Watch out, negative interest rate may be a reality

I think this news did not get the exposure it deserved here. Swedish Riksbank has introduced negative interest rate on bank deposit, a world first. Bankers around are watching and monitoring this closely.

The motivation of the Swedish bank is to force liquidity. Apparently many banks still do not want to lend out the money. This is quite different from the impression we have seen in Singapore, where money seems like flowing fearlessly, both in stock market and property market.

However, if the move is proven working, I believe many bankers would be ready to be a copycat, as reported in the article.

What would the impact to depositors? A negative interest would mean that you pay the bank to help keep the money. In other words, the time value of money becomes negative. Will it encourage immediate spending and booast credit growth? Will it bring inflation? Or will it be time that we keep money in MILO tin?


http://edition.cnn.com/2009/BUSINESS/08/27/sweden.subzero.interest.ft/index.html

** Partial extract **

Bankers watch as Swedish interest rates goes subzero

August 28, 2009 -- Updated 0352 GMT (1152 HKT)

For a world first, the announcement came with remarkably little fanfare.

But last month, the Swedish Riksbank entered uncharted territory when it became the world's first central bank to introduce negative interest rates on bank deposits.

Even at the deepest point of Japan's financial crisis, the country's central bank shied away from such a measure, which is designed to encourage commercial banks to boost lending.

NTU research on insurance

I read with interest on The Straits Times article that said NTU Associate Professor David Yee research showed that Singaporeans are grossly under-insured. I felt that the article did not come with sufficient details and data to support the claim, so I went to NTU website and did a search there. What I found was simply the Straits Times article again (NTU website: http://www3.ntu.edu.sg/CorpComms2/Documents/2009/Aug/ST_090821_B22_Sporeans%20grossly%20under-insured.pdf).

So I will make my comment on the article itself.

As a University report, I would expect that AP David Yee at least told us how he conducted the research, what are the underlying assumptions? How many people did he survey? How did he reach a conclusion that average Singaporean needs $495k insurance? What is the purpose of the research and who fund it?

Don't get me wrong, I think insurance is important. But without looking at individual needs and their actual situations and wealth portfolio, a blanket statement that $495k is needed is highly questionable. I am puzzled how the University allowed such under-research report be published? And worst still, put it on its website.

I suspect by now, most insurance agents in Singapore would already put that article in their briefcase ...

Pizza Hut pasta, anyone?

You must have watched the latest Pizza Hut advertisement. It is about a group of 80 diners tasting Pizza Hut pasta, without knowing it's from Pizza Hut. Many of them gave comments like, 'it is authentic', 'taste like that from xxx restaurant', etc.

Well, it is really a good idea by Pizza Hut to prove that their pasta is as good as any others, including those priced a few times higher.

Normally we would say that, well rental is a big part of the cost, so if you eat at a high class restaurant, obviously a big percentage of the price is towards paying the rental.

Let's look at it from demand side, and from a financial perspective. I believe many of us are aware of the term 'time value of money'. Basically what it means is that as money travels along the dimension of time, its value increases. In layman terms, money got to earn interest.

Now, think about it, what about 'money value of time'. As time travels across the dimension of money, does its value change? Put simply, at a particular point of time, does money change the value of that moment? Imagine you are in a romantic (and expensive) restaurant, would spending $30 for a plate of pasta makes you happy (value to you)? Or you rather just drink plain water and go for a $6 Pizza Hut pasta (proven just as tasty) later?

Acceptance of cash offer through ATM?

The acceptance level of SPC shareholders to the cash offer by China National Petroleum has exceeded 90%, so a delisting is unavoidable. I have therefore decided to accept their offer. Quite a pity, I thought, it was bought for the dividend. At the price I bought, the trailing yield is about 7%.

So I have to fill up the pink form and mail it out, it has to be received no later than 28/Aug. I am wondering, why can't the acceptance be performed through ATM? Afterall, we have IPO, right subscription, EPS done through ATM. The advantage is fast and reliable. Well, I don't mind they charge me $1 or $2 for this. What do you think?

Gold rush over?

Gold is viewed as a safe haven. Thus, it is interesting to see how gold behave in the past few quarters, when market fell off the cliff.

In the chart below, I plotted the worldwide identifiable gold demand from Q108 till Q209 in USD. They are jewelry, industrial & dental, and identifiable investment. In addition, I plotted gold price over the same period.

First we look at jewelry (yes, it is the gold chains, rings, etc, that ladies like). It maybe a surprise to many, but jewelry is actually the largest demand for gold. We see that jewelry demand peaked at Q308 and fell in Q408 and Q109. Since gold is a safe haven, I would thought that it should be in greater demand in Q408 and Q109 when market uncertainty was at its highest point. Apparently this is not the case.

However, if we look at identifiable investment, it shows a pick up over Q408 to Q109. Comparing this observation with that from jewelry, I would think that source of demand probably play a part. Comparing to the general retail jewelry buyers, gold investors are probably more sophiscated, more concern of uncertainty, and have more resources to satisfy its own demand.

Finally, we see that industrial and dental demand basically follows the trend of economy pretty well, bottom at Q408 and Q109 period.

In a bigger picture, we can see that the total gold demand starts to fall in Q209 to pre-crisis level in Q208. Is this an indication that market has shrugged off concerns over uncertainty? Maybe. But one thing strange is that the price did not correlate well with demand.

Is the gold rush over by now and market stability returns? Will the trillions dollar rescue packages lead to hyper inflation? It is difficult to draw conclusion now, but gold trend is certainly telling a lot of stories.

Rickmers - why the ship has not arrived?

I wonder why Rickmers results announcement this quarter Q4, 2009 is so late.

To begin with, Rickmers is not running some complicated business. Just collect the lease fee every month right? At least that's what the CEO told us. If so, why need such a long time to know how much they earn?

And indeed it is long, even by its own record. If you compared the announcement record since 2008, this is the longest it takes, 45 days into a new quarter. Q2 last year, it takes only 36 days.

I can't help but suspect that something big is coming. I have no idea what it is. But if Rickmers delays the results announcement for it, it must have something to do with the DPU. Otherwise, Rickmers could always announce it separately.

For now, we are just waiting for the ship to arrive ... but what's on the ship is a question mark.


QuarterxxxxxxAnnounced on......Days into new quarter
Q2,2009xxxxxAug 14.................45
Q1,2009xxxxxApr 24..................24
Q4,2008xxxxxFeb 09.................40
Q3,2008xxxxxOct 31..................31
Q2,2008xxxxxAug 05.................36
Q1,2008xxxxxMay 05.................35

Readers Digested

I believe many of you have receive this invitation from Reader's Digest before. What surprises me is that they actually work with UOB this time. The letter is addressed to UOB credit cardmember.

All along I cannot understand why RD could run this program for so long. To me, it certainly looks like a form of gambling. In fact, RD themselves called it Sweepstakes.

To be fair, RD makes it a little bit different from normal form of gambling. Normally you just place the bet (in casino, 4D, Toto, etc) and wait for the results.

For RD, they make full use of every single step.
- For the prize money, it is authorized by the Finance Director. WOW!
- To receive the this notification, you are very lucky. WOW!
- Then you must make a very important decision, whether to take part or not. WOW!
- You need to reply early, because IF you win the top prize, you will receive a bigger prize. WOW!
- And if you subscribe to RD, you will win a bigger prize (IF you win the top prize). WOW!
- And you also must decide how you want to receive the prize. WOW!

By now, most of the readers should feel they have got much closer to the prize.

Well, yes, you don't really lose even if you don't win anything, except the money spent on subscribing the magazine. Just remember to terminate the subscription before expiry, otherwise they will continue to send you the magazine and of course the bill ... make sure your money is not digested ...

TSMC seeing danger

As I posted before, the presence of Glabalfoundries is a big threat to existing players in the market. (More details here http://mycroeconomics.blogspot.com/2009/07/if-you-are-shareholders-of-chartered.html)

In an investor conference call 30/July/2009, TSMC Chairman and CEO said that "We consider GF to be a formidable competitor. I really think that the battle will be a high casualty one. My job is to minimize the casualties on my side. Casualties will be represented by money."

Morris is a veteran in the industry, and I really respect him for his foresight, sharpness, openness to investors and readiness to fight the war.

Unfortunately here in Chartered, we see no such urgency. It is funny, considering that the most competitive, the strongest, and the healthest company in the industry is seeing danger. The company takes no effort to educate investors on imminent crisis. And the investors are probably still indulged in the recent bull run.

Time is not on your side.

Germany 1910 and 1920 notes

Today, let me share these 2 Germany notes.

The first one is Germany Reichsbantnote 1000 issed in 1910.























The second one is Bundert Mark 100 issued on 1920.
























These notes are pieces of artwork by itself. Look at the complexity and details of the notes. Amazing.

Sports in shopping mall

I have not had the chance to visit the newly opened Ion Orchard yet.

Instead I went to JB last weekend. I was in its largest shopping mall, City Square, where I came across this most creative activity conducted in a shopping mall I have ever seen.

They had a volley ball competition in the shopping mall. For safety sake, they have nets covered up the place. And audience could watch the matches from almost 360 degree from near distance. It was a different experience compared to watching it in a stadium.

I think it was a smart move. The organizer of the match certainly had drawn a big crowd, and if their intent was to promote the sports, what other better ways? For the shopping mall, it gave the patrons a fresh experience other than the normal sales or food fair.

By the way I understand that GIC has a share in this shopping mall. Not sure if they participate in the management. But City Square is clearly a very successful mall in JB, and better than some of Singapore ones.

Pay peanut and get monkey

This is a 1980 stamp issued by China, the first one in China Zodiac series.

I bought 2 pieces at about $10 each in 1986. Three years ago, I sold one of them at around $500. That's a return of 50 times or 5000% in 20 year, equivalent to 21.6% compounded annual return. I think not many investments could beat this. I check eBay that current bidding goes as high as US600. A little regret to have sold one. But then again, I still have one more :)

On hind sight, this is obviously a very good investment. Had I threw in $10,000 to buy 1,000 pieces at that time, I would have US600,000 now! But then, actually it is very difficult to identify winners in stamp collection. More so nowadays, as the quantity issue is so large now. I was told that this particular monkey can fetch such a high price because a lot of them were scrapped due poor printing technology at that time. And I think it certainly benefits from the growing purchase power of Chinese stamp collectors.

Right issue - Right or Wrong?

We invest in stocks with expectation that we can collect dividend, or sell the stocks at a higher price in future. Thus it is a little disturbing when the company comes to you asking for money instead, under the name of right issue.

The right issue by itself has no meaning. Basically what it does is to create more shares so that everybody owns 'more' in terms of absolute share, but the same in terms of percentage. For example, imagine we have $100 here, and we split to 2 shares, you one share at $50 each, and I 1 share. Now, we split it to 10 shares, you 5 shares at $10 each, and I 5 shares. We own more shares now, but still the same $50.

So we need to understand why rather than giving us money, the company asks money from us. We can look at it this way. Buying stock is quite similar to buying a house and rent it out. Now imagine, after many years, your house needs some overhaul or maintenance, isn't it logical and reasonable to spend some money to fix it? And you may be able to increase the rental after that.

Absolutely. And that is the point I want to make. How the company going to use the money from the right issue is of paramount importance! If it is used to improve the earning capability, that's a good thing. Otherwise, you better think twice.

Of course, the companies will offer you good promises and proposals in the right issues. This is when you need to exercise your judgment. Look at their history.

If their stock price increases over the year, you have a good tenant, who helps you to maintain your house, and maybe build a swimming in it, and increase the value of the property.

If they pay you dividend, it is equivalent to the tenant paying you rental.

If they never pay any dividend, it is equivalent to the tenant refuses to pay you rental.

If the stock price drops over the year, you have a bad tenant, who damage your house, causing its value to drop.

If the stock drops in price, no dividend, and keep doing right issue, it is equivalent to a tenant who refuses to pay you rental, damage your house, and keep asking you money to fix the pipes that burst. What would you do in this case? Chase the tenant out? In real life, however, investors seems to tolerate this in stock market.

Let's hope for a colorful future

Study by AkzoNobel, owner of ICI paint, shows that people generally prefer neutral colors such as black, white and grey for interiors, during economic downturns, while more intense colors when they are more confident.

This should serves as no surprise, as economic downturn definitely spoils our mood. Who has the luxury and mood to design a more colorful interior in a downturn? Whereas in a upturn, there is more room, and maybe budget, for more imagination.

You may apply this when you walk into a company's office in future. It may tell you something about how the company views the economic outlook.



** Quote **

Link between colour trends and economy

Tags: Akzo Nobel colour trends economy

Written by Edge Malaysia
Friday, 31 July 2009 17:07

KUALA LUMPUR: A study by AkzoNobel, the world's largest paint and coatings company, on colour trends during economic changes, showed a co-relation between the state of the economy with colour trends.

Although regional preferences can have an impact, "colour trends have been fluctuating in waves over the last few decades as the economy ebbed and flowed," said Jeremy Rowe, AkzoNobel managing director for decorative paints, South East Asia & Pacific.

"During an economic downturn, neutral colours such as black, white and greys are favoured for interiors while more intense colours are used when people feel more confident," explains Rowe at a breakfast meeting with the Malaysian media on July 31.

He added that in Western Europe at the moment, sober whites and off-whites are the most popular while in the US, beige and grey are dominant.

Asia, he added is definitely more colourful with fresh colours such a yellows and pink and light blue preferred.

In the months ahead, Rowe said, "colours will be lighter in mood and more optimistic in feel" as the world emerges from the current economic downturn.

AkzoNobel acquired Imperial Chemical Industries (ICI) paints last year. It is the manufacturer of the Dulux brand of paints.

ICI Paints (Malaysia) Sdn Bhd managing director Goh Cheok Weng said the paints and coatings sector has shown improvement in Q2 indicating a return in consumer confidence.

The Amsterdam-based AkzoNobel posted revenue of 15.4 billion euros last year. It expects to maintain Asia's 20% contribution to its total sales up till 2012.

ICI Paints Malaysia also launched a month-long nationwide roadshow to raise awareness on the need for sustainable, environment-friendly products and its commitment to produce low odour, low volatile compound (VOC) green certified paints.

It is the first decoration company to introduce the full range of low odour, low VOC interior emulsion paints with Singapore's Green Label accreditation in Malaysia.

http://www.theedgemalaysia.com/business-news/146300-link-between-colour-trends-and-economy.html

Singapore 44th National Day - a peek to the past

One more week and Singapore will celebrate its 44th National Day.

44 years is long in a man's life. However, it is relatively short in a country's history.

Singapore was occupied by Japan from 1942 till 1945. During this period, Japanese introduced a new currency, Banana money. As expected, when Japan lost the war, the Banana money basically become stacks of worthless paper. As mentioned in previous posting (http://mycroeconomics.blogspot.com/2009/07/gold-for-alien-attack.html), unlike gold, the value of fiat money depends on the credibility and capability of the issuer government.

Other than the well-known Banana money, the Japanese also used military exchange note. See below. It guaranteed full value exchange, and warned heavy punishment for counterfeit.

While celebrating the National Day, it is important to know what exactly is the celebaration.