Chinese New Day

For the Chinese, celebrating the Chinese New Year is a tradition passed down from our ancestors. Over the years, this expression of celebration remains somewhat the same. Shops still beckon to those in need of new clothes for the New Year. Giving and receiving of 'ang baos' still continues. Even superstitions like avoiding sweeping on the first day of the New Year are hard to break. But the spirit behind the celebration, unfortunately, has long been altered.


Boss recalls how he used to look forward to the festive season the moment familiar Chinese New Year tunes began playing. It was a great chance to break away from homework and just indulge in play. He noticed that festive periods are a time of fun and laughter. But as soon as the season is over, life returned to everyday normalcy.

As he grew older and wiser, he came to understand what true celebration is all about. He also discovered the kind of spirit he should have towards the tradition.

Boss believes in authenticity. Anyone who knows him well knows how much he detests patronising people and events. When he shows up at a wedding or even a funeral, he goes with the right spirit and intention- to bless. He does not go so as to look charismatic or be politically right.

Every daily domestic affair is also a habit of authenticity. That is why, when he gives a word of encouragement or a compliment, we know he means it from the bottom of his heart. He does nothing mindlessly, as part of the herd, to gain acceptance. In being real, he goes to great lengths to pursue compassion, integrity, respect, wisdom and loyalty. It is the same with what he does and advises us to do in business. Such decisions are made from sound strategies and ideas that deliver professional service to clients.
 The attitude he has may sound revolutionary to many. But to Boss, it is but how a normal human being should behave. He does not practice social norms for the sake of carrying on tradition. As such, he cannot comprehend why anyone could get hyped up without really knowing why. Is it just because everyone else is doing so, or simply because it is the highlight of the month?
 Like the majority, he too, enjoys a stroll down Chinatown. He too, dresses himself in new clothes. And definitely, he visits his family and relatives, just like everyone else.


What is different however, is his appreciative spirit towards the event. This appreciation is rooted far deeper than most and stems from a real appreciation of life itself. To him, visiting loved ones during the festive season is but another opportunity for him to show respect and care. It is an opportunity for him to nurture the lives of others - something he does on a daily or weekly basis anyway.

He does not get drawn into the hype created by a clever marketing department. After the event is over, he doesn't look forward to the next big event to indulge or distract him from responsibility. Neither does he give up on tradition or hold a disinterested contempt for it. He treasures both life and time-honoured traditions dearly. But he does so purposefully and for the right reasons.


Everyday without fail, he dedicates time to ponder deep into his life and his daily actions. The weight of taking care of his family, his friends and JNP clients does not allow him the luxury to be idle even for a moment. Even his time for exercise or rest is carefully set aside so he can push himself further in the service of others. Constantly, he refines his thoughts and ways of doing things, to stretch himself further and further. His overriding purpose is to ensure the people under his wings are well taken care of.


This may sound torturous to many, and he has received such comments more than once. They tell him to enjoy life with the millions he has made. But to him, nurturing relationships is enjoying life. Any moments he spends with his loved ones, or even by himself thinking of ways to help them, IS celebrating life. He simply derives immense joy when he serves. Though he partakes in them, Boss knows festivals and holidays are unnecessary to make his life any more enjoyable.


To get the best out of life, Boss' philosophy is simple: It is an honor to serve others and count your blessings daily. This is the meaty main dish of life, the staples as he calls it. Any festivals or holidays simply top off or garnish what is already there. We should partake in holidays and festivals and ride on the exuberance of the festive mood. But we should never to rely on such events to keep our spirits buoyant throughout the year. When we learn to serve others daily, and count our blessings daily, every other moment spent with our loved ones becomes something to celebrate about.


This New Year is surely not our first. But perhaps we should approach this tradition with a brand new attitude: not to look forward to the next New Year, but rather, a New Day, Everyday!

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Beware: Inflation Running on a Full Tank

Inflation is probably not a new term to you if you have been in touch with the news. But, have you ever paused for a moment and really thought of how it might impact you? For those who have been treating this as another fascinating topic to be discussed over coffee, here's something for you. At JNP Kakis, we've prepared a special news brew that will keep you wide awake:


2010 ended well for many of our clients, families and friends. Employment opportunities have picked up, bonuses that were frozen in previous years were paid out and many even got a pay raise. All in all, things seem to have thawed out and many feel richer this year. Caught up in the festivities, they have embraced this Chinese New Year with more warmth and thicker red packets than the years before.



But, is this feeling of prosperity real?


Like the proverbial frog in a simmering hot pot, many are comfortably unconscious of rising prices. And while you may not drive, the escalating oil price is a telling indicator of where inflation is going. Imperceptibly, inflation begins turning up the heat when economies first emerge out of recessions. The trick is to jump out of the hot pot before you're cooked!


As Warren Buffet recounts,"The world went mad. What we learn from history is that people don't learn from history."


So let's backtrack in time to glean a lesson or two from history. In the year 2000, the world was badly hit by the burst of the dot com bubble. Still reeling from its impact, September 11 packed another punch to the world economy in 2002. In those three years, crude oil prices hovered at an average of US$25 per barrel.


In 2003, when the bull first reared its head for a rally, crude oil prices quickly responded. Initially, the rise was modest as many Asian countries were still battling against SARS at that point. But by 2004, most if not all major economies were gaining momentum. Consequently, the average crude oil price for 2004 scaled up to US$37 per barrel. And by 2008, it had hit a historic peak of US$145 per barrel!


Common sense would tell anyone that this increase in oil prices would have something to do with why bus fares increased in 2005. Oil prices had indeed crossed the US$50 per barrel mark by then. As a result, SBS Transit reported that costs had increased by $16 million within 3 years from 2002 to 2005. This was due mainly to (surprise, surprise) the rising fuel prices. SBS had no choice but to increase its fares to stay profitable. So what could one expect when oil prices hit its historic peak in 2008? Its simple mathematics- both SBS Transit and SMRT further increased their fares so as to stay in business.


Bus fare hikes were not the only things affected by rising fuel prices. Rising costs of transport translates into rising costs of production for just about everything. Food, utilities, goods and services have all become more expensive as well.


We have yet to experience the full impact of an economic recovery. But this has not stopped oil prices from rising steadily over the past months. In fact, oil prices have crossed the US$100 per barrel mark once again. Concurrently, the local rate of inflation also advanced steadily, hitting a two-year high of 4.6 percent in December 2010.


If history has taught us anything, it is that the oil price usually finds room to not only stretch its legs. It also has the power to take a steep upward hike. And with the emergence of China, it most probably will. This is what will make this recovery different from the rest. This time, the key driver of oil prices will come largely from China, which has now overtaken Japan as the world's second largest economy. This hungry economic giant has an appetite for growth so huge that it will be consuming crude oil at a rate incomparable to rest of the world.


The emergence of China simply implies that we are possibly being chased at the heels by hyper-inflation. Are we prepared for another round of possible bus and train fare hikes? Will we be able to swallow an increase in prices at hawker centers and foodcourts? The truth is that Singapore is an economy dependent on imported resources. Such adjustments are simply inevitable.


Before you throw your hands up in despair, feigning nonchalance or harbouring a sour attitude doesn't really help anyone. What we must do is to actively seek for ways to hedge against these inflationary pressures. And if we look hard enough, money-making opportunities are just around the corner.



Inflation Risk Management

It is our strong belief that non-investors will be seriously affected by inflation. The quality of their lives can only deteriorate in tandem with the rise in their living costs. Just ask any bank what interest they pay for saving your money with them and you'll understand the importance of wise investments. If we assume the rate on interest to be at 0.125% per annum, with inflation estimated at 3% per annum, our money is devaluing at -2.88% per annum.


Let's do a little experiment. Let's say you have $100,000 in the bank today, and you leave it there for 25 years. At the end of this tenure, your $100,000 will have shrunk to an estimated $48,000. Do you realise that you would have effectively thrown away half your cash by leaving it idle in the bank? How many months or even years of hard-earned pay is that for you?


Trying to make up for it by working harder and waiting for a pay increase is not the solution. For most, the average estimated yearly growth rate in wages is about 3-4 % only. Taking inflation into consideration, the real wage becomes zero or even negative. Unwilling though we may be to accept this fact above, it is a harsh reality we must all face. If we do not grow our money aggressively, our financial future is most likely to be bleak. For the sake of our future-selves and our loved ones, we must invest our money today, and continue doing so. Whether we like it or not, the fact remains that inflation will impact us as long as we are consumers of goods and services.



Turning inflationary pressures into opportunities


With the big bad wolf of inflation out there, we wanted to arm you with a few battle strategies. So, we've roped in the ancient war-adviser, Sun Tze for his expertise. Among his battle strategies, Sun Tze has one called 以攻为守, which means 'attack, in order to defend'.


When the big bad wolf of inflation begins to huff and puff, retreat is not an option. We must examine what makes the wolf tick. It is akin to windsurfing. An experienced windsurfer knows when the wave is coming, and where is it coming from. He can then ride the wave blissfully and graciously. A good surfer will not allow himself to get swept under the wave. Similarly, what we have done for our clients, is to position their monies like a stake, through to the heart and source of inflation. Our calls for China and energy, to name a few, exemplify how we turn the defeat of inflation into an opportunity for victory. When the Shanghai Composite Index collapsed by 70% from its peak, we continued to believe its potential. We knew the upside could easily offset the devaluation of our money owed to inflation.


Whether we give it its due attention or not, inflation will dog our every step. It will not go away. By not facing up to it, we have made the decision to be victims. For the many hours we put into making money through physical toil, it is pure foolishness to leave our doors wide open for inflation to rob us. Let's take the proper safety precautions if we haven't already done so, and start taking control of our lives and our future.

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Our Investing Footprints of 2010

Stock markets have always been characterized by volatility and 2010 is no different. Amidst the uncertainty, we remain committed to ensure your portfolio thrives. Looking back, we're glad we seized some good opportunities to buy in at a discount, while holding on to our steadfast belief in prudence and conservatism. Our investing philosophy has not changed, even as we continue to push the boundaries of our economic research. Through our discussions with you, you will know that we remain adamant that capital preservation should, and must come before capital growth. Hence, the 'three bags theory' that your adviser has executed for you would, and should still be in place throughout 2010 (and beyond as well).

A quick recap on the three bags theory:

1) The first bag has your emergency fund set aside and taken care of. This bag of funds must remain liquid to prepare for activation anytime.

2) The second bag of money will be invested for you to build your portfolio with us. It will also include money allocated for dollar cost averaging.

3) The last and final bag is the opportunity fund – to be activated only when we see good

bargains in the equity market. This is usually triggered by events or fears leading to massive sell downs.

The rationale behind these three bags is simple. Invested capital should stay invested till your investment objective is achieved. The first bag reduces the possibility of you withdrawing your investment prematurely.

The second and third bag takes care of the three possible directions the stock market may take – upwards, sideways or downwards.

In 2010, our investing committee met bi-weekly, putting together the research done on global macro-economics. We were prepared to change our asset allocation recommendations where necessary.

Our Investment decisions

From as early as March, the financial system was once again shaken by news brewing out of the PIGS (Portugal, Ireland, Greece and Spain). Many investors who had barely recovered from the sell down of US equities saw their portfolios heading southward once more. Thankfully, as early as June 2009, we made our exit from most of Europe and protected your portfolios from this Euro crisis. Though we seem to have averted danger, we are still vigilant on the further threats Europe may have on the global financial system. We do not rule out the possibility of a double dip, even though we are more inclined to believe the chances of that are quite slim. But if a double dip should happen, the world financial system could take a much longer time to recover. Thus, our asset allocation recommended to clients for the entire year is a fair split between capital preservation and capital growth. This allows us to swipe up equities at value, should a double dip happen. At the same time, we can also afford to buy up immediate opportunities that we discover along the way.

Our Outlook on South Korea

The two additions your adviser may have made to your portfolio in 2010 would have been the South Korean and Energy funds. These have been added to your portfolio to replace the healthcare and MENA funds. I say 'may have added' because recommendations are tailor-made for each client. Every client's financial situation is unique and only through a personal relationship is the adviser able to design the ideal portfolio for you.

South Korea was added into your holdings when Kospi was about 1,580 points. By the end of 2010, Kospi rose to 2,051 points. This comes as no surprise as we could see that a gradual rise in the Yuan might spin off in earnings for Korean companies that export to China. Moving forward, we remain optimistic about South Korea. The policies that the leaders in China will be adopting in 2011, which is to be less export oriented and more reliant on domestic consumption, may imply that China may continue to import technology to improve their internal infrastructure. South Korea, well reputed as a pioneer in multiple innovations, is likely to be a beneficiary of China's strategy. Hence, despite Kospi having risen close to over 30 percent from the day we added it to our portfolio, we still believe it has not realized its full potential. We're closely monitoring the political tensions between the two Koreas but we don't see a need to alter our recommendation as yet.

Bullish on Energy

On the other hand, the our exposure in energy fund was increased in our recommended portfolio in August, when oil prices hovered around US$74 per barrel. At the time of writing this article, oil prices had advanced past the US$90 mark. We chanced upon this great find when the extensive coverage of BP (British Petroleum)’s oil spill, led many of its shareholders rather unhappy (to say the least). Happily, we took this as an indication for us to comb the energy sector for investment opportunities. While precious metals have risen steeply over the past couple of years, the increase in oil prices have been relatively modest. Yet, the potential demand for oil (especially from emerging economies like China) is so huge that it's unimaginable. In the latest five-year development plans of China, there aims to be a shift towards environmental protection. This means the reliance of coal will be greatly reduced to prevent pollution. In its place, oil became the major import of China and things will probably stay that way for many years to come to complement the domestic production of Petro China and Sinopec.

Most oil companies will have both upstream and downstream activities, with an emphasis on upstream activities. This implies that a rise in oil price should translate to healthy earnings for these companies. Even so, we kept exposure to the energy sector down to a modest 10%. This is because we believe a steep rise of oil price is unlikely to take place unless major economies like China and US pick up their growth rate.

In short, we continue to keep a watchful eye over the global economic situation and measure the risk to reward ratio of our recommended portfolio. We want to position your monies to ride the bull and prepare for the next crisis to come. We continue to stand firm on the belief that as your partner in investment risk management, it is not in our liberty to take hindsight perspectives. Preparation and action, not reaction remains our commitment to you.

Let 2011 be another year of triumphs as we look forward to celebrate another year of friendship with you!

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