The Fed has already taken short-term rates down to zero, pushing income-seeking investors and savers to chase after higher-yielding, higher-credit-risk and/or higher-duration (riskier) bonds. Now, with the magic of QE2, the Fed wants to drive long-term rates down to unseen levels and push investors of any Treasuries (short or long) towards higher-risk assets – junk bonds, real estate, stocks, and commodities.

The Fed also hopes (that is all it can do at this point) that low interest rates will nudge businesses to invest and to hire. That’s unlikely. The value of any asset is the present value of its future cash flow. As my favorite philosopher, Yogi Berra, (allegedly) said, “In theory, there is no difference between theory and practice. In practice there is.”

In theory, lower interest rates decrease the rate that businesses use to discount future cash flows – making future cash flows more valuable today – and that is what the Fed is betting on. In practice, however, the fickle source of lowered interest rates is not lost on businesses.

Rising government debt levels and overheating printing presses don’t generate confidence about future cash flows. High government debt eventually leads to higher taxation, higher interest rates, and lower growth. So the Fed’s action may produce an opposite result from what it intends.

QE2 is like a drug prescription that comes with the list of side effects that are often worse than the disease it was supposed to cure. It is difficult to know all the side effects and unintended consequences of QE2, but it may result in a substantial decline in the dollar, stagflation (inflation will show up not where the Fed wants it – i.e., in house prices – but where the Fed does not want it: in prices for things like food, gasoline, clothing, electricity etc.), lower economic growth and much higher interest rates. Yes, paradoxically QE2 may actually result in higher interest rates – investors expecting higher inflation will demand higher interest.

Despite the Fed’s efforts, the dollar may or may not decline against the euro. As in a race to the bottom, the US is racing with PIIGS rampaging through Europe. The Fed’s artificial manipulation of short- term and long-term interest rates creates a long-term problem for the economy. Government intervention (be it Chinese or US) in the free market creates excesses that are not allowed to self-correct and thus, leads to bubbles.

QE2’s possible success worries me more than its failure, because it will come with all the side effects I just mentioned, plus the eventual popping of newly created stock market and real estate bubbles. The Fed wants to create asset bubbles, praying for the wealth effect – stock and real estate appreciation to make people feel wealthier (at least on paper, for a while) so they will spend their phantom wealth. However, the Fed is like a Judas goat leading gullible (yield-deprived) savers to the slaughterhouse. The paper wealth that is created will vanish as bubbles burst (they always do), wealth will be destroyed, and consumers will find themselves further in debt.

Japan was QEing from 2001 to 2006 and created a bubble in Japanese bonds that partially burst, but the economy did not lift out of stagnation. Eventually, Japan stopped hiding its true intentions of propping up the equity market – on November 4th of this year the Bank of Japan announced it will be buying Japanese stock ETFs and REITs.

The Fed’s actions over the last two decades remind us of Scarlett’s famous line from Gone with the Wind: “I can’t think about that right now. If I do, I’ll go crazy. I’ll think about that tomorrow.”

Unfortunately, the Fed’s toolbox is missing a very important, must-have tool to fix the current problem: the “do nothing” tool. The “do nothing” tool would let the economy self-heal, even if unemployment stayed at 10% for a while and housing prices found (declined to) their true level.

However, that is unlikely to happen, as it requires pain. Americans have little tolerance for pain – after all, the most prescribed drug in the US is Vicodin, a painkiller. This is why, regrettably for the US, QE2 is unlikely to be the last QE: as the QE2 effect wears off (assuming it succeeds at all), then QE3, 4…10 and so on will follow.

What should investors do?

If the Fed “succeeds” and creates a short-term bubble in stocks and other asset classes, investors’ true time horizons and investment disciplines (i.e. adherence to the investment process) will be put to the test. They will have to engage in the game of looking-for-a-bigger- fool-to-buy-your-overvalued-assets.

In the giddy phase of a bubble, ignorance is wonderful bliss and knowledge and adherence to the investment process are a curse – as disciplined investors will always sell too soon and will not partake in the bigger fool game. However, when the bubble bursts, the money will flow to its rightful owners. The Fed doesn’t want you to be in cash, it wants you to reach for yield and to speculate – but don’t. In the absence of good investment opportunities, the worst thing you can do is take guidance from the Fed.

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He was addressing business executives on the sidelines of the Asia—Pacific Economic Cooperation (APEC) summit in Yokohama where leaders from 21 APEC economies meet to free up trade among members.

Speaking to over 2,000 participants at the CEO summit, Prime Minister Lee said the US—China currency subject is politically difficult.

He said if the US succeeds in raising the renminbi rate, it still won’t solve America’s economic problems.

He said: “From the Chinese point of view, supposing the exchange rate had to move up, moderately, gradually, as it did between 2005 and 2007, that’s not going to kill the Chinese economy.

“It may even be good for the Chinese economy because it’ll put some pressure on the export sector to upgrade, you’ll spread the benefits of growth to the non—export industries inland, we’ll foster restructuring in the economy. It’s part of the adjustment — as the economy becomes more productive as you move up, the exchange rate moves up.

“So it’s not something that’s win, lose, do or die. And I think in that environment, frictions, you must expect, but war, I don’t think it’s on the cards.”

There are, however, other geopolitical tensions such as the China—Japan territorial dispute over the Senkaku or Diaoyu Islands.

A bitter territorial row erupted two months ago between Beijing and Tokyo after the arrest of a Chinese trawler captain whose vessel collided with Japanese patrol boats in waters near the disputed island chain in the East China Sea in September.

Prosecutors released the captain after Beijing cut political, economic and cultural exchanges and detained four Japanese citizens for video recording in a military area, but the dispute continues to seethe.

However Mr Lee said the incident has not changed the strategic interests of both countries.

He said: “It’s an old problem, it’s not going to go away anytime soon. But, despite these problems, you’ve had periods of good relations between China and Japan. So I think that you will not solve these island problems for a long time but neither are you going to go to war over them. The challenge is to manage this without colouring the overall relationship and souring the overall mood in the region.”

Mr Lee said that is critical because the Asian region is now enjoying a rebound from the financial crisis.

From China to Chile, all of these emerging markets also present abundant opportunities.

Mr Lee said the key is to help sustain this growth momentum by continuing to liberalise and integrate economies in the region.

He added that it is also important to build stronger ties across the Asia Pacific and help each other to develop and to prosper together.

APEC, Mr Lee said, has much work to do. But businesses too have a role to play. He said the private sector should seize the opportunities and help create prosperity.

Prime Minister Lee also met Chile’s President Sebastian Pinera on the sidelines of the APEC Leaders’ Summit.

us stock market ,us stock market news,china stock market news,chins stock market,singapore stock market ,australia stock market

Germany and China have expressed concerns over US plans to pump $600bn (£373bn) into the US economy.

German Finance Minister Wolfgang Schaeuble said the US would not solve its problems, but create “extra problems for the world” instead.

Some countries fear that the US Federal Reserve’s move could hurt their exports by making their currencies stronger.

China’s Central Bank head Zhou Xiaochuan urged to look into “reforming the international currency system”.

He did not elaborate how the system should be changed.

The US central bank announced on Wednesday that it would spend $600bn to buy government bonds, in the hope that the cash injection can kickstart the country’s economy.

However, this weakens the dollar, boosting US exports while making imports more expensive.

‘Clueless’

“If the domestic policy is optimal policy for the United States alone, but at the same time it is not an optimal policy for he world, it may bring a lot of negative impact to the world,” said Mr Zhou.

“There is a spill over.”

China’s Vice Foreign Minister Cui Tiankai said the Federal Reserve had the right to take steps without consulting other countries beforehand, but added: “They owe us some explanation.”

Germany’s finance minister Wolfgang Schaeuble said on German television that “with all due respect, US policy is clueless.”

“It is not that the Americans have not pumped enough liquidity into the market and now to say let’s pump more into the market is not going to solve their problems.”

He added that the German government was going to hold bilateral talks with US officials and also discuss the topic at the G20 summit in Seoul next week.

The latest move by the Fed has been dubbed QE2 as it follows the central bank’s decision to pump $1.75tn into the economy during the downturn in its first round of quantitative easing.

With house prices on the rise, despite the new cooling measures, is now really the right time to buy a property? Award-winning property agent Kelvin Fong thinks so. Here are his five reasons why buying a property today could be the best decision you ever make.

1. Low interest rates
People with money to invest can use the current low interest rates – which are as low as 0.88% at present – to leverage a passive income from their purchased property. In fact, the returns from a property can be more than what a bank’s fixed deposit account can offer.

For example, a unit at Southbank costing about $1.2million could generate a rental income of about $4800 per month, while the mortgage is about $3000. The buyer would enjoy a passive income of $1800 per month, as compared to depositing it in the bank to get 0.4% of around $1000 per year.

2. Property is an appreciating asset (eventually)
Barring any dramatic economic upheavals, property prices will likely stabilise or slowly, but progressively, increase from now till 2011. Most sellers will not want to sell at a lower price today, and will not suffer when paying a relatively high mortgage due to low borrowing costs. The 30% down payment rule will actually act as an incentive because purchasers, having come up with this capital, will not want to sell.

Provided you do not sell your property during the downturn – as you will almost inevitably lose money on it – the value should increase. The key is that the buyer must have holding power when the market deteriorates and should not buy until they have the holding power to weather any market conditions. Prices will eventually rise again – as witnessed in 2008, when prices were down but did eventually rise to and, in some cases surpass, the 2007 peak.

3. Assets beat playing the market
Many people will choose to purchase an asset like property because the market liquidity – essentially the asset’s cash value – is still strong and, due to the last financial crisis in 2008, people felt safer putting the money in asset rather than financial instruments. The asset will always be there, and even when market conditions are not as good, as long as you do not sell it, you will not lose money.

4. Market conditions don’t matter
Buyers who are looking at property as a long-term investment will be less concerned about the market’s movement up or down.. Property will – nearly always – appreciate in the long term in Singapore due to the scarcity of land and available real estate. While having a diverse portfolio is preferred, as a long-term investment, property is generally going to make more money than other comparable instruments. Investing in bonds, for example, is a safe investment instrument, but capital appreciation is weak.

Property is not the ideal market for speculators though – not only has the government introduced measures to discourage property speculation – but you will be much more at risk of market fluctuations.

5. Property keeps on giving
Buying public housing in today’s market is not cheap, with HDB’s executive condominiums going at around $600 – 700psf, close to mass market private property prices. A HUDC unit has already reached the $1 million mark, and the trend looks set to continue. Parents may see buying an asset, not only as a hedge against inflation, but also as an eventual inheritance to their children. If house prices continue to rise – and with the cost of construction materials inevitably going to rise too – there is the fear that the younger generation could be priced out.

PETER McGUIRE is, by all appearances, the super-successful stockbroker fronting CWA Global Markets, with a fondness for $200,000-plus Mercedes cars.

At the height of the boom his business was selling risky financial products like hot cakes, allowing its top broker to take home $45,000 a month in commissions. McGuire, 51, has also flourished, both professionally and personally. He is a regular performer on the US business television channel CNBC. In 2008 he added a $1.25 million semi in Coogee to two other eastern suburbs properties he owns.

In contrast to McGuire’s smooth media manner, former staff portray him as a mercurial figure who demands a churn-and-burn mentality of his staff.

Or, as an October 2007 CWA presentation put it: “Clients are Bambi . . . we shoot Bambi.”

If the team did not meet sales targets, former staff say, McGuire called them f—wits and dumb c—s.

Sensitive company documents and tapes of phone conversations obtained by the Herald paint a picture of a sales-driven business that repeatedly puts its customers last.

It is a well-known standard practice within the broking industry, including CWA, to tape and retain all telephone conversations for customer service and internal compliance purposes.

In a 2007 conversation taped through the internal system with CWA’s top broker, Ben Howarth, which later appeared on YouTube, McGuire says: “Can you spend whatever you have got in your [customers'] accounts?”

Asked by email about the claims against CWA, McGuire replied: “From the issues you raise I can say that you have been misinformed in a number of key respects.”

He urged the Herald to take great care and seek legal advice if it was going to “publish vexatious or unfounded allegations and confidential materials”.

The documents reveal a company that profited extensively in the mad-money days of late 2007 when investors were seemingly heedless of risk.

The documents show CWA investors often lost the lot, with one spreadsheet showing more losers than winners over a 2-year period.

A former employee, who requested anonymity, says of the culture within CWA: “There was an emphasis on extracting the money out of the client and placing it in the market without a consideration of the market.”

CWA makes its profits by charging customers an extremely high price for financial products known as warrants. One undated company document shows CWA charged investors an extra 25¢ for every dollar of financial product they bought. CWA never told its investors about this charge in its sales documents.

CWA has left behind a trail of angry customers and disaffected staff. Customer anger has been captured in 17 minutes of internal recordings of repeated calls from a customer, Tony Michelutti, who lost $20,000 on a trade on cocoa.

“What a joke, f—ing joke, threatening me with the police and telling me he cancelled the account,” Michelutti says at one point.

Former staff say McGuire frequently refers positively to a US movie about a ruthless broking firm, Boiler Room. Boiler room is US slang for a high-pressure brokerage selling worthless stock, usually staffed by impressionable youngsters.

McGuire is also said to regularly quote a movie about hard-driven and desperate real estate salespeople, Glengarry Glen Ross, using the line “ABC – Always Be Closing”.

The October 2007 company presentation is full of the language of high-pressure sales tactics to “close” a sale, including: “Make no mistakes – we don’t expect everyone to be here this time next year.”

The presentation included sales targets and an exhortation: “Together we will hit the headline forecast.”

The last line of the presentation states: “Focus on QUANTITY and $VALUE of trades: more trades = more commission $$$ for you.”

McGuire’s approach to his brokers is featured in the audio clip, once posted on YouTube, of his internal phone call to Howarth, the star broker.

McGuire: Benny, how are you son?

Howarth: Yeah, good mate, good.

McGuire: Um, can you just spend whatever – I know it’s not hard for you because you are a very good spender of people’s money – ah, can you spend whatever you have got in your accounts?

Howarth: Yeah.

McGuire: Can you spend whatever you have got in your accounts?

Howarth: Yeah, no, I’ll try. Yeah, I’ll try, I know.

McGuire: Just get it, exhaust it, because they are phoning me every day [asking], How are you going to [reach] budget?

Peter Dvorak, a former compliance officer with CWA, said customers lost money because “that’s the nature of those [financial] products”.

“The more you know about them the less you want to get involved in it,” Dvorak said. “There was a comprehensive product disclosure statement but I think most people would not read it.”

CWA has not escaped the notice of the corporate watchdog, the Australian Securities and Investments Commission. An internal complaints register shows ASIC contacting CWA three times in late 2005 and early 2006. The complaints were successfully addressed by CWA.

In Glengarry Glen Ross, the empty pursuit of money is ruthlessly exposed.

It appears McGuire has taken a leaf from his favourite movie to play “the man’s game” – and it is the investors who have been burnt.

The Sunshine State has considerably surpassed larger Australian states over the past few decades, said the report, which also forecasted that it will be repeated over the next few decades.

“Queensland is currently 20 percent of Australia’s population and contributes 19 percent of Australian GDP. However, over the past decade, the state has contributed 30 percent of Australia’s population growth, 26 percent of Australia’s GDP growth and 29 percent of Australia’s employment growth,” said Simon Storry, Director of International Investments.

Queensland is a major global exporter of coal. There are also plans to spend several billion dollars to develop its vast reserves of natural gas.

According to Mr. Storry, the state’s population and economy will grow at a faster rate compared to New South Wales and Victoria over the next few decades. This means office stock in Brisbane will grow at a faster rate than Sydney and Melbourne.

Since 1999, the office stock in Brisbane’s CBD has grown 29 percent, while Sydney and Melbourne grew 10 percent and 26 percent, respectively.