sources, rates have been hiked ‘regularly’ since the last 2 years and I’m sure most economists (be it ‘K’ or ‘P’) and investors will agree with me that that regular hiking will hurt the growth of economy. Another issue is policy making addressing the risk of inflation – another no ending issue! (all depends on future data and ‘blah’, ‘blah’)

To aggravate situation further – SPECULATIONS -spreading ‘DEFCON-type panic’ in the market. Even before the Fed announce the hike, the stocks, bonds, commodities started to be traded lower. Banking and Financial institutions increase their prime lending rate and guess what? Sit back, you’ll be experiencing BLR turbulence known as loans, cards, property etc. etc..

Sometimes unnecessary panic or ‘being too cautious’ may also lead to ‘smart opportunists’ taking advantages. (test the market with 'shocking rumours substantiated by 'so-called' data and see what happens) The 'best' part is that the Feds will still increase the rates even in this ‘simulated chaotic’ situation. I have seen too many times - 'false alarms’/’rumours’ (at first) of rate hike by manipulators/speculators eventually becoming a ‘real one’ (later) eventually due to news of banking & financial institutions 'prematurely planning their ‘rate increasing program’ and sudden change in investment behaviour towards stocks/bonds/commodities/derivatives/futures etc.

Well, it's a common thing, an enemy will attempt to weaken the spirit of another enemy before attacking them.

I have always stressed in this thread :

a) ‘don’t panic’..’relax’,
b) give it just a little bit time,
c) analyse and verify the source of information first..

But some 'smart' people just don’t listen - finally it falls on deaf ears ("Nik you're just being paranoid") Perhaps I am too small to talk

Ok enough with lectures..this time I really wanted to hear something from all of you...please don't turn this into a too hot issue...(even if it does...I won't blame you.)

What is our next action? How to tame inflation? I'll tell you later