Investment & Finance

HANG SENG OFFERS FIRST YUAN ETF TRACKING GOLD.

2012-02-01T04:55:00.000-08:00

Uploaded by cctvnewschannel on 31 Jan 2012 - Hang Seng Bank announced that it's going to launch the world's first yuan-denominated Exchange Traded Fund, or ETF, that will track the international gold price.

The new ETF represents another step in the offshore development of yuan-denominated gold, after the Hong Kong Gold and Silver Exchange launched physical transactions in October.

The fund tracks the London gold fixing price in US dollars, and will hedge against foreign exchange rate movements between the yuan and the greenback. One board lot of 100 units of the ETF is priced at 3,500 yuan, excluding fees.

On the Money: Taking Stock (Russia)

2012-01-30T00:58:00.001-08:00

Uploaded by RussiaToday on 28 Jan 2012 - How fast will Russia's equity markets get back to normal life after the fall in December? What can pump them back up? What about investment risk during Russia's presidential campaign? And which sectors could improve the health of the Russian economy? OtM is joined by Ben Aris, Simon Fentham-Fletcher, Artem Arkhipov and David Cranield.

FITCH DOWNGRADES 5 EUROZONE COUNTRIES.

2012-01-29T10:22:00.000-08:00

Uploaded by cctvnewschannel on 27 Jan 2012 - U.S ratings agency Fitch has cut the credit ratings of Italy, Spain and three other euro zone nations as the region's debt crisis deepened. Fitch cut Italy by two notches to A- from A+, while Spain was lowered to A from AA-. Belgium, Slovenia and Cyprus were also downgraded.

Meanwhile, Fitch put all five nations' credit outlooks as "negative". However, investors were still optimistic over the Greek debt swap deal with its private creditors and the Euro rose against the US dollar for a fifth straight day.

Part 4: Irresponsible packaging & selling of Investments.

2011-12-08T09:01:00.001-08:00

A history of the Meltdown - The Secret History of the Global Financial Collapse 2010:
The Men Who Crashed The World : 30 Dec 2010

Part 3: Irresponsible packaging & selling of Investments.

2011-12-08T08:45:00.001-08:00

A history of the Meltdown - The Secret History of the Global Financial Collapse 2010:
The Men Who Crashed The World : 28 Dec 2010

Part 2: Irresponsible packaging & selling of Investments

2011-12-08T05:38:00.001-08:00

A history of the Meltdown - The Secret History of the Global Financial Collapse 2010:The Men Who Crashed The World : 29 Dec 2010

Part 1: Irresponsible packaging & selling of Investments.

2011-12-08T05:35:00.001-08:00

A history of the Meltdown - The Secret History of the Global Financial Collapse 2010:
The Men Who Crashed The World : 28 Dec 2010

Global Financial Crisis Explained

2011-11-26T03:46:00.001-08:00

Uploaded by worldinformant on 23 Aug 2010 - The Short and Simple Story of the Credit Crisis.By Jonathan Jarvis | Crisisofcredit.com

The goal of giving form to a complex situation like the credit crisis is to quickly supply the essence of the situation to those unfamiliar and uninitiated. This project was completed as part of my thesis work in the Media Design Program, a graduate studio at the Art Center College of Design in Pasadena, California.

Cruel paradox for struggling homeowners.

2011-09-29T18:34:00.000-07:00

Published on 29 Sep 2011 by CBS - Struggling homeowners who could benefit the most from the all-time low interest rates often don't have the equity in their homes to qualify. Cynthia Bowers reports on the cruel paradox.

America : Bank fees hit record highs

2011-09-29T18:30:00.000-07:00

Published on 29 Sep 2011 by CBS - The average fee for non-customer use of an ATM is now a record $2.40 and the average fee for a bounced check is now nearly $31 -- also a record. Anthony Mason reports on why the fees are so high.

Ask It Early: Personal finances.

2011-09-29T18:24:00.001-07:00

Published on 29 Sep 2011 by CBS - CBS News business and economics correspondent Rebecca Jarvis answers viewer questions about personal finance, including the best ways to pay off student loans and credit card debt.

Trader on the BBC says Eurozone Market will crash

2011-09-26T14:19:00.000-07:00

Uploaded by nsotd4 on Sep 26, 2011 - In a scary and painfully frank interview a freaked out BBC interviewer is visibly shaken when market trader Alessio Rastani predicts that the "Market is Toast." Apparently there is nothing Euro governments can do.

Making Money Out of Market Crash.

2011-08-23T10:40:00.000-07:00

Uploaded by TheRealNews on Aug 21, 2011 - Bill Black: Technical traders love volatility; Obama raising big money on Wall St.

Short-selling explained.

2011-08-12T18:27:00.000-07:00

Aug 12, 2011 - Following days of volatile activity, European markets rose today after France, Italy, Spain and Belgium imposed a temporary ban on the short-selling of financial shares.Investors who participate in short-selling borrow shares from other investors and sell them at current market prices. When the value of those shares drop, they buy them back at the new, lower price and return the shares to their original owners. Their profit is the difference between the price they sold the shares and the price they bought them back, minus lender fees. In essence, the goal of short-selling is to profit from the falling price of stock.Market analyst Aly-Khan Satchu explains to Al Jazeera's Tony Harris why short-selling can cause market problems.

Money Chat - Personal Financial Budget

2011-03-30T15:33:00.000-07:00

malaysiakini on Mar 30, 2011 - Money Chat is a brand new personal financial awareness series brought to you by Komunitikini, Malaysia's leading online community portal.

Hosted by Carol Yip, a financial coach and also author of financial books, the programme offers tips on how to manage your money wisely in easy to follow steps. Where needed workbooks and financial sheets can be downloaded free for your use.

Money Chat contains three segments per episode - a short sketch of different spending scenarios, a how-to segment to help solve your personal financial book-keeping woes, and also chats with selected celebrity guests to see how they manage their money!

For Segment 2 of Episode 1, there's a link to a financial budget planner which is downloadable free to you!

And the celebrity offering for Segment 3 is none other than radio and stage personality, Patrick Teoh! So how do you manage your money Patrick?

Street Smart: Do You Know What Deflation Is?

2010-11-27T13:04:00.000-08:00

While everyone hates inflation, deflation has instant emotional appeal: Who doesn't like a bargain? But deflation is a far more serious economic problem than inflation -- and, as we found, most folks don't really know why. Do you? If not, no worries: Economist Gary Shilling will explain the reasoning.

See full article from DailyFinance

Who Benefits From Deflation?

2010-11-21T13:47:00.000-08:00

TheRealNews | November 19, 2010 | - Pollin: Deflation is dangerous to overall economy, but Fed policy is no solution.

U.S. Bond Bubble Ready to Burst:

2010-11-20T01:23:00.000-08:00

While the World Focuses Attention Elsewhere.

Markets Rally on China's Announcement That Yuan Will Float More Freely.

2010-06-23T04:04:00.000-07:00

June 22, 2010 — Market analysts say The New York Stock Exchange and other world markets are extending a rally Monday which began after China announced it would allow its currency to appreciate against the U.S. dollar. Critics say the Chinese have kept it unofficially low to boost their exports. A stronger yuan will make imports, including American goods, more affordable for Chinese buyers. VOA's Laurel Bowman has that story. VIDEO INSIDE:

Keiser Report: Gold grows on Armageddon, Australian property rush!

2010-06-22T08:34:00.000-07:00

June 22, 2010 — In Episode №53 Max Keiser and co-host, Stacy Herbert, look at the latest scandals of financial news presenters speaking in tongues, EU commissioners threatening the return of dictatorships and European fund managers piling into Australian property. In the second half of the show, Max talks to the Financial Time's John Authers about his new book, The Fearful Rise of Markets. Video Inside

The Wrong Reason to Dollar-Cost Average

2010-03-31T06:52:00.000-07:00

Pop writes about the intersection of our lives and economics at Pop Economics. There, you can find biweekly posts on everything from how your behavior affects your personal finance decisions to what the Fed’s most recent move means to you — not to mention some killer pop art. He recently wrote: Resistance is futile: Why buy-and-hold beats value investing.

The fact of the matter is: Most of us dollar-cost average when we invest because we have to. We get paid biweekly or monthly, and we invest our savings as soon as we receive it. We don’t have gigantic piles of money sitting around that we must choose to invest in a lump or over time.

But because dollar-cost averaging is personal finance 101, you’re going to find arguments as to why it’s the “best” way to invest anyway all over the place.

The refrain goes something like this: Let’s say that rather than put all your money into a mutual fund at once, you invest a set amount, say $1,000 per month, over time. When the fund is at $100 per share, you’ll buy 10 shares. When it’s at $150, you’ll only buy 7 or so shares. That way, you force yourself to buy more shares when they’re cheap and fewer when they’re expensive! You’ll see that argument at lots of reputable sites.

The problem with that explanation is that it suggests if you did have the choice between investing over time or all at once, you should invest over time. That doesn’t make sense, and here’s why.

1. Dollar-cost averaging works in reverse when you retire anyway.

Just as you might put $1,000 per month into stocks when you’re in the wealth accumulation stage of your life, you’re going to withdraw, say, $10,000 per month from your portfolio when you retire. And yes, that means you’ll be selling more shares when they’re cheap and fewer when they’re expensive — just the opposite of the supposed benefits dollar-cost averaging gave you when you started!

2. When you rebalance your assets as you age, it’s unrealistic to keep the strategy up.

Most of us invest a lot in stocks when we’re young and less in stocks (and more in bonds) as we age. Conventional wisdom holds that you should have, say, 90% in stocks and 10% in bonds when you’re in your 20s, but closer to 40% in stocks near retirement. But how do you get from one allocation to the other?

Dollar-cost averaging would seemingly dictate that you should slowly re-balance your portfolio as you age every month. In other words, when you hit, say, age 30, you’d sell a bit of your stock portfolio and buy a little bit of bonds each month as you got older. Aside from falling into the trap described in point one, how many of us could keep that up? And if we could, the transactional costs associated with the process, such as commissions from trading ETFs, would eat into our savings.

3. If you do have a lump-sum to invest, and choose to dollar-cost average, you’re throwing your asset allocation off, big time.

Pretend you’re in your 30s, have $100,000 saved so far in a 80/20 stock/bond mix, and come into a $100,000 inheritance. Hearing of the merits of the dollar-cost average approach, you choose to trickle the money into the stock market over time.

Well guess what? On day one, your asset allocation would be 40% stocks, 10% bonds, and 50% cash. Not exactly the aggressive asset allocation you intended, right? Just because you mentally put the $100,000 inheritance into a pile of money separate from your retirement savings doesn’t make it actually so.

And if you believe the stock market generally rises over long periods of time. The short-term volatility you’re trying to smooth out doesn’t matter anyway. The best time to invest will always be ASAP.

Something dollar-cost averaging is good at

At the end of the day, the completely rational individual would choose to make a lump-sum investment instead of to dollar-cost average. But exactly zero of us are completely rational. So there’s one big reason I can see someone choosing the DCA route, despite the arguments against.

In two words: “Loss aversion.” Humans fear losses more than they love gains. This tendency is well-documented by economists. So if you invested all $100,000 in a lump sum and the market dropped 5% the next day, you’d leave with an emotional scar. But alternately, if you began a DCA program and the market rocketed 5% the next day, you wouldn’t be nearly as sad.

That’s not rational — but it is the way we think. If you can’t get over that hump, you might decide that the cost of dollar-cost averaging is worth your emotional well-being. Just don’t pretend it’s making you money.

Stock Market Scares Investors.

2010-03-09T22:49:00.000-08:00

March 09, 2010 | CBS Exactly a year ago, stocks hit a 12-year low, dealing a 401-K-O to a lot of retirement accounts. As Anthony Mason reports, after a remarkable comeback, millions of investors missed out.

SC to amend the guidelines on unit trust funds.

2010-02-25T10:27:00.000-08:00

EDGETV | February 23, 2010 - The Securities Commission is amending the Guidelines on Unit Trust Funds to facilitate a multi-class structure for unit trust funds, said its chairman Tan Sri Zarinah Anwar.

Investment

2010-02-23T07:50:00.000-08:00

Investment or investing is a term with several closely-related meanings in business management, finance and economics, related to saving or deferring consumption. An asset is usually purchased, or equivalently a deposit is made in a bank, in hopes of getting a future return or interest from it. The word originates in the Latin "vestis", meaning garment, and refers to the act of putting things (money or other claims to resources) into others' pockets.

Types of Investments

The term "investment" is used differently in economics and in finance. Economists refer to a real investment (such as a machine or a house), while financial economists refer to a financial asset, such as money that is put into a bank or the market, which may then be used to buy a real asset.

Business Management

The investment decision (also known as capital budgeting) is one of the fundamental decisions of business management: managers determine the assets that the business enterprise obtains. These assets may be physical (such as buildings or machinery), intangible (such as patents, software, goodwill), or financial (see below). The manager must assess whether the net present value of the investment to the enterprise is positive; the net present value is calculated using the enterprise's marginal cost of capital.

A business might invest with the goal of making profit. These are marketable securities or passive investment. It might also invest with the goal of controlling or influencing the operation of the second company, the investee. These are called intercorporate, long-term and strategic investments. Hence, a company can have none, some or total control over the investee's strategic, operating, investing and financing decisions. One can control a company by owning over 50% ownership, or have the ability to elect a majority of the Board of Directors.

Economics

In economics, investment is the production per unit time of goods which are not consumed but are to be used for future production. Examples include tangibles (such as building a railroad or factory) and intangibles (such as a year of schooling or on-the-job training). In measures of national income and output, gross investment I is also a component of Gross domestic product (GDP), given in the formula GDP = C + I + G + NX, where C is consumption, G is government spending, and NX is net exports. Thus investment is everything that remains of production after consumption, government spending, and exports are subtracted. I is divided into non-residential investment (such as factories) and residential investment (new houses). Net investment deducts depreciation from gross investment. It is the value of the net increase in the capital stock per year. Investment, as production over a period of time ("per year"), is not capital. The time dimension of investment makes it a flow. By contrast, capital is a stock, that is, an accumulation measurable at a point in time (say December 31st).

Investment is often modeled as a function of Income and Interest rates, given by the relation I = f(Y, r). An increase in income encourages higher investment, whereas a higher interest rate may discourage investment as it becomes more costly to borrow money. Even if a firm chooses to use its own funds in an investment, the interest rate represents an opportunity cost of investing those funds rather than loaning them out for interest.

Finance

In finance, investment=cost of capital, like buying securities or other monetary or paper (financial) assets in the money markets or capital markets, or in fairly liquid real assets, such as gold, real estate, or collectibles. Valuation is the method for assessing whether a potential investment is worth its price. Returns on investments will follow the risk-return spectrum.

Types of financial investments include shares, other equity investment, and bonds (including bonds denominated in foreign currencies). These financial assets are then expected to provide income or positive future cash flows, and may increase or decrease in value giving the investor capital gains or losses.

Trades in contingent claims or derivative securities do not necessarily have future positive expected cash flows, and so are not considered assets, or strictly speaking, securities or investments. Nevertheless, since their cash flows are closely related to (or derived from) those of specific securities, they are often studied as or treated as investments.

Investments are often made indirectly through intermediaries, such as banks, mutual funds, pension funds, insurance companies, collective investment schemes, and investment clubs. Though their legal and procedural details differ, an intermediary generally makes an investment using money from many individuals, each of whom receives a claim on the intermediary.

Personal Finance

Within personal finance, money used to purchase shares, put in a collective investment scheme or used to buy any asset where there is an element of capital risk is deemed an investment. Saving within personal finance refers to money put aside, normally on a regular basis. This distinction is important, as investment risk can cause a capital loss when an investment is realized, unlike saving(s) where the more limited risk is cash devaluing due to inflation.

In many instances the terms saving and investment are used interchangeably, which confuses this distinction. For example many deposit accounts are labeled as investment accounts by banks for marketing purposes. Whether an asset is a saving(s) or an investment depends on where the money is invested: if it is cash then it is savings, if its value can fluctuate then it is investment.

Real Estate

In real estate, investment is money used to purchase property for the sole purpose of holding or leasing for income and where there is an element of capital risk. Unlike other economic or financial investment, real estate is purchased. The seller is also called a Vendor and normally the purchaser is called a Buyer.

Residential Real Estate

The most common form of real estate investment as it includes the property purchased as peoples houses. In many cases the Buyer does not have the full purchase price for a property and must engage a lender such as a Bank, Finance company or Private Lender. Different countries have their individual normal lending levels, but usually they will fall into the range of 70-90% of the purchase price. Against other types of real estate, residential real estate is the least risky.

Commercial Real Estate

Commercial real estate is the owning of a small building or large warehouse a company rents from so that it can conduct its business. Due to the higher risk of Commercial real estate, lending rates of banks and other lenders are lower and often fall in the range of 50-70%.

Abu Dhabi gives $10bn to Dubai to service debts

2009-12-14T13:11:00.000-08:00

Dubai's decline into financial crisis has been more spectacular than its rise.

Until a month ago, the official word from Dubai was that the emirate's finances were in good order, but in late November world markets fell on news that the Dubai World conglomerate was unable to service $26bn in debts.

Now Abu Dhabi has given Dubai $10bn, some of which will enable Nakheel, the property arm of troubled Dubai World, to pay a $4.1bn Islamic bond that has matured.

Abu Dhabi's rescue package has highlighted the differences between its cautious approach to investment and Dubai's more brash approach. Tarek Bazley reports.

Ar Rahnu -- An Alternative And Easy Source Of Credit

2009-12-13T06:57:00.000-08:00

By Salbiah Said | KUALA LUMPUR, Dec 13 09 | Bernama

Mention pawnbroking and you will imagine the destitute who use this service to raise money.

But Bank Rakyat plans to remove this stigma attached to the industry by promoting the Islamic concept of pawnbroking called Ar-Rahnu through its wholly-owned subsidiary Rakyat Management Services Sdn Bhd.

Ar-Rahnu was introduced as an alternative and easier source of credit, with gold as collateral in exchange for cash. It ensures privacy for the customer as against the conventional pawnshop, which handles the business openly.

"This system (Ar-Rahnu) provides for transparency, privacy and security," Mohamad Sabri Nor, general manager of Rakyat Management Services, told Bernama recently.

"It can also turn borrowers away from Along (loan sharks) or unlicensed pawnbrokers," he said after giving a talk on the Ar-Rahnu scheme managed by Rakyat Management Services at Bernama's Centre of Excellence recently.

Ar-Rahnu is an Islamic-based pawnbroking business which offers interest-free loans, but a minimum fee is charged for the safekeeping of the valuables, with a high mortgage value and a flexible pawn period.

As an example, under the conventional pawnbroking system, an individual who pawns a gold chain worth RM1,000 will only be given a loan of RM600, which carries a two per cent interest or RM13 a month.

"We only charge 65 sen for every RM100 worth of valuables kept. For a gold item worth RM1,000, we only charge RM6 a month for safekeeping, a big difference from the conventional system," said Mohamad Sabri.

"Among the advantages are premises and items kept are protected and insured. In case of losses or untoward incidents, reimbursements will be made based on the value of the lost items."

"In the initial stages, it was rather difficult to convince our customers. However, they have now realised that there are more benefits to be derived from Ar-Rahnu," he said, adding that all tests to determine the value of gold items were conducted in front of the customer.

"This business is only open to cooperatives and not for individuals and those planning to set up the business should not worry if they don't have the knowledge about gold. We will help them," said Mohamad Sabri.

Bank Rakyat's Ar-Rahnu scheme had its roots in 1993 through capital injection from the Islamic Economic Development Foundation, Malaysia (YAPEIM). The foundation, which was the pioneer of Ar-Rahnu, received funds from the various state religious councils, which in turn channelled them to Bank Rakyat.

During the early years, Bank Rakyat had only six Ar-Rahnu outlets under the supervision of Bank Negara as advisor.

To date, Rakyat Management Services operates 15 Ar-Rahnu outlets under the Ar-Rahnu X'Change brand, with the tagline "Gold For Cash". Of the total, seven are owned by Bank Rakyat while another eight are franchise-based.

"My only advice to businessmen is you can use your valuables as capital. This is the quickest and easiest way of financing your projects," said Mohamad Sabri.

"Those who visit pawnbrokers are still shunned by society. The mere mention of the word 'pawn' is strictly forbidden and it's taboo for them. But this is slowly changing as more people are aware of the benefits of Ar-Rahnu."

"What's important is that these customers have assets and they are using them in times of need. They should not be ashamed as they are not purely taking loan, but have valuables as collateral for cash. This is the message that we want to drive home to the people," he said.

Rakyat Management Services, which has some 300,000 clients, also plans to open five Ar-Rahnu outlets every year to cater to the demand, said Mohamed Sabri.

FOREX: Ringgit Likley To Be Lower Against Us Dollar Next Week

2009-12-13T06:55:00.000-08:00

KUALA LUMPUR, Dec 12 09 Bernama

-- The ringgit is likley to be lower against the US dollar next week with investors holding on to their dollar positions in anticipation of further advances of the greenback, dealers said.

They said the ringgit could move to the 3.45 level against the greenback as investors speculated on a stronger dollar till year-end.

"Investors are also waiting for further advances in the greenback before they liquidate their dollar positions, especially with the coming holiday season, as this will enable them to maximise on their gains," said one of the dealers.

During the week, the ringgit was rangebound against major currencies, as Asian currencies such as the Philipine peso firmed with the weakening of the US dollar.

The Australian dollar and New Zealand dollar rallied against the US dollar during the week, sparked by talk of the possibility of an interest rate hike in both Australia and New Zealand.

On Friday, the ringgit closed lower against the US dollar on strong demand for the greenback with better market sentiment in regional equity markets.

On a Friday-to-Friday comparison, the ringgit was weaker against the US dollar at 3.3980/4010 compared to 3.3790/3830 last Friday.

The local currency also weakened against the Singapore dollar at 2.4448/4496 compared to 2.4436/4500 previously.

The ringgit strengthened against the Japanese yen at 3.8227/8274 from 3.8332/8391 last Friday.

The local currency was firmer against the British pound at 5.5452/5521 compared to 5.6189/6266 last Friday and also against the euro at 5.0080/0158 from 5.0911/0982 previously.

Islamic Banking System Has Advanced To Highest Level - Najib

2009-12-13T06:52:00.000-08:00

PEKAN, Dec 12 09 | Bernama

-- The Islamic banking system in Malaysia has advanced to the highest level, making the country the leading exponent of the system worldwide, Prime Minister Datuk Seri Najib Tun Razak said Saturday.

He said this was based on the country's unique twin financial plan, based fully on Syariah and in line with the financial sector masterplan.

"The Islamic banking system is seen as a system which has developed to the highest level and at a fast rate when compared to conventional banking as the growth can be seen in two digits, that is 10 per cent each year," he said when officiating the new premises of Bank Muamalat Malaysia's 54th branch here.

Also present were Bank Muamalat's chairman Datuk Seri Mohd Khamil Jamil and chief executive officer Datuk Mohd Redza Shah Abdul Wahid.

Najib said the achievement was also made possible by the government's commitment in promoting Islamic teaching as a way of life.

He said effort was also carried out to provide a comprehensive training system in Islamic banking by Bank Negara Malaysia.

Najib said he also hoped that Bank Muamalat could promote the Islamic system of pawnbroking like Ar-Rahnu.

"If there is such an Islamic pawnbroking system here, then the local community would experience less Ah Long activities," he said.

At the event, Bank Muamalat open 200 "smart" deposit accounts for orphans and poor students in the Pekan and Kuantan areas as part of its corporate social responsibility.

At another function later, Najib also called on the people to add to their knowledge, especially in information technology, to continue progressing.

According to him, soft skills are important to access knowledge and for one to become more efficient in carrying out their tasks.

He said this when officiating the Pekan Resource Centre which is equipped with a library with over 5,000 books, information and communications technology lab, language lab, seminar room, theatre training studio, administration office and surau.

Najib said the transformation of the centre by Umno showed the party's commitment in meeting the changing needs of the people, such as acquiring new skills.

Najib The Ponzi scheme master

2009-12-13T06:28:00.000-08:00

Malaysia is close to bankruptcy.

The government has no more money. 2009 must have been a horrible year with little corporate taxes collected (and expected to be collected) due to the economic slowdown. Foreign investments have also slowed to a halt.

And yet Najib's government is trying to spend their way out of the economy. Honestly, if carried out well, government spending is a key component in driving the economy up. But not in Malaysia. The leakages are too large. As a result, the expected multiplier effects do not maximise. The money disbursed end up in the pockets of those who least deserve it instead.

2009 must go on record as the year with the largest amount of government bonds issued. Amanah Saham this and Amanah Saham that. I don't have the statistics but I doubt 2009 will be too far off the numero uno spot even if it does not take the top spot. All sorts of bond were raised and for the first time, take-up quotas drawn along the usual racial lines have been removed.

What does that mean? The government is simply desperate for money. The amount that they could raise from the protected and preferred Malay race have simply maxed up. That left Najib with no choice but to loan from the desperate Chinese and Indians on the pretext of equality and sharing of wealth with all in the country. And at lower rates of returns too.

Malaysians are not well read people. And I bet you that most people do not understand what a bond is apart from it being an investment opportunity that generates interest income higher than that offered by FDs. Bonds are actually IOUs. It is a loan. When you buy a bond, you are actually lending money to the bond issuer and you get paid back upon maturity.

Upon maturity, paying back of bond money is an issue should the bond issuer (in this case the government of Malaysia) has no money to pay. But as the government, this can be solved via a few simple strategies at the expense of the rakyat.

The government may raise new bonds to pay-off the earlier bonds. And this can be done over and over again. The bet by the government is that the government's income will improve in the future and one day, these loans from the public can be paid off. Theoretically, this sounds ideal. But do you genuinely accept that from the government of a nation whose corruption index ranking have been consistently falling to an embarrassing 57 now? Regardless of how much of the nations resources are depleted (our oil is running out by the way; palm oil isn't that popular in the world market unless you are a sucker who believes in Utusan Malaysia; we do not have much rubber; we ran out of tin decades ago), the profit do not go back to the rakyat but the Swiss private bank accounts of our politicians.

So, the bonds will never get to be paid from the ideal profits. New bonds will be issued to pay off earlier bonds. And this will go on and on and on. Over time, with larger amount of bonds raised every time to cover for additional 'nation building and development', government debts will only continue to rise. This is what we call a Ponzi scheme. Read Bernie Madoff. Read cheat. Read con.

The present government is passing it's current problem to the future generation. An irresponsible government indeed. In developed nations, the people are able to appreciate this problem. Parliaments debate after debate on bond issuances. In Malaysia, the Prime Minister approves new bonds while he gobbles down his nasi lemak with ayam rendang and sotong sambal. The future is not his problem anyways. He has his hot seat to protect; lose it or he will get nagged to his death by the thing who sleeps next to him.

Has anyone actually thought that Najib knows that his days are numbered and he is maximising his personal dough collection? Think about it. Whatever he takes from the bonds will have to be paid back by the next government. If he is not going to be the next government, paying back will not be his problem.

But whatever he does now will still be a problem for the rakyat in the future. If BN continues, it will be BN's repayment problem. If PR takes over, it will be PR who is faced with the same repayment headache. The only permanent fixture is that the rakyat is at the losing end.

Some may argue that all the government has to do is to print more money. Yes, that is true. A learned friend of mine once said that the government will never run out of money because it can just print more. That is a brilliant statement. But of course it has it consequences. The amount of paper money in circulation must correspond to the amount of gold held in reserves. If paper money exceeds the value of gold - which is what the US is facing right now - then the said currency's value falls. Purchasing power declines. Inflation rises. And a whole lot of other negative economic terminologies.

So you see, printing money to repay government loans solves the loan issue but it brings the country to a whole new level of economic problems.

And yes, you got the message, the rakyat loses.

If you are lucky to live short enough, the problem will not be yours. But your kids? You better leave them enough money to buy bananas at RM1 million per comb.

Additional note by author: Najib has pledged more and more spending. But with limited funds available, other government disbursements will have to be reduced. Hence, the proposed (rumoured) removal of subsidies for petrol, sugar and flour are very real. Expect electricity tariffs to go up too. Rakyat will suffer like never before. Is he not interested in getting re-elected? Does sound like Najib is taking all he can and abandoning ship.

Warga Marhaen | harakahdaily

Could a Spike in Bond Yields Cause the Economy to Stumble in the New Year?

2009-12-12T23:51:00.000-08:00

In normal times, at their most basic level, bond prices follow some very simple laws of financial physics: When interest rates rise, bond prices fall and bond yields rise; when rates fall, bond prices rise, and bond yields drop.

However, bonds could break those laws of financial physics in the New Year - and in a big way. That could inflict some real financial pain on the U.S. recovery, the dollar, the shuddering housing market - and could even ignite a major stock-market reversal.

The U.S. Federal Reserve continues to hold rates on U.S. Treasury securities to artificially low levels - a strategy central bank Chairman Ben S. Bernanke just this week said the Fed intends to adhere to for the foreseeable future.

But yields on U.S. Treasury securities could buck the trend by soaring in the first half of 2010 - even if the central bank holds benchmark interest rates at near-zero levels. Indeed, yields on the benchmark 10-year U.S. Treasury note - now standing at 3.45% - could rise as high as 4.50% within six months. That's based on technical factors and shifting risk-reward evaluations, rather than any change in Fed policy. Bond analysts at Morgan Stanley (NYSE: MS) said that a move of that magnitude could cause the spread between two- and 10-year U.S. Treasuries to widen to as much as 325 basis points (3.25 percentage points).

Rising bond yields are definitely in the cards due to four catalysts, says Money Morning Contributing Editor Martin Hutchinson. An excess supply of bonds is one. An increasing concern about risk is another (Based on Bank of America Corp.'s [NYSE: BAC] Merrill Lynch Treasury Master Index, investors in U.S. government debt lost about 2% in 2009). Inflationary worries are the third. The Fed may even be forced to relent, further fueling this move, Hutchinson said.

"We're seeing a steady rise in the cost of capital because of the excess of supply over demand and increasing concern about risk," Hutchinson said. There's also "the intensifying worry about inflation. Because of the inflation fears, I would expect the Fed to start shifting the yield curve higher by the second half of 2010 - but the process will be a slow one because the CPI (Consumer Price Index) is only drifting up slowly at present."

While the CPI numbers give the Fed some justification for keeping rates low, Hutchinson warns that they can be misleading, noting that consumer prices are potentially far less troubling than the rising real cost of capital. He cites the example of Japan, where stated 30-year government bond rates are up just 17 basis points from last year - but, when the negative inflation rate is factored in, the true adjusted yield on 30-year bonds has risen by about 4.3 percentage points over the past year.

That, he says, is due to the country's huge deficit and worrisome debt levels - two factors that will also spell eventual yield troubles in the U.S. market.

"My best guess is that 10-year Treasury yields will increase by 200 basis points in 2010," Hutchinson predicts. "But the increase will likely be split something like 80/120 over the two halves of the year. If the Fed sticks to its guns and keeps rates low for the near term, inflation will get worse and people will get more worried about both the dollar and Treasury risk, eventually forcing the Fed to hike rates."

This isn't a universal view. In fact, Thomson Reuters Corp. (NYSE: TRI) reported that the current consensus among analysts is that yields on Treasury securities will trade in a tight range well into 2010.

Bernanke's Monday speech to the Economic Club in Washington, which expressed continued caution about the ability of the U.S. economic recovery to sustain itself, sparked a modest rally in bond prices, partially offsetting a Friday sell-off triggered by an unexpected drop in the number of jobs lost in November. However, that gain was quickly reversed by a mediocre investor response to this week's auctions of three- and 10-year Treasury notes and 30-year T-bonds.

While the $40 billion in three-year notes went at a slightly lower rate than forecast (1.223% vs. 1.229%), the government had to pay more to entice enough buyers to unload the $21 billion in 10-year notes (3.448% vs. a predicted 3.421%) and $13 billion in 30-year bonds (3.520% vs. 3.483 projected). Foreign demand was also apparently down as the percentage of bonds going to "indirect bidders," the class that includes foreign central banks, fell to just 40.2% compared to 44.0% at the November auction.

Those results added considerable credence to the Morgan Stanley prediction as they expanded the yield curve between two- and 30-year Treasuries to a 29-year high of 372 basis points, substantially higher than the average spread of 132 points over the past five years and the year-end 2008 gap of 191 basis points.

If the predictions made by Hutchinson and Morgan Stanley play out, the fallout could be substantial, with the overall economy, the U.S. dollar, the American housing market and even the stock market taking major hits.

The only likely beneficiaries could be the banks. If the Fed keeps short-term rates near zero but longer-term yields rise anyway, the banks make big profits because they borrow short and lend long - assuming they will lend at all. They could just keep credit tight, investing their cash in long-term Treasuries and profiting from the growing yield curve.

That kind of credit crunch will stifle recoveries in both the residential and commercial real estate markets - both of which depend on borrowing at long-term fixed rates. In addition, any rise in rates could up the costs on still-outstanding variable-rate mortgages, triggering a new round of defaults and foreclosures, the impact of which would quickly spread through the entire economy.

Because businesses - especially small businesses - already borrow at a large margin over fixed rates, a modest increase in rates probably wouldn't damage that sector much more than it already has been. However, continued tight credit would be a major problem, choking the life out of still more cash-starved small businesses. In fact, though most analysts are fearful of such a move, Money Morning's Hutchinson said the best scenario for business might be for Bernanke to sharply increase short-term rates.

"That would probably HELP small business," he said, "because the banks would be forced to earn their profits by lending their money to those who need it rather just putting it in T-bonds and heading out to the golf course."

Though higher yields are sometimes deemed beneficial for the dollar, they most likely wouldn't help it if Morgan Stanley's scenario plays out. Any increase in longer-term rates would give foreign central banks and other overseas investors capital losses on their U.S. Treasury holdings, which would cause capital inflows to the United States to weaken, pressuring the dollar and reducing demand for U.S. securities.

By contrast, if the Fed were to raise short-term rates it would strengthen the dollar, but they'd have to get to 3.5% to 4.0% for that to happen - and, given Bernanke's stated views, that's unlikely in 2010.

A stronger dollar also carries lots of fiscal baggage with it, weakening exports, worsening the U.S. trade imbalance and spurring more outsourcing of U.S. jobs - all negatives for a recovering economy.

Rising rates could also threaten Wall Street's continuing advance, though the market would probably absorb the adjustments so long as they come at a reasonably gradual pace.

As for individuals, the harm done by increasing rates could be limited unless you're one of those caught in a variable-mortgage trap, in which case the damage could be substantial. Credit-card rates - nearly all of which are now variable - would, of course, go up, but that would be minor in the grand scheme of things. After all, the difference between 21% and 23% really adds minimal cost if you're determined to charge something.

On the investment front, a rise in bond yields would hurt fixed-income investors in the short run because the prices of their bonds would fall, producing capital losses, without any increase in the actual interest payout to offset them. Given that and the uncertainty of the Treasury situation for 2010, the best course for such investors could well be to stick with dividend stocks and foreign-currency-denominated debt securities, adding a little gold and silver to hedge against further weakening of the dollar.

By Larry D. Spears