Capital Guaranteed Fund I

“Where there is a demand, there is a supply.”

Capital Guaranteed Fund was once a selling like a hot cake product in western world. Its popularity became less when investors there found out that its performance was not so impressive as they expected. The smart promoters shift their target to another part of world: wealthy Asian, but less educated compared to their western counterparts.

Since 97/98 Great Asian Financial Crisis, investors in Asian countries become a man after shock: any investment tagged with “Capital Guaranteed, Zero Risk” will receive a warm welcome from these investors. While for every prudent and rational investment should first preserve capital and then only look for capital appreciation, the fund promoting “Capital Guaranteed, Zero Risk” is another story.

Recently, quite of number of funds pop up with tagged of “Capital Guaranteed, Zero Risk” in Malaysia to lure investors. Let’s look at how 1 of the fund structures its “Capital Guaranteed, Zero Risk” product.

NTD launched its RM 300 million DUT Fund. The fund is an offshore fund with capital guaranteed feature. Investors who buy DUT Fund must starts with initial investment of RM 5,000. The fund is for 3 years maturity, where the capital is guaranteed after 3 years period while at the same time, POTENTIALLY GAIN from any capital appreciation. 85-90% of the investment would be placed with a negotiable investment deposit to ensure capital return guarantee and invest the remainder in 5 regional indices, namely, South Korea, Japan, Australia, Taiwan and China. To entice investors, the promoters show their back-test that over past 3 years, these indices appreciated at the rate of 34% per annum. Without deep thinking, everything seems great, isn’t it?

Easy credit -- Another 97/98 Asian Financial Crisis?

While one of the factor that caused the meltdown of "Asian Tigers Miracle" back to 90s was easy credit obtained by the corporations, is a similar crisis soon to happen as this time the easy credit shifted from corporations to individuals? An article worth a read, click here.


Any indication for you?

Utopian World

“The price of petrol increase again!” That’s the headline of the news today. While the hike would not be the last one, be prepared for the more economic driven environment.

People are pampered for too long. They expect the government would protect their interest and keep the price lower. This might happen in the utopian world but for sure it would not occur in the reality. Once a while, government might take some measures to control the price of certain products, such as sugar, petrol, poultry products…etc. Where the government is based on the votes from the people, they have much incentives to do so. For the sake of “Protecting People Interest”, the price of these products keep lower than the Real market price. The tricks? Government might use money from the taxpayers to subsidy the difference of the price or request the supplier to sell the products below the market price by implementing the controlled price regime. This might work well for short term, but it could not be last long. The example? Look at the case where the ex-communism blog countries such as Soviet Union, Poland, Hungary and so forth where the price of the products were kept ultra low, but there is nothing on the shelves.Capital flows where it is respected. If the pricing of the products or services out of pace of the market, capital will outflow from it. Do you think Asian Financial Crisis in 1997/98 is caused by the speculators such as George Soros? Yes, it is, but as a result, not a cause. The cause of the crisis is because people do not respect capital. With the easy credit, people spend the money like there is no tomorrow. Projects after projects started not for the economic consideration but for the title of “The Biggest”, “The Longest”…etc. With a leader who stressed Form Over Substance, the only outcome is a Massive Wealth Transform from the average Joe on the street to the interested parties connected to the leader. The most pitiful part is the average Joe, though suffered from the mismanagement of their leader, still praising the leader as a “Father of Development”.

Choose the correct information

In the era where we are bombarded with ton of information, carefully choose the correct information is crucial. After all, bits and bytes of information can be more dangerous than ignorance.

Once upon a time, when the information is hardly obtained by an ordinary people like us, we treat the information we obtained like precious metal. We absorbed what ever we could in the hope that we become more knowledgeable. While this is a correct attitude for the improvement of humanity, this only applied to the society where the information is scarce. When the situation changes, where we could easily obtain whatever information that we wish as long as we connected through the internet, choosing the correct information becomes crucial. This phenomenon is similar to the society who lacked of food, and making them no choice to choose what the food they wish to put inside their stomach.

Very often, by absorbing the misleading information, either consciously or unconsciously would only bring the devastating result to us. Take the example, whenever a company announces its profit soaring in a particular quarter, do not be so excited and thrush your money into it. The reported earnings lie to its word “reported” and whether it is “real” earnings, only god knows. Simply by Creative Accounting, the management and its related interested parties could manipulate the company account and show the public a “soaring reported earnings”. There are too many ways for the manipulation, by cooking the book, by selling off the assets to boost one-time earning, by dealing business among related companies are among few examples of the manipulation. The only way to be a successful investor lies to your passion and your home work – no short cut.

Over the years, I found out that the asian investors are the lambs that become the prey of the fox of financial industry. The information that is out of date and no longer applied in the western world could be sold in asian countries. Take an example, after 97/98 Asian Financial Crisis, many asian investors isolate themselves from the stock market. Because of the cash piling up, they need to find a way to invest their cash pile. Where the market would always supply what demand needed, the financial industry came out with the “Capital Guarantee Fund”. These hungered investors pouring their hard-earned money into the funds. Other examples like “Buy and hold”, “The price of real estate is always appreciate in the long term” and “Blue Chips counters is a safe haven for the investor”. There are too many examples that show that people without a proper knowledge tend to become the prey. While ignorance people have no choice but become a sacrifice, the most pitiful people are the one who obtain misleading information and yet they feel they got the correct information.

Good Bye Mr. Alan Greenspan

31st January 2006 marked the fall of the old era and welcomed with the new horizon – Retirement of Federal Reserve (Fed) Chairman, Mr. Alan Greenspan who served the post for 18 years.

For nearly 2 decades, he was treated as a man of last resort whenever there is a economic crisis. The crash of Dow in Black Monday, October 1987, 90/91 economic downturn, the collapse of Long Term Capital Management (LTCM) in October 1998, the aftermath of Tech Bubble after 2000 are few examples. He believed to have magic hands who could turn an economic downturn back on track by using his monetary policy of manipulating key interest rate. The whole world is lead by him whether the economic will be “soft landing”, “hard landing”…etc. The blind faith of whole world that putting on him made him as the “God” who can rescue the world whenever there is something happen. His retirement made us worried that his successor could safeguard us when there is something happen in the future.



While Mr. Alan Greenspan might have his contribution, we need not overstate it. Take an example, few days before the meeting of the bankers to save LTCM, Alan Greenspan had testified to the House Banking Committee that ‘hedge funds were strongly regulated by those who lend the money. With the LTCM debacle, the belief that Alan Greenspan knew whereof he spoke, a central tenet of the Fed’s status, had been put in hazard.