Gold was at about US$ 300 an ounce in the early nineties. At an exchange rate of about RM 2.50 to US$ 1, an ounce would have cost about RM 750 then. Today, the price of gold is at a record high of about US$ 1,100 per ounce. With a current exchange rate of RM 3.40 to one US$, an ounce of gold would cost RM 3,740. This is a 400 % increase or a four bagger.
Over a period of 18 years, the price has increased four folds. This represents an annual compounded rate of increase of 8 %. Not bad for an asset that does not generate any income. All the increase is a result of capital appreciation. This rate is also higher than the inflation figure. Hence, the metal is a good hedge against inflation.
So, why is the price of gold so high? The reason is gold is priced in US$ and the dollar is an overvalued currency. There is fear of a sudden currency depreciation. When that happens, the economy will experience mega-inflation. People are buying gold to hedge against this possibility.
Tuesday, November 10, 2009
The US Dollar
The US economy is terribly out of whack. It is projected to run a trade deficit of $1.4 trillion for the fiscal year starting 1 October 2009. This will be about 10% of its GDP. The total US debt at the end of 2008 was $10.7 trillion. Half of this was incurred in the last 10 years. This huge deficit has resulted in the accumulation of vast amounts of dollars in foreign bank accounts. To keep the liquidity level at home, they have to print more dollars.
The financial crisis has retarded the economic growth. To stimulate the economy and at the same time to forestall severe deflation, the government resorted to massive spending. To finance that, they embark on the printing of new dollars.
With all the new notes printed, the assets backing backing each dollar is diluted. Economic theory tells us that the US dollars should be weaker. Indeed, it has weakened slightly this year. However, because of the safe haven status of the US, foreign nations are still buying US Treasuries. This gives the dollar support and help props up its value.
The problem of the dollar will start when the Japanese and the Chinese loose faith of the currency. When they start selling their treasuries holding, the dollar is expected to decline inexorably. The dollar will then be no more mighty.
The financial crisis has retarded the economic growth. To stimulate the economy and at the same time to forestall severe deflation, the government resorted to massive spending. To finance that, they embark on the printing of new dollars.
With all the new notes printed, the assets backing backing each dollar is diluted. Economic theory tells us that the US dollars should be weaker. Indeed, it has weakened slightly this year. However, because of the safe haven status of the US, foreign nations are still buying US Treasuries. This gives the dollar support and help props up its value.
The problem of the dollar will start when the Japanese and the Chinese loose faith of the currency. When they start selling their treasuries holding, the dollar is expected to decline inexorably. The dollar will then be no more mighty.
Wednesday, October 28, 2009
Power crazy people
OTK is a man of no principles. He has said that he will resign as MCA head if the vote of no confidence against him is upheld. The delegates have done that. Now, he is reneging on his promise. He is trying very hard to cling on to power. He was even gone ahead and made a pack with his nemesis, CSL. He couldn’t stand the deputy from the day he was elected President. Now, he says that he can work with him to rebuild the party. What a hypocrite.
He has no more credibility. The people (voters) will not trust him anymore. They will not respect him as a leader of the Chinese community. Comes the next general election, they will again cast a vote of no confidence on him.
He is a lame duck President. UMNO will not respect him either. So, he will have no bargaining power with the government. In essence, he is a power crazy leader with no integrity and little respect. He might as well retire and go fly a kite.
He has no more credibility. The people (voters) will not trust him anymore. They will not respect him as a leader of the Chinese community. Comes the next general election, they will again cast a vote of no confidence on him.
He is a lame duck President. UMNO will not respect him either. So, he will have no bargaining power with the government. In essence, he is a power crazy leader with no integrity and little respect. He might as well retire and go fly a kite.
Tuesday, October 13, 2009
From hero to zero
OTK is an arrogant man. From the start, he has decided not to work with his deputy. He tried to sideline his assistant. The critical mistake was when the CC decided to expel CSL. Then OTK tried to be a hero by allowing for a show of no confidence against him. Now, he has to go. He has learned his lessons the hard way.
So, the moral of the events is that when you are in power, do be nice to the people under you. Show some humility. People will be more willing and sincere in serving you. If you show arrogance and superiority, the best that you get is an uncommitted service. And when you fall, you will be standing all alone.
He may have done some good in the PKFZ case. But, in the process, he may have stepped on many people’s toes. He has done what is considered as unconventional by exposing the dealings of his predecessors. The former ministers are from the same party. Thus, he may have indirectly caused the washing of the community’s dirty linen in public. This may have angered many elders in the community.
So, the moral of the events is that when you are in power, do be nice to the people under you. Show some humility. People will be more willing and sincere in serving you. If you show arrogance and superiority, the best that you get is an uncommitted service. And when you fall, you will be standing all alone.
He may have done some good in the PKFZ case. But, in the process, he may have stepped on many people’s toes. He has done what is considered as unconventional by exposing the dealings of his predecessors. The former ministers are from the same party. Thus, he may have indirectly caused the washing of the community’s dirty linen in public. This may have angered many elders in the community.
Monday, October 5, 2009
What high income
Malaysia wants to be a high income nation. Jolly good. But at what currency exchange level are we talking about? It is good if the income is high and the denomination is in USD. What is the point if it is denominated in Indonesian Rupee or the Vietnamese Dong.
High income can only be sustained if the productivity is improved or we have advanced to a higher technological level. This would result in higher growth and increased GDP. But, we are not going along this line. We are trying to be competitive by manipulating the exchange rate. We lowered our exchange rate so that our products are cheaper to importers. Workers may get a raise on the take home pay, but their purchasing power is not better off.
Malaysia has not done well in terms of its currency exchange rate. It used to be 1 RM to 10 Baht in the 80s. In the Asian Financial Crisis of the 90s, Thailand’s currency was badly battered. They have recovered. Even with their political instability and turmoil, they have done better than us. Today, the exchange rate is less than 10 Baht to 1 RM.
High income can only be sustained if the productivity is improved or we have advanced to a higher technological level. This would result in higher growth and increased GDP. But, we are not going along this line. We are trying to be competitive by manipulating the exchange rate. We lowered our exchange rate so that our products are cheaper to importers. Workers may get a raise on the take home pay, but their purchasing power is not better off.
Malaysia has not done well in terms of its currency exchange rate. It used to be 1 RM to 10 Baht in the 80s. In the Asian Financial Crisis of the 90s, Thailand’s currency was badly battered. They have recovered. Even with their political instability and turmoil, they have done better than us. Today, the exchange rate is less than 10 Baht to 1 RM.
Thursday, June 4, 2009
Contrasting Forecasts
CIMB is very bullish on the Malaysian market. It is projecting a target of 1220 for the KLCI at year end. It cites the gradual reinvestment of institutional funds' spare cash and the "better than expected" 1Q results for the local companies as the reasons for its good feelings. Very well.
At about the same time, Maybank came out with a very bearish report. It is targeting the KLCI at 990 at year end. It cites the worse than expected 1Q GDP growth of -6.2% and the poor 1Q earnings (62% of its stock coverage of 72 companies reported lower profits) of the local companies as its reasons for the lousy feeling.
What a big contrast in the forecasts. I think I can be a stock market forcaster too. I bet that the KLCI will end the year at 1105 - the middle of the two forecasts. I am confident that I can beat at least one of the above investment banks. Just wait and see.
At about the same time, Maybank came out with a very bearish report. It is targeting the KLCI at 990 at year end. It cites the worse than expected 1Q GDP growth of -6.2% and the poor 1Q earnings (62% of its stock coverage of 72 companies reported lower profits) of the local companies as its reasons for the lousy feeling.
What a big contrast in the forecasts. I think I can be a stock market forcaster too. I bet that the KLCI will end the year at 1105 - the middle of the two forecasts. I am confident that I can beat at least one of the above investment banks. Just wait and see.
Tuesday, May 19, 2009
Talking Bull
The world's leading airlines are all buffeted by the double whammy of the economic recession and the influnza A flu. Singapore Airlines just reported a 92% plunge in its profit for the quarter ending March 2009. Cathay Pacific recorded a loss of more than a billion USD in 2008 and its revenue for the 1st quarter is down 22%. Japan Airlines reported a loss of 63.2 billion Yen for the year ended March 09 and is predicting negative results this year too. Qantas is forecasting its results for the year to June 09 will be less than half of that of last year.
Amidst all this gloom, there is one nascent airline that is very bullish. Air Asia X is talking about acquiring more planes and connecting to new destinations. It wants to increase its fleet from 4 to 8 planes and its destinations from 4 to 10. It is wishing for a revenue of 1 billion RM in 2010 and with a margin of 10 to 20% (very optimistic), is projecting itself to be among the top 100 companies on Bursa Malaysia. Its CEO is definitely very gung-ho and bullish. He is already counting the chickens even before the eggs are laid.
Amidst all this gloom, there is one nascent airline that is very bullish. Air Asia X is talking about acquiring more planes and connecting to new destinations. It wants to increase its fleet from 4 to 8 planes and its destinations from 4 to 10. It is wishing for a revenue of 1 billion RM in 2010 and with a margin of 10 to 20% (very optimistic), is projecting itself to be among the top 100 companies on Bursa Malaysia. Its CEO is definitely very gung-ho and bullish. He is already counting the chickens even before the eggs are laid.
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