Street Smart: Do You Know What Deflation Is?

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?

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

U.S. Bond Bubble Ready to Burst:

While the World Focuses Attention Elsewhere.

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

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!

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

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.

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.

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

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.

Abu Dhabi gives $10bn to Dubai to service debts

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

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

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

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.