Could the country pushed to the brink of Recession?

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Jun 05 2008
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As expected when I and my buddies step into the kopitiam for our routine of breakfast this morning, everyone was talking (or rather yelling) about the fuel hike tsunami. I believe this was the second time within this year that the crowds were so energetic debating the 40.62 percent or 78 sen per liter hike? The first time was when the ruling government lost five states to the opposition in Mar and three months later, it was this ridiculous fuel hike. This brings back the happy memory of 1993 KLSE Super Bull Run.

15 years ago, restaurants were basically packed during lunch hour. Customers ranged from remisiers, dealers, IT guys, fishmongers, low-ranking settlement officers and even students. You can see happy faces basically everywhere and the dishes such as shark-fin soups, abalones and other expensive foods are quite common. The cheapest one would settle for hotel’s buffet. It was an era of no-brainer – as long as you belong to the homo-sapiens species, you were making money.

It wasn’t so hard to make money because as long as you follow the trends on the top-20 active stocks, you basically hit the jackpot. And if you have a little bit more brain-cells, you go and buy the lower part of top-40. You can’t miss the boat and with the settlement period of T+7, the whole stock market was like a paradise. One punter who later I found out to be a 16-year-old student claimed he made almost RM100,000 from playing contra. Not sure if he survived thereafter though.

KLCI after fuel hikeAnyway, I suppose that even though the 10-year Bull-Run cycle was quite accurate to a certain stage, I doubt the glory days of 1993 could be repeated. The local stock market plunged almost 38 points today, the second worse since the 3-digit points plunge after the Mar 10 general election. Almost all the sectors were whacked upside down with plantation, financial and independent power provider (IPP) stocks leading the way, thanks to the government’s subsidies revamp exercise.

Plantation stocks were affected by the government’s decision to impose a windfall tax (aren’t these people creative in getting easy money?) on oil palm companies effective from July 1 but the rest of the stocks were affected either directly or indirectly by the huge quantum of fuel hike and could be heading to the Niagara Falls. The worst has yet to come. It’s all about chain-reactions and I’m flabbergasted why the government didn’t learn their lesson. Let me get one thing clear. I agreed that it’s about time to take away the fuel subsidy but it should be on gradual basis and not with a big-bang approach. No doubt over the long run, we cannot live under the subsidy honeymoon but we got to be realistic.

Crime rate snatch thiefThose who still scream that even after the 78 sen hike the country’s petrol is still one of the cheapest should be shot, period. Why compared with Singapore when their GDP per-capita is US$49,714 while Malaysia is merely US$14,400? That’s almost 3.5 times difference mind you. Why not compared with another crude oil producer, Venezuela, a country whereby you only pay $0.17 per liter? Now, cost of doing business especially the SME will escalate, cost of living will goes up while the standard of living will plunge, crimes rate will skyrocket, many small traders will have to close shop, unemployement will increases because companies have no place to go but to retrench and many more horrible consequences are about to explode.

Former premier Mahathir today wrote that roughly Malaysia produces 650,000 barrels of crude per day. We consume 400,000 barrels leaving 250,000 barrels to be exported. Three years ago the selling price of crude was about USD30 per barrel. Today it is USD130 – an increase of USD100. There is hardly any increase in the production cost so that the extra USD100 can be considered as pure profit. Our 250,000 barrels of export should earn us 250,000 x 100 x 365 x 3 = RM27,375,000,000 (twenty seven billion Ringgit). But Petronas made a profit of well over RM70 billion, all of which belong to the Government. By all accounts the Government is flushed with money.

Maybe the government has forgotten to calculate the sudden increased in taxes from the plantation companies, oil companies and banks. I hope Scomi pay their taxes accordingly. Bottom line is the country’s economy is still generating profit and going by the simple arithmetic, the government can subsidize (if you still want to use the word) and gradually increase the fuel price but not before an effective mechanism is put in place to check for leakages (or rather corruptions). And please improve the public transports first which is still in the sucky situation.

I believe the people are still waiting for the 2006’s promise of improve-transportation system after the 30 sen a liter hike. People had tightened their belts since the deputy PM advised us to change our style of living since then. But to repeat the same old excuses and advices without doing a single thing on the government part is simply outrages. Just where all those billions of ringgit saved have went to? I’m pretty sure not a single cent has goes into my pocket.

Fuel Hike EmploymentAnd please think twice about those advices from the brokerages that today’s plunge is a good opportunity to buy. One thing leads to another and the last thing I want to write is this latest move could be the tipping point in pushing the country into a recession – not the one that says decline in the Gross Domestic Product (GDP) for two or more consecutive quarters but the one that says one after another of your friends are out of job. A recession is when your friend losses his job but when it’s you who lose the job, then it is depression.

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Something fishy is going on in UMNO.I think there will be another tsunami in next quarter.

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