US Federal Reserve rate rise, Malaysia and regional equity markets in the red


 

Fed’s big balance-sheet unwind could be coming to an early end

NEW YORK: The Federal Reserve’s balance sheet may not have that much further to shrink.

An unexpected rise in overnight interest rates is pulling forward a key debate among US central bankers over how much liquidity they should keep in the financial system. The outcome will determine the ultimate size of the balance sheet, which they are slowly winding down, with key implications for US monetary policy.

One consequence was visible on Wednesday. The Fed raised the target range for its benchmark rate by a quarter point to 1.75% to 2%, but only increased the rate it pays banks on cash held with it overnight to 1.95%. The step was designed to keep the federal funds rate from rising above the target range. Previously, the Fed set the rate of interest on reserves at the top of the target range.

Shrinking the balance sheet effectively constitutes a form of policy tightening by putting upward pressure on long-term borrowing costs, just as expanding it via bond purchases during the financial crisis made financial conditions easier. Since beginning the shrinking process in October, the Fed has trimmed its bond portfolio by around US$150bil to US$4.3 trillion, while remaining vague on how small it could become.

This reticence is partly because the Fed doesn’t know how much cash banks will want to hold at the central bank, which they need to do in order to satisfy post-crisis regulatory requirements.

Officials have said that, as they drain cash from the system by shrinking the balance sheet, a rise in the federal funds rate within their target range would be an important sign that liquidity is becoming scarce.

Now that the benchmark rate is rising, there is some skepticism. The increase appears to be mainly driven by another factor: the US Treasury ramped up issuance of short-term US government bills, which drove up yields on those and other competing assets, including in the overnight market.

“We are looking carefully at that, and the truth is, we don’t know with any precision,” Fed chairman Jerome Powell told reporters on Wednesday when asked about the increase. “Really, no one does. You can’t run experiments with one effect and not the other.”

“We’re just going to have to be watching and learning. And, frankly, we don’t have to know today,” he added.

But many also see increasingly scarce cash balances as at least a partial explanation for the upward drift of the funds rate, and as a result, several analysts are pulling forward their estimates of when the balance sheet shrinkage will end.

Mark Cabana, a Bank of America rates strategist, said in a report published June 5 that Fed officials may stop draining liquidity from the system in late 2019 or early 2020, leaving US$1 trillion of cash on bank balance sheets. That compares with an average of around US$2.1 trillion held in reserves at the Fed so far this year.

Cabana, who from 2007 to 2015 worked in the New York Fed’s markets group responsible for managing the balance sheet, even sees a risk that the unwind ends this year.

One reason why people may have underestimated bank demand for cash to meet the new rules is that Fed supervisors have been quietly telling banks they need more of it, according to William Nelson, chief economist at The Clearing House Association, a banking industry group.

The requirement, known as the Liquidity Coverage Ratio, says banks must hold a certain percentage of their assets either in the form of cash deposited at the Fed or in US Treasury securities, to ensure they have enough liquidity to deal with deposit outflows.

The Fed flooded the banking system with reserves as a byproduct of its crisis-era bond-buying programs, known as quantitative easing, to stimulate the economy. The money it paid investors to buy their bonds was deposited in banks, which the banks in turn hold as cash in reserve accounts at the Fed.

In theory, the unwind of the bond portfolio, which involves the reverse swap of assets between the Fed and investors, shouldn’t affect the total amount of Treasuries and reserves available to meet the requirement. The Fed destroys reserves by unwinding the portfolio, but releases an equivalent amount of Treasuries to the market in the process.

But if Fed supervisors are telling banks to prioritise reserves, that logic no longer applies. Nelson asked Randal Quarles, the Fed’s vice-chairman for supervision, if this was the Fed’s new policy. Quarles, who was taking part in a May 4 conference at Stanford University, said he knew that message had been communicated and is “being rethought”.

If Fed officials do opt for a bigger balance sheet and decide to continue telling banks to prioritise cash over Treasuries, it may mean lower long-term interest rates, according to Seth Carpenter, the New York-based chief US economist at UBS Securities.

“If reserves are scarce right now, and if the Fed does stop unwinding its balance sheet, the market is going to react to that, a lot,” said Carpenter, a former Fed economist. “Everyone anticipates a certain amount of extra Treasury supply coming to the market, and this would tell people, ‘Nope, it’s going to be less than you thought’.” — Bloomberg

Malaysia and regional equity markets in the red

 

In Malaysia, the selling streak has been ongoing for almost a month. As of June 8, the year to date outflow
stands at RM3.02bil, which is still one of the lowest among its Asean peers. The FBM KLCI was down 1.79 points yesterday to 1,761.

PETALING JAYA: It was a sea of red for equity markets across the region after the Federal Reserve raised interest rates by a quarter percentage point to a range of 1.75% to 2% on Wednesday, and funds continued to move their money back to the US. This is the second time the Fed has raised interest rates this year.

In general, markets weren’t down by much, probably because the rate hike had mostly been anticipated. Furthermore for Asia, the withdrawal of funds has been taking place over the last 11 weeks, hence, the pace of selling was slowing.

The Nikkei 225 was down 0.99% to 22,738, the Hang Seng Index was down 0.93% to 30,440, the Shanghai Composite Index was down 0.08% to 3,047.34 while the Singapore Straits Times Index was down 1.05% to 3,356.73.

In Malaysia, the selling streak has been ongoing for almost a month. As of June 8, the year to date outflow stands at RM3.02bil, which is still one of the lowest among its Asean peers. The FBM KLCI was down 1.79 points yesterday to 1,761.

Meanwhile, the Fed is nine months into its plan to shrink its balance sheet which consists some US$4.5 trillion of bonds. The Fed has begun unwinding its balance sheet slowly by selling off US$10bil in assets a month. Eventually, it plans to increase sales to US$50bil per month.

With the economy of the United States showing it was strong enough to grow with higher borrowing costs, the Federal Reserve raised interest rates on Wednesday and signalled that two additional increases would be made this year.

Fed chairman Jerome H. Powell in a news conference on Wednesday said the economy had strengthened significantly since the 2008 financial crisis and was approaching a “normal” level that could allow the Fed to soon step back and play less of a hands-on role in encouraging economic activity.

Rate hikes basically mean higher borrowing costs for cars, home mortgages and credit cards over the years to come.

Wednesday’s rate increase was the second this year and the seventh since the end of the Great Recession and brings the Fed’s benchmark rate to a range of 1.75% to 2%. The last time the rate reached 2% was in late 2008, when the economy was contracting.

“With a slightly more aggressive plan to tighten monetary policy this year than had previously been projected by the Fed, it will narrow our closely watched gap between the yield rates of two-year and 10-year Treasury notes, which has recently been one of a strong predictor of recessions,” said Anthony Dass, chief economist in AmBank.

Dass expects the policy rate to normalise at 2.75% to 3%.

“Thus, we should potentially see the yield curve invert in the first half of 2019,” he said.

So what does higher interest rates mean for emerging markets?

It means a flight of capital back to the US, and many Asian countries will be forced to increase interest rates to defend their respective currencies.

Certainly, capital has been exiting emerging market economies. Data from the Institute of International Finance for May showed that emerging markets experienced a combined US$12.3bil of outflows from bonds and stocks last month.

With that sort of global capital outflow, countries such as India, Indonesia, the Philippines and Turkey, have hiked their domestic rates recently.

Data from Lipper, a unit of Thomson Reuters, shows that for the week ending June 6, US-based money market funds saw inflows of nearly US$34.9bil.

It makes sense for investors to be drawn to the US, where the economy is increasingly solid, coupled with higher yields and lower perceived risks.

Hong Kong for example is fighting an intense battle to fend off currency traders. Since April, Hong Kong has spent at least US$9bil defending its peg to the US dollar. Judging by the fact that two more rate hikes are on the way this year, more ammunition is going to be needed.

Hong Kong has the world’s largest per capita foreign exchange reserves – US$434bil more in firepower.

By right, the Hong Kong dollar should be surging. Nonetheless, the currency is sliding because of a massive “carry trade.”

Investors are borrowing cheaply in Hong Kong to buy higher-yielding assets in the US, where 10-year Treasury yields are near 3%.

From a contrarian’s perspective, global funds are now massively under-weighted Asia.

With Asian markets currently trading at 12.3 times forward price earnings ratio, this is a reasonable valuation at this matured stage of the market.

By Tee Lin Say StarBiz

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PBOC Seen Mirroring Fed With Hike While Keeping Other Taps Open  Bloomberg

  

Foreign investors more willing to hold yuan assets: FX regulator

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 Faster Indian Inflation Puts Analysts on Watch for Rate Hike – Bloomberg

Abenomics’ impact fading at sensitive moment for Japanese economy –
Business News

 

Bank Negara governor a short but memorable stint – Business News | The Star Online

Malaysia should first check yen loan terms, advises economist – The Star

 

 

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Trapped in US-China trade war when 2 elephantine economices fight …


Tit for tat: The trade scuffle between US and China threatened to escalate to a full-scale war when Beijing fired back with punitive taxes on a wide range of US goods entering China – Reuters

The dispute between the two countries is real and has escalated. Malaysia is feeling the heat, but its palm oil sector is set to shine in this conflict.

THE US-China trade war drummed up by Washington last month threatened to escalate to a fullscale confrontation when Beijing fired back last week with punitive taxes on a wide range of US goods entering China.

And Malaysia, being an open economy with huge exports to China and the United States, is feeling the heat of the tit-for-tat measures rolled out by the two largest economies in the world.

President Donald Trump has given several reasons to act against China. A key reason is trade imbalance and US large trade deficit, which he attributed to China.

In 2017, China exported US$505bil (RM1.95 trillion) in goods to the United States, which in turn exported US$135bil (RM522.4bil) in goods to China.

The Trump administration has also alleged that China sought to misappropriate US intellectual property through joint venture requirements, unfair technology licensing rules, purchases of US technology firms with state funding and outright theft.

Last month, Trump slapped Beijing with punishing tariffs on the import of steel and aluminium products, and warned that there would be higher taxes on about 1,300 Chinese products worth US$50bil (RM193.5bil).

China, which has often stated that it does not want a trade war as it would hurt all, retaliated last Monday by imposing additional duties of 15% to 25% on 128 US products worth up to US$3bil (RM11.6bil). Pork, recycled aluminium, steel pipes, wine and fruits are on the list.

After being criticised by its own elites that it was too soft in its retaliation, China’s State Council announced on Wednesday that it planned to impose additional tariffs of 25% on 106 US products into the country, including soybeans, aircraft and cars. The import value of the goods on the list in 2017 was US$50bil.

Beijing’s Wednesday response came soon after the US Trade Representative Office released details of 1,333 Chinese imports worth about US$50bil that it planned to hit with 25% tariffs, with emphasis on industrial and hi-tech goods.

Global Times, the official mouthpiece of the Communist Party of China (CPC), said in an editorial on Wednesday before its State Council’s statement: “China’s countermeasures should deal a heavy blow, hitting what the United States fears most. We strongly recommend starting with US soybeans and corn products. The ruling GOP will pay a huge price.”

It noted that nervous US soybean farmers, who were big supporters of Trump during the presidential campaign in 2016, had run advertisements to oppose launching a trade war against China.

China’s former finance minister Lou Jiwei reportedly said at a recent forum: “If I were in the government, I would hit soybeans first, and then cars and planes.”

By imposing punishing tariffs on US soybeans, Beijing will hurt US major farmers, given that China was the second largest importer of US agricultural products last year, buying US$19.6bil (RM73.5bil) of goods with 63% spent on soybeans.

As reducing US soybean imports would leave a shortfall for Chinese edible oil consumption and animal feed, this would need to be filled by imports from other countries. One source could be palm oil from Malaysia.

“Malaysia’s palm oil growers would stand to enjoy a windfall gain if China reduces the intake of soybeans from the United States, though our competitors like Indonesia also hope to sell more to China,” says economist Lee Heng Guie, executive director of SocioEconomic Research Centre (SERC).

In fact, the futures contracts of Malaysian crude palm oil (CPO) rose on Wednesday after China’s announcement. The positive impact on CPO prices continued on Thursday.

However, the local stock market – like other markets in the region – plummeted, as many investors believed more tit-for-tat measures covering more industries would be unveiled in this spat. The FBM KLCI lost 1.88% to close at its nineweek low of 1,815.94 points.

The local stock market has been weakening due to fear of this trade war. The technology stocks are particularly jittery as the US tariffs are seen as targeting mainly the Chinese electrical and electronic (E&E) and machinery sectors.

“In our view, the sectors that could be affected by the US-China trade war due to recently proposed import tariffs are semiconductors, building materials and ports in Malaysia,” said CIMB Research in a report on Thursday.

As Malaysia exports many E&E products and parts to China, local players within this supply chain are likely to feel the heat.

“We estimate Malaysia’s ultimate exposure to the United States – including via intermediate goods to China for assembly into final products destined for the United States – at 10% of GDP, about half of which is in electronics products,” Nomura Research says, adding that another 8% is exposed to China’s final demand.

While exports to China account for 13.5% of total annual exports of Malaysia, exports to the United

States make up 9.5%. And E&E products form the biggest export item to both countries.

Nomura sees US trade protectionism and a sharper-than-expected slowdown in China as posing risks to the Malaysian economy, as exports account for 71% of its GDP.

This trade conflict has been listed by Moody’s as a global risk this year.

Consultancy Oxford Economics says the escalation of the trade war could knock 0.5% off global growth in 2019.

Although earlier this year many analysts and business groups in the United States had warned that Washington would not win in this trade war, Trump charged ahead nevertheless.

The modern and economically mighty China, under President Xi Jinping, will punch back decisively and swiftly, many have warned.

The pain points of China are not easy to find. Over a decade ago, Beijing had realised it could not rely on the low value-adding export processing industries.

The country is now focusing on developing its high-technology sector and expanding the domestic consumer market to cut down on reliance on exports.

With so many odds against America, why would Trump insist on taking on China?

According to an analysis by Hong Kong-based International Chinese Newsweekly, the rise of American nationalism and Trump’s gearing up for the mid-term elections is the key reason for the president’s plunge into a trade war.

His focus is on midterm elections and keeping a Republican majority in Senate and Congress. But he will have to deal with the possible backlash from the first round of USChina trade war once it goes full on.

Apart from the soybean sector, the United States’ aircraft and automobile sectors will be hit.

According to South China Morning Post, Boeing Corporation delivered 202 planes to China in 2017, or 26% of its global total. The company has projected that in the next 20 years, China will need 7,240 new planes valued at about US$1.1 trillion (RM4.26 trillion).

On the auto sector, the United States sold more than US$10bil (RM38.7bil) worth of vehicles to China. Last year, General Motors sold 3.9 million cars to China, or almost 39% of its global total. The company expects sales in China to grow to five million by 2020.

The Hong Kong newspaper also warned that if China discourages its nationals from visiting the United States, the impact on US tourism will be painful.

In 2016, three million Chinese visitors and students spent US$33bil (RM127.7bil) while in the United States. The US Department of Commerce expects Chinese visitors rise to 5.7 million by 2021.

The other weapon China could weild against Washington is off-loading its US treasury bonds. This will have an impact on the dollar and US interest rate.

Bejing’s holding of US treasury bonds was close to US$1.2 trillion (RM4.6 trillion) at end-2017.

How long the current trade tension will last is anybody’s guess, given Trump’s unpredictable character. The world still remembers that he showered Xi with praises before turning his back on China.

But one thing is certain: if US protectionism and the trade war escalates, it will hurt not only the two major economies, but also countries which have trade links with the two powers.

“The global repercussions will be highly disruptive and damaging on trade and economy if the US-China trade war deepens and impacts more products and countries. In such widespread trade conflicts, Malaysia’s trade will be significantly dampened,” says Lee from SERC.

By Ho Wah Foon The Star


When 2 elephantine economies fight

Upping the stakes: Trump has ordered his
administration to consider imposing tariffs on an additional US100bil of
Chinese imports. Chinese President Xi Jinping had earlier hit back with
US50bil worth of tariffs on US imports.

Will Malaysia be caught in the middle?

The trade war between the world’s two largest economies is not showing any sign of stopping just yet.

US president Donald Trump initiated the trade confrontation by announcing additional 25% tariffs on Chinese imports worth US$50bil, citing China’s unfair trade advantage. In retaliation, China initially announced higher tariffs on US$3bil imports from the US, but later raised it to US$50bil.

Now, Trump has ordered his administration to consider imposing tariffs on an additional US$100bil of Chinese imports.

While it remains to be seen whether these tit-for-tat announcements will materialise or eventually fizzle out, economists and fund managers generally agree that the US-China trade fight will affect Malaysia’s local industries and several stocks on Bursa Malaysia.

However, they differ on the extent of the impct from the escalating trade war.

In an email interview with StarBizWeek, Asian Strategy and Leadership Institute research and business development director Lau Zheng Zhou says that Malaysia will be hit with losses in trade opportunities, as both the US and China constitute 25% of Malaysia’s total trade.

He points out that investors may adopt a “wait-and-see” approach, which could cause certain sectors to slow down and hence disrupt manufacturers’ resource planning and projection.

“As opposed to exporting finished goods, Malaysian exports have footprints along an extensive supply chains across sectors in Asia such as automobiles, electronics, oil and gas, and machinery.

“With heavy tariffs being imposed by the US, Malaysian firms will be slapped with rising input costs and therefore falling demand for their value-added component products.

“Our logistics sector may also be affected if global trade slows down.

“But China’s tariffs imposed on the US may not directly impact Malaysia as it is strategically designed to cause damage to the US agricultural producers,” he says.

On the other hand, Malayan Banking Bhd group chief economist Suhaimi Ilias indicates that the potential impact from the US-China trade spat is small, or only 0.3% of total trade value, at this juncture

However, greater risks could arise if the additional tariffs spill into services trade and investment.

“In any case, US tariffs on solar panels, steel and aluminum will have some impact on Malaysia but we understand that the International Trade and Industry Ministry is seeking exemptions for these since Malaysia is in talk with the US on the Trade and Investment Framework Agreement (TIFA) as an alternative following the US pulling out of the Trans-Pacific Partnership.

“Meanwhile, China’s tariffs on US products may result in some trade diversions or substitutions that may result in increase demand for Malaysian products from China, and one potential area is chemical or petrochemical products which is a major industry and export for Malaysia,” states Suhaimi.

Currently, the Trump administration has proposed a long list of 1,333 items, which would see the imposition of an additional 25% tariff.

These items include robotics, aircraft seats, machine parts, semiconductors, communication satellites and television components, among others.

It is worth noting that there will be 60 days of public review before the tariffs take effect. Observers believe both China and the US will re-negotiate their trade terms during this period in order to prevent a full-fledged trade war.

More items affected

In the event of the US government imposing tariffs on the additional US$100bil worth of Chinese imports as per Trump’s suggestion, more items will be affected.

China, on its part, has announced that it will slap a similar 25% additional tariff on 106 products from the US, which include soybean, automobiles, chemicals and aircraft.

According to Lau, China’s tariffs are well-targeted to hurt rural, agriculture-dependent communities who were big supporters of Trump during the 2016 presidential election.

Many companies in Malaysia have been involved in the export of raw materials and intermediate goods to China and the US, which are later re-packaged or used in the production of other finished goods.

These finished goods, in turn, are exported by both China and the US to one another as well as to other countries.

Indirectly, the Sino-US trade spat will affect these exporting companies from Malaysia.

Suhaimi calls for accommodative monetary policy and the implementations of major investment and infrastructure projects to buttress Malaysia’s economic activities, if the trade dispute continues to worsen.


Fund managers’ take

Fortress Capital chief executive officer Thomas Yong says that the Malaysian semiconductor sector will be most negatively affected due to the trade spat.

“This is because most semiconductor companies in Malaysia export intermediate semi-conductor components to end-product manufactures in the US, and a tariff on these end-products could indirectly lower the demand from these component players,” he says.

He cautions investors to monitor the ongoing trade war between the US and China closely.

“If the tariffs are implemented, the impact will be very detrimental to the ongoing global growth recovery.

“A trade war will negatively affect stock valuations all around the world,” he says.

Similar to Yong’s perspective, Areca Capital chief executive officer Danny Wong also reckons that export-based Malaysian businesses in the electrical and electronics domain could be affected, especially if their exposure to both China and the US is significantly large.

However, both fund managers believe that the Sino-US trade spat may not be entirely bad for companies in Malaysia.

Wong tells StarBizWeek that the US’ Federal Reserve (Fed) may take necessary actions to remedy any unwarranted implications to the economy.

“If the trade war continues to prolong and ultimately weigh down global growth and trade, it could affect the Fed’s future actions.

“Hence, there is a likelihood for the Fed to put the expected interest rate hikes on hold.

“In the event of such decision, dividend stocks in Bursa Malaysia will definitely benefit.

“On top of that, the real estate investment trust (REIT) stocks will also benefit from the situation, as Reits thrive in the low interest rate environment,” he says.

Meanwhile, Fortress Capital’s Yong adds that stocks related to palm oil production may also benefit from the trade spat.

“Since crude palm oil (CPO) is a substitute for soybean oil, the Chinese tariff on American soybeans can potentially allow China to substitute to CPO to meet their vegetable oil consumption needs, in turn supporting the demand and prices for CPO.

“As Malaysia and Indonesia both account for more than 80% of global palm oil supply, oil plantation companies from these two countries could potentially benefit from the much needed price boost amid the current soft CPO price.

“However, it remains uncertain if China will substitute all of the current soybean oil consumption to CPO, as there are quite a number of other vegetable oils available in the market,” he says.

Earlier, StarBiz reported that the American Malaysian Chamber of Commerce (Amcham) believes Malaysia may see an increased amount of foreign investments, particularly from the US, if the brewing trade war between the US and China escalates further.

Businesses from the US and other countries could make Malaysia an alternative regional production hub for several goods instead of China, to avoid the additional tariffs imposed by the US on products imported from China.

The additional 25% tariff levied on the imports from China would likely make Chinese goods pricier. Under such circumstances, global manufacturers may opt to establish their operations in Malaysia or outsource their production to a domestic company.

Commenting on whether the Sino-US trade war will place Malaysia as an alternative to China in the eyes of investors, Lau says it is not reasonable for investors to do so.

“However, the trade spat may rather increase foreign direct investments, especially from China, in industries with heavy use of steel and aluminium or value-added manufacturing of innovative consumer products.

“This can avoid a ban, restrictions or high tariffs on products which are associated with China,” he says.

By Ganeshwaran Kana The Star

 

Related news:

Xi Takes Center Stage to Defend China’s Trade From … – Bloomberg

 

All ears for Xi’s crucial speech at Boao Forum, East Asia News & Top …

China forex reserves rise slightly as U.S. dollar weakness continues

China should remain cautious over softened Trump trade tone

China should fight the trade war as it did the Korean War

China won’t submit to US trade intimidation

Trade counterstrikes give US painful lessons to learn

Washington must pay a dear price for a trade war

US attempt to coerce China too perilous

Export numbers blind over US company branches in China

Washington suffers from IP-theft paranoia

Lost cause: An employee arranging imported American apples for sale at a grocery store in Beijing, President Donald Trump says the US lost a trade war with China ‘years ago’. In a tweet Wednesday after China announced a list of US products that might be subject to a 25 tariff, Trump said: ‘We are not in a trade war with China, that war was lost many years ago by the foolish, or incompetent, people who represented the US.’ — Bloomberg
Trade war – more of letting off hot air so far – Business News

China to fight back US trade tariffs ‘at any cost’ – Business New

China vows to fight US ‘at any cost’ after Donald Trump threatens $100B ..

 China’s import tariff on US soybean can support CPO prices – Business News

 

 

Sign of good faith: Mustapa receiving the Amcham survey report from Wong (right) and Das at the Asia-Pacific Council of American Chambers of Commerce Summit.US-China trade spat good for Malaysia – Business News

US tariff to have little impact on global economy

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Trade War! US Trade Protectionism

China’s plan to lead the globe?

Tailwinds and headwinds into 2018


 

2017 was a year of smooth tailwinds, even though everyone was
mesmerized by the Trump reality show. Heading into 2018, one issue on
everyone’s minds is whether headwinds will finally catch up when the
tide goes out.

ALL markets function on a heady mix between greed and fear. When the markets are bullish, the investors know no fear and regulators think they walk on water. When fear grips the markets, and everyone is staring at the abyss, all eyes are on the central banks whether they will come and rescue the markets.

Last year was one of smooth tailwinds, even though everyone was mesmerised by the Trump reality show.

Heading into 2018, one issue on everyone’s minds is whether headwinds will finally catch up when the tide goes out.

Last week at a Tokyo conference, Fed vice chairman Randy Quarles was visibly confident about the US economy. Real gross domestic product (GDP) growth through the final three quarters of 2017 averaged almost 3%, faster than the 2% average annual pace recorded over the previous eight years.

The European recovery, barring Brexit, looked just as rosy. Eurozone growth has stepped up to 2.7% in 2017, with inflation at around 1.2% and unemployment down to 8.7%, the lowest level recorded in the eurozone since January 2009.

In Asia, 2017 Chinese GDP grew by 6.9% to 59.7 trillion yuan or US$9.4 trillion, just under half the size of the United States. With per capita GDP reaching US$8,836, China is expected to reach advanced country status by 2022.

Meanwhile, the Indian economy has recovered from its stumble last year and may overtake China in growth speed in 2018, with an estimated rate of 7.4%.

The tailwinds behind the growth recovery seem so strong that the IMF’s January world economic outlook for 2018 sees growth firming up across the board. The IMF’s headline outlook is “brighter prospects, optimistic markets and challenges ahead.”

Expressing official prudence, “risks to the global growth forecast appear broadly balanced in the near term, but remain skewed to the downside over the medium term.”

Having climbed almost without pause in most of 2017 to January 2018, the financial markets skidded in the first week of February. On Feb 5, the Dow plunged 1,175 points, the biggest point drop in history. The boom in 2017 was too good to be true and fear came back with the re-appearance of volatility.

Amazingly, the drop of around 11% from the Dow peak of 26,616 on Jan 26 to 23,600 on Feb 12 was followed by a rebound of 9% in the last fortnight.

Global stock market indices became highly co-related as losses in Wall Street resulted in profit taking in other markets which then also reacted in the same direction.

Will headwinds disrupt the market this year or will there be tailwinds like the economic forecasts are suggesting?

What makes the reading for 2018 difficult is that the current buoyant stock market (and weak bond market) is driven less by the real economy, but by the current loose monetary policy of the leading central banks.

With clearer signs of firming real recovery, central banks are beginning to hint at removing their decade long stimulus by cutting back their balance sheet expansion and suggesting that interest rate hikes are in the books.

The projected three hikes for Fed interest rates in 2018 augur negatively on stock markets and worse on bond markets.

The broad central bank readout is as follows.

The Bank of England and the Fed are leaning on the hawkish side, the European Central Bank (ECB) is divided and the Bank of Japan will still be on the quantitative easing stance.

In his first testimony to Congress, the new Fed chairman Jay Powell was interpreted as hawkish. In his words, “In gauging the appropriate path for monetary policy over the next few years, the FOMC will continue to strike a balance between avoiding an overheated economy and bringing PCE price inflation to 2% on a sustained basis. In the FOMC’s view, further gradual increases in the federal funds rate will best promote attainment of both of our objectives.”

What is more interesting is the divided stance facing the ECB. In his latest statement to the European Parliament, ECB president Mario Draghi reaffirmed that the eurozone economy is expanding robustly. Because inflation appears subdued, although wage growth has picked up, he argued that “patience and persistence with respect to monetary policy is still needed for inflation to sustainably return to levels of below, or close to, 2%.”

In an unusually critical and almost unprecedented article published last month by Project Syndicate, the former ECB Board member and deputy president of the Bundesbank Jurgen Stark called the ECB “irresponsible”, suggesting that its refusal to normalise policy faster is drastically increasing the risks to financial stability. In short, the bigger partners in Europe think tightening is the right way to go.

If both central banks begin to reverse their loose monetary policy and unwind their balance sheets, liquidity will become tighter and interest rates will rise.

Financial markets have therefore good reason to be nervous on central bank policy risks.

There is ample experience of mishandling of policy reversals.

After the taper tantrum of 2014, when markets fell on the fear of the Fed unwinding too early and too fast, central bankers are particularly aware that they are walking a delicate tightrope.

If they reverse too fast, markets will fall and they will be blamed. If they reverse too slow, the economy could overheat and inflation will return with a vengeance, subjecting them to more blame.

In the meantime, trillions of liquid funds are waiting in the sidelines itching to bet on market recovery at the next market dip. But this time around, it is not the market’s invisible hand, but visible central bank policies that may pull the trigger.

Man-made policies will always be subject to fickle politics. The raw fear is that once the market drops, it won’t stop unless the central banks bail everyone out again. This means that central bankers are still caught in their own liquidity trap. Blamed if you do tighten, and damned by inflation if you don’t.

There are no clear tailwinds or headwinds in 2018 – only lots of uncertain turbulence and murky central bank tea leaves. Fear and greed will dominate the markets in the days ahead.


Andrew Sheng is distinguished fellow, Asia Global Institute at the University of Hong Kong.

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Market weighed by external pressures | KLSE Screener

 

US Fed’s Powell nods to stronger economy, backs … – KLSE Screener

 

Bitcoin must not in your retirement financial planning portfolio


Bitcoin investments have undeniably become a trend among savvy investors in search of the golden goose, but one financial planner is against the use of it as part of the financial planning portfolio for retirement.

Max Growth Wealth Education Sdn Bhd managing director Nicholas Chu said one should not use bitcoin as part of the retirement portfolio and the public must be well aware of the risk in bitcoin trading before getting in.

“It is not asset-backed, it is very unsecure. It is, basically, you want to participate in the future changes. It’s not a proper financial planning way. It is just an experimental thing that you want to go through in this era, but it is not a proper investment product,” he told SunBiz.

“I definitely don’t agree if they use this for their financial planning. But for those who are able to try new ventures, they can go ahead provided they have extra money. If this doesn’t affect their existing financial planning, then I’ll leave it to them. We need to tell them the pros and cons of this investment. It’s up to the clients to do the final decision,” he said.

Chu cautioned on the uncertainties of bitcoin trading, which is driven by market forces.
“It is beyond anybody’s control, all the participants contribute to the bitcoin value. From that, I can say that there are a lot of uncertainties in the future,” he said.

Nonetheless, with the setting up of a few bitcoin exchanges, Chu noted that there will be demand and supply with tradeable markets available.

Bitcoin was the best-performing currency in 2015 and 2016, with a rise of 35.8% and 126.2% respectively.

Year to date, bitcoin prices have leaped more than three times. It stood at US$2,840 (RM12,140) as at 5pm last Friday.

Bitcoins are by the far the most popular cryptocurrency, which exists almost wholly in the digital realm and has no asset backing it. Bitcoin generation, known as mining, while open to anyone with a “mining application” on their computer, needs a great deal of computing power to solve complex algorithms which are later verified with the entire bitcoin network.

Colbert Low, founder of bitcoinmalaysia.com, said the recent spike in bitcoin prices could be partly due to the legalisation of bitcoin by the Japanese government.

He is unsure if the sharp rise in bitcoin prices will create a price bubble, but stressed that one cannot judge its price movement based on the “old economic theory”.

“This is a new economy based on a different model. It’s very hard to say,” Low opined, noting that there has been a growing number of retail outlets that accept bitcoin.

He foresees the usage of bitcoin propagating, especially in different types of payment methods.

However, Low opined that there will not be any “big movement” in the local market if the regulators do not regulate bitcoin.

“Our new Bank Negara governor is forward thinking and he is very much into fintech, technology and innovation. So there would definitely be improvement,” Low said.

The positive development of blockchain will be a catalyst for the growth of bitcoin, he added.

“Blockchain is a real thing that will change the way the IP system is architectured. We need to go down to a deeper level to see how blockchain can change the current problem and solve it.

“There are a lot of projects right now, over 500 companies are looking at this (blockchain) right now. Even IBM, HP and Microsoft are looking at it.”

Blockchain refers to distributed database that maintains a continuously growing list of records, called blocks, secure from tampering and revision. Bitcoin is just an application or software that runs on blockchain technology.

“If you look at blockchain technology, government agencies like the United Nations, the World Bank and the International Monetary Fund are looking at it. This is the best way to secure your data,” Low said, noting that the usage of bitcoin will help reduce operating cost.

Currently, there are about 16 million bitcoins in the market and the number is capped at 21 million.

Bank Negara has said that it does not regulate the cryptocurrency and advised the public to be cautious of the risks associated with the usage of such digital currency.

Source: By Lee Weng Khuen sunbiz@thesundaily.com

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What is a BitCoin? Explained – Tech Tip Irrational exuberance is alive and well. A textbook bubble in Bitcoin prices is developing… 

Never-ending money games – from fixed return to split schemes


The allure of money game schemes (or money games) seems not to have diminished despite the collapse of many recently.

Instead, there has been a switch in investors’ focus from fixed-return games to split games, which are deemed “more sustainable”.

Fixed-return schemes generally refer to those that give a consistent percentage of return every month or week. However, most of them have collapsed lately.

Investors’ attention is now centred on split games, even though this means they have to wait for a longer period in order to get back their capital.

Mcoin, which is undertaken through MBI International Sdn Bhd and MFace International Sdn Bhd, is an example of a split game based on units of which the value keeps increasing and then split after a certain time.

However, with the raid of MBI’s flagship mall – M Mall in Penang – by the regulators recently, its days look to be numbered, and the sustainability of such schemes is now a big question.

Another prominent split game – Mama Captain, which has a similar business model to that of Mcoin – has also been red-flagged by Bank Negara last Thursday under the Financial Consumer Alert List. An additional 14 companies have been added to the list, bringing the total number of unapproved and unlicensed companies/schemes to 334 as at June 29.

Besides the local ones, there are several foreign schemes in the market, which investors expect to have more staying power than the fixed-return schemes. Two such schemes from China – Smart Traders Ltd and Centennial Coin of Prosperity – have been in operation in Malaysia since last year. However, it is understood that they have stopped distributing returns to their investors.

This, however, appears not to have deterred those who are lured by the promise of fast money. This is evidenced by the huge crowd seen at an event organised by a split game company a few weeks ago in Shah Alam. It was estimated that over 2,000 participants were present and most of them were Chinese investors.

A number of booths were set up at the venue, and investors were able to redeem a variety of stuff, including vouchers, health products, apparels and many more.

An investor whom SunBiz spoke to at the event said he is unfazed by the collapse of money games and is optimistic about the prospects of the split game that he is involved in.

The investor said he has been in the scheme for more than nine months and now it has started to bear fruit.

“Generally, it takes about two months to split once and we can start generating money after it splits for four times. Now I start to get money from the scheme. While you’ve to wait for some time before getting any return, I think it is still worth to join,” he opined.

It is understood that the scheme has tied up with a few product operators to increase its attractiveness.

Another investor, Alan Mu, said he was amazed by the event. “The gala dinner is so grand and there are so many products that I can redeem by participating in this scheme,” he said.

Another scheme that has caught the market’s attention is SV International (SVI), a company that Yong Tai Bhd has denied having links to. Yong Tai alleged that SVI circulated photos taken during a signing ceremony on SVI’s website as well as the social media, for which there was no official agreement entered into between the two parties thereafter.

Yong Tai also refuted speculation that SVI has a stake in its Impression City and Impression Melaka projects.

By Lee Weng Khuen sunbiz@thesundaily.com

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Millennials Will Destroy Bitcoin


Irrational exuberance is alive and well.

A textbook bubble in Bitcoin prices is developing right now.
And it has everything to do with Bitcoin’s investors.
Bitcoin Bubble
I’m probably not going to gain any friends with this perspective. But there are inarguable factors that suggest Bitcoin’s own buyers are irrationally driving up prices. And their
exuberance is setting the market up for a crash.
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Let me clear one thing up about Bitcoin before I explain why I think prices are eventually headed for a crash…
As I argued before, Bitcoin is a legitimate form of money. But for the time being, it’s being treated as a speculative investment.
Money is typically used in exchange. And while Bitcoin can be used in exchange, it’s largely not. Gary Schneider, Professor of Accounting at California State University, says only about 10% of Bitcoin is held by people who use it as currency. The large majority are
speculators hoping to sell at higher prices.
The fact that the market is dominated by speculators is not necessarily the problem for Bitcoin. And here’s where I’m sure to piss some people off… The problem for Bitcoin is its
buyers.
Who are they?
Well, according to a recent survey, approximately 60% of Bitcoin owners are under 35 years old.
Bitcoin User Age
In short, most Bitcoin buyers are millennials. And that’s all we need to know about them to make an inarguable point (told you I wouldn’t be making any friends here).
The fact is this: A 35-year-old speculator intrinsically has much less experience in risk management than a 60-year-old. And remember, most Bitcoin owners are mostly speculators, as opposed to users of the product.
AND remember they’re speculating on a currency, which is among the most volatile of financial instruments.
AND remember they’re speculating on what essentially amounts to a new, experimental currency.
All this considered, Bitcoin looks to me as one of the (if not the) most speculative financial instruments available…
Expect for Bitcoin’s derivatives, of course.
Yes, believe it or not, Bitcoin has a futures market. And there are products that offer even more risk. On its Perpetual Bitcoin/USD Swap Contracts, BitMEX offers up to 100x
leverage!
But to really understand why I think Bitcoin is eventually headed for a crash, let’s consider the most famous market bubble in history…
Dutch Tulip Mania
In the 17th century, formal futures markets developed in the Dutch Republic, providing the infrastructure for a massive bubble in the price of tulip bulbs.
The tulip first became fashionable in France, where early modern ladies of the aristocracy began sporting the flower on their dresses. From there, the tulip became the flower to show off social status and wealth. The demand for bulbs subsequently
skyrocketed, and prices immediately followed.
At the peak of Tulip Mania in 1637, a single tulip bulb could cost as much as 10,000 gilders, the price of a nice middle-class townhouse in Amsterdam. According to one author, 12 acres of land was once offered for one rare bulb. For a flower bulb!
Semper Augustus The Semper Augustus was the most coveted of all Dutch tulips.
Of course, the bubble eventually burst. The price of tulip bulbs collapsed, and fortunes in perceived value disappeared over night.
My team of researchers recently uncovered a key patent that exposes a major chink in Tesla’s armor…
This patent describes a groundbreaking
technology that could simply blow Elon Musk, and frankly the entire
solar industry, out of the water.
We’ve managed to uncover the tiny company
with exclusive rights to this technology. It trades at less than $0.15 a
share, but don’t expect it to stay there for long.
Over the next several years, I believe the value of this firm could absolutely explode… by my calculations, upwards of 4,600%.
I’ve included the patent filing and everything you need to know about this small company in this brief, free video presentation.
Here’s what I really want you to take away from this story…
If we consider whom the people were who took part in Dutch Tulip Mania and compare them to the majority of Bitcoin owners, it seems both groups share the same shortcomings.
First, we know both groups are speculators betting on the hot new product. But I think we can also make good assumptions to compare the investment sophistication of the Dutch tulip investors and today’s Bitcoin buyers.
Because formal futures markets were only recently developed, the Dutch tulip buyers were inherently unsophisticated investors. All of them. They simply didn’t have the
experience.
The majority of today’s Bitcoin buyers are generally younger, so they share the same inexperience. For many Bitcoin buyers, I imagine it represents their first real investment. They simply don’t have experience in risk management. And I think that’s pretty clear considering some are buying products with 100x leverage!
Bitcoin could be the tulip of the 21st century with the development of a textbook bubble. And I think could be setting itself up for an eventual crash.
Now, even though I’ve been talking about a crash in Bitcoin prices, there’s an epilogue to the Dutch tulip story that’s often overlooked… and that actually provides a bullish outlook for the technology.
Truth is, the Dutch tulip bubble never really ended… it evolved. The price of tulip bulbs collapsed in the 17th century. But the flower industry at large eventually recovered and
has never been bigger. Global floral production value is currently estimated at $55 billion.
People still pay thousands for rare flowers. In fact, an anonymous buyer paid over $200,000 for a rare orchid in 2005. And that’s not even considered the most expensive flower in the world. Rose breeder David Austin spent 15 years and $5 million to develop Juliet rose.
Juliet rose
My point is, the tulip as an individual product lost favor. But the collapse of the tulip  market didn’t completely kill the flower market. In the same way, I don’t expect a
collapse of Bitcoin prices to completely kill the blockchain-based currency market.
Bitcoin is simply one product of many blockchain-based currencies. A crash in Bitcoin would throw a wrench in the blockchain-based revolution. But there is little doubt that blockchain technologies are the future.
As we speak, every major central bank and large financial institution is researching how to implement blockchain into its own systems. It has already been proven to eliminate
verification redundancies and improve security, and new applications are
being tested every day.
So while I think Bitcoin itself could eventually be headed for a crash, the blockchain technologies that are supporting all these digital currencies seem set for unprecedented
growth.
Until next time,
luke signature
Luke Burgess
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Bitcoin, digital currencies rally, caution prevails; virtual currency in property


Bitcoins As Digital Currency's Rally Crushed Every Other Currency in 2016
A collection of bitcoin tokens. Bloomberg—Bloomberg via Getty Images

Digital currencies rally, but caution prevails

While investing in the future is the way to go, it comes with risks and rewards. The best strategy would be to not be in a rush. Do your homework.

THIS week, the rally in crypto currencies is at its all-time high.

Bitcoin, the pioneer in digital currency, surged to over US$1,700 per coin in
anticipation of a reversal in United States financial regulators’ ruling to allow for an exchange-traded fund for Bitcoin and other factors.

Bitcoin was trading at US$935 on March 24. It rose 82%, pushing its market capitalisation to over US$28bil.

Ether, another such currency, surged from US$8 on Jan 1 to US$90 this week, gaining 1,125% in five months.

The market capitalisation of the 700-over currencies is over US$50bil. The promoters believe it is the currency of the future, hence the rise, but the naysayers believe it is entering a speculative bubble.

But there are some who are ditching gold to mine Bitcoins.

It is a fact that crypto currencies are gaining traction from their inception in 2009. Now, at least 150 organisations including Apple, Walmart, Sears, eBay, Overstock.com,  Microsoft, Steam, Expedia and even Subway accept them in exchange for goods.

So, what is Bitcoin then?

It is a form of digital currency, created and held electronically, not blocked by any nation or government, not printed like dollars and ringgit but produced by people. Crypto currencies are digital currencies that use encryption to secure transactions and control how new coins are made.

You and I can get Bitcoins by “mining” computers that validate blocks of transactions using software to solve mathematical puzzles every 10 minutes. If you solve it first, you are rewarded with new Bitcoins.

Bitcoin is the mother of all crypto currencies – also known as virtual currencies, digital currencies and private currencies.

Other than Bitcoin and Ether, there is also Dogecoin, Augur, Chinacoin, Litecon, Dash, Waves and Zcash. There are over 40 exchanges globally to trade in Bitcoins.

All this came about because of fintech, the financial services technology that is  disrupting the financial services sector with faster, cheaper and so-called “reliable”
transactions for money transfers, bank exchange rates and other money-related transactions. The average clearance is a 12-hour period, which apparently the banks cannot match.

In Brazil, people use Zcash to pay for their taxes, electricity bills and purchases.

This week, Australia said there would be no double taxation for crypto currencies and to treat it just like other currencies from July 1, paving the way for greater usage.

Many are betting on crypto currencies because of the lure that they are the currency of the future. Would you?

Since 2009, there have been gainers and losers, so you decide.

All these digital currencies came about because of the Internet and data.  The value of data and digital services is becoming more apparent, and in the digital era, data is the new currency.

Amid all this is blockchain, which is simply a digital ledger that keeps track of Bitcoin transactions and transfers it globally. It boasts of instantaneous transactions, transparent and cheaper than the traditional ways. This is why banks are hurriedly getting their acts together in the area of fintech so as to not miss the boat.

There is a growing number of mergers and acquisitions and crowdfunding for blockchains. Last month, music-podcast-video streaming service Spotify  bought over blockchain technology company Mediachain Labs to help reward  online content owners with royalty payments.

Other telcos and IT firms are getting into blockchain because they don’t want to miss out on anything. Other payment companies are getting into the act too. There is just too much interest in this new wave of doing things.

The journey of crypto currencies, however, is not without hurdles, and there are plenty out there that cannot be ignored. Even blockchain’s growth cannot be ignored, especially since it is being positioned by those championing it as the de facto technology of the future.

But will it really be all that or will it just add another layer to the overall cost?

All these transfers do not need regulation as yet, something that central bankers don’t like. In fact, Bank Negara is already in the thick of things where fintech is concerned.

While investing in the future is the way to go, it comes with risks and rewards. The best
strategy would be to not be in a rush. Do your homework, as there is also the other side of Bitcoin – fake websites, fake online gaming sites, trading, etc.

I bet you would know of someone who has lost money mining Bitcoin or Ether. You honestly wouldn’t want to be put in a spot like those caught up in the recent forex scam and the earlier gold scam.

It would be good too to bear in mind that the sweet spot of crypto currencies has been linked to terrorism financing, money laundering, tax evasion and fraud.

Trust and transparency have been the bedrock of financial institutions all these years. Ensure your bedrock is solid, but at the same time, remember what the former US Federal Reserve chairman Ben Bernanke had said in a letter to US senators about virtual currencies, that they “may hold long-term promise, particularly if the innovations promote a faster, more secure, and more efficient payment system”.

Do you think blockchain will bring trust and transparency to the world of crypto currency? Share your thoughts with me at bksidhu@thestar

Source: The Star by b.k. sidhu

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Property in a digital era

WITH digital technology all the rage and taking the world by storm, we look at how science and automation has managed to change and revolutionise the way we do things, in this section, property.

While the internet has changed the way we receive information and connect with others and the smart phone transformed the whole concept of a phone, we now look at the evolution of finance and how purchasing items, including a house, is going through reform with the introduction of bitcoin.

Introducing bitcoin

When people hear terms like “bitcoin” and “blockchain”, many are vague while some may not even be familiar with these words. But for the technology industry adept, bitcoin and blockchain is common as these new-age technology concepts and modus operandi have been around, perhaps less widely known in Southeast Asia as it is in the West and China.

For the uninformed and in the dark, bitcoin is a technology that has established a new electronic payment method using “digitised money” made with digital cryptography, otherwise known as cryptocurrency.

This system of payment is carried out when a user uses “bitcoin currency” (or cryptocurrency) to pay for goods by transferring the currency to another user (seller) within the bitcoin community.

Each transaction is recorded in a public data ledger known as “blockchain” and it is here where all the transactions that have taken place within the bitcoin community are stored.

The amazing thing about this system is that anyone in the bitcoin community is able to validate transactions that take place without the need of an intermediary.

Sound too good to be true and a little risky? Well, the reason there is no intermediate party necessary is due to the network bitcoin technology is regulated on.


Modus operandi and more

The bitcoin network is founded on a “peer-to-peer network system (P2P network)” which is explained as “a network of computers/ mobile configured to allow certain files and folders to be shared with everyone or with selected users”.

As a result, the “participants” are in control of their transactions, making everyone equal within the bitcoin community, which is also transparent.

It is said that bitcoin technology was first created in 2008 by a person or a group of persons under the pseudonym “Satoshi Nakamoto” in a research paper. The research stated that there was need for a new electronic payment method, one using digitised money. The analysis also included the future of bitcoin, its benefits, capabilities and potential.

The system was implemented on Jan 3, 2009. And after just a few years, bitcoin grew to become a whopping US$12 billion (RM52.7 billion) globalised economy.

Bitcoin attributes

While not much has been said about bitcoin in this part of the region, the system has been around, slowly developing and growing. Like many things that are cloudy and not often talked about, people are weary hence, there will be sceptics who dissuade others about the system they themselves are unclear about.

With that, theSun’s Brian Chung shares what he learnt of this new method of transaction and currency when he attended a talk by renowned entrepreneur, author and expert on bitcoin Andreas M. Antonopoulos.

Below, Antonopolous shares important information on bitcoin.

1) Bitcoin is an open system of payment: It is a system that anyone can access, participate and innovate, and does not require permission. Bitcoin allows anyone to join in and use the system, validate the transaction and create different kinds of cryptocurrency.

2) Bitcoin is borderless: Like the internet, bitcoin is not restricted to a country’s rules and regulations as it has its own protocol with no distinction across countries.

3) Bitcoin is neutral: Bitcoin does not take the identity of the participant into any consideration. It only validates the transaction that takes place between participants. This attribute also allows participants to remain anonymous.

4) Bitcoin is censorship resistant: Every transaction in the bitcoin network cannot be frozen, censored or canceled. Like the internet, the bitcoin system is a global digital economy with one currency.

5) Bitcoin is a decentralised system: The bitcoin network has no central institution or centre point of control. This trait ensures that there is no one major target for hackers to concentrate their attacks on. Instead, hackers have to create attacks on every single participant’s software with different forms of virus and codes to hack into one computer.

6) Bitcoin is scarce and limited: Bitcoin is a system of value like gold but in digital form. This makes it a system that is not based on credit and debit. It also makes bitcoin a singular global currency with no exchange rate between countries.

7) Every bitcoin transaction is permanent and immutable: The transaction of everyone in the community is verified by everyone in the system. Once it is verified, the transaction will be permanently recorded in the blockchain.

8) Bitcoin is a constantly innovative technology: The open source nature of the bitcoin technology allows other people to further improve on it. There are many other cryptocurrencies based on the bitcoin technology. Moreover, the bitcoin technology is dependent on the internet, which makes improvement and innovation necessary.

Bitcoin transactions can be done via smart phones and computers by downloading the application and software. Users do not need to register themselves to be part of the bitcoin network as all “participants” are referred to by codes and “signature of one’s device”.

However, iPhone users need to remember their iTunes password to download the application. In addition, the device that one has downloaded the bitcoin software on must remain connected to the internet in order for one to use the bitcoin method of payment.

Follow our column next week on the application of bitcoin in property.

[Note: All charts courtesy of Bitcoin Malaysia.]

 

The application of bitcoin in property

 

WHILE last week, we introduced the term bitcoin to those oblivious of this new age cryptocurrency and system of payment, this week, we share bitcoin whiz Andreas M. Antonopoulus’ insights on how this technology is applied in property. Here is what he had to say:

Permanent records

“One very common application is the registration of assets or ownership of tangible and
non-tangible things like the registration of title over land and the ownership of assets
like homes.

When you record something on blockchain, it cannot be modified … it is immutable. Once recorded on the blockchain, the system of trust prevents anyone from reversing or overwriting it. That makes a record on blockchain permanent, an immutable record which is really important in real estate transaction as it allows one to pass the title of a piece of land from person to person independently with no one being able to falsify the record or steal land through paper,” Antonopoulos said.

Moreover, he mentioned that this technology can benefit the industry tremendously as it is able to resolve a huge problem in real estate and property transactions – the falsification of strata titles and property documents.

His view is further enhanced with the emergence of another bitcoin-based system, ethereum. Like bitcoin, ethereum has its own cryptocurrency known as ether. However, ethereum adopts a different technology that is based on the blockchain public ledger system known as Smart Contract.

According to Antonopoulos, a smart contract is an electronic contract with all the contractual obligations of the buyer and seller. The contract is written and coded into an application, which will ensure both parties fulfill their obligations.

Like blockchain technology that is built on trust and verification, these contracts are encoded in a public ledger in the ethereum community. If anyone tries to forge the contract, the ledger will reject it. As such, this smart contract cannot be rewritten and altered as it is a permanent and immutable contract.


Direct transactions

Besides the use of a contract, the technology will make transactions direct, fast and secure.

Antonopoulos also shared about the removal of third parties and its altered role. He said, “Another example relevant to real estate application is the function of escrow. In order to do make transactions for real estate today, people have to use a third party agent, an escrow agent. This escrow agent charges a significant amount of money in most countries. During the process, that agent holds custody of the entire fund, which is dangerous. This means that the escrow agent has to be carefully vetted and have foresight.

Bitcoin can replace all of this by using multi-signature, which allows the seller and buyer to transact escrow programmatically, with the third party acting as mediator only in the case of a dispute.

Buyer and seller will be able to execute a transaction on their own without the need of an escrow agent and without any of the parties having custody of the entire fund. Through bitcoin, you do not need to spend that additional one percent of the sale of the house – the escrow agent is no longer necessary.

It can also change the speed of escrow by doing it in hours instead of a month and changes the security because no one of the three parties can run away with the money. It is faster, cheaper and secure. It can be done in other industries related to real estates like purchasing assets, corporation, mergers and acquisitions.

International property purchase

With the use of decentralised digital currency, one can assume that purchasing items and properties is a little easier, and it is.

The chance of purchasing international property is further reinforced by the fact that bitcoin is not controlled by anyone, not even political and banking institutions. This attribute of bitcoin makes it easier for people buying property from another country. Although each country has its regulations, the use of bitcoin to purchase property abroad saves time and money as one does not need to change currency.

The Australia Real Estate website has stated that there are properties in the United States and Latin America being sold using bitcoin. The Wall Street Journal wrote an article in 2014 regarding a Lake Tahoe property, which was sold for US$1 million in bitcoin.

Follow our column next week for more interesting information on bitcoin, its challenges and how stable a cryptocurrency it is.

By rian Chung

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