Financial Tsunami- Part 1

Financial tsunami. - This word is very appropriate these days.
Well, there are two reasons for this name.

• The magnitude of the crisis is very large.
• Typical to a Tsunami, we never knew it was coming.

The direct effect that we see in Singapore or rest of Asia is the stock market is plummeting. I am sure you must have heard that most stock prices are lower than the book value. Does that mean we can buy? For long term it may be good valuations for most Blue chip stocks. However, for short term we may see some losses. My two cents worth on a couple of issues in the news these days.

1. Financial protected/guaranteed funds Last year sometime in June, the capital protected funds with guaranteed coupons were very popular. Luckily for me, I didn't venture  as I was not sure how they could give such high interest rate. The only logic I told myself was that, if the returns are high, the RISK must be high. Sometimes, greed is one of the reasons we go in for such funds. Most people are RISK averse but want higher returns than what the FD offer. RETURNS are always linked to RISK. So if there is a fund offering you 5%p.a and the bank interest is only 0.5%pa, in layman terms it means you are going in for about 10 times more RISK than the Bank deposit.
2. Is your money safe in the bank? Our Govt is very confident that the Banks here have enough reserves in case of any major problems. However, with the recent change to the guarantees offered to money in banks, they are extending the guarantee to money in banks till 2010. I cant comment much on where you should leave the money, hence, leave the judgement to you. Last week, during a casual discussion with a TOP banker, he was listing out a few banks that are very safe. The first one he was very confident was ING. Yesterday, the Dutch govt had to Bail out the BANK. This only proves one thing.

INFORMATION ON THE DAMAGE IS NOT KNOW TO ANYONE.

So be careful, check your bank accounts daily, dont get into any investment you dont understand.
For the High risk, as Warren Buffet says, Fear when others are Greedy, and Greedy when others are Fearful, its a good time to invest.
-Cheers