USD to strengthen in 2015 but INR will outperform

2015 will be a tough year for Asian currencies and every single major currency will drift lower against the US dollar (USD). The Indian rupee (INR), however, will be one of the few currencies that will cope with the greenback strength better, according to an HSBC report.

Moneycontrol Bureau 

2015 will be a tough year for Asian currencies and every single major currency will drift lower against the US dollar (USD). The Indian rupee (INR), however, will be one of the few currencies that will cope with the greenback strength better. That’s the takeaway from the latest report released by HSBC on expected forex trends in the next year. In the report, analysts write that the broad strength seen in the US dollar in 2014, thanks to resurging growth and the expected wind-down of accommodative Federal Reserve policy, will continue into 2015. They added that while the USD is broadly expected to strengthen against most Asian currencies – within that, they expect the INR, Indonesian rupiah (IDR) and Philippine peso (PHP) to outperform (or fall less) while South Korean won (KRW), Taiwan dollar (TWD) and Malaysian ringgit (MYR) would underperform – those looking for trade should decipher individual pairs of Asian currencies and the euro and Japanese yen, which are also expected to weaken. The Chinese renminbi (RMB) will also perform strongly against the USD but will exhibit strong volatility, they warned. Also, “other, more domestic-oriented fundamentals could be key to understanding Asian central banks’ FX policies and the direction of global capital flows. These include inflation, competitiveness and reform agendas. This is especially so, if core bond yields stay low,” the report said. The reason why HSBC expects the INR, IDR and PHP to outperform is because of “the likelihood of their central banks having FX policies that are not particularly biased towards currency weakness (due to either high inflation or an absence of export competitiveness concerns)”. “Their domestic demand stories are more compelling than others in the region, reflecting low leverage levels and/or structural reforms. All three have a long-term demographic dividend that will increasingly aid underlying growth. We also see these countries, especially India, benefiting significantly from low oil prices,” the report stated. While analysts expected the INR to broadly weaken to 63 to the USD (that is, fall not too much from current levels), currency traders could play its relative strength by shorting the Canadian dollar (CAD) and buying INR. “The CAD is seen weakening versus the USD in 2015, while USD-INR should only drift slightly higher. A strong USD environment could continue to weigh on global commodity prices, much to the detriment of the CAD, via slower growth, a wider current account deficit and poorer terms of trade,” the report said. “However, lower commodity prices would be a net positive for the INR via expected improvements in the trade and fiscal accounts. Both the CAD and the INR have similar current account deficits (roughly 2 percent of GDP), but there is scope for the CAD to deteriorate versus the INR,” it added.

Ten Ways To Earn A 10% Rate Of Return On Your Investments

Peer-To-Peer Lending Has A Great Rate Of Return

Peer-To-Peer Lending through companies like Lending Club are my favorite way to earn a rate of return over 10% annually. Lending Club’s most conservatively A rated loan earns over 6% for the investor. It does not take long or much more risk to earn over 10% returns. And, Lending Club’s most risky investments earn a rate of return of over 20% annually.

Starting Your Own Business

I am a huge fan of starting your own business. I wish everyone would have the entrepreneurial spirit. It was one of the best ways to earn a 10% rate of return on your investment. Whether it is opening a neighborhood restaurant or as simple as starting a blog, a business venture is a great way to boost your investments’ returns.

Short-Term Stock Trading

Granted, short-term stock trading is not for everyone and should not be done with a large portion of your entire investment portfolio. Learning investment management can be a great way to gain the knowledge on what you need to do in the stock market to get a big return. Trying to time the stock market is a rough way to earn a 10% rate of return on your investments, but it could be well worth your time and efforts with a small portion of your investment portfolio.

Investing In Real Estate

Real estate is a great way to earn over 10% rate of return on your money. I’m a big fan of becoming a landlord which I’ve talked about several times here onMoney Q&A. While you need to run your numbers and do your research, you can earn a 10% rate of return on your investments with your rents.

Real Estate Investment Trusts (REIT) are another great option if you do not want to own real estate directly. REITs are required by law to distribute a majority of their earnings to their shareholders in the form of dividends. These payouts and real estate’s impending comeback make REITs an attractive alternative to help investors reach the 10% threshold.

Master Limited Partnerships (MLP)

Master Limited Partnerships are partnerships that trade like a stock. They are risky and not for every investor, but they can often offer a larger rate of return than other investments. Many MLPs invest in the energy sector, minerals, and other raw material type ventures. They often have a high yield because they do not pay income taxes themselves and pass on that responsibility to their shareholders.

Art And Other Collectables Can Diversify Your Investments

Beverly Solomon who is the Creative Director of musee-solomon recommends investing in art and other collectibles. “Good art, great collectibles, quality antiques as a whole are safe investments that tend to grow in value at as good as or better rate than almost any other investment. Plus they–unlike stocks or bonds–have the added bonus of your being able to enjoy them in your home on a daily basis,” she said.

Create A Product To Boost Your Rate Of Return On Your Investments

Robert Pagliariri wrote one of my favorite books, “The Other 8 Hours”, where he talked about becoming a creator. It is not enough to simply work a 9 to 5 job and hope to become rich. It unfortunately just does not work that way. Those who are more successful than most are creators. They create businesses. They create products. They make things people want to buy. That’s how you can earn a 10% rate of return on your investment.

Junk Bonds Are An Interesting Choice

Junk bonds get a bad rap simply because of their name. But, don’t be fool by the lingo. There are basically two categories of bonds: investment grade and junk bonds. Junk bonds are simply high yield, higher risk bonds from companies who have seen their credit ratings suffer from the rating agencies like Moody’s and Standard and Poor’s. Junk bonds typically have a rating of BB or Ba or less depending on whose scale you use.

Paying Off Your Debt Is Like An Investment

Paying off a debt with a high interest rate is the same as having earned that exact same rate of return. It is all about opportunity costs. What is the best opportunity for you to put your money to work for you? For example, if you have a credit card with a balance that is charting you a 16% interest rate, paying off that debt would be the same as having invested and earning that 16% on the investment. Paying off high interest debt is a great way to earn a stellar rate of return.

Stocks For The Long Term

“Make it automatic,” said David Rae, a retirement income specialist and CFP, recommends setting up automatic investments. “Put money away every month, when time are good and times are bad. Avoiding investing mistakes will make you more money in the long run than trying to pick the hottest sector/stock/fund/investment of the years.”

With the help of a Financial Planner, you can pick a well diversified investment portfolio appropriate to your financial situation and the amount of risk that you are willing to accept. Granted, you may need to take on more risk if you want that 10% rate of return.

Most of us are a victim of recency bias. An entire generation of investors have only known the stock market of 2003 to 2013. Our most recent past is not a precursor to what our long term investing future will be. A 10% annual rate of return over the long term is very much achievable.

7 golden rules of investing in stock markets

1. Avoid the herd mentality

The typical buyer's decision is usually heavily influenced by the actions of his acquaintances, neighbours or relatives. Thus, if everybody around is investing in a particular stock, the tendency for potential investors is to do the same. But this strategy is bound to backfire in the long run. 

No need to say that you should always avoid having the herd mentality if you don't want to lose your hard-earned money in stock markets. The world's greatest investor Warren Buffett was surely not wrong when he said, 'Be fearful when others are greedy, and be greedy when others are fearful!'

2. Don't try to time the market

One thing that even Warren Buffett doesn't do is to try to time the stock market, although he does have a very strong view on the price levels appropriate to individual shares. A majority of investors, however, do just the opposite, something that financial planners have always been warning them to avoid, and thus lose their hard-earned money in the process. 

'So, you should never try to time the market. In fact, nobody has ever done this successfully and consistently over multiple business or stock market cycles. Catching the tops and bottoms is a myth. It is so till today and will remain so in the future. In fact, in doing so, more people have lost far more money than people who have made money,' says Anil Chopra, group CEO and director, Bajaj Capital.

3. Follow a disciplined investment approach

Historically it has been witnessed that even great bull runs have shown bouts of panic moments. The volatility witnessed in the markets has inevitably made investors lose money despite the great bull runs. 

However, the investors who put in money systematically, in the right shares and held on to their investments patiently have been seen generating outstanding returns. Hence, it is prudent to have patience and follow a disciplined investment approach besides keeping a long-term broad picture in mind.

4. Do not let emotions cloud your judgement

Many investors have been losing money in stock markets due to their inability to control emotions, particularly fear and greed. In a bull market, the lure of quick wealth is difficult to resist. Greed augments when investors hear stories of fabulous returns being made in the stock market in a short period of time. 'This leads them to speculate, buy shares of unknown companies or create heavy positions in the futures segment without really understanding the risks involved,' says Kapur. 

Instead of creating wealth, these investors thus burn their fingers very badly the moment the sentiment in the market reverses. In a bear market, on the other hand, investors panic and sell their shares at rock-bottom prices. Thus, fear and greed are the worst emotions to feel when investing, and it is better not to be guided by them.

5. Have realistic expectations

There's nothing wrong with hoping for the 'best' from your investments, but you could be heading for trouble if your financial goals are based on unrealistic assumptions. For instance, lots of stocks have generated more than 50 per cent returns during the great bull run of recent years. 

However, it doesn't mean that you should always expect the same kind of return from the stock markets. Therefore, when Warren Buffett says that earning more than 12 per cent in stock is pure dumb luck and you laugh at it, you're surely inviting trouble for yourself.

6. Invest only your surplus funds

If you want to take risk in a volatile market like this, then see whether you have surplus funds which you can afford to lose. It is not necessary that you will lose money in the present scenario. You investments can give you huge gains too in the months to come. 

But no one can be hundred percent sure. That is why you will have to take risk. No need to say that invest only if you are flush with surplus funds.

7. Monitor rigorously

We are living in a global village. Any important event happening in any part of the world has an impact on our financial markets. Hence we need to constantly monitor our portfolio and keep affecting the desired changes in it. 

If you can't review your portfolio due to time constraint or lack of knowledge, then you should take the help of a good financial planner or someone who is capable of doing that. 'If you can't even do that, then stock investing is not for you. Better put your money in safe or less-risky instruments,' advises Kapur.

Why you shouldn't invest in a fixed deposit

Among some of the best practices followed by top investment managers, tax emerges as an important aspect to be considered. It is common to see advisors in the West talking about pre-tax returns, and more importantly, post-tax returns. However, in India, we do not talk about post-tax returns when talking about the returns of bank fixed deposits.

As investors it is important for us to ask our financial advisors, bankers or agents about the post-tax returns. The impact of tax on investment decisions cannot be underestimated.

Fixed deposit - pre-tax vs. post-tax returns

Interest earned on fixed deposit (FD) is taxed at the tax slab rate of the individual. If an individual decides to invest Rs 10,000 in an FD at 9 per cent interest rate, pre-tax interest earned during the year would be Rs. 900. Tax on the interest earned at 30 per cent tax rate would be Rs 270, and net amount earned by the investor would be Rs 630.

This translates into a net return is 6.3 per cent, which is much lower that the presumed return.

Would you decide to invest in an FD, if the net return from it was viewed 6.3 per cent instead of an overall return of 9 per cent?

Fixed income - debt mutual funds

Long-term capital gains on investments in debt mutual funds are taxed either at 10 per cent flat rate on 20 per cent indexed. Average return of short-term debt funds in the last 3 years is 8.9 per cent. If an individual decides to invest Rs 10,000 in a short-term debt mutual fund, pre-tax returns earned for one year would be Rs 890. At a flat 10 per cent tax, Rs 89 would the tax amount. Net capital gain would be Rs 801, whereas post-tax interest earned would be 8.01 per cent.

Equity - no long-term capital gains

Equity exposure is an important aspect of any portfolio that is built. In India, the government has provided an excellent incentive for long-term investors, by keeping capital gains at 0 per cent. Prudent portfolio building with long-term vision and enough risk weighted exposure to equities can go a long way in building wealth.

Conclusion

'Why should I not invest is FD?' is the most common question asked by many. As explained in the above example, a debt mutual fund could yield more than your FD investment. This is counter-intuitive and against the popular perception. However, introduction of tax has shown the reality of these decisions. Ask your advisor if tax has been considered in choosing the recommended products.

Happy investing!

WARNING Bank Deposits Will Soon No Longer Be Considered Money But Paper Investments

Befor few monts the G20 nations will convene in Brisbane, Australia to conclude a week of Asian festivities that began in Beijing for the developed countries and major economies. And on Sunday, the biggest deal of the week will be made as the G20 will formally announce new banking rules that are expected to send shock waves to anyone holding a checking, savings, or money market account in a financial institution.

On Nov. 16 2014, the G20 will implement a new policy that makes bank deposits on par with paper investments, subjecting account holders to declines that one might experience from holding a stock or other security when the next financial banking crisis occurs. Additionally, all member nations of the G20 will immediately submit and pass legislation that will fulfill this program, creating a new paradigm where banks no longer recognize your deposits as money, but as liabilities and securitized capital owned and controlled by the bank or institution.

In essence, the Cyprus template of 2011 will be fully implemented in every major economy, and place bank depositors as the primary instrument of the next bailouts when the next crisis occurs...

For most Americans with savings or checking accounts in federally insured banks, normal FDIC rules on deposit insurance are still in play, but anyone with over $250,000 in any one account, or held offshore, will have their money automatically subject to bankruptcy dispursements from the courts based on a much lower rank of priority, and a much lower percentage of return.

This also includes business accounts, money market accounts, and any depository investments such as a certificate of deposit (CD)...

 after Sunday at the G20 meeting, the risks of holding any cash in a bank or financial institution will have to be weighed as heavily and with as much determination of risk as if you were holding a stock or municipal bond, which could decline in an instant should the financial environment bring a crisis even remotely similar to that of 2008.

From a technical perspective, this is moving in line with Murray Rothbard's perspective on "bank deposit insurance," which he saw as a scam:

[F]ractional reserve banking proved shaky, and so the New Deal, in 1933, added the lie of "bank deposit insurance," using the benign word "insurance" to mask an arrant hoax. When the savings and loan system went down the tubes in the late 1980s, the "deposit insurance" of the federal FSLIC [Federal Savings and Loan Insurance Corporation] was unmasked as sheer fraud. The "insurance" was simply the smoke-and-mirrors term for the unbacked name of the federal government. The poor taxpayers finally bailed out the S&Ls, but now we are left with the formerly sainted FDIC [Federal Deposit Insurance Corporation], for commercial banks, which is now increasingly seen to be shaky, since the FDIC itself has less than one percent of the huge number of deposits it "insures." 

The very idea of "deposit insurance" is a swindle; how does one insure an institution (fractional reserve banking) that is inherently insolvent, and which will fall apart whenever the public finally understands the swindle? Suppose that, tomorrow, the American public suddenly became aware of the banking swindle, and went to the banks tomorrow morning, and, in unison, demanded cash. What would happen? The banks would be instantly insolvent, since they could only muster 10 percent of the cash they owe their befuddled customers. Neither would the enormous tax increase needed to bail everyone out be at all palatable. No: the only thing the Fed could do, and this would be in their power, would be to print enough money to pay off all the bank depositors. Unfortunately, in the present state of the banking system, the result would be an immediate plunge into the horrors of hyperinflation. 

Thus, the removal of protection for large depositors is eliminating the scam at this tier. It is, in other words, cutting down on moral hazard.

However, I do not suspect that the world's governments have suddenly found Jesus/Rothbard. I suspect what is going on here is that the government is fully aware that this change will create a separation between bank deposits and government securities. Government securities, especially short-term paper, will become a safer investment than large banks deposits. This will drive funds away from banks and private sector lending and push funds into the direction of government sponsored debt (where there will be continued back up for such debt of the money printing presses).

What is Investment Banking?

So what does an investment bank actually do? Several things, actually. Below we break down each of the major functions of the investment bank, and provide a brief review of the changes that have shaped the investment banking industry through the aftermath of the 2008 financial crisis. 

• Raising Capital & Security Underwriting. Banks are middlemen between a company that wants to issue new securities and the buying public.
• Mergers & Acquisitions. Banks advise buyers and sellers on business valuation, negotiation, pricing and structuring of transactions, as well as  procedure and implementation.
• Sales & Trading and Equity Research. Banks match up buyers and sellers as well as buy and sell securities out of their own account to facilitate the trading of securities
• Retail and Commercial Banking. After the repeal of Glass-Steagall in 1999, investment banks now offer traditionally off-limits services like commercial banking.
• Front office vs back office. While the sexier functions like M&A advisory are “front office,” other functions like risk management, financial control, corporate treasury, corporate strategy, compliance, operations and technology are critical back office functions.
• History of the industry. The industry has changed dramatically since John Pierpont Morgan had to personally bail out the United States from the Panic of 1907. We survey the important evolution in this section.
• After the 2008 financial crisis. The  industry has not fully recovered from the financial crisis that gripped the world in 2008. How has the industry changed and where is it going?

What to Look For When Buying an Investment Property

There’s nothing new about buying a house and renting it out to make some extra income, but the flood of foreclosures that began in 2007 sparked fresh interest in purchasing rental real estate for investment. Today, millions of individual investors, as well as huge Wall Street hedge funds, have invested billions of dollars into purchasing houses, fixing them up, and renting them out.

Rental real estate is one of the few investments that generate significant returns while you still own the asset. But how do you know you’re choosing the right property?

What constitutes a good rental property?

What makes a property a good investment? Local rental rates, which are a function of jobs generated by the local economy, are critical. But how do you know what rents will be like in 10 years? How can you anticipate management-related costs, including maintenance and repairs? What happens if you lose your tenant suddenly and can’t find a replacement?

A good way to measure current and potential profitability of a rental property is to compare its annual net operating income (the income after operating expenses are deducted) to either its capital cost (what you paid to buy the property) or its current market value. This is called the capitalization, or “cap,” rate.

Calculating a cap rate

To figure out the cap rate, divide the annual net operating income by the capital cost or current market value. The higher the cap rate, the more profitable the rental property will be.

For example, assume that you purchase a home for $150,000, and you charge $1,200 a month, or $14,400 a year, for rent. Then you hire a management company, which charges you 10 percent of the rent, or $1,440. Your projected vacancy costs—the annual rent loss you can expect when the property is not being rented—will likely be between 5 percent and 10 percent of the annual rent, or between $720 and $1,440 each year. To calculate the cap rate, assume the higher vacancy costs.

Your other costs will vary significantly by locale. For the sake of this example, though, assume that each year you’ll spend $750 in maintenance costs, $710 in taxes, and $650 for property insurance.

Subtract all of your expenses (which total $4,990) from the annual rent ($14,400) and divide the remainder by your acquisition costs ($150,000). In this example, your cap rate—the annual return on your investment—is 6.3 percent. You should shoot for at least an 8 percent return, so the example property may not be a good investment.

Note that in the example, the buyer paid cash and did not finance the deal. Monthly finance charges change the math dramatically.

How to use cap rates

While cap rates offer the opportunity to make quick, easy comparisons between two or more pieces of property, they’re far from the only factors you should consider. At the very least, you’ll also want to consider the growth potential of your property’s income, as well as any likely changes in the value of the property itself, such as a highway, subway stop, or retail center going up nearby.

Finally, do your research on the local economy. At the end of the day, cities that offer jobs and opportunities are the locations that will provide you with tenants over the long haul.

Resources
You can find out a lot about markets around the country with a little time on the Internet. For research on the local economy, check out the Bureau of Labor Statistics, Forbes’s “The Best Places for Business and Careers,” and Projections Central.

Additionally, several real estate research companies occasionally publish market rankings based on cap rates and acquisition costs for foreclosures and investment properties. These include RealtyTrac, HomeVestors-Local Market Monitor, Clear Capital, CoreLogic, and PropertyRadar.