Friday, August 04, 2006

Boom or Doom

In my first sentence, I have to declare that I am no economist and whatever below are my personal opinion whether flawed or not. Let me get on with another attempt of an average joe's discussion about the economy. The government predicted a 6% increase in our economy and is still backing that figure eventhough other research house predicted a 5.2% with a rather handful of negative remarks. If the economy is measured by GDP alone, granted, that would be a possible figure to achieve, single handedly helped by our export of oil due to the phenomenal rise in price. But what would happen if we strip the oil factor out of the economy? Are we still looking at growth or a contraction? I'm more inclined to believe the latter.

Focusing on the vehicles sector, which is a big slice of the cake itself. Recent news reported that there is a glut of 250,000 cars in the market. An oversupply situation. In this case, it is not surprising that the multiplier effect would have given rise to the following news such as the EON VSS Scheme, component makers going bankrupt, second hand cars market in a dreadful state and so on. The figures released also indicated a contraction of the vehicles sector or at least, the passenger cars sector. Instead of a 2.5% growth prediction for year 2006, a contraction of 5% is registered for the first half of the year. So is it fair to say that there is a recession going on in this sector?

Even the almighty toyota has drop a 2-3% in sales compared to year 2005. One would shudder then what would befall Proton. I have been told and read from somewhere that the inventory of new Protons (although getting old fast gathering dust) unsold are earth shattering. On a much smaller scale, I had chanced upon a parking complex in Kota Kemuning parked full with brand new Chevrolet cars. Chevrolet may be facing a "Sei Foh Leh" time. It was definitely not a good sight.

My friend has been telling me that the tighter credit conditions imposed and not to mention the persistent rise in interest rate, are turning the tap of credit off. NPLs are creeping up and it is of no suprise the banks have to cut back on the unreasonable loans. People borrow much more than what they can actually afford these days.

Increasing cost of living are no doubt cutting into disposable income and hence affecting consumer spending. On another issue altogether, I am perplexed as to why properties prices have risen so much in recent years. It is pricing out the first time home buyers. I think the credit is a huge culprit here. It is unimaginable to even think of a 30/40 year loan years back. Who profits most from such scenarios? The developer pockets in the expensive sum. The banks happily reports loans growth and the house buyer saddled with an exhorbitant loan for 30 years or more, thinking that he has bought an upmarket property valued at such and such.

With the credit getting more expensive, I wonder how this crunch would affect the market. I've been told horrid stories of the recession as recent as 1997. In some way I seriously feel that the return of the valley is approaching soon.

"It's only when the tide goes out that you learn who's been swimming naked. "

- Warren Buffett