More Fed action isn't always better

US stocks gained in mid-session trade as investors are hopeful that the Federal Reserve will cut its benchmark lending rate by half a percentage point this week.

"We actually expect the market to rally somewhat based on Fed easing actions,'' said Dean Gulis, who helps manage about $3 billion at Loomis Sayles & Co. in Bloomfield Hills, Michigan. "The Fed will do what's necessary to get us through the current credit issues.'' (Bloomberg)

Contrary to what Bloomberg has to say, I think these are worrying signs indeed. Somehow, this kind of talk smacks of serious desperation and are asking for the wrong type of solution. Policy tweaking is only going to stimulate the market so much and for so long, at the end of the day, it will be sector earnings and performance (minus inflation) that count, and bad credit practices should be punished.

With US consumers retreating to the safety of cash and gold despite tax rebates, and banks thinking long and hard before lending out their money to even amongst themselves, and the US dollars weakness fueling inflation globally - lowering US interest rates will only lead to a delayed form of suffering! Market should be allowed to correct swiftly. One must also remember that global inflation is a socially ugly thing. Historically, unabetted inflation typically leads to social unrest and this spells more trouble for all!

The longer we stretch this sub-prime saga, the longer we maintain this confusion in market direction. Any futher rate cuts are actually confirming my view that Fed encourage the practice of stupid lending and that it is willing to sacrifice limbs and all just to save its economy from a single sector, the property market.

US economy, as some claimed, isn't that weak as a significant portion of its investment is in the global emerging markets. So, I hope, for the sake of the rest of the world's economy (and peace), that Fed would just let the problems repair itself instead of making matters worse. Enough rate cuts for now please.

Local headlines....

Berjaya Land Bhd's decision to drop a planned transportation infrastructure job in Vietnam last week did not stir concerns among analysts, who believe that the firm will be better off picking jobs that are more financially viable. The group is already occupied with five property development projects in both Hanoi and Ho Chi Minh City and they are not too worried about a single infrastructure job that did not pan out well. (BTime, Kenanga Investment)

Perisai Petroleum has agreed to buy rival SJR Marine from Mercury Pacific Marine for RM136.1 million in cash and shares as it seeks to expand. Perisai provides corrosion-control and diving services to oil and gas firms. The latest deal will add the provision of support vessels to its business. (BTimes)

AMMB Holdings Bhd said its third quarter net profit doubled to RM197.85 million backed by higher growth in net interest income. Revenue also grew eight per cent to RM1.73 billion for the three-month period ended December 31 2007 from RM1.6 billion previously. The group said the banking sector is expected to remain robust with strong capitalisation and continuous improvement in asset quality. "We will leverage on the ANZ partnership to take advantage of the growth opportunity and register an improvement in profit," AMMB said in a statement to Bursa Malaysia yesterday. (BTimes)