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Tuesday, June 26, 2012

BRICs Biggest Currency Depreciation Since 1998 to Worsen

By Ye Xie and Michael Patterson - Jun 26, 2012 5:59 AM GMT+0800
The largest emerging markets, whose economies grew more than four-fold in the past decade, are making losers out of everyone from central bankers to Procter & Gamble Co. (PG) as their currencies post the biggest declines since at least 1998.

For the first time in 13 years, the real, ruble and rupee are weakening the most among developing-nation currencies, while the yuan has depreciated more than in any other period since its 1994 devaluation. P&G, the world’s largest consumer-goods maker, cut its profit forecast for the second time in two months last week in part because of currency losses. Brazil’s Fibria Celulose SA (FIBR3), the biggest pulp producer, asked banks to loosen restrictions on dollar loans as the real hit a three-year low.

Investors are fleeing the four biggest emerging markets, known as the BRICs, after Brazil’s consumer default rate rose to the highest level since 2009, prices for Russian oil exports fell to an 18-month low, India’s budget deficit widened and Chinese home prices slumped. Investors are bracing for more losses as economic growth slows.

“I am quite bearish,” Stephen Jen, a managing partner at hedge fund SLJ Macro Partners LLP and a former economist at the International Monetary Fund, said in a phone interview from London. “When the global economy and capital flow slow down, it’s going to expose a lot of problems in these countries and make people stop and ask questions. A run on the currency could be particularly ugly.”

Ruble’s Retreat
Currencies from Brazil, Russia and India will probably decline at least 15 percent further by year-end, said Jen, the former head of global currency research at Morgan Stanley.

Russia’s ruble lost 12 percent this quarter through today, the biggest drop among the 31 most-actively traded currencies tracked by Bloomberg. The 11 percent depreciation in the real and rupee was almost twice the retreat in the euro. China’s yuan, which was kept unchanged during the global financial crisis in 2008 and 2009, fell 1 percent since March after the government widened the amount the currency is allowed to fluctuate each day.

The ruble sank 2.4 percent last week, while the rupee fell 2.9 percent to a record low against the dollar and the real dropped 0.8 percent.

Foreign Reserves
India’s currency rebounded 0.3 percent today as the government said it increased the amount of rupee-denominated debt overseas investors can own, one of several measures unveiled to support the currency. The yuan fell as much as 0.3 percent to 6.3827 per dollar, the weakest level since Nov. 29, before closing little changed. The ruble lost 0.3 percent.

A decade after Goldman Sachs Group Inc. (GS)’s Jim O’Neill coined the term BRIC, China has become the second-largest economy while Brazil, India and Russia are among the 11 biggest worldwide. Their combined gross domestic product rose to $13.3 trillion last year from $2.8 trillion in 2002 as their share of the global economy increased to 19 percent from 8 percent, according to IMF data. Together, they control $4.4 trillion in foreign-exchange reserves, about 40 percent of the total.

The MSCI BRIC Index (MXBRIC) of shares has surged 281 percent during the past decade, compared with 34 percent for the Standard & Poor’s 500 Index (SPX) as the real and the yuan strengthened more than 30 percent. Local-currency debt in the BRIC nations returned an average 86 percent in dollar terms since data for JPMorgan Chase & Co. indexes on all four countries began in October 2005, versus a 48 percent increase in U.S. Treasuries.

Export Boost
The countries are still strong enough to account for 80 percent of growth at New York-based Goldman Sachs, the fifth- biggest U.S. bank by assets, Chief Executive Officer Lloyd Blankfein said at the St. Petersburg International Economic Forum in Russia’s second-largest city on June 21.

Weaker currencies will stimulate economic expansion by making exports more competitive, said Warren Hyland, an emerging-market money manager at Schroder Investment Management, which oversees about $319 billion worldwide. He’s been buying ruble bonds of Russian companies.

Earnings at the nation’s commodity producers, including OAO GMK Norilsk Nickel (GMKN) and Polyus Gold International Ltd. (PGIL), will get a boost because their sales are in dollars while the bulk of their costs are in rubles, New York-based Morgan Stanley said in a report this month.

Weaker currencies are hurting U.S. companies that rely on developing-nation revenue to offset slower growth in the U.S., Europe and Japan.

Lower Forecasts
P&G, led by Chief Executive Officer Bob McDonald, said in a June 20 presentation at the Deutsche Bank Global Consumer Conference in Paris that foreign-currency fluctuations will cut 2013 earnings growth for the maker of Tide washing detergent and Bounty paper towels by about 4 percentage points. China is the Cincinnati-based company’s second-largest market and some of the firm’s biggest businesses are in Russia and Brazil, P&G said.

Philip Morris International Inc. (PM), the world’s largest listed tobacco company, reduced its 2012 earnings forecast the next day because of currency swings. The New York-based maker of Marlboro cigarettes gets more than 40 percent of its operating profit from Asia and Latin America, according to data compiled by Bloomberg.

Pandit’s Expansion
A weaker real and lower interest rates in Brazil may reduce Coca-Cola Co. (KO)’s second-quarter profit by $30 million, according to JPMorgan. The Atlanta-based company left about $3 billion in cash in Brazil at the end of 2011 to take advantage of the country’s higher interest rates, Chief Financial Officer Gary Fayard said in a conference call in February. Half of the positions were left unhedged, he said.

Brazil’s central bank President Alexandre Tombini has cut the benchmark Selic rate by 2.5 percentage points this year to 8.5 percent, while the real has depreciated 9.7 percent.

“We continue to be concerned by Coke’s reliance on this income source,” JPMorgan analysts led by John Faucher wrote in a note to clients on June 7, reducing their 2012 profit estimate to $4 a share from $4.06.

Kent Landers, a spokesman for Coca-Cola, declined to comment.

Citigroup Inc. (C), which has been expanding in Latin America and Asia under Chief Executive Officer Vikram Pandit, may take a $3 billion to $5 billion “hit” this quarter related to foreign exchange losses, Charles Peabody, a New York-based analyst at Portales Partners LLC, said in an interview with Bloomberg Television on June 20. The losses may reduce Citigroup’s book value, or assets minus liabilities, he said.

Fibria Loans
Peabody, whose recommendations on shares of New York-based Citigroup during the past year produced the highest total return among 31 forecasters tracked by Bloomberg, cut his rating on the stock to the equivalent of sell from buy in March.

“Citi’s unique global footprint and exposure to the higher economic growth regions of the world will drive above-average book value growth over time,” Jon Diat, a Citigroup spokesman, said in an e-mail. “The suggestion that having non-U.S. exposure is somehow detrimental to Citi’s ability to continue to grow value over time is simply wrong.”

Local companies in the BRIC countries are also being hurt. Sao Paulo-based Fibria said on June 11 that it renegotiated loan covenants after the real’s decline increased the cost of servicing foreign obligations. About 90 percent of the company’s net debt is in dollars, according to company filings.

Yuan Debt
The rupee’s drop has hurt Indian companies by fueling inflation and reducing the scope for lower borrowing costs, said V. Ashok, the chief financial officer of Essar Group, the utility and shipping company owned by billionaire brothers Shashi and Ravi Ruia. India’s central bank unexpectedly left interest rates unchanged on June 18.

“One has no clue where it is going to end,” Ashok said in a June 22 phone interview from Mumbai. “The uncertainty and the volatility is the biggest concern.”

A weaker yuan is sapping demand for local-currency debt sold in Hong Kong, where international investors speculate on China’s foreign exchange rate. The average yield rose to a four- month high of 5.35 percent on June 5 from 4.82 percent at the end of March, according to data compiled by Bank of America Corp. Wang Changshun, chairman of Air China Ltd. (601111), told reporters this month that the company’s income from foreign-currency transactions will drop about 80 percent.

Bearish Bets
“All the BRIC looked ugly,” John Taylor, who oversees $3.5 billion as founder of currency hedge fund FX Concepts LLC in New York, said in an phone interview on June 19. The real and ruble will suffer “fairly decent” declines later this year as a global recession spurs investors to buy dollars as a haven, Taylor said.

After spending most of last year introducing policies to weaken their currencies, emerging-market governments are now working to limit the slide amid capital outflows.

Brazil’s government pared a tax on overseas loans on June 14 and has used swaps to add dollars to the market. Russia’s central bank sold U.S. currency this month to slow the ruble’s retreat, according to Chairman Sergey Ignatiev. India cut the amount of overseas income companies can hold in foreign exchange last month, spurring them to repatriate earnings. The ownership ceiling on government bonds was raised by $5 billion to $20 billion, the central bank said in an e-mailed statement today.

Investors withdrew $6.3 billion from Brazil’s stocks and bonds in May, the most since at least 2010, central bank data show. Russian capital outflows reached a net $46.5 billion in the first five months of the year, including $5.8 billion in May, which is “a lot” for the country, Ignatiev told reporters in St. Petersburg on June 6.

Consumer Defaults
Derivatives traders see no sign of a turnaround.

Wagers on a weaker real on Sao Paulo-based BM&FBovespa’s futures exchange rose to $4.7 billion on June 12, the most since February 2010, according to data compiled by Bloomberg.

Option traders are the most bearish on the ruble since October and they expect price swings in the rupee to be the biggest in Asia, the data show. Twelve-month forward contracts on the yuan are pricing in a further decline of 0.9 percent in a year.

A surge in bad loans in Brazil will weaken the real further, said Amit Rajpal, who manages global financial funds for London-based Marshall Wace LLP. The default rate on consumer debt rose to 7.6 percent in April, matching the highest level since December 2009, as lending growth slowed to 18 percent from a record 34 percent in September 2008, according to the central bank.

India Deficit
“What we’ll see now is basically a full-blown credit problem,” said Rajpal, who predicts rising defaults in Brazil will resemble the collapse of the U.S. subprime mortgage market five years ago.

In India, Prime Minister Manmohan Singh is grappling with trade and budget deficits, corruption scandals and fighting in the ruling coalition. The country may become the first among the BRIC nations to lose its investment-grade rating, Standard & Poor’s and Fitch Ratings said this month.

India’s budget gap amounted to 5.8 percent of gross domestic product, compared with 4.2 percent in Portugal and 3.9 percent in Italy, according to data compiled by Bloomberg.

China has cut its growth target this year to 7.5 percent, from the 8 percent goal that had been in place since 2005. Home values fell in a record 54 of 70 cities tracked by the government in May, while industrial production growth slowed to a three-year low in April.

In Russia, the price of Urals crude, the country’s main export blend, sank 26 percent this quarter. Russia relies on oil and gas for about 50 percent of its budget revenue.

Investors are still too bullish on assets in the BRIC nations as Europe’s debt crisis weighs on emerging economies, said Eric Fine, a money manager at Van Eck Global.

“They will do poorly when the world is doing poorly,” Fine, whose firm oversees about $35 billion, said in a phone interview from New York. “I don’t believe in decoupling.”

Dividend strategy starts paying off in Asia: Citi

Source: The Business TimesAuthor: Cai Haoxiang

INVESTORS going for dividend-paying companies in Asia have yet another reason to stick to their strategy, said a Citi report yesterday.

It said relatively few funds invest on an income rather than growth basis in the Asia-Pacific region excluding Japan.

But dividend payouts are on the rise and more companies are paying dividends.

"Dividends work as they align insiders' with investors' interests," said the report.

"Omens for dividends remain good - corporate gearing in Asia ex-Japan remains low and well below historic averages . . .

"Investors tend to believe that dividends are as volatile as earnings, but historically that has not been the case."

The report said the vast majority of funds investing in Asia-Pacific excluding Japan - more than four in five - invest in growth stocks as a matter of strategy.

In contrast, only 1.8 per cent of funds invest in stocks because they give a stream of income, compared with 11 per cent in US and Canada and 17 per cent in Western Europe, said the report.

"When fewer people are chasing the same strategy, there is greater room for outperformance," it said.

Moreover, dividend payouts have been on the rise.

In 2000, the average divided payout ratio in Asia ex-Japan was 26.3 per cent of earnings. At the end of last year, payout levels rose to 35 per cent.

Singapore's payout levels have similarly risen consistently from 29.2 per cent of earnings in 2000 to 43.4 per cent in 2011.

New Zealand and Australia are the most generous dividend payers with 2011 payout levels of 78.2 and 62.5 per cent respectively, while Korea had a payout level last year of just 14.1 per cent.

Meanwhile, some 93 per cent of companies in Asia now pay dividends. In Singapore, the level stands at 98 per cent.

Dividend yields are also outperforming bond yields more than ever.

In 2000, 5 per cent of Asian companies had dividend yields exceeding their sovereign bond yields. In 2011, the number for Asia ex-Japan was 45 per cent.

For AAA-rated Singapore, 84 per cent of companies here have a dividend yield exceeding the risk-free sovereign rate.

In a second report yesterday, Citi said yields are not expensive to obtain in Asia, going by valuation measures such as sales yield, trailing earnings yield, cashflow yield and book yield.

It constructed a defensive portfolio of dividend-paying stocks that can continue to pay out cash sustainably. The portfolio outperformed the S&P Asia-Pacific ex-Japan broad market index by 10 percentage points last year and three percentage points year-to-date.

Singapore-listed stocks in the portfolio are transport operator ComfortDelGro, and beer and spirits maker Thai Beverage

Friday, June 22, 2012

Industry returns could shrink by half: Temasek

22 June 2012

HONG KONG - Singapore investment giant Temasek Holdings expects smaller returns for the asset management industry amid a very difficult outlook with the United States market posing considerable risks, according to its President, Mr Gregory Curl.

"We're interested in sustainable returns over what we believe is going to be a very difficult and volatile environment for a number of years globally. Going forward, we would expect that returns will be between one-half and two- thirds of what they have been historically," Mr Curl said yesterday, referring to the returns for asset managers.

"We are still confident that the 70 per cent of our portfolio that's in Asia will perform at a level in excess of other geographies," he said.

Temasek, which sold its Bank of America shares at a multi-billion dollar loss about three years ago, said it had "no position" in the US financial industry. Investments in the US are held mainly in energy and agriculture, Mr Curl said.

The Federal Reserve on Wednesday slashed its estimates for US economic growth this year to a range of 1.9 to 2.4 per cent, down from an April projection of 2.4 to 2.9 per cent.

In addition, Fed officials said they expected the US job market to make slower progress than they forecast only a few months ago, with the unemployment rate now seen hovering at 8 per cent or higher for the rest of this year.

The Fed expanded its "Operation Twist" by US$267 billion (S$339 billion), meaning it will sell that amount of short-term securities to buy longer-dated ones to keep long-term borrowing costs down.
The programme, which was due to expire this month, will now run through the end of the year. AGENCIES

Let's go offline for a day

22 June 2012
Edric Sng
Tomorrow is Turn Off Your Screen Day. Never heard of it? Of course not, I've just made it up.
In case it needs explaining, the concept is simple. Tomorrow, when you wake up, you will not check your phone for messages before you've even stepped out of bed. You will not check your email on your iPad over breakfast.

How will you survive? The way people used to in the days before technology became a lifestyle: Reach out and touch somebody.

Last month, in a speech at Boston University, Google's Executive Chairman Eric Schmidt challenged graduates to tear their eyes away from their smartphones and computer screens for an hour a day. "Take your eyes off that screen and look into the eyes of the person you love. Have a conversation, a real conversation," he said.

A revelation - a man at the top of the juggernaut search engine who is in no small way responsible for this era of information overload telling the next generation of leaders that it's okay to be disconnected from the rest of the virtual world.

That it's okay if you don't know what your friends are having for dinner because you don't have access to Facebook, or if you lose your mayorship of the bus stop at the foot of your block of flats. The world will keep spinning, as they say.


The problem with social media is that, too often, it's an excuse for people to be anti-social.
Have you visited The "pptpf" stands for "pictures of people taking photos of their food". (Sample post: "They took photos of their ice cream, then drank the melted puddles afterwards.")

Two minutes to set up the shot, two minutes to post the picture on Facebook, 20 minutes furtively checking for "Likes" to your post. How much good conversation could you be missing in that spell?
The backlash has already begun, in the form of the latest trend: Phonestacking. You do this literally; before a meal with friends or family, everyone stacks the phones face down in a pile in the middle of the dining table. Of course, phones will vibrate and start to ring. The first person to crack and check his phone has to pick up the bill for the entire table.

"Stephie", the 20-year-old who invented the game in California a few months ago, said: "The basic premise is to just get people open to the idea of staying active and attentive to one another."
A couple of months ago, a New York Times commentary declared the death of conversation. (Scan the QR code to read this commentary.)

"We are tempted to think that our little 'sips' of online connection add up to a big gulp of real conversation. But they don't. Email, Twitter, Facebook, all of these have their places - in politics, commerce, romance and friendship. But no matter how valuable, they do not substitute for conversation," lamented psychologist Sherry Turkle, author of Alone Together: Why We Expect More from Technology and Less from Each Other, in the commentary.

"We think constant connection will make us feel less lonely. The opposite is true. If we are unable to be alone, we are far more likely to be lonely.
"We are alone together - a tribe of one."

And the effect of all this technology in our lives is not merely psychological. A study last month found that snubbing the outdoors for books, video games and TV is the reason up to nine in 10 school-leavers in big East Asian cities are near-sighted.

The most myopic school-leavers in the world are to be found in cities in China, Taiwan, Hong Kong, Japan, South Korea and - gulp - Singapore, where between 80 and 90 per cent were affected, researchers found in the study published in The Lancet medical journal.


Let's recap. Bad social etiquette. Bad for relationships. Bad eyesight.

Technology is a grand thing - it would be false and foolish of this newspaper's Digital Media Editor to say otherwise - but we need to recognise that it really should be a tool which helps to make us more productive and more efficient, such that we have more time for the things that really matter.

As they say, no one's ever said on their deathbed: "I wish I had spent more time in the office."
It is time to selectively turn off our screens and learn to connect with people the good old-fashioned way: In conversation, in person.

Tomorrow is the start of the last weekend of the school holidays. If you're a parent, you will soon lose your children to the treadmill of homework and co-curricular activities. And you will, sooner than you know it, lose them to National Service, the working world, their spouses-to-be.

Spend time with them while they still want to spend time with you. Why waste a second on social networks? (And if you do take your kids out, I'd also recommend not popping a cartoon into the in-car DVD player. It's a screen too! Make conversation!)

For those of you who don't have children, make time for your friends and family. Pick up your tennis racquet again, or lace up your football boots. Go for a hike.

Worried that your boss might complain should you go incommunicado for a day? Tell him or her about it in advance. Then invite your boss out for a screen-free dinner.

On TODAY's part, at the heart of our newsroom is a projector screen we're very proud of. We call it the "big board", and it shows a constant stream of tweets from various news sources and newsmakers, keeping us aware of what's going on the world over.

Tomorrow, we'll be turning off the big board. I believe the world will keep spinning.

The writer is TODAY's Digital Media Editor. Feel free to drop him an email at sharing your experience of Turn Off Your Screen Day. Just don't send it until the day after.

Tuesday, June 19, 2012

A global perfect storm is brewing

19 June 2012
Nouriel Roubini

Dark, lowering financial and economic clouds are, it seems, rolling in from every direction: The euro zone, the United States, China and elsewhere.

Indeed, the global economy next year could be a very difficult environment in which to find shelter.
For starters, the euro zone crisis is worsening, as the euro remains too strong, front-loaded fiscal austerity deepens recession in many member countries, and a credit crunch in the periphery and high oil prices undermine prospects of recovery.

The euro zone banking system is becoming balkanised, as cross-border and inter-bank credit lines are cut off, and capital flight could turn into a full run on periphery banks if, as is likely, Greece stages a disorderly euro exit in the next few months.

Moreover, fiscal and sovereign-debt strains are becoming worse as interest-rate spreads for Spain and Italy have returned to their unsustainable peak levels.

Indeed, the euro zone may require not just an international bailout of banks (as recently in Spain), but also a full sovereign bailout at a time when euro zone and international firewalls are insufficient to the task of backstopping both Spain and Italy.

As a result, disorderly breakup of the euro zone remains possible.


Farther to the west, US economic performance is weakening, with first-quarter growth a miserly 1.9 per cent - well below potential.

And job creation faltered in the past two months, so the US may reach stall speed by year end.
Worse, the risk of a double-dip recession next year is rising: Even if what looks like a looming US fiscal cliff turns out to be only a smaller source of drag, the likely increase in some taxes and reduction of some transfer payments will reduce growth in disposable income and consumption.
Moreover, political gridlock over fiscal adjustment is likely to persist, regardless of whether Mr Barack Obama or Mr Mitt Romney wins November's presidential election.

Thus, new fights on the debt ceiling, risks of a government shutdown, and rating downgrades could further depress consumer and business confidence, reducing spending and accelerating a flight to safety that would exacerbate the fall in stock markets.


In the east, China, with its growth model unsustainable, could be underwater by next year, as its investment bust continues and reforms intended to boost consumption are too little too late.

A new Chinese leadership must accelerate structural reforms to reduce national savings and increase consumption's share of GDP; but divisions within the leadership about the pace of reform, together with the likelihood of a bumpy political transition, suggest that reform will occur at a pace that simply is not fast enough.

The economic slowdown in the US, the euro zone, and China already implies a massive drag on growth in other emerging markets, owing to their trade and financial links with the US and the European Union.

At the same time, the lack of structural reforms in emerging markets, together with their move towards greater state capitalism, is hampering growth and will reduce their resiliency.


Finally, long-simmering tensions in the Middle East - between Israel and the US on one side, and Iran on the other - on the issue of nuclear proliferation could reach a boil by next year.

The current negotiations are likely to fail and even tightened sanctions may not stop Iran from trying to build nuclear weapons.

With the US and Israel unwilling to accept containment of a nuclear Iran by deterrence, a military confrontation next year would lead to a massive oil price spike and global recession.

These risks are already exacerbating the economic slowdown: Equity markets are falling everywhere, leading to negative wealth effects on consumption and capital spending.

Borrowing costs are rising for highly indebted sovereigns, credit rationing is undermining small and medium-size companies, and falling commodity prices are reducing exporting countries' income.
Increasing risk aversion is leading economic agents to adopt a wait-and-see stance that makes the slowdown partly self-fulfilling.


Compared with 2008-09, when policymakers had ample space to act, monetary and fiscal authorities are running out of policy bullets - or, more cynically, policy rabbits to pull out of their hats. Monetary policy is constrained by the proximity to zero interest rates and repeated rounds of quantitative easing.

Indeed, economies and markets no longer face liquidity problems, but rather credit and insolvency crises.

Meanwhile, unsustainable budget deficits and public debt in most advanced economies have severely limited the scope for further fiscal stimulus.

Using exchange rates to boost net exports is a zero-sum game at a time when private and public deleveraging is suppressing domestic demand in countries that are running current-account deficits and structural issues are having the same effect in surplus countries - a weaker currency and better trade balance in some countries necessarily implies a stronger currency and a weaker trade balance in others.

Meanwhile, the ability to backstop, ring-fence and bail out banks as well as other financial institutions is constrained by politics and near-insolvent sovereigns' inability to absorb additional losses from their banking systems.

As a result, sovereign risk is now becoming banking risk. Indeed, sovereigns are dumping a larger fraction of their public debt onto banks' balance sheet.

To prevent a disorderly outcome in the euro zone, today's fiscal austerity should be much more gradual, a growth compact should complement the EU's new fiscal compact, and a fiscal union with debt mutualisation (Eurobonds) should be implemented.

In addition, a full banking union, starting with euro zone-wide deposit insurance, should be initiated, and moves towards greater political integration must be considered.

Unfortunately, Germany resists all of these key policy measures, as it is fixated on the credit risk to which its taxpayers would be exposed with greater economic, fiscal and banking integration. As a result, the probability of a euro zone disaster is rising.

And, while the cloud over the euro zone may be the largest to burst, it is not the only one threatening the global economy. Batten down the hatches. PROJECT SYNDICATE

NOURIEL ROUBINI is Chairman of Roubini Global Economics, Professor of Economics at the Stern School of Business, New York University, and co-author of the book Crisis Economics.

Wednesday, June 13, 2012

Plan for your golden years

13 June 2012
Mah Ching Cheng

Asians are living in an evolving socio-economic landscape. We are generally getting wealthier, healthier and enjoying better lifestyles. This means when we retire, we would also demand a better lifestyle compared to previous generations.

What is also getting increasingly apparent is that we will be seeing some major demographic changes in the next one to two decades.

Changes such as longer life expectancy, declining birth rates and a greying population are becoming more pressing issues. Many of us work diligently in our younger years aiming to earn a decent income and provide a better life for our families. As the saying goes, "money is a means to an end" - working hard may be more meaningful if it means a comfortable and fulfilling retirement life. It is important to know if you have saved sufficiently to enjoy the golden years.

How much is enough? The short answer is - it depends on your lifestyle choices during retirement.
Using your current lifestyle as a starting point, you can make use of either your current monthly spending or income to gauge how much you require. However, with inflation eroding your real purchasing power, this is not the amount that you should work with for future retirement needs.

You will also need to account for inflation and calculate the actual dollar amount required to purchase the same basket of goods and services (that you are enjoying now) just before you retire.
The last variable factor is the number of years you expect to live after retirement and before passing on. Understandably, this is the most difficult to gauge. But one thing for certain is that expected average life expectancy has been rising as medical sciences grow more advanced.

Consider a 36-year-old who intends to retire at 65 and who has indicated that he would like to continue spending S$2,500 monthly until 80.

With an inflation rate of 2 per cent (the monthly average for the past 10 years), he would need about S$940,000, assuming that inflation remains at 2 per cent after he retires and he does not invest these funds in the next 15 years. And, the amount required grows with an increase in monthly expenditure. Refer to Table 1.

Options to consider

An early head-start in saving or investing for retirement is important. If you start earlier, there is a greater probability of meeting your lifestyle needs when you retire. Table 2 shows that an individual who starts with S$100,000 and invests S$500 on a monthly basis would be able to save about S$680,000 in 30 years assuming a real rate of return of 4 per cent.

With the myriad of investment options in the market, it may be difficult to choose the right investment or to save for retirement. It is always important to maintain a diversified portfolio of investments, which can be calibrated according to your risk profile, as you move through your life cycle.

A suitable exposure to risky assets such as equities will allow you to enjoy potential market upside and possibly yield higher returns, while an allocation to safer assets such as bonds or cash provides diversification to lower volatility.

As you move towards retirement, it may be worthwhile to consider a move into income-paying assets, such as constant coupon paying fixed income. This works to provide a constant revenue stream that will contribute towards your eventual retirement goals.

Another option would be to take on insurance plans that allow you to make premium payments towards the plan while you are working and able to afford it. At retirement age, there are plans that offer several options of receiving the retirement funds, for example either through a monthly guaranteed retirement income, full withdrawal of the total accumulated cash value or a combination of both.

Mah Ching Cheng is Head of Investment Communications at DBS Bank

Tuesday, June 12, 2012

Crisis Wiped Out 18 Years of Household-Wealth Gains, Fed Says

Jeff Kearns, ©2012 Bloomberg News
Tuesday, June 12, 2012

The financial crisis wiped out 18 years of gains for the median U.S. household net worth, with a 38.8 percent plunge from 2007 to 2010 that was led by the collapse in home prices, a Federal Reserve study showed.

Median net worth declined to $77,300 in 2010, the lowest since 1992, from $126,400 in 2007, the Fed said in its Survey of Consumer Finances. Mean net worth fell 14.7 percent to a nine- year low of $498,800 from $584,600, the central bank said yesterday in Washington. Almost every demographic group experienced losses, which may hurt retirement prospects for middle-income families, Fed economists said in the report.

"The impact has been a massive destruction of wealth all across the board," said Lance Roberts, who oversees $500 million as chief executive officer of Streettalk Advisors LLC in Houston. "What you see is an economy that's really very, very stressed for the bottom 60 to 70 percent of the population that's struggling just to make ends meet."

The declines in household wealth in the course of the longest and deepest recession since the Great Depression have held back the consumer spending that makes up about 70 percent of the economy. Fed policy makers led by Chairman Ben S. Bernanke meet next week to consider whether the central bank needs to add to its record stimulus after employment grew at the slowest pace in a year in May.

Zero Rates

The Fed has already taken unprecedented steps to boost the economy as it battled the 18-month recession that ended in June 2009, cutting its key interest rate almost to zero and purchasing $2.3 trillion in debt to lower long-term borrowing costs. Even so, the jobless rate has stayed above 8 percent since February 2009, compared with the central bank's long-range goal of 4.9 percent to 6 percent.

"Although declines in the values of financial assets or business were important factors for some families, the decreases in median net worth appear to have been driven most strongly by a broad collapse in house prices," the Fed economists wrote.

The S&P/Case-Shiller U.S. Home Price Index fell 23 percent in the three years through December 2010. The Standard & Poor's 500 Index lost 14 percent in the same period.

The proportion of families with retirement accounts decreased 2.6 points to 50.4 percent during the period, wiping out much of the 3.1 percentage-point increase over the prior three years, the report said.

Retirement Setback

"The most noticeable drops in ownership were among families in the middle-income, middle-wealth, and middle-age groups," the economists said. "Retirement accounts had been growing in importance as a supplement to Social Security and other types of retirement income, and the decrease in ownership in the past three years may represent a setback."

Fed economists conduct the surveys every three years to produce a snapshot of household balance sheets, pensions, income, and demographics that's more detailed than broader reports about the economy. The surveys allow comparisons over time, with a consistent methodology since 1989.

The U.S. added 69,000 jobs last month even as the Fed maintained record stimulus. The economy grew more slowly in the first quarter than previously estimated, expanding at a 1.9 percent annual rate, down from a 2.2 percent prior estimate.

Minutes of the last FOMC meeting April 24-25 showed policy makers said a loss of momentum in growth or increased risks to their economic outlook could warrant additional action to preserve the recovery. Fed policy makers are scheduled to meet June 19-20 in Washington.

Wealthiest Families

Declines in average income were greatest in the wealthiest 10 percent families and for higher education or wealth groups, the survey showed. The housing slump and financial crisis also boosted the dependence on wages as a percentile of net worth for the wealthiest 10 percent.

The top 10 percent by wealth got 55.8 percent of their pre- tax family income from wages in 2010, up from 46.2 percent in 2007, the survey found. The portion earned from capital gains plunged to 2.3 percent from 14.4 percent.

Debt as a share of family assets rose to 16.4 percent from 14.8 percent as asset values declined, the Fed said. For those households with debt in 2010, the median value of debt was unchanged from 2007, while the share of families having debt fell to about 75 percent from 77 percent. Debt payments more than 60 days overdue were reported by 10.8 percent of families in 2010, up from 7.1 percent in the prior survey.

Debt Burdens

"Measures of debt payments relative to income might have been expected to increase," Fed economists wrote. "In fact, total payments relative to total income increased only slightly, and the median of payments relative to income among families with debt fell after having risen between 2004 and 2007. The share of families with high payments relative to their incomes also fell after rising substantially between 2001 and 2007."

The survey was compiled by Fed economists Jesse Bricker, Arthur Kennickell, Kevin Moore and John Sabelhaus in Washington. All dollar figures are expressed in 2010 dollars.

Asia's not ready for the meltdown

12 June 2012
William Pesek

Seoul may be the most poignant place one could pick in Asia for a spectator seat at Greece's economic implosion.

South Korea's crash in 1997 turned a regional financial crisis into a global one, as a Greek exit from the euro is sure to do. The difference might be that South Korea came back strong, while it's hard to see how Greece could do the same.

There's another difference: What is happening in Europe has the potential to be far more disruptive to Asia than its own crisis was for the rest of the world 15 years ago.

If Greece exits the euro region, it may well take Spain, the world's 12th-biggest economy, with it.

And that raises a question: Is Asia even close to being ready for a meltdown that might dwarf its own? It doesn't look that way.

"The key for Asia isn't whether Greece leaves, but how," says Mr Simon Grose-Hodge, Head of Investment Strategy for South Asia at LGT Group in Singapore.

"A disorderly exit raises the chance of contagion and more widespread risk aversion, which hurts the more volatile markets, like Asia.

"As we saw in 2008, the bigger the shock, the bigger the stampede to exit all risky assets, regardless of merit."


First, the good news.

Korea has some latitude to throw up defences should European contagion head east. The Bank of Korea's benchmark interest rate of 3.25 per cent leaves plenty of room for cuts to stimulate the economy. The government also would have little trouble borrowing to support growth.

In a report on Asia's exposure to a chaotic Greek divorce, Moody's Analytics economists Fred Gibson and Glenn Levine found some room for optimism. Asian businesses and policymakers, they said, are in a better position heading into a new crisis.

The credit crunch of 2008 and 2009 led Asia's central banks to increase swap lines and companies have mapped out alternative sources of capital and supply arrangements to better cope with disruptions.

The bad news is two-fold: First, the euro mess, of course, might be more destabilising than anything we've seen before.

Second, the main engine of Asia's growth - China - has less ammunition than in the past.

In the last global crunch, after Lehman Brothers collapsed, China engineered near-epic fiscal and monetary responses and managed to beat all the odds with rapid growth rates. China expanded 8.1 per cent in the first three months of this year.

It is doubtful that China can do as much again, though it does seem to be trying to prepare itself with last week's cut in interest rates.

In a recent report, economists at the nation's biggest investment bank, China International Capital Corp, said fallout from Greece could reduce China's expansion to 6.4 per cent this year, the slowest in two decades.

For a nation at China's level of development, that poses all kinds of risk, not the least of which is social unrest.

Japan is vulnerable, too. Its status as a haven has driven the yen higher against the United States dollar and the euro, sapping the vital export sector and hindering the recovery from last year's earthquake and tsunami.

Talk about the "Lehman shock" of September 2008 still pervades Japan. Its banks had avoided bets on the toxic assets that savaged Wall Street, at first leading some to think the country would weather the crisis with minimal harm. Over time, though, Japan was hurt by its reliance on exports and its system of cross-shareholdings.

The interlocking relationships, designed to fend off takeovers, ended up spreading the damage as financial markets plunged. This will happen in the months ahead, too.


The real drama will be seen first in Asia's most open economies as they are so dependent on exports and have few regulations on capital markets.

Fresh contagion means a "renewed, deep recession would be highly likely in Hong Kong, Singapore, Malaysia, Taiwan and Korea", says Mr Robert Prior-Wandesforde, Singapore-based director of Asian economics at Credit Suisse.

The progress Asia has made strengthening its banks and amassing currency reserves might limit the worst of the damage.

But credit markets, demand for exports and foreign-investment flows ensure that Asia will get its share of turbulence. Depending on the shockwaves Greece causes, each of these channels will pose challenges to policy-makers.

Central bankers and government finance officials must act to protect Asia's economic gains over the last decade and a half. If that means increased borrowing to boost growth, then so be it.

Lower rates may be necessary in a world in which the risks of deflation outweigh inflation. Capital controls may also be necessary, provided they are implemented prudently.

An added test will come if the Federal Reserve unleashes a third round of quantitative easing as US growth disappoints.

Asian policy-makers have become creative in mopping up excess liquidity that tends to fuel asset bubbles. The challenge is more about control, ensuring that financial systems are not overwhelmed by hot money.

As Europe crashes, Asia risks being tested as rarely before. It's great that Asia is better positioned to withstand the ramifications 15 years after its own near-collapse of the economy. It just isn't clear if that will be enough as the West returns the favour. BLOOMBERG

Tokyo-based William Pesek won the 2010 Society of American Business Editors and Writers prize for commentary.

Monday, June 11, 2012

The world may soon live Europe's nightmare

11 June 2012
Christopher T Mahoney

Losing a long war is always hard to accept.

Hemmed in by the Americans and the Russians in the final days of World War II, Hitler convinced himself that he had two armies in reserve to mount a counter-attack and win the war.

Meanwhile, having lost the entire Pacific, Japan's Imperial Cabinet believed that no enemy could set foot upon the country's sacred soil.

When the truth is unimaginable, human psychology finds an alternative reality in which to dwell.

That describes the global situation today. The entire planet seems to be in denial about what is about to occur in the euro zone.

Pundits keep expecting Germany to pull a rabbit out of a hat and flood the continent with Eurobonds, or that Mr Mario Draghi will mount a coup at the European Central Bank (ECB) and buy up every deadbeat country's bonds. Either could happen, but both are extremely unlikely.


Germany cannot guarantee the euro zone's debt without control over the euro zone, which no one has offered, and Northern Europe will not permit the ECB to be hijacked by "Club Med" and turned into a charity organisation. It is not just a matter of politics; it is also - as the Germans keep pointing out - a matter of law.

Europe has a Plan A, whereby each country would reform its economy, recapitalise its banks and balance its budget. But Plan A is not working: Its intended participants, most notably France, are rejecting it and there is an emerging southern European consensus that austerity is not the solution.

Greece's recent election has put it in the anti-austerity vanguard.

Italy and Spain (which does not have enough money to bail out its banking system) have similarly called for an end to austerity, and Ireland will be voting on it soon.

All have lost access to the bond market and Portugal is so far beyond hope that its sovereign debt is trading for cents on the euro.

There is no well thought out plan for the orderly exit of the euro zone's insolvent countries.

There are no safeguards, no plans, no roadmap - nothing.

The Maastricht Treaty, like the United States Constitution, did not provide for an exit mechanism. So, instead of realism and emergency planning, we get denial and more happy talk. But just because something is "unthinkable" does not mean that it cannot happen.


In fact, it already is happening. Greece is rapidly running out of money; its residents are withdrawing their deposits and have stopped paying their taxes and utility bills.

Even if the country can stay afloat until the June 17 election, a disorderly euro zone exit, default and currency re-denomination will follow. Greece will be dependent upon foreign aid for essential imports such as petroleum and food. Civil order will be difficult to maintain and the army may be forced to step in (again).

Once Greece goes, runs on bank deposits are likely to follow in Spain and Italy. There is nothing to stop Spanish and Italian depositors from wiring their euros from their local bank to one in Switzerland, Norway, or even New York.

At that point, the only thing still standing between the euro zone and financial chaos will be the ECB, which could buy government bonds and fund the bank runs.

The scale of such an operation would be enormous and would expose the ECB to huge credit risk. But it could, in principle, step in - if Northern Europe permitted.

If the ECB does not step in, Italy and Spain, too, will be forced to exit the euro zone, default on their euro-denominated sovereign and bank obligations and re-denominate into national currency.

Massive losses would be imposed on the global financial system. Given the opacity of banks' exposures, creditors would be unable to discriminate between the solvent and the insolvent (as was the case in September 2008).


The US banks most likely to be affected by such a scenario would be the globalists: Citigroup, Bank of America, JPMorgan Chase, Goldman Sachs and Morgan Stanley.

They would require a rescue package similar to the US Troubled Asset Relief Program (TARP), created after Lehman Brothers' collapse in 2008.

The US can afford a second TARP but it would require Congressional legislation, which is not guaranteed (though the US Federal Reserve can, of course, keep the system funded no matter what).

Massive wealth destruction, combined with global financial chaos, would pose a challenge to monetary policymakers worldwide.

Central banks would be tasked with preventing deflation, implying a major round of quantitative easing. But, since banks are the transmission mechanism for monetary stimulus, this pre-supposes functioning banking systems.

Each country would need to restore confidence in its banks' solvency, which would most likely require a blanket bank guarantee and a re-capitalisation scheme (such as TARP).

The US financial system can withstand any shock because the US can print the money that it needs. The Fed can maintain nominal prices, nominal wages and growth if it acts heroically, as it did in 2008.

The stock market will react negatively to the level of uncertainty caused by the collapse of the European financial system (as it did in 1931) and the dollar, yen and gold should benefit.

The fate of the British pound and Swiss franc is impossible to say: They could benefit as safe havens but their banks are highly exposed to the euro zone.

It is bad enough that the world is utterly unprepared for the future that can be foreseen. The unanticipated financial, economic and political consequences of the coming crisis could be even worse. PROJECT SYNDICATE

Saturday, June 9, 2012

This Summer an 'Eerie Echo' of Pre-Lehman: Zoellick

Saturday, 9 June 2012

The summer of 2012 is looking like an “eerie” echo of 2008 but euro zone sovereign debt has replaced mortgages as the risky asset class that markets are anxious about, said Robert Zoellick, President of the World Bank.

Banks are under stress and depositors have begun to “jog,” Zoellick wrote in an editorial in the Financial Times on Thursday.   

“The European Central Bank, like the U.S. Federal Reserve in 2008, has sought to reassure markets by providing generous liquidity, but collateral quality is declining as the better pickings on bank balance sheets are used up,” he added.

To prevent investors from fleeing in panic, Europe must be ready with more than liquidity injections to contain the consequences of a possible Greek exit. “If Greece leaves the eurozone, the contagion is impossible to predict, just as Lehman (Brothers’ collapse) had unexpected consequences,” Zoellick said.

What is needed is a so-called “euro-sovereign” guarantee of bank deposits and other liabilities, as the guarantees of some national sovereigns are unlikely to be sufficient.

In the editorial, Zoellick argues Europe needs to deploy euro zone bonds, recapitalize banks by using funds from the European Stability Mechanism (ESM) and provide medium-term funding assurance to countries such as Spain.

The creation of euro zone bonds has been a controversial subject with France’s new President Francois Hollande calling for the currency bloc to issue common bonds and Germany rejecting such a move on the grounds it will weaken fiscal discipline.

But Zoellick argues time is running out and euro zone leaders “may be nearing a 'break the glass' moment: when one smashes the pane protecting the emergency fire alarm.”

If a crisis does occur, the European Central Bank may not have the ability to “respond fast, fully, and forcefully” because of differences on the bank’s board, Zoellick said.

“A Greek exit would trigger a hit to confidence in other sovereign euro assets. Euro zone leaders need to be ready. There will not be time for meetings of finance ministers to discuss the outlook and debate the politics of incrementalism. In panicked markets, investors flee to safe assets, sparking other flames.”

By CNBC's Jean Chua.

Wednesday, June 6, 2012

Why US market's still best of bad global lot

Defensive quality of American stocks cited among reasons for their attractiveness

 06 Jun 2012 10:05

[NEW YORK] EUROPE'S worsening debt crisis and the sharper-than-expected slowdown in China have weighed down stocks since the start of April. Yet some market strategists say that so long as these overseas fears don't morph into another global panic, they could serve another purpose: to remind investors that the domestic stock market may be the best choice among a tough set of options.

This may seem a difficult statement to make, after Friday's disappointing jobs report, which showed that the domestic economy produced just 69,000 new jobs in May, roughly 90,000 fewer than were expected. The bad news sent the Standard & Poor's 500-stock index down by 2.5 per cent on Friday.

Yet even with the losses, the S&P 500 is still up nearly 2 per cent for the year. The Morgan Stanley Capital International Emerging Markets index, meanwhile, is down more than one per cent, and the MSCI EAFE index of foreign stocks in the developed world is off nearly 6 per cent.

This performance mirrors a similar pattern since the autumn of 2009, when signs of the European debt crisis began to emerge. The Leuthold Group studied the performance of 49 major stock markets since October 2009 and found that stocks in the United States outperformed those of 40 other countries - many by a wide margin. And of the eight nations whose markets beat the US, only South Korea is part of the developed world.

Duncan Richardson, chief equity investment officer at Eaton Vance, noted that the jobs report was certainly a setback for the economy. "But jobs are always a lagging indicator," he said. "And one number is not going to change the relative attractiveness of the United States over other regions."

Mark Luschini, chief investment strategist at Janney Montgomery Scott, agreed. "I still think that on a relative basis, the defensive quality of US stocks makes them attractive," he said, adding that domestic shares have at least two other things going for them.

First, "they're backed by an economy that, while hardly vigorous, is at least showing signs of sustainability", Mr Luschini said. Much of the rest of the developed world, of course, cannot make such a claim right now.

Indeed, while gross domestic product (GDP) in the US is expected to expand just 2.2 per cent this year, growth is expected to accelerate to 2.4 per cent next year and 3.4 per cent in 2014, according to IHS Global Insight. Many parts of Europe, meanwhile, are already in recession, and the GDP in the eurozone isn't expected to reach a 2 per cent annual growth pace until 2016. And while growth in Japan is running slightly ahead of the US this year, the Japanese economy is expected to decelerate for the remainder of the decade.

Second, the domestic market also benefits from strong corporate balance sheets, relative to those from overseas. Companies in the S&P 500, for instance, are often sitting on record amounts of cash and are generating record profits, with better-than-expected first-quarter results. To be sure, global uncertainties may be weighing on the job market.

"Corporations are profitable and have billions in cash, but the lack of visibility in their operations due to what's going on globally is making them reluctant to hire," Mr Luschini said. And if Europe's troubles worsen drastically, stock markets around the world are likely to fall in lock step, which was evident last week.

"Unfortunately, in a true crisis, it's hard for individual equity markets to differentiate themselves as safe havens," Mr Richardson said. "But in an environment marked by less panic, there is the potential for the US market to decouple somewhat from the direction of other equities."

Mr Richardson sees at least two big fundamental factors that are likely to drive investor interest to the US. First, "there's the state of US banks", he said, noting that they have done a much better job of recapitalising than their European counterparts after the 2008 financial crisis.

Moreover, he said, "the housing market here continues to show strong signs of bottoming, which would be very encouraging since housing drives so much of the other parts of the economy".

At the same time, a couple of side effects from the slowdown in China and Europe could also benefit domestic equities, market strategists say. For starters, crude oil prices have fallen in recent weeks, partly because of renewed worry about the global recovery. After peaking above US$108 a barrel in March, West Texas Intermediate crude oil fell to US$83 last week.

"That should help keep the consumer in the game," Mr Richardson said.

The woes in Europe and China have also added to investor fears, which, in a contrarian way, may be a positive sign for domestic stocks, said Doug Ramsey, Leuthold's chief investment officer. He noted that the Yale Crash Confidence index recently fell to an unusually low reading of around 25, down from 37 a year ago and 57 in 2007, before the financial crisis.

The decline would indicate that a large number of institutional investors fear that stocks could suffer a big setback in the coming six months. - NYT

Global bear market at our doorstep?

Published June 06, 2012


Invest with caution because there are many warning signs of a correction ahead

By William Cai

EVERY bear market starts with a correction, and investors may want to take heed of the warning signs ahead.

MSCI World excluding USA in a bear phase

Firstly, while US equity indexes are still in a bull phase, global equities have reached a bear phase. In 2011, the MSCI World excluding USA index (MSWORLD) fell -26 per cent from its peak in April but by December, it bottomed out and recovered.

Unfortunately, its rally was short-lived as it fizzled out in March 2012 and the index fell below its 50-week moving average. From its peak in April 2011 to date, the index has fallen -26 per cent and is officially in a bear market.

When prices fall in excess of -20 per cent for a period longer than two months, such a condition is widely known as a "bear market".

Downward price momentum could accelerate and carry prices lower due to a confirmation of an ominous bearish "head and shoulders" pattern on the MSWORLD chart.

A break below its neckline could set an expected target for the index to head -28 per cent lower. This is a highly probable scenario if US equities were to fall further in the coming weeks.

S&P 500 negative divergence signals

Secondly, the S&P500 monthly chart is showing negative divergence signals and it serves as a warning of a potential bear market ahead. This signal occurred a few months before the bear markets in 2001 and 2008, and should not be dismissed.

A "negative divergence" is a case when indicators are pointing downwards as the price of the asset in observation is moving up.

The monthly chart of the S&P500 helps us focus on the longer-term behaviour of the market. A few months before the S&P500 fell sharply during the bear markets in 2001 and 2008, a "negative divergence" signal surfaced.

As the index was heading higher, the Relative Strength Index (RSI) and Moving Average Convergence and Divergence (MACD) indicators were pointing lower. The tipping point was when the index fell through the index's 16-month moving average line and ushered in an accelerated fall.

Now, a negative divergence has clearly resurfaced - as the index is moving higher, the RSI and MACD are pointing downwards. The index has just fallen through its 16-month moving average and with a MACD signal line crossover, they suggest that an accelerated fall is eminent and the S&P500, which is the world's most closely watched index, will likely lead global equities downwards.

Dow Theory non-confirmation

Thirdly, while the Dow Jones Industrial Average (DJIA) has surpassed its high seen in 2011 and remains in an uptrend, the Dow Jones Transportation Index, which is a more economically sensitive index, has lagged and started to trend downwards. This is a Dow Theory non-confirmation signal which suggests caution ahead.

In addition, the small-cap Russell 2000 index, which is a broader representation of the US economy, has not confirmed DJIA's rally. Small-caps stocks are seen as "soldiers" and if they fall, it would be a matter of time that the larger stocks known as the "generals" would fall too.

US new highs - new lows

Fourthly, market breadth analysis has shown that US stocks have deteriorated since 2011. The market breadth analysis is conducted using the NH-NL indicator, which studies the advance and declines issues of US stocks. The indicator is computed by counting up all of the US stocks that are making new 52-week highs and subtracting all of the US stocks that are making new 52-week lows.

In February 2011, the index showed a negative divergence from the NYSE Composite Index and that served as a warning that market breadth was getting weaker and equity markets saw a sharp drop in July. Once again, since February 2012, market breadth weakened as US stock climbed. Now the NH-NL indictor has begun to turn negative suggesting that the US stocks are ready to roll over into a bear phase.

Year-over-Year (YoY) GDP per cent change and current recession risk

Lastly, an observation from 1947 shows that when the YoY change falls below 2 per cent, a recession could likely follow a few months later. However, investors must note that the determination on recession start dates are always announced much later, after the bear market has occurred. The latest YoY real GDP at 1.99 per cent suggests that the bearish technical studies should not be taken lightly.


Now that I have planted a bear bug in readers' minds, they must be careful to avoid suffering from bearish confirmation bias - which would cause them to miss a stockmarket rally if market conditions improve. Equity markets are at oversold levels and could recover soon but if market breadth remains weak, any rally should be short- lived.

However, we could see a sustainable rally if the US Federal Reserve Board decides to introduce a third round of quantitative easing measures (aka QE3) after their meeting on June 19-20. In addition, as this is a presidential election year, the US president could activate the "Plunge Protection Team" to positively rig the market and surprise us on the upside before the November elections. Likewise, other global policymakers like China could also launch policies to stimulate their economy while the European Union is also on standby with a US$1 trillion "firewall" to fight the financial contagion from the region's ongoing debt crisis.