Saturday, January 30, 2010

Why do Credit Cards charge your future usage ?

From time to time, we may heard news that more and more people are unable to pay their credit card debts. As a result, credit card companies must be earning a lot of money in return. On the contrary, credit card companies have been facing quite some challenges.

More and more people are settling their due payment in full monthly. This results the card company unable to earn money from this group of people. Some users even maximize the interest free period to 2 months and pay nothing to enjoy such great facility.

Due to the stiff competition among the card issuers, every time an annual fee is charged, the card users will simply stop the account.

When late fee and interests are charged, more and more users know how to get them waived.

Generally people are getting better in managing their credit card usages. More and more people are more personal finance savvy now.

Credit card used to be able to get their profit back from the people who owe them money. But now they can keep charging interest to their debtors but eventually the debtors went bankrupt and don't pay at all. Credit card companies ended up didn't earn much from this group of people neither.

This posts a problem. If the credit card companies can't earn as much as it used to be from the people who don't have money to pay. What can they do ?

Well, the other group of people never owe money. That means they must have money. So credit card companies think of a smart way to earn money from them. If you didn't pay your last month balance in FULL, we will charge you interest NOT only on your remaining balance BUT also on all your subsequent future transactions.

How can they get people to buy off with this new innovative but abusive concept ? Well, that has already been show cased in last article.

There you go, as and when people are getting better in their personal finance. Some giant finance institutions may get into troubles, especially those who earn when you spend. As a result, they will always beef up more advertisements and more 'creative' messages to make sure general public are confused what 21st century personal finance is really about.

Shouldn't we let credit card companies earn some ? Since they provide us great facilities ? Well, sure ! They have been earning 1-3% from the merchant every time you use the card. That alone is a multi-millions income every month.

Malaysia Personal Finance - Part 2 Amanah Saham

It was mentioned before that EPF in Malaysia is one of the best things that happens to ones personal finance, because it saves automatically even before you can lay a hand on your money - the main principal of Automated Saving System - ASS.

But not everyone works for someone. Or if your employer does not contribute his part, it makes EPF so much less interesting. So a government's mutual fund is born - Amanah Saham Nasional. If you are not eligible for EPF, you can still save in Amanah Saham.

Despite many disputes and diverse understanding on what Amanah Saham is or should be, one cannot deny that our poverty rate has indeed improved. The gap between rich and poor did narrow down since 50 years ago. That's the power of mutual fund, despite how wrong or how right the reason is when one save in mutual fund, all will be sharing the same return.

A government supported fund is even better for those who don't know what it is. As long as the 'government' is there, your money is protected.

So as far as value growing is concerned, that is pretty much what Malaysia government has done for your personal finance. There is an EPF and there is an Amanah Saham. If you are not adopting any of these tools, you are pretty much all on your own.

Part 2 - Amanah Saham

Tuesday, January 26, 2010

Comments on Jupiter 2010 stock picks

Faber Group was one of the worst run businesses of all time. They wanted to do 'everything' and ended up achieved almost 'nothing'. Its one of those stories who involved in property development and didn't quite make it. The whole restructuring exercise took more than 5 years before they finally turned it around. What is interesting however is its consistent up trend in their EPS earning, despite that it started from a negative (84.2) in 1998. Looking forward, if the person who is managing finance in Faber continues to stay in power, this is worth looking into more. It could become one of the best long term keeper. Key to success is if they can repeat 2005-2006 growth now. This can be determined by reading their latest annual report. Challenges are varies of their continuous law suits.

SAPCRES, Oil and Gas, looks pretty good now. It seems like anything under RM 2.49 is a good buy ( and keep for the next 10 years). The problem is technically it is at its all time high now and corrections are bound to occur. Another problem is it has been relying too much on the oil market and fluctuated too much in the past. Internally they should really improve their hedging strategies to smoothen out their track records.

Paramount is properly most well known when they bought Kota Kemuning with cash 7 years ago. Perhaps they should buy another big piece of land now to stimulate next 3 years of growth !? Basically this is also a very good keeper, it wouldn't go too low anyhow so it has a strong safety net but technical correction pressure is quite high at the moment. Its employee share option scheme also make it a less attractive stocks. Potentially a keeper but lack of stimulants now.

While some think Zhulian is a great MLM company, I personally think they should adopt newer concepts etc. They are still employing 20th century MLM aka. repeat Amway's story but landed on a wrong product to start with. But even with the wrong product, they are in the right market and hence still manage to make it a success in their own scales. My target buy price for Zhulian is only RM 0.66

The rest of the Kurnia, KurAsia, Atrium, TSM and WellCall do not meet volume requirment. So whatever reasons Jupiter recommends them are not based on proven strength analysis - which in turn I consider as speculations. Among all, TSM may be the one what is most speculatable.

My actions ?

I have chosen KNM over SAPCRES in the past before. There is no urgency to change yet although its tempting. Faber and Paramount on the other hands were NOT in my radar before. Can Paramount regains its debut ? Is Faber really undervalued and have their internal issues really addressed ? I may check out Faber's management team first ...

Monday, January 25, 2010

The Driver of Social Change – (Epilogue)

Why did I choose an obscure dispute over the regulation of derivatives to expound on the macro themes of social change and public alienation?

The reason is that the dispute goes to the heart of the matter. It is the heart of the matter – the definition of finance, the dialectics inherent in a dispute (that is pregnant with new developments), the abstract nature of the argument (that goes over the collective head of the hoi polloi) and the uncompromising position of the parties (who know what the stakes are) – are all there.

Let us begin with the definition, which is a highlighting of relations. The definition sets the direction of the investigation by establishing the investigator's point of view, his angle of vision to reality. If it is set right, things will fall into place.

Here is a finance professor writing to the editor of the Financial Times to volunteer his unsolicited 2 cents about the crisis :

First, “finance” must not be considered as one homogeneous discipline. The traditional finance (asset management, corporate and international finance) did not create the crisis, but the mathematical finance/economics that invented the structured products certainly played a part because they feed the financial markets’ appetite for generating excess profits based on non-existing assets.
Finance not a homogeneous discipline!

Finance concerned with asset management and corporate finance. (Thanks, Paul Samuelson!)

Mathematical finance “inventing” structured products!

With this appalling insubstantiality as the starting point, our professor could not go far – or at all.

Finance is the discipline of studying finance capital. Finance capital is capital in circulation that is evolved to the point of subjugating the industrial capital, the capital in the realm of production.

Capital in circulation – historically its two dominant forms were merchants’ capital and bank capital – is necessary for the realization of the value of products; a product must be sold for the profit in it to be realized, hence the critical role of say, merchants’ capital, that delivers the products from the producer to consumers. In that regard, while it logically plays a subordinate role to the industrial capital, its existence is nevertheless necessary, because without the conversion of commodities into money, the production cycle would cease.

From this historical position of being a “humble servant” of the industrial capital, capital in circulation evolves to the point of dominating the tempo of the entire production process, including that of industrial capital.

In the previous volumes of Speculative Capital, I touched upon the nature of this transformation. In the upcoming Vols. 4 and 5, I will delve into the subject in further detail. But two words that I just used need elaborating.

One is “subjugate”. What does the word mean when applied to the relation of two forms of capital?

For the answer, consider the car market in the West, especially in the U.S. Whilst previously cars were purchased, they are now leased, typically with 3-5 year terms. The change was brought about, driven and dictated by the funding exigencies of the finance capital that resides, among other places, in the financial subsidiaries of auto manufacturers.

The design engineers, the marketing executives, the raw material producers and the parts suppliers are then forced to react to the fact that the average life of the car on the road is reduced to the terms of the lease. That is the dominance of production by finance capital.

Or take a case from the aviation. Two recent events, the test flight of Airbus A380 and Boeing 787 made the news. While the A380 is a totally new plane with new concepts, the 787 is a rehash of the existing lines. Still, the plane was more than 2 years behind in the delivery schedule and experienced considerable design difficulties. Why did Boeing engineers who invented the mass production of the commercial aircraft have such a hard time with the latest model? From The Financial Times of February 27, 2004:
Boeing has left it too late to catch up with Airbus in modernizing its commercial aircraft range because shareholder “short-termism” would not allow the scale of investment needed, the head of BAE Systems claimed yesterday … The failure to renew its product range resulted in Boeing being overtaken by Airbus in terms of deliveries for the first time in 2003 … Sir Richard Evans, the outgoing chairman of BAE … estimated Boeing would need to spend between $40bn and $50bn over the next 10 to 15 years to “match” Airbus’s product range.
Note that the culprit is not financing, in the sense of the availability of capital, but the speed of the turnover of finance capital that has a tendency to increase, leading to the “short-termism” of the executives.

The other word is “evolve”, as in “capital in circulation evolves to the point of dominating the tempo of the entire production process”. The word has a historical connotation. It includes expansion and growth – both, quantitatively in size, and qualitatively in form.

For the size, it will suffice to quote from the finance professors who regularly cite that the size of “finance" as a percentage of the GDP has doubled from about 4% in the mid 1970s to about 8%. In terms of form, there is of course the rise of speculative capital, the latest and most aggressive form of finance capital which reaps profit from volatility. From Vol. 2:
Derivatives are the functional form that speculative capital assumes in the market. This form is fundamentally a bet. But like the bodies of the damned in the Inferno whose deformity corresponds to the sort of sin they have committed, the particular composition of each derivative corresponds to the sort of arbitrage opportunity that speculative capital intends to exploit. Arbitrage opportunities are many and varied; hence the confusing array of derivatives.
It was the expansion of speculative capital, being pushed by one side and resisted by the other, that took the form of the fight over the regulation of derivatives.

The U.S. side demanded constant marking-to-market, a practice that presupposes trading. That is the realm of finance capital.

The “end users”, all industrial companies representing industrial capital, wanted to prevent finance capital from getting a foothold within their accounting system, and eventually, their production cycle.

For the time being, the two sides being approximately equal in political power, the matter ended in a draw. The two sides agreed to disagree. But we have not heard the last of this dispute.

What I discovered theoretically about speculative capital, speculative capital and its agent know instinctively. From the New York Times of April 27, '08, describing a meeting in which then Treasury secretary Rubin got uncharacteristically angry in a meeting in which he was trying to block the regulation of derivatives.

But on at least one occasion, Mr. Rubin lined up with Mr. Summers and Mr. Greenspan to block a 1998 proposal by the Commodity Futures Trading Commission that would have effectively moved many derivatives out of the shadows and made them subject to regulation ... At an April 21, 1998, meeting with Brooksley Born, the chairwoman of the commodities commission, Mr. Rubin made no secret of his feelings about her proposal. “It was controlled anger. He was very tough,” Mr. Greenberger [then director of trading and markets at the CFTC] recalls. “I was at several meetings with him, and I’ve never seen him like that before or after”.
From the Nice Jewish Boy to a bully in a few seconds! One more word from Brooksley Born and Bob Rubin would have pulled a knife on her!

Why this uncharacteristic anger? Why the Treasury secretary of the U.S. who, by all accounts is a mild mannered, almost shy, individual, gets all worked up over something like the regulation of derivatives?

The answer is that he is not the Treasury secretary in the institutional sense of the word, with all the duties and obligations of the office that go with it, but an ex-Goldman FX arb trader occupying the office. He gets angry because he instinctively knows that the proposed regulation would get in the way of arbs making money.

Look at this unbelievable passage, unbelievable because what a single individual is allowed to do under the auspices of the U.S. government, from a laudatory article in the New York Times that I quoted in Vol. 1:
Then, when the dollar had fallen off the front pages and the market’s attention was elsewhere, they [Rubin and Summers] ambushed the currency speculators, ordering the Treasury to buy dollars. The idea was to sow so much uncertainty about the Treasury’s tactics that no big speculators or hedge funds would risk being caught with a huge position in yen.
I commented there:
So the Treasury Secretary of the United States fixes the exchange rate of the dollar against the yen by sowing uncertainty about their exchange rate!
A palan dooz is allowed to run the U.S. Treasury Department like a hedge fund – and then go further still:
His [Rubin’s] first move was to impose an ironclad rule that he would be the only one in the Administration even to talk about the dollar, the loquacious president included … Mr. Rubin had a free hand in fighting the dollar war; the President almost never got involved.
The president of the U.S. is forbidden by his Treasury secretary from talking about the U.S. currency.

We now see the larger issue behind the regulation of the derivatives. To facilitate its movement, finance capital changes the laws to its favor. If the laws, including those of the sovereign nations, stand in its way, they have to go. Hence, the “globalization”, a term that is void of national and political connotation precisely because speculative capital deems them irrelevant.

Because the laws enabling, empowering and propelling speculative capital are enacted at a macro, almost abstract level, they appear as a “given”, like the laws of nature, with the result that they remain outside the political discussions and agenda; think of the Fed’s “independence”. In this way, policy making become removed from the hands of policy makers. Policy is removed from politics.

Under these conditions, the difference between one politician and the next becomes the color of their skin, and not the content of their policy – or even character.

Such changes are far from natural. In fact, they are the elements of the most extreme and disruptive form of social engineering. But because the dynamics of the process is hidden from the people, they feel powerless to bring about any change. They become passive, alienated, superstitious and angry.

All the while, Prof. Becker, who dislikes social engineering very much, will have nary a word on these subjects.

Friday, January 22, 2010

Living Standard @ Personal Finance Level

Like inflation, Living Standard can be a big number where GDP, poverty rate, income growth inequality, life expectancy are involved. But as far as personal finance is concern, what you should really care is your very own personal living standard.

Simply put, living standard is your ability to sustain how you live your life. At one hand this can be calculated very much similar to Living Cost and the increase of living cost over time is inflation. So is living standard the same as inflation ?

But it should be the opposite instead. One would want lower inflation but higher living standard. So what has gone wrong in the formula ?

The keyword is "ability". If you are NO longer ABLE to sustain how you live your life when inflation kicks in, you are facing the risk of lower living standard. Inflation is an external factor. Your ability to fight the inflation will determine your living standard. When your ability increases faster than inflation, your living standard is raised.

Most of the time, this ability is associated to income. The more money you get the less you need to worry about how expensive the stuff has become. Although vastly applicable but earning income is NOT the only ability one can have.

Says the food and rent have been increasing rapidly. You have to rent a smaller place and eat at cheaper places. You change your lifestyle, you are having a lower living standard now.

On the other hand, another guy is facing the same inflation challenge. Instead of moving to a smaller place, now he rent a bigger place and sublet it to collect higher rent. He starts to grow his own food at his spare time. He changes his lifestyle, but he is having a higher living standard now - staying in bigger place while paying the lower rent and eating healthier food.

Which of the above is living cheaply and which one is living frugally ?

Sometimes creativity and innovation plays a vital role in achieving higher living standard, both in generating higher income and also how one can live his life.

Jupiter Online Stock Pick for 2010

Just came back from Jupuiter Online seminar, some of their stock picks for the year of 2010 are:

WellCall Holdings
Sapura Crest
Atrium REIT
TSM Global
Paramount Corp

Talk given by: Pong Teng Siew.

Actually he mentioned these are short to medium terms recommendation only ie. next month to next quarter or so. Overall there are many uncertainties ahead that the bullish trend is really questionable. Hence generally there will be a correction in the market soon, followed by a mainly side trends for the next 2 years.

A few points that I manage to digest are:

Governments backup funds are ending in mid or end of the year, banks are not likely to recover fully and able to stand on their own yet.

USA employment rate is actually higher than reported figures because the number of people claiming un-employment insurance are still rocket high. A lot of part time workers are actually un-willingly working part time but forced to.

China rising inflation may result them pulling back their outflow funds, implying we can't really rely on China neither.

I don't fully agree with all his views but nevertheless shared the similar future trend predictions. I may comment on his stock picks after I eat something ... hungry like a horse now ...

Mutual Fund of the year 2010 ? By the numbers ...

In 2009, about 10 mutual funds thats worth looked into were selected out of 530 choices in Malaysia.

Today lets take a look at how they performed in the past 6 months. Below chart shows their respective return in percentage. From past 1 day, past 1 week, past 1 month etc.

The actual percentage return is NOT important here. We are comparing fund performances across different fund managers. What we are looking for is a graph that consistently stay above the others. That would give an indication of "consistently outperform the others".

The most apparent winner is OSK Equity Fund and the worst is Public Ittikal. However, this does not imply anyone of them is better than another. The market has been trending up generally. OSK is well verse in stock market and therefore able to catch most of the up trend. Public Ittikal on the other hand only deals with halal and safe instruments. You can be assured that both of these funds are very strong in their fundamentals.

However, one clear message from this chart is that we can take TA away from this list. As you may see, their chart patterns show as if they have no clue how the market will move and don't even have any good strategies in their fund management. They are supposed to be as good as OSK.

So if you think the market is continue to be bullish, exercise DCA on OSK-UOB Equity Trust. Else if you prefer safer haven, try AMB Ethical Trust and Public Saving.

Wednesday, January 20, 2010

KLSE Technical 2010-01-21

I have stopped stock market talks for a while based on comments received in the past. But about 20% of the old readers unsubscribed following that. So I am guessing there may still be some silence readers who love stock market talks. And I feel very itchy not to share my view seeing that no one else publishes my opinions. So pardon my incidental randoms.

As some may have known by now that KLSE is damn HOT now! Axiata, PBBank, KYM, RCECAP, LIONDIV, LIONIND, MBSB, AFG etc. all shoot up 8-12% in a day. This has happened since 2 days ago KLSE finally broke its 1300 ceiling after 10 months of 'recovery'.

Things are indeed great. But you may want to know a few things;

Despite higher closing price, MORE number of stocks are dropping THAN rising, 2 days in a roll. This may imply that only a few stocks are being speculated. Investors may even withdraw from other stocks in order to join the hot stocks growth. This also shows that there is NOT ENOUGH investment money flowing within the market now. So whatever the reasons are for the up swing, its NOT going to be able to keep it for long.

There has been a "closing up swing pattern" for the last few months. This shows that certain parties are manipulating the open and closing price so that certain trends are shown in technical analysis (so that other fund managers will join in the game). This is not totally a bad thing but if you are not following what these big boys are doing, its very likely that you don't catch their next moves.

According to Bollinger Band (20d, 2), KLCI is hitting its top band soon ie. 1315 by 25 Jan. So correction is coming very soon. Tomorrow is going to be a red day, if it goes on the day after, then the correction will be confirmed and it will be a good news where you can start accumulating again.

All the other indicators also show that there may only be another 10-20% room for growth in the next month or so.

So what should you do ?

Well, the heat is not going to fade away that fast neither. Tomorrow will be a red day. If you pick some stocks up, you may still be able to get 10-20% gain by February.

If you have already kept some, you may want to plan to profit take when it goes up another 5-10% in the next 2 weeks.

If you don't plan to profit take within the next couple of months anyway, the next obvious chance would be in Q4.

What are the jewels now if you haven't bought any yet ? Well, I have only concluded KNM and BAT for now. Keep KNM for these 2 months and BAT until year end.

Avoid warrants and all derivatives at all cost now!

How do I know tomorrow is going to be a red day ? Well, I just keep my eye on how the whole world market is going before ours are opened ...

Tuesday, January 19, 2010

Mortgage vs Loan

Very often the terms mortgage and home loan are used interchangeably. Although it might not cause big harms but understanding the difference may bring positive impact to your personal finance ie. in Property Investment.

In fact, mortgage is the opposite of loan.

When you need extra money, someone can lend you some and in return they gain profit when you repay them. The lender may ask for collateral like your house so that if you don't repay them, they can take possession of your house, sell it and still earn a profit by doing so. They give you a loan.

If you have something valuable and you want to exchange it temporary for some money, you can prove to people how valuable your possession is and why should they give you money for it. You get your money if the lenders are satisfied their interests will be taken care of. You have just mortgaged your belongings.

Loan is a lender's contract,
mortgage is a borrower's contract.

At one instance, it may seems the same. Its just a story told from different angles. But if you think for a moment as a borrower, do you want to follow your lender's contract or should you come up with your own's ?

If you start thinking the whole money borrowing thing from your own angle and for your own interest, you may just come up with some unique and interesting arrangements.

Items that can be mortgaged are not limited to your own properties. If you are holding some collaterals from other people, you can mortgage them to higher bidders.

You don't have to mortgage 100% of your property. Since it is really up to you, you can even split a single property to 4 different mortgages and borrow money from different sources. However, you would need some very good reasons why people still want to lend you the money. But if it is a 4 sections building, it wouldn't look that ridiculous anymore, would it ?

Item that can be mortgaged does not even need to be mortar. An idea or a method can be mortgaged too. As long as someone believe in your value judgement and their interests taken care of, they can lend you money. So you can literary mortgage your property for money without giving it out as a collateral at all. Especially applicable when you are earning revenue from such properties.

Loan or Mortgage ?
Borrower or Mortgagor ?
Lender or Mortgagee ?

As mentioned earlier, this is just a matter of how the story is told. Do you want others to control your story or do you want to tell your owns ?

Sunday, January 17, 2010

HLA Guarantee 12.5% saving plan

Hong Leong Assurance offers a plan that guarantees 12.5% return. Basically you only need to save $3,932 for 6 years and you are guaranteed to receive $500 every year starting from the 1st year for 35 years.

So 500 out of 3,932 is more than 12.5%

$500 x 35 years would give a guarantee amount of $17,500. If you do not withdraw this money, it will accumulate more interest. On the 35th year, you will get $50,126 instead of just the $17,500.

In addition, there is a dividend payout where the minimum is expected to be $200. Not guarantee but pretty guaranteed as in insurance layman terms. With the most conservative assumptions etc. you will get more than $105,000+ at the end of 35 years.

Most of the older readers should know this trick by now. There is no such thing as insurance saving that gives guarantee and higher than Fix Deposit return in normal circumstances.

If you save the same $3,932 in a bank account that gives you 1.72%, it will give you a total $41,082 on the 35th year; equivalent to the guarantee yearly $500 plus capital preservation. So the guaranteed return you are really getting is less than 1.72%. Because your capital is NOT guaranteed in this plan.

If you keep the $500 and go for the guarantee $50,126 return at the end, that is equivalent to 2.35% return. Currently bank is offering 2.5% FD rate for annual renewal.

Lastly if you are really getting back $105,862 at the end, that is equivalent to 4.72% annual return.

Consumers need to know what the effective rate is when comparing plans. For crying out loud, insurance field agents please upgrade yourself and calculate what the real effective rate is. May be you don't need to tell everyone about it but when some personal finance savvy consumers asked about it, it is more reputable if you can give some valid figures.

4.72% is NOT a bad return at all. But 35 years is too long.

The Driver of Social Change (2 of 2)

This past year I spent a grim November in Zurich. Grim were the politics; Zurich is a beautiful city and I have dear friends there.

The talk of the town was the national referendum to ban the construction of minarets in Switzerland. The anti-minaret poster which itself became the subject of controversy was everywhere. It showed a woman in burka next to a cluster of minarets that looked like missiles, all juxtaposed over a Swiss flag. The message was that backwards Islam will destroy Switzerland.

On November 29, the measure passed with 57% of votes.

In the past couple of years, we have seen the variations of this theme played across Europe, most recently in France, where wearing burka was banned in school. The President of the Republic himself took a very public stand against this “symbol of oppression”.

But I couldn't help noticing the changing narrative in Switzerland. Whilst previously the talk had been around the Muslim hordes invading the idyllic European landscape, the anti-minaret campaign focused on the “power” of Islam; hence the modern “missiles”. The general secretary of the Swiss People’s Party which had sponsored the anti-minaret measure said that its passage was “a vote against minarets as symbols of Islamic power”.

The claim seems absurd. Any passer-by could readily see that Muslims have no political influence or say in Switzerland – or anywhere in Western Europe. A Tissin butcher’s social and political influence will trump theirs any time. To which Muslim power then was the general secretary of SVP referring?


The same November, another dispute reached its climax. This one could not have been more removed from the minaret controversy in terms of public awareness, sentiment and reaction. Few people in Switzerland and Europe heard about it. Even if they had, a question about the issue would have drawn a blank stare, because it involved the regulation of derivatives.

The U.S., with the support of the U.K., wanted to move the trading of the over-the-counter derivatives to the exchanges. The claim was that such a move would reduce the counterparty risk and add to the transparency.

The Europeans, headed by France and Germany, opposed the move. They claimed that exchange trading would add to the costs by subjecting the trades to margin calls. The Financial Times reported the split:
Europe’s largest companies have accused the US of being “adamantly unwilling” to relax proposed reforms of the over-the-counter derivatives markets ... The comments made by the European Association of Corporate Treasurers (EACT), raise the possibility that Europe and US may go their own ways in implementing reforms of the OTC derivatives market ... The administration of Barack Obama in the US and the European Commission argue this is needed to reduce so-called counterparty risk in the financial system since clearing houses ensure that transactions are completed even if one party to a trade defaults.

Companies counter that they would be unfairly penalised if such reforms became law because the laws would oblige them to set aside extra cash – margin – to guarantee those trades ... Richard Raeburn, chairman of the EACT, whose members include Volkswagen, Siemens and Rolls Royce, said his body would not hesitate to “look to the European Commission and Parliament to be prepared to take a more considered and pragmatic approach” than that of the US. Mr Raeburn said that if this resulted in “divergence from the US, so be it”.
First, take note of the parties to the dispute. On one side is the “Obama administration”, i.e., the U.S. government; on the other, Volkswagen, Siemens and Rolls Royce, backed by EACT and then, the European Commission and European Parliament. But lest you think this is a U.S. vs Europe issue – no issue ever is strictly Europe vs. U.S. – here is a subsequent paragraph from the same article:
In the US, the issue of company exemptions from OTC derivatives reform is likely to be raised today at a hearing of the Senate’s agriculture committee.

The Coalition for Derivatives End-Users, a recently formed lobby group representing 180 US companies including Apple, Intel, Caterpillar and 3M recently wrote to House speaker Nancy Pelosi urging lawmakers to “preserve the ability of companies to manage their individual risk exposures by ensuring access to reasonably priced and customised over-the-counter derivatives”.
So, in addition to Volkswagen, Siemens and Rolls Royce in Europe, Apple, Intel, Caterpillar and 3M in the U.S. are also against the “reform”; they are against the derivatives being traded in the exchanges.

These are all industrial companies. If you read their letter to members of Congress, you will not find Goldman Sachs, Morgan Stanley, Citigroup or Bank of America among the petitioners. This latter group is represented by the “Obama administration”. What we have here is a quarrel between the industrial and finance capital, each side jockeying to place itself in the most advantageous position within the system. And no one is budging; inconsistent accounting treatment of the derivatives in the U.S. and Europe? “So be it”.

In the U.S., finance capital reigns. The industrial capital can only appeal to Congress. Finance capital owns it. So the “financial reform” legislation will force trading of OTC derivatives in whole or in part into the exchanges.

In Europe, the European Commission is also under the spell of finance capital. The industrial companies know that; hence their threat to take the matter to European Parliament, which they control and has the power to strip the European Commissioners of their authority.

Where could the European industrial companies go if there was no EU? The answer is, nowhere; without the EU mechanism they would have had no place to go to protect their interests.

By following the obscure and technical matter of the regulation of the derivatives, we thus arrive at the reason for the creation of the European Union, its raison d’etre.

EU is created for the explicit purpose of advancing the interests of the “European” capital, as a counterweight to the “Anglo-Saxon” capital in the U.S. and U.K. “Existence of a functioning market economy and the capacity to cope with competitive pressure and market forces within the Union” is the main criterion of membership.

Within the Union, the industrial and finance capital occupy relatively equal positions of power. They have a peaceful coexistence of sorts but tension surfaces every now and then when the interests of one side are too clearly threatened. (Hence the ambivalence of finance capital-dominated U.K. to the Union, despite the geographic proximity and cultural links.)

The remoteness of the derivatives dispute is symptomatic of the “macro”, almost abstract, level in which the various treaties, directives, rules, laws and regulations of the Union are implemented. These measures affect every area of life in the Union, including agriculture, competition, economic and monetary affairs, education, environment, external trade, public health, institutional affairs, research and taxation. Yet, the population remains woefully ignorant about them. What is more, they have had no say or choice in their implementation. The Constitution of the Union which codified these far reaching changes – it is referred to as the “Lisbon Treaty” to make it sound dull and uninteresting – was imposed from the top.

In countries where it could be adopted through the political machinery, the governments quietly obliged. In countries where a direct vote by the population was required, a “Yes” vote was called for. When the vote turned out to be “No”, it was promptly ignored. “We cannot say that the treaty is dead” said the European Commission President after the French “No” vote, although, in theory, the treaty had to be dead because a unanimous approval was a condition for its passage.

The same thing happened in Holland and, later, in Ireland, when the “No” vote was dismissed as the mindless act of uncouth peasants who did not know what was good for them. Capital will simply not take a “No” for an answer when the course of its future development is at stake.
When the French and the Dutch voted against the constitutional treaty in May and June 2005, the document reappeared as a “mini-treaty”, longer than the original, and was ratified by governments without recourse to a referendum. Many countries have reneged on promises they made to their electorates about a referendum.
The Irish had to vote again until they got it right. As Margaret Thatcher put it, “there is no alternative”.

The European citizenry cannot articulate these developments, but they perceive the contempt that they signify. They look for an alternative, a total Other, and some of them find Islam.

Switzerland is not a part of the EU, but fits this description to a tee. So in the most unlikely places in Zurich, you see businessmen in the tight fitting dark European suite with a kaffieh wrapped around his neck and suddenly you understand the reference to the power of Islam and concerns about it. The concerns are neither due to minarets nor the Turkish emigrants manning fast food stands, but the Swiss, repelled by the system that despite protestations to the contrary, have begun to suspect, no longer reflects their concerns.

I will return with the epilogue.

Friday, January 15, 2010

Charge your future usage : how did it happen ?

The way credit card companies forward calculate interest has sicken many users. Together with the 5 cents round up mechanism, there are cases where its not even the users fault not to totally pay off their last month balance.

Some are still in shock how consumers can be abused in such a way. Well, this is how ...

Credit card companies used to charge 18% interest on the amount you underpay and owe to them. Seeing that this high interest has caused many people in debt and even bankruptcy, banks are urged to reduce that rate. So the project of multi-tier interest rate was born.

If the amount you owe is not that much, banks may reduce that rate to 13.5% for example. Like wise, if you continue not to pay, banks will have the rights to charge 18% interest again. So lower interest rate is imposed on lower loan amount.

So far so good isn't it ?

Well, banks are going to give you more. In addition ...
We will give you 22 days interest free on all transactions, if last month outstanding balance, as per monthly statement, are settled within due date. In cases where this interest free is not applicable, we will charge interest on all transactions from the posting date.
Don't doubt my grammar, its a carefully formulated sentences very similar to the actual terms and clauses. All the commas and periods are there for a good reason.

It is still fair isn't it ? What it says is if I paid last month balance in full, I will not be charged interest for another 22 days. Else of course I should pay interest.

There are 2 sentences up there.

The first one evolves around monthly statement. If the bank generates your statement on the 1st of the month, you don't need to pay interest of the amount on that statement up to 22th. Which is also usually the payment due date. Ok still ...

The 'all' in blue color means all the transactions on that monthly statement. Not 'all' the other transactions you used before and after the statement. Guess what, the transactions you used before is a brought forward balance, so its NOT a transaction and therefore will continue be charged interest and excluded from this interest free offer. You are also NOT getting interest free for all future transactions because they are NOT on that statement yet.

The second part starts with "if interest free is not applicable". It doesn't say if you don't pay then we charge you. There are many other reasons interest free is not applicable and no matter what they are, you will be charged. So there is ONE specific scenario you may get interest free period and ALL THE OTHER scenarios would allow us to charge you. Thats basically what it sums up to.

Now there is also a word 'all' in the 2nd part. This time, there is no statement mentioned. This 'all' would mean ALL transactions including the future ones you are going to make. And the interest is calculated based on the posting date which is totally ok even if it is a future date.

I am not quite sure if I have presented this clearly. There is the trick of saying something seems genuine and simple but yet a small word in it turn the whole thing around. A seems-to-be very thoughtful offer has been given, most of us were ok with it and now its too late to turn the game plan.

Banks came to us on day light, offered us lower interest tiers and a new way to calculate interest ( with interest free period !! ) and we bought it. So now its too late for us to pursue normal channels to change this. Whatever left is to propagate this knowledge to more and avoid to be taken advantage off.

If still want to do more, please get more people to read this series of articles ...

How did it happen ? ( this article )

Wednesday, January 13, 2010

5 cents Round Up mechanism

Most of the Malaysians are already used to the 5 cents round up despite how silly some of the transactions could become.

BNM has already clearly stated that this only apply to cash transactions where we are trying to get rid of 1 cent coins. But it is obvious that even if you are paying with credit card, check and online transfer, most of the retailers will still round the 5 cents up.

When you go to bank and make a payment of $9.98 over the counter. You may write down $9.98 in the bank in slip. Upon making payment, the cashier will have to get $10.00 from you. Which is fine since now the rule is to round it up. When the transaction is done and you get back your proof of payment, what do you think your paper work will say you paid ? Correct, $9.98 !

So be smart, round it up and write down $10.00 because that is the actual amount you pay.

What if the amount is $9.96, you would definitely have to pay $9.95 but should you write on the slip $9.95 or $9.96 ?

If you did write down $9.95 as in honestly you have just paid that exact amount and not 1 cent extra, you may face the risk of another funny finance scenario ... credit card forward interest calculation where your 1 cent ignorance could have cost you $15 !! Well, not that funny but its happening everyday ...

Guess what, with this GST coming soon ... we consumers may not see it how it comes at all, we may NOT even realize after many years ... but all these little things combined together are THE ONES that kill your personal finance, especially if you don't know.

Government and the big boys can do all kind of tricks to keep the national inflation number down but what really matter is your own REAL personal inflation rate!

Credit Card forward calculate interest

If you have a remaining unpaid balance of $0.01 in your credit card from last month,
and then you use $1,000 this month ...

You may think the interest 18% should be imposed to your 1 cent balance which is ignorable but in actual fact, the interest is calculated based on your future expense as well. So ...

$1,000.01 x 18% -> pro rate to 1 month => $15

See the magic of finance ? You could get charged $15 from your $0.01 remaining balance. Despite your $1,000 usage is not even due yet !

A handful of local banks are already exercising this interest forward calculation method. Most of the international banks on the other hand agree this is ridiculous and didn't enforce this calculation on small remaining amount.

But recently banks lose many credit card accounts so they are quietly imposing this again to upbeat some profits.

Many good card users are caught only after some time because they just couldn't believe such a ridiculous abusing technique can exist around us for more than 2 years already.

When inquired if banks have approval from Bank Negara to do this, a very ambiguous respond is given. Apparently when banks were gaining approval for "multi tier interest", this forward calculation method is part of the small clauses. It is unknown if BNM was just being sloppy or they just quietly pass it through.

Either way, you should have another proof that the big guys will NEVER take care of your personal finance.

Monday, January 11, 2010

Different types of retirements

There are many ways to retire. Some are easier than others. And some still think there is no way they can retire at all :)

There are 2 main factors in retirement;

1. IN : how much do you have and
2. OUT : how much will you use during your retirement

So naturally if you have more IN than OUT then you can retire.

One of the ways is to calculate how much your OUT would be and then accumulate IN as fast as possible. You may have read that its rather simple for a single woman to retire at young age.

There are 2 main influence on the figure OUT;

1. if you live a luxury life, it may take longer to retire ... if ever ...
2. if you live frugally, you may retire sooner.

Some may think they live frugally but actually they may have been spending more than they should. A good way to quantify your OUT is to look at how you have been expensing for the past 10 years. It would most likely be how you will spend in future. The way we use our money is deeply embed in our subconscious. Its easier to discover it than to change it.

Once you have figured out how much you need to retire, you can work on the IN part. There are 2 ways to accumulate your IN;

1. Lump sum : save as much as possible until you reach the same amount as OUT, then retire.
2. Passive income : find a way to consistently receive your IN in smaller amount but continuously without doing much.

Now the key of successful retirement is you will need BOTH ways to accumulate your IN. Simply put, keep your day time job and start learning and building your passive income at the same time.

Problems come when some focus only on one Lump Sum to achieve retirement but a sudden expense surge in future may kick them out of their retirement. Some others only aim at luxury goals by only pursuing passive incomes neglecting the use of Lump Sum Saving method as a backup plan.

Saturday, January 9, 2010

Some data on Malaysia Property

First of all, Malaysia property is one of the cheapest in the region ... so smaller foreign property investors ( less than 10 millions) who are interested in this region may be interested in us.

Our rent is also low ... so its rather easy to rent a place and start business here. So this means its rather easy to rent out your property ... especially if you explore with foreign business men.

The interesting part is our rental yield is quite high at 8.86%. This is actually common in developing countries. This ... however ... will go down in years to come.

This one is similar to rental yield but just shown in a reverse manner. This means you will get back your total investment rather fast in Malaysia.

The cost of both buying and selling is low too. But this usually subject to other terms and conditions like different fee imposed on different sale period.

In the past 5 years, Malaysia property has risen more than 14%

But the whole of last year is almost stagnant.

Thursday, January 7, 2010

New Sabah Property : HOT !

Famous Feng Shui sifu said that new sabah property is going to continue to be HOT for the next 20 years. As a matter of fact, he refers to both Sabah and Sarawak. Some may have already seen that properties development have been on the rise in East Malaysia for some time now especially in Kota Kinabalu, capital of Sabah.

Although there have been critics that such a trend has no sustainable growth and therefore they considered it a bubble rather than a living standard up scale.

However it doesn't really matter how right they may be or how noble you are, the market doesn't really care. If it continues to have more buyers than sellers then the price will continue to trend up, despite anything else i.e. no one actually utilize those properties.

It shouldn't be too hard to understand the rise. First of all, Borneo is an island. Island has limited land. So 'eventually' the price of land will rise. Its been proven in Japan, Hong Kong Island, Singapore and even Australia ( a continent but nevertheless an island geographically). And its not just any island, its the 3rd largest island in the world. Imagine you can fit 1,000 Sinagpore in Borneo !!

But not all islands have great track record. The largest island in the world - Greenland - doesn't do so well, most of the very small one man islands do not do well neither. Is Borneo too big or could it be just nice ? New Guinea (2nd largest island) and Madagascar (4th) are both not that encouraging. The list continues down until Great Britain, the 8th largest island who obviously did pretty well in property growth. Limited land of an island may be a good starting point but other deciding factors seem to be more influential.

What other positive notes do we have ? Politics movement is good for Sabah property. As a matter of fact, due to Malaysia politics instability, the paying master political party has to move to East Malaysia. Whether or not you need houses, more will be built. How do they justify building more ? They will get buyers if you don't. Property trend is a developer's game. If they have the power to sustain selling price during bad time, the only thing left is up trend.

20 more years of HOT property growth is a surprisingly SHORT period given that it is a land of more than 700,000 square kilometers. So this prediction is actually an insult to those who truly love Sabah. The only reason why it can be hot for another 20 years is because outsiders will come in to Borneo, harvest out all the benefits and then leave. If they don't leave in 20 years time, they will start to pay just like the permanents. Where the business and finance ecology have been exploited, not to mention the environment.

How can we grow Borneo's property and leave a long term positive effect ?

1. Create MORE forestry reserve lands. this makes sure land is really limited.
2. Focus on ONE main theme - it should be along the nature's line ...
3. Form environmental alliance among Brunei, East Malaysia and Kalimantan.
4. This alliance has authoritative power over real estate development.
5. Beef up sea lines transport, bring in the industries

Then all the other developments can follow suit ...

So do we need that coal plant ? Well, I hate to ... but we do need to address the problem of water and power supply first.

If Borneo can be made into an eco-self-sustain-island, it can be the Eden for human races. Not only property will continue to rise forever but it could also be our last hope ...

And to iron out the whole architectural solutions in the next 5 years, we will need USD 20 billions now.

Wednesday, January 6, 2010

The Role of Businessmen In Shaping Events

On Sunday, The New York Times had a long article on Sandy Weill. It was the vintage Times P.R. piece, including hyped style to give the story a Homeric or Shakespearean dimension. The man who rose from a humble childhood to build Citi to a powerhouse had it all, got humiliated, now is sad, hurt, lonely, unwanted; “There is no creature loves me” stuff. He is still “baronially wealthy” (of course); he wants to be remembered for his charity work.

Sandy Weill is an easy mark for mockery. But we should resist the temptation, first, because his vulnerability makes mocking him improper, almost obscene, like an intellectual equivalent of dwarf tossing. More importantly, jesting distracts us from the larger question of the role of businessmen in shaping the events which his story can help us explore. The issue is defined in the contrasting views expressed in the article:
Though he [Weill] was once viewed as a brilliant deal-maker, some critics now cast him as the architect of a shoddily constructed, unmanageable financial supermarket … “The dream, the mirage has always been the global supermarket, but the reality is that it was a shopping mall,” says [a critic]…

Mr. Weill vigorously defends his record, rebutting critics who say that Citi was an unstable creation. [A friend] who worked with Mr. Weill on his autobiography, said that Citi’s problem wasn’t that it was unmanageable, but that it lacked enough good managers… “Had he picked a different successor things could have turned out very differently,” [he said].
Is the friend right? Was it a matter of one mistake – choosing a wrong successor – which brought Citi to its knees? Or was the fall pre-ordained, the seeds of the failure planted by what had come before?

The premise that with a better person at the helm, things could have turned out differently is intuitively appealing because it is within the realm of possibilities. We could have won last month's lottery if we had chosen the winning numbers, you know.

But the analogy is false. The lottery example is from the inanimate world where relations are fixed and therefore, have no context; they are memoryless, in the jargon of mathematicians, meaning that what happened in the past has no bearing on the future.

The fate of Citi after Weill is in the realm of finance, which is the realm of social (because value is a social concept). In this realm, all actions have their roots in the past. Nothing exists out of context, including the character of personalities.

What was the context, the milieu, in which Sandy Weill chose his successor?

The article had all the clues for the looking:
“This is my final annual meeting as chairman,” says Sandy Weill, standing near the window of his office, peering at a grainy photograph of him and his wife on stage at Carnegie Hall more than three years ago. They are smiling broadly, and behind them is a packed house of cheering Citigroup shareholders. A huge banner dangling from the balcony reads “Thank You Sandy.” On that day, April 18, 2006, Citi’s share price was $48.48.
Like the witches in the opening scene of Macbeth, the stock price in the opening paragraph of the story sets the stage for what is to come. But unlike the witches, the stock price in the Sandy Weill story does not go away. It hovers over and drives the narrative.
Mr. Weill firmly contends that what he built at Citigroup created huge value for employees and shareholders.
Even after retirement:
Mr. Weill continued to track it [stock price] closely. “He was watching every movement of the stock; he was reading everything,” recalls Mike Masin, a longtime friend and a former chief operating officer of Citigroup. “We have had conversations about the fact that he has to make Citi less a part of his life.”
Mr. Masin does not know his longtime friend well enough. It was not Citi with which Sandy Weill was obsessed. It was money. The bank and its stock were mere proxies towards which the obsession was channeled. This, Sandy Weill tells us himself, though, without realizing:
He [Weill] has raised $950 million for Weill Cornell’s $1.3 billion fund-raising campaign and recently put together a $110 million bond offering for Carnegie Hall. “It was like being back in business again,” he says. “I get the same kind of kick by getting somebody to make a major charitable contribution. It’s the same kind of adrenaline rush.”
Functionally, fund raising on behalf of charities and running a financial conglomerate are two entirely different things. But they have one commonality, namely, money. It is money which gives Sandy Weill a “kick”, “an adrenaline rush”, just “like being back in the business again”. For Freud, money was “laughing gas”. For Sandy Weill, it is crack. The man is the embodiment, the personification, of the “rational man” of economic textbooks who always “prefers more to less”. When the subject of the desire is a commodity, as in the old economic textbooks, there is a limit to the desire. Hence, the “decreasing marginal utility” concept: the second Rolls Royce would be slightly less satisfactory than the first one. And there is a limit to the number of hamburgers one could eat. (Again, economics textbooks example).

In finance, the subject is money. Money has no decreasing marginal utility. The second dollar is as valuable as the first, perhaps more. So the pursuit of money does not – cannot – stop. In the narrative of Weill's life story, money has the same role that sex has in “120 Days of Sodom”.

But how do you constantly get more money? How could you make the stock price constantly go up – deliver “value to the shareholder”? A medium size financial company's normal return would not do the trick. The only way to go is through acquisition.

Enter Sandy Weill as a “brilliant deal maker”. The P.R. angle aside, the Times description is accurate. The man created a financial behemoth with 200,000 workers and almost $2 trillion in assets. That required buying, appending, acquiring with a religious zeal. Such deals are complicated, time-consuming, exhausting. Imagine the amount time of money spent on lobbying for the repeal of a major piece of legislation such as Glass-Steagall, which made the merger of Travelers and Citibank possible.
On another wall [in Weill’s office] hangs a hunk of wood — at least 4 feet wide — etched with his portrait and the words “The Shatterer of Glass-Steagall.” The memento is a reference to the repeal in 1999 of Depression-era legislation; the repeal overturned core financial regulations, allowed for the creation of Citi and helped feed the Wall Street boom.
Weill had to be good at what he did. He could easily be the best deal-maker alive – second best, if you counted the dead.

How does a man like Weill choose a successor?

The successor had to continue the legacy, he had to keep the flame alive. That was the requirement which trumped all other considerations. The successor could not let the shareholders, Weill himself the most prominent among them, down.
He no longer had any official position at Citigroup, having retired as chief executive in 2003 and as chairman in 2006. But he was still hugely invested in the company. He owned more than 16 million shares in 2006.
Look. Sandy has just retired. The stock closed at $48.48. There are these structured finance instruments – lawyers call them special purpose vehicles -- through which you could borrow at under 3% and lend through the CDOs to mortgage holders at 6%. It is an incredibly profitable business, guaranteed to boost the stock price. What do you say to that Mr. New CEO?

No successor to Weill could ignore or oppose that pitch, not with the constant pressure to boost the stock price. The choice had to be a Chuck Prince.

And so it was. Prince’s much ridiculed comments about the CDO market that, “When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing” was the accurate description of his mission statement. Citi stock went from $48.48 to $55 and change before the crash came.

What about a good “manager”, a good “executive”, of the kind who could manage the disparate business lines that Weill had accumulated under the Citi umbrella? That was impossible. Weill could not know such person. He would not know a good manager if one kicked him in the teeth. A good manager would not get past Weill's first secretary. He would not get pass Weill’s doorman.

That is because such “manager” would be a relic of the past, an organizational man from the 50's. The idealized manager, of the kind wished for in the Times article belongs a more serene time, when the business tempo was “calm” because it was set by the predictable turnover of the industrial capital. So the GM’s five disparate car divisions – Pontiac, Buick, Cadillac, Chevrolet, Oldsmobile – plus its military wings and other divisions – far more diverse than anything Sandy Weill could put together – could be successfully managed.

At the age of speculative capital, which generates profit not from production but from price volatility, there can be no managers in the old mold. They have to be replaced by the deal-makers of Weill’s stripes. Witness how fast John Reed was gotten rid of. I am not sure what his managerial credentials were, but as an M.I.T. trained engineer, he was not a deal maker. And that was sufficient for his undoing:
In November, Mr. Weill’s former co-C.E.O. at Citi, John Reed, told Bloomberg News that he was sorry for his role in helping to end Glass-Steagall. When asked about Mr. Reed’s apology, Mr. Weill says: “I don’t agree at all.” Such differences, he says, were “part of our problem.”
Sandy Weill no doubt wonders what this fool Reed could be thinking, regretting the repeal of a law that stood in the way of making more money.

Could Sandy Weill have picked another person, a more “competent” manager?

The answer is No, he could not have. He could have, only under conditions that Rumi, as usual having the last word, said an impossible would be possible:

If it were to be possible for the life to go on without you, then the world had to be upside down.

For Sandy Weill to have picked a different successor, the deregulation must not have happened, Glass-Steagall must have remained intact, Citi must have not have become a behemoth, the CDO market must not have been created which means, ultimately, that Sandy Weill himself must not have existed.

So, you see, Mr. Weill, everything was, in a sense, pre-ordained. For the cause of what you see around yourself, may I suggest consulting a mirror?

But that in no way means that I blame you for what happened. I know that like Oedipus, your deeds were inflicted upon you rather than committed by you. And unlike Oedipus, you managed to put away a nice little something from which you could enrich New York’s cultural institutions. That’s the stuff philanthropies are made of!

Is that the fate of all men, then, ultimately being crushed by events, hoping at best to be remembered by their charitable givings, like a society lady?

The answer is, no. Historical personalities fare better because they know the direction of the movement of history and align themselves with it. At times, they even move ahead of the events. The awareness and the will to act on it distinguish the historical figures from the businessmen.

The subject of this blog is precisely the march of history as it manifests itself in the realm of finance.

Sunday, January 3, 2010

The Driver of Social Change (1 of 2)

In developing the characteristics of speculative capital, I wrote in Vol. 1:
Speculative capital is, by definition, opportunistic. It is constantly on the lookout for “inefficiencies” across markets which it can arbitrage. The opportunities arise suddenly, so the capital that hopes to exploit them must always be available; it cannot afford to be locked into long-term commitments. The requirement to be opportunistic translates into the need to be mobile, to be nomadic and interested in short-term ventures. Such are the inherent attributes of speculative capital.
Then added:
Because these attributes define speculative capital, the manager of speculative capital must employ it in activities that are consistent with these attributes. This rigidly defined role turns him from being a manager of speculative capital into its agent, someone who nominally “runs” the speculative capital but must in fact follow its “agenda.” Speculative capital becomes the grammatical subject of the sentence as if it were alive.
In addition to traders who act on its behalf, capital also has agents who speak on its behalf. These agents are a curious mix of dissembling advocates and ventriloquist dummies. Their advocacy is unconditional but indirect, as if to throw off the scent. Yet, they are unaware of the role and influence of their ever-present “client” and speak of their “free will” in earnest. That is how they are dissembling advocates and ventriloquist dummies; knaves and fools in equal parts.

Observe, if you will, Prof. Gary Becker of University of Chicago. He is commenting on the U.S. economy in The Wall Street Journal of Dec. 21:
Productivity has gone very well actually throughout the decade, even during recession. That’s an excellent sign for the economy, if that can continue … The thing that concerns me is whether we are getting too much regulation and social engineering in the next few years. I would be concerned about that as a possible factor that is putting brakes on the growth of the economy.
Now, return and read these comments again, this time substituting “capital” for “I”, “me” and “economy”.

The substitution clarifies the professor's comments and eliminates the seeming contradiction implied by “even during recession”. This is how it appears to me, with my thoughts automatically appending themselves to the text in brackets:
The productivity [that is, workers producing more with the same or lower wages and salaries,] has gone very well actually throughout the decade. [It is not surprising that this has taken place] even during recession. [In fact, it is precisely during a recession that workers can be made to produce more with less.] That’s an excellent sign for [the further accumulation of] capital, if that can continue. The thing that concerns capital is whether we [i.e., the sum total of capitals] are getting too much regulation and social engineering in the next few years. Capital would be concerned about that as a possible factor that is putting brakes on the growth of the capital.
There is no reference to people, either explicitly or implicitly; productivity and recession are mentioned in the same vein one might describe good air quality or bad weather – or the sighting of a black swan. And Prof. Becker is the winner of the 1992 Nobel Prize in economics “for having extended the domain of microeconomics analysis to a wide range of human behavior and interaction”.

I am not writing to criticize the good professor's language. His is the standard language of economics and finance professors everywhere. What I want to focus on here is social engineering. Prof. Becker does not like social engineering because it puts “brakes on the growth of the economy”. By the same token, he does not like regulation because it is the agent of social engineering. His ideal society, we can surmise, is one where the “economy” grows “naturally”, without any regulatory burden or interference.

Prof. Becker is correct in associating regulation with social engineering. Social engineering is consciously influencing and altering the course of the development of the society. It is the attempt by men to direct the social and economic forces towards a definite end. To the extent that regulation is aligned with that goal, it can be the agent of social engineering.

But Prof. Becker is fundamentally wrong in believing that the absence of regulation is synonymous with the “natural” economy or society. There is no such thing as natural economy, no matter how primitive the society. And there is no such thing as the absence of the regulation, only that law and regulation favoring the dominant force in the society are enacted at such tectonic scale and fine level of technicality that they are all but invisible to the general populace – and economics professors. What is the deregulation on whose behalf Prof. Becker and his colleagues have been the most tireless cheerleaders for the past 35 years if not the most brazen attempt in social engineering undertaken on behalf of speculative capital?

I devoted a full chapter in Vol. 1 to the way speculative capital – the latest and most advanced form of capital in circulation – affects the law and regulation. I wrote:
Speculative capital abhors regulation. Regulations interfere with the cross-market arbitrage that is its lifeline. If speculative capital cannot freely operate, it cannot generate profits and must cease to exist. The opposition of speculative capital to regulation is thus not a matter of some technical or tactical disagreement but a question of life and death.

The attack of speculative capital on regulation is not indiscriminate. Speculative capital singles out only those regulations which directly or indirectly hinder its free flow across the markets. Meanwhile, it supports and pushes for the passage of sweeping laws that favor its expansion. In so opposing the regulation and supporting the law, speculative capital distinguishes between the two in ways few philosophers of law could.
And the beat goes on. Listen to Bill Gross, the chief investment officer of PIMCO, the largest fixed income fund in the world. He is talking to the New York Times about the impact of near zero interest rates which has forced the traditional savers, always risk-averse, to financing a “second bailout of financial institutions”:
“What the average citizen doesn’t explicitly understand is that a significant part of the government’s plan to repair the financial system and the economy is to pay savers nothing and allow damaged financial institutions to earn a nice, guaranteed spread,” said William H. Gross, co-chief investment officer of the Pacific Investment Management Company, or Pimco. “It’s capitalism, I guess, but it’s not to be applauded.”
The good man is exactly wrong – or expediently pretends not to know – in saying that “it’s capitalism”. It is precisely not capitalism, in the sense of the market forces determining the prices and the rates. If it were, the interest rates would skyrocket in the face of massive debt financing, as they did in the case of the auction-rate securities.

The near-zero interest rate, rather, is the result of sustained interference in the markets by the Federal Reserve in accordance with a deliberate policy set by the Federal Reserve. Prof. Becker does not see that as social engineering, but regardless of his sensitivity to what takes place around him, the effects are there. Look at this reverse mortgage “product” from the same Times article:
Eileen Lurie, 75, is taking out a reverse mortgage to help offset the decline in returns on her investments tied to interest rates ... Such mortgages allow people who are 62 and older to convert equity in their homes into cash tax-free and without any impact on social security or Medicare payments. The loans are repaid after death.
The name itself is interesting. Mortgage and reverse mortgage. Just like repo and reverse repo.

But there is a difference. Repo and reverse repo are transactions in capital markets. Both refer to temporary financing. In repo, you borrow money and post security as collateral. At the end of the term, typically overnight or a week, you pay back what you borrowed (with interest) and receive your collateral. Reverse repo is the reverse. You lend money and get security as collateral.

In reverse mortgage, there is no reversing in the sense of having a second transaction. You receive monthly payments on your house. When you die, the lender gets your house.

Note the reference to tax and Medicare. In the U.S., income is taxable (except for the Maddoff “investors”). Also, in the U.S., income beyond a certain level would disqualify an individual from receiving Medicare, the government run health insurance. Someone has gone through the trouble of introducing legislation to specifically exclude the reverse mortgage payments from the calculation of income. One could always claim that the deed benefits senior citizens. But the law has also made reverse-mortgages enticing to cash strapped senior citizens. It has made the product “salable”. If I were a betting man, I would bet that lobbying for the measure did not come from isolated senior citizens.

A reverse mortgage transforms capital to money. A house is capital by virtue of its capacity to generate rent. That is why its price increases over time. The money received as part of the value of the house and spent on say, food and medicine, is wealth (capital) converted to money. So whilst previously a working man could dream the American dream of owning a house and perhaps leaving it to his children, now he must hand it over in return for sustenance. That is a curious twist on New Hampshire’s state motto, Live free or die. It is now live and die free – of worldly possessions.

That is social engineering par excellence.

It is social engineering in excelcis.

But Prof. Becker would have nary a word on it because a social condition that enables predators to get the better of the old and the vulnerable is a part of the natural order of things for him.

Still, these are small matters. I will return with a discussion of the European Union, the counter move to deregulation; one of the most brazen social engineering projects in history being countered by one of the most colossal social engineering projects in history.

And Prof. Becker has had nary of word on them.