Showing posts from September, 2012

And Our Cities?

The public is presumably aware that virtually all western economies are drowning in sovereign debt -- a problem that grows worse as the clock ticks.  Nothing going on in Europe or the US (count Japan in there too, though they are not thought of as 'western') changes the dynamic of spiraling out-of-control debt and sluggish, if not collapsing, economies.

States within the US have their own problems.  There is no way for California or Illinois to avoid bankruptcy and several other states are right behind them.

But, in all of this, we have forgotten about our cities.  Almost without exception, American cities are headed down the road to bankruptcy.  Their problems are similar to the problems of the states -- public pension and health care promises that have never been properly funded.  We are already seeing policemen and teachers being laid off so that comfortable public employees can retire at twice the national average income or more.  Expect more of that until the the schools an…

Feeding the Beast -- Who Are The Victims?

Higher education claims a higher and higher percentage of the nation's resources.  No longer the land of the underpaid, it is routine for administrators to make high six figure incomes and many university presidents make well over seven figures.  Sounds like Wall Street, only better.  The work hours typically include six months vacation every year.  Not a bad deal.

But not good enough, apparently, as colleges and universities demand more and more with higher tuitions and higher expenditures from government at all levels.

One of the more insidious parts of this disgraceful situation is the expansion of student loans by the Obama Administration.  The main thrust of this is to increase the tuition levels at all schools to take advantage of this new source of funding.  Knowing that students can borrow, schools have created internal departments that are designed to educate and encourage students to take on debt so that the schools can further boost their own tuition charges.  Keep increa…

Budget 2013: Election or Rakyat centric?

General election is around the corner. External environment was not so promising, following the no ending of European debt crisis, world economic slowdown, and recent tension between China and Japan. I believe all of these would be some key factors being taking into consideration to formulate the Malaysia Budget 2013.

Goodies? Bonus? Cash handout? Themed as "Prospering The Nation, Enhancing Well-Being of the Rakyat: A Promise Fulfilled". Our prime minister, who is also Finance Minister, tabled the 2013 Budget at Dewan Rakyat yesterday. Over here, Finance Malaysia blog would only touches on some key points: Economic growth projected to expand between 4.5% - 5.5%Federal Government's revenue in 2013 is estimated to increase to RM208.6 billionContinuation of BR1M of RM500 to households earning not more than RM3,000 a month and also extended the aid to cover a payment of RM250 for single unmarried individuals aged 21 and above, earnings not more than RM2,000 a monthRM 16 million…

Assume That We Have A Can Opener

There is an old joke about the doctor, lawyer and the economist, all three, stranded on a desert island with nothing to eat.  They stumble upon a tin can of vegetables.  How do you open the tin can?  The doctor proposes to give it aspirin, the lawyer says 'file a brief.'  The economist?  The economist says: "assume that we have a can opener."

Economists have a well deserved reputation for assuming away difficulties.  Simon Johnson's article in today's NY Times is a good example.  Johnson correctly points to the US National debt as very serious problem that needs a solution and needs it now.  His article suggests that there is an easy solution.  In Johnson's own words:

"And American politicians could find other ways to restore federal government revenue to where it was in the late 1990s while also bringing health care spending under control."

Sure, just bring me that can opener.  How does one "bring health care under control."  Johnson doe…

Civil Disorder and Chaos on the Rise in Greece and Spain

Riots are now turning violent in Greece and Spain.  Police surrounding the parliament building in Madrid last night were seen on videos beating demonstrators.  The Merkel-Sarcozy-Hollande-Geithner-Bernanke-Draghi policy is bearing fruit.  Civil society is breaking down in Greece and Spain.  The NY Times has a lengthy, front-page story yesterday about formerly middle class Spaniards foraging for food from garbage trucks.  That this is becoming a common scene in Spain was the thrust of the article.

This will only get worse.  Unemployment and starvation is the ultimate outcome of the modern welfare state and it is now on display in the Eurozone with more yet to come.  Spain is still dithering about whether to alter 'early retirements' under their social security schemes.  This would be funny, if it weren't tragic.  Who is going to fund those who are already retired?  One might ask a similar question in Greece.  Are American and German taxpayers going to provide the money?  Oba…

Merkel is a Failed Leader

Angela Merkel says the right things and does the wrong things.  As a conservative leader, she and her conservative sidekick Nicolas Sarcozy, led the Eurozone down the bailout track while loudly proclaiming that responsibility for foolish behavior would not be rewarded.  But rewards were soon forthcoming from Merkel and Sarcozy.  Merkel still strikes the pose of frugal leader while steamrolling Germany toward the largest bailout in world history.

Merkel talks about saving the Euro.  The issues in the Eurozone have little or nothing to do with saving the Euro.  The Euro is doing fine.  What is not doing fine is the fiscal situation of the Euro member states.  They are all going bankrupt, including Germany.  What currency is in place is of little importance if you cannot pay your debts and the Eurozone cannot pay their debts.  What they have is a temporary reprieve and a lot of conversation.  The endgame in this is all too obvious.  But, it won't include Chancellor Merkel.  She will b…

The Joy of Giving Other People's Money Away

We've all heard about the joy of giving, but what if the money that we are giving away is someone else's money?  Wow! What a thrill.  That's the attitude of the Charlottesville City Council as they parcel out taxpayer money with little or no thought.  After all, they reason, these are only small amounts of money.  There is, of course, no concern by the City Council that the money that they are giving away so blithely is not their money, but taxpayer money.  Here is the URL for this amazing story:

The attitude expressed by City Council members in Charlottesville is typical of liberal attitudes everywhere towards taxpayer money.  Dole it out to your friends with reckless abandon.  Just multiply all the numbers in the article by 10 million and you have the US government, the government of California, Illinois, Greece, Spain, Italy, etc.  It is easy to be charitable and caring when you a…

The Media and the Issues

You would think that the US economy was booming and all was right in the world if you are a regular listener to the major TV and radio outlets in America.  Recently, I was in Eastern Europe and was pleasantly surprised to read in foreign newspapers the issues that Americans face in the upcoming election -- the economy, foreign policy, the deficit, etc.  Back home, these issues don't seem to be of any interest to the media.  Such issues are of interest to voters, but they rarely see them discussed on NBC, ABC, public TV and the like.

The big issues, according to US media, is whether or not a presidential candidate is willing to release their tax returns from decades ago or sidebar comments the candidates may have made before they were candidates that have absolutely nothing to do with any of the important issues.  The media is in the "gotcha" business.  It isn't just that they favor one party or another, it is more that the media doesn't really seem interested in m…


Jerry Brown's $ 28 billionbudget gap in California turns out to be a mirage.  Brown considered the $ 28 billion number a crisis for California, when he strode into the Governor's mansion.  A blue ribbon committee founded by Democrat and Obama advisor Paul Volcker has studied the budget gap in California and come up with a different number, or should I say, a range.  The outcome of that study is discussed in today's New York Times in an article by Mary Williams Walsh.  The actual California budget gap, according to the Volcker committee is somewhere between $ 167 billion and $ 335 billion.  Ooops!

Even this is a dramatic understatement of California's plight since the combined unfunded liability of CALPERS, CALSTERS, and the nine largest county pension funds in California is well in excess of $ 1 Trillion, which is a multiple of the assumption being used by California's state government in assessing the budget gap.  So, the committee is trying to be California-friend…

Do you understand the PRS Framework and its Lingo?

Before jumping into the bandwagon of private retirement schemes (PRS), we should understand the PRS framework first. What is the structure behind the scene? Does our invested money in safe hands? Who are the regulators? These were the few typical questions we should find out. No worries, all of these will be answered here... (yeah, give us a "Like")

PRS are offered by approved PRS Providers. Each PRS will include a range of retirement funds from which individuals may choose to invest in, based on their own retirement needs, goals and risk appetite.
The PPAfunctions as a record keeping and resource centre for data on all transactions performed by contributors. It will facilitate transactions and promote efficient administration. The PPA will also act as a resource centre for data and research relating to the PRS industry in Malaysia.
The assets of each PRS will be segregated from the PRS provider and held by an independent Scheme Trustee unde…

BofA Shrinks; Goldman Sheds New Hires

Wherever you look, the American financial service sector is retreating.  The decline of US pre-eminence in world finance began with the regulatory overkill of Sarbanes-Oxley legislation in 2002, but the real death blow was the Dodd-Frank Act of 2009.  The future will be in Hong Kong, Shanghai, Singapore.  London may survive this, but that remains to be seen, but New York is definitely fading.  Basically, American financial strength is being legislated into weakness.

You wonder why?  Have stocks done poorly.  On April 24th,1995, a scant 17 years ago, the Dow Jones Industrial Average closed at 4,303.  Yesterday, the DJIA closed at 13,577, about 3 1/2 times as high as the 1995 level.  (This result includes the 2008 financial crash).  Is that bad?  Has the average investor been screwed?  Is this why pension funds are in trouble?  The market hasn't delivered enough?  How much is enough?

Why this rush to destroy American financial pre-eminence?   You wonder how folks will like the slow gr…

Chicago Teachers Pension Plan is Broke

Like almost every public pension plan in America, the Chicago teachers' public pension plan is not going to survive.  Mary Williams Walsh's article in today's New York Times lays out the numbers.  With just over $ 10 billion in assets the fund is paying out more than $ 1 billion more than they take in every year.  The end is clear.

Why is this the case?  Because it is very easy for politicians to make promises of things that they will do in the future, while providing benefits right now.  Social Security operates on this premise.  Give the benefits now, pay for them later.  But, of course, they never pay later.  That part is simply kicked down the road.

We have already witnessed pension funds cutting the benefit payments for folks that have already retired.  We are about to see a wave of such actions.  The Chicago teachers fund is in much better shape than the Illinois state employee fund.  So, guess where that one is headed.

The crime is that politicians pretend that nothing…

A Glimpse into the Future

Liz Alderman's article in the New York Times today, "Euro or No, Economics of Everyday Greek Life is Eroding" provides a glimpse into the future of the western economies.  Economic and civil order has broken down in Greece.  The rising popularity of the neo-nazi party (now at 18 percent of the electorate) is gathering in the fruits of the collapse of the Greek welfare state.  In time, democratic government will collapse in Greece to be replaced by one of the extremes.  The so-called centrist governments cannot deliver and will not survive.

Greeks expect the promises of past governments to be honored.  That is an expectation that has no hope of reality.  Their frustrations are spilling over into everyday economic and political life.  The beginnings of a similar breakdown are evident in Spain, Portugal and Italy.  No government can survive by imposing a program of austerity.  Their citizenry still believes the lies that they have been told for generations.  It is too late t…

Why you borrow matters

Borrowing for investment may be a good idea.  Debt is not a bad thing.  It can be a good thing.  It depends upon what you are borrowing for.

Borrowing to finance a new business or to expand an old one is a good idea.  Borrowing for investment purposes is generally a good idea.

Borrowing is generally a bad idea if you simply borrow to finance consumption that you cannot otherwise afford.  Eventually 'consumption borrowing' will lead to disaster since nothing is taking place that can pay off the debt that is being created.  This is the type of borrowing that is taking place in western economies today.

As much as politicians talk about 'investing in our future,' what they invariably mean in practice is financing consumption for a favored part of the electorate.  Rarely if ever is modern government spending intended to finance investment of any kind.  Paying more money to your favorite public employee, including teachers, is not a form of investment -- it is a form of consump…

What is Private Retirement Schemes (PRS) ?

Are you ready for your retirement life? If not, what and how are you going to do before it is too late? These are a few critical questions Malaysians should ask ourselves without further procrastination. With increasing life expectancy and rising living standards, many Malaysians find that their savings are inadequate to meet their retirement needs.

Private Retirement Schemes (PRS) form an integral feature of the private pension industry with he objective of improving living standards for Malaysians at retirement through additional savings of funds. As long-term investment vehicles, PRS are designed to help enhance adequacy and expand coverage of retirement benefits to all segments of the population. It complements Malaysia's mandatory retirement savings scheme - EPF.
Voluntary? Yes. It's totally up to YOU to contribute voluntary anytime. Who can participate? Anyone, be it individuals (retail investors, self-employed and employees) or employers. Offering private pension benefits …

More Bad Policy from Bernanke

Ben Bernanke is printing money once more.  Not content with the current historic expansion in the money supply, Bernanke is headed off to new records.  Somehow pumping more liquidity in the system is going to offset the negatives that face employers.  How?

If paying an employee $ 35,000 per year means a cost of $ 70,000 per year because of health care mandates, employee payroll costs and litigation risks, how does additional liquidity matter?  With Dodd-Frank and the regulators forcing the banks out of the lending business for middle Americans, what difference does additional liquidity and lower mortgage rates make?  What is Bernanke thinking?

Bernanke's policies are not without cost, though they seem clearly without benefit.  The cost will come when inflation rears its ugly head.  Bernanke assumes that can't happen unless the economy is near full employment.  He's wrong.  We can have inflation and unemployment and they can both grow at the same time.  The Democrats were abl…

New Fund: OSK-UOB Focus Bond Fund - Enhanced

In view of the current volatile markets culminating from the Eurozone debt crisis, investors are concern about the contagion effect on the domestic and global economies. Amid the recent volatility, some believe there are opportunities arising from bond investments that will offer consistent and regular income to investors. Hence, OSK-UOB now offer investors an enhanced bond fund that has the potential to provide higher regular income^ during the tenure of the Fund and capital appreciation at its maturity date from a concentrated portfolio of global debt instruments / bonds and from an option structure to provide the potentially higher income.

The OSK-UOB Focus Bond Fund – Enhanced (“the Fund”) is a 3-year close-ended, income fund which aims to provide regular income during the tenure of the Fund and capital appreciation at its maturity date primarily from a concentrated portfolio of global debt instruments / bonds. Generally, the Fund aims to achieve its objective through a two-fold st…

Winners and Losers

It is not as if some folks aren't winning.  Politicians are winning.  They are well paid, have juicy retirement benefits and if, perchance, they lose an election, there are more than enough PACs around who will hire them as consultants to live out life in luxury.  Look at Newt Gingrich for example.  He made himself millions of dollars after 'retiring' from public office by consulting, not only for PACs, but for beta noires like FNMA.

Who else is winning?  Academics with tenure are winning.  They have protected jobs with high income and rich benefits.  Public employees and teachers, who haven't lost their jobs.  They are winning.  Upper income folks collecting social security and medicare.  They are winning.  Middle income Americans on food stamps -- they are winning.  Rich folks.  They are winning.  They know that the coming tax increases won't effect them, because they don't have to show income.  Warren Buffett, if he wishes, can reduce his taxable income to ze…

RHBRI 4Q12 Market Strategy: Stay Defensive And Buy On Dips To Outperform The Market

Given the persistent headwinds from the external sector and general election overhang on the home front, we are of the view that the market will likely be stuck in a range-bound trading pattern in the 4Q. Consequently, we believe investors would still need to accumulate fundamentally-robust stocks on weakness in order to outperform the market, while staying defensive on the core holdings will provide greater stability to the portfolio performance.
In addition, as the search for yield will likely remain a key driver for both retail and institutional investors in the 4Q, high divided-yielding stocks will also continue to outperform the market, in our view. A list of our top picks is reflected in table below, which includes “buy on weakness” tactical stocks.

Which Sector to look at?
Sector-wise, our key overweights are telecommunications and banking, although we also have an overweight stance on the consumer, utilities, gaming and rubber gloves under the healthcare sector (see table below).…

When The Cheering Stops

The ECB's bond buying program is essentially equivalent to printing Euros and buying bonds of countries whose finances are failing.  This shifts the burden of debt toward France and Germany, all but engulfing them into the same cauldron as Greece, Spain, Italy, Portugal and Ireland.  That all of these countries continue to run large fiscal deficits seems not to concern anyone.  Nothing has changed in regard to the dramatic debt buildup that continues to run apace throughout the Eurozone.

Now to add to their other woes, all of the Eurozone countries are now headed into recession.  Germany had been an exception, but no longer.   Greece and Spain live with daily street riots and unemployment in excess of 25 percent.  It is hard not to see France and Germany headed that way.

Monetary expansion will not solve Europe's problems.  It actually make them worse, because it weakens each country's resolve to get their fiscal house in order.  Rising yields on sovereign debt forces countr…

The ECB Buys Bonds

Today, Mario Draghi is scheduled to announce that the ECB will buy the bonds of Greece, Portugal and Ireland (this gives holders of Spanish and Italian bonds the near certainty that they will be next if line if only their countries request it).  Somehow this cheers financial markets.  You have to wonder why.  A similar pattern occurs when bad economic news hits the US economy.  The market pundits then rush to the microphones to announce gleefully that the Fed will act and all will be well.  Is all well?

The idea that the ECB purchases of bonds will have any impact on the collapsing economies in the Eurozone and their spiraling debt is ridiculous.  The welfare state is no longer affordable in Europe or the US and that reality cannot be offset by temporary gyrations of the central banks.  It is just a question of numbers.  Taxing rich folks won't help either.  Eliminating defense spending in the US and everywhere in the world won't matter either.  The only thing that matters is r…

New IPO: IGB Reit

IGB REIT comprises of Mid Valley Megamall (retail; 1.72m sf NLA) and the Gardens Mall (retail; 0.82sf NLA) with a total appraised value of RM4.6b. Currently, Mid Valley Megamall is 99.8% occupied and the Gardens Mall is 99.7% occupied. Based on the IPO price of RM1.25, IGB REIT’s market capitalization would be RM4.3bn, making it the largest pure retail M-REIT. Following closely behind IGB REIT in terms of market capitalization size is Pavilion REIT (RM4.08b), Sunway REIT (RM4.02b) and CMMT (RM3.02b).

What are the key selling points for IGB REIT?
Prime asset with strategic location, huge catchment area and well connected transportation networks.

Diverse based of tenants to sustain rental income.
Low gearing provides ample room for acquisition growth.Based on IGB REIT’s Pro Forma Statement of Financial position, IGB REIT’s gearing ratio upon listing will be approximately 25.8%, which is below the average of listed MREITs of approximately 29.2% as at 31 Dec 2011. Hence, for future acquisitio…

Reflections on Eastern Europe

For those wondering....I have been traveling through Eastern Europe for the past three weeks, spending time mostly in countries that emerged from Soviet dominance in 1989-91.  I visited some of these countries before the Soviet breakup and the difference is breathtaking.  Freedom is breathed on every street corner.  Gone are the gray and dismal lines of people shuffling along the streets with their eyes on the pavement.  While there may be issues here and there -- there always are issues when people are free -- there is no question that all of these countries are in a better situation.

Putin is, of course, not happy about this.  Gone is the Soviet empire.  Eliminating discord by imposing totalitarian dictatorships is out of style in this part of the world.  These folks appreciate freedom in a way that the western world cannot appreciate, as the western world gradually gives up the freedoms that took centuries to put in place.

I am now in Prague in the Czech Republic, where the dismantli…