Web Strait’s Finance

NEW YORK (AP) — Citigroup Inc. shareholders may have finally gotten what they wanted — the resignation of Chairman and Chief Executive Charles Prince — but Wall Street’s worries are far from over.

At an emergency meeting of the Citi board Sunday, the nation’s largest bank announced Prince’s widely expected departure, but also estimated it would take additional losses of $8 billion to $11 billion. In the third quarter, it already took a hit of $6.5 billion in asset mark-downs and other credit-related losses.

Meanwhile, the company remains entrenched in a mire of off-the-books investment vehicles funded by risky debt. Citigroup may need to take the fall for them if they fail.

And Citigroup’s not alone in its debt problems. When borrowers with poor credit stopped paying their mortgages, many banks not only had to take losses on those subprime mortgages, they also saw instruments in their portfolios backed by mortgages plummet in value. No one knows how much longer home prices will keep slumping, and whether problems related to the housing market will start affecting other types of consumer debt.

Also to be seen is how much longer the credit markets will stay tight, and if the currently strong portions of the economy will be hampered by banks’ inability to make loans.

By Madlen Read, AP Business Writer
Source: Yahoo! Finance

In finance, the Rule of 72 is a simple but powerful method for estimating an investment’s doubling time. That is for finding out how long your investment will take to double your money. It’s based on the compound interest as opposed to the simple interest.

For e.g., if you have put your $100,000.00 into an investment. And you estimate that it will give you about 8% of the annual return rate. So, the question here is “How long it takes for making your invested $100,000.00 to be $200,000.00?” You may now intend to take out a scientific or financial calculator for getting the answer. But if you know about the Rule of 72, then you should be able to get the correct answer in just few seconds even without a calculator.

As I mentioned above, Rule of 72 is simple but powerful. So, the answer is quite strait forward, 72 / 8 = 9 years. That means you will need 9 years for making your $100,000.00 to be $200,000.00. How about when the annual return rate is 10%? Indeed, it’s even easier to get the correct answer. The answer is 72 / 10 = 7.2 years.

The following table estimates the number of years to double your money by applying Rule of 72.

Note: The rate of Interest or Return that corresponds to each type of Investment is based on the estimation and circumstance in Malaysia.

As you can see from the table above, you need 36 years to double your money in a Saving Account!!! While Fixed Deposit account needs 18 years to do it!! This is absolutely unable to cope with the annual inflation rate. In other words, your money in Saving or Fixed Deposit Account is depreciating over the years. Hence, you should never “rent” all of your money to bank when the rates given by bank is relatively low.

The major stocks of US fell sharply on Friday, The Dow, S&P 500, and Nasdaq tumbled 2.4% on average. The Dow Jones industrial average down more than 280 points after some bad news emerged from the market regarding the credit crunch and the rise of US unemployment rate in July.

The fears of investors regarding the crisis of subprime mortgages going worse after American Home Mortgage (AHM 0.69 -0.75) said it was shuttering operations by laying off most of its 7,000 staffers. To make matter worse, Countrywide Financial (CFC 25.00 -1.77) showed that credit default swap spreads widened by nearly 100 basis points.

In fact, there is now too much uncertainty with regard to the credit markets and how the situation will ultimately settle. Mean while, what we can be sure is the fact in which financial institutions will continue to tighten their lending procedures. As a result, people and companies can’t borrow money as easily. Such situations will definitely affect and slow down the activities of economy.

About the Asian stocks, most of the Asian stocks suffered from this transaction week by stumbling about 2-3% of their market value. There is no denying that most of the investors are now getting worries on the US subprime mortgage crisis after the fallout of the sell-down on regional markets recently. They are now more likely to adopt a wait-and-see strategy.

Asian stocks would probably continue struggling and tumbling when the markets start their transactions on next week. This is due to the bad news emerged from US market on Friday and the negative sentiments in which surrounding the markets. In Malaysia, there will be another tough challenge for the KLCI (closed at 1335.42 on Friday) to maintain above 1300 points level after failing to advance to 1400 points by the end of July.

However, there are some market’s analysts trust that – Malaysia is a safe haven in the subprime storm. They supported their statement by the stronger growth in the domestic economy would likely be achieved with government’s policies to push up the local economy. Yep! Malaysia is a safe haven; but the condition is that US subprime mortgage crisis won’t get worse in the future. Otherwise, there is no safe haven in Malaysia even in the world’s markets.

As shown in the chart above, US is one of the largest export markets for Malaysia. It comprised about 18.8% of the total exports for Malaysia in year 2006. If US subprime mortgage crisis getting worse in the future, there must be a bad impact to the export of Malaysia. As a result, the domestic economy would be slowed down and the unemployment rate may rise too.

Most of the Asian stock markets tumbled on Friday due to the fears of global credit crunch and the US market plunge overnight(i.e. on thursday). In Malaysia, KLCI was unable to be exempted from it too by dropping -26.12(i.e. -1.89%) to 1355.38.

To make matter worse, Wall Street extended its steep decline Friday, propelling the Dow Jones industrials down more than 500 points over two days after investors gave in to mounting concerns that borrowing costs would climb for both companies and homeowners. On Friday, the Dow fell 208.10, or 1.54 percent, to 13,265.47, with nearly 140 points of that loss coming in the final half-hour of trading. For the week, the index fell more than 585 points, or 4.23 percent. The week’s point decline was the worst in five years, while the percentage decline was the largest since late March 2003.

As a consequence, we expect that most of the Asian stocks will continue struggling and tumbling when the markets start their transactions on next week. Hence, investors should now be getting more cautious on their transactions that would be made next week. Although it would be now a good chance for those risks-taking investors to buy low and waiting for rebounding. However, if the Wall Street extended its steep decline on next week, the things will be going to be worse due to the market panic.