The Bottom Of The Abyss?!

Posted by Kris | Wednesday, June 18, 2008 | | 0 comments »

In my honest opinion, I believe that we are still very far away from any market bottom. The recent fuel hike to RM2.92 per litre is only the beginning of the end. Inflation is aggressively seeping into our daily life. Our Malaysian lifestyle is beginning to slowly change to be more money conscious as evident with the number of people eating out at restaurants and prudent consumer spending pattern. Commodities and goods prices have been skyrocketing.

New houses in Malaysia is now averaging ~20% to 30% more expensive since the commodity bull run. Housing developer is attributing this to the fact that building material have been rising steadily. 2 years ago before the sub-prime crisis, constructions steel costs around RM1900 but now it has leap frogged to RM3900. It is ironic to hear that our Malaysian property is selling at ridiculous prices while our US counterparts is dropping >40% off their original value in some parts of the states. California is one of the hardest hit states where there used to be a hot bubble in property speculation where alot of people become millionaire overnight by "flipping" house. Television ads at that time were full of people selling course on how to make money flipping houses.

Now, with the sub-prime mess becoming a "infamous" word, these same people are still trying to make a quick buck selling courses on how to profit from other people's misfortune. They are teaching people on how to buy-out properties that is being auctioned out or sold due to payment delinquencies.

I believe that in Malaysia , we just starting to feel the heat. The local political uncertainties is not any helpful to our economy especially our beloved KLCI index. Property prices will surely drop in the coming days as we will begin to see the real effect of a full-blown recession.Eventually commodities prices will drop ALOT as the demand for goods dry out due to the unwillingness to spend money on non-essential items. We don't really see this effect before the fuel hike even though it is widely believe that the US is in a mild recession. The fuel hike is really the major catalyst for the huge increase of consumer goods prices in Malaysia.

As of today, the DJIA is hovering around the critical 12,000 mark and our KLCI is around ~1212. I think the values are generously too high for both indexes. A recession will bring both indexes to new lows. Notices that in 2007 and 2008, bad news items/statistical for the US economy is always breaching 17-30 year historical lows. I fear that this impeding recession will be more serious as compared to the 1997 Asia financial crisis.

I truly hoped that for the sake of the common Malaysian, that the coming recession will be a mild one.