US Is Still World Largest Economy

There is a good article in Business Times last week. I had frequently shared my opinion on global economy, particularly US and China with personal friends. The common question that people usually asked are projection on US economy and strength of China’s economy.

Make no mistake. I’m not an economist although I studied economy during my previous study and read financial news (almost) daily. But I’m still not an economic consultant. However, with basic economic knowledge, commonsense and reading of analysts’ report, I’m able to draw reasonably accurate conclusion. My ACCA lecturer Mr Fred Keer used to say “commonsense is the least common human attributes”. He is an extraordinary lecturer. I think he is back to UK.

My projection for US economy remains the same. Besides sub-prime issue, which was recently removed from the centrestage, inflation and skyrocketed oil price may soon lead US into a recession. So it is very uncertain now and stock market should be avoided at all costs. As for the China market, even if we add in India’s market, both of them still cannot replace our export to US and Europe. Not to forget that China herself is also a net exporter to US. This means that she will also be hit should there be a downturn in US economy. If China is affected, certain their demand for Singapore product/services will drop. I think that’s pretty commonsense. Don’t need an MBA to understand this.

There is an article on Business Times that concurs with my analysis, or the other way round.

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Growth in China, India can't offset US downturn

Advanced countries' weakness will hit growth in emerging markets: Fitch

By CONRAD TAN

(SINGAPORE) Emerging economies such as China and India are not big enough to offset a likely recession in the US and weakening growth in other advanced economies, the head of Asia-Pacific sovereign ratings at Fitch Ratings warned yesterday.

Since most developing economies are net exporters to the US and Europe, continued growth in emerging economies will not provide support for the developed economies that are still the dominant sources of world demand, said James McCormack, who is responsible for analysis and ratings of sovereigns in Asia.

While Fitch expects growth in emerging markets to continue to outpace that of developed economies, 'the fact that China and India are growing quickly doesn't mean the US is going to grow any faster', he said. 'It's not really going to help offset weakness in advanced economies. The trade flows suggest quite the opposite.'

Mr McCormack, who is usually based in Hong Kong, was speaking at a structured finance conference in Singapore organised by Fitch.

India accounted for just 2 per cent of global economic output last year as measured by gross domestic product at market exchange rates, according to the International Monetary Fund's April World Economic Outlook.

'And it's not a very open economy - imports are only 13 per cent of its GDP. So it doesn't really matter how fast India grows - it is not going to contribute to stronger growth in other markets,' said Mr McCormack. 'It doesn't import that much and it's just too small.'

China's contribution was six times larger, at 6 per cent of world GDP in 2007, he said. 'And it's a much more open economy as well.' Imports accounted for more than a quarter of China's GDP last year at market exchange rates, so faster growth in China should benefit those economies it imports from.

'But China is running very large trade surpluses with the US and the European Union. And that would suggest that China is a net supplier to those markets - it doesn't really demand very much from the US and the EU,' said Mr McCormack.

Collectively, the four so-called BRIC countries - Brazil, Russia, India and China - are running trade surpluses with the US and EU to the tune of more than US$500 billion, he said. 'What that tells us is that the trade flows are going from exports from the emerging markets to the advanced economies.

'So if there's weakness in the advanced economies, you're going to see weakness in the emerging markets. It's not the other way around, where you see strength in the emerging markets followed by strength in the advanced economies.'

If purchasing-power- parity exchange rates - the amount of currency needed to buy the same common basket of goods and services as one US dollar - are used rather than market exchange rates to measure GDP, China's share of world output in 2007 jumps to 10.8 per cent, while India's rises to 4.6 per cent.

But even by this revised measure, the 23 developing economies in Asia - excluding Japan, Hong Kong, Singapore and Taiwan - account for just 20.1 per cent of world output, less than the 21.4 per cent contributed by the US alone, according to the IMF report.

The UK and the 15 euro-area countries make up another 19.4 per cent of the world economy, while Japan accounts for 6.6 per cent of the total.

You Seen This Before?

Modern Management Theory: Lesson 6

A little bird was flying south for the winter. It was so cold the bird froze and fell to the ground into a large field.

While he was lying there, a cow came by and dropped some dung on him.

As the frozen bird lay there in the pile of cow dung, he began to realize how warm he was.

The dung was actually thawing him out!

He lay there all warm and happy, and soon began to sing for joy.

A passing cat heard the bird singing and came to investigate.

Following the sound, the cat discovered the bird under the pile of cow dung, and promptly dug him out and ate him.

Morals of the story:

(1) Not everyone who shits on you is your enemy.

(2) Not everyone who gets you out of shit is your friend.

(3) And when you're in deep shit, it's best to keep your mouth shut!


THUS ENDS THE MANAGEMENT COURSE

Modern Management Theory: Lesson 5

A turkey was chatting with a bull.

'I would love to be able to get to the top of that tree' sighed the turkey, 'but I haven't got the energy.'

'Well, why don't you nibble on some of my droppings?' replied the bull. They're packed with nutrients.'

The turkey pecked at a lump of dung, and found it actually gave him enough strength to reach the lowest branch of the tree.

The next day, after eating some more dung, he reached the second branch.

Finally after a fourth night, the turkey was proudly perched at the top of the tree.

He was promptly spotted by a farmer, who shot him out of the tree.

Moral of the story:

Bull Shit might get you to the top, but it won't keep you there.

Modern Management Theory: Lesson 4

An eagle was sitting on a tree resting, doing nothing.

A small rabbit saw the eagle and asked him, 'Can I also sit like you and do nothing?'

The eagle answered: 'Sure, why not.'

So, the rabbit sat on the ground below the eagle and rested. All of a sudden, a fox appeared, jumped on the rabbit and ate it.

Moral of the story:

To be sitting and doing nothing, you must be sitting very, very high up.

Modern Management Theory: Lesson 3

A sales rep, an administration clerk, and the manager are walking to lunch when they find an antique oil lamp.

They rub it and a Genie comes out.

The Genie says, 'I'll give each of you just one wish.'

'Me first! Me first!' says the admin clerk. 'I want to be in the Bahamas, driving a speedboat, without a care in the world.'

Puff! She's gone.

'Me next! Me next!' says the sales rep. 'I want to be in Hawaii , relaxing on the beach with my personal masseuse, an endless supply of Pina Coladas and the love of my life.'

Puff! He's gone.

'OK, you're up,' the Genie says to the manager.

The manager says, 'I want those two back in the office after lunch.'

Moral of the story:

Always let your boss have the first say.

Modern Management Theory: Lesson 2

A priest offered a Nun a lift.

She got in and crossed her legs, forcing her gown to reveal a leg.

The priest nearly had an accident.

After controlling the car, he stealthily slid his hand up her leg.

The nun said, 'Father, remember Psalm 129?'

The priest removed his hand. But, changing gears, he let his hand slide up her leg again.
The nun once again said, 'Father, remember Psalm 129?'

The priest apologized 'Sorry sister but the flesh is weak.'

Arriving at the convent, the nun sighed heavily and went on her way.

On his arrival at the church, the priest rushed to look up Psalm 129. It said, 'Go forth and seek, further up, you will find glory.'

Moral of the story:

If you are not well informed in your job, you might miss a great opportunity.

Modern Management Theory: Lesson 1

A man is getting into the shower just as his wife is finishing up her shower, when the doorbell rings.

The wife quickly wraps herself in a towel and runs downstairs.

When she opens the door, there stands Bob, the next-door neighbour.

Before she says a word, Bob says, 'I'll give you $800 to drop that towel.'

After thinking for a moment, the woman drops her towel and stands naked in front of Bob, after a few seconds, Bob hands her $800 and leaves.

The woman wraps back up in the towel and goes back upstairs.

When she gets to the bathroom, her husband asks, 'Who was that?'

'It was Bob the next door neighbour,' she replies.

'Great,' the husband says, 'did he say anything about the $800 he owes me?'

Moral of the story:

If you share critical information pertaining to credit and risk with your shareholders in time, you may be in a position to prevent avoidable exposure.

What Happen To Vietnam?

I almost started a business with a brother in Vietnam. I almost pump money into a Vietnam fund. I almost married a Vietnam girl..... ok I'm just joking. But what happen to Vietnam now? Its stock and economy is in trouble.

Two years ago, many people were excited with Vietnam. Its huge and young population, untapped market, political stability, cultured locals, economic revamp all pointing to one conclusion..... 2nd China!!!

And seriously two years ago, there is no reason not to believe so. All these were supported with economic data, demographic data and many analysts' reports. But things are all different now. Vietnamese inflation is a whopping 25%!!! Here in Singapore, we already felt the pinch of 5% inflation. Yesterday I bypassed a shop selling BBQ pork and rice dumpling. I enquired on the price and the lady boss replied S$3.50 per dumpling. I was shock and apparently she noticed my expression. On a normal day, a dumpling cost around S$1.50. So I smile at her and turnaround to leave the shop. Then she explains (while I was walking away) that "everything is expensive now due to rising prices". I almost wanted to turn back to correct her motherhood statement. Inflation is 5%, not 100%. The 100% inflated price of her dumpling was seasonal. Don't cover up everything by blaming it on the inflation, “I not stupid too”.

Anyway, a year ago, Lion Capital launched the first Vietnam Fund available to all investors. Everyone was excited and I almost bought it. I didn't merely because most of my spare cash was in the stock market then. I even recommended the fund to my friends. Luckily, they didn't invest in it. Now the fund's price crashed like can tin.

The following is a report in Business Time on Vietnam's economy.

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Business Times - 09 Jun 2008

Vietnam faces boom-and-bust cycle: analysts

(HANOI) Vietnam's economy, until recently a darling of foreign investors, has overheated and may be sliding into a boom-and-bust cycle that could require IMF-style assistance, analysts say.

The economy widely hailed last year as Asia's next tiger has been battered by double-digit inflation, a ballooning trade gap, a tanked stock market and worries about the currency and banking sector.

Credit rating agencies Standard & Poor's, Fitch and Moody's and several investment banks have revised downward their outlooks for Vietnam at a time when the spectre of a US recession could spell global trouble.

Aseambankers Research said that 'the worst-case scenario would be for Vietnam to suffer massive capital flight, triggering a balance of payment crisis and forcing the country to go to the International Monetary Fund (IMF) for help'. Analyst Adam Le Mesurier wrote for consultancy DSG Asia that 'an 'IMF programme' style policy response will be needed within six months', including monetary and fiscal tightening and a dong currency devaluation. Many investors and donors in Vietnam remain upbeat about the market of 86 million, pointing to strong exports - including that of food and oil - investment inflows, growing tourism, and the potential of its young workforce.

'It's too easy to get excited and claim that Vietnam has gone from poster child to problem child,' said EU chief country representative Sean Doyle. 'But I'm not sure it's very wise and very balanced . . . Vietnam, if it can keep steady, stick with the right policies, will be attractive.'

Nonetheless, the turnaround in investor perception has been stunning. Communist Vietnam's 2007 entry into the World Trade Organization (WTO) fuelled enthusiasm for the low-wage 'mini-China', bringing an influx of foreign cash.

Domestic investors gambled on a sky-rocketing stock exchange, the government went on a spending spree, and banks lent freely, fuelling rapid credit growth.

The wheels started to come off about half a year ago, when inflation hit double digits as the economy tried to digest US$6 billion in foreign direct investment (FDI) disbursed last year, or 8.4 per cent of gross domestic product (GDP).

Since the start of the year, prices have galloped - driven by global food and energy costs - to 25 per cent year-on-year inflation in May. Wage demands sparked 300 labour strikes in the first quarter alone.

'The wage-price spiral appears to be beginning. If it becomes embedded, it could make matters much worse,' said an HSBC report that predicted a rise to 30 per cent inflation amid hoarding of commodities.

Another alarm bell sounded when surging imports drove the trade deficit to US$14.4 billion in May, compared to US$12 billion for all of 2007.

The stock market has tumbled amid tighter credit and falling investor confidence, turning from the world's best to worst performing bourse. Last week, it crashed below 400 points, from its high of over 1,100 in March 2007.
Many investors have bought gold or offloaded their value-losing dong for greenbacks, briefly sending the black market rate in Vietnam to 18,500 to the US dollar last week, against the official rate of around 16,000.

Signs And Symptoms Of US Recession

The world largest economy's growth depend largely on its consumer demand. What if its people go jobless?

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Business Times - 07 Jun 2008

US jobless rate in May hits 5.5% (Excerpt)

Employers, worried about a sharp slowdown, clamp down on hiring

(WASHINGTON) The US unemployment rate jumped to 5.5 per cent in May - the biggest monthly rise since 1986 - as nervous employers cut 49,000 jobs.

The latest snapshot of business conditions showed a deeply troubled economy, with dwindling job opportunities in a time of continuing hardship in the housing, credit and financial sectors.

'It was ugly,' said Richard Yamarone, an economist at Argus Research.

With employers worried about a sharp slowdown and their own prospects, they clamped down on hiring in May, said yesterday's report from the Labour Department. The unemployment rate soared from 5 per cent in April to 5.5 per cent in May. That was the biggest one-month jump in the rate since February 1986. The increase left the jobless rate at its highest since October 2004.

The big jump in the unemployment rate surprised economists who were forecasting a tick-up to 5.1 per cent. Payroll losses, however, weren't as deep as the 60,000 that analysts were bracing for. Still, job losses in both March and April turned out to be larger than the government previously reported. Employers now have cut payrolls for five straight months.

The White House expressed disappointment too.

'Certainly this isn't a report that we wanted to see today,' White House deputy press secretary Scott Stanzel said. He acknowledged that the increase was higher than experts expected.

'It is a number that is too high in our view but it is lower than the average of the last three decades.'

The 5.5 per cent rate is relatively moderate judged by historical standards. Yet, there was no question that employers last month sharply cut jobs.

The government said the number of unemployed people grew by 861,000 in May, rising to 8.5 million. The over-the-month jump reflected more workers losing their jobs as well as an increase in those coming into the job market - especially younger people - to look for work, the Bureau of Labour Statistics said.