A Bad Deal -- No Progress on the Deficit

The Republicans have caved once again.  The deal hammered out between Biden and McConnell is one more setback for the nation.  It promises to put real brakes on the economic recovery because of the tax increases and makes no progress at all toward reducing the deficit that continues be the nation's number one economic problem.

Why Democrats support this is a mystery?  This deal and others like it, soon to be agreed to, virtually guarantee that future beneficiaries of social security and medicare are in for a very unpleasant surprise.  Those now 50 and under cannot expect much more than half of the promised social security and medicare.  Those under 40 should not expect anything at all.

Now, while age limits can be increased and means testing can be implemented, we should do it.  Doing it two years from now will effectively reduce future benefits more than doing it now.  Putting these things off just make things much, much worse in the future.  This was a squandered opportunity. 

Republicans should replace Boehner as Speaker and every Republican who votes for this deal should receive a primary challenge.  Hopefully, McConnell will be challenged in the primary in his upcoming bid for re-election.  It gets harder and harder to see how Boehner and McConnell are an improvement over Reid, Pelosi and Obama.  They all seem to get to the same place eventually.  It doesn't do any good to win elections if this is the ultimate political outcome.

It's not clear what the Republicans are fighting for -- but they are definitely not fighting for smaller government and for economic growth.  Nothing in this deal moves in those directions.

This is a good deal for Obama and a good deal for the media.  They should be very happy.  The steady decline of the US into a second rate status in the world economy proceeds apace.  This seems to be what Obama and his fans in the media want to happen and they are getting their wish.

What Happened to Curbing the Deficit?

In its extreme enthusiasm for Obama, the press has totally neglected the deficit issue, which was the entire reason behind the creation of the fiscal cliff in the first place. Instead the press has focused exclusively on Obama's absurd "tax the rich" gambit.  Obama's plan will likely lead to lower, not higher, revenues from the top two percent.  So, that part of the Obama agenda simply raises the deficit and provides disincentives to expand employment.  Great policy!

Meanwhile, the $ 1.6 trillion deficit is getting larger.  The real cliff lies ahead when the debt markets begin to balk at the continued explosion in US sovereign debt.  We are now on "Greece watch."  It is only a matter of time.

Meanwhile, the media continues to be irrelevant to the real issue of our time.  For a brief period, the media and Obama can enjoy their "victory," but the long run, not so long run now, leads to insolvency.  Watching Greece and Spain is instructive.  The media should spend some time in Greece and Spain to see where their policies lead.

Let's hope that McConnell can resist Reid, Biden and Obama and let nature take it's course.  Over the cliff we go.

Is it SAFE to Invest in Private Retirement Scheme (PRS) ?

This is one of the common question asked by potential PRS contributors. First, I want to emphasis that PRS is a long-term investment for the purpose of retirement planning. In investment case, long-term means you already using the most powerful method to reap a good return. Anyway, many contributors still want to treat PRS as some kind of short-term investment. I got the answer for you.

Basically, PRS is very similar to unit trust investment. The underlying structure and investment philosophy were the same actually. No wonder many people perceived PRS is another unit trust scheme. Yes, you're correct to a certain extent.

Under the guidelines, each PRS providers must at least launched their core funds for investors to select, namely Growth, Moderate and Conservative. To make things simple, we only discussed these core funds because I believe most of us only invest in core funds. From these core funds, growth fund is the most aggressive one. In other words, the most risky one, with the aim of getting better return than the other two.

Asset Allocation of Core Funds under the guideline by Securities Commission of Malaysia

Is it really so risky?

Let's us examine even deeper now. Again, under the guideline for PRS growth fund, only maximum of 70% of NAV can be allocated to equities, while the balance was in fixed income/money market instruments. If you're an unit trust investor, you will know that this is almost like a balance fund type of asset allocation. For your information, for normal unit trust equity fund, equities exposure was between 70% - 98%. Meaning, the maximum equities exposure for PRS Growth fund equals to the minimum of an equity fund. Not so risky, right?

Of course, if you want higher equity exposure for your PRS portfolio, you can opt for those non-core funds, which can go as high as 98% in equity exposure. Then, the next question was "Is it risky to invest now?"...

It all depends on your perception. If you think that Malaysia market is too expensive now, you may opt for those funds with foreign exposure. Currently, from the 4 PRS providers whom already launched their schemes, some can invest into foreign countries. Some are fund-of-funds, some are foreign funds. Coming soon, more variety of PRS funds will be offered, such as property fund, commodities fund...

This is a guest post by Alex Yeoh in the series of Private Retirement Scheme. For more PRS info, you may contact Alex Yeoh (email: alexyeoh@vka.com.my), a licensed financial planner, whom representing multiple PRS providers. Thank you.

Net Worth Update (December 2012)

Highlights

• Paid the downpayment (5% of purchase price) and stamp fees for my HDB BTO flat. Depleted my CPF Ordinary Account and used up about $1000 of cash.
  
• Starting from this month, I will be including the equity value of my HDB BTO flat (to be built in 2016/2017) in the net worth calculation. However, this value will not be realized until I fulfill the Minimum Occupation Period in 2021/2022. So for this reason, we should focus on 'Investible Net Worth' which excludes the home equity.
  
• Sold 2000 shares of  STI ETF at $3.18. Sale proceeds are transferred to 'Phillip Money Market Fund'

Republicans for Tax Hikes

A number of Republicans have decided to vote for the restoration of the Bush tax cuts with an upper limit.  Obama's upper limit is $ 250,000. Apparently, many Republicans are willing to sign on if the upper limit is moved up a bit to $ 400,000 or $ 500,000.  If Republicans would simply refuse to sign on unless all the Bush cuts were restored, they would, without any doubt, get their way.  But somehow they have become convinced by the media, the Democrats, and their reading of the polls that they must buy into the Obama tax hike.

Why would Republicans get their way?  Because Obama would be forced to go along if the choice were that stark.  Obama does not want to preside over a major tax increase that further damages an already weak economy.  He would own it, not Republicans.  After all, the Republican House passed a full extension of the Bush tax cuts last July.  It is only Obama's petty insistence on raising rates on the top 2 percent, raising at best a trivial amount of revenue, that is holding up the extension.  It is Obama's economy for good or evil. That is the leverage that the Republicans have.  But, they seem intent on throwing away that leverage.  They won't have this opportunity again if they let it slip away now.

Boehner, they say, will hold an "open vote" on any Reid-McConnell compromise so that House passage can be accomplished with a majority of Republicans voting no.

It's time to rev up the tea party.  What good is a Republican who votes for tax and spending increases, which is what the Reid-McConnell compromise will amount to?  If there were no Republicans at all in the House or Senate would the ultimate outcome be much different?

Various conservative pundits, Bill Kristol for one, have advocated that Republicans simply surrender and vote for the tax increase on the top 2 percent.  Has Kristol forgotten the effect of higher marginal tax rates on job creation?  Or is Kristol only concerned about pleasing the media?

Republicans should reject any compromise that involves raising taxes on anyone unless there are major cuts to social security and medicare.   Boehner should be replaced as Speaker if he permits a vote on a bill that a majority of House Republicans are opposed to. 

The country's future is at stake because of the exploding national debt.  Going over the fiscal cliff is far, far preferable to a bad Reid-McConnell deal.

It looks for now like Republicans are planning to join their Democratic brethren in raising taxes, increasing spending, and further damaging the country's future prospects and economic vitality.

Deja vu.

Was This By Design?

Listening to the media and democratic pundits ignore the exploding national debt to indulge in a dialogue about an almost irrelevant issue -- taxing the upper 2 percent -- makes one wonder?  Do these folks not understand the arithmetic.  Are they unaware of the $ 16.5 trillion national debt, growing by ten percent per year in an economy with just over $ 15 trillion in GDP?  Why the focus on something that, at the most optimistic assessments, can only produce 0.08 trillion in revenues annually?  Even that miniscule number is unlikely.  Far more likely is that the increased tax rates on the upper 2 percent would drive down revenues from that group.  But, even at the most optimistic assessment, it is a waste of breath.

So, why is that the entire conversation?  Maybe these folks are untroubled by a US decline.  They seem so fundamentally out of touch with traditional American values, maybe they are mainly interested in changing the culture to suit themselves even if that means economic decline.  That's what redistribution seems to be all about. Maybe the media and the democratic pundits don't really care if economic growth is zero and the young have no future and old folks end up with nothing.  Perhaps this is all by design, not simply gross stupidity.

Don't Blame the Economy on the Cliff

The economy is weak because of government policy -- not the ongoing fiscal cliff stalemate.  The Obama Administration has waged war against the private sector free market from the day it took office.  That war has borne fruit.  This is the slowest economic recovery since the 1930s.

The slow pace of economic growth has nothing to do with the cliff.  It has been going on since late 2009.  There is not going to be any serious economic growth in the US given the regulatory and legal environment that has been imposed upon the US economy since Obama took office.  The financial sector has been crushed, bank lending has been discouraged by the regulators, the energy sector has just barely survived the Obama onslaught, and employees are an endangered species.

Obamacare pretty much says it all.  Another costly mandate on companies and ultimately on individuals was the final kicker.  Along the way the elimination of the Keystone pipeline project was emblematic of the Obama strategy.  Push government spending and expansion and crush the private sector.

Well, guess what.  They have succeeded.

So, forget the cliff.  The cliff, whether we go over it or not, won't matter.  This is not an economy going anywhere.  The only significance of the cliff is that if a deal is reached, US bankruptcy will be sooner not later.  At 20 trillion in debt and an economy in the ditch, it is unlikely that bankruptcy can be avoided and we should reach that level in Obama's seventh year in office.

Markets Like Going Over The Cliff

Why is the stock market so much higher than just a few weeks ago?  Don't stocks know that we are headed over the fiscal cliff?

Going over the cliff is a good thing, not a bad thing.  Higher taxes, lower spending is just the beginning.  Much, much higher taxes and the virtual elimination of the military and other discretionary spending will be required just to get through the next 15 years of the entitlement programs.  Going over the cliff will provide 15 years of breathing room against the collapse of the entitlement programs.

Not going over the cliff could force a crisis in treasury financing within the next two or three years.  Going over the cliff gets you past the end of the Obama years with a national debt of 20 Trillion and eight years of a lost decade.  But, it will get you to the end of the Obama years most likely. 

Not going over the cliff will accelerate the national debt crisis with a good chance that we can't get through the Obama years without a treasury financing crisis, similar to that of Greece.

So, let's buy a few more years by going over the cliff.  This is the price you pay for entitlement reform being "off the table."

Exclusive Interview: YUMI WONG

Malaysia's upcoming popular model, Yumi Wong is the name you can't forget in the near future. She is pretty, famous and most important is very young. At the age of 23 only currently, she already features in many tv commercial, magazines, one of the most sought after model in town, and as an ambassador of many companies. Read to know more about Yumi:

1. When were you started to join the modelling/entertainment industry? And, how?
   Still remember that when I am still in school, one of my friend got a freelance job and she needed someone to accompany her. She asked few of our friends on trying to get the job, while I'm like no harm, just try. But, in the end, only I myself got the job. This is how I started by becoming a freelancer and keep doing it until making it as my career.
   
   
2. What's your BEST achievement so far?
   Best achievement? Hmmm, I won't say that I had any great achievement so far because I think that although I have been in this industry for few years, it was only recently it became a career for me. This is just the beginning for me actually. So, I would say that the best achievement is the support and trust from the people, clients and sponsors.
   
   
   
3. We believe your fans would like to know your plans for 2013. Can tell us abit?
   My plans in 2013 is... stop gaining weight! Lol ~ and of course in 2013, other than getting better for whatever I'm doing, I would love to do more acting, learn better acting skills, and show my fans the different side of Yumi. Stay tune ya...
   
   
4. It's awesome that you have so many followers via Facebook, Twitter, Instagram... Any words to them over here?
   Yes! My words to them is: "Thank you so much for supporting me all this while. Without you guys, Yumi will never be able to make it until here today. I will work harder, learn more new things and never let you guys down. Love you all ~ XOXO"
   
   
5. Since your schedule was so tight, how do you juggle between your time and work?
   Arrg ~ this is very hard! But right now, most of the time I will spend on my work. For whatever activities, work come first for me because I think that I'm still young, still able to work more, as long as I got enough time to rest. Yup, I will spend my day just for working. Anyway, my job is quite fun after all.
   
   
6. Finally, how are you going to manage your personal financial matters? Are you a shopaholic?
   Well, shopping is what every girls' activities all the time! It was like breathing, and we can't stop or change it!!! But, I myself will only shop for what I need, I don't like wasting stuffs. As long as it still can be use, I will not buy a new one to replace it. So, my answer is YES I did shopping sometime, but not a shopaholic at all. And, I am quite a good money saver (I think).

Finance Malaysia blog hereby thanks Yumi for the interview and sincerely wishes her to be the next TOP international model from Malaysia, and successful in whatever things she venture into. If you want to know more about Yumi and her latest updates, you may "Like" Yumi Wong Facebook fan page.

Why Pretend -- Let the Tax Cuts Expire

If there is no appetite for reforming entitlements, then our future is massive tax increases and a stagnant and depressed economy.  Why not start this process now?  The track that we are on will eventually lead to the kind of top tax rates that we see in Europe -- 70 percent in France, for example.  And even those rates won't improve the national debt situation.

The truth is that the Democrats plan is to continue to raise tax rates by pretending that somehow tax revenues can catch up with entitlement spending.  But there are no tax rates or revenues that can match the entitlement explosion.  Our national debt will be a multiple of GDP within a few years and is probably already unpayable at any level of tax revenues.

It's time to let the public get a taste of their future -- high taxes, massive bureaucracy, a crushing of the private sector, high and permanent unemployment, and diminished employment and income prospects for younger generations.  Within a dozen years, we will begin to back away from spending for the elderly -- not because we want to -- but because there is simply no money available to maintain these programs at existing benefit levels.

The problem we have is that a majority of Americans think all of this stuff is affordable.  That's why entitlement reform is "off the table."

So, let taxes rise.  Among Democrats, only Harold Dean seems to be aware of the arithmetic.  He has made it clear that he supports letting all of the tax cuts expire.  It's rare that I agree with Dean, but, on this one, I agree.

The public needs to get a taste of the future regime that they have voted for.  If the entitlements are "off the table," then lets put the reality of the future on the table now before it is too late.  Perhaps four years of economic stagnation, smothering regulations and high taxes will be enough of a taste of our future to bring our citizenry to its senses.

The Latest from Greece

Greek riots and demonstrations are now a daily event in Athens and other major cities.  Civil disorder is common place -- looting and random thievery are accepted in modern day Greece.

Meanwhile, the Greek public still believes that they are beset by the evil greed of rich people and large corporations.  If only....  

For three generations, the Greeks have been told that the "middle class" deserves endless services, employment guarantees, free health care, and no taxes.  They bought in.

It's always about "fighting for the middle class," until there is no longer a middle class. That's where we are in Greece.  We now have a protracted battle between the protected class -- mostly government employees -- and everybody else.  We now witness a civil war between the young -- who are supposed to support all of this nonsense -- and the old, who no longer can support much of anything.

Greece is the target.  That's where the Obama policies take you.  Substitute personal responsibility for government largess and you get modern Greece.  Meanwhile, move the rhetoric over to demonizing the rich and you get the Obama plan.  Freedom, free markets, hard work -- these are now outmoded notions to be replaced by "defending the middle class."  One such defense is the announcement today that GM workers will receive $ 7,000 bonuses this year, thanks to the taxpayers, who have lost billions of dollars underwriting GM worker pension funds.

This is where it goes.  Pit one group of Americans against another.  It is no longer about merit and hard work.  Those are outmoded notions.  The Greeks don't believe any of that either.  They have been carefully nurtured to believe that the government will take care of everything.  Obama has taken heed.  You can win a lot of elections and curry favor with an adoring media by simply pretending that effort is no longer required for the good life.  These rich folks have enough for us all.

So, modern Greece is descending into chaos.  Don't visit Athens as a tourist, because police protection has broken down.  This is a society that no longer believes in civil order.  Virtually all Greeks now believe that their problems are caused by rich people, German banks, and big corporations. They have been watching TV and listening to their leaders.  They drank the koolaide.

Now, we are drinking the koolaide.  What is the Obama plan to reduce the deficit?  Tax rich people.  How do you deal with a $ 70 trillion unfunded entitlement deficit.  Raise $ 80 billion a year from rich people.  This year alone that will reduce our deficit from $ 1.6 Trillion to $ 1.52 Trillion.  That's what we are talking about.  These terrible Republicans. If they would only agree to the Obama plan our national debt would rise a mere $ 1.52 trillion per year and the national debt would reach only $ 24 Trillion in six years instead of $ 25 Trillion.  Thank you, Mr. President.  That's a big help.  No point in trying to deal with the entitlements, after all, $ 24 Trillion in six years isn't bad and that's only the beginning.  We can do better than that (or more than that, if you like).

No need to worry about Greece with such a statesman-like President.  The adoring media deserves some credit as well.  If they get their way...just think.  We can get to a mere $ 24 trillion in debt in six years.  In 20 years, we should be able to scale the $ 40 Trillion mark.  Hey, maybe Greece isn't that far way after all.

Road Signs on the Way to Greece

"Get something done....anything!"  That seems to be the thinking of the financial and political pundits.  Who cares if the outcome is further explosion in the national debt, more crushing taxes, and strangling regulations?  That seems to be the "rise above" mentality.  The ultimate policy is less important than the desire to get this episode behind us.  This is known as "kicking the can down the road."  The fact that the economy is getting a swift kick as well does not seem to concern the pundits.

The only thing that the President and his allies are willing to do is further the punish the free market and the private sector with increasing taxes and increasing regulation and creating further divisions between rich and poor and young and old.  This is the strategy that Greek politicians used for the past three decades to get Greece to the place where it is now. 

Blame rich people, blame the private sector and expand further government activity and the percentage of folks who are riding the stagecoach of government benefits.

When Greece was going down this road, the media strongly and vocally supported the trip.  They are doing so again as the US follows the Greek path.

Boehner and his Troops

John Boehner is doing his best, but it is hard to fault the House Republicans for refusing to go along.  Boehner is playing tactics, while many House Republicans think it is too late for tactics. They are probably both right.

Boehner tried to push the ball back into the President's court, since the President has been unwilling to bend on anything.  It is not unreasonable for those among Republican ranks to ask why they should vote to raise taxes on some folks absent any offer of spending cuts at all from the White House. This is especially the case given that Senate leader Harry Reid said that the Boehner plan was dead on arrival and Obama promised to veto it.  Why capitulate pre-emptorily when there is nothing forthcoming from the other side?

Not that any of this matters much as long as entitlements are "off the table."  No deal is of any significance without entitlement reform.  Obama is perfectly willing to let the country go over the cliff and proceed on its way to Greece.  Boehner is doing his best, but Obama and the Democrats are determined to continue the march to insolvency.

Don't "Rise Above"

CNBC keeps trumpeting the "rise above" slogan in reference to the "fiscal cliff" negotiations.  Nothing could do more damage than "rising above."  Rising above is how we got to this point.  "Rise above" means "kick the can down the road."  It is time, way past time, to not rise above.  Face the reality.  Don't duck reality by adopting the "rise above" strategy of the Jim Cramer no-nothings on CNBC.

Coming to a bogus agreement that does nothing to change the trajectory of medicare, medicaid and social security, accelerates the US on the path to bankruptcy.  If you like modern Greece and want to get there as soon as possible, then "rise above." 

If you want the US to return to fiscal solvency, then don't rise above.  Instead fight the current media frenzy to get to a fiscal deal regardless of what it implies for our future.

Go For Plan B

John Boehner is on the right track.  Passing an extension of the Bush tax cuts for as many people as possible is the best that can be accomplished at this point.  The main virtue of Boehner's plan is that the Republicans are not tied to a deal with this approach.  If Republicans agree to a tax hike deal and essentially no spending cuts -- the Obama approach -- then they will have nothing to run on in 2014.  By committing themself to an extension of the Bush tax cuts for almost everyone, they are able to maintain their anti-tax posture.

Let the Senate turn it down.  Let Obama veto it.  No harm done.

Going over the cliff puts the issue of our looming national insolvency front and center.  It is about time.

It is true that national defense is sacrificed and economic growth is probably jeopardized, but it would be anyway giving the current trajectory.

There is no time like the present to face what needs to be faced.  Lets get on with it.

What are the TAX benefits from Private Retirement Scheme (PRS)?

According to Securities Commission of Malaysia, tax incentives are provided to both employers and individuals for the first 10 years from assessment year 2012; in addition to the tax deduction permitted for EPF contributions:

Amount of Tax Savings by individuals for PRS contributions

For Individual:

Tax relief of up to RM3,000 per year will be given for contributions made within that year. This is on top of existing tax relief already enjoyed by taxpayers. How much can you save from tax? Let's look at the table above which illustrates the amount of tax saving an individual get after personal tax relief and RM6,000 EPF + Life Insurance tax relief. Assuming maximum RM3,000 PRS relief, the amount of tax saving depends on your level of income. For high tax bracket individual, you can save up to RM780 annually!!!

For Employer:

Tax deduction on contributions to PRS made on behalf of their employees above the statutory rate of up to 19% of employees' remuneration was granted. Example, if an employer already making 12% EPF contributions to his employees, the employer may choose to reward their employees by contributing into employees PRS account for up to another 7%.

Vesting Schedule to Retain Employees?

Yes, employer can use PRS as a tool to retain employees by adding a "vesting schedule" clause. Currently, there are a few available vesting methods: by length of service, job rank, or by age. Unlike EPF, if an employee leaves before vesting, the employer can access to the un-vested portion of contribution already made. Likewise, for EPF, employee take the full amount when they left. With PRS vesting schedule, employee may think twice before switching jobs.

In conclusion, there are tax incentives for every tax payer, employee or employer. Ultimately, enough retirement funds was the key objective of PRS. On top of that, a tax exemption is also provided on income received by the funds under the PRS.

This is a guest post by Alex Yeoh in the series of Private Retirement Scheme. For more PRS info, you may contact Alex Yeoh (alexyeoh@vka.com.my), a licensed financial planner, whom can distributes products from multiple PRS providers. Thank you.

How Private Retirement Scheme (PRS) works actually?

Many people are still in the dark on how actually Private Retirement Scheme (PRS) works. In order to clear everyone's mind, we hope this post was timely for those who may want to entitle for extra tax relief of up to RM 3,000 given by PRS before 31st December 2012. To further explain the whole scheme, Finance Malaysia Blog was glad that Alex Yeoh, a licensed financial planner is able to share with us on this matter.

By Alex Yeoh,

First we must know that PRS is a voluntary scheme for the purpose of retirement saving. For ease of understanding, let us look at the picture above which explain the process into two parts. Initially, contributions were made by us into the PRS fund that we select. It was as flexible as  normal unit trust investments (shown in upper part). Contribute anytime any amount as you like, without any specific intervals. As simple as that.

When can I withdraw the money?

Each time, your contributions were split and maintained in sub-accounts A and B similar to EPF way (shown in lower part). 70% of contributions will go to Account A, which can be withdrawn upon reaching retirement age, which is currently at 55.

Meanwhile, the balance 30% into Account B, which can be withdrawn after one year, subject to 8% tax penalty. Take note that you can withdrawn from Account B for whatever reason. Although lump sum withdrawal are permitted, contributors are encouraged to retain their savings for continuous investment under the respective schemes.

Why 8% tax penalty?

The said 8% tax penalty was to discourage contributors to withdrawn their money prior to retirement age. We must understand that PRS is meant for retirement savings. Moreover, the 8% tax penalty was deducted from withdrawal amount to pay back Inland Revenue Board (IRB). Why? Because IRB is the one who gave you tax relief on contributions made initially. Otherwise, loop-hole was existed with everyone just want to take advantage of the tax relief and  withdrawn their money after that. Agree?

For more PRS info, you may contact Alex Yeoh (email: alexyeoh@vka.com.my), a licensed financial planner, whom can distributes products from multiple PRS providers. Thank you.

Without Medicare, There is Nothing There

The big driver of the national debt is medicare spending, made worse by Obamacare.  This subject is "off the table" according to the White House.  Put simply, the Obama administration is prepared for an exploding national debt and is unwilling to make any effort at all to slow that explosion.

Raising tax rates and tinkering with social security cost-of-living adjustments is a joke.  Neither will reduce the future trajectory of the national debt and raising tax rates will actually make things worse.

If Republicans sign on to this deal, you have to wonder what they plan to run for re-election on in 2014.  Why control the House of Representatives, if you intend to do nothing but cave to Obama?  Where is the loyal opposition?

Boehner against Boehner

You have to feel for John Boehner.  All the self-appointed conservative pundits -- Peggy Noonan, Bill Kristol, etc., are telling Boehner to give up on holding the line on tax rates.  What happened to the argument that higher tax rates means slower economic growth?  Did the laws of economics suddenly get suspended to accommodate the political situation?

Raising tax rates in the midst of a sluggish economy is absurd policy.  Only a clueless President would suggest such a path.  Unfortunately Republicans are now climbing all over themselves to jump on the "higher tax rates" bandwagon.  If successful, many more Americans will be faced with a much more limited economic future.  Is politics worth this?

So, Boehner keeps offering up one compromise after another -- mostly, one suspects, to appease his own troops who are running for cover. 

It looks like Republicans may end up providing cover for Obama as they join hands to raise taxes and increase spending.  They never learn.

So what are the Republicans going to run on in 2014, having given away the smaller government, lower taxes argument?

The Fed: What the Fed can do and What it Cannot Do

More ink and conversation is wasted on what the Fed is planning to do regarding interest rates.  The Fed doesn't set rates other than it's own lending rate -- nothing else.  Treasuries don't have low rates because the Fed wills it.  Treasuries have low rates for the same reason the US economy is in shambles -- everyone is fearful of the future.  As bad a bet as treasuries are, at the moment, most investors feel safer in treasuries than in other assets.  That's why rates are low.  The Fed has little or nothing to do with that.

What the Fed can do is change the money supply and they are doing that.  They can also "monetize" the debt and they are doing that.

Sooner or later a panic will take place and the world will run from US treasuries.  It won't be pretty and everyone will quit talking about the Fed and begin talking about the insolvency of the US, which is the real issue.  The Fed is a sideshow. 

Ben Bernanke, like lots of "political economists" is fighting the battle of the 1930s.  He thinks we have a liquidity problem.  That's why he indulges in Q1, Q2, and Q3.  We don't have a liquidity problem which is why Fed policy is having no impact on employment and aggregate demand.

America has a debt problem and a regulatory problem and a tax problem.  Unless you solve those things, the Fed and Obama and all the rest are completely irrelevant.  Obama is relevant only as the maestro leading the US economy to disaster.  But, don't look to the Fed.  The Fed is just Obama's handmaiden in all of this.

Sold 2 lots of STI ETF @ $3.18

The innate human tendency to be greedy makes selling stocks difficult. For example, an investor purchases shares of a stock at $10 a share and tells himself that when the stock price hits $20, he will sell it all. When the share price finally reaches $20, the investor becomes greedy and decides to hold out for more gains. When the stock price continues rising to $22, greed overcomes rationality again and the investor holds out for more. The stock price suddenly takes a downward turn and is back at $18. The investor then tells himself that once the stock price hits $20 again, he will sell it all.

This is exactly how I felt when I tried to sell my STI ETF for the past few days. My initial selling price was $3.15. When it reaches $3.15, I became greedy and decided to hold out for more gains. When it continued rising to $3.17, I placed my sell order at $3.18 and the stock price dropped back to $3.16. Fortunately, the share price rose back to $3.18 today and I finally managed to sell all my 2000 shares of STI ETF.

My decision to sell the STI ETF was part of the strategy to liquidate my stock holdings and sit on more cash while waiting for the next market correction/downturn. I initiated a position in STI ETF last year September at $2.72 and total return for the past 15 months is approximately 20% including dividends. In addition, the share price is at its 52 week high and I feel that the recent rally might not be sustainable as uncertainties are still looming over the US fiscal cliff, Europe crisis, China slowdown and Middle East tensions.

Debt -- The Perfect Storm

Treasury bill rates are barely above zero.  This means that interest on the nearly $ 11 trillion dollars worth of funded debt are miniscule.   Most states and local governments face low interest rates on funding as well.  What happens when this changes?

Imagine that rates increase by a mere two percent on US treasuries, which would put such rates closer to their historical averages.  Two percent of $ 11 trillion is $ 220 billion per year.  Compare that to what Obama expects to receive from "taxing the rich" -- $ 80 billion per year.

But once rates start up, there is no reason for them to rise by a mere two percent.  Rates have been as high as high double digits in the past -- try the early 1980s, for example.  Lets suppose, to keep things simple, that once inflation takes hold, rates level off at ten percentage points higher than current rates.  That would $ 1.1 trillion to annual spending.  How does that compare to taxing the rich.

Add in the spiraling debt of state and local government and tack on much higher rates for those entities and you will reach spending levels that no tax rates can hope to catch.

All of this is before you try to fund the unfundable -- social security and medical care.

Don't imagine that the Federal Reserve can help.  Bernanke isn't keeping rates low.  Markets are keeping rates low, whether Bernanke likes it or not.  People are petrified by the future and have crashed their way into the US treasury market for protection.  In time, they will realize that there is no protection in US treasuries.  When that happens, look out.

QE1, QE2, QE3 are massive increases in "high powered money."  The money supply, currently growing at around eight percent, will eventually grow at a multiple of eight percent.  When that happens, inflation and interest rates will shoot through the roof.  That will be the Bernanke legacy.

None of current fiscal and monetary policy helps the economy recover from 2008.  You have to even wonder if that is the purpose.  Obama is on a redistribution crusade, the economy be damned.  Bernanke is fighting the Great Depression.  Unfortunately for Bernanke, his weaponry is doing no good.

At the end of the day, the economy needs desperately for the government to get out of the way.  That's not going to happen with Obama as President and a Democratic Senate.  Even the Republicans seem to be jumping on the out of control debt bandwagon.

Going over the fiscal cliff looks so much better than the available alternatives.

Now Germany

The Bundesbank, Germany's central bank, released this statement yesterday:

"The cyclical outlook for the German economy has dimmed and there are even indications that economic activity may fall in the final quarter of 2012 and the first quarter of 2013."

This was less a prediction than a recognition of reality.  German industrial output fell 2.6% in October. 

By bankrolling Greece, Portugal and, implicitly, Spain, Germany has now joined the crowd.  The debt problems in Germany are now beginning to catch up with the debt problems in Southern Europe.  Why?  The bailouts!

Bailouts always raise the indebtedness of the country or political entity doing the bailing.  Germany is doing the bailing.

It is now time to start the clock on Germany.  How soon before folks wake up to the fact that Germany can't pay its debts either. 

The road to Greece is beginning to get crowded.

Who will be the first major country to follow the Greek script -- Japan, Germany, the US?   It is just a matter of time now.

Back To The Carefree Life

Exams are finally over and the December holidays have just started. I am officially a "Man Of Leisure" till 7 January 2013. This will be my last school holiday and I will be graduating middle of next year.

The reason why I am feeling so carefree now is because the problems that I have been worrying about for the past few months are all cleared :

• ICT deferment approved
• All bursaries granted. Total amount = $5500
• Invited to final interview for full time job in 2013
• Request for higher HDB Additional Housing Grant approved. Signed my Agreement For Lease.
• CFA Scholarship awarded

Besides growing my net worth, there is nothing left for me to anticipate or work towards. With so much time on my hands, I shall reread some of my books on investments, research on some SGX listed companies and prepare for my final interview in January.

Also, I will be liquidating my SingPost and STI ETF shares so that I will have enough cash to take advantage of the next market correction. 

New Fund: OSK-UOB Multi Asset Regular Income Fund

As investor continue to seek safe investment havens, i.e. investments that are more stable and/or of lower risk and with regular income, OSK-UOB Investment Management see opportunities in the Asia and Asia Pacific (ex Japan) region. Hence, they are now offering investors a fund that utilizes a multi-asset strategy to generate potential regular income and capital growth in a fund that invests in three yielding assets i.e. bonds, equities and REITs (real estate investment trusts) from the Asia and Asia Pacific (ex Japan) region.

The Fund is suitable for investors who:

1. seek regular income and capital growth over medium to long term;
2. are willing to accept moderate risk in their investments; and
3. wish to benefit from investment exposure in the Asian and Asia Pacific (ex Japan) region.

Tactical Asset Allocation?

Of the fund's investments, the External Investment Manager will initially invest in accordance to the allocation stated in the table below. However, for the purpose of tactical asset allocation, the manager may deviate from the stated allocation by a 10% variance for each asset class depending on the market conditions to achieve medium to long term returns.

Thus, this Fund's portfolio will be structured as follows:

• 65% - 98% of NAV
• Investments in Asian (ex Japan) debt instruments / bonds, Asia Pacific (ex Japan) dividend equities and Asia Pacific (ex Japan) REITs.
• 2% - 35% of NAV
• Investments in liquid assets including money market instruments and deposits with financial institutions.

What's the composite benchmark for this fund?

• 50% JP Morgan Asia Credit Index Total Return Composite (RM);
• 30% MSCI AC Asia Pacific ex Japan Index (RM);
• 20% MSCI AC Asia Pacific ex Japan REITs Index (RM).

Distribution Policy:

Depending on the level of income generated at each relevant period, the fund will declare distributions, if any, to unit holders QUARTERLY.

Click here to read fund's prospectus

Source: OSK-UOB Investment Management

Shame on Geithner and Summers

Two guys who should know better are helping to lead the country into bankruptcy -- Tim Geithner and Larry Summers.  They act as if the entitlements really aren't a problem.  They are either deliberately misleading the public or they truly have no idea what the social security and medicare are all about.  I suspect the former.  Geithner and Summers are likely only thinking about preserving their relationship with our bizarre President.  That means ignoring the fiscal issues that loom far larger than any short term fiscal cliff.

Both of these guys are focused on raising marginal tax rates which generally lead to lower tax revenues at the level rates are now.  Thus raising rates expands the deficit and increases the national debt more than leaving rates alone.  So, why are Geithner and Summers deliberately promoting policies that raise the national debt?  To curry favor with the White House and to expand their own sphere of influence within the White House is the only logical explanation.

Both Geithner and Summers, by their public duplicity, have forfeited their roles as public leaders to wander into the mire of low level political rhetoric. "Soak the rich" is not a new slogan that began with Obama.  The same slogan has been available to demagogues the world over and since the beginning of time.  Free market capitalism is now being undermined by appeals to revenge, envy, and hatred.  This is more of the Obama legacy and is actively promoted by Tim Geithner and Larry Summers.  Washington, Jefferson, and Hamilton must be turning over in their graves if they are listening to the modern American political rhetoric.

Kick the Can and Kick the Economy

The Obama plan is now pretty clear.  Do nothing at all about the deficit or the looming national debt disaster and raise tax rates.  If you asked what is the worst possible outcome for the American economy, this is it.  Meanwhile corporate leaders and even some Republicans are genuflecting over this solution as a great bargain.

If you think the fiscal cliff is a crisis, wait until social security and medicare run out of money which is about a decade away.  At that point, the national debt will be 25 or 30 trillion dollars -- unpayable at any tax rates.  The outcome?  Check out Greece -- civil disorder and political chaos.

As for the economy, we are now in the new normal -- staggeringly high unemployment, virtually zero economic growth and little or no hope for the younger generation in jobs or in future income.  Politically, you now face class warfare and you will soon face the war between the young and old over scarce resources.

What is happening at the federal level in the US is compounded by identical policies at the state and local level.  Defined benefit pension funds are beginning to run aground with inadequate funding and no hope for ultimately paying beneficiaries.  States are unable to fund their share of medicare and medicaid.  As for education and infrastructure, there is simply no money left for such things and what little there is wasted by excessive union contracts and political waste.  A stagnant, no-growth, economy only makes all of this that much worse.

This is the Obama legacy.

"I Wlll Not Play That Game"

Obama laid down a new gauntlet today.  Now he refuses to negotiate over raising the debt limit.  "I will not play that game,"  he says.  What Obama is saying is that he has no intention of making any concessions to reducing the national debt or the ongoing deficits.  The road to bankruptcy is not going to be blocked by this President.

The only thing the President will consider is raising taxes on everyone above $ 250,000 in income.  If he succeeds, revenues will be lower and the deficit will expand; economic growth will turn negative and the US will stagnate further.  That's the President's plan.  Just remember that when England did exactly this three years ago -- raising taxes on everyone making over $ 1 million, the number of tax payers filing returns over $ 1 million income dropped 60 percent and revenues from this income group collapsed.  That's where the tax on "millionaires and billionaires" is headed.

Either Obama is woefully ignorant of economics or something worse is afoot.

Falling into a Dividend Trap? (Dec 2012)

No doubt, many investors prefer only invest in dividend-based counters. Malaysia is famous and already been recognized as one of the hottest spot for those looking for high dividend yields counters. But, things may changed. Why?

First, how do we calculate dividend yields? It's dividing the one year dividends declared by share price. Normally, yield which is higher than 5% was considered attractive. Just when everyone looking to hide their money from risks, yet aiming for higher returns than putting into fixed deposit (3% p.a), dividend counters seems to be their preferred selection.

Should we follow the "professionals"?

Yet, many investors just follow the winds (fund managers, analysts, consultants...) to invest based on the past 6 months, 1 year or 2 years track records. Yes. It's proven track records. But, where we are heading to is more important, right?

If you read the newspaper which published out-dated yields data, good luck. It's was based on last year dividends divided by average share price for last 365 days. For me, it's totally irrelevant for us to make decisions.

On the other hand, what we noticed was the share prices of dividend counters had moved up a lot since second half of last year. Although they have come down abit lately, we must ask the following questions before bargain hunting.

• Are we jumping in too late now?
• Are we taking more risks now?

Think about it and start to reconsider your decision again.

Personally, I believes this was not the right time to invest in dividend based counters. Nothing to do with their fundamentals or businesses as they are well-manage, profit generating companies. The problem is their share prices have already gone up a lot, which does not justify with the word "attractive yield" currently. Same goes to dividend based local unit trust funds. If really want to search for high dividend investments, you can still find it handy overseas, not Malaysia. Happy Investing!!!

Invitation To Final Interview

Maria Bastone/Agence France-Presse/Getty Images

After weeks of waiting, I finally received an email invitation to the final interview for an institutional sales/trading position. Having passed the online tests, telephone interview and assessment centre, this final interview will be the last hurdle in securing a full time job before graduation. From what I gathered, the remuneration package includes an annual base salary of at least $50,000 and a profit sharing scheme. I feel that the offer is quite attractive for a fresh graduate and the exposure that I will be getting from this job is immense. .

Taxes Won't Matter

At the end of the day, it really doesn't matter what happens to taxes.  There is no tax policy that can catch up with the entitlement promises.  The only reason that taxes matter is the impact on economic growth and the answer to that is pretty simple. Higher taxes mean lower economic growth.

We are headed for bankruptcy as a nation, regardless of what happens to the Bush tax cuts.  Double all current tax rates and revenues and even that doesn't help.  We have a $ 66 Trillion unfunded medicare deficit.  A trillion here or a trillion there in tax revenues is completely irrelectant.

So, why is the media so focused upon whether or not Republicans will agree to an increase in tax rates.  Whether or not the Republicans cave only matters for economic growth.  It is completely irrelevant to the issue of looming fiscal bankruptcy.  If Republicans cave, we get lower economic growth, but no tax rate policy solves the nation's future bankruptcy.

The Obama folks are bound and determined to lead the US into bankruptcy. That's why taxes are the only subject up for discussion for them.  The media is their Greek chorus. They know, and anyone remotely familiar with the numbers knows, that revenues are irrelevant.

Here's one policy that I would support.  Let's take everyone with net wealth in excess of $30 billion and tax half of their wealth.  That would catch Buffett and Soros and all of the left wingers who know they have nothing to fear from an income tax.  You wonder if Buffett and Soros would be so sanguine about taxes if they knew they might have to pay some themselves.

Phony versus Real

Taxing millionaires and billionaires is a slogan.  There is an interesting story in today's WSJ about the results of England's recent experience of taxing the rich.  They raised the tax on taxpayers making more than $ 1 million annually from 40 % to 50 %.  Guess what?  Tax revenues collapsed, while the number of tax returns reporting $ 1 million or more in income fell by more than 50 %?  That is a preview of our future if Obama gets his way.  Obama's soak the rich scheme will lead to lower revenues, a higher deficit, and a weakening economy.

Meanwhile, the entitlements march on. National debt, now at $ 16.3 Trillion will be $ 22 Trillion by the time Obama leaves office, if we are lucky.  It could be $ 25 Trillion if the economy falls apart because of Obama policies.  Taxing rich folks brings in $.08 Trillion per year, assuming you believe Obama's assumptions.  That means the national debt will be only $ 24 Trillion by 2016, not $ 25 Trillion..  Big deal! Taxing the rich is a phony issue of no substance.

The President Owns 2013

Whatever happens to the economy in 2013 belongs to the President.  There is no way out of that regardless of how the media attempts to blame the President's critics.   Congress has never been blamed for a recession.  Hoover was in the first year of his first term as President when the Great Depression began.  While Hoover had nothing whatsoever to do with causing the Great Depression, his name will forever be associated, in a negative way, with the Great Depression.

One suspects that 2013 is going to be a disaster quite independent of what resolution there may or may not be to the fiscal cliff.  But, the President's proposals have the potential to make the situation far, far worse.  One virtue of going over the cliff is that everyone will get a small taste of our future.  Sooner or later the national debt, now over $ 16.3 Trillion and growing by ten percent per year, will simply overwhelm any realistic effort to bring it under control.  Social security and medicare will default in part or in whole and the entire American government financial pyramid will collapse.

Avoiding this spectacle will not be easy.  But the first step is simply to ignore the White House and proceed over the fiscal cliff.  The next step will be to refuse to extend the debt limit and let nature take it's course.  If these two steps are taken, the country's financial house would have a chance of being put back in order.  Yes, it would be painful for a while, but at least the country would have a future.  Now, the country only has a past.

So, who will be blamed?  The first response is: who cares?  If it takes steps one and two to save the country, then why not take them regardless of blame.  But, the second response is that the President will be blamed.  He presided over this entire fiasco.  He came into office with sweeping majorities in the House and Senate.  His policies prohibited any real economic recovery and his current proposals all but guarantee a renewed recession and higher unemployment.

Strap on your seat belts.  Fiscal cliff -- here we come!

The Christmas Buying Surge

Is the surge in Christmas buying a good thing?  Figures were released this week that American households have a lower net worth (corrected for inflation) on average than forty years ago.  So, let's spend more and save less?   That's good news?

American families are collapsing under their own sea of debt while the future of their children and grandchildren have already been sacrificed for the welfare needs of current generations.  This is good?

It is a sign of the times that things that increase our level of debt and reduce our attention to thrift and responsible spending are now seen as good things?  Look at CNBC news.  They trumpet the "Rise Above" slogan, encouraging politicians to kick the can down the road by coming to any agreement, no matter how absurd, to avoid the fiscal cliff.  "Rise above" means rise above sanity, one supposes.

President Obama is almost a caricature of how absurd our politics have become.  What does he advocate?  More spending, higher tax rates, and more regulation ...  this for an economy that appears to be staggering back into recession territory.

Americans need to be saving and investing.  That is what made America the wealthiest nation in the world in the first place.  Both the private and public sector need to be saving, not running higher and higher deficits.

Americans should cool it on Christmas shopping.