LATEST: The Petition is now closed. A total of 1080 signatures were received.
The Petition to the Singapore Government is now ready for signing at:
http://www.petitiononline.com/PSGCLS01/petition.html
Investors in the credit linked securities can now sign the Petition which will be delivered to the Singapore Government, tentatively by early October.
Saturday, October 4, 2008
Capital protected product
Here is an explanation from the London stock exchange:
http://www.londonstockexchange.com/en-gb/pricesnews/prices/structuredproducts/proddescriptions/capprotect.htm
Basically, the issuer of the product buys a zero coupon bond to provide the redemption of the capital at maturity date and uses the interest to buy an option.
If the option works well, it can give an attractive return. If the market moves in the wrong direction, the option is useless and the investor loses the option money entirely.
This product has a disadvantage. The issuer is likely to take away a large part of the investment (5% to 10%) as marketing expenses and profit. This leaves very little money to buy the option. This is why most capital protected product gives poor return over the past years.
For a capital guaranteed product, an additional fee is taken away to pay the bank that provides the capital guarantee. This reduces the return to the investor further.
Be aware about capital protected product. It is good for marketing, but is actually quite useless. Read this opinion:
http://www.wrenresearch.com.au/advisers/factsheets/060413/index-b.htm
http://www.londonstockexchange.com/en-gb/pricesnews/prices/structuredproducts/proddescriptions/capprotect.htm
Basically, the issuer of the product buys a zero coupon bond to provide the redemption of the capital at maturity date and uses the interest to buy an option.
If the option works well, it can give an attractive return. If the market moves in the wrong direction, the option is useless and the investor loses the option money entirely.
This product has a disadvantage. The issuer is likely to take away a large part of the investment (5% to 10%) as marketing expenses and profit. This leaves very little money to buy the option. This is why most capital protected product gives poor return over the past years.
For a capital guaranteed product, an additional fee is taken away to pay the bank that provides the capital guarantee. This reduces the return to the investor further.
Be aware about capital protected product. It is good for marketing, but is actually quite useless. Read this opinion:
http://www.wrenresearch.com.au/advisers/factsheets/060413/index-b.htm
Service to the people
Someone commented that my actions (in helping the people affected by te minibond and other structured product) reflect "service to the people".
There is another person who has sacrificed much for what he believes to be good for the people of Singapore. He is Mr. J B Jeyaretnam.
An open letter has been sent to the Prime Minister and his Cabinet to honour Mr. J B Jeyaretnam for his sacrifices and beliefs in serving the people of Singapore.
http://theonlinecitizen.com/2008/10/letter-to-pm-lee-to-honour-mr-jbj/
I respect Mr. Jeyaretnam for what he has done for the people of Singapore. I have added my signature to this letter. If you wish to join me, you can sign here:
http://www.petitiononline.com/IHOJBJ2/
There is another person who has sacrificed much for what he believes to be good for the people of Singapore. He is Mr. J B Jeyaretnam.
An open letter has been sent to the Prime Minister and his Cabinet to honour Mr. J B Jeyaretnam for his sacrifices and beliefs in serving the people of Singapore.
http://theonlinecitizen.com/2008/10/letter-to-pm-lee-to-honour-mr-jbj/
I respect Mr. Jeyaretnam for what he has done for the people of Singapore. I have added my signature to this letter. If you wish to join me, you can sign here:
http://www.petitiononline.com/IHOJBJ2/
CNBC short video on Minibond
CNBC's short video on Minibond.
http://www.cnbc.com/id/15840232?video=876393192
Chee Onn
http://onnzhai.blogspot.com
http://www.cnbc.com/id/15840232?video=876393192
Chee Onn
http://onnzhai.blogspot.com
Is it wise to cash out on the structured product now?
A few investors have asked for my advice whether they should cash out on the structured products that have not yet experienced a "credit default". The current price of these products now represent a loss of 20% or higher on the orignal investment.
I have replied that I am not able to give specific advice for any particular product. Each product has its own characteristics. To give proper advice, one needs to have more detailed data and to calculate the chance of a "credit default", which is quite difficult.
Here are some general remarks:
1. The quoted price now usually assume a "worse case" scenario. It is usually less than the current market value of the underlying assets. As there are more panicky sellers, the buyers can offer a lower price to make a profit (in relation to the actual risk). The buyer could be a savvy financial institution which is able to calculate the risk better than the retail investor.
2. The bailout plan passed in USA is likely to prevent further failures of large financial institutions, like Lehman Brothers. Perhaps, there will be no large failures of this kind in the future, even if the economy worsens.
3. If I were the retail investor, I would prefer to take the risk and wait for maturity. The chance of getting a higher return is better than cashing out now. But this is based on "gut feel" only.
I have replied that I am not able to give specific advice for any particular product. Each product has its own characteristics. To give proper advice, one needs to have more detailed data and to calculate the chance of a "credit default", which is quite difficult.
Here are some general remarks:
1. The quoted price now usually assume a "worse case" scenario. It is usually less than the current market value of the underlying assets. As there are more panicky sellers, the buyers can offer a lower price to make a profit (in relation to the actual risk). The buyer could be a savvy financial institution which is able to calculate the risk better than the retail investor.
2. The bailout plan passed in USA is likely to prevent further failures of large financial institutions, like Lehman Brothers. Perhaps, there will be no large failures of this kind in the future, even if the economy worsens.
3. If I were the retail investor, I would prefer to take the risk and wait for maturity. The chance of getting a higher return is better than cashing out now. But this is based on "gut feel" only.
A highly risky structured product
Some people (probably marketing the structured product) argued that 5% is a high return that justify a high risk. A safe return is 1% or less, which is the interest paid on fixed deposit. I disagree with this reasoning.
In my view, these investors are not risk takers. My reasons are:
1. Government bonds pay a return of about 3% per annum over a period of 5 years. It is guaranteed by the Government.
2. The 5% that is provided in the structured product is not guaranteed. It is actually paid out of the principal. Even if economic conditions are favourable, the investor may not get 100% of the principal paid on maturity. Even if the structured product is "principal protected", it is not the same as "capital protected".
3. It is irresponsible for the financial institution to earn a higher yield by risking the capital in credit default swaps. This is a gamble and is highly risky. This risk has not been properly explained to the investor. In most cases, the investor has been misled by improper advice and assurances.
There are strong grounds for the authority (MAS or attorney general) to investigate the financial institutions for wrong doings. I hope that the authority will act immediately. The purpose of the Petition to the Singapore Government is to ask for an investigation to be made to determine if any law has been broken.
In my view, these investors are not risk takers. My reasons are:
1. Government bonds pay a return of about 3% per annum over a period of 5 years. It is guaranteed by the Government.
2. The 5% that is provided in the structured product is not guaranteed. It is actually paid out of the principal. Even if economic conditions are favourable, the investor may not get 100% of the principal paid on maturity. Even if the structured product is "principal protected", it is not the same as "capital protected".
3. It is irresponsible for the financial institution to earn a higher yield by risking the capital in credit default swaps. This is a gamble and is highly risky. This risk has not been properly explained to the investor. In most cases, the investor has been misled by improper advice and assurances.
There are strong grounds for the authority (MAS or attorney general) to investigate the financial institutions for wrong doings. I hope that the authority will act immediately. The purpose of the Petition to the Singapore Government is to ask for an investigation to be made to determine if any law has been broken.
Selling of life insurance through multi-level
Someone asked if life insurnce is sold through multi-level, with high commission paid to all the levels. The focus of MLM organisation is to increase the volume of sales by paying high commission to all the levels.
The answer is "yes, in most cases". The total commission paid to all the levels can be as much as 160% of the annual premium, paid over the first three years. If you invest $500 per month in a life insurance policy, the total commission is as much as 160% X 12 X $500 = $9,600. The commission is taken out of your policy and is shared by the agent, agency supervisor and agency manager. This is money that you have to work very hard to earn, and you can lose it so easily and surely, when you buy a life insurance policy.
Most companies pay commission as high as indicated above. Some companies have only one level and pays a lower rate of commission. One company that I know of (which shall be unnamed) used to pay commission at less than half of the market rate, but I am told that this company has now increased its commission and advertising expenses considerably.
I generally advice people not to linvest in any life insurance product (i.e. whole life, endowment, education, investment-linked policy) due to the high charges. They give poor value to the consumer. It is better to invest in a low cost investment fund (i.e. equity, bond or money market fund).
Read this FAQ:
http://www.tankinlian.com/faq/savings.html
If you have bought a high cost life insurance policy, it is usually better to continue the policy, as you have already incurred the upfront expense. But you should NEVER buy any high cost insurance policy in the future.
The answer is "yes, in most cases". The total commission paid to all the levels can be as much as 160% of the annual premium, paid over the first three years. If you invest $500 per month in a life insurance policy, the total commission is as much as 160% X 12 X $500 = $9,600. The commission is taken out of your policy and is shared by the agent, agency supervisor and agency manager. This is money that you have to work very hard to earn, and you can lose it so easily and surely, when you buy a life insurance policy.
Most companies pay commission as high as indicated above. Some companies have only one level and pays a lower rate of commission. One company that I know of (which shall be unnamed) used to pay commission at less than half of the market rate, but I am told that this company has now increased its commission and advertising expenses considerably.
I generally advice people not to linvest in any life insurance product (i.e. whole life, endowment, education, investment-linked policy) due to the high charges. They give poor value to the consumer. It is better to invest in a low cost investment fund (i.e. equity, bond or money market fund).
Read this FAQ:
http://www.tankinlian.com/faq/savings.html
If you have bought a high cost life insurance policy, it is usually better to continue the policy, as you have already incurred the upfront expense. But you should NEVER buy any high cost insurance policy in the future.
Engaging a lawyer
A few investors have asked me to engage a lawyer to sue the financial institution collectively. They have lost trust in tbe MAS complaint process and FiDREC and believe that it will be a waste of time, leading to no compensation.
I will be contacting some lawyers. If you know of any lawyer who is willing to act, please send the name, email address and telephone number to kinlian@gmail.com.
Even if you have to engage a lawyer as a last resort, it is advisable for you to lodge your complaint according to the current arrangement, as set out in this MAS advisory:
http://www.moneysense.gov.sg/contact_us/Consumer_Portal_Contact_Us.html
I will be contacting some lawyers. If you know of any lawyer who is willing to act, please send the name, email address and telephone number to kinlian@gmail.com.
Even if you have to engage a lawyer as a last resort, it is advisable for you to lodge your complaint according to the current arrangement, as set out in this MAS advisory:
http://www.moneysense.gov.sg/contact_us/Consumer_Portal_Contact_Us.html
Elderly get hit the most!
It is very sad to see many elderly people lost all of their lifetime savings in the structured products. Many lost several hundred thousand dollars, representing many years of hard work and savings by being frugal.
These folks are risk adverse. They place their money on fixed deposit to earn interest. In recent years, the interest rate dropped to 1%, way below the inflation rate. Each year, the interest earned on their savings is insufficient to provide a decent income for them to live on.
The financial institutions employed marketeers to recommend the structured products to these folks. This is highly irresponsible. These products have high risk, including the risk of losing their entire savings on a "credit event". Regardless of how small the risk, this type of financial product is NOT suitable to elderly people. They cannot afford to lose their entire savings on a gamble that the "credit event" will not happen.
There is clearly a strong case for the Monetary Authority of Singapore to take against the financial institutions. So far, MAS does not want to step in. They expect the elderly folks to be able to deal with the financial institutions. How is this possible?
I hope that MAS realise the pain that they have caused to so many helpless, elderly folks - first by allowing these toxic products to be sold to them, and now by not stepping in to help them seek suitable redress.
Why are these products "toxic"? They can cause the entire loss of the savings. This is much worse than investing in a diversified fund of equities.
These folks are risk adverse. They place their money on fixed deposit to earn interest. In recent years, the interest rate dropped to 1%, way below the inflation rate. Each year, the interest earned on their savings is insufficient to provide a decent income for them to live on.
The financial institutions employed marketeers to recommend the structured products to these folks. This is highly irresponsible. These products have high risk, including the risk of losing their entire savings on a "credit event". Regardless of how small the risk, this type of financial product is NOT suitable to elderly people. They cannot afford to lose their entire savings on a gamble that the "credit event" will not happen.
There is clearly a strong case for the Monetary Authority of Singapore to take against the financial institutions. So far, MAS does not want to step in. They expect the elderly folks to be able to deal with the financial institutions. How is this possible?
I hope that MAS realise the pain that they have caused to so many helpless, elderly folks - first by allowing these toxic products to be sold to them, and now by not stepping in to help them seek suitable redress.
Why are these products "toxic"? They can cause the entire loss of the savings. This is much worse than investing in a diversified fund of equities.
Greed and exploitation
Twenty years ago, we can trust banks, insurance companies, doctors, lawyers and professionals to be honest and to look after the interest of ordinary people. This is called ethics.
In recent years, many people have become greedy and want to earn a lot of money, very fast. They are willing to exploit ordinary people to make more profit, so long as they do not break the letter of the law. Ethics and morals have deteriorated.
Regulators have also taken the approach of "buyer's beware". They think that it is all right for the smart and powerful peopl, to exploit the weak and the poor.
We are now in an unethical, dishonest world. It is quite sad.
In recent years, many people have become greedy and want to earn a lot of money, very fast. They are willing to exploit ordinary people to make more profit, so long as they do not break the letter of the law. Ethics and morals have deteriorated.
Regulators have also taken the approach of "buyer's beware". They think that it is all right for the smart and powerful peopl, to exploit the weak and the poor.
We are now in an unethical, dishonest world. It is quite sad.
How to play Pro-Trader
1. Log into the following:
http://tankinlian.com/trader/
2. Register to create an account.
3. Login into your account. Click on "Play Now".
4. Select the "Single Player" mode. Choose a random scenario and period (10 days). This game will take 20 mins. This is a practice game.
5. Select the "Multi Player" mode. Select a 10 day or 20 day game. Wait 15 minutes for other players to join in. (If someone created the game earlier, you can join in the game which will start before 15 minutes). You can compete with other players. At the end of the game, your score will be used to compute your Ranking.
6. If you play the Multi Player game several times, your ranking will improve from Trainee, to Apprentice and to higher levels.
7. You will learn the dynamics of trading (investing) in the markets. You can practice many times to get the feel of trading.
http://tankinlian.com/trader/
2. Register to create an account.
3. Login into your account. Click on "Play Now".
4. Select the "Single Player" mode. Choose a random scenario and period (10 days). This game will take 20 mins. This is a practice game.
5. Select the "Multi Player" mode. Select a 10 day or 20 day game. Wait 15 minutes for other players to join in. (If someone created the game earlier, you can join in the game which will start before 15 minutes). You can compete with other players. At the end of the game, your score will be used to compute your Ranking.
6. If you play the Multi Player game several times, your ranking will improve from Trainee, to Apprentice and to higher levels.
7. You will learn the dynamics of trading (investing) in the markets. You can practice many times to get the feel of trading.
Pro-Trader Simulation Game
I develop Pro-Trader as a simulation game to teach students in wealth management about trading in the real world environment. I hope that it is also suitable for investors who wish to develop the skill of making the right timing in their investments.
Pro-Trader show the prices of four financial products, e.g. stock, bond, currency, gold. The prices move in respond to economic and political events. The prices are made as realistic as possible, to follow the trends in past years. This allows the player to develop an insight into how the events affect the prices of certain products.
The investor in the financial trading world knows that the market prices do not follow any definite pattern. The actual prices depend on the perception of the players at any point of time. If there are more buyers, the price moves up. If there are more sellers, the price moves down.
Generally, the players will react according to their past experience. For example, if interest rate for a currency goes up, the currency should also move up. Generally, higher interest rate leads to lower stock prices.
At any point of time, the prices are influenced by several events that occur simultaneously. Some market participants take a few hours or a day to react to a market event. These behaviors are factored into the simulated prices.
Each contract represents an investment of $100,000 X price in the financial product. The trader is allowed to enter a long or short position, similar to a trade in the futures market.
The key lessons to be learnt are:
> Study the price trends to understand how the market is reacting to the news
> Be ready to move quickly into your trading position
> Be ready to change quickly, if the trends change or your positions are wrong
> Practice many times, to get a feel of the market behavior
> Learn about the market through this game, before investing your real money
Try this game:
http://www.tankinlian.com/trader
Players registered as at 4 October: 377 players
Pro-Trader show the prices of four financial products, e.g. stock, bond, currency, gold. The prices move in respond to economic and political events. The prices are made as realistic as possible, to follow the trends in past years. This allows the player to develop an insight into how the events affect the prices of certain products.
The investor in the financial trading world knows that the market prices do not follow any definite pattern. The actual prices depend on the perception of the players at any point of time. If there are more buyers, the price moves up. If there are more sellers, the price moves down.
Generally, the players will react according to their past experience. For example, if interest rate for a currency goes up, the currency should also move up. Generally, higher interest rate leads to lower stock prices.
At any point of time, the prices are influenced by several events that occur simultaneously. Some market participants take a few hours or a day to react to a market event. These behaviors are factored into the simulated prices.
Each contract represents an investment of $100,000 X price in the financial product. The trader is allowed to enter a long or short position, similar to a trade in the futures market.
The key lessons to be learnt are:
> Study the price trends to understand how the market is reacting to the news
> Be ready to move quickly into your trading position
> Be ready to change quickly, if the trends change or your positions are wrong
> Practice many times, to get a feel of the market behavior
> Learn about the market through this game, before investing your real money
Try this game:
http://www.tankinlian.com/trader
Players registered as at 4 October: 377 players
In honour of J B Jeyaretnam
An open letter has been sent to the Prime Minister and his Cabinet to honour Mr. J B Jeyaretnam for his sacrifices and beliefs in serving the people of Singapore.
http://theonlinecitizen.com/2008/10/letter-to-pm-lee-to-honour-mr-jbj/
I respect Mr. Jeyaretnam for what he has done for the people of Singapore. I have added my signature to this letter. If you wish to join me, you can sign here:
http://www.petitiononline.com/IHOJBJ2/
http://theonlinecitizen.com/2008/10/letter-to-pm-lee-to-honour-mr-jbj/
I respect Mr. Jeyaretnam for what he has done for the people of Singapore. I have added my signature to this letter. If you wish to join me, you can sign here:
http://www.petitiononline.com/IHOJBJ2/
Talk at NUS on 17 Oct 2008
This talk is open to the public:
Organised by NUS CSR Student Movement: Investments, Society and You :
Smart Financial Planning by former CEO of NTUC Income Mr. Tan Kin Lian.
Friday 17th October 2008, 600-830pm.
Venue: NUS Business School LT17.
To register, go to http:// www.CSRSM.org.
For more information, please email nus.csrsm@gmail.com
Minibond in Hong Kong
http://www.pressdisplay.com/pressdisplay/showlink.aspx?bookmarkid=VC2M107ZJWT&preview=magnifier&linkid=02c219dc-b579-454f-964c-01b06cf17d58&pdaffid=8HM4kDzWViwfc7AqkYlqIQ%3d%3d
4 Oct 2008
South China Morning Post
Joyce Man and Dennis Eng
Minibond issuers were told by the securities watchdog yesterday to “exercise their duty more diligently” in explaining the risk to investors.
The call came from Securities and Futures Commission chief executive Martin Wheatley, as interest payments ceased on two minibond series linked to bankrupt US investment bank Lehman Brothers, putting them at risk of liquidation.
HSBC, which is the trustee of the minibonds, is sending letters requesting distributors to determine whether clients who invested in the minibonds want to opt for early redemption, sources said.
“Recent events show that investors need to be presented with a clearer picture of product risks – they need to understand better how products will operate in extreme market conditions or in the face of bankruptcy,” Mr Wheatley said in a circular.
Issuers “must exercise their duty more diligently”, he said. Marketing materials must be clear, fair and present a balanced picture with adequate and prominent risk disclosure.
The two HSBC minibond series linked to Lehman Brothers have failed to make interest payments in an “event of default”, putting them at risk of being liquidated.
At least 20 per cent by value of the investors of the minibonds – reportedly series 21 and 27 – must agree in order for the liquidation to go ahead. Proceeds that can be distributed to investors depend on the value of the underlying assets less the cost of terminating Lehman’s involvement and other legal costs.
Although there are widespread fears other minibonds will succumb to Lehman’s troubles, action to liquidate them cannot be taken as long as interest payments continue.
Minibonds are not corporate bonds, but consist of high-risk creditlinked derivatives. They are marketed as a proxy investment in well-known companies.
Hundreds of investors in minibonds and other complex derivatives issued or backed by Lehman Brothers have been demanding refunds and accusing the banks that sold them the products of not fully disclosing the risk involved.
A Hong Kong Association of Banks taskforce met for the first time yesterday and decided to form subgroups to analyse each kind of investment product.
The taskforce will help banks handle issues related to the products, collect information from Lehman’s liquidators and trustees to pass on to investors, and communicate with regulators, the association said.
The Civic Party said the taskforce would not solve the problem and had no timetable.
“ You need a tiger with teeth,” Civic Party legislator-elect Margaret Ng Ngoi-yee. “The Hong Kong Monetary Authority has teeth.”
Audrey Eu Yuet- mee, another party legislator-elect, said the Legislative Council might form a select committee when it reopens for session if the Monetary Authority does not react faster and more forcefully.
The authority should instruct banks to fast- track their investigations and appoint independent parties that act as a one-stop service for complaints, Ms Eu and Ms Ng said.
The authority should conduct disciplinary proceedings where complaints are justified and undertake a reform based on the independent parties’ investigations, they said.
Investors who purchased minibonds from the Bank of China (Hong Kong), Mevas Bank, and Dah Sing Bank will rally again today.
4 Oct 2008
South China Morning Post
Joyce Man and Dennis Eng
Minibond issuers were told by the securities watchdog yesterday to “exercise their duty more diligently” in explaining the risk to investors.
The call came from Securities and Futures Commission chief executive Martin Wheatley, as interest payments ceased on two minibond series linked to bankrupt US investment bank Lehman Brothers, putting them at risk of liquidation.
HSBC, which is the trustee of the minibonds, is sending letters requesting distributors to determine whether clients who invested in the minibonds want to opt for early redemption, sources said.
“Recent events show that investors need to be presented with a clearer picture of product risks – they need to understand better how products will operate in extreme market conditions or in the face of bankruptcy,” Mr Wheatley said in a circular.
Issuers “must exercise their duty more diligently”, he said. Marketing materials must be clear, fair and present a balanced picture with adequate and prominent risk disclosure.
The two HSBC minibond series linked to Lehman Brothers have failed to make interest payments in an “event of default”, putting them at risk of being liquidated.
At least 20 per cent by value of the investors of the minibonds – reportedly series 21 and 27 – must agree in order for the liquidation to go ahead. Proceeds that can be distributed to investors depend on the value of the underlying assets less the cost of terminating Lehman’s involvement and other legal costs.
Although there are widespread fears other minibonds will succumb to Lehman’s troubles, action to liquidate them cannot be taken as long as interest payments continue.
Minibonds are not corporate bonds, but consist of high-risk creditlinked derivatives. They are marketed as a proxy investment in well-known companies.
Hundreds of investors in minibonds and other complex derivatives issued or backed by Lehman Brothers have been demanding refunds and accusing the banks that sold them the products of not fully disclosing the risk involved.
A Hong Kong Association of Banks taskforce met for the first time yesterday and decided to form subgroups to analyse each kind of investment product.
The taskforce will help banks handle issues related to the products, collect information from Lehman’s liquidators and trustees to pass on to investors, and communicate with regulators, the association said.
The Civic Party said the taskforce would not solve the problem and had no timetable.
“ You need a tiger with teeth,” Civic Party legislator-elect Margaret Ng Ngoi-yee. “The Hong Kong Monetary Authority has teeth.”
Audrey Eu Yuet- mee, another party legislator-elect, said the Legislative Council might form a select committee when it reopens for session if the Monetary Authority does not react faster and more forcefully.
The authority should instruct banks to fast- track their investigations and appoint independent parties that act as a one-stop service for complaints, Ms Eu and Ms Ng said.
The authority should conduct disciplinary proceedings where complaints are justified and undertake a reform based on the independent parties’ investigations, they said.
Investors who purchased minibonds from the Bank of China (Hong Kong), Mevas Bank, and Dah Sing Bank will rally again today.
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