Friday, October 31, 2008

What Crisis? Honky Dory Dude!

Bank Negara said that the banking system is strong enough to withstand the turmoil of the global financial crisis. It stood ready to pump liquidity into banks if needed. It has a fully developed supervisory and surveillance system and is closely engaging other monetary authorities in the region to monitor and respond with coordinated measures to deal with the current challenging environment. Several years of reforms, capacity building, and continuous efforts to enhance corporate governance and risk management practices have significantly strengthened the banking system.

With immediate effect, the following measures are being implemented:
•all deposits will be fully guaranteed by the Government through Perbadanan Insurans Deposit Malaysia (PIDM) until December 2010
•access to Bank Negara liquidity facility will be extended to insurance companies and takaful operators regulated by the Bank.

Non-performing loans in the banking system had improved to 2.5%. There is ample liquidity to facilitate the orderly functioning of economic and financing activities as the net interbank placements was RM198.5bil. The banking and insurance industries are therefore operating with adequate capital and liquidity buffers that have negligible exposure to both subprime-related securities and affected overseas financial institutions. More than 90% of total assets of these companies are in ringgit-denominated assets. Additionally all foreign financial institutions were locally incorporated (not operating as foreign branches).

The risk weighted capital ratio of the banking system was 13.2% and exceeded the minimum of 8% by RM42.3bil. It was an indication that the leverage position of the industry was manageable. The insurance industry posted a solvency surplus of RM16.5bil at the end of August.

The Association of Banks in Malaysia (ABM) is singing the same tune. The tune goes like this- there is no credit crunch in the country and that the banking sector remains strong and well capitalised despite the turmoil in the global financial markets. It is business as usual and commercial banks are not putting any brakes on lending.

As at end-August, loan-to-deposit ratio stood at 74.5% compared with the high 90% in 1997. The stable and low three-month domestic interbank rates, and relatively narrow spreads against the three-month Malaysian Government Securities yields are also indicative of the robustness of the banking system.

The additional strength is that credit extension is more diversified today between business and household loans, with no heavy exposure to any single segment. Malaysia has a savings rate of 37% which is high by international standards.

In summary, the strong liquidity, backed by high domestic savings rate and mid-September external reserves of US$119bil, will continue to facilitate the orderly functioning of transactional and lending activities so as to spur domestic economic growth, albeit at a more moderate pace.

However Tun Mahathir begged to differ. He doubted the claim that all is honky dory.

He said; " I am glad to hear that Malaysia will be spared from the fallout of the systemic collapse of the whole world's financial system. This ability to isolate Malaysian banks from the effect of the bankruptcies of all the biggest banks in the world must be regarded as a miracle. Our ability to manage our financial system better than others must earn us the admiration of the world. I hope we are right in forecasting the effect on us of the collapse of the world's financial system. But I have a sneaking feeling that all is not well."

So is there a crisis? No – then don’t worry be happy. Yes - can we survive the crisis?

Thursday, October 30, 2008

Going In Is Easy, Coming Out, How La?

What is the difference between what Valuecap is trying to do, with what the Federal Reserve is doing to save the collapsing banks?

The American bailout is simply injecting much-needed fresh capital directly into the banks and not buying shares in the open market. The Fed is getting new shares and existing shareholders are diluted. The share prices continue to be determined by market forces.

In contrast, Valuecap will be trying to boost stock prices by buying up shares from shareholders eager to get out of the market. Mmm, an exit plan for the shareholders. They will be laughing all the way to the bank and it will be double whammy, if the sellers remit the money overseas. Would this move shores up the market and maintain share prices above critical levels? You decide.

Then would we, the EPF contributors know whose shares were bought? The good and fundamentally strong counters or the buddies’ counters?

And how will Valuecap exit from its positions in the future? Any exit plan? It acts as saviour to the exiting shareholders but who is going to ‘save’ it?

In a further cloud of secrecy, there was news that 20 per cent of its RM330 billion funds has been invested in shares. However we do not know how much has been invested in loans for infrastructure projects with low or questionable returns? Think Bakun, Pelabuhan Tanjung Pelepas, Left Right Centre corridors! Etc.

Perhaps the RM5b would be much better used injected directly into the economy itself, via tax breaks for SME enterprises or short-term loans to help smooth over the rocky road ahead.

Tuesday, October 28, 2008

Throwing Good Money After Bad?

Last week the Government announced that it has doubled the amount of money available to Valuecap Sdn Bhd (Value *who?) to buy undervalued stocks to RM10bil. At last a positive move to move the market but wait a minute, where is the money coming from?

*Valuecap is a fund management firm established in 2003 to invest in the stock market. It is jointly owned by Khazanah, PNB and Retirement Fund (Incorporated).

The bombshell - The Government would borrow RM5bil from the EPF. Another national service! It claimed that EPF will make a profit based on the past performance of Valuecap which has grown its portfolio from RM5bil initially to RM8bil now.

(Not sure about the claim as past performance does not guarantee profitability, it is only use as an indication!)

Perhaps make public the detailed financial statement before the RM5 billion is channeled. If indeed it is in the black with RM3bil profit, it should feel proud to disclose the book. Show us which counters it has invested in. Fair deals, we only want transparency - if they want to use our money. Without it, how can we hope to inspire confidence?

The other question: why use EPF funds, which is public money held in trust? What kind of return can the EPF expect to get and how does that expected return compare with more stable, less risky investments – opportunity costs?

Another article on EPF was posted on 5 September. Please read EPF 8th Largest Fund in the World.

Falling Oil Price - Good & Bad News

First the good news to the consumers - oil and commodity prices are falling.

Then the bad news to the government - it means a shortfall of billions of Ringgit in revenue. Crude oil price dipped as low as US$67.40 per barrel last Thursday. Palm oil prices have fallen by as much as 65%. In March, it was at RM4,486 per ton. Last Thursday it was US$1,565.

Now, the scary part - when the government planned its 2009 budget, it did so by calculating its revenue based on oil prices at US$125 per barrel. To take it worse, petroleum-based revenue account for 40% of the government’s projected income.

The full impact from falling petroleum price would only be felt in 2010 as government revenue should remain good next year because petroleum companies would pay the taxes based on their 2008 incomes, where on average the crude oil price remained at a reasonably high level.

However, in 2010 it could become an issue if the crude oil price in 2009 were to stay at US$70 per barrel level as the companies will pay taxes and dividends based on a lower crude oil price. (Based on the above, there is definitely a case for a review of 2009 budget although the full impact would only be felt in 2010!)

Lastly, the government must find new streams of revenue to meet this shortfall to balance the book!

Thursday, October 23, 2008

Come Fly With Me

THE Federal Territories Minister revealed yesterday that Kuala Lumpur mayor spent about RM1.5 million in travelling expenses and allowances on 11 overseas trips in 20 months after he took office last year. Seven trips in 2007 and four in 2008.

Quick arithmetic - close to 2 trips per month, spending close to RM140,000 per trip!

The expenses were as follows:
Tokyo (travelling expense paid by Tokyo Government/Allowance RM12,309.46);
Perth (RM199,526/RM16,822.56);
Dubai (RM45,171/RM22,214.12);
Istanbul (RM219,225/RM13,608.03);
Stockholm, Helsinki, London (RM240,625/RM23,202.70);
South Korea, Japan (RM166,134/RM13,433.80);
Manila (RM25,297/RM3,405.53);
Shanghai (RM43,586/RM3,903.71);
Bangkok (paid by KL Sports Council);
Canada, UK, Germany (RM370,315/RM19,873.50);
Beijing (RM19,318.04/RM4,717.50).

Save the best for last – Apparently the trips were required in order to observe best practices to improve City Hall’s delivery service system.

Yeah, we did see some changes.
A) Change road name lor! Alor!
B) Increase parking charges by 35% around city centre
C) Impose parking charges in residential areas, i.e. we need to find coins and parking machine and feed them each time we need to feed ourselves or when we grab our daily bread and groceries.
D) Increase rental of sports facilities – badminton courts etc. by 100%

Perhaps, these increases are to ‘sponsor’ more trips!!! Some questions - Is there a travelling budget? If yes, is there anyone keeping track of it? If there is still unused money budgeted and before it is reallocated before year end, go get invitation to 'lawatan sambil belajar' these countries and ‘import’ followings :

a) South Island, New Zealand – to introduce bungee jumping in Gombak river and to count sheep.
b) Mumbai & Delhi, India – to study the traffic situation and tell KLites – don’t complain about the traffic jam here, it is worse in India blah!blah!
c) Phnom Penh, Cambodia – to visit the genocide museum and set up something similar aka Japanese occupation museum to remind the so called ‘mudah lupa’ 'lupa daratan' youth who do not know the history.
d) Liverpool, England – to watch a Liverpool derby football match and try to recreate the atmosphere in Klang Valley derby (KL vs Selangor)!

Or cut down the travelling and reallocating some of these money to improve the road conditions, improve public transport system, alleviate flash flood etc?

For better or for worse - you decide.

Wednesday, October 22, 2008

Live Hand To Mouth In 2020?

An independent survey commissioned by Prudential has found that a significant 48 per of the 1,024 Malaysian participants approaching retirement are fearful they will not have enough money to retire. Four out of five pointed to rising inflation as the main culprit, saying it has seriously affected their lifestyle. Four out of 10 see themselves working beyond the mandatory retirement age.

The survey was conducted in August, on the heels of inflation running up to a 27-year high of 8.5 per cent after massive fuel, food and transport price increases, and gave an insight into how pessimistic they are about their savings. The finding could have been even more negative if another survey is conducted today.

Although they have a high propensity to save - 72 per cent claim they do save for retirement - their current savings behaviour shows a lack of proper planning. Among those who save, 77 per cent invest in traditional but low-yielding vehicles such as bank fixed deposits and savings accounts. Yes, these are secured instrument but they would not give the yield needed to retire at 55 as in reality they are losing money due to the higher inflation rate.

Equity and investment-linked products tended to offer better returns over the longer term but the disastrous implosion of the US sub-prime and investment instruments packaged with it had eroded investor confidence.

Few Malaysians are focused on saving for retirement. Forty-one per cent put aside as much as they can, hoping it will suffice - but nine out of 10 do not have the discipline and would dip into retirement savings if they had to.

The lack of retirement reserves is a national concern as wages are not in keeping with inflation. Only a fifth think EPF money will meet their retirement needs. Worrying, EPF own survey found that its members' retirement funds last an average of three years. Given longer mortality rates and rising living costs, the problem is obviously challenging.

Monday, October 20, 2008

10 Financial Planning Mistakes

People do not plan to fail; they simply failed to plan – William Seagal

1)Procrastination - No concept of timeliness
Procrastination is the thief of time – Geoffrey Moss.
Don’t assume there is tomorrow or everything is rosy tomorrow!

2)No definite goals setting or no strategies to achieve them
If you do NOT know where you are going, you simply will NOT get there.

3)Financially-ignorant or financially-illiterate
Too bad some have choose to ignore this subject.

4)Failure to diversify
Not to place the eggs in one basket.

5)Fail to measure the time value of money
When you save, interest works for you; when you borrow, interest works against
you. In summary, compounding interest can work FOR or even AGAINST you!

6)Lack of discipline to save first & spend later
Most would rather spend first & pay later. Credit-cards & pay-by-installments are
some of the culprits.

7)Lack of adequate understanding on taxation laws
Equally important for tax planning and maximise disposable cash

8)Inadequate protection against unexpected losses
Nothing lasts forever. Explore the subject of insurance.

9)Unrealistic expectations
It is a basic tenet in financial planning that the short-term problems must be
solved before the long-term problems can be dealt with.

10)Unchecked self-pride & ego. Simply too individualistic
Thus, stubborn & being reluctant to seek professional advice & assistance.

Thursday, October 16, 2008

How Subprime Works - In Video

Click on this Youtube link. Funny but yet very informative explanation on the subprime meltdown.

Wednesday, October 15, 2008

How To Lose Your Life Savings

The worst possible financial disaster is to lose our nest egg to a scam after having spent our life carefully saving and investing. There are so many financial scams to avoid. For every honest method of making money, there are dozens of ways to fleece people!

Many scams are a variant on what is known as advance-fee fraud. This involves taking money upfront, with a false promise of delivering far greater sums further down the line. E.g. bogus lotteries, Nigerian 419 scams and Ponzi schemes.

Many experienced investors have been taken to the cleaners by what are known as ‘boiler rooms’. Setting up a boiler room is remarkably simple. First, rent a cheap office space in a far-flung location with plenty of English speakers. Add a ‘virtual office’ with a half-decent website. Next, recruit a bunch of young salesmen.

Start cold-calling prospects; start sending millions of spam emails. The companies being promoted could either be genuine or entirely fictitious firms. It does not matter if the ‘incredible investment opportunity’ involves real or fake businesses. All that matters is that investors send lots of money.

The salesmen (‘opener’) should make hundreds of calls daily, sticking closely to an agreed script. Once a ‘mug punter’ shows an interest in the ‘hyper-growth share’, he has taken the bait. The ‘closer’ convinces victims to invest as much as they can, on the promise of making a guaranteed fortune.

By repeating this exercise, it is possible to amass millions before vanishing. Even after closing down, they can still continue the scam. Simply set up an identical outfit under a new name. Contact previous victims; convince them that they can recover their losses. All they need to do is to sell their shares to a reputable company which wants them for tax-avoidance reasons. Of course, this service involves payment of an upfront fee and the game continues...

The simple way to avoid being scammed is not to be overcome by greed. Be extremely skeptical of anyone contacting you to discuss investment opportunities. Do not be fooled by impressive-sounding names, plush addresses and impressive locations. In many cases, these bogus brokers work from squalid basement offices -- hence the boiler-room tag!

Watch the film Boiler Room. After watching this eye-opening movie, you may never answer your phone in quite the same way again!

Tuesday, October 14, 2008

The Financial Crash in Plain English

Credit crunch. Bear Stearns. Fannie and Freddie. Lehman Brothers. AIG. Following years of feverish expansion, the global financial system is having a fit.

Due to the low interest rates, banks were aggressively lending, especially for housing. Cheap funds fuelled big gains in house prices.Eventually, banks ran out of good customers to lend to, and started doling out money to people with poor credit records who had little hope of repaying their debts - no credit rating and no stable income. Bankers were lending because they thought the houses were very good collateral; in case of default, the price of houses were more than the mortgages.

Bank then rolled up these risky loans (‘subprime mortgages’) into mortgage-backed bonds (IOUs). They waved a magic wand and turned these bonds into highly rated securities. These were sold to other banks, insurers and pension funds around the world.

Unfortunately, inflation went up. By 2006, the Federal Reserve had to increase the rates. In June 2006, the cost of funds for prime rate was 8% (end 2002 was 4%).

This resulted in heavier mortgage payments for many house owners and they could not pay. Many had to forego their properties. The banks took over the houses and this created a slump in the market. As house prices started to fall, the value of bonds backed by subprime mortgages started to slide. The investors (banks, insurers and pension funds) stopped buying these papers causing the market for mortgage-backed securities to grind to a halt. This prevented selling banks from selling on loans, thus restricting their ability to continue lending. Thus, what could have been a local problem has escalated into a global drama. (Systemic risk)

As banks grew anxious about each other’s exposure to these toxic loans, they became increasingly wary of lending to each other. Thus, inter-bank lending (‘wholesale lending’) dried up in early August 2007. Within a month, this ‘credit crunch’ had claimed its first scalp in the UK – Northern Rock.

Although clever banks had sold on much of their subprime lending, many kept the supposedly choicest cuts for themselves. Then as house prices slid, the loans turned nasty and the US banks started to lose tens of billions of dollars.

In March, Bear Stearns, was rescued by JPMorgan Chase with government backing. The next bailout was on the two biggest players in the American mortgage market, Fannie Mae and Freddie Mac. A week later, Lehman Brothers, America’s fourth-largest investment bank, collapsed into bankruptcy. Next up was AIG, the world’s largest insurer, which received an $85-billion bailout in return for giving the US government an 80% stake in the firm. Meanwhile UK’s biggest mortgage lender, HBOS, is being taken over by rival Lloyds TSB. It not the end yet! More names will be inducted in the Hall of Shame.

The bad news is that very few people will be entirely immune from this financial meltdown. Thanks to these poisonous loans, banks worldwide have already lost over £250 billion. Even worse, this loss could double or quadruple before things improve. Hence, in order to rebuild their capital and profits, banks must increase lending costs.

Therefore, thanks to interest-rate hikes, borrowers are being hit hard. Nevertheless, as the economy slows down, rising bad debts will take their toll, forcing lenders into further rounds of rate rises.

Likewise, homeowners and property investors are suffering a double whammy, thanks to falling house prices, higher mortgage rates and a steep fall in the availability of home loans. In addition, stock-market investors around the world have suffered as economies begin to slow, company profits slip and share prices dive.

Rising inflation (higher prices) is undermining the value of the Ringgit in our pocket. Keen spenders will find retail therapy much less affordable, thanks to falling disposable incomes. Finally, falling company profits and the economic slowdown will lead to lower tax revenues. With public spending rising relentlessly, the government will have to milk taxpayers harder in order to avoid a huge budget blowout.

Monday, October 13, 2008

6 Ways The Credit Crunch Change Our Lives

The credit crunch has changed the way we live our lives. It has not just turned the financial world upside down, it is sparking a social revolution as well. Here are 6 ways the liquidity squeeze is changing the way we live our lives – for the better.

1. Goodbye bling, hello thrift.
The "buy now, pay later" culture is over. With inflation at all time high and recession in the horizon, start spending thrifty. Plan you expenses and spend only on wants.

2. Welcome healthy living.
The credit crunch ‘improves’ our health, as we cut back on eating out, ditch the ‘rich’ lifestyle and go for more economical but yet fulfilling family oriented activities like picnicking, evening walk etc.

3. Seriously plan for retirement
We will recover from this crunch but another cycle will revisit us perhaps in a decade. Obviously we would be much older then, close to retirement age. If we do not save and plan ahead, not sure if we stand a chance to survive / retire then! Not sure if seeking welfare assistance is part of the plan!

4. Thousands of marriages saved.
Research from Cahoot - One in four Britons says current economic woes make them less likely to split from their partners! Rising bills, household and living costs and given financial teeth to the phrase "for better or worse, for richer or poorer.." Surprisingly, poorer is proving better at keeping couples together than richer.

5. A new baby boom.
Couples aren't just staying together, they are also staying in. That means a baby-boom as cash-strapped couples discover the best things in life are free: until nine months later, when they start splashing out on nappies, booties, prams, more nappies…

6. The work/life balance has shifted.
We were fretting over how hard we were working and how it was destroying our personal lives. Now, nobody is worrying about having too much work to do. Quite the opposite as many workers fear they won't have a job this time next year! There's only one thing more stressful than having a busy job. That's not having one.

Friday, October 10, 2008

The Living Years Jan 1942 - Oct 2008

Excerpts from a beautiful 1988 song “The Living Years” by Mike & The Mechanics

“I wasn't there that morning
When my father passed away
I didn't get to tell him
All the things I had to say

I think I called his spirit
Later that same year
I'm sure I heard his echo
In my baby's new born tears
I just wish I could have told him in the living years

Say it loud, say it clear
You can listen as well as you hear
It's too late when we die
To admit we don't see eye to eye”

3 Oct 2008, 8.15am, land line from the hospital. Mom was on the other end “I think your dad is gone!” In Hokkien “Bo Leow” not Boleh! I was in the car with the 2 kids, just a few minutes away from the babysitter’s place.

I woke up feeling good even though I did not have a good sleep as I ‘survived’ the crucial period. I always have the notion that the probability of death is always higher before sunrise. (Both grandparents fell into this category!). Aiyah silly me – what a distorted notion – work and jolly during working hours and drop dead in the wee hours? C’mon!

When I reached hospital, dad or rather the body was draped in white cloth. Mom remained cool, waiting for my arrival. No tear, no hysterical scream. Calls were made to dad’s siblings, informing them about the death and decided to let them to take charge of the funeral arrangement. Well, if it was up to me, probability I would be disowned by them at the end of the whole affair. No, no body snatching but something along the line.

3 Oct 2008, my sister turned 36! Huh! From now on, we just have to wait and see how is she going to embrace 3 Oct. Mixed celebrations? Or perhaps hang it as there is no joy in getting older anyway? She hugged the body upon reaching the bedside. It was a poignant moment. Tears were shed!

In his bachelor days, dad was a salesman crisscrossing the nation in a van peddling soft drink, cigarettes etc. He was the eldest son. He lost his mom when he was very young. She lost her life after giving birth to her third child. It was post Japanese Occupation era where medical advances were still in infant stage. Terms like C-section and epidural did not exist. The only term that I could think of is breastfeeding but it could not prevent death to the mother! Grandpa remarried and added 6 more offspring.

In the mid 70s, when I was a kid, dad ventured into business. He spent long hours in his work to feed the family. There was no break except Chinese New Year. As a sole breadwinner, he worked extremely hard. Mom was given the task in raising us. Obviously there was no winning formula in raising kids but it showed in the later years that our bond with dad was not as strong as compared to mom. And for all his hard work in providing for the family, he probably neglected his health!

Toward end of 1995, after a persistent blurry sight and headache, he was diagnosed having mild stroke. He was rushed to SJMC from Tung Shin in an ambulance to be operated immediately to remove the blood clot. (That was the first of many trips in ambulance!). Life was never the same again. He was less mobile. 1 chronic disease after another invaded him. Hypertension, diabetes and finally lung cancer. Not forgetting a hip replacement after a fall 2 years back. So it was kinda of poor quality of life in his last few years.

He was a friendly and talkative person. He could speak almost all the Chinese dialects and could converse in BM but not English. He was born, bred and died in his homeland, so stop all this pendatang labeling.

As the eldest son, he had a big ego to boot but he took care of the siblings well. They did look up at him. Like father like son, so in some sense, I did embrace some of his characteristics. He also ‘showed’ us the bad examples that none of us picked up i.e. smoking, drinking and swearing!

In the 70s and 80s, we loved our visit to the cinemas to watch the 9pm Shaw Brothers sword fighting movies, followed by supper at the Hokkien Mee stalls! To make these outings more memorable were the fact that our mode of transport was lorry. Me and brother enjoyed riding at the open carriage, facing the breeze.
Of course there were memorable regular outings to Frasier Hill, Lenggong and Mimaland. And not forgetting my first plane ride, from Singapore when I was eleven! (We missed the flight to Singapore, so as plan B boarded the train to Singapore – yeah in a swoop boarded train and plane for the very first time!)

Of course, I did pay back certain percentage! I made him real proud during my graduation. I gave him a lovely daughter in law who took care of him. Last but not least, as a proud Chinaman, he left us knowing that he has a grandson! He must have been holding on until this grandson started walking (a month ago) and started calling him Ah Kong (a week before his demise)!

The Living Years

Every generation
Blames the one before
And all of their frustrations
Come beating on your door

I know that I'm a prisoner
To all my father held so dear
I know that I'm a hostage
To all his hopes and fears
I just wish I could have told him in the living years

Crumpled bits of paper
Filled with imperfect thought
Stilted conversations
I'm afraid that's all we've got

You say you just don't see it
He says it's perfect sense
You just can't get agreement
In this present tense
We all talk a different language
Talking in defence

Say it loud, say it clear
You can listen as well as you hear
It's too late when we die
To admit we don't see eye to eye

So we open up a quarrel
Between the present and the past
We only sacrifice the future
It's the bitterness that lasts

So don't yield to the fortunes
You sometimes see as fate
It may have a new perspective
On a different day
And if you don't give up, and don't give in
You may just be O.K.


I wasn't there that morning
When my father passed away
I didn't get to tell him
All the things I had to say

I think I called his spirit
Later that same year
I'm sure I heard his echo
In my baby's new born tears
I just wish I could have told him in the living years


MTV from Youtube

Friday, October 3, 2008


Even though I was not given much chance, I fought gallantly for a year. Too bad the cancerous cells just stood stubbornly and took my breath away. I departed peacefully this morning, 3 October 2008 at 8.15am at the age of 67. I left behind my beloved wife, Yee Chong Hoa and my 4 children and 4 grandchildren in safe hands. RIP!
May All Be Well & Happy!