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Where would CPF money go if it is nominated to a bankrupt? When Madam Lim Lye Kiang sought to claim the $102,000 from CPF which her late sister had left her, she would never have expected that the CPF Board transferred the money to the OA (Official Assignee) to...

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Why you should not buy IPOs As Sheng Siong is launching its IPO next month, I expected a few calls as whenever an IPO is launching. And if you are my client, you know my answer. I decide to write this article so everybody can benefit...

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Questions to ask your Financial Adviser Every Sunday morning when I flip open the newspapers, I always see articles or advertisements regarding "Financial Advisers". Nowadays, just like the once prestigious word "Banker", which is misused in...

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Revision to Nomination of Insurance Nominees Regulation With the onset of the Mental Capacity Act ("MCA") coming into effect on 1st March 2010, the Insurance (Nomination of Beneficiaries) Regulations 2009 ("the Regulations") will be amended to effect 2 changes: The...

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The ABCs of the Financial Advisers Act The title, Financial Adviser, is always mis-used in the industry and misunderstood by the consumers. On 10 October 2002, the Financial Advisers Act came into effect and all financial institutions are...

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What is Operation Twist and Its Implications

Posted by Ivan Guan | Posted on 23-09-2011

Category : Currency, Monetary and Fiscal Policy

Tags: , ,

After two-day Federal Open Market Committee (FOMC) meeting from 20-21 September, FOMC announced that it will sell short maturity (three-years or less) securities to purchase USD 400 billion of longer-dated Treasuries (6 years to 30 years) by the end of June 2012. This is known as “Operation Twist”

Technically, Operation Twist is the sale of front-end securities and using the proceeds to buy longer-dated maturities, the aim of which is to make higher-yielding alternatives more attractive, and to reduce market volatility through removing duration.

In a formal statement, the Fed explained: “By reducing the supply of longer-term Treasury securities in the market, this action should put downward pressure on longer-term interest rates, including rates on financial assets that investors consider to be close substitutes for longer-term Treasury securities.

“The reduction in longer-term interest rates, in turn, will contribute to a broad easing in financial market conditions that will provide additional stimulus to support the economic recovery.”

The bonds’ purchase and subsequent sale does not put any new money into the economy but is designed to encourage low interest rates to boost business borrowing for companies and mortgage lending for individuals.

Unfortunately, the markets seem to react quite negatively to the policy, which is supposed to stimulate the economy. Asian stocks fell, driving a regional benchmark index toward its largest weekly loss since 2008.

If you follow my blog, since early this month, I’ve cautioned investors to be careful about the downside risk of Singapore currency due to all these uncertainties in the markets, USD has risen above 1.3 against SGD in just a couple of weeks since! However, investors should always remember, what goes up will come down, and vice versa.

USD/SGD as 23/09/2011 Source: Yahoo Finance

Singapore Dollar depreciates against USD

Posted by Ivan Guan | Posted on 14-09-2011

Category : Currency, Monetary and Fiscal Policy

Tags:

Just last week, I wrote an article cautioning investors not to be over confident that Singapore Dollar will continue to strengthen. I’ve highlighted that stronger currency like Japanese Yen and Swiss Franc have both worried their governments.

In today’s straits times article, MAS ‘likely to ease stance on Singdollar’, it echos my opinion that “economists believe the increasing risk of a recession may prompt the Monetary Authority of Singapore (MAS) to ease its exchange rate policy when it meets next month.”

If you look at USD/SGD chart below, SGD has depreciated against USD sharply this month. It dropped nearly 2.4% till today.

USD / SGD 3 month Chart (Source: Yahoo Finance)

It is always hard to go against the crowds, but those who can see through the fog are always well rewarded.

US Debt Ceiling – The Dangerous Game and a Wayang Show

Posted by Ivan Guan | Posted on 31-07-2011

Category : Monetary and Fiscal Policy

Tags: ,

Further to my story about US debt ceiling problem, I showed you that the debt ceiling has been raised many times in the history. It looks that raising debt ceiling is a norm in US, but why are investors worried? Let me continue the story.

Although Uncle Sam is a very powerful person, there are another two influential politicians in the country, the Democratic Party (The “D”) and the Republican Party (The “R”). If Sam wants to increase the ceiling, the “D” and the “R” must reach an agreement.

The problem is, the “D” and the “R” are two spoiled kids who have been fighting against each other for the sake of fighting since they were born.

The “D”, being the ruling party of the country now, wants a long term solution because they have been criticized of allowing Uncle Sam’s debt piling up for the past years.

However, the “R”, who was always blaming “D” for their inability to cut budget deficit, wants a temporary plan which last only for six months. So they can restart the blaming game again and probably even use it as a tool to bring “D” down.  (The irony is that a big chunk of current deficit is left by “R” when they ruled the country)

Uncle Sam is frustrated, because being so rich by borrowing so much money, he has a deep pocket that he can pay his debt due on Aug 2 anyway. Even if he run out of cash, he can choose to halt social security payments or default on other obligations like paying its military before it defaults on its debts.

However, because this stupid politics, he can just sit there and watch this wayang show. It is even more ridiculous that the US Congress can authorise future spending but subsequently have to vote on whether to permit the necessary borrowing to fund the agreed budget deficit.

No wonder US President Obama said:

“If we don’t come to an agreement, we could lose our country’s AAA credit rating, not because we didn’t have the capacity to pay our bills – we do – but because we didn’t have a AAA political system to match our AAA credit rating,”

Do the politicans care about the economical impact of this dangerous game? Obviously not! They are politicians.

Now the show is coming to the end. Tighten your seat belt.

US Debt Ceiling History

Posted by Ivan Guan | Posted on 27-07-2011

Category : Monetary and Fiscal Policy

Tags: , ,

Yesterday, I told you a story about Sam’s debt problem to explain what is US Debt Ceiling. The story continues here.

When the debt ceiling is going to be reached, the “poor” and “moody” agency who used to rate Sam’s debt to be the best qualify, now tells you that Sam’s debt is not so good after all.

To your horror, you just find out that this “poor” and “moody” agency used to give the same AAA rating for some CDO debt which was eventually defaulted.

So now is Sam going to default his debt for the first time in the history?

Luckily, because Sam owes money to so many people, he is a very influential person. He even has the power to change the law to raise the ceiling so he can borrow more. In fact, he has already done it many times in the past. Look at the historical chart below.

US Debt Ceiling History

Now you feel much relieved right?

The story continues…

Does US Debt Ceiling matter to you?

Posted by Ivan Guan | Posted on 26-07-2011

Category : Monetary and Fiscal Policy

Tags: , ,

It always does not matter until it matters.

For months, people were talking about Euro Debt Crisis, Suddenly, you heard that US is going to reach its US$14.3 Trillion debt ceiling by 2 Aug. Today’s Straits Times prime news headline is “Markets spooked, gold shines on US debt fears”, “Greenback falls to record low against Singdollar and yen”.

So what is debt ceiling? Why is it so important?

What is Debt Ceiling

The debt ceiling is a US statutory limit on the amount of U.S federal debt held by the public and the government’s own accounts. The debt ceiling became law with the Second Liberty Bond Act of 1917, which helped finance the United States’ entry into World War I.

Imagine that you have a good friend, Sam, who always borrow money from you because occasionally, he has some “cash flow problem” running his business, but he always pay you back on time, with full interest for the past 20 years. Because his credibility is so good, you have lent more and more money to him over the years, but never care how his run his business. Sam was even accredited by some “poor” agency as the best person you can lend money to in this world.

One day, you discovered that Sam’s business was in fact very bad for years. The money which was return to you was borrowed from many other creditors like you.

This is not so bad, after all, as long as he continues to serve his interest and pays you back when the loan matures.

However this morning you read the newspaper, you find out that Sam has borrowed to the maximum loan amount stipulated by law. That means he cannot borrow money from others and pay you any more! he is going to default his debt, which is your money!

Now, do you start to feel worried?

The story continues…

Greek Debt Crisis, A Case Study of Euro Currency

Posted by Ivan Guan | Posted on 27-06-2011

Category : Monetary and Fiscal Policy

Tags:

By now, you all should have heard about this Greek debt crisis. I haven’t blogged about this topic for long, only keep on warning investors when they became complacent that the situation was always the same, nothing new.

In today’s Straits Times, it was discussed “Why Greek debt crisis matters to investors here“. While it seems that “politicians, regulators and bankers alike in Europe all wanting to avoid Greek default at all costs”, perhaps it is good time to review the history of Euro Currency to understand why Greece, whose economy is only half the size of Thailand’s, has such a big impact.

The euro currency was created in 1999. Despite a clear trend toward greater exchange-rate flexibility during the second half of the 20th century, the countries of Western Europe chose to go against the global consensus, forming the largest network of fixed exchange rates since the gold standard. Seventeen countries with a combined population of more than 325 million fixed their exchange rates to one another using one common currency managed by a single central bank, the European Central Bank (ECB).

In Legg Mason Asset Management‘s view, Europe’s monetary union fails to meet most of the necessary properties for an optimum currency union – an ideal geographical range for a single currency arrived at by a group of economists. The European Central Bank’s one-size-fits-all monetary policy is ill-equipped to address asymmetries across member countries’ divergent business cycles. As a result, business cycle stability must be subordinated in favour of exchange-rate stability, and the euro has been spread across too wide a geographic domain.

Read more market commentaries here.

ECB hikes key interest rate to 1.25%, Bank of England holds key interest rate at 0.5%

Posted by Ivan Guan | Posted on 08-04-2011

Category : Monetary and Fiscal Policy

Tags:

FRANKFURT - THE European Central Bank is raising its main interest rate by a quarter of a percentage point to fight inflation despite the debt problems afflicting Portugal, Greece and Ireland.

The key refinancing rate is going up to 1.25 per cent from a record low of 1 per cent.

LONDON - THE Bank of England has held its base lending rate at an all-time low of 0.5 per cent, as analysts expected, despite mounting concerns about high inflation.

The Bank’s Monetary Policy Committee on Thursday also announced no new funding for its economic stimulus program of asset purchases, known as quantitative easing.

PBOC cuts CNH deposit rate

Posted by Ivan Guan | Posted on 04-04-2011

Category : Monetary and Fiscal Policy

Tags: ,

Recently, there is growing interest in RMB Deposits or Bonds. Investor should pay attention to this new market development but remain cautious and vigilant. if in doubt, please contact your financial adviser.

Last week, the market was caught off guard by the People’s of China’s (PBOC) lowering of the offshore RMB (CNH) deposit rate in Hong Kong to 0.72% from 0.99%, effective from 1 April.

Previously, banks in Hong Kong were constrained by their credit limits in placing deposits with Bank of China, which is the sole CNH clearing bank. As a result, banks have been buyers of bank papers even at yields lower than deposit rates of ~0.8%. Under the new policy, lenders involved in CNH settlement in Hong Kong are allowed to deposit the currency in a special account with China’s central bank, which means banks will face PBOC directly.

In the short term, we expect the move to result in short-dated bond yields correcting up toward the deposit rate, which will be generally positive for CNH bonds, except for bonds that are currently trading below the deposit rate.

China Overtakes Japan as World’s No. 2 Economy

Posted by Ivan Guan | Posted on 15-02-2011

Category : Monetary and Fiscal Policy

China passed Japan in 2010 to become the world’s second-largest economy after the U.S. Compare the two economies over the past 50 years.

Japan ceded its spot as the world’s second biggest economy to China in 2010, with a contraction in the fourth quarter as the strong yen contributed to an export slump, the end of auto subsidies depressed car purchases and a new tobacco tax hit cigarette sales.

The Japanese economy’s fall from its 42-year reign in the number two spot behind the U.S. comes as pressure is mounting on Prime Minister Naoto Kan to halt further decline. But merely achieving moderate growth ahead may prove difficult as the government grapples with a staggering public debt, prolonged deflation and low approval ratings.

China’s success story overshadows the fact that Japan’s economy expanded for all of 2010. Growth in the first three quarters of the year meant that even with the poor showing in the fourth quarter, Japan’s real GDP for the full year expanded 3.9% on year.

read more from Wall Street Journal

GDP China vs Japan

China GDP Expands 9.8%, Gold Rally isn’t endless

Posted by Ivan Guan | Posted on 21-01-2011

Category : Monetary and Fiscal Policy

Tags:

China’s economy expanded unexpectedly in the last quarterly of 2010, GDP grew 9.8%, up from 9.6% in the previous quarter. Despite a series of tightening measures, the growth does not seem to slow down.

China's GDP

However, China’s inflation peaked at 5.1% in November, with full year inflation 3.3%. It becomes obvious growth is never a problem of China, but the inflation, which was largely a result of high prices for food.

Ironically, the market react negatively on the news with the fear that further tightening will be placed.

I am rather happy to see the situation as China was not performing for the whole 2010. I’d rather consider the polices as healthy adjustment for quality growth of China’s economy.

The bearishness of the market gives me opportunity to accumulate more valued investment opportunity at low cost.

Gold Future heading down

Another interesting market to note is Gold. Gold has dropped to US$1,346 from all time high of $1,427. I have kept warning all my clients not to think the gold rally is endless since last quarter of 2010 and highlighted the Unsustainable Gold Scheme in Dec.

With recovery of global economy, Gold is fading out as instrument for asset protection or inflation protection. Investors should note Gold does not pay dividends. It is just a piece of metal.

However, I do not expected Gold to just crash like that. I would feel it will stay within a range for a long period of time for consolidation before new direction is set.

(Data and Chart source: Wall Street Journal)

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