US$, China, buying properties, what has it got to do with me?

I remember telling a few of my close friends on few separate occasions about US$ which is not aligned to its actual value. They asked me why i said so, I explained briefly with a few questions. When the economy is doing well, should your currency be appreciating or depreciating? When your country suffers a crisis and you need to borrow lots of money from external party, say IMF or World Bank or China or Japan etc, should your currency be depreciating or appreciating? When the government of the day continue to print even more money, should the currency depreciate or appreciate? The answer is simple, depreciate. Yet, the value of US$ seemed unchanged for many years and if compared to 1997 crisis days, the US$ is still ‘strongly’ valued today. Even the subprime mortgage crisis did nothing to US, nearly and they printed even more money to bail out the important companies in US which were about to go bankrupt due to inefficiencies.

debt USIn fact, where ratings are concerned, US$ rating was only down one tiny notch in 2011. From the highest ever AAA, it went down to…… AA+. Haha. This is explanation for rating of AA+: “equivalent to Moody’s Aa1 (high quality, with very low credit risk, but susceptibility to long-term risks appears somewhat greater)”  With the highest reserves in the world today and a country which US borrows a lot from, China gets only AA-.  Haha. Imagine someone who lends you lots of money being rated lower than you by a top rating agency in the world.

In a recent session of Pemandu’s Global Malaysia Series in collaboration with BFM radio at the Securities Commission, Tan Sri Francis Yeoh said that there is a high potential for a global bubble bust within the next two to four years, due to the governments which are blowing up the bubble by printing ever more money. In the past, private sectors were the ones creating these bubbles but today, the situation has been reversed. Governments are printing money without increase in productivity.

Dear everyone, investing requires good understanding of a lot of things, especially how the world’s largest few economies move because when they suffer from a ‘flu’, many other countries would suffer a ‘cold’. Do not buy properties which everyone said, ‘sure go up’ but in your heart, you are thinking, ‘but this is RM1,500 psf, still SURE GO UP’? Better safe than sorry. Even when you buy unit trusts, if you trust your unit trust agent wholeheartedly because you know next to nothing about it, then do not blame the unit trust agent later on. My friend said just the other day, unit trusts typically give an average of 6-7% returns. Be reminded that 6-7% means there are funds which over-performed and there are funds which under performed. Some give NEGATIVE returns. This is the same like property price, in Penang, the average property price is only RM400,000 but tell me, can you find any condo priced at that level, at all? Yeah, you would shout ‘MAINLAND PENANG’. Great, I let you win.

written on 4 June 2014

Next suggested article:  40 years later – Malaysia property market in my personal view

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