Shall I Accept A Lower Loan Installment?

In view of the current low interest rates environment due to global economic crisis, costs of borrowings have become cheaper and if we were to base on the original loan facility agreement with the bank, the repayment period for the affected loans will be shortened, assuming the same amount of installment were to be paid each month. In some countries, banks are required to voluntarily reduce the monthly installment amount of loans so that the repayment period will not be shortened. In some cases, banks even allow troubled borrowers to stop payment for a specific period of time, or willingly negotiate with the borrower to restructure the terms of loan. The objective of this is simple, that is, reduce the burden on consumers and/or businesses in a challenging time like this.

Some people have sought my opinion whether to accept the reduction in installment amount. My answer to that is why not, even if one has no financial difficulties! After all, one could save a fair amount of commitment each month and assuming one has multiple loans (like myself), the amount of savings each month can be quite sizeable.

There are many advantages reduced commitment can bring to the equation. Among them include:
- excess funds for spending on goods and services. Flow of funds and spending are essential for the growth of economy. An environment without consumer and business spending will just make the already stale situation worse off!

- pay off debts which carry a higher interest rates than one's mortgage loan. Credit card debt is an obvious example. This could lead to significant savings in cost of debt.

- best of all, use the savings from the excess funds to invest wisely. Given that many investment grade assets have been bashed down badly during the past one to two years, great bargains are abundant! For instance, stockmarket is expected to give the best return once the global economy recovers. So for those who have not acquired the knowledge of investing, now is the best time to educate yourself, before it's too late!

Also, keeping extra cash in your pocket at the time of crisis is definitely a wise thing to do. After all, we will not know what may happen next. For instance, job retrenchment, business failure, etc, may just pop up down the road, especially if the economy gets worsen.

One word of caution though, do not expect every bank will voluntarily reduce the installment for you. I know for some banks, you will actually have to write in to request for the reduction. So do not just assume this will be done automatically. Go ASK YOUR BANK now!

8 Reasons Why Obama Will Not Solve This Crisis

JS Kim does it again! With his unorthodox assessments and predictions (that often come true, i have to say!), here are 8 reasons why he thinks the Obama administration will not pull America and the world with it, out of its current economic throes, by the end of this year!

(1) Consider that President-elect Obama voted FOR the horrible $700 billion bailout plan that accomplished less than zero in fixing the global economy while only transferring wealth from people that were struggling the most to the unethical financial executives that created this problem.

These were my exact words in October, 2008, verbatim, about the eventual effect of the bailout plan: “Don’t believe the media spin. This will fix nothing. Even if and when the government overpays Wall Street and US banks by 300%, 500% and 1000% for their toxic assets, this temporarily recapitalizes these financial institutions but only creates A MUCH BIGGER PROBLEM for the future.”

If I understood why the bailout plan would most definitely fail, and the next President of the United States could not, that is a scary thought. On the other hand, if President Obama understood that the bailout plan would likely accomplish nothing but the transference of wealth from hard-working citizens to corrupt financial executives and still voted for the bill, then this action needs no further discourse.

(2) The problems afflicting the global economy still have not yet been addressed by any Central Bank or government in any intelligent manner and thus, are not on the path to recovery. No single man, no matter how competent and no matter how much goodwill he possesses worldwide, can fix this current crisis without severely overhauling the current fiat monetary system. There has been zero evidence thus far, that the Obama administration wishes to address the root problem of this crisis – an unsound monetary system.

(3) This crisis is being misreported by virtually every finance journalist in the world due to an education system that teaches an unsound Keynesian economic model at every top university in the world. From the Obama administration’s actions thus far, it is clear that he is taking a Keynesian approach in his attempt to fix the problem, which is to spend your way out of an economic meltdown. The only problem is that any “fix” that may result from such an approach will be 100% illusory and only result in further destruction of wealth by ensuring future devaluation of the world’s major currencies.

(4) Thus far, President Obama’s cabinet appointments do not reflect, in the slightest manner, the enormous change that he spoke of during his campaign. On the contrary, his talk of change, quite honestly, appears to be 100% rhetoric. A clear example of this is President Obama’s appointment of Timothy Geithner, the former President of the New York branch of the U.S. Federal Reserve, to the U.S. Secretary of Treasury, and his appointment of Paul Volcker (Chairman of the Federal Reserve Board, 1979-1987; Chairman of the New York investment banking firm, J. Rothschild, Wolfensohn & Co.; Chairman of the Board of Trustees of the Washington-based financial advisory body, the Group of Thirty; founding member of the Trilateral Commission; and Chairman of the Board of Trustees of the New York-based International House) to head his economic advisory board.

A further inspection of Obama’s economic advisory board reveals a who's who of executives from the institutions that created this current mess!

Furthermore, Volcker was highly instrumental in ensuring one of the worst decisions in economic history, the U.S. decision to suspend gold convertibility in 1971 that subsequently allowed a 100% fraudulent monetary system to spread globally, and consequently almost resulted in the collapse of the U.S. dollar in the late 1970s. Obama’s cabinet appointments are perhaps the most damning evidence that he is strictly about maintaining the status quo and not at all about change when it comes to Wall Street.

(5) For a historical example of how the Obama experiment is likely to turn out, please research the election campaign of Mexican President Vicente Fox (Mexico’s President from 2000-2006). Vicente Fox was largely perceived as a savior among the Mexican general masses because he was the first opposition candidate to defeat the PRI (Institutional Revolutionary Party), a party that had ruled Mexico for more than 70 years. Fox’s election campaign, full of slogans like “Vote for Change" and “Enough!", could have served as a blueprint for Barack Obama’s masterful election campaign. By the time Fox’s six years of Presidency had expired, he was widely regarded as a huge disappointment for failing to implement almost every major plan of change he promised during his campaign and doing very little to change the status quo.

(6) Don’t let President Obama’s professed anger regarding the $165 million of bonuses slotted for AIG executives fool you. The U.S. government clearly changed security laws at their whim last year by making short selling of financial stocks illegal for periods at a time to artificially force financial stock prices higher and thus, help out financial executives, with little opposition. Thus if the President and U.S. Congress’ anger about these bonuses are real, it seems to me that they would just implement new laws to end fraudulent bonuses. They would just “do” instead of keep “trying.”

(7) Why wasn’t the expressed outrage of the Obama administration regarding $3.6 billion of bonuses that Bank of America (BAC) paid to Merrill Lynch (MER) executives, a figure that dwarfs $165 million, equivalent to the outrage being expressed over the AIG bonuses? Something tells me that because AIG is not a pillar of Wall Street it is receiving harsher treatment. I’m not arguing against this harsher treatment by any means. I’m merely illuminating that the hypocrisy in these different standards is an indictment that Wall Street firms’ ties to the U.S. government are so strong that they are still being favored despite the rhetoric.

(8) Remember when former U.S. Treasury Secretary Hank Paulson’s original $700 bailout bill was a 3-page document and he promised that no money would be spent without extremely close supervision? Remember how this 3-page bill mysteriously morphed into a 450-page $850 billion bailout, and loopholes galore were snuck into this new bill last minute so that billions of the bailout money could be allocated for executive bonuses although Paulson promised us such shenanigans would not occur? Remember that Obama voted for this bill!

Here you have it. Time will tell whether his views are proven valid. If indeed correct, it is a scary thought that the world economy will take some more beating before the dust finally settles.

For the full article, please click here.

Is US Dollar A Bubble In The Making?

Many perceive the US Dollar to be a safe heaven, never mind that the US economy is in shambles and the largest banks and automotive companies are almost to the brink of bankruptcies, never mind that US has been selling Treasury bills by the tons to avert a financial collapse and never mind that the US stock markets have shed its value by about half in less than one year! The US Dollar has in fact appreciated against most major currencies by a large scale except for the Yuan and the Yen.

So what caused the Dollar to appreciate?

- Risk aversion to global markets, due to the crash in most global asset classes and the credit crunch in the US. There is therefore a strong demand for US Dollar to be averted back to the US. Also, severe deterioration in world wide economy following the US footsteps has further caused risk aversion and repatriation of funds from both developed and emerging markets.

With the US resorting to printing money (or technically termed as "quantitative easing" to make it sound diplomatically correct!) in order to bailout the banks and save the faltering economy, questions are asked whether the Dollar's strength can sustain in the future.

In essence, any currency will lose its value when the supply is more than demand over time. The problem with quantitative easing is that by the time the money reaches the level of the common consumer and caught up with the excess money in the market, inflation cripples in and the dollar worth of currency will therefore be reduced. This is not the case when the money is first injected as it takes time for inflation to recognise the new money and catch up.

As such, the current strength in US Dollar will likely be hampered in the long term as inflation or hyperinflation takes effect in the US, as and when the economy recovers.

It is also likely that prices of commodities will again be on the rise by then!

On the other hand, better lock down your mortgage rates before interest rates move up in tandem with inflation or a hyperinflation!

Recession Is On The Cards? (Part 2)

Against expectations, the Malaysia Government throw in a massive RM60 billion (US$16.2b) stimulus package, that is equivalent to about 9% of GDP! The increased spending will effectively blow up Government's budget deficit to 7.6% in 2009.

The RM60bil package, to be implemented over 2009 and 2010, includes RM15bil as fiscal injection, RM25bil in Guarantee Funds, RM10bil for equity investments, RM7bil for private finance initiatives and off-budget projects, as well as RM3bil in tax incentives.

The package is aimed at reducing unemployment, increasing consumption and spending in order to kick start the economy, enhances bank lending and liquidity, providing a lifeline to businesses through improved working capital and incentives.

For me, the next critical step is how efficient and how well these measures are going to be implemented. Based on the history as guidance, implementations tend to be poorly executed and there is also the issue of lack of transparency. I only wish the Government will improve this time, given its significance.

One important point to note is that despite the record amount of targeted spending, the Government has only revised this year's GDP growth to the range of minus one to positive one percent! Which means Malaysia would have certainly fallen into a more severe recession if without these measures taking place! Any blips in execution could well cause a more severe downturn in our economy.

Do not be too surprised if that happens, though!

For the complete story, read here.

Worst Ever Results For Berkshire: Warren Buffett

Berkshire Hathaway Inc. posted its worst results ever in 2008! Billionaire Warren Buffett said the economy “has fallen off a cliff” and that efforts to stimulate recovery may lead to inflation higher than the 1970s. Berkshire’s shares have lost almost half their value in the past year as the bear market dragged down financial assets and the recession put pressure on profit from the company’s more than 70 operating businesses. Berkshire’s fourth-quarter net income fell 96 percent to $117 million. Book value per share, slipped 9.6 percent for all of 2008, on the declining value of derivatives and the company’s stock portfolio.

He believes the bailouts of the banking system and “quasi-banks” such as AIG were necessary, even if everyone dislikes what’s been done to salvage the New York-based insurer. He favored insuring all bank deposits, and in response to a question about nationalizing lenders, Buffett said he doesn’t see any moral hazard in the U.S. seizing an institution when shareholders are already almost wiped out.

He also believes the root cause of the current crisis was that companies used too much leverage and “played games” such as creating special investment vehicles to keep producing earnings growth. The U.S. economy was not a "house of cards" over the past ten years, but mistakes were made when it came to borrowing money.

Other keynotes include the following:
- The American public is fearful, confused and changing their buying habits,
- The economy turnaround won't happen fast.
- Five years from now, the economy will be running fine. The strength of the American system will pull it through, just as it has many times in the past.
- Most banks are in "pretty good shape" and can "earn their way out" of the current problems given the low cost of funds. Banks, however, "need to get back to banking.";

- It is extremely important that the government make clear depositors won't lose their money if banks fail;

- Buffett wishes he had written the New York Times "Buy American" a few months later, but stands by the basic argument that one will do better over a ten-year period with stocks that one will with Treasuries. He said in the article he wasn't calling the bottom of the stock market, and he still isn't;

- Buffett says derivatives are not "evil" and to be avoided at all costs, but they are "dangerous" and should be used very carefully. He still expects to make money on the long-term "put option" equity derivative contracts Berkshire has written;

- Housing market could work through, or "sop up," its excess supply in as little as three years if new construction is reduced to a level below natural population growth;

- Mark-to-market accounting should be retained, but regulators shouldn't use it so much to require institutions to increase their reserves.

Here are the full videos of Warren Buffett's interview with CNBC. It's quite a long interview but well worth the time listening.

US Economy has fallen off the cliff


Q&A


Fear Affects Everyone


Banks should go back to basics


Crooks & Investment Advice


Investment Regrets


Automotive Bailouts


Deals and Opportunities


Finding the right solution


Advice for Obama


The rich to subsidize the poor


Final Thoughts

How To Invest At A Point of Maximum Pessimism

Want to know how to invest at the point of maximum pessimism (given current stock market's doldrums)? Below is an experts' view on investing techniques at current market pessimism and where Malaysia stands from both economic and technical perspective.

The live interview was conducted by TheStar newspaper on 20th February 2009. This video may be a tad back-dated but the interviewees certainly gave a full-hearted and frank opinion on current business and market conditions, and sharing good ideas on investing for better future returns.

Here's the video. Enjoy.

AIG Continues To Bleed....Badly!

American International Group (AIG) incurred a record loss of US$62 billion last quarter!

Here are some startling statistics:
- The loss occurred in just 92 days, i.e., $470,000 a minute! And it's more money than Bill Gates' net worth.

- The quarterly loss was the biggest in corporate history, topping the previous record of about US$45 billion set by Time Warner Inc. during the fourth quarter of 2002.

- AIG continues to bleed, despite U.S. Government bailout fund of US$150 billion! Now AIG is asking for another US$30b!

- AIG's quarterly loss is about 12 times the $5.3 billion it lost in the same quarter of 2007. That was more than half the US$114.53 billion lost by nearly all other Standard & Poor's 500 companies combined in the fourth quarter. This represents also the first quarter ever that the S&P 500 has tallied a loss.

- AIG lost more in the fourth quarter of 2008 than it made from 2001 to 2007!

- If $62 billion was distributed across the U.S. population, Americans could each get about $200!

- AIG's loss amounts to 92 percent of the US$67.4 billion that Americans spent at world's largest retailer Wal-Mart Stores in the fourth quarter, which includes the holiday season.

- It would take a person spending $1 million per day, everyday, the next 169 years to spend as much money as AIG lost during the fourth quarter, which lasted just 92 days!

I really wonder how on earth a once proud insurance giant would now become such a miserable sick patient?!

Malaysia Going Into Recession?

Despite Malaysia Government's constant state of denial, the statistics couldn't lie!

Last Friday the GDP data announced for the fourth quarter of 2008 came up short of expectation....only a mere 0.1%. That is to say, Malaysia's economic growth had plummeted from the previous quarter's 4.7% to no growth in the last quarter!

It seems the RM7 billion (US$2billion) were not sufficient to save the economy (as expected), as a result of the larger than expected fall in exports.

The world is suffering from global recession and every country is now scrambling to revise growth outlook and desperately trying to stem the collapse through various stimulus packages.

In Malaysia's case, the Government is going to announce another stimulus package before mid March. Given it's timing (being announced in March and assuming implementation within 3 to 6 months), the effects on economy will mostly likely take place only thereafter. This could well imply that Malaysia could well be in recession in the first and second quarter of 2009!

It's regrettable that the Government took so long to realize the current miserable state and to come up with positive new measures to tackle the economic problems! Ironically, they certainly appear more interested to tackle the various political issues and to safeguard their own political agenda for the past one year up to this present moment!