What's Wrong for an Economist to Predict the Upcoming Election?

I am writing this post during midnight after I came across a report saying that Bank Islam chief economist suspended after predicting that opposition will win the upcoming election. As usual, Finance Malaysia would NOT include political elements in its blog post. And, we would like to stress here again, that we are discussing this topic WITHOUT any political elements. Then, what are we talking here?

FREEDOM of VOICE & OPINION

I knew that I could not sleep if I didn't speak up for En. Azrul Anwar. We are not here to defend anyone, neither to offend any parties. But, we should open up our mind, and accept other opinions with open heart. In this matter, the said bank is losing its credibility and reputation by suspending one of its key staff --- just because of his prediction. Why can't he speak freely? Will the bank lose its banking license because of this?

Does he answer the question wrongly? NO... It's a prediction only, there is no right or wrong here.

Everyone knew that political changes is the key risk for Malaysian economy this year. Can an economist avoid this topic? Or, should they answer the same question with the same biased answer? Otherwise, who will listen to their opinions? Then, why a company hires an economist to represent them in the first place?

Funny... That's why Finance Malaysia blog is another channel for investors and readers to get 3rd party opinions and views. Blogging industry will prosper even faster, because the demand is there. Readers DO NOT want to read biased newspaper or news portal anymore. Thanks for your support. Finance Malaysia supports Azrul Anwar.

Fitch Warns on Us and Spain

Today, the Fitch rating agency warned of possible downgrades to two countries who look increasingly similar to one another -- the US and Spain.  Neither country seems to have much hope of averting a fiscal collapse within a generation.  The leadership of both countries have thus far refused to acknowledge their cataclysmic debt problems and seem to be intent on pursuing the path to modern Greece.

We Are A Deadbeat Nation!

The President said today "we are not a deadbeat nation."  He's wrong.  The US government has made promises to our future citizens that are impossible to keep.  Obama knows it and we know it.  Making breast-beating utterances like the one Obama made today is, at best, disengenous.

The Obama "Ostrich" policy continues.

Make It Illegal to Offer a Job -- Raise the Minimum Wage

State after state is in the process of increasing the minimum wage and there is now a renewed call to raise the federal minimum wage.

What is a minimum wage law?  It is a law that makes it illegal to offer a prospective employee a job.  The idea is that outlawing job creation creates jobs.  That seems to be how Governor Cuomo sees it in his push for a minimum wage hike.

If this is such a great job creation idea, why not go whole hog.  Raise the minimum wage to $ 500 per hour.  Then, no job will pay less than the amount necessary to live in luxury.  Gone will be poverty at this wage rate.

Even some economists have argued that increasing the minimum wage creates jobs.  If that is so, why don't we subject them to a minimum wage?  Why not say that no one can be an economist unless he is paid $ 10,000 per hour?  That should solve their problem.

Maybe there are other ways we can dream up to lock up employers who offer people jobs.  That should get the economy going.

Understanding Exchange Traded Bond and Sukuk (ETBS)

Today, Malaysia achieve its first milestone in Exchange Traded Sukuk, following the launching of RM300million sukuk by DanaInfra Nasional Bhd. This is the first sukuk for retail investors. When we mention about retail investors, which refer to public, are we ready for this kind of new investment? We should better understand first before jumping onto the ship...

In short, ETBS refers to Exchanged Traded Bond and Sukuk. Generally, bonds/sukuk have always been seen as an asset class to hedge when markets are bearish and a means to develop a steady income over many years. But in the past, these was only accessible to high net worth and institutional investors. Now, with ETBS, all investors can have access to the bond/sukuk market with ease, via the stock market.

What are ETBS ?

ETBS are fixed income securities, also known as bonds or sukuk (syariah compliant bond), that are listed and traded on the stock market. ETBS are issued either by companies or governments (the issuer) to raise funds for their needs. ETBS have varying structures such as fixed rate, floating rate and hybrids.

Why Invest in ETBS ?

Here are some of the reasons to invest in ETBS:

1. Flexibility and ease of trading on Bursa Malaysia
2. Transparency, as ETBS are listed on the bourse, investors will have access to real-time prices and volumes, just like shares, with up-to-date information.
3. Diversification by including ETBS in your portfolio, to complement your investments in other asset classes.
4. Additional income stream, from the steady income stream through regular coupon payments.

What are the Factors that determine the price of an ETBS ?

1. Price and Yield
• It's all about demand and supply in the marketplace. High price, low yield. Low price, high yield. Since the coupon payments for an ETBS are generally fixed to the principal value of the bond, what you pay (price) is crucial to determine the yield.
  
  
2. Interest Rates
• ETBS is sensitive to interest rates changes. Supposing the average interest rate available to investors goes up, the ETBS' current yield will become a less attractive investment. This would caused a decline in the price of ETBS; until when the yield becomes competitive with prevailing rates. The reverse occurs, if interest rates go down.
  
  
3. Credit Risk
• Essentially, credit risk is the likelihood that the issuing entity will or will not be able to repay principal amount and its interest element at maturity. As such, corporate ETBS has higher risk than most government ETBS. It was evaluated and rated by rating agencies, such as MARC, RAM, Moody's and S&P. A top rating (AAA) means the ETBS carries the least credit risk (not without risk). Ratings can be upgraded or downgraded, thus, affecting the price.
  
  
4. Maturity
• Longer maturities have more risk and tend to priced lower (or have higher yields), because of uncertainties in future. Eventually when ETBS start to approach their maturity date, their prices start to get close to the par value.

Please take note that the minimum board lot size for ETBS is 10 units, versus 100 units for shares. You can start trading ETBS simply by opening a CDS account, just like share trading. Happy trading!!!

Source: Bursa Malaysia

"Can't Afford More Protracted Slowdowns..."

So says the President.  According to the President: "We still need to do more...."   Praising what is the most abysmal job creation record in a recovery in American history, Obama cited 2 million new jobs last year.  Reagan had more than 1 million new jobs in a single month during the much deeper recession in 1981-1982.  But, Reagan was touting tax cuts while Obama is touting tax increases.

As the US debt spirals out of control -- it may already be unfixable -- the President pushes for more spending and more debt.  He seems to have a plan.  Bankrupting the US seems to be where the President would like to take us.  It is far too late to believe that he is unaware of the level of the debt and the level of the deficits.  He knows that we are on track to reach $ 22 trillion in debt before he leaves office with an economy stuck in the mud.  He is aware of all of that.  Our debt to GDP ratio will equal that of Greece when Obama leaves office.

Obama is also aware that within less than a dozen years, medicare and social security will run out of money.  What is the plan?  To ignore it. The "Ostrich" plan  Extend and pretend.  The only thing Obama seems to have learned from the housing collapse is how to repeat the experience with a sovereign debt collapse.

You will know when the game is over when rates begin to rise.  That process has begun.  Watch the ten year treasury, already up 50 basis points in just the last few weeks.  Unanticipated inflation is on the way and higher rates are ahead.  This will make the debt situation hopeless without some method of repudiating the debt, social security promises, medicare promises or all of the above.

The hypocrisy of the Obama Administration is without historical precedent in the US.  The country is going bankrupt and quickly.  We are not that far away from Greece.  States like California and Illinois are already on the "Greek Cliff."  The country as a whole is not far behind.

The recently agreed "compromise" on the fiscal cliff only moves the country closer to the day of reckoning.  There is no stomach in either political party for facing the looming disaster that faces the US.

Forecasts for 2013

Welcome to 2013.  Where are we headed?

1) Stagnation in the US economy and in the Eurozone.  Western Europe will remain in recession territory in 2013.  There is no reason for much improvement.  The picture in the US will deteriorate.  Improving housing and growth in the energy sector will not be enough to keep the American economic engine going.  Unfriendly government policy in the US -- higher taxes, increased regulation, implementation of Obamacare, demonizing rhetoric from the Obama White House -- mean the economy is most likely to slip back into recession territory.

2) Markets --  stock markets, ending in the negative (but not disastrous), and terrible bond markets (disastrous) should be the pattern for 2013.  Improving housing markets and home prices during most of 2013.  Pattern should be similar to the economic trajectory of the US in the 1970s and for pretty much the same reasons.

3) Continued economic growth in the Asian periphery that surrounds China.  The only blight on an overall good record will be Japan, which is afflicted by the same set of diseases that plague the US and Western Europe.  Asian economic growth will be hurt by stagnation in the West, but should still be the strongest economic area in the world.

On the political front, the Democrats will strengthen their hold on government and on economic policy.  The Republicans no longer have a platform to run on and will increasingly retreat to narrow social issues, having totally abandoned the low tax, free market agenda.  More debt, more government, more regulation, weaker economy -- that is the pattern for 2013 and for the next five or six years.