FED'S RATE CUTS ARE NOT HELPING

By JOHN CRUDELE (New York Post)

THE vast majority of experts still think the Federal Reserve will reduce interest rates next Wednesday, but this time the betting is for a modest quarter-point cut.

However, there is a growing sentiment - now 18 percent, up from zero in recent weeks - that the Fed might call a halt to its monetary stimulus. Or, at the very least, it will warn that the cessation of rate cuts is near.

If that happens, the financial market could be caught off guard.

Several prominent economists and even some Fed members have expressed concern that rate cuts are doing more harm than good.

Rate cuts are killing the value of the dollar as well as America's reputation; causing a sharp rise in inflation, including commodities like gasoline, and bringing monetary policy to the brink of impotency.

And the heat is coming especially from Europe, where their central bank has been refusing to go along with the rate cuts - although injecting plenty of money into the financial system - because it, unlike our Fed, fears inflation more than economic stagnation.

It'll still be months before we will really know whether the six rate cuts that added up to a 3 percent drop in the federal funds rate are doing much good.

And it could be even harder to figure how much May's tax rebates will help.

Are we in the nightmarish economic quagmire some of us expected when the Fed began cutting rates last August?

Or are we making too much of an economic cloud that will soon lift?

Those are just some of the questions the Fed will be dealing with next week when the problem of the inability of people and companies to borrow money will be front and center.

I think you'd agree: We're all tired of the economic drag that the so-called credit crunch is causing.

And if the economy could be controlled like our TVs, with the press of a remote control, we'd simply change the channel.

But Ben Bernanke's Fed is finding this economic downturn to be different from others. The damn thing just won't click off.

Few people would still disagree that we are in a recession right now; but there's agreement on little else.

Take the issue of another reduction in interest rates.

While the Fed has been diligently ratcheting down its funds rate - which is the amount banks charge each other to borrow money - those lower costs aren't being passed on to borrowers.

Mortgages are a good example.

While the Fed has cut rates by 3 percent - or 300 basis points, in Wall Street lingo - the average rate on a 30-year fixed-rate mortgage has fallen very modestly.

These mortgages recently averaged 5.88 percent compared with 6.17 percent last year.

That's a drop of only 0.29 of one percent, or 29 basis points.

In other words, the Fed has cut the interest rate it controls 10 times as much as banks have cut what they charge would-be homeowners.

And that's not even the biggest problem.

Here's an e-mail I got re cently from a reader who recently had to navigate the mort gage market.

"I bought a vaca tion home in July - before the market hit the fan and the Fed had to lower [rates]. I locked in a 6.5 percent 30-year fixed mortgage when fed funds were 5.25 percent," says Scott J. Redler.

"So last month [I] figured, with [the] Fed lowering rates so many times I could refinance to a great rate for the long term."

Redler called up Chase Bank but the new rate had only dropped to 6.18 percent.

"How does that stimulate the economy," Redler asked, if the banks aren't passing much of the rate reduction on to consumers.

"That's problem No. 1," said Redler, who volunteered that he has a strong 795 credit score and probably got a better deal than most people could get.

"Then I get a phone call that the place I bought in July appraised for $30,000 less than when I bought it." So, in order to get a new mortgage Redler had to come up with $30,000.

"This downturn won't be short and sweet. There will be big-time problems down the road," Redler added. "I'm not an economist - just using common sense from experience."

Banks have been the hardest hit in this economic downturn, so it's understandable that they don't want to be generous to customers when they can use the money themselves.

Earnings of financial institutions in the first quarter are down 70 percent from the same time last year.

Unless the banking industry causes another panic the Fed could be finished with its magic for a while.

john.crudele@nypost.com

Extend Gains

KLCI ends +0.8% at 1253.64 in moderate volume with 583.6 million shares changing hands; market's rise led by plantations, consumer stocks and construction plays. Market breadth positive with gainers edging out decliners 407 to 287. The benchmark likely to extend gains tomorrow, possibly rise to test 1264 (April peak) with both foreign and local funds selectively accumulating stocks. KLCI may find psychological support at 1250. The KLCI seems to have bottomed-out at around 1150-1160. Both local and foreign funds have been accumulating plantations, consumer stocks and dividend yield plays. The ringgit's strength in recent days has acted as an additional catalyst for foreign funds. Ringgit +1.2% vs USD over last 2 weeks.

Sell on strength

KLCI ends +0.9% at 1244.20 in thin volume of 440.1 million shares with gainers outpacing decliners 408 to 224; buying interest from both local and foreign funds in plantations, index-linked heavyweights, construction and select blue chips helped buoy the market but dealers remained cautious throughout. Benchmark tipped to extend gains Wednesday, possibly attempt to breach 1250 psychological resistance but profit-taking into strength may reverse gains, possibly drag index down to 1230. Buying interest is very modest. The market lacks both depth and breadth. There's a strong likelihood that selling pressure will emerge at around 1250.

Bottom Up?

KLCI ends +1.7% at 1248.19 in moderate volume led by gains in plantation, construction, blue chip stocks; market breadth ended positive with gainers trouncing decliners 469 to 188. Key trigger for rising buying interest attributed to stronger ringgit; USD/MYR last at 3.1520 (level last seen 10 years ago), tracking SGD after MAS tightened monetary policy. Follow through buying interest tomorrow could help KLCI close Mar. 10 gap down move (1278 to 1242) if volume traded accelerates. Buying interest from foreign funds accelerated in late afternoon trade, lifting the KLCI close to 1250 (psychological resistance). Further ringgit strength tomorrow is likely to lift the broader market. MIMB's Pong Teng Siew says KLCI has already bottomed-out; may be poised for an upswing in coming days or weeks.

Action Against Repco Low & The Gang

KUALA LUMPUR — The Securities Commission (SC) has initiated a civil enforcement action against eight foreign parties and two Malaysians in relation to the manipulation, market rigging and fraud of Iris Corp Bhd shares.

The SC said it has also sanctioned two stockbroking companies and two dealers representatives involved in the case.

"The milestone action marks the beginning of a new approach in combating market manipulation," the SC said in a statement here today.

According to the SC, the two Malaysians named in the suit were Datuk Tan Mong Sing and Low Thiam Hock while the foreign defendants comprised five companies and three individuals.

The foreign companies were Aeneas Capital Management L.P.(ACM); Priam Holdings Ltd; Aeneas Evolution Portfolio Ltd; Aeneas Portfolio Co L.P.; and, Acadian Worldwide Inc.
The three individuals were Thomas R. Grossman (managing partner, investment manager and portfolio manager of ACM); Richard Benjamin Cohen (research analyst-cum-Malaysian investment trader of ACM); and, John Suglia (principal/chief operating officer of ACM).

The SC said the civil enforcement approach would enable it to seek various reliefs from the High Court including injunctions, compensation, restitution and declaratory orders.

It filed the civil suit on March 27, 2008 at the Kuala Lumpur High Court.
In addition to the civil suit against the named defendants, the SC has imposed administrative sanctions against MIDF Amanah Investment Bank Bhd on Dec 17, 2007, and PM Securities Sdn Bhd on Feb 1, 2008.

"Both PM Securities and MIDF Investment were fined RM400,000 and RM200,000 respectively, and suspended from submitting any application to register new dealers representatives for six months," it said.

It said administrative sanctions were also imposed against two dealers representatives from Avenue Securities Sdn Bhd, namely, Lee Hooi Li and Patrick Taylor to revoke and to suspend their dealers representatives licences respectively.

"Lee was found to have used five accounts without authorisation of the account holders when transacting in Iris shares while Taylor was found to have failed to perform his duties efficiently, honestly and fairly in carrying out his supervisory responsibility over Lee.

"Additionally, a dealers representative from PM Securities Sdn Bhd, Lim Joo Lang, was suspended by Bursa Malaysia in July 2007," it said.

The SC said Lim was barred from trading for a period of nine months and fined RM10,000 for various breaches of Bursa Securities rules in relation to the trading of Iris shares.
It said it initiated formal investigation after Iris was declared a designated counter on May 11, 2006.

"From September 2005 to May 2006, the price of Iris shares rose by 17 times from eight sen to close at a high of RM1.36 on the back of very strong demand with an average of 200 million shares being traded daily.

"The SCs investigation found that the manipulation was carried out through a complex layering of the origination of the orders and transactions via foreign intermediaries in several jurisdictions," it said.

The commission said the investigation further revealed that the defendants had collectively used numerous trading accounts which contributed to the strong demand for Iris shares during the material period.

"The foreign defendants and their representatives worked closely with the Malaysian defendants in creating an artificial demand for Iris shares.

"The SC was able to unravel the defendants activities through painstaking and careful analysis of trading data of more than 100 trading accounts at 15 local and 16 foreign brokers, records of various communication modes between the perpetrators including more than 200,000 e-mail messages, and recording of statements from witnesses locally and overseas," it said.

The SC it in pursuing its investigation, it has worked closely with its foreign counterparts, namely, the US Securities and Exchange Commission, Hong Kong Securities and Futures Commission, Monetary Authority Singapore, Financial Services Authority UK, BVI Financial Services Commission and Cayman Island Monetary Authority. — BERNAMA

Lack of oxygen

KLCI ends down 0.9% at 1239.65 in moderate volume. Plantations stocks dragged the index lower on concern CPO prices may see a continued downtrend. Market breadth negative with losers outpacing gainers 390 to 305; index tipped to trade Thursday with downward technical bias to test next support at 1220, after breaking earlier support of 1240. The main drag on the market is plantation stocks; CPO prices peaked at MYR4,486 on March 4 but are now on a downtrend. That translates to lower profits than initially expected.