Recession fears can by itself be a self-fulfilling prophecy


 

AS talk of a recession picks up, a veteran fund manager, Ang Kok Heng of Phillip Capital Management Sdn Bhd, correctly points out that the Malaysian stock market has been in “recession” in five of the six years since 2014.

Hence, he does not envisage how it can get worse for the Malaysian stock market if the global economy does go into a recession next year. Fears of a global recession have picked up pace based on the behaviour of the US yield curve.

The yield curve, which charts the spreads of US debt papers of various tenures, has inverted several times in the past few weeks. Most people would not understand what an inverted yield curve means.

Simply put, it means long-dated debt papers of 10 years giving lower returns compared to shorter-term debt papers such as two-year US Treasuries. It causes what is called an inverted yield curve.

It goes against the normal behaviour of US Treasury yields because long-term debt papers should give a higher return than short-term papers.

The consequence of an inverted yield curve is that it will lead to banks reducing their lending activities because their margins are narrow. Eventually, it results in companies reducing their activities and the country going into a slowdown or recession.

An inverted yield curve has been the precursor to all past recessions (see diagram).

However, there are some who are disputing the fears of an impending global recession based on the behaviour of the bond yield curve. Their reason is that the bond yields are not behaving as what they should due to the governments all around the world printing money to keep interest rates artificially low since 2009.

Interest rates have become so low to the extent that European banks are offering no returns on deposits. This means depositors do not get any money for keeping their money in the banks. Borrowers instead get discounts on their installments.

It’s happening in Europe because government bond yields there have turned negative.

For instance, the yield on 10-year Switzerland bonds is negative 0.74%, while German bonds of a similar tenure yield negative 0.52%. From France to Denmark, government debt papers have negative yields.

Only some countries such as Portugal and Spain still have positive yields on their debt papers.

Analysts believe that this has resulted in investors resorting to buying US debt papers that still offer positive yields. Hence, the price of bonds across all tenures in the US has gone up, causing their yields to come down.

The search for yields has also resulted in the narrowing of the difference between what the two-year and 10-year debt papers offer. And there have been several occasions in the last one month when the yield on the 10-year paper was lower than the two-year debt papers.

Apart from the behaviour of the yield curve, the other indicator that is seen as a precursor to a recession is the declining manufacturing sector all around the world caused by the trade war between the US and China. The Purchasing Managers’ Index (PMI), which is a leading indicator to assess the state of the economy, has been declining for all major economies.

For Malaysia, the PMI has been less than the 50-point benchmark for almost a year now. The same trend is seen in China, while the indicator has started to decline in the US in the last few months, which some see as a result of the trade war.

The trade war has caused supply disruptions, impacting the manufacturing sector.

However, there are other indicators that do not indicate a recession is imminent.

Banks are fairly well-capitalised and have pulled the brakes on lending. We do not hear of banks being impacted by major corporate defaults except for some financial institutions in China. Malaysian banks, for instance, have weathered the storm quite well so far, thanks to Bank Negara keeping a tight rein on their lending activities.

There has not been any run-up in asset prices. Property prices in countries such as Malaysia have remained subdued since 2015 after Bank Negara pulled the brakes on lending. Since 2014, Bursa Malaysia has closed lower every year, except for 2017.

The only exception of rising asset prices is Wall Street that has soared to record highs. Stock prices are hitting all-time highs due to improved earnings growth.

Technology companies such as Apple and Amazon are US$1 trillion companies. The other technology companies such as Facebook and Alphabet are enjoying growing valuations because of earnings growth.

No other stock exchange in the world has such a large concentration of technology companies than the exchanges on Wall Street. All technology companies, even from China, want to list on Wall Street.

Even Alibaba is listed on the New York Stock Exchange and not in Hong Kong.

It has been 11 years since the last recession, but the world’s central banks have resumed their printing of cheap money to keep interest rates low. The European Central Bank has resumed quantitative easing, while the US Federal Reserve is reducing interest rates. In essence, central banks are taking these measures to prevent a slowing economy going into recession.

In the meantime, it has caused fear among people and companies. Companies are holding back on spending, and in fact, cutting down on their debt.

A clear indicator is in the US where companies raised the most amount of corporate debt. Apple and Disney raised US$7bil worth of debt papers to reduce their borrowings.

In Malaysia, corporations have been deleveraging for the past few years in anticipation of a slowdown. Companies are not expanding, as indicated by the declining private-sector gross capital formation.

It is only reasonable for companies and people to save for the upcoming rainy days. Even governments are cautious in spending. For instance, in the upcoming Budget 2020, many are expecting the government to start spending. But there is also a view that the government will adopt a cautious stance as it continues to strengthen its balance sheet and reduce debts.

If nobody spends for fear of a recession, it would be a self-fulfilling prophecy.

Most people are expecting a recession, meaning negative growth. Fear of a recession has translated into a slowdown that the world and Malaysia are experiencing. If this fear continues to perpetuate, a recession would be a self-fulling prophecy.

It is good to be fearful, but being too fearful and conservative will also result in lost opportunity.

As Ang of Phillip Capital puts it, in times when fears of a recession seap in, cash must be held to seize opportunities. Holding cash as an investment is not a wise option.

By M. SHANMUGAM , The views expressed here are solely that of the writer. Source link

 

Read more:

 

Investors await rate cuts and trade talks  

Fund managers give tips on where to park investments in case of a downturn

 

Trump’s call for negative rates threatens savers – Reuters

https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&cad=rja&uact=8&ved=2ahUKEwjm0piR6c_kAhVKro8KHdwjCmsQFjABegQIChAF&url=https%3A%2F%2Fwww.reuters.com%2Farticle%2Fus-usa-trump-fed-savers%2Ftrumps-call-for-negative-rates-threatens-savers-idUSKCN1VW2T5&usg=AOvVaw0S73tTKf-NXJCfvauU77PS

 


How to recession-proof your investment portfolio | Financial …

 
Image result for Recession-proofing your portfolio

 

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 Recession fears hit Asian region including Singapore

Malaysia may, to a certain extent, be less vulnerable with the revival of major construction projects which in view  of the country’s strained finances, have been shrunk to cut costs. The Singapore economy may undergo a “shallow, technical recession” in the third quarter.

When Will the U.S. Dollar Collapse?

Singapore growth forecast down to 1%
Unknown future: As Singapore further cut its growth forecast, New Zealand, India and Thailand also cut their interest rates signalling concerns on growth outlook. — AFP
China challenges U.S. tariffs, lodging case at WTO
A World Trade Organization (WTO) logo is pictured on their headquarters in Geneva, Switzerland, June 3, 2016.

 

Coming recession in 2020? Possibly earlier

 

 

 

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Spotlight on virtual banking licenses


Bank Negara’s plan to issue up to three virtual banking licences has excited the local financial sector which otherwise has begun to look a little lethargic.

 
BANK Negara’s announcement this week which
stated that it is looking to issue up to three virtual banking licences has excited the local financial sector which otherwise has begun to look a little lethargic.

The announcement comes at the same time as Hong Kong’s move to issue three licences of this type to a combination of companies partnering finance firms, namely Standard Chartered, BOC Hong Kong Holdings Ltd and online insurance company ZhongAn Online P&C Insurance Co.

Five more of such licences in the city are being processed.

In Malaysia, the announcement by Bank Negara is significant also because the central bank has not issued any new banking licences for many years now.

That said, both Hong Kong and Malaysia’s move to encourage pure online banking ventures is very much in line with the fact that fintech innovations are slowly but surely seeping into the daily lives of people globally, providing cheaper and more easily accessible financial services.

The idea of virtual banks – which theoretically means a bank without any physical branches whatsoever – however, is not entirely new.

In fact, many countries such as the United States and the United Kingdom have attempted it.

Some have failed, others continue to operate, taking deposits and giving out loans much like traditional banking outfits.

Closer to home, India, China, South Korea and Japan have ventured into this model.

Japan, for instance, went for the zero branch strategy as far back as the 1990s with the setting up of Japan Net Bank.

There have been other Internet banks there since then such as Seven Bank which has been providing financial services via ATMs across 7-Eleven convenience shops in Japan since the early 2000s.

In South Korea, the then-chair of the Financial Services Commission, Yim Jong-yong gave initial approval for the setting up of the country’s first two virtual banks back in 2015.

K Bank was its first, starting operations in April 2017 followed a few months later by kakaobank, which started with some W300 billion (about RM1.077bil) in start-up capital.

To be sure, virtual banks, which primarily target the retail segment including the small and medium-sized enterprises (SMEs), have existed even before the concept of fintech – which is basically using technology to provide improved financial services – gained prominence over the last few years.

The rise of fintech in recent times can be attributed to consumers becoming increasingly tech-savvy and more demanding when it comes to convenience on-the-go.

It also stems from the fact that there are millions of individuals who are unbanked or underbanked but who now have access to the Internet.

In China alone, mobile payments run in trillions of yuan.

It is perhaps this increasing savviness that is contributing to regulators the world over wanting to push for more virtual banks and easing guidelines to fit the concept in.

It is noteworthy that within the Asean region, Malaysia is among the first to attempt this virtual bank model.

Timo, Vietnam’s first bank sans any traditional branch, was officially launched in 2016 while nearest neighbour Singapore currently does not have any banks purely of this nature.Even so, Bank Negara governor Datuk Nor Shamsiah Mohd Yunus has said that the central bank is currently working towards releasing licensing guidelines for such operations only by the end of this year.

She has stressed that discussions with the few parties interested in setting up virtual banks in Malaysia are still at the preliminary stage.

Still, that’s not stopped industry people from raising questions, many of which are valid.

For starters, notwithstanding theoretical definitions, what will be the exact definition of a local virtual bank ?

 What are the rules?

“Who can apply to operate such banks and will these guys be subject to the same rules that apply to traditional banks such as those involving capital requirements and such?” asks one senior banker attached to a regional bank.

While the jury is still out on rules that will apply in Malaysia should the idea materialise, a broad idea on this can be gleaned from the guidelines that have been set out by the Hong Kong Monetary Authority (HKMA).

According to the HKMA, firstly, a “virtual bank is defined as a bank which primarily delivers retail banking services through the Internet or other forms of electronic channels instead of physical branches”.

HKMA’s guidelines include rules such as virtual banks having to play an active role in promoting financial inclusion when offering their banking services.

“While virtual banks are not expected to maintain physical branches, they should endeavour to take care of the needs of their target customers, be they individuals or SMEs,” it says, adding that virtual banks should not impose any minimum account balance requirement or low-balance fees on their customers.

In terms of ownership, the HKMA says that because virtual banks will mostly be focused on retail businesses covering a large pool of such clients, “they are expected to operate in the form of a locally-incorporated bank, in line with the established policy of requiring banks that operate significant retail businesses to be locally-incorporated entities”.

It also says that it is generally its policy “that a party which has more than 50% of the share capital of a bank incorporated in Hong Kong should be a bank or a financial institution in good standing and supervised by a recognised authority in Hong Kong or elsewhere”.

While the guidelines cover a lot more, it is worthwhile pointing out that the HKMA is of the view that “virtual banks will be subject to the same set of supervisory requirements applicable to conventional banks”, with some of the rules being changed in line with technological requirements.

It adds that in terms of capital requirement, “virtual banks must maintain adequate capital commensurating with the nature of their operations and the banking risks they are undertaking”.


Noticeable absence of tech players

Interestingly, in the first round of licences given out by the HKMA, there was a noticeable absence of major Chinese tech companies like Tencent Holdings Ltd and Alibaba Group Holding Ltd’s Ant Financial, which many would have thought make obvious choices given their experience in carving out game-changing fintech-centric services especially in their home country of China.

“Mobile payment services offered by the likes of WeChat and Alipay are possible with Internet giants like Alibaba and Tencent behind the entire ecosystem, the fact that they were not included raised some eyebrows,” says one Hong Kong-based banking analyst.

In the same vein, Hong Kong has been criticised for not being proactive enough when it comes to encouraging financial start-ups and being overly protective of conventional banks as evident in its fintech sandbox programme of 2016, which was reportedly introduced to help traditional financial institutions try out new technology instead of supporting fresh start-ups.

“Still, a start is better than no start and we are looking forward to when these virtual banks start operating in nine months’ time,” says the analyst.

He adds that as long as security is not an issue, he hopes that virtual banks will be able to provide what traditional banks are “still not good at”, namely personalised customer service and cheaper services.

While it is early days yet in Malaysia, the general feedback is that virtual banks will be good, specifically for consumers who will have more choices.

But this will come at the expense of increased competition within the banking sector.

Analysts in Hong Kong have predicted that about 10% of revenue belonging to traditional banks there will be “at risk” over the next ten years because of the setting up of virtual banks.

Whether or not it will be the same for Malaysian banks remains to be seen.

A lot of this will depend on the guidelines that the central bank plans to set out in the months to come.

By Yvonne Tan The Star

Breaking ground with new banking concept

Backed by Ma: MyBank is backed by billionaire Jack Ma’s Alibaba Group Holding Ltd. Alibaba affiliate
company Ant Financial owns 30% of the online lender. (Photo: AFP)

(The Star Online/ANN) – DURING the height of the fintech revolution that’s been taking place over the last few years, one prominent banker in Malaysia made an interesting comment during a private dinner.

The banker said that while he welcomes fintech companies into the market, he wasn’t really afraid of losing any significant business to them. What he really feared, if anything, were the technology giants turning on a banking facility for the millions of users they have on their platforms.

“This Facebook Bank, Google Bank or Whatsapp Financial Group,” he quipped in half jest.

The logic is simple: with those platforms even then having had the myriad users globally, they are able to tap that user group to offer financial services.

But banking remains a highly regulated space. Not every technology company will be able to fulfill those criteria or even have such intentions.

Still, there are a number of virtual banks that have sprung up globally.

Here are some of the more notable ones in this part of the region.

China: WeBank

WeBank is China’s first private digital-only bank, launched in early 2015.

It is backed by tech giant Tencent Holdings – China’s biggest messaging and social networking company, which is also the operator of WeChat

Besides Tencent, its other backers include investment firms Baiyeyuan and Liye Group.

According to its website, WeBank provides consumer banking services through digital channels, as well as microcredits and other loan products.

The Internet-only lender had turned in a profit one year into operation thanks to surging demand for microloans among blue-collar workers and small entrepreneurs.

In 2017, WeBank made a net profit of 1.4 billion yuan or US$209mil, while its return on equity came in at 19.2%.

Its total lending in that year was nearly twice that of closest rival MyBank for the same period.

A recent stake sale of the bank values the company at US$21bil, making it one of the world’s largest “unicorn” companies.

Banking Tech recently reported that the lender is now eyeing an Australian expansion to compete with payments company Alipay, which is its largest rival.

MyBank

MyBank is backed by billionaire Jack Ma’s Alibaba Group Holding Ltd.

Alibaba affiliate company Ant Financial owns 30% of the online lender.

Not unlike WeBank, it has a focus on consumer and small and medium-sized enterprises, a sector underserved by traditional banks in China.

It uses credit data from the e-commerce giant’s AliPay product to conduct analysis for loans.

By circumventing human involvement, the bank said it was able to deliver loans to borrowers faster and up to 1,000 times less than it would cost brick-and-mortar banks to do so.

Like WeBank, it turned profitable one year into operations due to its less capital-intensive model.

Ant Financial is reportedly looking to go public in the near future.

India: Digibank

Singapore’s banking giant DBS Bank launched Digibank in April 2016 – a move that has enabled it to penetrate the Indian retail banking market.

Breaking away from conventional banking norms with their onerous form-filling and cumbersome processes, Digibank incorporates a host of ground-breaking technology, from artificial intelligence to biometrics.

DBS CEO Piyush Gupta expects the mobile-only bank to break even in three to four years, which according to him is not such a bad deal as compared to the traditional branch model, which needs 15 to 20 years to break even.

Digibank has over 1.5 million customers and it is handling them with 60 people rather than the 400-500 staff members it would normally need under the traditional model. Its cost-to-income ratio is in the low 30s.

Following its Indian venture, DBS went on to launch a similar mobile-led bank in Indonesia where the government expects the country’s digital economy to reach US$130bil or about 12% of its gross domestic product in 2020.

Other Singaporean lenders have also jumped on the bandwagon. United Overseas Bank (UOB) said it would launch “digital banks” for its five key markets in Asean, starting in Thailand. It aims to have three to five million customers in the next five years

Elsewhere, OCBC is also reportedly pursuing a similar idea in Indonesia.

Japan

Established in 2008, Jibun Bank reached profitability in less than five years. The outfit is a joint venture between Bank of Tokyo-Mitsubishi UFJ and local mobile network operator, KDDI.

The story goes that instead of competing with each other, the two organisations decided it would make more sense creating a “separate bank” that complement their goals.

The Asian Banker in a case study on Jibun Bank noted that in its first year, the lender had accumulated over 500,000 new customers. By 2015, Jibun Bank’s asset volume surpassed that of Japan’s oldest Internet bank, Japan Net Bank. Asian Banker also noted that the lender’s deposit volume has grown to a size that is comparable to that of a mid-tier regional bank – all of this without the help of a branch footprint.

 South Korea: K-bank and Kakao Bank

The two South Korea’s online-only banks have signed up new customers by the millions since beginning operations in 2017.

Kakao Bank is run by mobile messaging Kakao and Korea Investment Holdings, while K-bank is operated by telco KT.

The authorities there are hoping that K-bank and Kakao Bank would spur growth in a banking industry that has stagnated amid rising credit costs, narrowing interest margins and heavy regulation.

The Financial Times in an October 2017 report wrote that about 300,000 new accounts were opened with Kakao Bank in the 24 hours following its launch in late July. This figure was more than what traditional banks in South Korea got in a year through online channels. And as at end-September that year, it had already garnered 3.9 million users.

The news agency said that Kako Bank users can wire money abroad for just a tenth of typical commission fees.

Its peer K-bank, meanwhile, attracted over half a million users in the few months following its April 2017 launch.

In contrast, international banks operating traditional branch networks in the country were looking at downsizing their branches.

Early this year, Shinhan Financial Group inked a deal with mobile app maker Viva Republica to set up an Internet-only bank, making it the third player in the game.

by gurmeet kaur The Star

Related:

 

Malaysian Securities Commission to weed out virtual scams


SC innovation, digital and strategy executive director Chin Wei Min said those who have identified themselves to the commission can operate up to March 1. “Even if they don’t want to be in this business anymore, whatever they are holding, whether it’s money, crypto assets or digital assets, should be returned to their clients. Otherwise, we will take action.
KUALA LUMPUR: All companies engaging in digital assets will have to make themselves known to the Securities Commission (SC) by Friday, even if they have decided not to carry on once the regulatory framework comes into force.

This includes operators who are not registered with Bank Negara under the anti-money laundering and counter financing of terrorism – digital currencies (sector six) and those operating “underground”.

The SC will reserve the right to take action against those who fail to identify themselves by Friday on grounds of breaching the securities law.

SC innovation, digital and strategy executive director Chin Wei Min said those who have identified themselves to the commission can operate up to March 1.

“Even if they don’t want to be in this business anymore, whatever they are holding, whether it’s money, crypto assets or digital assets, should be returned to their clients. Otherwise, we will take action.

“The reason we also allow people to continue with their withdrawals and sell down is to ensure that there is an orderly market.

“The last thing we want is to cause confusion, and hopefully, there are no untoward fraudulent activities that people will capitalise on in this transition period and take advantage of investors,” he told a media briefing here yesterday.

While the regulation does not affect operators who are not incorporated in Malaysia, the SC can still take action against them under the Capital Markets and Services Act 2007 if the products are marketed, sold, or its operations exist in Malaysia.

Operators who identify themselves to the SC must state their intent, whether they want to resume their activities, of which certain obligations have to be met, or whether they want to wind down their business.

The SC will put up a list of operators and companies that have registered and received a letter from the commission for investors to check if their monies are with legitimate sources.

Chin also reiterated that operators are not allowed to accept new investors, list new products or conduct any sales and marketing activities during this period.

A statement by the SC last Thursday said platform operators would not be allowed to accept new investors and are only allowed to facilitate the withdrawal or transfer of client assets with the written instruction of investors.

They are also not allowed to conduct any initial coin offerings (ICOs) without prior authorisation.

Chin called on all ongoing ICOs to cease activities and the monies or digital assets to be returned to investors until the operators apply for authorisation and after they understand the SC requirements.

The guidelines are expected to be released by the end of the first quarter this year.

“If you are looking at the ones that are out there currently, the standards of the white paper are of low quality. It is important that this falls under regulated activity.

“We recognise that this is an alternative fundraising avenue. The idea here is to allow us to take out all the scams and fraudulent activities and at the same time, provide a platform for our early stage entrepreneurs to raise money,” said Chin, adding that the SC did not want people to take advantage of this as investors are pumping in money on the other end.

This is a high-risk investment and Chin also hinted that there could be a certain threshold for investors.

The Capital Markets and Services (prescription of securities) (digital currency and digital token) order 2019, which kicked in last Tuesday, will see those operating unauthorised ICOs or digital asset exchanges facing up to a 10-year jail term and up to a RM10mil fine.

The Finance Ministry said it viewed digital assets as well as its underlying blockchain technologies as having the potential to bring about innovation in both old and new industries.

By royce tan The Star

Related post:

SC to regulate digital assets

 

Fintech – disruptive technology

2019 – Tthe rise of the quantum era


US President Donald Trump discards staff like changing shirts and reverses policies without any forewarnings to staff or supporters alike. This behaviour is described by Armenian President Sarkissian, a quantum physicist-turned-politician, as quantum politics. afp –  

THE year 2018 was an exhausting one, but it marked the exhaustion of the old neo-liberal order, willingly dismantled by President Donald Trump to the aghast of friends and foes alike.

We seem to live at the edge of chaos, in which every dawn is broken by tweets that disrupt the status quo. There are no anchors of stability. Trump discarded staff like changing shirts, and reversed policies without any forewarnings to staff or supporters alike.

This behaviour was described by Armenian President Armen Vardani Sarkissian, a quantum physicist turned politician, as quantum politics.

Most of us use the term quantum to mean anything that we cannot understand. The reason why we find quantum concepts weird is that they do not conform with normal logic. As Italian physicist Carlo Rovelli explains it, “Reality is not what it seems”.

Human beings live at the macroscopic scale, which we observe from daily life. We like stability and order. But at the beginning of the 20th century, Albert Einstein and Nils Bohr changed the way physicists thought about how nature behaved. Quantum physics evolved from the study of the behaviour of atoms at the microscopic scale.

Order is only one phase in the process of evolution.

And since the 1980s, quantum science has expanded beyond physics to neuro-science, information computing, cryptography and causal modelling, with great practical success.

Like the iPhone, most people don’t know how it works, but quantum mechanics does work in practice.

The first quantum concept is that it is probablistic, not deterministic. In simple language, there is no such thing as certainty, which classical science, religion and our normal instincts teach us to believe. In the beautiful language of Rovelli, “quantum fields draw space, time, matter and light, exchanging information between one event or another. Reality is a network of granular events, the dynamic which connects them is probabilistic; between one event and another, space, time, matter and energy melt in a cloud of probability.”

Second, Bohr defined a dualistic property of quantum situations called complementarity. Light is both a particle and wave, not either/or. This concept of complementarity leads to the famous Heisenberg’s uncertainty principle, which basically says that the position and velocity of an object cannot both be measured exactly and simultaneously, even in theory. If everything in the world comprises atoms and photons moving constantly, nothing can be measured exactly – the principle of indeterminacy.

The third concept is relational, in that everything is related to something. There are no absolutes, just as there is no certainty. Everything exists relative to something else. Quantum entanglement occurs when pairs or groups of particles interact with each other so that the quantum state of each particle is somehow related to the state of the other(s), even across great distances.

This phenomenon is popularly called the butterfly effect, which dramatically says that a butterfly flapping its wings may cause a typhoon across the Pacific. Einstein called entanglement “Spooky Action at a Distance”, and he tried hard to disprove it. But these effects were empirically verified in the 1970s.

Quantum physics is moving to centre stage because quantum information theory led to the invention of quantum computing. Until recently conventional computers use binary “bits” (one and zero) as the process for calculation of information. But a quantum computer uses quantum bits, called qubits, which can exist in both states simultaneously, and in so doing, it can process information faster and more securely than conventional computers.

This breakthrough means that quantum computing will transform artificial intelligence, deep learning and advance technology at speed, scale and scope that rivals anything we have witnessed in the world of classical computing. The goldmine of quantum computing is going to make fortunes for everyone, but he who controls the infrastructure (or pipes) across which quantum computing will be conducted will be the big winner.

Information Age

In the Information Age, knowledge, technology and knowhow is more valuable than gold. Central bank monetary creation as well as cyber-currencies like bitcoin, are quantum money, because the marginal cost of production of such “money” is near zero.

We are all so dazzled by such marvellous creation that many investors moved into the alchemy of asset price bubbles. It is no coincidence that the South Sea and Tulip bubbles occurred in an era of great “displacement”, when 17th century investors (including Isaac Newton) had no clue how to price massive returns from new companies colonising the South Seas, or the technological rarity of creating a black tulip.

In qubit terms, hard assets and soft/virtual liabilities are quantumly entangled with each other. If you can generate quantum liabilities at near zero cost, you can control and increase real assets to the disadvantage of your competitors. Put crudely, with a quantum computer and deep learning, you might be able to generate a drone-sized nuclear bomb using 3D printing at very low cost.

Or even more bluntly, you can do this under quantum encryption that the incumbent powers do not even know what you are doing.

It is therefore no coincidence, that the Western Deep States moved quickly against Chinese enterprises ZTE and Huawei, because these two have been big developers and users of quantum computing. First, deprive the competitor from access to the key high-tech fast chips that enable quantum computing to perform at speed. Second, disrupt the management and key talent that would enable such quantum capacity to be operationalised. Third, prevent them acquiring market share to an entrenched level, so that you have time to bring your own technology up to speed.

All these suggest that if you think in Thucydides Trap terms (classical arms race to nuclear war), we will all end up in nuclear mutual destruction.

If quantum thinking is a more “natural” way of thinking about our physical world and human behaviour (since our brains appear to neurologically work in quantum terms), then it means that we need to get rid of old classical thinking and mental traps. The real challenges to global prosperity and survival are climate change, social injustice, corruption, crime and disruptive technology, but mostly outdated mindsets. We need to think through these challenges in quantum terms, which means very new and weird ways of thinking round these obstacles.

Discarding old mindsets is never easy. But mankind has always thrived on getting new solutions to old problems, perhaps this time through a quantum frame of mind. On that optimistic note,

Happy New Year to all!

By Andrew Sheng – Think Asian– Tan Sri Andrew Sheng writes on global issues from an Asian perspective.

Related:

The photo shows electronics for use in a quantum computer in the quantum computing lab. Describing the inner workings of a quantum computer isn’t easy, even for top scholars. — AP











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When Will the U.S. Dollar Collapse?


collapsing dominos with international currency symbols on them

A dollar collapse is when the value of the U.S. dollar plummets. Anyone who holds dollar-denominated assets will sell them at any cost. That includes foreign governments who own U.S. Treasurys. It also affects foreign exchange futures traders. Last but not least are individual investors.

When the crash occurs, these parties will demand assets denominated in anything other than dollars. The collapse of the dollar means that everyone is trying to sell their dollar-denominated assets, and no one wants to buy them. This will drive the value of the dollar down to near zero. It makes hyperinflation look like a day in the park.

 

Two Conditions That Could Lead to the Dollar Collapse
Two conditions must be in place before the dollar could collapse. First, there must be an underlying weakness. As of 2017, the U.S. currency was fundamentally weak despite its 25 percent increase since 2014. The dollar declined 54.7 percent against the euro between 2002 and 2012. Why? The U.S. debt almost tripled during that period, from $6 trillion to $15 trillion. The debt is even worse now, at $21 trillion, making the debt-to-GDP ratio more than 100 percent. That increases the chance the United States will let the dollar’s value slide as it would be easier to repay its debt with cheaper money.

Second, there must be a viable currency alternative for everyone to buy. The dollar’s strength is based on its use as the world’s reserve currency. The dollar became the reserve currency in 1973 when President Nixon abandoned the gold standard. As a global currency, the dollar is used for 43 percent of all cross-border transactions. That means central banks must hold the dollar in their reserves to pay for these transactions. As a result, 61 percent of these foreign currency reserves are in dollars.

Note: The next most popular currency after the dollar is the euro. But it comprises less than 30 percent of central bank reserves. The eurozone debt crisis weakened the euro as a viable global currency.

China and others argue that a new currency should be created and used as the global currency. China’s central banker Zhou Xiaochuan goes one step further. He claims that the yuan should replace the dollar to maintain China’s economic growth. China is right to be alarmed at the dollar’s drop in value. That’s because it is the largest foreign holder of U.S. Treasury, so it just saw its investment deteriorate. The dollar’s weakness makes it more difficult for China to control the yuan’s value compared to the dollar.

Could bitcoin replace the dollar as the new world currency? It has many benefits. It’s not controlled by any one country’s central bank. It is created, managed, and spent online. It can also be used at brick-and-mortar stores that accept it. Its supply is finite. That appeals to those who would rather have a currency that’s backed by something concrete, such as gold.

But there are big obstacles. First, its value is highly volatile. That’s because there is no central bank to manage it. Second, it has become the coin of choice for illegal activities that lurk in the deep web. That makes it vulnerable to tampering by unknown forces.

Economic Event to Trigger the Collapse
These two situations make a collapse possible. But, it won’t occur without a third condition. That’s a huge economic triggering event that destroys confidence in the dollar.

Altogether, foreign countries own more than $5 trillion in U.S. debt. If China, Japan or other major holders started dumping these holdings of Treasury notes on the secondary market, this could cause a panic leading to collapse. China owns $1 trillion in U.S. Treasury. That’s because China pegs the yuan to the dollar. This keeps the prices of its exports to the United States relatively cheap. Japan also owns more than $1 trillion in Treasurys. It also wants to keep the yen low to stimulate exports to the United States.

Japan is trying to move out of a 15-year deflationary cycle. The 2011 earthquake and nuclear disaster didn’t help.

Would China and Japan ever dump their dollars? Only if they saw their holdings declining in value too fast and they had another export market to replace the United States. The economies of Japan and China are dependent on U.S. consumers. They know that if they sell their dollars, that would further depress the value of the dollar. That means their products, still priced in yuan and yen, will cost relatively more in the United States. Their economies would suffer. Right now, it’s still in their best interest to hold onto their dollar reserves.

Note: China and Japan are aware of their vulnerability. They are selling more to other Asian countries that are gradually becoming wealthier. But the United States is still the best market (not now) in the world.

When Will the Dollar Collapse?
It’s unlikely that it will collapse at all. That’s because any of the countries who have the power to make that happen (China, Japan, and other foreign dollar holders) don’t want it to occur. It’s not in their best interest. Why bankrupt your best customer? Instead, the dollar will resume its gradual decline as these countries find other markets.

Effects of the Dollar Collapse
A sudden dollar collapse would create global economic turmoil. Investors would rush to other currencies, such as the euro, or other assets, such as gold and commodities. Demand for Treasurys would plummet, and interest rates would rise. U.S. import prices would skyrocket, causing inflation.

U.S. exports would be dirt cheap, given the economy a brief boost. In the long run, inflation, high interest rates, and volatility would strangle possible business growth. Unemployment would worsen, sending the United States back into recession or even a depression.

How to Protect Yourself

Protect yourself from a dollar collapse by first defending yourself from a gradual dollar decline.

Important:  Keep your assets well-diversified by holding foreign mutual funds, gold, and other commodities.

A dollar collapse would create global economic turmoil. To respond to this kind of uncertainty, you must be mobile. Keep your assets liquid, so you can shift them as needed. Make sure your job skills are transferable. Update your passport, in case things get so bad for so long that you need to move quickly to another country. These are just a few ways to protect yourself and survive a dollar collapse.

US Trade Deficit With China and Why It’s So High

The Real Reason American Jobs Are Going to China

The U.S. trade deficit with China was $375 billion in 2017. The trade deficit exists because U.S. exports to China were only $130 billion while imports from China were $506 billion.

The United States imported from China $77 billion in computers and accessories, $70 billion in cell phones, and $54 billion in apparel and footwear. A lot of these imports are from U.S. manufacturers that send raw materials to China for low-cost assembly. Once shipped back to the United States, they are considered imports.

In 2017, China imported from America $16 billion in commercial aircraft, $12 billion in soybeans, and $10 billion in autos. In 2018, China canceled its soybean imports after President Trump started a trade war. He imposed tariffs on Chinese steel exports and other goods. 

Current Trade Deficit

As of July 2018, the United States exported a total of $74.3 billion in goods to China. It imported $296.8 billion, according to the U.S. Census Bureau. As a result, the total trade deficit with China is $222.6 billion. A monthly breakdown is in the chart.

US$211.1
Jul 18
US$202
Jan 18
US$205
Feb 18
US$210
Mar 18
US$210
Apr 18
US$214
May 18
US$213
Jun 18
US$211
Jul 18

Causes
China can produce many consumer goods at lower costs than other countries can. Americans, of course, want these goods for the lowest prices. How does China keep prices so low? Most economists agree that China’s competitive pricing is a result of two factors:

A lower standard of living, which allows companies in China to pay lower wages to workers.
An exchange rate that is partially fixed to the dollar.

If the United States implemented trade protectionism, U.S. consumers would have to pay high prices for their “Made in America” goods. It’s unlikely that the trade deficit will change. Most people would rather pay as little as possible for computers, electronics, and clothing, even if it means other Americans lose their jobs.

China is the world’s largest economy. It also has the world’s biggest population. It must divide its production between almost 1.4 billion residents. A common way to measure standard of living is gross domestic product per capita. In 2017, China’s GDP per capita was $16,600. China’s leaders are desperately trying to get the economy to grow faster to raise the country’s living standards. They remember Mao’s Cultural Revolution all too well. They know that the Chinese people won’t accept a lower standard of living forever.

China sets the value of its currency, the yuan, to equal the value of a basket of currencies that includes the dollar. In other words, China pegs its currency to the dollar using a modified fixed exchange rate. When the dollar loses value, China buys dollars through U.S. Treasurys to support it. In 2016, China began relaxing its peg. It wants market forces to have a greater impact on the yuan’s value. As a result, the dollar to yuan conversion has been more volatile since then. China’s influence on the dollar remains substantial.

Effect
China must buy so many U.S. Treasury notes that it is the largest lender to the U.S. government. Japan is the second largest. As of September 2018, the U.S. debt to China was $1.15 trillion. That’s 18 percent of the total public debt owned by foreign countries.

Many are concerned that this gives China political leverage over U.S. fiscal policy. They worry about what would happen if China started selling its Treasury holdings. It would also be disastrous if China merely cut back on its Treasury purchases.

Why are they so worried? By buying Treasurys, China helped keep U.S. interest rates low. If China were to stop buying Treasurys, interest rates would rise. That could throw the United States into a recession. But this wouldn’t be in China’s best interests, as U.S. shoppers would buy fewer Chinese exports. In fact, China is buying almost as many Treasurys as ever.

U.S. companies that can’t compete with cheap Chinese goods must either lower their costs or go out of business. Many businesses reduce their costs by outsourcing jobs to China or India. Outsourcing adds to U.S. unemployment. Other industries have just dried up. U.S. manufacturing, as measured by the number of jobs, declined 34 percent between 1998 and 2010. As these industries declined, so has U.S. competitiveness in the global marketplace
.
What’s Being Done
President Trump promised to lower the trade deficit with China. On March 1, 2018, he announced he would impose a 25 percent tariff on steel imports and a 10 percent tariff on aluminum. On July 6, Trump’s tariffs went into effect for $34 billion of Chinese imports. China canceled all import contracts for soybeans.

Trump’s tariffs have raised the costs of imported steel, most of which is from China. Trump’s move comes a month after he imposed tariffs and quotas on imported solar panels and washing machines. China has become a global leader in solar panel production. The tariffs depressed the stock market when they were announced.

The Trump administration is developing further anti-China protectionist measures, including more tariffs. It wants China to remove requirements that U.S. companies transfer technology to Chinese firms. China requires companies to do this to gain access to its market.

Trump also asked China to do more to raise its currency. He claims that China artificially undervalues the yuan by 15 percent to 40 percent. That was true in 2000. But former Treasury Secretary Hank Paulson initiated the U.S.-China Strategic Economic Dialogue in 2006. He convinced the People’s Bank of China to strengthen the yuan’s value against the dollar. It increased 2 to 3 percent annually between 2000 and 2013. U.S. Treasury Secretary Jack Lew continued the dialogue during the Obama administration.

The Trump administration continued the talks until they stalled in July 2018.

The dollar strengthened 25 percent between 2013 and 2015. It took the Chinese yuan up with it. China had to lower costs even more to compete with Southeast Asian companies. The PBOC tried unpegging the yuan from the dollar in 2015. The yuan immediately plummeted. That indicated that the yuan was overvalued. If the yuan were undervalued, as Trump claims, it would have risen instead.

Source: The Balance

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Buy and sell stocks online



Rakuten Trade: Fully Online Trading Platforms

 

Rakuten Trade is Malaysia’s first digital equities broker

FOR the first time, trading on Bursa Malaysia can be done completely online. No more having to go through a dealer or making a trip the bank to open an account.

Investors can now open an account within two hours, top up available funds via bank transfer, trade instantly and have access to real time market price feeds – all the functions of a traditional broker except it is completely online.

If you are ready to start investing, it’s pretty simple to get going. Ordinarily, you would need to engage a licensed broker to buy and sell stocks. But not with Rakuten Trade, which has been operating in Malaysia for more than a year as the country’s first fully digital equities broker.

Rakuten Trade Sdn Bhd, a joint venture company of Kenanga Investment Bank Bhd and Japan’s Rakuten Securities Inc, was named fintech company of the year at the Malaysia FinTech Awards 2018 in March.

Rakuten Trade has already activated more than 18,000 accounts on its platform of which more than 70% of the account holders are below the age of 40.

“Rakuten Trade has become popular with investors especially first-timers to the equity broking market, which make up 46% of the total client base,” says Rakuten Trade managing director Kaoru Arai.

“Our all-in-one seamless trading platform makes it appealing to this new breed of investors who are more digitally inclined and prefer to execute their trading ideas end-to-end on their own.”

How Rakuten Trade works

The Rakuten Trade business model is premised on six value propositions that are complemented by aggressive marketing efforts that combine local insights with Japan’s best practices.

Its value propositions are as follows:

Online account opening and approval within two hours

> No hardcopy paperwork required.

> No physical visit to the branch.

> Credit/debit card part of the verification process.

> Mobile-friendly account opening page.

Japanese cutting edge mobile trading platform

> Unique platform compared to existing brokers’ mobile trading sites.

> Indices and stock prices are available for free and are not exclusive only to Rakuten Trade customers.

> Additional features available exclusively for Rakuten Trade customers.

Competitive brokerage rates

> The lowest brokerage rates in town.

Financial information

> Research reports derived from the Rakuten Trade research team.

> Hot picks for the week presented in easy to understand formats.

> Short and to the point in the form of a one-page report or 30-second YouTube video.

> Market information available to all (delayed) and live market feeds for Rakuten Trade customers (powered by Thomson Reuter).

Investor awareness and knowledge resource platform

> Knowledge and trading ideas are shared through our seminars, webinars, social influencers.

Rewards ecosystem

> Rakuten Trade customers will be rewarded with RT points that can be converted into points from Malaysia’s top three leading loyalty providers.

> First of its kind in Malaysia to successfully combine AirAsia BIG, B Infinite by Berjaya Group and BonusLink under one umbrella.

Choice of account

Rakuten Trade currently offers investors the choice of two accounts – Cash Upfront and/or Contra Account.


Cash account

> Allows you to trade based on available cash now.

> You will always know your actual cash/portfolio position.

> Available cash balance will earn 2.5% interest per annum.

Contra account

> Allows you to trade more than the money you have in your account.

> Maximises your trading exposure by offering shares as collateral.

> Available cash balance will earn 2.5% interest per annum.

> Settlement of transaction within three days after the transaction (T+3).

If you already purchase airline tickets, electronic gadgets, clothes or even groceries online without any physical intervention, why not trade online?

To learn more about trading online, go to http://www.rakutentrade.my

Source: TheStaronline

Goldman Sachs banker’s obscene commissions netted 11% from 1MDB believed to be most compelling evidence of rogue behaviour


Jho Low Has Offered A Deal To The DOJ

 

Settling the civil action would free up prosecutors to pursue the Goldman bond issued on behalf of 1MDB, which netted the bank suspiciously obsence commissions of up to 11% –  Sarawak Report

Sarawak Report has learnt that Jho Low’s new legal team, headed by the well-connected former federal prosecutor and New Jersey governor Chris Christie, has already obtained a high-level meeting with officials of the DOJ and that at that meeting they offered to come to a settlement on behalf of the fugitive Malaysian advisor to 1MDB.

This would represent an effective acknowledgement by Low, who is currently believed to be holed up in China, that he is unlikely to be able to persuade the US courts to return some $1.2 billion in assets seized from him alone, which investigators have traced to money stolen from Malaysia’s development fund.

However, by cutting a deal the billionaire, who is facing criminal charges in Malaysia, Singapore, Switzerland and elsewhere, including the United States, will be hoping to retain some of the value of the assets.
Malaysia Kept On Sidelines?

Malaysian entities have expressed concern that the United States authorities may be tempted to negotiate with Jho Low’s new, high-powered legal team, in order to close a case that could otherwise carry on for years. Notably, the US recently refused to grant a Malaysian official request for a guarantee it would return all the money back from the assets seized.

“It doesn’t mean that the United States will not return the money to Malaysia, but it does mean the US is insisting on keeping control over the process and that might include settling the case for less than the entire amount”

one person who is well versed in the matter explained to Sarawak Report. It is further understood that the approach from Jho Low’s team has not yet been formally discussed with the Malaysian authorities, who may very well react with dismay at the prospect of any settlement of this nature.

Particularly galling to Malaysians is the likelihood that Low’s new and well-connected legal advisors are being generously paid by money that was itself stolen from 1MDB. US investigators have been reported as concluding that the origin of the cash received by Christie and one of President Donald Trump’s go-to law firms, Kasowitz Benson Torres, is indeed 1MDB.

Likewise, the money sent to pay the libel lawyers Schillings in the UK, which has been doing its best to disrupt the publising othe the book The Sarawak Report as well as the Wall Street Journal’s own book in Britain, is also thought to trace back to 1MDB.
Going For Goldman Sachs

The apparent willingness of US prosecutors to discuss such matters with Low’s new team and the news that they may indeed be tempted to reach a deal, may indicate that the DOJ sleuths are already focusing on other aspects of the case, informed observers have told Sarawak Report: namely the pursuit of the banking giant Goldman Sachs. Settling the civil action would free up prosecutors to pursue the Goldman bond issues on behalf of 1MDB, which netted the bank suspiciously obscene commissions of up to 11%.

The bank has earned the anger and ill-feeling of countless Americans as a result of its pivotal role in causing the crash of 2008 and yet none of its bankers have been brought to book so far. The apparent negligence and huge sums earned through 1MDB have provided US investigators their most compelling evidence yet against what many believe to be rogue behaviour by the major bank.

It was Sarawak Report that first exposed the huge commissions being earned by Goldman Sachs from 1MDB in 2013, by publishing the terms of two so-called power purchase bonds, which together with a later third offering netted commissions totalling just under $600 million for the bank. The market price for such services was a fraction of that amount.

The former South East Asia boss, Tim Leissner has already been picked up in the United States and is understood to be cooperating with the DOJ enquiries. A new case against the global bank is where 1MDB now seems headed as it gains even more international significance.
Related:

 

Report: Jho Low Seeking Deal with DoJ — The True Net

 

Jho Low planning to negotiate deal with DOJ – Nation | The Star Online

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