Fannie and Freddie, Your Time Is Up!

Fannie Mae and Freddie Mac are the two largest mortgage companies in the US, controlling about USD5.4 trillion worth of mortgage backed securities! In a real anti-free market move, the US Government decided to takeover both ailing companies, in a move to safeguard further losses and thus further cripple US financial economy. Talk about US being a strong advocaat of free trade and market economy! This is another classic case of using American taxpayers' money to bailout companies that have committed wrongdoings in managing public funds!

It is widely expected the current leaders of both companies will also be removed.

Following yesterday's decision, Asian stock markets have responded with major rallies, such as Hong Kong's 4.3%, Singapore's 4.77%, South Korea and Taiwan's more than 5% rally! The exceptions are China and Malaysia. China is beset by concerns of a domestic credit crunch as giant public offerings sap up liquidity. Malaysia's lack of market movement is due to continued uncertain political uncertainties.

Both US and Europe stock markets are expected to respond positively to this move today.

However, in my view this is only a technical rebound. It does not mean the worse is over.

For more detailed breaking news on this takeover, please play the You Tube video below:

Where To Trade Futures Crude Palm Oil In US Dollar

Today I come across a local newspaper headline tagged as "US Dollar Crude Palm Oil Futures (FUPO) In For Exciting Debut". So I did a google search on this topic and the results indicated that there was hardly any mention or coverage about this so called "exciting debut"! Incidentally, i found out that today (Friday) marks the first day of listing! Talk about best kept "secret", Malaysia sure knows best! Where are the promotions and publicity? I doubt if even a handful of people knew about this! Or may be it is meant for foreigners only, after all it is to be traded in US Dollars?

Whatever that is, the availability of such mechanism makes sense, as US Dollar is a global denomination whereas Malaysian Ringgit is still not tradeable offshore. So it is a lot more convenient for traders as they need not convert USD to Ringgit and subject themselves to foreign exchange risk.

Before this, crude palm oil futures can only be traded in Ringgit denomination in Malaysia. Malaysia is presently the second largest crude palm oil exporter in the world after Indonesia.

Stock exchange regulator Bursa Malaysia has apparently engaged several market makers to ensure encouraging trades on the FUPO. Market makers are usually brokerages and banks that accept risks by quoting both buy and sell prices in futures contracts, hoping to make a profit on the turn or the bid/offer spread.

The contract unit will be 10 tonne and the minimum price fluctuation will be USD 0.25 per metric tonne. Daily price limit is 10% above or below the settlement prices of the preceding business day.

Speculative position limit will be 500 contracts net long or net short for spot month, 5,000 contracts for any single contracts except for the spot month and 8,000 contracts for all contracts months combined.

This is a cash settled contract which does not involve physical delivery of the underlying CPO. Trading can be done via the direct market access, a supposedly zero-touch electronic trading solution that enables real-time execution of trade orders. Big foreign institutions can bypass a dealer to key in orders themselves and thus, pay less brokerage fees.

For more information on FUPO, click this link posted in Bursa Malaysia.

For more independent reviews, check out this blog posted by S Dali.

Currency Depreciation: A Fine Line Between Poorer and Richer

From 1997 (the year of Asian financial crisis) to 2005, my country's currency (Ringgit) had depreciated by around 50% against the US Dollar! That effectively more or less dented my pocket's purchasing power by half, and that's a very huge quantum! Not only imported goods were more expensive, it also increased the cost of travel and doing business overseas!

In 2005, the Government finally decided to do the "right" thing by floating Ringgit against a basket of global currencies, thereby allowing the currency to gradually adjust itself against global forces (to a certain extent) and as such, the currency has gradually appreciated in value (against US Dollar) from the exchange rate of 3.8 (to every dollar) in the year 2005 to around 3.1 at the beginning of 2008, aided by the weakening US Dollar due to US financial crisis. That effectively "enriched" my purchasing power by closed to 20% whenever i travel to countries where US Dollar is commonly used or accepted, or buying imported goods. Things were looking rosy as the projection by some authorities was that it could touch 3.0 by year-end and even better in 2009!

However, how things have changed for the worse, within just over a period of five months! First it was the political uncertainties, followed by the Government's infamous decision to levy 30% windfall tax on the Power Industry and the latest decision by again the Government to increase public expenditure for year 2009 to sustain the country's economic growth amidst economic slowdown, which ultimately lead to the dumping of Malaysia Ringgit and the outflow of foreign funds! The currency has now effectively depreciated half way between 3.8 and 3.1, and the outlook is not looking good until the foreseeable future!

In the midst of current high inflation and economic slowdown, a depreciating currency is like adding salt to the wounds!

Ironically, it's certainly a good wake-up call for me personally that perhaps it's time for me to work harder to earn more US Dollar instead of Ringgit, so that i can salvage my financial position from a "poorer" to a "richer" state!

Thankfully, the internet has provided me the ideal platform to do just that!

Budget 2009: What It Means For You?

As always, there were bundles of expectations on Malaysia's Budget 2009 which was released last Friday evening. As it turned out, it was a budget for the people in general and the measures were meant to contain inflation and accelerate economic growth. So, what is in store for you as an individual living in Malaysia? Here are some quick key takeaways of the goodies for individuals in general:

1. reduction in personal income tax rate from 28% to 27% for top tax bracket and from 13% to 12% for middle income groups with tax bracket at RM35,000-50,000;
2. increase in tax rebate from RM350 to RM400 per person for those with
taxable income of RM35,000 and below;
3. the eligibility criteria of monthly household income for welfare assistance is
raised to RM720/month from RM400/month;
4. all interest income from savings for individuals will be tax-exempted;
5. childcare allowances of up to RM2,400 per year for employees will be
exempted from tax;
6. travel allowances of up to RM2,400 per year for employees will be exempted from tax;
7. Household with monthly electricity bill of RM20 or less to be exempted from payment from 1st Oct 2008 to end 2009;
8. Fifty percent (50%) exemption on stamp duty for loan agreements for real estate properties valued below RM250,000 (USD75k). Current stamp duty rate is o.5%. This actually translates to a maximum savings of only RM625! Question is, will this be good enough to spur the medium to low cost property market?

Perhaps the only benefit from an investor's standpoint, is the long awaited change on the tax structure for Malaysia Real Estate Investment Trusts (REITs) - tax rate on dividend received by individuals will be reduced from 15% to 10%. For foreign institutional investors, tax rates on dividend received will be reduced from 20% to 10%. These measures will enhance the competitiveness of Malaysia REITs vis a vis regional countries such as Singapore and Hong Kong. However, do not celebrate too soon, as Malaysia still has a lot to do to boost its overall size and attractiveness of REITs. Cutting taxes is only one of the many incentives needed.

So, are these budget measures good enough for you? What do you think?

For the complete list of budget measures, please click this link.

Success Doesn't Come Overnight

Another great Olympic event passed us by and i couldn't help but truly admire the host (China) for putting up such a great show and grandeur in her opening and closing ceremonies. Against all expectations and burden, the Chinese won the most number of gold medals and finally topping the list of excellence for the very first time! I would like to congratulate these athletes for their success in gaining the fame and rewards. It's definitely not an easy feat, considering the amount of pressure and expectations placed on their shoulders....

Of course, there is no way we can forget the spectacular and unbelievable performances from Michael Phelps for being the King of the pool and Usain Bolt for being the fastest man on earth with their multiple world records achievements!

Success doesn't come over night, as these athletes were put under the most immense, rigorous and systematic training available, immense focus and mental training, hard work and a never-say-die attitude. Also, many of them trained since they were at a very young tender age. Some of the Chinese athletes (such as the gymnasts) were so young that they were rumoured to be under-age! Four years ago at Athens, there were already scripts written over the wall on the emergence of these Chinese athletes, as they grabbed the second spot (overall medals rank) behind the Americans. So it is in a way not surprising that the Chinese finally did it in home soil, with home advantage and crowd support.

The success of sports athletes mimics the success that people achieve in their ordinary lives, be it at personal or business level. Success requires lots of focus, perseverance, risk taking, action-minded and the continuous pursuance of self-improvement for greater achievement and success. Starting from scratch and achieve greater heights as we move on from one goal to another. The notion of giving up is simply not an option for successful people!

We need to keep reminding ourselves that success is a journey, not an overnight motion. There are therefore many positives that we can emulate from these successful sportsmen and athletes towards success!