Take the cue from Zeti. Inflation is here to stay. Atleast until second half of 2009. So with the low fixed deposit rates it would logically mean the more you save the more you lose. But of course you can look at alternative investments such as unit trust funds, blue chip shares and properties. However for any money put into these alternative investments, a long term view of atleast 3-5 years must be adopted. With this in mind, these alternative investments will serve you well and have historically given returns of 10% and above. Below is an extract of the article as reported by the Star.
KUALA LUMPUR: Bank Negara Malaysia expects the consumer price inflation to exceed 6% in June, following the adjustment in petrol prices by 40.6% and diesel prices by 63.3%, says Governor Tan Sri Dr Zeti Akhtar Aziz.
“While domestic inflation is expected to remain elevated for the remaining part of this year and early next year, it is expected to moderate in the second half of 2009,” she said Wednesday.
She said the inflationary pressure was also from increase in electricity tariffs on July 1, with tariffs by up to 18% for households and an average of 26% for some commercial and industry users.
Wednesday, July 9, 2008
Tuesday, April 22, 2008
A strong case for market optimism
Money Magazine
A strong case for market optimism
Believe it or not - you have several good reasons to believe the sky isn't falling. In fact, it may be clearing up.
By Michael Sivy, Money Magazine editor-at-large
Last Updated: April 22, 2008: 4:40 AM EDT
(Money Magazine) -- The economy is in trouble and fear rules Wall Street. No wonder. Banks and other financial companies are posting huge losses. The Federal Reserve has had to engineer a rescue of investment bank Bear Stearns. Home prices are sinking.
The Fed is cutting interest rates to battle recession, but the stock market refuses to be calmed. The Dow swings wildly even as it teeters on the edge of a bear market. And oil keeps rising while the dollar keeps falling. It's all unsettling in the extreme.
But the really scary question is, What's next? Are we at the start of a deep recession and a crushing decline in stock prices? And however serious the problems, how can you best protect your investments?
I'd argue that if you apply a little long-term thinking to the worries that are keeping you up at night, you may well conclude that the outlook for your portfolio isn't so bad - and in fact, that it may even be mildly encouraging.
We've had downturns before. Why does this one seem scarier?
Normally, bear markets and recessions are simply a phase of the business cycle. But the current slump in the stock market and the economy has a different, and potentially more dangerous, origin - a financial crisis.
The outlines of the story are by now depressingly familiar. When the real estate boom ended, a variety of supposedly safe mortgage-backed financial instruments turned out to be poison. The banks and other institutions that owned this debt - or were exposed to it indirectly - suddenly found themselves on the hook for enormous losses. Exactly how big no one could say. The uncertainty has made them much more cautious about lending, and that in turn is hurting companies that rely on short-term borrowing.
Falling home prices and the credit squeeze also hit consumers directly. The cash-out refinancings that homeowners used to pay off other debt and support their standard of living are harder to come by. The big fear is that reduced consumer spending and a credit crunch together could trigger a recession much worse than the normal business-cycle slump.
How bad could things get?
Bear markets that are set off by a shock can be severe. The Great Depression of the 1930s, the stagflation caused by the oil crisis in the 1970s and the real estate bust in Japan in the 1990s all crushed stock returns for years.
Among the most pessimistic economists now is New York University's Nouriel Roubini. He worries that the damage caused by the housing bust will be too big for the Fed to contain. Roubini expects that without far more extensive government intervention, home prices will fall a lot further, leading millions of homeowners to walk away from their mortgages. Banks will have to write down the value of mortgage-backed assets much more sharply than they already have.
The resulting domino effect would knock down the entire financial sector, commercial real estate and commercial lending. The process could take several years to play out and would wreak havoc on the portfolios of pros and Joes alike.
Other gloomy forecasters take more measured positions, but many still believe that the decline in housing prices is at best half over. They expect that stocks will suffer another significant decline and that any near-term rebound in prices will prove only a temporary respite.
That sounds awful. Why on earth should I be optimistic?
First, remember that predictors of doom make headlines precisely because their positions are so extreme. Most forecasters are more positive. The UCLA Anderson Forecast still anticipates that the slowdown won't even be severe enough to rank as an official recession. (To qualify, the economy has to actually shrink for at least six months, not just stagnate.)
Edward Yardeni of Yardeni Research is one of many economists who expect a short, shallow recession during the first half of the year with a recovery starting by fall, and he projects that S&P 500 operating earnings will rise 7% for the year. Yardeni also notes that the price/earnings ratios of big value stocks are quite low and that growth stocks are the cheapest they've been in more than a decade.
Even Warren Buffett, who has said we're now in a recession, is bullish longer term. His Berkshire Hathaway has sold a variety of options basically betting that the stock market is close to a bottom.
I'm inclined to agree that the outlook for the economy is more encouraging than most investors seem to think. For one thing, it appears likely that most of the damage has been done and that stock prices today reflect what are now widely recognized problems. Moreover, while you can find similarities between the three big shocks of the past 80 years and today's situation, none really matches present circumstances. Let's look at them in more detail.
Depression. The 1929 stock market crash was the best-known event leading into the Great Depression, but the loss of paper wealth wasn't what unleashed the calamity. The more important causes included bank failures, excessive consumer debt and restrictions on international trade. Some of these seem to have parallels today, but the most important factor is completely different.
As banks failed in the early 1930s, the Federal Reserve allowed the money supply to shrink by as much as 35%, causing the economy to keep contracting. Today, by contrast, the Fed has been pumping money into the economy as fast as it can. Over the past year, in fact, the money supply has grown more than 7%.
In addition, the Fed is intervening to an unprecedented degree to shore up troubled banks and brokerages. It's likely that Bernanke & Co. will keep pushing interest rates down to make it easy for banks to lend money, thus minimizing the credit squeeze.
Once all the banks' bad loans have been identified and written off over the next year or so, some institutions will be out of business and others will have been forced to merge à la Bear Stearns. Their stockholders and bondholders will have suffered - a lot. But most of the U.S. economy will be poised to recover.
Stagflation. In the 1970s a sharp spike in oil prices following the OPEC embargo produced a devastating combination of slow growth and soaring inflation. Today oil prices are as high as they were in the '70s, after adjusting for inflation. Yet the U.S. economy is more than twice as energy-efficient as it was back then.
Like a car that gets 28 miles to the gallon instead of 14, today's economy can better tolerate high fuel costs (although there is still some pain). And despite a few bad inflation numbers in recent months, pressure for price increases generally remains moderate.
Stagnation. In the late 1980s, Japanese real estate boomed. When the bust came, financial authorities there kept trying to prop up prices so that companies could avoid big write-downs. The result was much like removing a bandage very slowly, and for 13 years investors in Japanese stocks felt the pain.
Send feedback to Money Magazine
By Michael Sivy, Money Magazine editor-at-large
Last Updated: April 22, 2008: 4:40 AM EDT
The recent real estate bubble in the U.S., however, never got as overinflated as the one in Japan did. And although the Fed and other parts of the government are trying to cushion the fall, they aren't trying to postpone it indefinitely. U.S. banks, unlike their Japanese counterparts of the '90s, tend to acknowledge loan losses fairly promptly. That may hurt stocks in the short run, but it should leave the economy and the market open for a recovery much sooner.
The stock market always recovers from setbacks, if you're prepared to wait long enough. The real question is what's needed for a prompt recovery. The average bear market lasts 14 months, but declines can end in less than six months if the economy doesn't suffer an extended slump - and if share prices are not massively overvalued to begin with.
On this second point, the numbers are encouraging. The most popular blue chips were trading at price/earnings ratios above 30 back in 2000, right before growth stocks collapsed. The historical average for those stocks is 24, and they were at less than 20 when the market topped last October.
As for how big a decline might be, past bear markets have split into two categories: those in which blue chips drop by an average of 22% and much bigger declines in which the drop averages 39%. The S&P 500 has been down as much as 18% from its October high, so I don't expect much more downside.
That said, my optimistic outlook for stocks does rest on two reasonable, though by no means surefire, assumptions. The first is that the Fed will pursue the right interest-rate policy - specifically, that it will continue to cut short-term rates this year and that it will also start nudging them back up in a year or two so that the economy and inflation don't over-heat.
That's not as easy as it sounds. A big part of the blame for the current troubles can be laid at the feet of the Greenspan Fed, which in hindsight kept rates too low for too long following 9/11 and ended up pumping more and more hot air into the real estate bubble.
The second assumption is that the scale of loan losses will remain within manageable bounds. The doomsayers notwithstanding, the total equity in the U.S. financial system is many times larger than the total losses most economists expect.
But what about the dollar? If it keeps dropping, that has to be bad, no?
" The dollar normally declines when the U.S. runs a very big budget deficit and the economy slows, especially if similar trends aren't occurring in countries that we trade with. Even more important is the level of interest rates. Europe hasn't been cutting rates much, while the Fed has slashed ours by three percentage points in less than a year. Foreigners don't want investments in declining dollars when their interest income is also falling.
A weak dollar is inconvenient if you travel overseas, and it pushes up the prices of imports. But the weakness also makes U.S. products cheaper for foreigners and helps U.S. exports. Many U.S.-based multinational companies get more than 40% of their earnings from outside the country. At the very least, export growth saves jobs and helps lessen the impact of a recession.
In any event, the Fed can't afford to worry about the dollar as long as it has the credit crunch to deal with. Low interest rates are necessary to limit damage to the economy which has to be top priority. When growth resumes and the Fed is raising rates once again, the dollar should recover much of its lost value.
What should I be doing with my portfolio?
You can't buy low and sell high if you dump stocks in a depressed market. Today lots of blue chips trading at below-average P/Es are likely to be bargains. When you're considering such stocks, start by looking at businesses that get a large share of earnings overseas, where economies are more stable now.
Low debt is always good. So is a dividend yield of more than 2.5%. The blue chips mentioned in our 100 best list share these characteristics. If you prefer mutual funds, dollar-cost averaging into a total stock market mutual fund or investing in a high-yield stock fund makes sense psychologically and financially in this market.
Beyond that, follow the rules of investing that apply in any market. Diversify your investments as broadly as possible, minimize your trading costs, and balance growth stocks with income investments.
What if things do go wrong?
If you buy into the dire outlook that Roubini sees, you might want to take all your money and put it into Treasury bonds or CDs and wait things out. The problem with that strategy is that you not only have to be right in your pessimism, you have to know exactly when to turn optimistic again. Even the experts have a hard time getting that right.
And it's worth noting that Roubini, despite his concerns about the next few years, keeps his entire portfolio in stocks because he sees himself as a long-term investor.
But if you feel like you must do something, there are more reasonable insurance strategies you can employ. Increase the size of your emergency cash fund. Put a small slice of your portfolio into an inflation hedge like T. Rowe Price's New Era fund, which invests in commodity producers. Invest in foreign blue-chip mutual funds to hedge against a falling dollar.
For my money, this insurance is too expensive now. Commodity and foreign-stock funds have already had a big run, and those are the areas of the market where investors have been piling in lately. Historically, following the crowd only leaves you poorer. I'd rather pick up bargains among the strongest U.S. stocks. That would let me rest easier at night.
- Reporting By Joe Light; Donna Rosato contributed to this article. To top of page
First Published: April 22, 2008: 4:20 AM EDT
A strong case for market optimism
Believe it or not - you have several good reasons to believe the sky isn't falling. In fact, it may be clearing up.
By Michael Sivy, Money Magazine editor-at-large
Last Updated: April 22, 2008: 4:40 AM EDT
(Money Magazine) -- The economy is in trouble and fear rules Wall Street. No wonder. Banks and other financial companies are posting huge losses. The Federal Reserve has had to engineer a rescue of investment bank Bear Stearns. Home prices are sinking.
The Fed is cutting interest rates to battle recession, but the stock market refuses to be calmed. The Dow swings wildly even as it teeters on the edge of a bear market. And oil keeps rising while the dollar keeps falling. It's all unsettling in the extreme.
But the really scary question is, What's next? Are we at the start of a deep recession and a crushing decline in stock prices? And however serious the problems, how can you best protect your investments?
I'd argue that if you apply a little long-term thinking to the worries that are keeping you up at night, you may well conclude that the outlook for your portfolio isn't so bad - and in fact, that it may even be mildly encouraging.
We've had downturns before. Why does this one seem scarier?
Normally, bear markets and recessions are simply a phase of the business cycle. But the current slump in the stock market and the economy has a different, and potentially more dangerous, origin - a financial crisis.
The outlines of the story are by now depressingly familiar. When the real estate boom ended, a variety of supposedly safe mortgage-backed financial instruments turned out to be poison. The banks and other institutions that owned this debt - or were exposed to it indirectly - suddenly found themselves on the hook for enormous losses. Exactly how big no one could say. The uncertainty has made them much more cautious about lending, and that in turn is hurting companies that rely on short-term borrowing.
Falling home prices and the credit squeeze also hit consumers directly. The cash-out refinancings that homeowners used to pay off other debt and support their standard of living are harder to come by. The big fear is that reduced consumer spending and a credit crunch together could trigger a recession much worse than the normal business-cycle slump.
How bad could things get?
Bear markets that are set off by a shock can be severe. The Great Depression of the 1930s, the stagflation caused by the oil crisis in the 1970s and the real estate bust in Japan in the 1990s all crushed stock returns for years.
Among the most pessimistic economists now is New York University's Nouriel Roubini. He worries that the damage caused by the housing bust will be too big for the Fed to contain. Roubini expects that without far more extensive government intervention, home prices will fall a lot further, leading millions of homeowners to walk away from their mortgages. Banks will have to write down the value of mortgage-backed assets much more sharply than they already have.
The resulting domino effect would knock down the entire financial sector, commercial real estate and commercial lending. The process could take several years to play out and would wreak havoc on the portfolios of pros and Joes alike.
Other gloomy forecasters take more measured positions, but many still believe that the decline in housing prices is at best half over. They expect that stocks will suffer another significant decline and that any near-term rebound in prices will prove only a temporary respite.
That sounds awful. Why on earth should I be optimistic?
First, remember that predictors of doom make headlines precisely because their positions are so extreme. Most forecasters are more positive. The UCLA Anderson Forecast still anticipates that the slowdown won't even be severe enough to rank as an official recession. (To qualify, the economy has to actually shrink for at least six months, not just stagnate.)
Edward Yardeni of Yardeni Research is one of many economists who expect a short, shallow recession during the first half of the year with a recovery starting by fall, and he projects that S&P 500 operating earnings will rise 7% for the year. Yardeni also notes that the price/earnings ratios of big value stocks are quite low and that growth stocks are the cheapest they've been in more than a decade.
Even Warren Buffett, who has said we're now in a recession, is bullish longer term. His Berkshire Hathaway has sold a variety of options basically betting that the stock market is close to a bottom.
I'm inclined to agree that the outlook for the economy is more encouraging than most investors seem to think. For one thing, it appears likely that most of the damage has been done and that stock prices today reflect what are now widely recognized problems. Moreover, while you can find similarities between the three big shocks of the past 80 years and today's situation, none really matches present circumstances. Let's look at them in more detail.
Depression. The 1929 stock market crash was the best-known event leading into the Great Depression, but the loss of paper wealth wasn't what unleashed the calamity. The more important causes included bank failures, excessive consumer debt and restrictions on international trade. Some of these seem to have parallels today, but the most important factor is completely different.
As banks failed in the early 1930s, the Federal Reserve allowed the money supply to shrink by as much as 35%, causing the economy to keep contracting. Today, by contrast, the Fed has been pumping money into the economy as fast as it can. Over the past year, in fact, the money supply has grown more than 7%.
In addition, the Fed is intervening to an unprecedented degree to shore up troubled banks and brokerages. It's likely that Bernanke & Co. will keep pushing interest rates down to make it easy for banks to lend money, thus minimizing the credit squeeze.
Once all the banks' bad loans have been identified and written off over the next year or so, some institutions will be out of business and others will have been forced to merge à la Bear Stearns. Their stockholders and bondholders will have suffered - a lot. But most of the U.S. economy will be poised to recover.
Stagflation. In the 1970s a sharp spike in oil prices following the OPEC embargo produced a devastating combination of slow growth and soaring inflation. Today oil prices are as high as they were in the '70s, after adjusting for inflation. Yet the U.S. economy is more than twice as energy-efficient as it was back then.
Like a car that gets 28 miles to the gallon instead of 14, today's economy can better tolerate high fuel costs (although there is still some pain). And despite a few bad inflation numbers in recent months, pressure for price increases generally remains moderate.
Stagnation. In the late 1980s, Japanese real estate boomed. When the bust came, financial authorities there kept trying to prop up prices so that companies could avoid big write-downs. The result was much like removing a bandage very slowly, and for 13 years investors in Japanese stocks felt the pain.
Send feedback to Money Magazine
By Michael Sivy, Money Magazine editor-at-large
Last Updated: April 22, 2008: 4:40 AM EDT
The recent real estate bubble in the U.S., however, never got as overinflated as the one in Japan did. And although the Fed and other parts of the government are trying to cushion the fall, they aren't trying to postpone it indefinitely. U.S. banks, unlike their Japanese counterparts of the '90s, tend to acknowledge loan losses fairly promptly. That may hurt stocks in the short run, but it should leave the economy and the market open for a recovery much sooner.
The stock market always recovers from setbacks, if you're prepared to wait long enough. The real question is what's needed for a prompt recovery. The average bear market lasts 14 months, but declines can end in less than six months if the economy doesn't suffer an extended slump - and if share prices are not massively overvalued to begin with.
On this second point, the numbers are encouraging. The most popular blue chips were trading at price/earnings ratios above 30 back in 2000, right before growth stocks collapsed. The historical average for those stocks is 24, and they were at less than 20 when the market topped last October.
As for how big a decline might be, past bear markets have split into two categories: those in which blue chips drop by an average of 22% and much bigger declines in which the drop averages 39%. The S&P 500 has been down as much as 18% from its October high, so I don't expect much more downside.
That said, my optimistic outlook for stocks does rest on two reasonable, though by no means surefire, assumptions. The first is that the Fed will pursue the right interest-rate policy - specifically, that it will continue to cut short-term rates this year and that it will also start nudging them back up in a year or two so that the economy and inflation don't over-heat.
That's not as easy as it sounds. A big part of the blame for the current troubles can be laid at the feet of the Greenspan Fed, which in hindsight kept rates too low for too long following 9/11 and ended up pumping more and more hot air into the real estate bubble.
The second assumption is that the scale of loan losses will remain within manageable bounds. The doomsayers notwithstanding, the total equity in the U.S. financial system is many times larger than the total losses most economists expect.
But what about the dollar? If it keeps dropping, that has to be bad, no?
" The dollar normally declines when the U.S. runs a very big budget deficit and the economy slows, especially if similar trends aren't occurring in countries that we trade with. Even more important is the level of interest rates. Europe hasn't been cutting rates much, while the Fed has slashed ours by three percentage points in less than a year. Foreigners don't want investments in declining dollars when their interest income is also falling.
A weak dollar is inconvenient if you travel overseas, and it pushes up the prices of imports. But the weakness also makes U.S. products cheaper for foreigners and helps U.S. exports. Many U.S.-based multinational companies get more than 40% of their earnings from outside the country. At the very least, export growth saves jobs and helps lessen the impact of a recession.
In any event, the Fed can't afford to worry about the dollar as long as it has the credit crunch to deal with. Low interest rates are necessary to limit damage to the economy which has to be top priority. When growth resumes and the Fed is raising rates once again, the dollar should recover much of its lost value.
What should I be doing with my portfolio?
You can't buy low and sell high if you dump stocks in a depressed market. Today lots of blue chips trading at below-average P/Es are likely to be bargains. When you're considering such stocks, start by looking at businesses that get a large share of earnings overseas, where economies are more stable now.
Low debt is always good. So is a dividend yield of more than 2.5%. The blue chips mentioned in our 100 best list share these characteristics. If you prefer mutual funds, dollar-cost averaging into a total stock market mutual fund or investing in a high-yield stock fund makes sense psychologically and financially in this market.
Beyond that, follow the rules of investing that apply in any market. Diversify your investments as broadly as possible, minimize your trading costs, and balance growth stocks with income investments.
What if things do go wrong?
If you buy into the dire outlook that Roubini sees, you might want to take all your money and put it into Treasury bonds or CDs and wait things out. The problem with that strategy is that you not only have to be right in your pessimism, you have to know exactly when to turn optimistic again. Even the experts have a hard time getting that right.
And it's worth noting that Roubini, despite his concerns about the next few years, keeps his entire portfolio in stocks because he sees himself as a long-term investor.
But if you feel like you must do something, there are more reasonable insurance strategies you can employ. Increase the size of your emergency cash fund. Put a small slice of your portfolio into an inflation hedge like T. Rowe Price's New Era fund, which invests in commodity producers. Invest in foreign blue-chip mutual funds to hedge against a falling dollar.
For my money, this insurance is too expensive now. Commodity and foreign-stock funds have already had a big run, and those are the areas of the market where investors have been piling in lately. Historically, following the crowd only leaves you poorer. I'd rather pick up bargains among the strongest U.S. stocks. That would let me rest easier at night.
- Reporting By Joe Light; Donna Rosato contributed to this article. To top of page
First Published: April 22, 2008: 4:20 AM EDT
Thursday, March 27, 2008
Monday, February 11, 2008
EPF Member's Investment Withdrawal Eligibility
Effective 1 November 2007, EPF under its ”Beyond Savings” strategic initiative has introduced various enhancements to member’s benefit structure in stages. These enhancements are in accordance to the EPF Act 1991 (Amendment 2007) . One of the enhancements is the introduction of the basic savings concept that will be used to determine the minimum sum a member is allowed to withdraw from Account 1 for Investment Withdrawal.
Definition of Basic Savings
Basic Savings is an amount to be put aside in Account 1 progressively at various pre-determined age levels to enable a member to accumulate a minimum savings of RM120,000 at age 55.
A member needs to have a basic savings amount at the predetermined age levels. Amount in excess of the basic savings can be invested in products offered by external fund managers approved by the Ministry of Finance.
For more information please visit: http://www.kwsp.gov.my/index.php?ch=p2news&pg=en_p2news_highlights&ac=2246&lang=en
Definition of Basic Savings
Basic Savings is an amount to be put aside in Account 1 progressively at various pre-determined age levels to enable a member to accumulate a minimum savings of RM120,000 at age 55.
A member needs to have a basic savings amount at the predetermined age levels. Amount in excess of the basic savings can be invested in products offered by external fund managers approved by the Ministry of Finance.
For more information please visit: http://www.kwsp.gov.my/index.php?ch=p2news&pg=en_p2news_highlights&ac=2246&lang=en
Monday, January 21, 2008
EPF : Service Charges For Unit Trust Investment Capped At 3 Percent
Saturday, January 19, 2008
Members of the Employees Provident Fund (EPF) will pay 50 per cent less in service charges for investment in unit trusts from January 1, 2008. The EPF announced that the service charges would be capped at three per cent, and fund management institutions cannot impose service charges beyond that.
This move as approved by the Minister of Finance will help members save on service charges. The service charges by local investment funds in Malaysia currently are relatively higher when compared with other countries like Singapore, United Kingdom, Japan and the United States.
“Members can enjoy better returns from their investment in unit trusts with the lower service charges,” said Datuk Azlan Zainol, Chief Executive Officer of the EPF
Datuk Azlan also added, “We decided to cap the service charges at three per cent in the interest of our members and the fund managers”.
Currently members pay about five to six per cent in service charges.
“A study commissioned recently by EPF revealed that one of the major factors affecting the investment returns for our members is the high service charges imposed by the fund management institutions,” said Datuk Azlan.
About the Employees Provident Fund (EPF)
January 21st, 2008 ·
The Employees Provident Fund (EPF) is a national savings scheme, providing basic financial security for retirement. The Fund is committed to preserving and growing the savings of its members in accordance with best practices in investment and corporate governance. It will always be guided by prudence in its investment decisions.
As a customer-focused organization, the EPF delivers efficient and reliable services for the convenience of its members and registered employers.
The EPF continues to play a catalytic role in the nation’s socio-economic growth, consistent with its position as a leading savings institution in Malaysia.
Date: 12 December 2007
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