Sunday, February 22, 2009

Economic & Financial Meltdown Imminent

Economic and Financial Meltdown Imminent
Current mood: angsty

Economic and Financial Meltdown Imminent

1. Welcome again to my blog. After a while, I think we can see by now where the economy is basically heading. It's not going up, it's heading south ... as in Slayer's album South Of Heaven... Hahaha .. So what's the big deal ? everyone is suffering right.

Malaysian Exports

2. In the context of Malaysian economy, it is now established that the Malaysian economy has start to feel the pinch of the current economic turmoil. Recently after the Chinese New Year Holidays, we seen reports that factory workers has started being retrenched. The only thing is, we do not know the exact numbers of all these layoffs. By this time, reports on Malaysian exports and imports has been published by the Malaysian Statistics Department and the numbers are not encouraging.

Please visit to see the numbers

3. It looks like the numbers on our electronic goods exports has declined and we all should take note that electronic goods exports has been our biggest contributor to our exports. Therefore, it means that our income is decreasing. The deterioration of electronic goods exports means that the factories are producing less due to declining demands. This will lead to more layoffs. Once the factories could not sustain their operations, all these factories will have to shut down and lead to more layoffs. More layoffs will increase our unemployment rates. When people are unemployed, they cant feed themselves or their family. It will create restlessness among people and may break into chaos. It will increase crime rates since people are desperate.

4. Other than crime rates soaring, we need to understand that all these factory workers also have debt and mortgage. Once they are out of their jobs, they will not be able to pay their debt and mortgage, thus increasing Non Performing Loans. Basically its a long chain of event.

Mayhem In May

5. In April 2009, Malaysian businesses will start to report their first quarter operating results. If the numbers are grim, it is likely that the stock market will start to plunge more. The horrifying numbers will start to scare people out of the stock market. We will see that layoffs will start to infect to other sectors other than manufacturing. It is likely that it will affect the retail sector. People's earnings are affected and the can not afford to spend much. Therefore those in the retail sector could earn much and after a few months, they too will also have to close causing more layoffs.

Stimulating The Economy

6. At the moment, I do not see how the measures announced by our finance minister will help to stimulate the economy. From what I can see is the stimulus package announced by the government will help a little to mitigate the negative effect of deteriorating world economy by helping certain sectors. However, the stimulus package will not be able to assist every sector in the economy. The stimulus package will definitely help those in the construction line but I do not see if they will benefit the manufacturing sector especially in the electronics.

The Long Run

7. In the long run, I do not think that the stimulus package will be able to mitigate the adverse effects of the current global economic turmoil. I am sure that government spending will be able create new demands. However, there is a limit to what the government can do. The way I see the situation is, if the world economy is not getting any better in 1 or 2 years, we should start to embrace to the fact our condition will deteriorate further. I wonder if the government could afford a stimulus package if the situation continues for another 4-5 years.

Cash Crops and Commodities

8. It is clear by now that we have seen our commodities sector are adversely affected by the global economic downturn. The price of Crude Palm Oil has plunged from RM 3400 per metric ton to RM 1600 per metric ton. Crude Oil prices has plunged from an all time high of USD 148 per barrel to merely less than 30% of the all time high value. Rubber ? they do not stand a chance ....The only commodity which is rising in value in the current situation is precious metals such as Gold and Silver. At the time of writing, it is evident that the price of gold has reached USD 1000 and in my opinion will hovering at the USD 900 - USD 1000 level. I do not know will the current gold prices maintain at this level or fall to lower levels. However, if we see what the world governments are doing, it is likely that the price of gold is going to climb up higher and higher due to the distrust in all fiat currencies. The US government is printing money like mad, most EU countries are flirting or are already in recession. Their banks are basically failing due to their greed in the past years. How about the Malaysian Ringgit ? I do not know yet how it will effect our currency. Therefore I will not comment any.

Diversification My ass

9. All these while fund managers are saying diversify this and diversify that. But at this kind of economic turmoil, I can not see how diversifying is going to help. If you are into stocks and diversifying into different stocks, you are also getting pounded. Whether it is manufacturing, construction, plantation , I see every single sector in stocks got pounded to their knees. This is global recession at a grand scale. Malaysians never experience a recession at this magnitude of severity. The scale of this recession will belittle the one we had in 1997.


10. My conclusion is, embrace for the worse. Stop using debt as a leverage at the moment. Cut credit card spending. Start to save more and stop pamper yourself with luxuries. Try to get your hand on tangible assets, not stocks or bonds. Try gold for a change. In case of inflation arises, gold will help to preserve your wealth.

Last Advice

11. Be prudent at ALL times !

Khairul Bin Mohd Noor