To Cut or Not To Cut?

For many Malaysians, the first thing that probably comes into mind is the on-going P1 WiMax advertisement that has caused some gender controversies but essentially tried to convince consumers to switch their internet broadband services to the wireless WiMax technology. The latest P1 WiMax technology is supposed to make the experience of broadband internet surfing better and faster, "plug-and-play" with no physical phone line required.



Now that's not what I am referring to. I am referring to the more pressing issue of Malaysia's Government's recent plan to introduce service tax for credit cards from 2010 onwards. To recap, each card holder will be charged RM50 and RM25 for each principal card and supplementary card respectively, starting January 2010. If a person holds 5 credit cards with two supplementary, the total amount could add up to RM300 each year, and that's a big amount to pay for!


Personally, I hold something like 10 credit cards! Well, it's not that I'd like to have so many of them but merely because of the different kind of benefits that each of these cards could offer. For example, some credit card offer 2% rebate on petrol usage, while some others offer better discounts or rebates for supermarket spending, etc. Essentially, the banks have been very creative in rolling out different kinds of benefits to entice consumers to sign up for different credit cards. Since we can't have all-in-one facility, we have no choice but to sign up for these different cards. After all, there is no harm done provided the use of credit cards are not abused.

With the introduction of service tax, the benefits now seem to be muted. Besides the consumers, the biggest losers will be the banks and the sales agents whose livelihood depends on promoting the credit cards to earn a commission!

While the objective of prudent spending appears sound and should be supported, I believe it should not be done at the expense of genuine credit card spenders. The Government should instead impose targeted measures on credit card holders who defaults on payment on a regular basis. For instance, a mechanism to suspend all the credit cards of a particular credit card holder who defaults more than x number of times should be considered. Else, create more incentives for the use of debit cards instead of credit cards instead.

Nevertheless, if you are holding on to many credit cards right now, do not simply cut them apart. Wait for further advice from banks pertaining to this matter. I believe banks are actively pursuing the matter with the Government in order to come up with better measures. With the Government's constant flip-flopping policies, it will not be a surprise if they decide to change it again!

After all, it's also still not too late to make a final decision to cut your credit cards in December, if the situation renders so.

Power Towards High Income Nation....How la?

Our beloved Prime Minister of Malaysia had finally delivered his much anticipated 2010 budget. It was claimed to be a peoples' budget, with the stated aim of elevating the people of this country to high income status....

Sure, a number of positive incentives were tabled, such as:
- reduction of personal income tax from 27% to 26% effective 2010;
- an increase of RM1,000 for personal tax rebate
- an additional RM1,000 for personal tax relief on pension fund and life insurance
- people who are self-employed are given the option to contribute to the pension fund savings at any amount monthly starting 2010, with the Government contributing further 5% to the amount of contribution;

However, the positives are mitigated by the following negatives:
- introduction of RM50 service tax on each principal credit card holder and RM25 for each supplementary credit card holder
- reintroduction of real property gains tax (RPGT) for real estate disposal, starting from 2010, with a minimum of 5% tax regardless of the duration of holding period (Again, a common Government flip-flop policy sickness has reemerged!)
- realigning the fuel subsidy scheme to make sure that it benefits the lower income group....Whatever that means!

Is there really much to shout about? Hang on a second....how are these supposed to elevate the people to become high-income nation? To make things worse, the Government has also slashed next year's targeted GDP growth to around 3%! On the other hand, Malaysia is barely a decade away from its Vision 2020 target and there's certainly little sign that the developed status objective can be achieved by then! As per my understanding, the nation will need to grow something like 7-8% per annum on average for the next decade in order to achieve that and that's a very tall order indeed!

I am sorry, I just don't see how the "high income" word can be associated in this context! It certainly won't work unless there is a radical change in the governing approach and mindset, and with principal focus on meritocracy, liberalization and enhancing competitiveness as the priority.

What's your thought on the recent national budget for 2010? I look forward to your sharing.

Is Gold Truly A Safe Haven?

Following my post on "How To Invest In Gold?", I received a number of queries on whether investing in gold is truly safe as projected by many investors or analysts.

For the matter, i can assure you that all investments come with risks, with gold being no exception.

With gold prices reaching record highs and recently exceeding USD1,000 per ounce, there were many bullish calls for gold to scale even higher!

Before you decide to jump into the gold rush, i recommend you to first read this new book written by Doug Eberhardt. The title of the book is "Buy Gold Safely". The book reveals the importance of gold, how you can keep your gold investment secured, the underlying secrets of gold investing that the experts do not want you to know, common pitfalls to avoid while investing in gold and much more!

Click Here!

Although some of the information contained in this book are slightly outdated, it certainly pays to understand how gold mechanism works and why it is absolutely critical in preserving our wealth and maintaining a balanced investment portfolio!

On the other hand, do not make the mistake of simply assuming investing in gold at any time is good! Remember the big correction in gold prices in 2008 from the peak of 1000 to the low of 712? Understanding the state of affairs and a sense of timing are still essential!

Click Here!

How To Invest In Gold?

Arguably, gold is the only investment asset class in the world that is widely perceived to be the safe investment haven. Many investors will therefore choose to invest in this precious metal as part of their wealth preservation and creation strategy.

During last two years, when all the asset classes have failed to perform, gold is the only investment asset that has remained outperformed. As such, Gold is also widely believed to be the best hedge against the U.S. dollar and inflation. When U.S. Dollar falls, demand for gold is set to increase as investors sought to preserve their wealth. In addition, gold has a very low correlation with other asset classes like equity and debt thereby it's a very good asset to diversify for the overall portfolio.

The most direct way of investing in gold is to purchase the physical gold bullion directly from financial institutions or dealer. You can then choose to safe keep the gold yourself or the safer alternative is to keep them in a secured vault owned by third party such as banks.

Instead of holding physical gold bullion, there are a number of other forms of investment in gold without the need to hold physical stock. In Malaysia, both Maybank and Public Bank offer the convenience of gold investment account with a passbook, whereby every trade is done through the account without the involvement of physical stock. Transactions are highly liquid as the buying and selling are based on the bank's prevailing quoted buying and selling prices.

Other means of gold investment (without physical delivery) include Gold Exchange Traded Funds (ETFs), unit trusts (mutual funds) and also the choice of investing directly in gold mining companies.

Gold ETFs are open-ended mutual funds that are passively managed and they mirror the return of spot price of gold. Gold ETFs are listed and traded on stock exchanges just like stocks. As such, the cost of trading Gold ETFs is lower compared to mutual fund type of investment. Gold ETFs provide returns, which before expenses, closely correspond to the returns provided by physical gold. Each unit is approximately equal to the price of 1 gram.

Some of the most popular regional gold ETFs and mutual funds include:
- DWS Invest Gold and Precious metals Equities (listed in Singapore)
- United Gold & General Fund (listed in Singapore)
- DWS Noor Precious Metals Securities A USD (listed in Singapore)
- SPDR Gold Trust ETF (listed in U.S., Hong Kong, Singapore and Japan)

Here you are some of the gold investment vehicles available for your consideration, should you decide to get hold of one of the world's most highly sought after precious metal!

It's All About Liquidity

What happens when you have lots of money in the bank? Quite rightfully, the tendency is to either spend it or invest it wisely. In a macro scale and global financial terms, we call this liquidity.

Back in 2006 and 2007, global financial markets were flushed with liquidity, aided by the sub-zero interest Yen-carry trades. After all, funds were cheap and it was not surprising that investors took the risk to invest in assets with higher returns with lower cost of funds. However, many investors were caught badly burned as the global financial markets collapsed in the wake of the collapse of Lehman Brothers, followed by the massive loss of liquidity.

When funds dried up and there was a massive loss of confidence, investors naturally become risk averse. Markets continue to fall until the first quarter of 2009 amidst this phenomena.

Since March 2009, the outlook has changed drastically, due to massive pump priming by countries around the world and the huge injection of funds by the U.S. Government to bailout troubled financial institutions. Quantitative easing (printing of money) by countries such as U.S. and U.K. has certainly contributed massively to the availability of funds as well.

As a result, global financial markets are now flushed with liquidity. Whether this is artificially created or not is subject to your own interpretation though.

With U.S. economy showing signs of recovery, the U.S. Government has to decide whether it's time to gradually withdraw the stimulus plan. Indeed, this is what comes out of yesterday's FOMC meeting, however, with no specific timeline mentioned yet. Federal Reserve is not likely to do so until U.S. unemployment rate starts tapering off. Bear in mind that with all the talk about U.S. recovery, the unemployment rate is still hanging high at almost 10%!

With liquidity being the major driving factor, any move that could potentially dampen liquidity prematurely may spark another round of fear within the financial sector.

On the other hand, i believe the bull party is ain't over until there is a dramatic change in liquidity. As such, I am quite prepared to hold on to my positions until there is a clear sign of otherwise emerged.