Kamal Salih Comments:
A perfect storm is brewing in the immediate horizon of the Malaysian economy. I wanted to take comfort in pronouncements by the government leaders that, given our strong economic fundamentals, we (meaning government, business, exporters, importers and outbound travellers, ordinary consumers and folks) should face the blowing wind and ride out the oncoming storm. It is not as bad as the 1997 financial crisis, they say, and we had learned enough and adjusted from that experience. But the signs do not point to such self-indulgent confidence: The Ringgit is today 4.60 to the US dollar and has now 5 in view (and the government has abstained from pegging), even though there's no Soros in sight; oil prices are testing US$40 and Budget predictions for the year are flying out the window; other commodities are following suit; and the sloshing foreign funds that had fuelled the stock market and property has long taken their money out. And the GST has added more than its fair bite of living costs. With the 1MDB scandal, vacillations over the RM2.6b issue, the cabinet just reshuffled and a gaping trust deficit in the government's ability to handle the issues, we are told to continue sipping our coffee and teh tarik. Meanwhile, the over-dramatizers have been working overtime and predicting a momentous September. You can talk up a storm, but you can't talk it down. Our coffee cups are shaking...something's got to give!
To understand these massive shifts in the wind, I sought and share below with you three articles by Wolf Richter, of Currency Wars fame, to understand what's going on, and see where we can run for cover.
It Starts: Broad Retaliation Against China in Currency War
CIA insider: This is the Key to Understanding the Yuan-Dollar Relationship
What the Heck is Going On in the Global Markets! (Excerpted)
“A Global Meltdown…”
That’s what Doug Short called it in his World Markets Weekend Update. All its eight indexes finished in the red for the week. India’s SENSEX, he points out, “was the top performer, down a ‘mere’ -2.5%.” For the rest, they ranged from the Nikkei’s -5.28% to the Shanghai Composite’s -11.54%. The China bubble and implosion (blue line) is the most salient feature this year. By comparison, the selloff this week looks practically benign:
And oil got hammered for the eighth week in a row.
It was the longest weekly losing streak since March 1986. And on Friday, West Texas Intermediate plunged below the $40-mark intraday, hitting $39.86 before bouncing off to take a breath at $40.29, the worst level since the Financial crisis.
Since mid-June, when the delusions of an oil rebound came to an abrupt end, WTI has plummeted 33.6%.
US drillers have accelerated their drilling programs again. Global production, powered by Saudi Arabia, Russia, the US, and especially Iraq – and soon Iran – gives off no substantive signs of slowing down. Hopes for global demand growth are hitting the realty of economic turmoil in China and elsewhere. Crude oil in storage has reached disconcerting levels for this time of the year. And people are starting to pray for miracles.
The overall commodity complex hit new multi-year lows this week. But gold has been an exception, rising from its own dismal multi-year low at the end of July.
Shocked and appalled that the market had somehow rediscovered this dastardly will of its own, Wall Street is already clamoring for ZIRP Infinity and QE4 Infinity, a real “infinity” this time, because everyone knows that at these ludicrous valuations, the market can never stand on its own two feet again, and folks simply don’t want to give up the trillions that the Fed has so magnanimously shoveled their way.
To top it off, currency turmoil tore into the emerging markets, and a debt crisis is starting to build up on the horizon.
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