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.

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.

After the currency overnight struck a two-year high of 94.94 US cents, the Fortescue Metals chief said he thought it had further to rise thanks to the nation’s growth prospects.

While the resources boom had been the key attraction for investors so far, he said they would soon appreciate the broader growth story across various industries in Australia.

‘‘That’s a vote on how good Australia is,’’ he said of the dollar’s recent ascent.

In a wide-ranging question and answer session, Mr Forrest also gave grudging support for a carbon tax, but said the government should look carefully at other options before introducing a price on polluting.

Amid a growing debate on climate policy among business leaders, Mr Forrest also backed further research on the coalition policy of carbon soil sequestration.

Mr Forrest likened a carbon tax to Winston Churchill’s view on democracy – that it was the worst option, except for all those others that have been tried.

‘‘‘I would say before you bring in that worst system in the world make sure you’ve given your scientists, not politicians, every opportunities they need… to say what’s best for Australia,’’ Mr Forrest said in Sydney.

Mr Forrest’s commentary on federal politics extended to the $43 billion national broadband network, a key factor in determining the recent election.

He said people should be ‘‘scared’’ that the government had not conducted a cost-benefit analysis on the project, and questioned whether a wireless option could meet the nation’s future communications needs.

He said wireless handheld devices such as the BlackBerry had changed communication between people and this technology needed to be formally weighed up against the proposal to roll out the NBN.

‘‘We are just getting to the outer edge of this technology and then we are putting in this old technology all around Australia,’’ he said. ‘‘To build it without a study … as a mum or a dad we should be scared.’’

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.

Before I get too carried away we must look at the chart:

click to enlarge

I just love simple line charts. And when I see something like the above I always think who is still buying and why. Those who are buying obviously don’t look at the big picture. You would think one’s focus when we see such a chart is more – ‘how can I get off this sinking ship rather than how can I get on board’.

You may well say it is all well and good to make such statements after the event. But in fairness I have been calling TLS down now for some years and right now there are many investors who hold stocks that will follow the same path as TLS.

You must decide what is your criterion for exiting using the big picture. A simple trend line to me is the most basic and I have written about this many times over the years in TTN.

Of course I am an ardent Elliott user and if I was to go back to many points in time over the last few years there would have been numerous sell signals.

But today I get the following:

click to enlarge

A rally – but yet another sell down. Why? Because frustrated shareholders are selling any rally. So we may now see TLS down to sub $2.50. But can it go lower?

The answer is yes but we will have to review that once the current Elliott pattern has had time to unfurl.

Enjoy the ride

The Fed unsurprisingly left a key short-term rate near 0% Tuesday, meaning that rates on money-market accounts, CDs and other savings products are likely to remain as anemic as they’ve been for the past two years.

But the Fed is hurting those who look to Treasury bonds and notes for a steady yield as well. The central bank, acknowledging that the economic recovery is losing steam, also said Tuesday that it was planning to purchase more long-term Treasurys in order to keep those rates low.

The yield on the 10-year is now hovering around 2.71%, its lowest level since April 2009.

Of course, Ben Bernanke and his merry band of policy makers aren’t vindictively singling out savers to punish.

The Fed has good reason to do its best to try and keep short-term and long-term rates low in order to prevent what seems to be a sluggish recovery from becoming something much worse, i.e. a deflationary double-dip recession.

Still, it’s unsettling that just as more consumers have finally woken up to the fact that they should be putting away more money for that proverbial rainy day, there is little financial reward for doing so.

What’s an income-hungry investor to do then? Stocks that pay healthy dividends may now be a better way to chase yield. Of course, there are some drawbacks.

“You have to get creative. Bonds and CDs are not earning you much so dividend payers are a nice way to get you some income,” said Andrew Fitzpatrick, director of investments with Hinsdale Associates, a money manager in Hinsdale, Ill. “But you have to be careful because there are still a lot more risks with stocks over bonds.”

Some companies pay what may seem to be reliable dividends. But dividends are often the first thing to get cut during times of crisis. Just ask shareholders of BP (BP) or most big banks.

Fitzpatrick said a less risky way to bet on dividend payers is with mutual funds and exchange-traded funds. He recommends the Aston/River Road Dividend All Cap Value fund as well as the SPDR S&P Dividend ETF (SDY), which owns the highest-yielding stocks in the S&P 1500 universe. (That’s the S&P 500 plus the 400 companies in its MidCap index and 600 companies in its SmallCap index.)

The real estate arm of the Government of Singapore Investment Corporation (GIC) has confirmed the appointment of Kishore Gotety as its country head for India.

Mr. Gotety’s appointment, which took effect on August 23, suggests that GIC believes there are good investment opportunities in the Indian real estate market.

GIC, which currently has offices in eight cities around the world, will soon establish its first office in Mumbai, India, which will become operational later this year.

Mr. Gotety was previously working with RREEF Alternative Investments, the property investment management business of the Asset Management division of Deutsche Bank. In 2007, he joined RREEF as its country head in India, aiming to spearhead the company’s expansion in the country.

However, the credit crisis prompted RREEF to postpone its plans of expanding its India portfolio. In 2009, Mr. Gotety was transferred to Hong Kong as head of portfolio management for Asia-Pacific in the global opportunistic investments team of RREEF.

In 2009, GIC announced its plan to intensify its real estate allocation. The sovereign wealth fund is also believed to be looking at listing some property assets through a Singapore IPO that could raise about US$1 billion.

Visitors at Shanghai World Expo get a taste of Singapore cuisine

SHANGHAI : Visitors at the World Expo in Shanghai got a taste of Singapore cuisine at the Singapore Pavilion on Friday.

Curry chicken, mee sua, carrot cake, fried prawn rolls, yam paste, egg tarts and fried wantons were some of the dishes on display at the Singapore Pavilion.

Mark Ng, Area Director (Eastern China), Singapore Tourism Board, said: “We are really delighted to bring the Singapore Food Festival to the Shanghai World Expo to the Singapore Pavilion and to coincide it with the actual launch in Singapore. We are bringing one of our biggest events from Singapore to share it with everyone at the World Expo.”

Catering company Kriston said visitors can expect quite authentic hawker fare – although there were some challenges.

Stanley Jong, chef, Kriston Food & Beverage, said: “The biggest challenge is to find raw materials and bring them into Shanghai. Some of the ingredients are not allowed to be brought into the country and some can hardly be found in Shanghai. It is inevitable that some ingredients have to be substituted, but we try our best to find ingredients similar in taste to the original.”

The event was a crowd pleaser and not even the wet weather could dampen the enthusiasm.

One visitor said: “After tasting this food, I feel good about it and wish to go to Singapore to experience it again.”

Another commented: “It tastes very delicious. When I took the lid off, I could smell the aromatic flavour. It is nice. If I have the chance, I would like to visit Singapore.”

A third noted: “I come from Fujian and the flavour of this food is similar to that in my hometown. After visiting the Singapore Pavilion and tasting Singapore food, I really want to go there now.”

And from Friday till the following Sunday, 400 lucky visitors each day will get a sampler coupon which will allow to taste the food for free

NEW YORK (Reuters) – After ugly economic data and an unexpected downturn in sentiment on quarterly earnings, Wall Street will face a tough time battling back from the latest sell-off.

Technology and banking results will once again shape investor mindset in the week ahead. But it’ll be a tough job to shift back into a positive mode after stocks dropped nearly 3 percent drop on Friday.

Minutes of the Federal Reserve ’s June meeting got the market seriously worried this week after officials said they were more concerned with the pace of the economic recovery.

A raft of disappointing data didn’t help, prompting questions this week on whether the economy had merely hit a soft patch or was primed for a double-dip recession.

“It doesn’t mean the market can’t rally, but the structural problems are there and there is no doubt about it,” said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey.

From a technical perspective, the picture is even less certain. The Standard & Poor’s 500 Index is stuck in a tight range after it failed to hold its 50-day moving average, now near 1,090, after closing above it for two days.

The Nasdaq Composite, meanwhile, failed in its attempt to break its 200-day moving average, but has support around its 14-day moving average at 2,171.

At Friday’s close, the three major U.S. stock indexes were each down about 1 percent for the week: The Dow Jones industrial average lost 1 percent, while the S&P 500 slid 1.2 percent and the Nasdaq shed 0.8 percent.

The coming week’s earnings will include results from 12 Dow components, as well as earnings from financial powerhouses Goldman Sachs Group Inc and Morgan Stanley along with tech bellwethers Apple Inc, Texas Instruments Inc and Qualcomm Inc.

For the second quarter, earnings are expected to increase 28 percent from the year-ago period, according to Thomson Reuters data.

DOUBLE SHOT OF HOUSING DATA

The week’s major economic indicators will zero in on the housing sector, which is still struggling in the wake of the worst recession since the 1930s. In the second quarter, banks repossessed a record number of U.S. homes as U.S. unemployment stayed high, according to RealtyTrac, a real estate data company.

On Tuesday, Wall Street will get data on housing starts for June, which are expected to show a slight decline to a seasonally adjusted annual pace of 580,000 units from 593,000 in May, according to economists polled by Reuters.

Another snapshot of the housing market will be provided on Thursday with existing home sales for June. The forecast calls for a drop of 8.1 percent in June existing home sales versus the 2.2 percent decline in May, the Reuters poll showed.

REVENUES UNDER THE MICROSCOPE

But investors will focus on earnings next week. Close attention will be paid to revenue for signs of improvement, in light of the contrasting results from Intel Corp and Google Inc.

“That’s been the problem. They’ve been meeting or exceeding on cost cutting and not on demand for their products,” said Terry Morris, senior vice president and senior equity manager for National Penn Investors Trust Company in Reading, Pennsylvania.

“That has got to end pretty soon because the market was expecting sales to start improving and it’s not materializing.”

According to Thomson Reuters data through July 16, 48 companies in the S&P 500 Index have reported earnings for the second quarter, with 75 percent having topped analysts estimates, 13 percent in line with expectations and 13 percent below expectations.

On a revenue basis, of the 48 companies in the S&P 500 that have reported results so far, 71 percent have topped analysts’ expectations and 29 percent have fallen below estimates.

TAMER OUTLOOK FOR TECHS

Options investors appear to be expecting less volatility in the technology sector than the broader market next week.

Implied volatility on the at-the-money options for the SPDR S&P 500 ETF, an exchange-traded fund that tracks the benchmark S&P 500 , was slightly higher than on the PowerShares QQQ Trust ETF that tracks the performance of the Nasdaq 100, according to Steve Claussen, chief investment strategist at online brokerage OptionsHouse.com.

Implied volatility, a key component of options prices, measures the expected movement in stocks calculated by options prices. It is also seen as a barometer of anxiety.

“It’s notable that QQQQ is showing less implied volatility, which suggests more movements in the broader market than the straight technology sector. The tech sector will be a less exciting place in terms of movements next week,” he said.

Implied volatility on August options for the S&P 500 ETF was 25.5 percent, slightly higher than 25.25 percent for the Nasdaq ETF. Usually, the Nasdaq ETF has an implied volatility that’s 5 percent to 10 percent above that of the S&P 500 ETF.

The most actively traded options on the S&P 500 ETF were the August $100 and $105 puts, excluding July options that expire at the end of the day. Late Friday, the SPDR S&P 500 ETF was down 2.8 percent at $106.63.

For the QQQQ, the highest volume was on the August $44 put and August $45 call options. On Friday, the ETF was down 2.78 percent at $44.34.