QE3: Get ready for influx of cash!

QE3 set to boost confidence but experts warn against simply loading up on equities.

A RIVER of cash is likely to wash over the global financial system soon, thanks to decisions by major central banks to unleash their monetary “bazookas” on the faltering global economy.

The money-printing ball started rolling last month when the European Central Bank (ECB) said it would make “unlimited” purchases of bonds from countries such as Italy and Spain.

The US Federal Reserve was next, announcing that a third round of asset purchases, known as quantitative easing (QE3), would start at the rate of US$40bil (RM122.5bil) a month until the job market recovers “significantly”.

It was soon followed by the Bank of Japan, which said it would extend its asset-purchasing scheme by 10 trillion yen.

A big chunk of that excess liquidity will likely flow into Asian financial markets as investors search for better returns, given the low interest rates in most countries.

It is tempting to think investors can simply load up on equities and ride a rally like previous rounds of quantitative easing but this is not so, say experts.

They believe that while QE3 will boost confidence and support markets, the euphoria will be checked by the reality that the real economy is in the doldrums.

The list of worries is long: China is decelerating fast, Europe remains mired in recession, and many US consumers are still looking for jobs.

With countervailing forces at work, wealth managers and analysts have plenty of ideas on what to buy and what to avoid.

Buy
> US, Asian equities 

Analysts believe the flood of money will do much to support markets, but not all will do equally well.

UBS Wealth Management regional chief investment officer Kelvin Tay believes defensive bourses such as Singapore and Malaysia will do less well than markets such as Taiwan, Hong Kong and China.

He added that what is also likely to boost shares in Asia, outside of Japan, is simply that some stock markets look cheap, based on a metric known as price-to-earnings ratio. Shares could rise 12% from current levels, he said.

DBS regional equity strategist Joanne Goh said the bank recently recommended an “overweight” for Chinese and Hong Kong stock markets, indicating that investors should buy into these markets. These markets are likely to do well because they are large, open and undervalued, she added.

Analysts’ views were slightly more mixed about US equities, with some believing they will get a boost from QE3, while others warned that the impact would be limited.

Matthew Rubin, Neuberger Berman’s director of investment strategy, said American shares do look relatively cheap compared with investment-grade bonds.

“The additional liquidity should further support a rise in prices,” said Rubin, who helps set strategy at the fund, which manages assets of US$194bil (RM593.9bil).

But Sean Quek, Bank of Singapore’s head of equity research, said past experience shows that US equities benefit less from quantitative easing.

“Also, current valuations are less attractive versus previous QE periods as well as global peers,” he said, adding that he has a neutral rating on American shares.

> Gold

Most analysts believe stocking up on gold and gold-related assets is a good move.

First, with the amount of cash expanding in the system, there could be the risk of higher inflation. And with the value of the currency likely to fall due to the huge amounts of cash flowing about, investors will want “real assets” to protect themselves.

Rubin noted: “Real assets such as precious metals will act as inflation hedges and are per­ceived as diversifiers to holding fiat currency.”

Chew Soon Gek, head of strategy and economic research for the Asia-Pacific at Credit Suisse Private Banking, believes precious metals will outperform other commodities.

“They are the most sensitive to monetary easing, inflation expectations and real interest rates,” she said.

She tips gold to hit US$1,850 (RM5,663.80) per ounce in a year, from the US$1,760 (RM5,388.40) now.

> High-yield securities

With interest rates likely to stay near zero for the next two years, analysts believe that the demand for high-yielding securities will remain strong.

In particular, companies that pay a good dividend and have strong balance sheets are likely to attract investors, say analysts.

“With the QE expected to suppress yields and the Fed’s commitment to keep interest rates low until mid-2015, dividends will remain an important driver of total returns,” said Quek.

He noted that firms giving investors good payouts have generally performed better in the past two years when rates have fallen.

Rubin also believes that high-yield corporate bonds as well as real estate investment trusts are good places to park money.

“The search for yield in a low interest rate environment will continue,” he said.

Avoid
> US dollar 

If there is one asset class that most analysts believe is to be avoided, it is the greenback.

The flood of US dollars into the system through QE3 will lead to what analysts term a “debasement” of the currency – essentially a depreciation. In fact, Rubin believes that cash, and not just the greenback, should be avoided.

“QE3 increases potential for inflation and depreciation of the dollar,” he said.

This may also affect Singapore investors who have taken positions in US equities, as the currency may erode gains or increase losses due to the exchange rate. Likewise, investors might want to avoid the euro.

The poor economic outlook and flood of cash into the market will likely send it down against Asian currencies such as the Singdollar.

Uncertain
> European equities

For investors who take a riskier approach to investing, European stock markets do offer an option. After all, some of the best bargains are made when everyone else is deserting them, said Henderson Global Investors.

The asset management firm said that even though the outlook is gloomy, many firms remain healthy, with global operations.

But Quek is cautious on the region, simply because many question marks over the overall health of the economy remain.

A recent run-up in share prices there, as a result of the ECB’s unlimited bond purchase decision, has also made European stocks more expensive and less attractive, he noted. “As such, we are maintaining a negative stance on Europe.”

> Property 

While previous rounds of quantitative easing may have been one of the causes of property price inflation, this may not be repeated with this latest round.

Singapore has introduced the additional buyer’s stamp duty of 10% that foreigners incur when buying homes. Tay thinks that while QE3 may keep property resilient, price rises will be capped.

But QE3 could still end up boosting the appeal of US property, says Dr Lee Boon Keng, head of the investment solutions group for Singapore at Bank Julius Baer, noting that the housing conditions were improving and rebounding from historical lows.

“The US economy continues a moderate recovery, aided by rising property prices which should have a multiplier effect on consumption and investment,” he said. — The Sunday Times/Asia News Network

By AARON LOW

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New global currency wars warning!  QE3 triggers fear of new currency wars! What it means?

Malaysia's Tax Budget 2013: politically savvy for general election? Housebuyers may struggle to pay!

Beyond the statistics of Budget 2013, it is clear that the government is well aware that the middle income group has found itself in a sandwich position.

FOR some in the Malaysian middle class, especially those in the upper income bracket, there is not much to cheer about Budget 2013.

But this is a group that is not easy to please. If they have their way, they would want to have personal taxes reduced. I would want to pay less to the taxman too, but it is also about time that we wake up to the reality of having the consumption-based goods and services taxes (GST) implemented.

It may not be politically savvy to introduce the GST prior to the general election but the fact is the current tax base is simply too narrow. Just over a million people are now paying personal income tax in a country of over 27 million people.

Through the GST, the tax net would be wider and those who spend on more pricey items would just have to pay for them. An ordinary wage-earner buying economy rice or roti canai won’t have to pay GST, for sure.

But if you buy a Louis Vuitton bag in KL, then it’s only right that you pay a hefty GST bill, and help the government raise its tax revenue. If we want to encourage tourism, we just have to follow what other countries are doing – limiting GST only to our citizens. Tourists, even if they are rich sheikhs, can apply for tax refunds at the airport.

That’s how GST works, but there is a general election ahead. The government does not want to be in a defensive mode, where it has to explain how GST works.

We are always looking to pay less while we expect the government to spend more to boost the economy, or even give away monetary goodies to spur spending.

When the government spends, it has to look for money. Currency speculator George Soros is surely not a good option.

Reducing by one percentage point for those with chargeable income between RM2,500 and RM50,000, as proposed in the Budget, plus the other tax reliefs, also mean that only 1.7 million people will now pay taxes compared with the workforce of 12 million.

Beyond the statistics, it is clear that the government is well aware that the middle income group has found itself in a sandwich position. They are the ones who feel the rising cost of living the most, and any effort to reduce their tax burden should be lauded.

It is this group that the Budget wants to target. The rich can take care of themselves and the poor has been taken care of.

The higher income group would still benefit, in some way, as regardless of how much one earns, the existing tax relief for their children’s education has been increased to RM6,000 from RM4,000 per child.

But it is the financially distressed wage earners, especially those in the lower earning bracket, who are doing their best to stretch the ringgit. After paying for their home rentals, car or motorbike loans and food expenses, there is nothing left, really. Saving itself is difficult, let alone finding the downpayment for the first home.

The affordable houses scheme would be essential to allow this group of urbanites to believe that they can own houses. The government must make it work.

Another measure that is targeted at this group is the 50% discount on KTM fares for Malaysians earning RM3,000 and below monthly. I would have preferred the government to just provide a blanket free KTM ride during peak hours in the mornings and evenings.

I am curious to see how KTM plans to carry out the registration of commuters who qualify and give them the special discount cards. If it is not effectively carried out, due to practical logistic issues, this scheme is definitely open to abuse. So the government might as well just provide free rides.

The whining upper middle class won’t be joining the queues at the crowded KTM stations, that’s for sure. It will still be the same KTM passengers who want to cut down on their financial expenses because they live in the outer city zones or even in Negri Sembilan but travel daily to Kuala Lumpur to work or to study.

The 70 new 1Malaysia Clinics will surely be welcomed as they would be a great help to the urban poor. Furthermore, 350 clinics would be upgraded and an additional 150 dialysis machines will be made available in government haemodialysis centres nationwide. All measures to improve healthcare facilities for the masses are surely welcomed.

But there is one area where the whining from the Malaysian middle class is legitimate – the crime problem.

We have repealed laws such as the Emer­gency Ordinance because the intelligentsia in urban areas demanded it. But the reality is that many of the Simpang Renggam graduates are now on the streets and the police cannot find these crooks because their hands are tied.

Budget 2013 has allocated for 496 CCTV cameras to be installed in 25 local authorities nationwide to prevent street crime in urban areas. This is like a drop in the ocean and surely insufficient.

We should have thousands, if not hundreds of thousands, of these cameras put up, as in London, to keep an eye on potential criminals.

As I write this, I have just been informed that my colleague had his new car hijacked by two men while he was on his way home with his wife and son in Subang Jaya. Incidents like this point to the necessity of having more of our policemen out on patrol.

The proposal to increase the number of police personnel for patrolling and combating crime is in the right direction. The police also have to review how police reports are made so that a person making a simple report about a car accident, or a lost handbag, does not have to compete with people making reports for serious offences. We need to put our policemen on the streets, not behind desks.

Let us consider making Rela, the civil service group, and volunteer policemen take over simple tasks like crowd and traffic control. The Budget has proposed an additional 10,000 officers for the Police Volunteer Reserve force. This is not something new but it will definitely reduce the unnecessary burden on the police.

On the Beat By Wong Chun Wai

HBA: Housebuyers may struggle to pay

Among the goodies were the building of 123,000 affordable homes at a cost RM1.9bil in key locations such as Kuala Lumpur, Shah Alam, Johor Baru, Seremban and Kuantan. The houses will cost between RM100,000 and RM400,000 each.

THE National Housebuyers Asso­ciation (HBA) has warned that house-buyers may struggle to service monthly loan payments if they buy homes under the My First Home scheme.

An applicant with a household income of RM5,000 a month, or a couple with a combined income of RM10,000, will not be able to afford the monthly repayments of a RM400,000 housing loan based on a 30-year repayment period after taking into account other household expenses and mandatory tax payments, said its secretary-general Chang Kim Loong.

Chang said applicants who commit to housing loans of RM400,000 with an average interest rate of 4.75% would end up having to pay RM2,086 each month.

“Based on Bank Negara Malaysia (BNM) guidelines, a single loan repayment cannot exceed one third of the applicant, or joint applicant’s gross income.

“It would also be a potential disaster for a household which cannot afford to fork out the 10% down payment from their savings to commit to a RM400,000 loan,” he said.

He said house buyers should always match the repayment period with the number of remaining years they expect to work.

Otherwise, he said, the applicants would not be able to retire, or end up committing their children to continue paying the loan.

On PR1MA, he said, the price cap of RM400,000 for homes was too high.

“PR1MA should be pricing their properties below RM300K, preferably in the range of RM150K to RM300K to cater to a wider base of the middle-income and lower-income groups,” he said.

Related post:

A promising Malaysian tax budget for 2013 this Friday?

Japan stole Diaoyu Islands

China's Foreign Minister Yang Jiechi has accused Tokyo of stealing disputed islands. Source: AAP

United Nations:  CHINESE Foreign Minister Yang Jiechi has sparked angry exchanges at the UN by accusing Japan of stealing disputed islands. 

Chinese and Japanese envoys had the exchanges on Thursday after Yang heightened tensions over the East China Sea islands, and reopened old diplomatic wounds over World War II.

The Japanese government's purchase of the uninhabited islands from a private owner this month has infuriated Beijing and set off violent protests in China.

"China strongly urges Japan to immediately stop all activities that violate China's territorial sovereignty, take concrete actions to correct its mistakes and return to the track of resolving the dispute through negotiation," Yang told the UN assembly.

He reaffirmed his country's claim that Japan tricked China into signing a treaty ceding the islands in 1895.

Japan says the islands were legally incorporated into its territory.

"The moves taken by Japan are totally illegal and invalid," the Chinese minister said.

"They can in no way change the historical fact that Japan stole Diaoyu and its affiliated islands from China and the fact that China has territorial sovereignty over them."

Japan's move was in "outright denial" of its defeat in World War II, he added, reaffirming China's repeated references to the 1939-45 war.

Yang's speech sparked sharp exchanges between Japanese and Chinese diplomats as each sought a right of reply.

Japan's deputy UN ambassador, Kazuo Kodama, said that "an assertion that Japan took the islands from China cannot logically stand".

Kodama added the references to World War II were "unconvincing and unproductive".

China's UN envoy Li Baodong responded: "The Japanese delegate once again brazenly distorted history, resorting to spurious fallacious arguments that defy all reason and logic to justify their aggression of Chinese territory.

"The Japanese government still clings to its obsolete colonial mindset.

"China is capable of safeguarding the integrity of its territory."

When Kodama responded that the islands "are clearly an inherent territory of Japan", Li returned to the attack.

He  said his Japanese counterpart "feels no guilt for Japan's history of aggression and colonialism".

The Japanese government's purchase of the islands was based purely on "the logic of robbers", he stormed.

China has demanded the return of the uninhabited islands, known as the Diaoyu in Chinese and the Senkaku in Japanese, for decades. Taiwan also claims the islands. -  AFP/Agencies

A man reads the white paper on the Diaoyu Islands at a bookstore in downtown Beijing on Friday. The white paper, entitled Diaoyu Islands, an Inherent Territory of China, published in Chinese, English and Japanese, hit the market on Friday. It has been issued both at home and abroad to assert China's sovereignty over the island and its affiliated islets. Photo: Guo Yingguang/GT

Chinese Foreign Minister Yang Jiechi accused Japan of stealing the Diaoyu Islands in an address to the UN General Assembly in New York Thursday, urging it to immediately stop infringing on China's territorial sovereignty, correct its mistakes through concrete actions and return to the track of resolving the disputes through negotiation.

Yang used the general debate of the ongoing session of the UN General Assembly to state China's stance over recent rows stirred up by Japan's "nationalization" of the islets.

His remarks came after Japanese Prime Minister Yoshihiko Noda's insistence that no territorial issue exists over the islets during a speech on the sidelines of the UN General Assembly on Wednesday.

"The Diaoyu Island and its affiliated islets have been an integral part of China's territory since ancient times," Yang said. "China has indisputable historical and legal evidence in this regard."

Yang said Japan stole the islands in 1895 at the end of the Sino-Japanese War and forced the Chinese government to sign an unequal treaty to cede these islands and other Chinese territories.

After World War II, the Diaoyu Islands and other Chinese territories occupied by Japan were returned to China in accordance with the Cairo Declaration, the Potsdam Proclamation and other international documents, he said.

The Chinese Foreign Minister stated that, by taking such unilateral actions as the "island purchase," the Japanese government had grossly violated China's sovereignty.

"This is an outright denial of the outcome of the victory in the global anti-fascist war and poses a grave challenge to the post-war international order and the purposes and principles of the UN Charter," he said.

Yang emphasized that the moves taken by Japan are totally "illegal" and "invalid," which can in no way change the "historical fact" that Japan stole the Diaoyu Islands from China and the fact that China has territorial sovereignty over them.

 "The Chinese government is firm in upholding China's territorial sovereignty," he added.
>In a rebuttal session following Yang's speech, Li Baodong, China's permanent representative to the UN, said that "the Japanese government still clings to its old-time colonial mindset," the Xinhua News Agency reported.

According to Xinhua, Li said Japan's "purchase" of the islands is based purely on "the logic of robbers."

"Its purpose is to legalize the stealing and occupation of the Chinese territory through this illegal means and to confuse international public opinion and deceive the people of the world," Li was quoted by Xinhua.

Zhou Hongjun, a professor with the International Law Faculty at the East China University of Politics and Law, told the Global Times that Japan's denial of any territorial issue is void.

The countermeasures taken by China have put the waters off the Diaoyu Islands under the substantial control of both China and Japan, reversing Japan's "illegal" control of the area in recent years, said Zhou.

"We ought to consolidate and extend our progress," Zhou said.

On the sidelines of the UN General Assembly, Yang met with US Secretary of State Hillary Clinton on Thursday.

Reuters quoted a senior US State Department official as saying that during the talks, Clinton said it was important to ratchet down the quarrel over the islands that has soured ties between Asia's two largest economies.

"We believe that Japan and China have the resources, have the restraint, and have the ability to work on this directly and take tensions down," the official said.

Separately, the Chinese embassy in Tokyo said in a statement on its website that it received a suspicious envelope on Thursday, and that after an inspection by Japanese police, a rifle bullet was found in the envelope on Friday.

The embassy said that the Japanese police are investigating the incident, and the embassy has demanded Japanese police take concrete measures to protect the safety of Chinese organizations, enterprises and citizens in Japan.

Kyodo reported that the envelope bore the name of Japanese Prime Minister Yoshihiko Noda.

A spokeswoman at the prime minister's office only said that Noda had not sent the bullet, without elaborating on any action it might take, reported AFP. - Agencies

Related posts:
Who owns Diaoyu Islands?
China announces geographic codes for Diaoyu Islands baseline to UN
Japan's buying Diaoyu Islands provokes China to strike ...
China's vessels patrol Diaoyu Islands after Japan illegally purchases and nationalizes them 

Octopus Marketing Formula Explained

For the past few years I have presented a number of workshops that made an odd reference to "Octopus Marketing."

What the heck is it?

In this short video I explain what it means and how it provides a simple framework that every self-promoting artist should use when marketing their music online.



Thanks to Jonathan Sexton and http://www.ArtistGrowth.com/ for recording this interview!

What are your thoughts on Octopus Marketing? As always, I welcome your comments.

-Bob

Make Money as a DIY Musician - My New Online Course

Do you ever get frustrated when all those Facebook fan page "likes," Twitter followers, website visitors, and mailing list subscribers don't lead to the music and merchandise sales you expect?

Why do some artists sell a lot and get big crowds at their shows, while most do-it-yourself artists (like you perhaps?) struggle to get noticed?

Well, in this new online course I give you a four-point plan to not only get attention, but to turn that attention into fan support and sales.
You may remember that several months ago I hit the road and presented a new workshop called "How to Make Money as a DIY Artist: 4 Steps to Converting Fan Attention Into Sales."

I hit four cities: Salt Lake City, St. Louis, Kansas City, and the Musicians Institute in Los Angeles. Attendees raved about it. More than 175 people total got to experience that workshop. But there were many thousands of others around the US and the world who wanted to attend but couldn't.

For months I've been looking for a new way to deliver video, audio, and text lessons within an online course environment. And I think I finally found the solution with a website called Udemy.

I'm using the "How to Make Money as a DIY Musician" workshop as my first course offering on this new platform -- and I want to offer you a deep discount to help me test it (as you get ALL the benefits I deliver in the course).

In these fast-paced sessions I reveal dozens of real-life examples and checklists you can put into practice right away to help you connect with fans and earn more money.

Transform your music career with these powerful ideas — many of them inspired by recent interviews I did with Karmin, Pomplamoose, David Nevue and Mark Mohr, as well as experts like Tony van Veen, Joe Vitale, Michael Brandvold, and Jason Van Orden.

Use this link to check out the course home page, watch the Intro video, and get a 42% discount off the already low registration fee for a limited time.

To your continued success with music!

-Bob

How to Get Comfortable with Music Marketing

I hear it all the time.

"I feel so awkward when it comes to marketing."

"I'm just not a natural-born salesman like some people are."

I don't buy it. You can get comfortable with marketing. You can indeed wrap your brain around music promotion and make it a natural part of who you are.

This short video clip (less than a minute and a half) will help.



Big thanks to Jonathan Sexton and ArtistGrowth for recording this interview while I was in Nashville earlier this summer.

-Bob