Live within yr Means

Lehman has been the No.1 biggest company to go bankrupt. This week, I am looking at Citi going under ~ 2 trillion in assets and followed by GM and Chrysler. Obama looking to create 2.5mm jobs in 2011 in schools, infrastructure spending, alternatives energy eg solar and wind farms. Think it is time for us to reprice risk premium. I like the following article written by Goh Eng Yoew, ST Mkt correspondent.

Something good will come from these bad times. It is worth noting that during the Great Depression, formidable businesses were being established in the United States, such as Walt Disney, IBM and Hewlett-Packard. These turned into the global household names they are today. People will have to start living within their means, learn how to preserve capital and reduce debt.
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Many have described the current upheaval as the worst financial crisis since the Great Depression 80 years ago. Let's put things in perspective. The few people who still remember those bleak times have observed that such talk is quite exaggerated. One 86-year-old businessman here recalled that during the Great Depression which occurred during his childhood, many people went hungry in the streets as the rubber trade in Singapore crashed. Yet, the British colonial authorities did not lift a finger to help them. In contrast, the Government is already rushing to put together a series of measures to combat the current downturn.

But the vast destruction of wealth now under way in global financial markets is not something that happened overnight. It may actually be the result of many years of risk-taking gone awry. The problem has been simmering beneath a surface calm during the last couple of boom years, but no one paid any attention to it, given the obsession with instant gratification. It is easy to get carried away and pin all the blame on the mortgage crisis in the United States. But look around us. Didn't we suffer from similar excesses as well? Until recently, some banks literally made it a virtue to approve risky unsecured personal loans within 24 hours - never mind the credit checks they are supposed to do on the borrower. Even while the super-bull run was hitting its peak early last year, there were already warning signs that the stock market might come crashing down. These signals were mostly ignored.

Companies bled dry by years of losses, such as Rowsley, Equation and Ban Joo, were valued at more than $200 million each even though they were literally shell firms with few viable assets left in them. In May last year, one audacious China solar start-up even wanted to inject its fledgling operations into Rowsley at a hefty price tag of $2.7 billion. While it offered investors a $300 million profit guarantee for each of the financial years ending June 30, 2008, 2009 and 2010, it gave precious few details on how it intended to fulfil its side of the mega-size bargain. Small wonder, then, as the US sub-prime crisis started to bite, these counters tumbled like tenpins as the sexy stories surrounding them turned sour. They have since fallen to about one-tenth of the prices reached during the feverish penny stock price run-up in July last year. It is now quite possible that we will have a few lean years ahead of us - as the excesses are being drained out of the system - but that is nothing to fear, really.
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'Nothing is moving. The decline is not confined to the US market; Europe, Japan are also down significantly, with slowdowns in the emerging markets as well.' The situation is most dire in the US, the biggest car market in the world. Sales there have plummeted to their lowest in 17 years, putting General Motors, Ford and Chrysler on the brink of disaster.

The Big Three are asking for US$25 billion (S$38 billion) in federal assistance - which was rejected by Congress - with GM and Chrysler warning that they could go under in weeks. Europe has suffered six consecutive months of declining car sales, with a drop of almost 15 per cent last month. Renault, Peugeot, Opel, Mercedes-Benz and Audi have announced either cutbacks or layoffs, and in many cases, both.

Japan, home of some of the world's most efficient, affordable cars, has not been spared. Toyota, Honda, Mazda and Nissan have all announced production cutbacks and staff layoffs in domestic as well as overseas plants. The slowdown of the auto industry is potentially devastating for not just the carmakers, but also the countries they operate in. A report by the Centre for Automotive Research shows that if one of the Big Three goes bankrupt, the US could lose 2.5 million jobs and US$125 billion in personal income in the first year alone.

In Germany, where the auto industry is estimated to provide one in eight jobs, a slowdown for carmakers will also hit the electronics, transport, chemicals, engineering and advertising sectors. Even countries such as Thailand and South Korea have already been hit by production cuts.

But what ails the industry? Most firms lay the blame squarely on the current economic crisis, dropping demand and weak consumer confidence. Not only are cars seen as luxury items that people can go without in these lean times, but loans from banks are also drying up.

'That's in nobody's business plan,' Ms Kimberly Rodriguez, an automotive specialist with global accounting firm Grant Thornton, told Time magazine. 'The best planning in the world cannot survive that fluctuation.'

But others blame structural weakness in the carmakers, especially in the US. Long criticised for their inefficiencies, US carmakers are coming under greater fire for their cost management. Much of the bailout money that they want, for instance, will go to keeping overpaid workers in their jobs, their pensions and their retirement benefits.

Critics also slam the US automakers for failing to develop smaller, fuel-efficient cars, and concentrating instead on fuel-guzzling sport utility vehicles - whose sales have been devastated by high fuel prices.

Despite all this, some carmakers are keeping their hands firmly on the gearshift, ready for a comeback.