"We are now Europe!" So said Rick Santelli on CNBC yesterday, as he responded to the negative GDP growth announcement for 4th quarter 2012. Santelli is right. We are now having the same silly discussions that go on routinely in Europe. We now think that somehow, someway the central bank can do something that makes it all better. And that somehow, someway, with sovereign debt exploding off into infinity, we can continue to spend and borrow our way to prosperity. It can't be done.
Economists have routinely become apologists for absurd economic policy, both in Europe and in the US. They often advocate raising minimum wages to increase employment. They have been in the forefront of advocacy for Obama policies that have brought the US economic recovery to its knees. Thank goodness for Santelli. He correctly notes that US sovereign debt problems are approaching Greek levels.
There was a time when US capitalism was the envy of the world. That time has passed. We are now simply a European basket case with all of the same problems that Greece, Spain and Italy have and for the same reasons. We are wealthier because of our free market history. But that is past history and we are now in a European present. Obama is succeeding in squeezing capitalism out of the US and the result is a stagnant, increasingly sick, economy on its way to modern day Greece and Spain.
Pretending that there is good news or economic strength in the worst economic recovery since the end of World War II is embarrassing. The facts on the ground are all to clear. The US is losing its pre-eminent position in the world economy and it is losing it at a fast clip. No amount of misleading news reporting by the American media can obscure the obvious fact of the decline of the American economic engine.
Three cheers for Santelli. He has it right.
Thursday, 31 January 2013
Net Worth Update (January 2013) - $60k mark
Current Net Worth | ||||
Assets | Dec-12 | Jan-13 | Change | % change |
Savings Account 1 | $5,225.48 | $5,596.71 | $371.23 | 7.10 |
Savings Account 2 | $5,045.70 | $5,008.16 | ($37.54) | -0.74 |
Savings Account 3 | $10,028.20 | $11,035.04 | $1,006.84 | 10.04 |
Investment Linked Fund | $7,475.68 | $8,150.06 | $674.38 | 9.02 |
Schroders Commodity Fund | $10,321.04 | $10,485.42 | $164.38 | 1.59 |
Stock Holdings | $9,365.00 | $10,115.00 | $750.00 | 8.01 |
Phillip Money Market Fund | $7,740.56 | $10,004.18 | $2,263.62 | 29.24 |
Physical cash | $1,000.00 | $1,000.00 | $0.00 | 0.00 |
Market Value Of BTO Flat (to be built in 2016/2017) | $750,000.00 | $750,000.00 | $0.00 | 0.00 |
Total Assets | $806,201.66 | $811,394.57 | $5,192.91 | 0.64 |
Liabilities | ||||
Home Loan | $617,500 | $617,500 | $0.00 | 0.00 |
Net Worth (including flat to be built in 2016/2017) | $188,701.66 | $193,894.57 | $5,192.91 | 2.75 |
Investible Net Worth | $56,201.66 | $61,394.57 | $5,192.91 | 9.24 |
Highlights
- Received a bursary valued at $2,900 and deposited a large portion of it into the Phillip Money Market Fund (currently yielding 0.5% per annum)
- 8% increase in value of stock holdings due to the recent spike in Biosensor's share price
- Expenses for the month totaled to $210 (average $6.80/day)
- Income from tuition, paid surveys and other part time jobs contributed to the increase in cash
Net worth target of $70,000 by December 2013 is definitely achievable now. In fact, I think my investible net worth will cross the $70k mark by mid 2013. February will be another good month due to Chinese New Year Ang Pows, second disbursement of bursary valued at $400 and a potential contribution from my girlfriend's performance bonus to our joint account.
Lastly, I have updated the "Net Worth", "My Asset Allocation" and "My Stock Portfolio" pages. For your information, I will be updating these pages on a monthly basis.
Lastly, I have updated the "Net Worth", "My Asset Allocation" and "My Stock Portfolio" pages. For your information, I will be updating these pages on a monthly basis.
Wednesday, 30 January 2013
State of Denial
The Obama Administration continues to trumpet the illusion that the economy is doing well. It isn't, Today's 4th quarter GDP numbers point to a declining GDP, not a growing GDP. The Obama enthusiasts in the media quickly found things within the report to like -- what else could they do? But, the undeniable fact is the economy is going nowhere.
If it were only the tax increases. But, there is so much more. Obamacare is kicking in and the EPA is clamping down hard on the economy. Meanwhile, Dodd-Frank implementation is destroying credit availability. The combination of all these things seems to get the Obama folks where they want to be -- the destruction of the American economic engine. They are succeeding. This morning's numbers bear testament. Stay tuned.
If it were only the tax increases. But, there is so much more. Obamacare is kicking in and the EPA is clamping down hard on the economy. Meanwhile, Dodd-Frank implementation is destroying credit availability. The combination of all these things seems to get the Obama folks where they want to be -- the destruction of the American economic engine. They are succeeding. This morning's numbers bear testament. Stay tuned.
NEW Aberdeen Islamic Funds
Aberdeen Islamic Asset Management Sdn Bhd has recently launched two shariah unit trust funds for the Malaysian market, the Aberdeen Islamic Malaysia Equity fund and the Aberdeen Islamic World Equity fund. The new funds are the company's 1st shariah retail products in Malaysia - and the 1st from a foreign fund manager under the special scheme - and come almost 8 years its parent company Aberdeen Asset Management Sdn Bhd was established to manage assets in Malaysia for institutions and corporate investors.
Malaysia: Turning promise into profit
Malaysia has long been rich in promise - rich because of its abundant natural resources, physical infrastructure and educated workforce. However it has not always maximize its advantages. In recent years that has changed as the country streamlines priorities. There is more emphasis now on efficiency, the private sector has a greater say across industries and more value is being created for shareholders. This enterprise is taking Malaysian companies overseas, too, helping businesses to sharpen their competitive edge.
Why Global then?
International markets are continually evolving, underpinned by increased movement of people, goods and capital around the world. But far from embracing 'globalization', research shows that investors tend to follow a home-country bias when it comes to their investments. As a result, they miss out on investments overseas that may offer steadier long-term returns as well as superior risk diversification.
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| Fund Detail |
Source: Aberdeen Islamic Asset Management
Tuesday, 29 January 2013
The Managed Economy
There seems to be some euphoria surrounding the Obama White House that the economy may finally be on track. The stock market's behavior this month is a glowing chorus of approval, according to many observers. Perhaps, the economy can be managed after all. Perhaps, taxes and health care costs don't really matter after all. Perhaps, the collapse of Europe is irrelevant. Perhaps....
The cold reality, though, is that the numbers on the ground are still pitiful and have the potential to get worse. What little pulse the economy has is now an occasion for celebration in the White House. Strange. The American economy has historically provided 3 to 4 percent economic growth as the American middle class became the envy of the world.
Yes, the middle class has greatly improved its economic position over the last three decades. Only if employee benefits are left out of the calculation, which now amount to over 30 percent of employee compensation, can we reach the conclusion that the middle class is losing ground. The middle class was doing better than ever until 2009. Now, we have Obama. Good luck middle class!
In the new Obama economy, only those at the top of the stagecoach will do well -- the rich, the famous, the politically entrenched. Those who fight for jobs and profits in the private sector will remain under seige until the political climate changes....which won't be anytime soon with the retreat of the loyal opposition.
We have now entered the age of the "managed economy." The Fed combined with government subsidies to preferred friends have largely sucked out the marginal dollar from legitimate free market uses to political purposes. That spells no growth.
Businesses are still the enemy and they will remain the target of this administration. Don't expect any help from a Republican-controlled House of Representatives. The Republicans have fallen on their sword and should, deservedly, lose control of the House in 2014. They have lost the will to fight for anything other than social issues and are willing partners in the rush to expand government.
Don't expect much from the new "managed economy" other than the absence of economic growth and a large permanent underemployed and unemployed class of Americans.
The cold reality, though, is that the numbers on the ground are still pitiful and have the potential to get worse. What little pulse the economy has is now an occasion for celebration in the White House. Strange. The American economy has historically provided 3 to 4 percent economic growth as the American middle class became the envy of the world.
Yes, the middle class has greatly improved its economic position over the last three decades. Only if employee benefits are left out of the calculation, which now amount to over 30 percent of employee compensation, can we reach the conclusion that the middle class is losing ground. The middle class was doing better than ever until 2009. Now, we have Obama. Good luck middle class!
In the new Obama economy, only those at the top of the stagecoach will do well -- the rich, the famous, the politically entrenched. Those who fight for jobs and profits in the private sector will remain under seige until the political climate changes....which won't be anytime soon with the retreat of the loyal opposition.
We have now entered the age of the "managed economy." The Fed combined with government subsidies to preferred friends have largely sucked out the marginal dollar from legitimate free market uses to political purposes. That spells no growth.
Businesses are still the enemy and they will remain the target of this administration. Don't expect any help from a Republican-controlled House of Representatives. The Republicans have fallen on their sword and should, deservedly, lose control of the House in 2014. They have lost the will to fight for anything other than social issues and are willing partners in the rush to expand government.
Don't expect much from the new "managed economy" other than the absence of economic growth and a large permanent underemployed and unemployed class of Americans.
Saturday, 26 January 2013
Maximize Stock Returns Through Share Financing
Share Financing
Share financing is a loan facility offered by banks and brokerages to boost your purchasing power of stocks. You can pledge your stocks as collateral and engage in leveraged trading up to approximately 2 times the value of your pledged shares. As a member of the mass market, I do not get to enjoy the lower rates that Banks offer to priority/private clients. However, what I can do is to search for the best deal in the market and plan my moves accordingly so that I can leverage more effectively when the time comes.
Best Deal in the Market (Pls post a comment if any reader has a better deal)
After some research and comparison, I feel that OCBC's share financing account offers the best deal. By pledging shares, OCBC allows you to leverage up to 2.5 times. Also, it offers one of the lowest rates at 3.5% to 7.5% for different quality of stocks. For other banks such as DBS & CitiBank, they offer a rate of around 4.5 to 6% regardless of the quality of the stocks that you pledge. To enjoy the lowest rate (3.5%) from OCBC, you have to pledge stocks which are components of the Straits Times Index. If your portfolio comprises stocks of differing grades, the blended interest rate will be calculated based on the relevant interest rates which correspond to the various differing grades. However, the interest rates they offer are pegged to the prime rate and thus subject to periodic adjustments. To assess this risk, I extracted the prime lending rates for the past 20 years from the MAS website and tabulated them as shown below:
As we can see, prime lending rate has not been changing much since year 2001 and has been hovering in the 5.3% to 5.4% range. It should be safe to say that the prime lending rate will not change drastically in the next 5 years even in the event of a recession.
Also, the margin percentage (Total share value/Loan Amount) for OCBC is 140%. This means that a margin call will occur if the margin percentage falls below 140%.
Now, we have these information:
Strategy
During the next downturn/major correction, I will acquire stable dividend stocks which are components of the Straits Times Index and yield at least 5%. By purchasing STI component stocks which yield at least 5% and pledging them as collateral, I will be able to borrow money from OCBC share financing account at the lowest rate of 3.5% and also, the dividends will be sufficient to cover the interests. This means that any potential capital gain when the market recovers will be 'free'.
The maximum leverage power I have is 2 times the value of my pledged shares. To utilize this facility without over-leveraging and risking the dreaded margin call, I will borrow only 50% of the value of my pledged shares. For example, assume that I bought $100k worth of stocks during a market recession. I will then pledge these shares as collateral and borrow another $50k to buy more. Now, the total share value is $150k and the loan amount is $50k. My margin percentage(Total share value/Loan Amount) is now 300%. Recall that we have to maintain a margin percentage of 140% or more if not a margin call will occur. So assuming prices continue to drop another 50%, the value of my shares will then be $75k while loan amount is still $50k. Margin percentage is now 75/50 = 150% (still above threshold for margin call). In this example, I acquired stocks at depressed prices during downturn and the chances of the prices dropping another 50% should be unlikely. Risk of margin call is low in this case.
In a nutshell, this strategy is to accumulate STI component dividend stocks during market downturn and pledging them as collateral to enjoy a lower rate for buying more stocks on margin. Dividends should be sufficient to cover interests and investors get to earn the capital gains.
Share financing is a loan facility offered by banks and brokerages to boost your purchasing power of stocks. You can pledge your stocks as collateral and engage in leveraged trading up to approximately 2 times the value of your pledged shares. As a member of the mass market, I do not get to enjoy the lower rates that Banks offer to priority/private clients. However, what I can do is to search for the best deal in the market and plan my moves accordingly so that I can leverage more effectively when the time comes.
Best Deal in the Market (Pls post a comment if any reader has a better deal)
After some research and comparison, I feel that OCBC's share financing account offers the best deal. By pledging shares, OCBC allows you to leverage up to 2.5 times. Also, it offers one of the lowest rates at 3.5% to 7.5% for different quality of stocks. For other banks such as DBS & CitiBank, they offer a rate of around 4.5 to 6% regardless of the quality of the stocks that you pledge. To enjoy the lowest rate (3.5%) from OCBC, you have to pledge stocks which are components of the Straits Times Index. If your portfolio comprises stocks of differing grades, the blended interest rate will be calculated based on the relevant interest rates which correspond to the various differing grades. However, the interest rates they offer are pegged to the prime rate and thus subject to periodic adjustments. To assess this risk, I extracted the prime lending rates for the past 20 years from the MAS website and tabulated them as shown below:
Period | Prime Lending Rate | Period | Prime Lending Rate | |
1993 | 5.34 | 2003 | 5.3 | |
1994 | 6.49 | 2004 | 5.3 | |
1995 | 6.26 | 2005 | 5.3 | |
1996 | 6.26 | 2006 | 5.33 | |
1997 | 6.96 | 2007 | 5.33 | |
1998 | 5.9 | 2008 | 5.38 | |
1999 | 5.8 | 2009 | 5.38 | |
2000 | 5.8 | 2010 | 5.38 | |
2001 | 5.3 | 2011 | 5.38 | |
2002 | 5.35 | 2012 | 5.38 |
As we can see, prime lending rate has not been changing much since year 2001 and has been hovering in the 5.3% to 5.4% range. It should be safe to say that the prime lending rate will not change drastically in the next 5 years even in the event of a recession.
Also, the margin percentage (Total share value/Loan Amount) for OCBC is 140%. This means that a margin call will occur if the margin percentage falls below 140%.
Now, we have these information:
- Lending Rate = 3.5% to 7.5% depending on the quality of stocks pledged
- Lending Rate is 3.5% if pledged stocks are all components of the Straits Time Index
- Rates would most probably not adjust drastically in the next 5 years
- Margin percentage = 140%
- Leverage Power = 2 times of pledge stocks
Strategy
During the next downturn/major correction, I will acquire stable dividend stocks which are components of the Straits Times Index and yield at least 5%. By purchasing STI component stocks which yield at least 5% and pledging them as collateral, I will be able to borrow money from OCBC share financing account at the lowest rate of 3.5% and also, the dividends will be sufficient to cover the interests. This means that any potential capital gain when the market recovers will be 'free'.
The maximum leverage power I have is 2 times the value of my pledged shares. To utilize this facility without over-leveraging and risking the dreaded margin call, I will borrow only 50% of the value of my pledged shares. For example, assume that I bought $100k worth of stocks during a market recession. I will then pledge these shares as collateral and borrow another $50k to buy more. Now, the total share value is $150k and the loan amount is $50k. My margin percentage(Total share value/Loan Amount) is now 300%. Recall that we have to maintain a margin percentage of 140% or more if not a margin call will occur. So assuming prices continue to drop another 50%, the value of my shares will then be $75k while loan amount is still $50k. Margin percentage is now 75/50 = 150% (still above threshold for margin call). In this example, I acquired stocks at depressed prices during downturn and the chances of the prices dropping another 50% should be unlikely. Risk of margin call is low in this case.
In a nutshell, this strategy is to accumulate STI component dividend stocks during market downturn and pledging them as collateral to enjoy a lower rate for buying more stocks on margin. Dividends should be sufficient to cover interests and investors get to earn the capital gains.
Friday, 25 January 2013
Optimism Abounds
The stock market has thundered forward since the turn of the year. Unemployment claims are near their twelve month low and even California thinks it sees balanced budgets ahead in their future. So, are we there yet?
Unfortunately, nothing has really changed. Let's begin with California. California, New York and Illinois face an almost immediate crisis with their pension systems. These problems are far, far larger in magnitude than their total annual spending budget for everything else they do. And, the clock is ticking. These problems don't get better every day; they get worse.
California, like New York and Illinois, believe that higher tax rates have no effect on economic behavior. They are wrong. Thus, the revenue projections these states are expecting from higher tax rates are an illusion. Even without pension funding issues, these states are on a straight line to some form of bankruptcy, even if the day of reckoning is not (yet) known with certainty. These states have done nothing to reign in excessive spending or face up to unfunded liabilities....nothing at all, much like their big sister -- the US government.
At the national level, the US remains mired in the slowest economy recovery in modern times. New and higher taxes that impact almost all Americans and almost all businesses (think income taxes, payroll taxes, Obamacare-imposed taxes and higher health insurance rates for almost everyone). These new taxes will slow any green shoots in the economy from gaining enough strength to power a real recovery. Expect continued stagnation, continued high unemployment.
What about Europe? Aren't things better there? There is certainly a pervading sense of euphoria that the worst is over. Is it? What has changed? Today, Europe has significantly more sovereign debt than it had two years ago. Today, the Eurozone is in a recession which it wasn't in two years ago. Today, the same stultifying labor laws and regulations maintain their stranglehold on European economies. No real change there.
Recall the fall of 2007. This was a time period a full year after the housing market had begun its collapse and after several large mortgage companies had gone bankrupt. This was a time three months after the asset-backed securities market (a market responsible for 20 percent of all debt financing in the US) had ceased to function.
What happened with all of these problems staring us in the face? The stock market surged to an all time high topping 14,000 in October, 2007. Lehman Brothers and Bear Stearns traded at their all time highs in a burst of euphoria that the worst was over. Five months later Bear Stearns collapsed and within twelve months Lehman Brothers failed in the climax of the financial collapse of 2008.
It is an interesting question why the stock market surged in late 2007 after it was widely known that the housing market was in full freefall and that housing finance was shaking the foundations of most of the larger banks. One wonders why European stocks are surging today in face of the facts on the ground. As for the US markets, is current market enthusiasm well founded or are we repeating the late 2007 scenario?
Unfortunately, nothing has really changed. Let's begin with California. California, New York and Illinois face an almost immediate crisis with their pension systems. These problems are far, far larger in magnitude than their total annual spending budget for everything else they do. And, the clock is ticking. These problems don't get better every day; they get worse.
California, like New York and Illinois, believe that higher tax rates have no effect on economic behavior. They are wrong. Thus, the revenue projections these states are expecting from higher tax rates are an illusion. Even without pension funding issues, these states are on a straight line to some form of bankruptcy, even if the day of reckoning is not (yet) known with certainty. These states have done nothing to reign in excessive spending or face up to unfunded liabilities....nothing at all, much like their big sister -- the US government.
At the national level, the US remains mired in the slowest economy recovery in modern times. New and higher taxes that impact almost all Americans and almost all businesses (think income taxes, payroll taxes, Obamacare-imposed taxes and higher health insurance rates for almost everyone). These new taxes will slow any green shoots in the economy from gaining enough strength to power a real recovery. Expect continued stagnation, continued high unemployment.
What about Europe? Aren't things better there? There is certainly a pervading sense of euphoria that the worst is over. Is it? What has changed? Today, Europe has significantly more sovereign debt than it had two years ago. Today, the Eurozone is in a recession which it wasn't in two years ago. Today, the same stultifying labor laws and regulations maintain their stranglehold on European economies. No real change there.
Recall the fall of 2007. This was a time period a full year after the housing market had begun its collapse and after several large mortgage companies had gone bankrupt. This was a time three months after the asset-backed securities market (a market responsible for 20 percent of all debt financing in the US) had ceased to function.
What happened with all of these problems staring us in the face? The stock market surged to an all time high topping 14,000 in October, 2007. Lehman Brothers and Bear Stearns traded at their all time highs in a burst of euphoria that the worst was over. Five months later Bear Stearns collapsed and within twelve months Lehman Brothers failed in the climax of the financial collapse of 2008.
It is an interesting question why the stock market surged in late 2007 after it was widely known that the housing market was in full freefall and that housing finance was shaking the foundations of most of the larger banks. One wonders why European stocks are surging today in face of the facts on the ground. As for the US markets, is current market enthusiasm well founded or are we repeating the late 2007 scenario?
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