Ugly Vegetarian Albino

Once upon a time, there lived an ugly albino who had a kind heart. He was a vegetarian. He was in love with Dino. Huh? Did I get your attention?

The power of storytelling is something that we fully understood and enjoyed as children, but somehow forgot as we grew older.

Our brain waves would change during a presentation when the presenter says the magic words, "Let me tell you a story..." Those that are about to doze off would be jolted. Unconsciously, bodies lean forward, ears prick up, and attention levels jump.

We seldom remember key points stated as stark, bare facts. But we do remember stories and the powerful principles and messages that are subtly embedded inside them.

This awesome power of storytelling is something that we can harness to advance our own career and even social life. However please do not overdo it until the extent of bullshitting!

Learn To Invest

DPM is asking the Bumiputra and Indian investors to take up the remaining two billion Amanah Saham Malaysia (ASM) units as the Chinese have already snapped up their quota of 999mil units.

He was quoted “This clearly shows the level of understanding among the Chinese when it comes to investment and financial planning for the future.” Susah dahulu, senang kemudian!

He also urged parents, teachers and the media to play their part in educating the public, especially the young, to save and invest from an early age. He added that while the Government encouraged domestic spending to boost the economy, it wanted the people to save by investing their money in proper financial instruments such as unit trusts.

He said the additional income would come in handy for future planning.

Some current statistics on the fund manager, Permodalan Nasional Berhad (PNB).

The net inflow of money into unit trusts has been healthy despite the current global uncertainties with RM5bil invested in PNB related funds as of this year. This was in stark contrast to the scenario during the 1998 financial crisis, which saw withdrawals of almost RM1bil every month from unit trust schemes.

PNB enjoyed a net inflow of more than RM10bil into its funds last year. PNB had a total of 9.3 million unit holders, with a total investment of RM87bil. PNB had invested in 281 companies, of which 230 were listed on Bursa Malaysia.

What Is Life?

Life is suffering, impermanence. Acknowledge it.

We work hard, piling long hours in our workplace for a more comfortable life and to fulfill our responsibilities and commitments. Along the way, we sacrifice and neglect many things notably our health. We start to take things for granted. The pace of changes in the dog eats dog society could make us worse off, as we try to keep pace with the Joneses.

We should start being pro-active in softening the uncertainty. Try to manage and ride through the obstacles and turmoil as part and parcel of life. Set the direction and noting that death is certain. We could prevent more headaches and suffering by practicing our religion diligently. Keep the good moral conduct, be moderate and train the mind.

As we could not totally eradicate the suffering, try out these prescriptions : save a portion of our hard earned money, take up a life insurance scheme, draw up a wills and practice harder.

If we are diagnosed with a serious ailment, we could not command a demanding job. Think about the existing financial commitments and medical expenses. If our properties are damaged, we might need to replace urgently. If we are gone from the present life, who is going to feed our loved ones, who are not getting any younger.

By going along with the nature of life, we would not be easily shaken and disturbed emotionally and spiritually. By having financial planning, we would protect ourselves physically and materially.

Prevention is better than cure. We need loads of commitment and total involvement to lessen the suffering. Undeniable, the ultimate solution is to be free from this vicious cycle!

One Pence Mortgage

A couple in Britain pays almost nothing for the mortgage on their house. When news broke out about a British couple paying a paltry one pence (five sen) a month for their mortgage, it set tongues wagging.

However it came as no surprise. After all, banks are paying what pensioners grumbled were “less than peanuts” interest for their hard-earned savings. They seemed blessed as their interest-only mortgage payments plunged from £1,500 (RM7,950) a month to almost zero.

On closer examination, it doesn’t appear that rosy. While the base rate on their £400,000 (RM2.12mil) house in south-west London, had plunged from 5.5% to 0.5% they still have a huge debt that is not getting any lower. The principal, that is.

Perhaps, they could have negotiated with the bank to maintain their payments and reduce the mortgage. This would have reduce the amount of interest they have to pay down the years. Regardless of the interest rate, the top priority should have been to pay off the debt (principal) as much and as quickly as possible.

Paying an interest-only mortgage is risky business, more so when the property value continues to slide, especially during an economic crisis. They bought their house in 2007 and property have depreciated by about 20%. That means it is worth about £320,000 (RM1.69mil) or less. In other words, they would have lost about £80,000 (RM424,000) on paper – despite having to pay almost zero interest on their loan.

Having said that, the worst off are probably pensioners and widows who had saved all their lives and survived on the interest from their savings. These fat-cat bankers are paying little or no interest on savers’ accounts.

Where Are We In The Financial Crisis?

The answer is that we are in transition. The crisis has turned a corner, but obstacles lie ahead. Government interventions in the financial sector and the real economy are starting to gain traction.

This is a major change. Two months ago, the major economies were in free fall. A full global downward spiral in which the damaged balance sheets in the household sector led to reduced consumption and then reduced investment and employment. Similar damage in the financial sector led to very tight credit, reduced consumption and investment.

Those relative destructive interactions and dynamics have started to abate.

The downward resetting of asset values was inevitable as was the reduced consumption and increased savings that they caused. The uncertainty leads to fear and cautious behaviour on the part of consumers, businesses and investors. Defer the purchase of a car until you figure out what your house is worth or whether you will lose your job. Wait until the asset markets clearly turn before jumping in to buy bargains.

The effect of these sensible choices is a collectively destructive outcome in which asset values and activity in the real economy decline beyond the point required to get rid of the imbalances that initiated the crisis.

Cue the government. In the past two months, governments have taken actions that over time will short-circuit some of these negative feedback loops. There are stimulus packages of varying sizes. Governments are consuming and investing for us on an interim basis until stability and confidence are restored.

These programs are only starting to be implemented and we have not felt the full effect. The anticipation of their impact is having a more immediate effect on business confidence and asset prices. The financial side of the equation is equally important and complementary. The impact of the stimulus comes in rounds.

The government hires me to repair a bridge and I spend my income generating / expanding business and employment somewhere in the economy. These subsequent round effects are called multipliers. Their size depends on the financial system. Specifically, if consumers and businesses can’t get credit or if asset prices are still plunging, consumers and businesses remain cautious and the multipliers (the second, third and fourth round effects) muted.

Restoring credit at reasonable prices and building confidence so that value investors return to the asset markets will therefore amplify the impact of the fiscal stimulus and vice versa.

So where are we? Probably at the start of the process of turning the corner.
That can happen quite quickly in the capital markets and much less so in the real economy. In equity markets, rallies similar to the current one are likely, based on what might be called the reduction of extreme pessimism.

But the real economy continues to lose jobs at a rate in the US of about 650,000 a month.

That will take time to decelerate. How fast will determine how much further damage there is to credit quality and hence the ultimate issue of solvency in financial institutions.

Edited from an article posted by Michael Spence, a former dean of Stanford University’s graduate business school and a 2001 Nobel laureate in economics.