Probably not the best time for Goods and Services Tax

Published: Monday September 2, 2013 MYT 12:00:00 AM 

Updated: Monday September 2, 2013 MYT 7:12:34 AM

PLAIN SPEAKING BY YAP LENG KUEN

OIL prices may spike up to US$150 (RM493) per barrel, The Economic Times of India reports, quoting an analyst from Societe Generale.

In view of the serious situation in Syria, the North Sea crude oil benchmark could surge to as high as US$150 per barrel if the war affects key oil producers such as Iraq, although any jump in prices would probably be brief.

In its base case, Societe Generale assumes an attack would begin this week.

“If it takes longer, and there are no signals that an attack is imminent, the oil price uplift from the entire Syrian situation will start to fade,” oil analyst Michael Wittner is quoted as saying.

Countries like Malaysia will be watching avidly for the changes in oil price. Any uplift in oil prices benefits its national oil corporation Petroliam Nasional Bhd.

However, higher oil prices result in higher costs to consumers, especially transportation costs. That has a spiral effect on other costs.

Malaysia has successfully kept inflation low and higher oil prices will pose a challenge to that.

Will we be seeing a return of subsidies on essential items?

To rein in the fiscal deficit, the Government is keen to impose the goods and services tax (GST) in the coming budget. In view of the uncertainty over oil prices, it may not be advisable to impose the GST as yet, as it may induce further strains on the cost of living.

It is tiresome to keep talking about imposing the GST but the picture must be viewed in totality.

It is not just investors pulling out of emerging markets.

Investors in funds based in the United States pulled roughly US$9.4bil (RM30.90bil) out of stock funds in the latest week, marking the biggest outflow from these funds since July 2012, says Reuters, quoting recent data.

Funds that hold European stocks attracted US$1.08bil in new cash, however, marking the biggest inflow to the funds in 10 weeks, the agency says.

Investors have settled on the idea that European stocks’ “worst days are behind them”, says Reuters, quoting Jeff Tjornehoj, head of Americas research at Lipper, in reference to signs that the eurozone debt crisis had improved.

Data on Aug 14 showed that the economies of Germany and France grew more quickly than expected in the second quarter, pulling the eurozone out of a 1½-year recession, says Reuters.

Funds will flow to places deemed to produce the highest potential returns, which in this case, is Europe. The funds will flow back to emerging markets once they are deemed to be more stable.

JP Morgan Chase, the largest investment bank in the United States, has been attracting a string of regulatory transgressions lately.

So much so that it has been told to improve on its relationship with regulators.

Two federal regulators are preparing a series of enforcement actions and fines against JP Morgan, stemming from its dealings with consumers during the recession, says the International Herald Tribune (IHT).

Reflecting just one element of a broader federal crackdown on JP Morgan, it is accused of duping credit card customers by selling them identity theft-related products with false promises.

The fines are expected to be US$80mil (US$20mil for the consumer bureau and the rest by the comptroller’s office).

The bank is also in the spotlight for a series of questionable debt collection practices.

Recently, JP Morgan came under investigation in China relating to its hiring practices, whether it had hired children of well-connected families to get contracts.

On top of that, two former employees were arrested in connection to the US$6.2bil trading losses being dubbed the “London Whale”.

Beyond the trading losses, JP Morgan is grappling with civil and criminal investigations in California related to the bank’s mortgage business during the financial crisis, says the IHT.

In the quarterly filing this month, JP Morgan said the civil division of the US Attorney’s office for the Eastern District of California was investigating whether the bank had sold shoddy mortgage securities to investors.

Jamie Dimon, the bank’s chief executive, has apologised for letting “our regulators down” and has vowed to “do all the work necessary to complete the needed improvements,” says the IHT.

Dimon had spoken out against the regulators, saying they were too “overwhelmed”. He had also spoken on the important role played by banks in the economy.

When the “London Whale” trading losses came to light, he had initially tried to brush it aside.

It looks like he now has to eat humble pie and consent to all the regulators’ demands.

Columnist Yap Leng Kuen is concerned over the stand-off in Syria.