Undying Chinese

People’s Bank of China has announced it is not the best interest to continue buying more US dollar. Currently China is already the world’s largest in US dollar purchaser. China will cap its purchases of US dollars in an effort to limit the depreciation of the Yuan. The value of any currency in the world depend on the demand from other countries. Although China has not specifically mention a time frame to pull the plug, this decision from China will practically put US dollar into a worse condition.

YiGang“It’s no longer in China’s favor to accumulate foreign-exchange reserves”, said the PBOC deputy governor Yi Gang (19th November 2013) bluntly during a speech at Tsinghua University for China Economists 50 Forum.

In less than a week before the statement, Zhou Xiaouchuan, the governor of China’s central bank has also announced that PCOB would slow down on the Yuan’s pegging to US dollar. Without pegging, Chinese Yuan is potentially to appreciate 2% in a day!

china-yuan-dollar-2010-04-12

In Q3 2013 alone, China bought $166 billion US dollar reserves. As a matter of fact, China currently holds $3.66 trillion in US dollar reserves in total, which is more than 3 times that of any other countries.

China is also the largest holder of US debt, currently holding nearly $1.3 trillion in U.S. Treasury bonds.

This is a very funny video to explain relationship between China and US.

In economic fundamental, weaker US dollar means higher silver price – but is that so?

silver_1d_o_USDContinuing a down trend started last week, silver has spent the entirety of last week under $21/oz. In fact on last Friday (22nd November 2013), silver price was traded below $20/oz almost the whole day. Silver price is likely to get even lower before price start picking up.

Silver hit $20.75, its highest price thus far last week on last Monday morning, and began to fall not long after that. By noon, the precious metal was sitting at $20.34. By the end of the day silver price had sunk as low as $20.22, which is the lowest price since 9th August 2013.

Last Tuesday was a quieter day for silver. Silver price was traded between $20.22 and $20.48. However on Wednesday had more declines. Although silver began the day not far off from its price range the previous day, it had sunk to $20.12 by mid-morning and reached $19.83 by mid-afternoon.

The reason for silver price declined is due to the release of minutes from the US Federal Reserve’s Federal Open Market Committee (FOMC) meeting. Interestingly, FOMC showed that the Fed will continue quantitative easing “at full force”, but at the same time tapering is “in the cards relatively soon”.

These are 2 contradicting directions but the latter appeared to have a more significant effect on silver price.

Silver Malaysia eBookPractical Guide For Investing Silver In Malaysia is an eBook specifically written with a Malaysian’s context for silver investment. You will learn different strategies, practical tips and tricks for investing in silver. Click here to find out more.

Malaysia’s Bubble Economy

The following article is written by Jesse Colombo and published in Forbes on 15th October 2013, titled “Malaise Is Ahead For Malaysia’s Bubble Economy”:

The emerging markets bubble began in 2009 after China pursued an aggressive credit-driven infrastructure-based growth strategy to bolster their economy during the global financial crisis. China’s economy quickly rebounded as construction activity flourished, which drove a global raw materials boom that greatly benefited commodities exporting countries such as Australia and emerging markets. Emerging markets’ improving fortunes began to attract the attention of global investors who were seeking to diversify away from Western nations that were at the epicenter of the financial crisis.

Rock-bottom interest rates in the U.S., Europe, and Japan, combined with the Federal Reserve’s multi-trillion dollar quantitative easing programs encouraged a $4 trillion torrent of speculative “hot money” to flow into emerging market investments over the past four years. A global carry trade arose in which investors borrowed at low interest rates from the U.S. and Japan, invested the funds in high-yielding emerging market assets, and pocketed the interest rate differential or “spread.” Soaring demand for EM assets led to a bond bubble and ultra-low borrowing costs, which resulted in government-driven infrastructure booms, alarmingly fast credit growth, and property bubbles in numerous developing nations.

Surging capital inflows into Malaysia after the Crash of 2008 caused the ringgit currency to rise 25 percent against the U.S. dollar in just two years:

MalaysianRinggit1

Foreign holdings of ringgit-denominated bonds hit an all time high:

foreign-institutional-holdings-of-local-bonds

Foreign direct investment (net inflows, current dollars) immediately recovered from its crisis-induced plunge to dramatically surge to new highs:

Malaysian-Foreign-Direct-Investment

The Kuala Lumpur Composite stock index rose 120 percent, aided by growing interest from foreign investors:

malaysia-stock-market

Malaysia Is A Classic Credit Bubble Story

Malaysia’s $303 billion economy has been growing at an average 6 percent rate in recent years due in large part to a growing government and household credit bubble.

malaysia-gdp

Since 2010, Malaysia’s public debt-to-GDP ratio has been hovering at all time highs of over 50 percent thanks to large fiscal deficits that were incurred when an aggressive stimulus package was launched to bolster the country’s economy during the Global Financial Crisis. After Sri Lanka, Malaysia now has the second highest public debt-to-GDP ratio among 13 emerging Asian countries according to a Bloomberg study. Malaysia’s high public debt burden led to a sovereign credit rating outlook downgrade by Fitch in July.

malaysia-government-debt-to-gdp

Malaysia’s government has been running a budget deficit since 1999:

malaysia-government-budget

Like their government, Malaysian households are also binging on debt, which has caused the county’s ratio of household debt to GDP to hit a record 83 percent – Southeast Asia’s highest household debt load – which is up from 70 percent in 2009, and up greatly from the 39 percent ratio at the start of the Asian Financial Crisis in 1997. Malaysian household debt has grown at around 12 percent annually each year since 2008.

It’s no surprise to see an inflating household debt bubble when Malaysia’s bank lending rate is at record lows:

malaysia-bank-lending-rate

Ultra-low interest rates have caused Malaysia’s private sector loans to increase by over 80 percent since 2008:

malaysia-loans-to-private-sector

Malaysia’s M3 money supply, a broad measure of total money and credit in the economy, shows a similar worrisome trend:

malaysia-money-supply-m3

Malaysia’s high level of household debt led the country’s central bank, Bank Negara, to recently impose lending rules that cap maximum terms of personal loans to 10 years and mortgages to 35 years – a decrease from the common 45 year mortgages.

Datuk Paul Selva Raj, CEO of the Federation of Malaysian Consumers Associations (FOMCA), said 47 percent of young Malaysians are currently in “serious debt” (debt payments amount to 30 percent or more of their gross income), something that could catch up with them very quickly.

“Car purchases and credit card debts are among the main reasons for bankruptcy in Malaysia,” said Paul. “It’s the culture we live in. There’s a lot of emphasis on status and being ‘cool’ – but being cool costs money.”

Malaysia’s household credit bubble is helping to fuel a consumer spending boom:

malaysia-consumer-spending

Malaysian car registrations are up by 50 percent since 2008:

malaysia-car-registrations

Malaysian corporate leverage, which includes corporate bonds and bank loans, is also rising at an alarming rate, reaching 95.8 percent of GDP in 2013 from 79.9 percent in 2007.

Malaysia Also Has A Property Bubble

Like most other countries that are part of the emerging markets bubble, Malaysia has a property bubble in addition to its credit bubble.

The charts below show the parabolic rise of overall Malaysian property prices:

malaysiapropertybubble

Accounting for nearly half of all household debt, soaring mortgage loan growth is a primary reason why Malaysia’s household debt is increasing at such a rapid rate.

Plans to build the tallest building in Southeast Asia, the 118-story Warisan Merdeka Tower, are a major Skyscraper Index red flag.

How Malaysia’s Bubble Economy Will Pop

While Malaysia has fared better than Indonesia, India and Brazil during this summer’s emerging markets rout, the country still has an extremely dangerous economic bubble that will pop when the overall emerging markets bubble pops in earnest. Malaysia’s bubble will most likely pop when China’s economic bubble pops and/or as global and local interest rates continue to rise, which are what caused the country’s credit and asset bubble in the first place. The resumption of the U.S. Federal Reserve’s QE taper plans may put pressure on Malaysia’s financial markets in the near future. Malaysia’s rapidly deteriorating current account surplus due to weaker exports is another worrisome development.

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Jesse Colombo published a follow up article on 18th October 2013 in Forbes, titled “It’s Not A Bubble Until It’s Officially Denied, Malaysia Edition”:

Lim-Guan-EngThe report received a favorable response from Lim Guan Eng, the Chief Minister of the State of Penang, who said in a press statement, “Even renowned financial analyst Jesse Colombo wrote in the Forbes online magazine that Malaysia’s economic bubble will burst due to its high government and household debt.”

Lim went on to say, “Interestingly, Colombo said that plans to build the tallest building in Southeast Asia, the 118-story and RM5 billion Warisan Merdeka Tower, is a major Skyscraper Index red flag.” The Skyscraper Index red flag refers to a Dresdner Kleinwort report in 2009 which showed a correlation between the construction of the world’s tallest buildings and the impending end of business cycles.

(The following “I”, “me” and “my” refer to Jesse Colombo)

INDONESIA-APEC-SUMMIT

The report also struck enough of a raw nerve that Malaysia’s International Trade and Industry Minister Datuk Seri Mustapa Mohamed refuted my assertion that the popping of China’s precarious bubble economy will also pop Malaysia’s bubble in a press conference in Kuala Lumpur, saying “The Chinese economy is not going to tumble. It’s going to stay strong. We’ve seen high growth in China for many years.”

“Malaysia is not going to be adversely affected. Anyway, we are focusing more on domestic resources growth and it’s becoming more relevant in this context,” he added.

There seems to be an unwritten rule that government officials across the world must deny the existence of economic bubbles that pose a great threat to their countries. When I was warning about the U.S. housing and credit bubble in 2005, Ben Bernanke infamously denied its existence. Officials are denying the UK’s and Australia’s housing bubbles, along with many other post-2009 bubbles that I am currently warning about.

I don’t see how public officials’ bubble denial does anything but harm to their countries’ citizens. Denying the existence of bubbles does not make them disappear, but only serves to hamper the early detection process that is so critical to the survival of terminal illnesses, whether physical or economic.

I also don’t see how denying the risks posed by China’s massive economic bubble does any good either. I will be writing an extensive report about China’s bubble after I finish covering bubbles in Southeast Asia, but for starters, they have a multi-trillion dollar debt bubble that has exploded in recent years as their government has encouraged the building of scores of empty “ghost cities” to generate economic growth.

Charts show a ballooning Chinese credit bubble:

China-GDP_0

HKDebtBubble1

The chart below shows how much of a role debt-fueled construction plays in China’s current bubble economy:

China-Cement2

It is very difficult to completely deny the existence of a bubble in China, and even worse to say that Southeast Asian economies won’t be affected by its popping. I genuinely want to see emerging market nations thrive, which is why I am working to raise awareness of their bubble problems, as I did with the U.S.’ bubble. I want the rest of the world to avoid making the same bubble mistakes that the U.S. and peripheral Europe did that devastated our economies, but bubble denial on the part of policy makers only makes this unfavorable outcome more likely.

Bank-Negara-Zeti-Akhtar-Aziz

On 20th October, Bank Negara Malaysia Governor, Dr Zeti Akhtar Aziz responded as following:

There is no reason to believe that Malaysia has seen the formation of an asset bubble that is about to burst, as the country has addressed many of the issues and risks related to it. Three series of macro prudential measures had been introduced this year to avoid the very risk of the formation of such a bubble asset. Conditions between now and in 1997/1998 are different. We are now on a growth path.

She added that domestic demand was driving Malaysia’s economic growth and the country was not at the epicenter of the recent global financial crisis. Our financial intermediaries remain resilient and the supply of credit was never disrupted.  Financial inter-mediation was continuing and financial markets continued to function. There is confidence in the financial system. This is the result of the focus over the last decade on financial reforms that have strengthened the foundation of our financial system. We believe that credit growth has moderated to a sustainable pace that supports the growth of the economy. In this regard, we continue to monitor conditions.

Silver Malaysia eBookPractical Guide For Investing Silver In Malaysia is an eBook specifically written with a Malaysian’s context for silver investment. You will learn different strategies, practical tips and tricks for investing in silver. Click here to find out more.

US Government Shutdown

The shutdown of US Government has caused US President Barack Obama to cancel his visit to Malaysia for the 4th Global Entrepreneurship Summit 2013 in Kuala Lumpur last weekend. Obama was represented by Secretary John Kerry.

john_kerry

US Government Shutdown

On Thursday evening, discussions between Barack Obama and House speaker (John Boehner) ended after 90 minutes with no specific agreement. There is no solution to the current issue of government shutdown. However, both sides said discussions would continue to prevent the US defaulting on its debt obligations.

The current government shutdown is fundamentally due to reaching high dept ceiling. There is no agreement to resolve debt and no agreement to increase debt ceiling. A new budget cannot be agreed on and hence the government has shut down.

The United States public debt has increased by over $500 billion each year since 2003, with increases of $1 trillion in 2008, $1.9 trillion in 2009, $1.7 trillion in 2010, $0.9 trillion in 2011 and another $ 1.2 trillion in 2012.

US Government Shutdown - debt ceiling

What does debt level means? Assuming United States is a person, let’s call him Mr. Richard Lee who holds a Maybank credit card. Mr. Richard Lee’s credit card credit limit is RM20,000. He uses his credit card to buy a new smartphone, go for several vacations, buy a new laptop and ops… He has just max his credit limit of RM20,000. Instead of clearing off his debt, he made a phone call to Maybank to ask for an increase of his credit limit. Maybank credit officer raised his credit limit from RM20,000 to RM50,000. Now, he can continue spending without clearing off the previous debt. What Mr. Richard Lee does next is buy a new massage chair, buy some new accessories for his sport car, and buy some new furniture for his house – all by using his credit card. Very soon, he has again max his RM50,000 credit limit. What he did was, again he went to Maybank to ask the credit officer to raise his credit limit. The Maybank credit officer raised his credit limit from RM 50,000 to RM100,000 and he continues spending.

Mr. Richard Lee’s financial situation and United States debt level is very similar. Every time when they hit the limit, instead of clearing the debt, they are raising it to a higher limit.

When Mr. Richard Lee (as an individual) could not pay off his debt or could not raise his debt ceiling, he has to declare bankrupt. When US Government (as a nation) could not agree to cut on their spending or could not agree on a higher debt ceiling, the government shuts down.

6008439723_c6a7189d4c_z

Despite the short-term pressure on the metals, the Federal Reserve’s continued to create a weaker dollar in the long run, lead to eventual inflation and would boost the prices of gold and silver. The endless easy money policies from central banks around the globe have created a long-term boost for the various precious metals.

Gold is known the best of the precious metals, but as its price has been driven up, retail investors have turned to silver as an alternative precious metal. Unlike gold, the great thing about silver is that there is HUGE industrial demand!

In 2013 there was a significant shortage of both American Silver Eagles from the US Mint as a direct result of record high demand. Silver ETFs have continued buying silver bullion at a record pace. Demand for the metal as a precious holding is there from physical investors, and has helped get silver back to the $24.00 mark. Aside from silver being a precious metal, it also has many industrial and technological applications. There will always be physical demand. Such demand would pick up significantly when the global economy comes fully out of recession.

john_kerry_2

As John Kerry said on last Friday (11 Oct 2013), the current crisis US going through is merely an political play and it will be over.

When the economy rebounds, there will be a spike in physical silver demand in many areas. The demand will not be just in coin and bullion form, but also in jewelry, silverware and dentistry. On the technology front, silver is one of the most conductive metals out there, and thus is utilized in photography, electronic devices, optics, medical devices/tools and most recently, in nanotechnology.

Realize that tons and tons of silver are consumed in industrial processes. Some silver are recyclable while most silver is discarded into landfills. Those silver are gone forever. It is believed that 90% to 99% of all gold ever mined is still in existence above ground – in one form or another (such as jewelry and central banks holding). Available physical silver on stockpiles as a percentage of all silver ever mined is so much smaller compared to gold.

Since 1950s silver was consumed in a variety of modern applications at a amazing fast rate. By year 2000, known stocks of silver had shrunk over 95%, to around 500 million ounces. During the late 90s, 200 million-ounce annual deficit indicates the early sign of long term physical silver shortage. Thanks to new technology such as smartphones, demand for silver is unprecedented. Eventually there would not have enough silver to meet demand. The end result will likely be a rising long-term price and intense recycling initiatives (when silver price is high enough).

Silver Malaysia eBookPractical Guide For Investing Silver In Malaysia is an eBook specifically written with a Malaysian’s context for silver investment. You will learn different strategies, practical tips and tricks for investing in silver. Click here to find out more.

Big Brother of Silver

Gold, is widely known as the big brother of silver. When gold price moves, silver price follows. If you look at the long term gold chart and long term silver chart, the price and percentage of movement might not be exactly the same, the direction is however identical. Generally, silver price movement is more volatile than gold price.

long-term

If you want to know what is going to happen to silver, look at gold.

223.519 metric tons of gold was imported into mainland China for the month of March. Compare that to the 51.3 metric tons and 97 metric tons imported in January and February 2013. The last time China importing gold on this scale was November 2011, when 102.6 metric tons was imported after the crash in prices from the short-term peak of $1,922 per ounce troy.

Gold Demand in China

From January 2013 to date, China has bought as much gold as whole year of 2011. Let ‘s be reminded that now is only early May 2013. If such trend continues, the demand for gold would be growing exponentially. When people are shorting the paper gold price (selling paper gold), there are people who take advantage of the low gold price to buy up physical gold.

China is buying the dips, they keep buying physical gold whenever there is significant drop in paper gold price. As evidenced by gold and silver American Eagle sales from the US Mint, the 2.841 metric tons of gold coin re-exported from Hong Kong into the U.S.

To summarize the situation, here is the analogy:

The powerful financial institutions and individuals who trades in paper gold are doing their work to bring down gold price. When gold price came down, the Chinese are aggressively buying physical gold into China (from the U.S). Later, the Chinese sell back the gold to U.S… What?!

China vs US currency war

During the price drop in April 2013, gold coin sales has been higher. January sales is usually much higher than the other months, because January is when the new design being released. Due to price drop, the numbers from US Mint showed the sales for April 2013 is even higher than January. While the paper gold price is smashed down, many investors simply recognize this is a fantastic opportunity to buy physical gold.

us-mint-gold

Gold is the big brother of silver, both gold and silver are precious metal. However, silver has an additional demand as industrial metal. Silver is a metal highly consumed in manufacturing including car, electronic (TV, smartphone, refrigerator, RFID chips, etc), car, clothing, water purification, solar panel and much, much more. In fact, silver has more than 10,000 known applications.

There are approximately 3-5 billion oz of physical gold available for investment in the market, but there is only about 1 billion oz of physical silver available. If gold is a great buy, silver is even greater.

During the recent price drop, silver sales has gone much higher than the previous 2 months:

us-mint-silver

In the first 4 months of 2013, the US Mint sold MORE THAN 18 million American Silver Eagle bullion coins. That’s the first time ever the Mint has sold this many coins so early in the year, setting a record in the 27-year history of the series.

In that same period of time, the world’s silver ETFs actually added 20 million ounces to their vaults. That’s nearly $600 million of worth of silver being bought within just 3-4 months, all while silver prices were steadily declining.

Again, when there are people busy shorting (selling) the paper silver. Many investors understand the physical silver is the real tangible asset, and took advantage to buy silver at such low price.

During silver price drop last month, the world has literally facing a shortage of silver. This did not only happens to Malaysia silver market, but also globally. Click here to find out what happened in April 2013 during silver price crashed.

Now, look at it this way, you now have 2 choices:

  • Keep holding on to the paper money that central government can print as much as they can, while seeing them use the paper money to crash precious metal price, OR
  • Take advantage of current low paper price, exchange your paper money with tangible physical precious metal that has limited supply on earth.

Silver Malaysia eBookTo find out more about silver investment in Malaysia, take a look at eBook: Practical Guide For Investing Silver In Malaysia. You will find out why silver is a better investment compared to gold and learn how to buy your 1st silver coins.

Is It Time To Sell Silver?

silver_1_year_o_usd

You can notice that silver price has been on down trend since October 2012. So, is it time to sell silver now to cut your lost? The short answer is, NO.

David Morgan has a great saying about a market like this, “it will either scare you out or wear you out.” (Note: “wear you out” means making you tired). When you have a narrow view by focusing on a short period of time, you will get tired of chasing the pricing and afraid the price might continue drop lower. All you will see is negativity. Consider taking a longer period to see a bigger picture:

silver_5_year_o_usd

$26 is an extremely critical point. It has been a strong support for many times. It has been reported physical silver mining cost is between $26 to $28. Can silver price drop lower than this? POSSIBLE, but NOT LIKELY to stay lower than this for a long time.

About two-thirds of silver is used in industry and jewelry. If silver spot price dropped below $26, there are 2 possibilities could happen:

  1. Some miners will be forced to scale back / close down. Simply because no one wants to spend RM1.00 to produce a product to sell for only RM0.80. The industrial manufacturers will run out of silver once the current supply is dried out. Silver price will shoot back up drastically.
  2. The gap between physical silver price and paper silver price continues to get wider. The paper traders could short paper silver price to as low as $1 but no one will be able to buy any physical silver at $1 (as no one wants to sell at that price). Anyone who owns physical silver would be holding tightly to their silver and not willing to sell unless the buyer is offering a fair price.

Silver miner with nugget

The fact is there is 5 times less above ground available silver than there is gold (3 to 5 billion oz gold vs. 1 billion oz silver). Silver has thousands of application usages while gold has little. When we look at new supply including mined and recycled, new silver is only being added by about 10 ounces for every 1 ounce of gold. Yet investors are buying 50 times more silver for every 1 ounce of gold purchased.

This is totally unsustainable. The above scenario is like saying a manufacturer is selling 50 products a day but he could only produce 10 products a day. Where did the remaining 40 come from? It could be the old products that he has not sold previously, but sooner or later the old products will run out and that is when silver market gets REALLY interesting. By then, I would rather be gladly holding to my physical silver, than rushing to buy silver.

Since silver is both precious metal and industrial metal, silver price rises when

  • The economy improves and industrial demand grows, OR
  • The world’s major currencies continue to be debased (high inflation),

Remember, silver is an industrial metal first, precious metal second. But regardless which scenario happens, silver price rises. What if a robust economy and high inflation? Well, that is as good as you are getting a promotion (with increment) and bonus at the same time.

Personally, I do not think robust economy and high inflation are both happening together. World economy did not improve. Euro zone is still in trouble and US unemployment is still high. However high inflation is on its way. Few months back, US has launched Quantitative Easing Forever (they will be printing money without any limit, forever printing); while Japan announced their attention to double Japan’s monetary base to $3 trillion by the end of 2014. The direct consequence of such actions are high inflation. Precious metal is often a good hedge against high inflation. Robust economy? No. High inflation? Yes.

The most basic lesson in successful investment is Buy Low, Sell High. Simple theory, but many failed to truly understand it. In order to sell high, you need to buy low first. Unfortunately, when the price is low, investors are afraid that price might go even lower and then miss the opportunity to buy low.

So, what if you have already bought some silver at higher price, let’s say $35.00? Right now, when price is low, you can consider practicing Dollar Cost Average to lower your effective purchase price.

silver_1_year_o_usd

For example: Assuming exchange rate for USD and MYR is 3.15 and for simplicity sake, we remove the premium calculation in this example.

During this downtrend of silver price, if each time you bought the same amount of silver silver (let’s say 1 oz) at:

  • $35.00 (RM110.25)
  • $33.75 (RM106.31)
  • $32.15 (RM101.27)
  • $29.00 (RM91.35)
  • $27.00 (RM85.05)

Your effective purchase price (average cost) is ONLY RM98.85/oz. You do not have to wait until silver price go back up to $35.00 (RM110.25) before selling it just to break even. You can break even when silver price is merely $31.38 (RM98.85). Everything moves in cycle. When price move up to $32, although you bought some silver higher price at $35.00 (RM110.25), you can sell all your silver at $32 (RM100.80) each and already making some profit.

Silver Malaysia eBookDollar Cost Average is a strategy designed to protect investor from huge price fluctuation / changes. Dollar Cost Average is 1 of the 4 strategies I discussed in the eBook: Practical Guide For Investing Silver In Malaysia on the approaches to invest in silver. The preview chapter can be found here.

Malaya “Banana Money”

Last week, Cyprus banks opened for the first time in almost 2 weeks of “forced-close holiday“. The Central Bank of Cyprus imposed a €300/day limit withdraw limit and restriction of transferring money outside the country. If you have no idea what is happening in Cyprus, visit here (a simple explanation of the situation).

The previous proposed tax was 3% tax on deposits below €100k, 6.75% on those €100 – €500k and 15% on those more than €500k. In my previous article, I mentioned:

…The reality is, the government can steal as much as they want….

In the latest discussion in Cyprus, bank accounts exceeding €100,000 ($128,000 or RM397,000) will be taxed at 60% with the reason of saving the country from bankrupt. The remaining 40% amount of cash will be frozen to ensure the liquidity of the country. For example, if you have RM400,000 in Cyprus, RM240,000 (60%) will be taken away by the government while RM160,000 (40%) will be frozen until further notice.

Cyprus Bank

Instead of as earlier proposed STEALING 15%, the government decided to ROB 60% of the deposit money and then said, you can’t touch the remaining 40% because the government said so. Sorry, you don’t have an option to disagree, you only accept it. Depressing? Unfortunately, this is the reality in Cyprus.

This is an extremely important financial event in the history. Never in the financial history such “legal robbery” has happened to the people. It is a matter of time, the people  will wake up and riot at streets and tell the government “who the hell you think you are to rob us?!”

What’s next? Cyprus very likely will continue restricting transferring money outside the country. Cypriots will be withdrawing the fiat currency and spend within the country like crazy with the mentality “If I don’t spend it, government is going to take it“. Hyperinflation is on it’s way hitting Cyprus.

Similar event has happened to Germany after World War 1. Hyperinflation hit Germany between 1921 and 1924. Due to war spending, Germany has printed massive amount of fiat currency that caused hyperinflation. The effect started to hit the middle class and everyone spent as fast as they could. Hyperinflation is never a funny matter. It is not about Nasi Ayam increased from RM4 to RM5. To put hyperinflation into Malaysian perspective, 2 years back if we could buy a bread with RM0.50 and then in the next 3-4 years, the same bread will cost RM201 Billion.

German Mark

Germany was fighting a war with weapons; while Cyprus is fighting a war with financial instruments. Unfortunately the financial war is now invisible and most people do not even realize it is here.

Too drastic to happen in Malaysia? 70 years ago, Malaysia have it’s own version of hyperinflation through “Banana Money” issued by the Japanese during their occupation of Malaya between 1942 and 1944. In order to supply the ruling authorities with money whenever needed, they simply kept printing more and more banana notes.

banana-money

During time of financial uncertainty, gold and silver remain as the best option to store one’s wealth. Not only gold and silver price will shoot up during such crisis time, but also the government cannot steal your gold and silver. (Remember, if you don’t hold it, you don’t own it) Between gold and silver, silver has much better potential than gold. Apart from the precious metal status (like gold), silver has an additional demand in industry usages. Computer, smartphone, air-cond, TV, battery, RFID, and much, much more. Almost every electronic devices uses silver as silver is the best electrical conductor in the world. The anti-bacteria element also made silver highly demanded in medical usage. To discover more silver industry usages, please visit here.

The total physical silver owned by ETP Silver Holdings continue to go up:

etf

For individual silver investors, I highly recommend you start buying some silver coins, bars or even rounds. There will be short term fluctuation of silver price, which I call them as “market noise”. For most people, it’s NOT worth the effort to pay too much attention to.

silver-eagle

American Silver Eagle coin is one of the favorite coins I keep (a lot!). Beside the beautiful design and low premium, I like the constant reminder of ONE DOLLAR minted on the coin, where right now the market is selling the coin for about $30 (RM100 – RM120, depending on the quantity and which dealer you buy from). This coin could once be bought at merely $1. It’s a perfect example / effect of inflation that pushed silver price up to such height.

Typically, investment grade silver in Malaysia can be categorized into coin, bar and round. For beginner, I highly recommend you start with American Silver Eagle which has many advantages over the other silver items in the market. The size is reasonably small where most middle class can afford to buy / invest. The premium is relatively low compared to other numismatic coin (which means you get more silver for every Ringgit spent), yet the coin has an impressive design. It is one of the most common and most demanded silver coin in Malaysia, in fact it is the best selling coin the world!

Silver Malaysia eBookPractical Guide For Investing Silver In Malaysia is an eBook specifically written with a Malaysian’s context for silver investment. You will learn different strategies and tricks you never thought of in silver market. Please click here to find out more.

 

Money Is Not Safe In Bank

Government is going to steal some of them…

Cyprus, is country on a small island and a member of the European Union (EU). All members in EU shares the same currency known as Euro.

Cyrus is facing a financial disaster in the country. They lent money to Greece. When the Greek economy came down, the Cypriot banks double the gambling by buying up Greek government bonds in the hopes of a bailout. Unfortunately, Greece is now broke. Cypriot banks owe more money than they have. Actually, Cypriot banks owe more money than the whole country’s GDP. Right now, the Cypriot banks need a financial bailout from the European Central Bank. The bad news is, European Central Bank told the Cypriot that they have to come out with their own money to save the country.

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Where to find the money? Cyprus has decided to steal the money from the people! On 15th March 2013, the government of Cyprus announced that it was going to tax (another word for stealing) 6.75% of all bank accounts less than €100k and 9.99% of all bank accounts more than €100k. For example, if you have RM100k in the bank, the next day you wake up you only have RM90k left. What happened? Oh nothing, the government has just decided to take away your money.

Cyprus-ATM

As a logical response, everyone in Cyprus rushed to the banks to take out their money. In order to avoid people getting their cash out of the banks, the Cyprus government declared a national holiday and closed the banks. People lined up at the ATM machine and soon found out the ATM machines are EMPTIED.

Here is the ironic part. If the government can steal 6.75% or 9.99% from the people, what’s stopping the government to steal even more? On 19th March 2013, the Cyprus changed the plan. They decided to steal 3% tax on deposits below €100k, 6.75% on those €100-€500k and 15% on those more than €500k. The reality is, the government can steal as much as they want.

On Friday, 22nd March 2013, the government have decided they would steal from their pension funds (equivalent to Malaysia EPF / KWSP). At the point of writing this, there isn’t any plan that is finalized. But whatever “solution” Cyprus government going to come out with, it is going to hurt the people in the country and it is NOT going to be pleasant.

Right now, the people in Cyprus have lost trust the banking system. Shops do NOT accept credit card and cheque, they only accept cash – as whatever payment made by credit card or cheque, the government is going to steal a portion of it. This is a typical example of: your money is safer under your mattress than in the banks.

Whatever happening in Cyprus is hinting us the global debt crisis is not over, it is only worsening. Cyprus is the fire starter and the worse is yet to come. During the time of financial crisis, gold and silver are the safest option to store wealth. Gold is good for storing high amount of monetary value.

However IF the time come for the people to fall back to using gold and silver for daily transaction, it is very unlikely that anyone would use gold simple because the value is too high. 1 gram of gold is equivalent to RM165 (gold spot price). You probably will NOT use your gold to buy some bread / noodle / rice to feed yourself or your family, because the value is too high. Under such circumstances, silver is a better option as silver is about RM3/gram (silver spot price) which is still 55 times cheaper than gold.

In Practical Guide For Investing Silver In Malaysia, you will DISCOVER how to start buying silver using the correct methods. Avoid queuing at the ATM when financial crisis hits, you can better prepare for the greater financial disaster ahead.

No Debt, No Problem?

Last year (May 2012) when I published my 2nd Edition eBook Practical Guide For Investing Silver In Malaysia, I discussed that US is going to hit the debt ceiling of 16.4 trillion Dollar latest by early 2013. This does not require us to be a professionally-trained economist to recognize, anyone who spend a little time to learn the fundamental of economy could would predicted it.

Debt ceiling for a nation is like a credit card limit for an individual.

maybank credit cardTake example I am an employee who has a credit card with limit of RM20k. When I spend on my credit card and hit my credit limit, I have to pay it off. If I don’t, the bank is going to punish me by giving me a bad record and I will have problem getting a new loan in the future. What I do now is I ask for a bigger credit limit of RM30k, RM50k, RM100k, RM200k and RM500k. Since I have not hit my credit limit, I could continue spending.

This time, when I hit my credit limit I’m NOT going to ask for a bigger credit limit. I found a new trick, I say “temporarily ignore” the credit card limit. By “ignoring” my credit card limit, the bank cannot come after me and I’m now free from financial trouble.

Does it make any sense to you? No!

The exact same non-sense is happening to US economy. On 28 January 2013, US has “temporarily suspend” the debt ceiling. In other words, US has hit the debt ceiling of 16.4 trillion Dollar and they make it official that they are going to ignore the debt ceiling for now. What a convenient excuse! I wonder if you could tell your bank to “temporary ignore” your car loan installment and your house loan installment? :)

history

A wise man once told me, if you want to predict the future, look at the history. Very similar event has happened in US history. In 1971, President Richard Nixon has “temporary” taken the dollar off the gold standard. Before 1971, each US Dollar is backed by certain amount of gold. Today, every Dollar (or Ringgit) that we are holding is not backed by any gold, they are just paper. The “temporary” has lasted for 42 years until today.

Right now, US could continue spending and getting deeper into debt without any ceiling. Thanks to Quantitative Easing (QE3 and QE4) that happened in the last 6 months, US is printing 85 billion Dollar every month – without a definite date to stop printing. The market is flooded with worthless paper currencies. When US prints, the whole world follows to print. Bank of Japan has also announced their version of QE, they are printing indefinitely starting from 2014. This is the formula for guaranteed hyperinflation.

You might or might not have heard about hyperinflation. If you think 5% inflation is bad, this is what happened to the value of German “money” during 1920s. This is the kind of hyperinflation we are expecting in the near future.

German Mark

With such disastrous monetary policy on our way, a financial logical reaction is to allocate your wealth into precious metal. Precious metal (gold and silver) has been a form of money for many thousands of years. Human use precious metal as money long before the invention of paper money. If you think the society has modernly evolved and no longer need precious metal, consider this:

In late January 2013, HSBC Bought $876 Million Worth of Silver. Silver coins was sold out in US Mint – not once, but twice recently. A new historical sales record of 7.5 million oz American Silver Eagle coin sold in a single month just happened in January 2013, created the highest monthly sales in history.

Many smart investors have started allocating their money into precious metal, particularly silver. Today, silver remain as an affordable option in precious metal. When 1 oz gold (31.1gram) costs about RM5300, 1 oz of silver costs only slightly above RM110. Gold is the money of king, silver is the money of people and debt is the money of slaves. If you have tonnes of cash piling your garden, please go ahead buy some gold. But if you are like most people, I highly recommend you allocate some of your wealth into silver. Silver is not only a form of precious metal (that protects your wealth during financial crisis), but also a highly demanded industrial metal. Keeping a couple of silver coins is never a bad idea.

I’ve written the eBook Practical Guide For Investing Silver In Malaysia. This eBook will show you how you can invest silver in a smarter way in Malaysia. In fact, I also shared my short term, medium term and long term exit strategy. Click here to find out more.