Showing posts from December, 2012

A Bad Deal -- No Progress on the Deficit

The Republicans have caved once again.  The deal hammered out between Biden and McConnell is one more setback for the nation.  It promises to put real brakes on the economic recovery because of the tax increases and makes no progress at all toward reducing the deficit that continues be the nation's number one economic problem.

Why Democrats support this is a mystery?  This deal and others like it, soon to be agreed to, virtually guarantee that future beneficiaries of social security and medicare are in for a very unpleasant surprise.  Those now 50 and under cannot expect much more than half of the promised social security and medicare.  Those under 40 should not expect anything at all.

Now, while age limits can be increased and means testing can be implemented, we should do it.  Doing it two years from now will effectively reduce future benefits more than doing it now.  Putting these things off just make things much, much worse in the future.  This was a squandered opportunity. 


What Happened to Curbing the Deficit?

In its extreme enthusiasm for Obama, the press has totally neglected the deficit issue, which was the entire reason behind the creation of the fiscal cliff in the first place. Instead the press has focused exclusively on Obama's absurd "tax the rich" gambit.  Obama's plan will likely lead to lower, not higher, revenues from the top two percent.  So, that part of the Obama agenda simply raises the deficit and provides disincentives to expand employment.  Great policy!

Meanwhile, the $ 1.6 trillion deficit is getting larger.  The real cliff lies ahead when the debt markets begin to balk at the continued explosion in US sovereign debt.  We are now on "Greece watch."  It is only a matter of time.

Meanwhile, the media continues to be irrelevant to the real issue of our time.  For a brief period, the media and Obama can enjoy their "victory," but the long run, not so long run now, leads to insolvency.  Watching Greece and Spain is instructive.  The media …

Is it SAFE to Invest in Private Retirement Scheme (PRS) ?

This is one of the common question asked by potential PRS contributors. First, I want to emphasis that PRS is a long-term investment for the purpose of retirement planning. In investment case, long-term means you already using the most powerful method to reap a good return. Anyway, many contributors still want to treat PRS as some kind of short-term investment. I got the answer for you.

Basically, PRS is very similar to unit trust investment. The underlying structure and investment philosophy were the same actually. No wonder many people perceived PRS is another unit trust scheme. Yes, you're correct to a certain extent.

Under the guidelines, each PRS providers must at least launched their core funds for investors to select, namely Growth, Moderate and Conservative. To make things simple, we only discussed these core funds because I believe most of us only invest in core funds. From these core funds, growth fund is the most aggressive one. In other words, the most risky one, with th…

Republicans for Tax Hikes

A number of Republicans have decided to vote for the restoration of the Bush tax cuts with an upper limit.  Obama's upper limit is $ 250,000. Apparently, many Republicans are willing to sign on if the upper limit is moved up a bit to $ 400,000 or $ 500,000.  If Republicans would simply refuse to sign on unless all the Bush cuts were restored, they would, without any doubt, get their way.  But somehow they have become convinced by the media, the Democrats, and their reading of the polls that they must buy into the Obama tax hike.

Why would Republicans get their way?  Because Obama would be forced to go along if the choice were that stark.  Obama does not want to preside over a major tax increase that further damages an already weak economy.  He would own it, not Republicans.  After all, the Republican House passed a full extension of the Bush tax cuts last July.  It is only Obama's petty insistence on raising rates on the top 2 percent, raising at best a trivial amount of revenu…

Was This By Design?

Listening to the media and democratic pundits ignore the exploding national debt to indulge in a dialogue about an almost irrelevant issue -- taxing the upper 2 percent -- makes one wonder?  Do these folks not understand the arithmetic.  Are they unaware of the $ 16.5 trillion national debt, growing by ten percent per year in an economy with just over $ 15 trillion in GDP?  Why the focus on something that, at the most optimistic assessments, can only produce 0.08 trillion in revenues annually?  Even that miniscule number is unlikely.  Far more likely is that the increased tax rates on the upper 2 percent would drive down revenues from that group.  But, even at the most optimistic assessment, it is a waste of breath.

So, why is that the entire conversation?  Maybe these folks are untroubled by a US decline.  They seem so fundamentally out of touch with traditional American values, maybe they are mainly interested in changing the culture to suit themselves even if that means economic dec…

Don't Blame the Economy on the Cliff

The economy is weak because of government policy -- not the ongoing fiscal cliff stalemate.  The Obama Administration has waged war against the private sector free market from the day it took office.  That war has borne fruit.  This is the slowest economic recovery since the 1930s.

The slow pace of economic growth has nothing to do with the cliff.  It has been going on since late 2009.  There is not going to be any serious economic growth in the US given the regulatory and legal environment that has been imposed upon the US economy since Obama took office.  The financial sector has been crushed, bank lending has been discouraged by the regulators, the energy sector has just barely survived the Obama onslaught, and employees are an endangered species.

Obamacare pretty much says it all.  Another costly mandate on companies and ultimately on individuals was the final kicker.  Along the way the elimination of the Keystone pipeline project was emblematic of the Obama strategy.  Push governme…

Markets Like Going Over The Cliff

Why is the stock market so much higher than just a few weeks ago?  Don't stocks know that we are headed over the fiscal cliff?

Going over the cliff is a good thing, not a bad thing.  Higher taxes, lower spending is just the beginning.  Much, much higher taxes and the virtual elimination of the military and other discretionary spending will be required just to get through the next 15 years of the entitlement programs.  Going over the cliff will provide 15 years of breathing room against the collapse of the entitlement programs.

Not going over the cliff could force a crisis in treasury financing within the next two or three years.  Going over the cliff gets you past the end of the Obama years with a national debt of 20 Trillion and eight years of a lost decade.  But, it will get you to the end of the Obama years most likely. 

Not going over the cliff will accelerate the national debt crisis with a good chance that we can't get through the Obama years without a treasury financing cr…

Exclusive Interview: YUMI WONG

Malaysia's upcoming popular model, Yumi Wong is the name you can't forget in the near future. She is pretty, famous and most important is very young. At the age of 23 only currently, she already features in many tv commercial, magazines, one of the most sought after model in town, and as an ambassador of many companies. Read to know more about Yumi:

When were you started to join the modelling/entertainment industry? And, how? Still remember that when I am still in school, one of my friend got a freelance job and she needed someone to accompany her. She asked few of our friends on trying to get the job, while I'm like no harm, just try. But, in the end, only I myself got the job. This is how I started by becoming a freelancer and keep doing it until making it as my career.
What's your BEST achievement so far? Best achievement? Hmmm, I won't say that I had any great achievement so far because I think that although I have been in this industry for few years, it was only r…

Why Pretend -- Let the Tax Cuts Expire

If there is no appetite for reforming entitlements, then our future is massive tax increases and a stagnant and depressed economy.  Why not start this process now?  The track that we are on will eventually lead to the kind of top tax rates that we see in Europe -- 70 percent in France, for example.  And even those rates won't improve the national debt situation.

The truth is that the Democrats plan is to continue to raise tax rates by pretending that somehow tax revenues can catch up with entitlement spending.  But there are no tax rates or revenues that can match the entitlement explosion.  Our national debt will be a multiple of GDP within a few years and is probably already unpayable at any level of tax revenues.

It's time to let the public get a taste of their future -- high taxes, massive bureaucracy, a crushing of the private sector, high and permanent unemployment, and diminished employment and income prospects for younger generations.  Within a dozen years, we will begin…

The Latest from Greece

Greek riots and demonstrations are now a daily event in Athens and other major cities.  Civil disorder is common place -- looting and random thievery are accepted in modern day Greece.

Meanwhile, the Greek public still believes that they are beset by the evil greed of rich people and large corporations.  If only....  

For three generations, the Greeks have been told that the "middle class" deserves endless services, employment guarantees, free health care, and no taxes.  They bought in.

It's always about "fighting for the middle class," until there is no longer a middle class. That's where we are in Greece.  We now have a protracted battle between the protected class -- mostly government employees -- and everybody else.  We now witness a civil war between the young -- who are supposed to support all of this nonsense -- and the old, who no longer can support much of anything.

Greece is the target.  That's where the Obama policies take you.  Substitute perso…

Road Signs on the Way to Greece

"Get something done....anything!"  That seems to be the thinking of the financial and political pundits.  Who cares if the outcome is further explosion in the national debt, more crushing taxes, and strangling regulations?  That seems to be the "rise above" mentality.  The ultimate policy is less important than the desire to get this episode behind us.  This is known as "kicking the can down the road."  The fact that the economy is getting a swift kick as well does not seem to concern the pundits.

The only thing that the President and his allies are willing to do is further the punish the free market and the private sector with increasing taxes and increasing regulation and creating further divisions between rich and poor and young and old.  This is the strategy that Greek politicians used for the past three decades to get Greece to the place where it is now. 

Blame rich people, blame the private sector and expand further government activity and the percent…

Boehner and his Troops

John Boehner is doing his best, but it is hard to fault the House Republicans for refusing to go along.  Boehner is playing tactics, while many House Republicans think it is too late for tactics. They are probably both right.

Boehner tried to push the ball back into the President's court, since the President has been unwilling to bend on anything.  It is not unreasonable for those among Republican ranks to ask why they should vote to raise taxes on some folks absent any offer of spending cuts at all from the White House. This is especially the case given that Senate leader Harry Reid said that the Boehner plan was dead on arrival and Obama promised to veto it.  Why capitulate pre-emptorily when there is nothing forthcoming from the other side?

Not that any of this matters much as long as entitlements are "off the table."  No deal is of any significance without entitlement reform.  Obama is perfectly willing to let the country go over the cliff and proceed on its way to Gre…

Don't "Rise Above"

CNBC keeps trumpeting the "rise above" slogan in reference to the "fiscal cliff" negotiations.  Nothing could do more damage than "rising above."  Rising above is how we got to this point.  "Rise above" means "kick the can down the road."  It is time, way past time, to not rise above.  Face the reality.  Don't duck reality by adopting the "rise above" strategy of the Jim Cramer no-nothings on CNBC.

Coming to a bogus agreement that does nothing to change the trajectory of medicare, medicaid and social security, accelerates the US on the path to bankruptcy.  If you like modern Greece and want to get there as soon as possible, then "rise above." 

If you want the US to return to fiscal solvency, then don't rise above.  Instead fight the current media frenzy to get to a fiscal deal regardless of what it implies for our future.

Go For Plan B

John Boehner is on the right track.  Passing an extension of the Bush tax cuts for as many people as possible is the best that can be accomplished at this point.  The main virtue of Boehner's plan is that the Republicans are not tied to a deal with this approach.  If Republicans agree to a tax hike deal and essentially no spending cuts -- the Obama approach -- then they will have nothing to run on in 2014.  By committing themself to an extension of the Bush tax cuts for almost everyone, they are able to maintain their anti-tax posture.

Let the Senate turn it down.  Let Obama veto it.  No harm done.

Going over the cliff puts the issue of our looming national insolvency front and center.  It is about time.

It is true that national defense is sacrificed and economic growth is probably jeopardized, but it would be anyway giving the current trajectory.

There is no time like the present to face what needs to be faced.  Lets get on with it.

What are the TAX benefits from Private Retirement Scheme (PRS)?

According to Securities Commission of Malaysia, tax incentives are provided to both employers and individuals for the first 10 years from assessment year 2012; in addition to the tax deduction permitted for EPF contributions: For Individual: Tax relief of up to RM3,000 per year will be given for contributions made within that year. This is on top of existing tax relief already enjoyed by taxpayers. How much can you save from tax? Let's look at the table above which illustrates the amount of tax saving an individual get after personal tax relief and RM6,000 EPF + Life Insurance tax relief. Assuming maximum RM3,000 PRS relief, the amount of tax saving depends on your level of income. For high tax bracket individual, you can save up to RM780 annually!!!

For Employer: Tax deduction on contributions to PRS made on behalf of their employees above the statutory rate of up to 19% of employees' remuneration was granted. Example, if an employer already making 12% EPF contributions to his em…

How Private Retirement Scheme (PRS) works actually?

Many people are still in the dark on how actually Private Retirement Scheme (PRS) works. In order to clear everyone's mind, we hope this post was timely for those who may want to entitle for extra tax relief of up to RM 3,000 given by PRS before 31st December 2012. To further explain the whole scheme, Finance Malaysia Blog was glad that Alex Yeoh, a licensed financial planner is able to share with us on this matter.

By Alex Yeoh,
First we must know that PRS is a voluntary scheme for the purpose of retirement saving. For ease of understanding, let us look at the picture above which explain the process into two parts. Initially, contributions were made by us into the PRS fund that we select. It was as flexible as  normal unit trust investments (shown in upper part). Contribute anytime any amount as you like, without any specific intervals. As simple as that.
When can I withdraw the money? Each time, your contributions were split and maintained in sub-accounts A and B similar to EPF way …

Without Medicare, There is Nothing There

The big driver of the national debt is medicare spending, made worse by Obamacare.  This subject is "off the table" according to the White House.  Put simply, the Obama administration is prepared for an exploding national debt and is unwilling to make any effort at all to slow that explosion.

Raising tax rates and tinkering with social security cost-of-living adjustments is a joke.  Neither will reduce the future trajectory of the national debt and raising tax rates will actually make things worse.

If Republicans sign on to this deal, you have to wonder what they plan to run for re-election on in 2014.  Why control the House of Representatives, if you intend to do nothing but cave to Obama?  Where is the loyal opposition?

Boehner against Boehner

You have to feel for John Boehner.  All the self-appointed conservative pundits -- Peggy Noonan, Bill Kristol, etc., are telling Boehner to give up on holding the line on tax rates.  What happened to the argument that higher tax rates means slower economic growth?  Did the laws of economics suddenly get suspended to accommodate the political situation?

Raising tax rates in the midst of a sluggish economy is absurd policy.  Only a clueless President would suggest such a path.  Unfortunately Republicans are now climbing all over themselves to jump on the "higher tax rates" bandwagon.  If successful, many more Americans will be faced with a much more limited economic future.  Is politics worth this?

So, Boehner keeps offering up one compromise after another -- mostly, one suspects, to appease his own troops who are running for cover. 

It looks like Republicans may end up providing cover for Obama as they join hands to raise taxes and increase spending.  They never learn.

So what a…

The Fed: What the Fed can do and What it Cannot Do

More ink and conversation is wasted on what the Fed is planning to do regarding interest rates.  The Fed doesn't set rates other than it's own lending rate -- nothing else.  Treasuries don't have low rates because the Fed wills it.  Treasuries have low rates for the same reason the US economy is in shambles -- everyone is fearful of the future.  As bad a bet as treasuries are, at the moment, most investors feel safer in treasuries than in other assets.  That's why rates are low.  The Fed has little or nothing to do with that.

What the Fed can do is change the money supply and they are doing that.  They can also "monetize" the debt and they are doing that.

Sooner or later a panic will take place and the world will run from US treasuries.  It won't be pretty and everyone will quit talking about the Fed and begin talking about the insolvency of the US, which is the real issue.  The Fed is a sideshow. 

Ben Bernanke, like lots of "political economists"…

Debt -- The Perfect Storm

Treasury bill rates are barely above zero.  This means that interest on the nearly $ 11 trillion dollars worth of funded debt are miniscule.   Most states and local governments face low interest rates on funding as well.  What happens when this changes?

Imagine that rates increase by a mere two percent on US treasuries, which would put such rates closer to their historical averages.  Two percent of $ 11 trillion is $ 220 billion per year.  Compare that to what Obama expects to receive from "taxing the rich" -- $ 80 billion per year.

But once rates start up, there is no reason for them to rise by a mere two percent.  Rates have been as high as high double digits in the past -- try the early 1980s, for example.  Lets suppose, to keep things simple, that once inflation takes hold, rates level off at ten percentage points higher than current rates.  That would $ 1.1 trillion to annual spending.  How does that compare to taxing the rich.

Add in the spiraling debt of state and local …

Now Germany

The Bundesbank, Germany's central bank, released this statement yesterday:

"The cyclical outlook for the German economy has dimmed and there are even indications that economic activity may fall in the final quarter of 2012 and the first quarter of 2013."

This was less a prediction than a recognition of reality.  German industrial output fell 2.6% in October. 

By bankrolling Greece, Portugal and, implicitly, Spain, Germany has now joined the crowd.  The debt problems in Germany are now beginning to catch up with the debt problems in Southern Europe.  Why?  The bailouts!

Bailouts always raise the indebtedness of the country or political entity doing the bailing.  Germany is doing the bailing.

It is now time to start the clock on Germany.  How soon before folks wake up to the fact that Germany can't pay its debts either. 

The road to Greece is beginning to get crowded.

Who will be the first major country to follow the Greek script -- Japan, Germany, the US?   It is just a ma…

New Fund: OSK-UOB Multi Asset Regular Income Fund

As investor continue to seek safe investment havens, i.e. investments that are more stable and/or of lower risk and with regular income, OSK-UOB Investment Management see opportunities in the Asia and Asia Pacific (ex Japan) region. Hence, they are now offering investors a fund that utilizes a multi-asset strategy to generate potential regular income and capital growth in a fund that invests in three yielding assets i.e. bonds, equities and REITs (real estate investment trusts) from the Asia and Asia Pacific (ex Japan) region.

The Fund is suitable for investors who:
seek regular income and capital growth over medium to long term;are willing to accept moderate risk in their investments; andwish to benefit from investment exposure in the Asian and Asia Pacific (ex Japan) region.Tactical Asset Allocation? Of the fund's investments, the External Investment Manager will initially invest in accordance to the allocation stated in the table below. However, for the purpose of tactical asset a…

Shame on Geithner and Summers

Two guys who should know better are helping to lead the country into bankruptcy -- Tim Geithner and Larry Summers.  They act as if the entitlements really aren't a problem.  They are either deliberately misleading the public or they truly have no idea what the social security and medicare are all about.  I suspect the former.  Geithner and Summers are likely only thinking about preserving their relationship with our bizarre President.  That means ignoring the fiscal issues that loom far larger than any short term fiscal cliff.

Both of these guys are focused on raising marginal tax rates which generally lead to lower tax revenues at the level rates are now.  Thus raising rates expands the deficit and increases the national debt more than leaving rates alone.  So, why are Geithner and Summers deliberately promoting policies that raise the national debt?  To curry favor with the White House and to expand their own sphere of influence within the White House is the only logical explanat…

Kick the Can and Kick the Economy

The Obama plan is now pretty clear.  Do nothing at all about the deficit or the looming national debt disaster and raise tax rates.  If you asked what is the worst possible outcome for the American economy, this is it.  Meanwhile corporate leaders and even some Republicans are genuflecting over this solution as a great bargain.

If you think the fiscal cliff is a crisis, wait until social security and medicare run out of money which is about a decade away.  At that point, the national debt will be 25 or 30 trillion dollars -- unpayable at any tax rates.  The outcome?  Check out Greece -- civil disorder and political chaos.

As for the economy, we are now in the new normal -- staggeringly high unemployment, virtually zero economic growth and little or no hope for the younger generation in jobs or in future income.  Politically, you now face class warfare and you will soon face the war between the young and old over scarce resources.

What is happening at the federal level in the US is compou…

"I Wlll Not Play That Game"

Obama laid down a new gauntlet today.  Now he refuses to negotiate over raising the debt limit.  "I will not play that game,"  he says.  What Obama is saying is that he has no intention of making any concessions to reducing the national debt or the ongoing deficits.  The road to bankruptcy is not going to be blocked by this President.

The only thing the President will consider is raising taxes on everyone above $ 250,000 in income.  If he succeeds, revenues will be lower and the deficit will expand; economic growth will turn negative and the US will stagnate further.  That's the President's plan.  Just remember that when England did exactly this three years ago -- raising taxes on everyone making over $ 1 million, the number of tax payers filing returns over $ 1 million income dropped 60 percent and revenues from this income group collapsed.  That's where the tax on "millionaires and billionaires" is headed.

Either Obama is woefully ignorant of economics …

Falling into a Dividend Trap? (Dec 2012)

No doubt, many investors prefer only invest in dividend-based counters. Malaysia is famous and already been recognized as one of the hottest spot for those looking for high dividend yields counters. But, things may changed. Why?

First, how do we calculate dividend yields? It's dividing the one year dividends declared by share price. Normally, yield which is higher than 5% was considered attractive. Just when everyone looking to hide their money from risks, yet aiming for higher returns than putting into fixed deposit (3% p.a), dividend counters seems to be their preferred selection.
Should we follow the "professionals"?
Yet, many investors just follow the winds (fund managers, analysts, consultants...) to invest based on the past 6 months, 1 year or 2 years track records. Yes. It's proven track records. But, where we are heading to is more important, right?
If you read the newspaper which published out-dated yields data, good luck. It's was based on last year dividen…

Taxes Won't Matter

At the end of the day, it really doesn't matter what happens to taxes.  There is no tax policy that can catch up with the entitlement promises.  The only reason that taxes matter is the impact on economic growth and the answer to that is pretty simple. Higher taxes mean lower economic growth.

We are headed for bankruptcy as a nation, regardless of what happens to the Bush tax cuts.  Double all current tax rates and revenues and even that doesn't help.  We have a $ 66 Trillion unfunded medicare deficit.  A trillion here or a trillion there in tax revenues is completely irrelectant.

So, why is the media so focused upon whether or not Republicans will agree to an increase in tax rates.  Whether or not the Republicans cave only matters for economic growth.  It is completely irrelevant to the issue of looming fiscal bankruptcy.  If Republicans cave, we get lower economic growth, but no tax rate policy solves the nation's future bankruptcy.

The Obama folks are bound and determined …

Phony versus Real

Taxing millionaires and billionaires is a slogan.  There is an interesting story in today's WSJ about the results of England's recent experience of taxing the rich.  They raised the tax on taxpayers making more than $ 1 million annually from 40 % to 50 %.  Guess what?  Tax revenues collapsed, while the number of tax returns reporting $ 1 million or more in income fell by more than 50 %?  That is a preview of our future if Obama gets his way.  Obama's soak the rich scheme will lead to lower revenues, a higher deficit, and a weakening economy.

Meanwhile, the entitlements march on. National debt, now at $ 16.3 Trillion will be $ 22 Trillion by the time Obama leaves office, if we are lucky.  It could be $ 25 Trillion if the economy falls apart because of Obama policies.  Taxing rich folks brings in $.08 Trillion per year, assuming you believe Obama's assumptions.  That means the national debt will be only $ 24 Trillion by 2016, not $ 25 Trillion..  Big deal! Taxing the rich…

The President Owns 2013

Whatever happens to the economy in 2013 belongs to the President.  There is no way out of that regardless of how the media attempts to blame the President's critics.   Congress has never been blamed for a recession.  Hoover was in the first year of his first term as President when the Great Depression began.  While Hoover had nothing whatsoever to do with causing the Great Depression, his name will forever be associated, in a negative way, with the Great Depression.

One suspects that 2013 is going to be a disaster quite independent of what resolution there may or may not be to the fiscal cliff.  But, the President's proposals have the potential to make the situation far, far worse.  One virtue of going over the cliff is that everyone will get a small taste of our future.  Sooner or later the national debt, now over $ 16.3 Trillion and growing by ten percent per year, will simply overwhelm any realistic effort to bring it under control.  Social security and medicare will default…

The Christmas Buying Surge

Is the surge in Christmas buying a good thing?  Figures were released this week that American households have a lower net worth (corrected for inflation) on average than forty years ago.  So, let's spend more and save less?   That's good news?

American families are collapsing under their own sea of debt while the future of their children and grandchildren have already been sacrificed for the welfare needs of current generations.  This is good?

It is a sign of the times that things that increase our level of debt and reduce our attention to thrift and responsible spending are now seen as good things?  Look at CNBC news.  They trumpet the "Rise Above" slogan, encouraging politicians to kick the can down the road by coming to any agreement, no matter how absurd, to avoid the fiscal cliff.  "Rise above" means rise above sanity, one supposes.

President Obama is almost a caricature of how absurd our politics have become.  What does he advocate?  More spending, highe…