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Even if the Worst is Over, So What?



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May 27 2009
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General Motors Corp. (NYSE: GM, stock) announced that only a small fraction of the holders of its $27 billion in bonds agreed to swap their debt for a 10 percent equity share of a recapitalized GM. Without at least 90% of GM’s unsecured debt bondholders agreeable to the swap-plan, GM has no other choice but to file for bankruptcy. The U.S. government is expected to become the largest stakeholder in a restructured GM – as high as 70%. Fortunately there was other good news that overshadowed the gloomy GM’s problem.

It seems the Americans are more optimistic about their economy with the U.S. consumer confidence barometer jumped in May to its highest level since September thus sending the Dow Jones up almost 200-points yesterday. Also more than 90% of economists predict the U.S. recession will end this year, according to a study done by National Association for Business Economics (NABE) but nobody dares to say anything positive about unemployment. In fact NABE said unemployment rate would average 9.1% – highest level since 9.6% registered in 1983. Some even predicted unemployment could skyrocket to 10.7% in the second quarter 2010.

Case Shiller Home Index

Contrary to belief it seems the housing crash has not find its bottom yet, if Case Shiller index is anything to go by. The house prices are still plunging at a 19% year-over-year rate. However Whitney Tilson, author of More Mortgage Meltdown: 6 Ways to Profit in These Bad Times, thinks the market will bottom in about another year and it would probably fall another 10% to 15%. Economist Nouriel Roubini who was quite obssessed that the so-called sucker’s rally now said the recovery could happen in fourth quarter rather than second quarter of 2009 but we’re yet at the bottom of the U.S. and global recession. He also warned against being too optimistic that a recovery is nearby because the contraction is still occuring.

Nevertheless even after the recession ended, U.S. economy growth is expected to be weak for at least two years. The good news is the outlook for Asia was more positive than for U.S., Europe and Japan. Malaysian Central Bank Governor released the GDP report that the country’s economy contracted by a whopping 6.2% in the first quarter thanks to weak external demand for manufacturing goods. The Governor also expects the second quarter performance to be little change and mirror the first quarter. However the question is whether the country will emerge a stronger nation to combat the next recession after the dust is over. Najib’s administration doesn’t seems to be interested in moving the country to a higher value-chain judging from the excessive politiking, not to mention his education minister is still clueless on what to do with the “brains” at schools.

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