Recession is coming … make your own judgment, don’t panic !! Do what is wise. The recession looks very eminent.. It is really time to take pro active steps to avoid a painful time in the next two years which is how long the recession is expected to last.
Suggestions:

10. Don’t change jobs, as companies will retrench based on ‘last in first out’.
Stay cool, wait, and if you took all of the above actions and more, you probably will be better off then many. This is not a rumor. Bear Stearns is the first of many banking and financial institutions that will start falling in the not too future. If Bear Stearns can fall, so can JP Morgan, Citibank, HSBC, and the whole world. US economy falls, the rest will crumble. India and all those self economies will be the most protected, but not gullible. Europe may be a little stronger, but not China , another giant! Malaysia will see significant impact.

I’m sharing this email for fun, it is not to be taken seriously. The original writer might as well dig up a hole and bury his head in it, or at least go hide under the table for the next few years as it is safer there.

If you have any comments, please write to me.

Nevertheless, whether or not this will be the new Great Depression, not even the experts can tell. Everyone will be better off doing something more productive rather than having a “chicken or the egg first” debate.

Like I mentioned in my last post, everything can be seen from many angles. No right, no wrong. However, a strong headline like “EPF Better Than Stock Market” would definately trigger some reaction. And in the first article it read “…the EPF never gives negative returns whereas the KLCI generated negative returns eight times over the past 23 years” and in the second article got more interesting :

“Based on 2 standard deviation (2 SD), we are 95% confident that EPF returns will range from 3.7% to 9.7%. However, KLCI returns will range between -51.6% and 72% under 95% confidence interval level. The lowest return from EPF is positive 3.7% versus -51.6% for KLCI.”

By the way, in the EPF Act Section 27 states :

At or after the end of the financial year, being the 31st December of each year, the Board shall with the approval of the Minister, declare a rate of dividend in respect of that year, being not less than two and one half per centum per annum and, subject to section 50, dividend shall be payable on contributions to the Fund at such rate: Provided that-

(a) no rate of dividend exceeding two and one half per centum per annum shall be so declared unless the Board is satisfied that in its opinion the ability of the Fund to meet all payments required to be paid under this Act is not endangered by the declaration of such rate; and

(b) no rate of dividend exceeding two and one half per centum per annum shall be so declared if any sums advanced by the Government of Malaysia under section 28 have not then been repaid.

and Section 28 states :

If the Fund is at any time unable to pay any sum which the Fund is required to pay under this Act, the sum required to be so paid shall be charged on and advanced to the Fund from the Federal Consolidated Fund and the Fund shall as soon as practicable repay to the Government of Malaysia the sum so advanced.

Now, that explains why EPF never gives negative returns, and all in all, I still think comparisons are unfair to most extend. What’s next? An article comparing FD with the stock market?

Comments: I’ve always been fascinated with Mr Ooi Kok Hwa’s articles, and the article above is no different. After reading it, I think I’m going to value add to his fantastic article.

To start off with, please take note that my comments here are merely my opinion, and thus it doesn’t make me, or Mr Ooi Kok Hwa, right or wrong. It is just the way we choose to view things, some see a glass as half empty while others see it as half full.

The article made a comparison of investing RM10,000 in the EPF against RM10,000 in the KLCI. However, please take note the definition of KLCI. As per defined in Wikipedia :

“The Kuala Lumpur Composite Index (KLCI) is a stock market index generally accepted as the local stock market barometer. Introduced in 1986 to answer the need for a stock market index which would serve as an accurate performance indicator of the Malaysian stock market as well as the economy. It is used to be the main index, and is now one of the three primary indices for the Malaysian stock market which the other two are FMB30 and FMBEMAS, Bursa Malaysia. It contains 100 companies from the Main Board with approximately 500 to 650 listed companies in the Main Board which comprise of multi-sectors companies across the year 2000 to 2006 and is a capitalization-weighted index. “

In short KLCI is a compilation of statistics and datas in accordance to a certain pre-defined rule. As such, it serves as a benchmark and barometer only. In reality, how can a person really invest in the KLCI? It is possible, with tonnes of money allocated with the correct proportion and weightage spread over the 100 companies that make up KLCI? The closes that one can get to this in a hassle free way is to invest in a index-mimicking unit trust fund.

There is no fund manager managing the KLCI, as I mentioned earlier it is merely a compilation of statistics. Unlike the KLCI however, the EPF funds are managed by fund managers and the underlying assets invested are mainly fixed income securities, not equities. On this itself, obviously it is not an apple-to-apple comparison, true or true?

Also, please observe the EPF annual returns from 1986 – 2000, and compare it against the returns from 2001 onwards. Declining, and will it ever go back to the level of returns between 1986-2000?

And in Bursa Malaysia website, I found this as one of the golden rules in investing in shares:

Don’t Buy And Hold
The Malaysian stock market is one of the strongest and sometimes most dynamic markets in the world.

While the market has always recovered from falls, the same cannot be said for individual companies. Even during a booming market, some companies can suffer significant losses.

Trade only on an uptrend and sell the poor performers, this will make it impossible to experience a large loss. This is the secret to outperforming the market and achieving a consistently superior return.

Undertake some research on the Bursa Malaysia or in a local investment paper. List three shares that have showed decreased performance recently and three shares that have showed increased performance recently.

Mr Ooi was spot on when he wrote about investors having to monitor their own investment. The keyword here is monitoring, not just buy and hold.

For educational and illustration purposes I plucked the 2 graphs shown above from Public Mutual’s website to see the performance of 2 of their longest existing funds, Public Savings Fund and Public Growth Fund from 1986 to-date. The growth of KLCI is 284.87%, while Public Growth Fund 461.41% and Public Savings Fund 671.59%! I must emphasise that I am not “promoting” these 2 funds whatsoever; I choosed these fund due to the ease of access to information available.

Staggering outperformance. How is this made possible?

To start off with, unit trust funds are managed by professionals. A fund may also invest a portion of their NAV in fixed income securities and money market instruments. Thus, the fund manager can do asset allocation to best suit the situation with strategies to be defensive or to be aggressive.

Of course, the value of unit trust may rise and, unlike EPF, the value may also fall. But then again unit trust is not a bank deposit product. There will always be risks involved when investing, regardless in which asset class. It will never be an apple to apple comparison; but then again even a comparison between apples must be defined properly. Taking from one perspective, anyone could even say bank savings account is better than KLCI/unit trust if the point of view is to emphasise on an instrument that never gives negative returns.

Again, it would very much depend from which angle we are coming from. It is just an opinion. No right, no wrong.

Comments: I’ve always been fascinated with Mr Ooi Kok Hwa’s articles, and the article above is no different. After reading it, I think I’m going to value add to his fantastic article.

To start off with, please take note that my comments here are merely my opinion, and thus it doesn’t make me, or Mr Ooi Kok Hwa, right or wrong. It is just the way we choose to view things, some see a glass as half empty while others see it as half full.

The article made a comparison of investing RM10,000 in the EPF against RM10,000 in the KLCI. However, please take note the definition of KLCI. As per defined in Wikipedia :

“The Kuala Lumpur Composite Index (KLCI) is a stock market index generally accepted as the local stock market barometer. Introduced in 1986 to answer the need for a stock market index which would serve as an accurate performance indicator of the Malaysian stock market as well as the economy. It is used to be the main index, and is now one of the three primary indices for the Malaysian stock market which the other two are FMB30 and FMBEMAS, Bursa Malaysia. It contains 100 companies from the Main Board with approximately 500 to 650 listed companies in the Main Board which comprise of multi-sectors companies across the year 2000 to 2006 and is a capitalization-weighted index. “

In short KLCI is a compilation of statistics and datas in accordance to a certain pre-defined rule. As such, it serves as a benchmark and barometer only. In reality, how can a person really invest in the KLCI? It is possible, with tonnes of money allocated with the correct proportion and weightage spread over the 100 companies that make up KLCI? The closes that one can get to this in a hassle free way is to invest in a index-mimicking unit trust fund.

There is no fund manager managing the KLCI, as I mentioned earlier it is merely a compilation of statistics. Unlike the KLCI however, the EPF funds are managed by fund managers and the underlying assets invested are mainly fixed income securities, not equities. On this itself, obviously it is not an apple-to-apple comparison, true or true?

Also, please observe the EPF annual returns from 1986 – 2000, and compare it against the returns from 2001 onwards. Declining, and will it ever go back to the level of returns between 1986-2000?

And in Bursa Malaysia website, I found this as one of the golden rules in investing in shares:

Don’t Buy And Hold
The Malaysian stock market is one of the strongest and sometimes most dynamic markets in the world.

While the market has always recovered from falls, the same cannot be said for individual companies. Even during a booming market, some companies can suffer significant losses.

Trade only on an uptrend and sell the poor performers, this will make it impossible to experience a large loss. This is the secret to outperforming the market and achieving a consistently superior return.

Undertake some research on the Bursa Malaysia or in a local investment paper. List three shares that have showed decreased performance recently and three shares that have showed increased performance recently.

Mr Ooi was spot on when he wrote about investors having to monitor their own investment. The keyword here is monitoring, not just buy and hold.

For educational and illustration purposes I plucked the 2 graphs shown above from Public Mutual’s website to see the performance of 2 of their longest existing funds, Public Savings Fund and Public Growth Fund from 1986 to-date. The growth of KLCI is 284.87%, while Public Growth Fund 461.41% and Public Savings Fund 671.59%! I must emphasise that I am not “promoting” these 2 funds whatsoever; I choosed these fund due to the ease of access to information available.

Staggering outperformance. How is this made possible?

To start off with, unit trust funds are managed by professionals. A fund may also invest a portion of their NAV in fixed income securities and money market instruments. Thus, the fund manager can do asset allocation to best suit the situation with strategies to be defensive or to be aggressive.

Of course, the value of unit trust may rise and, unlike EPF, the value may also fall. But then again unit trust is not a bank deposit product. There will always be risks involved when investing, regardless in which asset class. It will never be an apple to apple comparison; but then again even a comparison between apples must be defined properly. Taking from one perspective, anyone could even say bank savings account is better than KLCI/unit trust if the point of view is to emphasise on an instrument that never gives negative returns.

Again, it would very much depend from which angle we are coming from. It is just an opinion. No right, no wrong.

Malls, hotels next victims in mortgage crisis as signs show meltdown far from over

WASHINGTON (AP) — The full scope of the housing meltdown isn’t clear and already there are ominous signs of a new crisis — one that could turn out the lights on malls, hotels and storefronts nationwide.

Even as the holiday shopping season begins in full swing, the same events poisoning the housing market are now at work on commercial properties, and the bad news is trickling in. Malls from Michigan to Georgia are entering foreclosure.

Hotels in Tucson, Ariz., and Hilton Head, S.C., also are about to default on their mortgages.
That pace is expected to quicken. The number of late payments and defaults will double, if not triple, by the end of next year, according to analysts from Fitch Ratings Ltd., which evaluates companies’ credit.

“We’re probably in the first inning of the commercial mortgage problem,” said Scott Tross, a real estate lawyer with Herrick Feinstein in New Jersey.

That’s bad news for more than just property owners. When businesses go dark, employees lose jobs. Towns lose tax revenue. School budgets and social services feel the pinch.

Companies have survived plenty of downturns, but economists see this one playing out like never before. In the past, when businesses hit rough patches, owners negotiated with banks or refinanced their loans.

But many banks no longer hold the loans they made. Over the past decade, banks have increasingly bundled mortgages and sold them to investors. Pension funds, insurance companies, and hedge funds bought the seemingly safe securities and are now bracing for losses that could ripple through the financial system.

“It’s a toxic drug and nobody knows how bad it’s going to be,” said Paul Miller, an analyst with Friedman, Billings, Ramsey, who was among the first to sound alarm bells in the residential market.

Unlike home mortgages, businesses don’t pay their loans over 30 years. Commercial mortgages are usually written for five, seven or 10 years with big payments due at the end. About $20 billion will be due next year, covering everything from office and condo complexes to hotels and malls.

The retail outlook is particularly bad. Circuit City and Linens ‘n Things have sought bankruptcy protection. Home Depot, Sears, Ann Taylor and Foot Locker are closing stores.

Those retailers typically were paying rent that was expected to cover mortgage payments. When those $20 billion in mortgages come due next year — 2010 and 2011 totals are projected to be even higher — many property owners won’t have the money.

Some will survive, but those property owners whose loans required little money up front will have less incentive to weather the storm.

Refinancing formerly was an option, but many properties are worth less than when they were purchased. And since investors no longer want to buy commercial mortgages, banks are reluctant to write new loans to refinance those facing foreclosure.

California, New York, Texas and Florida — states with a high concentration of mortgages in the securities market, according to Fitch — are particularly vulnerable. Texas and Florida are already seeing increased delinquencies and defaults, as are Michigan, Tennessee and Georgia.
The worst-case scenario goes something like this: With banks unwilling to refinance, a shopping center goes into foreclosure. Nobody can buy the mall because banks won’t write mortgages as long as investors won’t purchase them.

“Credit markets have seized up,” corporate securities lawyer Michael Gambro said. “People are not willing to take risks. They’re not buying anything.”

That drives down investments already on the books. Insurance companies are seeing their stock prices fall on fears they are too invested in commercial mortgages.

“The system has never been tested for a deep recession,” said Ken Rosen, a real estate hedge fund manager and University of California at Berkeley professor of real estate economics.
One hope was that the U.S. would use some of the $700 billion financial bailout to buy shaky investments from banks and insurance companies. That was the original plan. But Treasury Secretary Henry Paulson has issued a stunning turnabout, saying the U.S. no longer planned to buy troubled securities. For those watching the wave of commercial defaults about to crest, the announcement was poorly received.

“He’s created havoc in the marketplace by changing the rules,” Rosen said. “It was the stupidest statement on Earth.”

The Securities and Exchange Commission is considering another option that might ease the crisis, one that would change accounting rules so banks don’t have to declare huge losses whenever the market declines.

But the only surefire remedy is for the economy to stabilize, for businesses to start expanding and for investors to trust the market again. Until then, Tross said, “There’s going to be a lot of pain going forward.”

Malls, hotels next victims in mortgage crisis as signs show meltdown far from over

WASHINGTON (AP) — The full scope of the housing meltdown isn’t clear and already there are ominous signs of a new crisis — one that could turn out the lights on malls, hotels and storefronts nationwide.

Even as the holiday shopping season begins in full swing, the same events poisoning the housing market are now at work on commercial properties, and the bad news is trickling in. Malls from Michigan to Georgia are entering foreclosure.

Hotels in Tucson, Ariz., and Hilton Head, S.C., also are about to default on their mortgages.
That pace is expected to quicken. The number of late payments and defaults will double, if not triple, by the end of next year, according to analysts from Fitch Ratings Ltd., which evaluates companies’ credit.

“We’re probably in the first inning of the commercial mortgage problem,” said Scott Tross, a real estate lawyer with Herrick Feinstein in New Jersey.

That’s bad news for more than just property owners. When businesses go dark, employees lose jobs. Towns lose tax revenue. School budgets and social services feel the pinch.

Companies have survived plenty of downturns, but economists see this one playing out like never before. In the past, when businesses hit rough patches, owners negotiated with banks or refinanced their loans.

But many banks no longer hold the loans they made. Over the past decade, banks have increasingly bundled mortgages and sold them to investors. Pension funds, insurance companies, and hedge funds bought the seemingly safe securities and are now bracing for losses that could ripple through the financial system.

“It’s a toxic drug and nobody knows how bad it’s going to be,” said Paul Miller, an analyst with Friedman, Billings, Ramsey, who was among the first to sound alarm bells in the residential market.

Unlike home mortgages, businesses don’t pay their loans over 30 years. Commercial mortgages are usually written for five, seven or 10 years with big payments due at the end. About $20 billion will be due next year, covering everything from office and condo complexes to hotels and malls.

The retail outlook is particularly bad. Circuit City and Linens ‘n Things have sought bankruptcy protection. Home Depot, Sears, Ann Taylor and Foot Locker are closing stores.

Those retailers typically were paying rent that was expected to cover mortgage payments. When those $20 billion in mortgages come due next year — 2010 and 2011 totals are projected to be even higher — many property owners won’t have the money.

Some will survive, but those property owners whose loans required little money up front will have less incentive to weather the storm.

Refinancing formerly was an option, but many properties are worth less than when they were purchased. And since investors no longer want to buy commercial mortgages, banks are reluctant to write new loans to refinance those facing foreclosure.

California, New York, Texas and Florida — states with a high concentration of mortgages in the securities market, according to Fitch — are particularly vulnerable. Texas and Florida are already seeing increased delinquencies and defaults, as are Michigan, Tennessee and Georgia.
The worst-case scenario goes something like this: With banks unwilling to refinance, a shopping center goes into foreclosure. Nobody can buy the mall because banks won’t write mortgages as long as investors won’t purchase them.

“Credit markets have seized up,” corporate securities lawyer Michael Gambro said. “People are not willing to take risks. They’re not buying anything.”

That drives down investments already on the books. Insurance companies are seeing their stock prices fall on fears they are too invested in commercial mortgages.

“The system has never been tested for a deep recession,” said Ken Rosen, a real estate hedge fund manager and University of California at Berkeley professor of real estate economics.
One hope was that the U.S. would use some of the $700 billion financial bailout to buy shaky investments from banks and insurance companies. That was the original plan. But Treasury Secretary Henry Paulson has issued a stunning turnabout, saying the U.S. no longer planned to buy troubled securities. For those watching the wave of commercial defaults about to crest, the announcement was poorly received.

“He’s created havoc in the marketplace by changing the rules,” Rosen said. “It was the stupidest statement on Earth.”

The Securities and Exchange Commission is considering another option that might ease the crisis, one that would change accounting rules so banks don’t have to declare huge losses whenever the market declines.

But the only surefire remedy is for the economy to stabilize, for businesses to start expanding and for investors to trust the market again. Until then, Tross said, “There’s going to be a lot of pain going forward.”