4th Quarter GDP was revised up today from a dismal -0.1 percent to a dismal +0.1 percent, confirming the stagnation character of the American economy. All the fine rhetoric from the White House and its chorus of apologists cannot hide the fact that US economy is stuck in the mud.
This should come as no surprise of course. Why should anyone expand their business or take on new employees in this environment? Heaven forbid that anyone should make a profit or try to get rich. That's the new sin.
So, what is left is stagnation. An economy that rewards people for not working and punishes those who wish to employ capital is an economy that is going nowhere.
Obama has managed to accomplish what few thought possible. He has shut down the mighty American economic engine.
Thursday 28 February 2013
Monday 25 February 2013
Study Plan For CFA Level 1
I have registered for the CFA Level 1 exam scheduled on 7 December and the much anticipated books arrived last week. I was quite astonished as I didn't expect level 1 to have as many as 6 books. On the first few pages of Volume 1, there is a part in the "Designing Your Personal Study Program" section which says:
"Successful candidates report an average of over 300 hours preparing for each exam. Your preparation time will vary based on your education and experience. For each level of the curriculum, there are 18 study sessions, so a good plan is to devote 15 to 20 hours per week, for 18 weeks, to studying the material."
The recommended plan requires me to study 15-20 hours per week, translating to 2-3 hours a day. As I will be working full time during that period, I don't think the recommended study plan stated in the book is feasible. 1.5 hours per day will sound more reasonable. However, by studying just 1.5 hours a day, I will need about 28 weeks in order to clock the recommended 300 hours. This means I have to start preparing for the CFA exam 28 weeks (7 months) in advance, which is at the start of May 2013.
The last paper for my university final exam is at the end of April and I have to start studying for CFA at the start of May. Moreover, I will be starting work full time in June 2013.
2013 is going to be a really hectic year!
Saturday 23 February 2013
New Fund: CIMB-Principal Enhanced Opportunity Bond Fund
They say that the only constant in life is 'change'. Well, not always. Hopefully, with this new fund, you will find comfort in its stability. Furthermore, it aims to provide more returns than the current Fixed Deposit rate, and is more stable than equities. Riding on the growth of the Asian countries, investors have the opportunity to diversity their portfolio and increase the returns. This fund is only available until 4 April 2013 !
What is CIMB-Principal Enhanced Opportunity Bond Fund?
Investment Strategy
Under general market conditions, between 70% to 99% (both inclusive) of the Fund’s net asset value (“NAV”) will be invested in non-ringgit debt securities primarily in bonds (including convertible bonds). Of the 99%, up to 40% of its NAV may be invested in unrated securities and high yield securities respectively while the remainder will be invested in investment grade securities. These investment grade securities are issued or backed by governments, government agencies, supranational organizations, corporate or other issuers. At least 1% of the Fund’s NAV will be maintained in the form of liquid assets such as bank deposits for liquidity purpose.
However, in the event of limited non-ringgit debt securities, the fund manager will have the discretion to invest in the ringgit debt securities primarily in bonds with yield at the prevailing market condition, if the fund manager is of the opinion that by doing so is in the best interest of the Fund.
While the Manager intends to adopt a buy-and-hold strategy for the Fund whereby the securities purchased will be held for the tenure of the Fund or to maturity of the securities,
the Manager reserves the right to deal with the securities in the best interest of the Unit holders in the event of a credit rating downgrade.
The Fund is suitable for investors who have three (3) years investment goals and are not planning to have access to their money in the next three (3) years. It is also suitable for investors who are seeking exposure to investment opportunities in debt securities.
Source: Fund prospectus
Friday 22 February 2013
The "Delay" Tax
Everyone knows, except Obama, that the entitlements are $70 trillion in the hole from an actuarial point of view. This means that, in finite time, they will run out of money.
So that, it is very, very clear that future generations will get nothing at all from social security and medicare regardless of the amount that they pay in. Unless something is done.
This we know (except for Obama, of course, who seems to know nothing).
All of this means that sooner or later, social security and medicare will be fixed. Running out of money is a fix. That does solve the problem.
A simple solution is to move out the age of eligibility for medicare (and index it). Do the same for social security. Means test both programs. Raise medicaid eligibility requirements. Doing these things would mean that social security and medicare will never run out of money.
So, a simple fix, can make things work. If we do it now. Delay means that when you do act, the actions must be much, more draconian. By postponing action, even for only a single year, the size of the cuts and the postponement of eligibility must be far greater than what would be necessary if we acted today.
This is the Obama "delay" tax. The longer you postpone dealing with the problem, the worse is the plight of future seniors. Either Obama doesn't know this (which is probable, because he isn't very focused on real issues) or he knows it and simply doesn't care.
So that, it is very, very clear that future generations will get nothing at all from social security and medicare regardless of the amount that they pay in. Unless something is done.
This we know (except for Obama, of course, who seems to know nothing).
All of this means that sooner or later, social security and medicare will be fixed. Running out of money is a fix. That does solve the problem.
A simple solution is to move out the age of eligibility for medicare (and index it). Do the same for social security. Means test both programs. Raise medicaid eligibility requirements. Doing these things would mean that social security and medicare will never run out of money.
So, a simple fix, can make things work. If we do it now. Delay means that when you do act, the actions must be much, more draconian. By postponing action, even for only a single year, the size of the cuts and the postponement of eligibility must be far greater than what would be necessary if we acted today.
This is the Obama "delay" tax. The longer you postpone dealing with the problem, the worse is the plight of future seniors. Either Obama doesn't know this (which is probable, because he isn't very focused on real issues) or he knows it and simply doesn't care.
Thursday 21 February 2013
Why TUNE INSURANCE is Out of Tune?
Every wonder why we didn't cover the IPO for Tune Ins ? Other than CNY mood, it's because of the unexciting part of this new stock. Why? Please read on...
Tune Ins Holdings Sdn Bhd (TIH) operates 2 core businesses. First, it provides online insurance where insurance products are sold as part of the customer’s online booking process with their partners namely AirAsia, Tune Hotels and AirAsia Expedia. TIH also operates a general insurance business, through 83.26% owned subsidiary - TIMB.
Why invest in Tune Insurance Holdings?
- Wide and cost effective distribution channels
- Provide ease in buying coverage
- Exclusive partnership with AirAsia
- Ability to ride on AirAsia’s robust growth
- Additional revenue and cost synergies from TIMB
- Robust industry prospects
However, some of the above investing reasons had also became the disadvantages of TIH. It's reliant on AirAsia business is too important. TIH's success is very much depends on the success of AirAsia businesses, and because of its relationship with AirAsia, TIH would face difficulties in forging a partnership with other airline.
Meanwhile, for TIH domestic general insurance, stiff competition and the implementation of tighter capital requirement for insurance companies may affect its operations. It's in the industry where size does matter. I don't think TIH can cross-sell it's online clients easily on other general insurance, such as fire and car insurance.
Forecast and Valuation given by TA Securities Research
Going forward, we believe TIH’s gross earned premiums will be closely linked to increase in passengers carried on AirAsia. We estimate AirAsia’s passengers carried to increase at an encouraging pace of around 15% per annum. Tagging a 20% to industry’s targeted PER of 10x, we fairly value TIH at RM1.00.
Fair Value RM 1.00 ???
Hey dude, the IPO price is RM1.35 !!!
Wednesday 20 February 2013
How Do I Choose Between a Fixed and a Floating (Variable) Rate Home Loan?
The following is a guest post by Property Buyer
During this fixed period, if there are changes in the interest rate environment to a lower rate, the borrower will have a higher opportunity cost as he may be able to enjoy lower loan rates with a variable rate loan instead.
Most of the floating (variable) rate mortgages use a interest rate that is benchmarked against SOR (Singapore Swap Offer Rate) or SIBOR (Singapore Inter-bank Offered Rate), which is the variable component of the interest rate.
The bank will add a spread or margin to SIBOR or SOR. Together, the two will form the interest rate. For instance, the rate could be 3-Month SIBOR + 1% , where the 1% is the spread.
The spread is usually adjusted upwards after the first few years of the loan. An example of an interest rate structure for a floating rate loan follows.
For more related articles, please visit the following websites:
www.PropertyBuyer.com.sg/articles
www.SingaporeHomeLoan.net
www.iCompareLoan.com
About Property Buyer
http://www.PropertyBuyer.com.sg/mortgage
We are a research-focused Singapore mortgage consultancy which helps you compare Singapore home loans either for new loans or refinancing. We use loan reports from Singapore's best loan analysis system (exclusive to us) at http://www.icompareloan.com/consultant/to serve our customers.
Our services are completely FREE to you as the banks pay us a referral fee upon loan disbursement.
SMS: (65) 9782 8606
Email: loans@PropertyBuyer.com.sg
People are almost always caught up with the decision of which Singapore home loanis best for them - within themselves, there is always the constant debate of whether one is better than the other. Will choosing a mortgage type depend on the person’s intelligence, instinct, bookkeeping skills, or attitude on sound money management? How does a buyer’s situation affect his or her decision to use either a fixed or a floating home loan?
Fixed-rate mortgage
Mortgage packages offering a fixed home loan rate provide a specific constant rate for a certain period of the loan.
For example, if you are buying a house now with a fixed rate home loan at 2.3% per annum, then the 2.3% per annum would be the interest rate for the fixed period which could vary between 3 to 5 years, depending on your package and its terms.
After the fixed period ends, the interest will convert to a 1) variable loan package rate, or 2) rate pegged at a discount below the bank's board rate.
The following illustrates an example of the rate structure for a fixed rate package.
Bank Y Fixed-rate Loan
Period | Interest Rate (p.a.) |
First Year | 1.15% |
Second Year | 1.35% |
Third Year | 1.45% |
Fourth Year Onwards | 0.50 % below the Board Rate |
During this fixed period, if there are changes in the interest rate environment to a lower rate, the borrower will have a higher opportunity cost as he may be able to enjoy lower loan rates with a variable rate loan instead.
Floating (variable) rate mortgage
The interest rate for this loan type is dependent on the base rate and the spread or margin being used by the bank or lender. Borrowers who are savvy about interest rate movements often choose the floating home loan rate to obtain cost savings, especially those who are financially secure and in total control of their wealth as they will be able to afford the higher interest payments shall rates suddenly soar.
The bank will add a spread or margin to SIBOR or SOR. Together, the two will form the interest rate. For instance, the rate could be 3-Month SIBOR + 1% , where the 1% is the spread.
The spread is usually adjusted upwards after the first few years of the loan. An example of an interest rate structure for a floating rate loan follows.
Bank X SIBOR Loan
Period | Interest Rate (p.a.) |
First Year | 0.75% + 1-Month SIBOR |
Second Year | 0.75% + 1-Month SIBOR |
Third Year | 0.75% + 1-Month SIBOR |
Fourth Year | 1.00% + 1-Month SIBOR |
Thereafter | 1.25% + 1-Month SIBOR |
What are the factors you should consider when deciding which loan type to use?
1. Understands market interest rate trend
Accuracy is very important in forecasting and tracking interest rate trend. If you are able to do so, you can derive significant interest payment savings from a floating (variable) rate loan during a low interest rate environment.
2. Financial and health uncertainties
If you are unsure about your financial capacity and health a few years from now, then the fixed home loan rate is best for you. You can lock in and secure the rate for the fixed duration.
3. Cash repayments
Paying your loan in cash every month with a fixed home loan rate makes financial planning easier. Use iCompareLoan home loan comparison system to learn the rates for the different loan packages to help you find the ideal mortgage package.
4. Tolerance for risk
Each type of home loan rate has its own benefits. The question is how far can you tolerate a higher rate?
Of course, no one will be sad to accept a lower rate, but, considering your financial capacity, can you afford paying a higher rate for a certain period of time? If yes, you can consider a variable rate loan because with it you can have reduced interest payment when interest rates are low, but you will have to incur greater payment if rates climb.
Given the many factors you have to take into account when deciding between the two types of loans, you may prefer some professional help. Turn to the friendly and experienced mortgage brokers at www.iCompareLoan.comtoday.
www.PropertyBuyer.com.sg/articles
www.SingaporeHomeLoan.net
www.iCompareLoan.com
http://www.PropertyBuyer.com.sg/mortgage
We are a research-focused Singapore mortgage consultancy which helps you compare Singapore home loans either for new loans or refinancing. We use loan reports from Singapore's best loan analysis system (exclusive to us) at http://www.icompareloan.com/consultant/to serve our customers.
Our services are completely FREE to you as the banks pay us a referral fee upon loan disbursement.
SMS: (65) 9782 8606
Email: loans@PropertyBuyer.com.sg
Monday 18 February 2013
Joe Stiglitz and Inequality
Joe Stiglitz has penned an interesting article on the growing inequality of measured income in the United States. The facts that he uses, of course, are subject to the usual limitations. If you ignore everything the government does and all employee benefits, then you get one answer. If you include government spending and employee benefits you get an entirely different answer. But, lay that aside for the moment, because, I think, Stiglitz is on to something. There is growing inequality of opportunity in America, but not for the reasons Stiglitz is implying.
It is no wonder that wealthy liberals are at the forefront of the call for reduced inequality. They know that their policies will solidify their exalted status in society. They are not at risk.
The simplest example can be read in today's editorial in the NY Times in support of raising the national minimum wage from $ 7.25 per hour to $ 9.00 per hour. That kind of policy won't hurt the liberal elite, protected with incomes far, far above these numbers. This kind of policy -- outlawing jobs for folks with limited skills -- only hurts those who might have trouble affording a copy of the NY Times, not those writing their editorials.
Minimum wage laws are one of the many reasons that inequality is growing in the United States. Entitlement programs, welfare programs and the takeover of public schools by teacher unions are other reasons for the growing inequality. I doubt that many of the editorial writers for the NY Times send their own children to public schools or need access to welfare programs of entitlement programs, so, by all means, make them available to others.
Providing government largesse for those less fortunate inevitably increases the number of those less fortunate. Outlawing jobs for those with limited skills is cruel and makes things far worse. Stiglitz is right. Inequality is growing. But the reason is that government is growing. Growing government puts lower income citizens in the penalty box and makes it difficult for them to ever escape. That is what causes growing inequality.
It is interesting that Stiglitz thinks America was much more a land of opportunity one hundred years ago. That was a time that predated minimum wage laws, teachers unions, social security, medicare, medicaid and welfare programs. That was a time when a real land of opportunity existed because government played a much more limited role.
It is no wonder that wealthy liberals are at the forefront of the call for reduced inequality. They know that their policies will solidify their exalted status in society. They are not at risk.
The simplest example can be read in today's editorial in the NY Times in support of raising the national minimum wage from $ 7.25 per hour to $ 9.00 per hour. That kind of policy won't hurt the liberal elite, protected with incomes far, far above these numbers. This kind of policy -- outlawing jobs for folks with limited skills -- only hurts those who might have trouble affording a copy of the NY Times, not those writing their editorials.
Minimum wage laws are one of the many reasons that inequality is growing in the United States. Entitlement programs, welfare programs and the takeover of public schools by teacher unions are other reasons for the growing inequality. I doubt that many of the editorial writers for the NY Times send their own children to public schools or need access to welfare programs of entitlement programs, so, by all means, make them available to others.
Providing government largesse for those less fortunate inevitably increases the number of those less fortunate. Outlawing jobs for those with limited skills is cruel and makes things far worse. Stiglitz is right. Inequality is growing. But the reason is that government is growing. Growing government puts lower income citizens in the penalty box and makes it difficult for them to ever escape. That is what causes growing inequality.
It is interesting that Stiglitz thinks America was much more a land of opportunity one hundred years ago. That was a time that predated minimum wage laws, teachers unions, social security, medicare, medicaid and welfare programs. That was a time when a real land of opportunity existed because government played a much more limited role.
Wednesday 13 February 2013
Round Two
The President enjoys a good fight. The only question is will there be an opponent. Reality, of course, is one major opponent. But, the Presidents seems adept at ignoring reality.
The State of the Union speech last night was the Hugo Chavez plan for the US -- more body slams to the private sector, more money to be wasted on government and government's pals. As for the poor, raise the minimum wage. One wonders why Obama did not advocate a $ 100 per hour minimum wage. Using his logic, that should solve the problem of poverty in one grand stroke.
As for the hopes of the unemployed and underemployed, forget it. This President is not bothered by slack economic growth and growing numbers of folks disappearing from the work force. Just expand medicaid and food stamps. That should do it.
As for the national debt. Hey! That's one area where we lead the world. Let's maintain that lead!
Meanwhile, the war on capitalism continues unabated. Tax rich people!! That seems to be the main mantra of this White House.
So, what's the future. It isn't good.
The State of the Union speech last night was the Hugo Chavez plan for the US -- more body slams to the private sector, more money to be wasted on government and government's pals. As for the poor, raise the minimum wage. One wonders why Obama did not advocate a $ 100 per hour minimum wage. Using his logic, that should solve the problem of poverty in one grand stroke.
As for the hopes of the unemployed and underemployed, forget it. This President is not bothered by slack economic growth and growing numbers of folks disappearing from the work force. Just expand medicaid and food stamps. That should do it.
As for the national debt. Hey! That's one area where we lead the world. Let's maintain that lead!
Meanwhile, the war on capitalism continues unabated. Tax rich people!! That seems to be the main mantra of this White House.
So, what's the future. It isn't good.
Sunday 10 February 2013
The Snow Storm Disaster
As three feet of snow blanket Boston, the Administration tries to push their "climate change" agenda, as if anything of substance could result from that. There is no scientific evidence that weather patterns are changing materially, but that doesn't keep the Obama folks from pointing to every weather-related problem as more evidence of climate change.
One wonders why the infrastructure in America is not built up to withstand these storms and help the public resist them. The answer? There is no money left. The liberal agenda, mainly the entitlements, have not only taken top priority, but will eventually absorb more than any possible tax revenues could ever provide.
One of the many downsides of the entitlement world is much, much slower economic growth. Entitlements destroy private savings, reduce and eliminate work incentives, and make personal responsibility a remnant of antiquity. A record number of Americans now live off of social security disability payments and that trend is only in its infancy.
Once the government promises to care for our every need, it loses the ability to provide basic services -- such as protection from natural disasters. Why was there no protective flood wall in New Orleans to protect its citizens from Katrina? Why? Because the money that should have been available was drained off for entitlements and social services. Why aren't there widespread use of generators in the Northeast so that citizens don't have to huddle without power for days in subzero weather? Why? Because who can afford generators with public service costs, including health care, spiraling out of control. Government services aren't cheap. Check out the post office.
Today, the government increasingly determines the priorities of what goods and services will be provided to the American public. Infrastructure, generally, is a loser. Gradually, but certainly, the historic role of government to provides roads, courts and national defense will wither away. It is no accident that sequestration strikes hardest at the defense department. In time, America will lose the ability to defend itself militarily. That seems to be Obama's plan.
So, don't be surprised if, increasingly, Americans are buffeted by natural disasters that they are unprepared for, foreign wars that they are unprepared for, and infrastructure that is simply corroding away as more and more Americans become wards of the state.
One wonders why the infrastructure in America is not built up to withstand these storms and help the public resist them. The answer? There is no money left. The liberal agenda, mainly the entitlements, have not only taken top priority, but will eventually absorb more than any possible tax revenues could ever provide.
One of the many downsides of the entitlement world is much, much slower economic growth. Entitlements destroy private savings, reduce and eliminate work incentives, and make personal responsibility a remnant of antiquity. A record number of Americans now live off of social security disability payments and that trend is only in its infancy.
Once the government promises to care for our every need, it loses the ability to provide basic services -- such as protection from natural disasters. Why was there no protective flood wall in New Orleans to protect its citizens from Katrina? Why? Because the money that should have been available was drained off for entitlements and social services. Why aren't there widespread use of generators in the Northeast so that citizens don't have to huddle without power for days in subzero weather? Why? Because who can afford generators with public service costs, including health care, spiraling out of control. Government services aren't cheap. Check out the post office.
Today, the government increasingly determines the priorities of what goods and services will be provided to the American public. Infrastructure, generally, is a loser. Gradually, but certainly, the historic role of government to provides roads, courts and national defense will wither away. It is no accident that sequestration strikes hardest at the defense department. In time, America will lose the ability to defend itself militarily. That seems to be Obama's plan.
So, don't be surprised if, increasingly, Americans are buffeted by natural disasters that they are unprepared for, foreign wars that they are unprepared for, and infrastructure that is simply corroding away as more and more Americans become wards of the state.
Sunday 3 February 2013
Avoid Cash Top-Up For HDB Monthly Mortgage Instalment
According to HDB's website,
"Buyers must use all the available savings in their CPF Ordinary Accounts for the purchase of or taking over the flat before any housing loan is granted by HDB."
This means that you have to deplete your CPF Ordinary Account (CPF OA) before a HDB loan can be granted. Your subsequent monthly CPF contribution will then be used to service the HDB monthly mortgage instalment. If your monthly contribution to the CPF ordinary account (23% of gross income) is insufficient to cover the monthly mortgage instalment, you have to top up the shortfall in cash.
Assuming you bought a HDB BTO flat for $400,000, the 10% down payment, stamp fees and other fees will to approximately $50,000. You and your partner have accumulated $70,000 in your CPF OAs. According to HDB regulation, you have to deplete this $70,000 before any housing loan is granted by HDB. However, the required amount you have to pay is only $50,000. This excess $20,000 is used to offset the purchase price, thereby reducing the loan you need. This sounds like a good idea but in the event that either you or partner gets retrenched, a substantial amount of cash-top up will be needed every month and this can put a huge strain on your finances. What you need is a buffer in your CPF OA for any unexpected circumstances.
So how do you build a buffer when HDB requires you to deplete your CPF OA before a loan can be granted? With reference to the example above, all you need to do is to transfer the excess $20,000 into a CPF Investment Account by buying some investment products before you pay the down payment. After the HDB loan is granted, you can liquidate the investments and transfer the money back to your CPF OA. This excess $20,000 should be enough to cover at least a few months of mortgage instalments. Also, if your monthly contribution to the CPF OA is insufficient to cover the mortgage instalment, the $20,000 buffer can cover the shortfall and no cash top-ups will be needed. However, do note that the first $20,000 in your CPF OA cannot be used for investments in the CPF Investment Scheme.
While paying a higher down payment can reduce the amount of the mortgage loan and monthly instalment, a buffer in the CPF OA provides more security and acts as an insurance to safeguard your finances against any unforeseen circumstances. At the end of the day, it all boils down to personal preference and balancing the trade-offs.
"Buyers must use all the available savings in their CPF Ordinary Accounts for the purchase of or taking over the flat before any housing loan is granted by HDB."
This means that you have to deplete your CPF Ordinary Account (CPF OA) before a HDB loan can be granted. Your subsequent monthly CPF contribution will then be used to service the HDB monthly mortgage instalment. If your monthly contribution to the CPF ordinary account (23% of gross income) is insufficient to cover the monthly mortgage instalment, you have to top up the shortfall in cash.
Assuming you bought a HDB BTO flat for $400,000, the 10% down payment, stamp fees and other fees will to approximately $50,000. You and your partner have accumulated $70,000 in your CPF OAs. According to HDB regulation, you have to deplete this $70,000 before any housing loan is granted by HDB. However, the required amount you have to pay is only $50,000. This excess $20,000 is used to offset the purchase price, thereby reducing the loan you need. This sounds like a good idea but in the event that either you or partner gets retrenched, a substantial amount of cash-top up will be needed every month and this can put a huge strain on your finances. What you need is a buffer in your CPF OA for any unexpected circumstances.
So how do you build a buffer when HDB requires you to deplete your CPF OA before a loan can be granted? With reference to the example above, all you need to do is to transfer the excess $20,000 into a CPF Investment Account by buying some investment products before you pay the down payment. After the HDB loan is granted, you can liquidate the investments and transfer the money back to your CPF OA. This excess $20,000 should be enough to cover at least a few months of mortgage instalments. Also, if your monthly contribution to the CPF OA is insufficient to cover the mortgage instalment, the $20,000 buffer can cover the shortfall and no cash top-ups will be needed. However, do note that the first $20,000 in your CPF OA cannot be used for investments in the CPF Investment Scheme.
While paying a higher down payment can reduce the amount of the mortgage loan and monthly instalment, a buffer in the CPF OA provides more security and acts as an insurance to safeguard your finances against any unforeseen circumstances. At the end of the day, it all boils down to personal preference and balancing the trade-offs.
The Old & New Palm Oil Growers Scheme
Both schemes have been categorized as "share-farming" interest scheme by Securities Commission of Malaysia, yet, both were in the limelight lately due to their contradict directions. The old one (Country Heights Growers Scheme) is wooing investors to terminate it, while the new one (Golden Agro Growers Scheme) is wooing investors to invest.
Why CHGS was in HOT water?
CHGS was the 1st oil palm plantation investment scheme in Malaysia. Launched in 2007, it guaranteed a 8% return annually for first 3 years, and subsequently it is projected to distribute the returns of over 11% per year throughout a period of 20 years. However, voluntary early termination of the scheme was proposed recently, citing that CHGS was unable to reach its full potential because of poor fresh fruit bunches (FFB) yield. Various factors were given such as unpredictable weather conditions, incursions of wild elephants into the estate, poor soil fertility, shortage of key personnel and manual workers, and uncompromising terrain.
How Good is GAGS?
On the other hand, the new GAGS guaranteed 7% return yearly for first 5 years. Subsequently, investors will enjoy 100% of the net profit of the plantation until 20 years maturity. Investors were told that margins associated with the palm oil industry have always been good traditionally. So, in the event of falling CPO prices, it still can make money if the estate was managed well and efficiently. A mill was also planned to be set up in 4 to 5 years to avoid uncertainties of refusal by external millers.
Are they related?
Although Finance Malaysia opines that both schemes were not related, but the timing of it is somewhat makes us curious. Is it really so coincidence? It was like giving the existing investors of CHGS the chance to switch over their investments to GAGS. Both schemes are very much similar, but with different people managing them which is the key determining factors for its success or failure. Anyway, Finance Malaysia doubt the success of the new GAGS which don't have proven track record and was planted in Sarawak where peat soil may increase the cost of planting. The problems faced by CHGS may reoccurred on GAGS in the future. Estate management plays an important part in such scheme.
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