Ref: 09-034A of 1st November, 2009      Scribd PDF Download

I am skipping three important chapters on Bonds – Treasury, Municipal and Corporate (Fixed Income and Convertible Bonds) which are really useful to practical investors, especially wealthy ones who do not have risk appetite after a few years, and would settle for more secured yet reasonable returns. I am postponing, not skipping them because there has been demand from retail investors in popular column of this blog Confused Mind, Clear Answers.

REAL ESTATE – the name conveys it all. It is “real” that is touchable, feel able (Indian English) and enjoyable on day to day basis. It is “physical”., not paper assets except its derivatives that destroyed America such as CDO (Collateralized Debt Obligations), CDS (Credit Default Swaps), REIT (Real Estate Investment Trusts), Mortgage Pool, Warrants of shares of Real Estate Companies etc.

Howsoever the high may be the price; the Investor in Real Estate has one consolation – which the investment will never go to zero (except in derivatives as above). It can be held for long term, for passing heritage from one person in the family to the other descendants. He is often wrong, especially when he leverages his investment by borrowing from the banks, relatives, home financiers, moneylenders and friends.

Gone are the days when the people used to invest into Real Estate only from own savings. Today, Opium (or Other People’s Money) or others’ lending becomes our capital. We have come to a stage when one can comfortably say “If I earn, it’s all mine; If I lose, it’s all yours”.

The World’s riches men have made major fortune in real estate. AND the world’s leading bankrupt persons lost everything in real estate. The Real Estate therefore makes or breaks anyone anywhere.

It is therefore important that we know the every little thing behind the real estate to make us rich and richer, not poor and poorer. Any investment made carefully has chance of making money in 70% of the cases. An ordinary investor is never in command of external factors, that takes away 30% what we call risk.

Any long term investment in good assets of whatever kind always makes money, is another rule of investment. The real estate automatically become long term investment because it can not be bought and sold like a stock or in day trading exercise EXCEPT in a city like Hong Kong, my city, where the Chinese people eat, drink, lunch, dine or breath only real estate and race course.

Following are the most important long term investment, some physical or real and others abstract.

1. Own Education – Abstract
2. Family – Parents, brothers, sisters etc – until one marries (Abstract)
3. Family – Wife or husband, Children – after one’s marriage until Children marry(Abstract)
4. Family – Wife or Husband after the marriage of the children (they get separated or what we call in stock market language – Spin Off – Abstract yet Real
5. Job or Business – Real
6. Home, Office, Land – Real
7. Car or Scooters, Motorbike – Real
8. Bank Deposits (3 years and above) – Real
9. Bonds – Real
10. Stocks of really good companies bought at market crash time. – Real

In short, after one’s own education, only Spouse (wife or husband) become real long term investment that comes to help at any time even when a person loses everything or at deathbed. It is important therefore to choose the career carefully (while educating) or while selecting a life partner.

Second Best is “Real Estate” – our Home. Owning a home is a dream of everyone in every country– in America, it is known as “American Dream” that went sour of late. Even one has gone on a costly holiday and stayed at best hotels, he feels comfortable when he returns home – Home, my Sweet Home. There is no pleasure like coming back to one’s own home from wherever he was.

How to Buy Real Estate? Where to start? Residential Home

Its a million dollar question. The answer is very simple. Start from buying Home for self use. Never try to buy own home for investment purpose but for real self use. When one buys his own home for dwelling purpose, to marry and then build family, he develops tremendous attachment to that asset, and never feels like selling unless there are very compelling reasons to do so. It automatically becomes a long term investment. Following are the basic rules to follow while buying own home.

1. Type of Usage
   1. Commercial Property:
      1. As a rule, commercial property rise much faster than residential or agricultural assets. They also tend to fall last. The reason is; the commercial property is meant for business which has earning power. The owner can afford to pay more if the business is good.
      2. Residential Property is of following types with features:
         1. Luxury Property – always on rise for several years. They are relatively stable because the owner has holding capacity in the event of downturn of overall property market. Prime properties are always best to invest. If your purpose is an investment, and fairly for large value (Over USD 500,000 or more) and not necessarily own personal use, prefer prime property. They are liquid, rise fast in value, fall slowly and give the owner a unique status.
         2. Upper Middle Class Property: They have more liquidity. Most of the owners are high salary earners from executive or semi executive cadre. Or they could be middle order businessmen.
         3. Lower Middle Class Property: These are generally Mass Housing Projects. They look good for first few years but then begin to crumble due to poor maintenance. In country like India, where the concept of “cooperative society” is popular, the property is managed by the group of owners who are always cost conscious. The owners generally do not contribute much to the proper maintenance. There are always differences or squabbles. As result, the property deteriorates fast. They fall fast in bad times but rise slowly even in good times.
      3. Agricultural Property:
         1. Very few are interested in this property. The farmers everywhere are poor, so the value of the property rises at slowest pace.
         2. However, one has to read the farm produce prices and its trend for next few years. Of late, the food prices are seeing strong upswing with the result that the yield rises very fast. The value also rises at fastest pace.
         3. In such property, the presence of Water and suitability of land for tilling purpose are most important factors for selection. No water, no value for such property. However, little imagination could bring in stupendous profits. More on this later.
         4. Location
            1. Country: Buy where you are going to live for at least 10 years.
            2. City: Buy in that city where you will be living
            3. Suburb: Buy where you have place of business or job (even if it is transferable).
            4. Select the location between two cities or two districts of same city, which are expanding outwards. For instance, if the district or city is expanding north, and neighboring district/city is developing south, it is preferable to buy somewhere in between, provided the location is within same municipal limits.
            5. If the nearby road is less than 30’ wide, better buy the unit one block inside. It often happens that when the city start developing, the roads are widened. If you have bought unit just touching the road (what they call “road touch property”), it may be subject to compulsory acquisition by at least 10 feet to 25 feet. If you have bought the unit one block inside, it will automatically become “road touch” with the result that its valuation will improve instantly whereas older one will lose.
               1. Real life example: I bought one large piece of land (5.5 acres) about 500 feet inside the main road, Due to expansion of new Airport, the main road is now truncated and the inside road touching my land will be developed into a High Way. I will lose about 10’ to 15’ – about 0.125 acre, but I will be compensated @Rs 500,000 when my acquisition price only a year ago was Rs 245,000.
               2. The adjacent plot was just sold for Rs 900,000/acre for some industry. In other words, my investments will more than treble in less than 18 months.
         5. Locality
            1. Select safe, secure and developing locality. Avoid mature locality which has no room for growth. Newer localities are better planned and have room for growth, so your investment has chance of growth.
            2. Ensure that there is enough power, water and other sanitary facilities.
            3. Ensure that there are banks, post offices, telephone facilities and most importantly School and colleges facilities. (Real life example: In NRE Complex in Navi Mumbai, India, the prices never rose for 7 years, in fact they fell. When the prestigious school Delhi Public School opened near its front gate, the home prices started climbing, rising nearly 5 times (500%) in 7 years from all time low)
            4. d. Ensure that there are some industrial estates in less than 20 kilometers (10 miles) peripheral area.
               1. The industries bring in prosperity. They create jobs or income, and also increase the travelling population. The people from other towns or suburbs travel to this city for job or other gainful employments.
               2. A city with real industries (with employable labors, not automatic plants relying on less labor and more on automated machines) enables greater rise in capital value than others. (Real life example: The prices in city like Surat rose faster than Baroda in Gujarat, India because Surat was having labor oriented industries such as Textiles and Diamond, whereas Baroda was having automated plants like Petrochemicals – IPCL).
               3. This is often a difficult proposition to follow, because 1 out of 50 cities have industrial estate.
               4. Use this rule as last but avoidable requirement.
         6. New Constructions
            1. Prefer new constructions to old one, because the priorities of people have of late changed. The people ask for more telephones, broadband, piped gas, lifts and recreational facilities etc. Old ones have no infrastructural support to adopt the newly demanded facilities. Further, residential complexes have better appeal than others.
            2. Swimming Pool and Club Houses are not must requirements. They merely increase the monthly maintenance charges and cause higher capital outlay (developers add these assets in Gross Built Up area in a country like India. The real utilizable area is often 35% less in high rise buildings.
            3. Older constructions with purely residential homes are acceptable if they are built in last 5 to 7 years. Still, they do not match the price performance of new constructions above.
            4. Prefer gated community (in country like USA) than independent homes for family security reasons. The crime rate in gated community is less (such as kidnapping, sex crimes, robbery or theft) than independent homes (unless there is private security arrangement). The people invariably buy homes for family security first.
         7. Car parking facilities
            1. As far as possible ensure that the Residential Home Estate has affordable car parking facilities.
            2. Car and other vehicles like Scooters, Motor bikes have become a necessity, not symbols of luxury. Those who buy home can afford to buy cars or other two wheelers.
            3. If there is no covered parking, make sure that the open parking facilities are available.
            4. In some estates, the cost of car parking facilities (say in Hong Kong) is almost 3 times the cost of the car itself. In India, it is almost equal to cost of car itself.
            5. This is avoidable proposition, if one intends to live in big city or suburb with ample public transports such as buses, trains, metros, auto and taxis and ferry. (Example: in a city like Hong Kong where I live, the public transportation facility is so efficient that one need not have expensive car unless it is a status symbol -in most cases)
         8. Valuation
            1. This is often very difficult part. This section applies to Residential and Commercial sector, not Agricultural where the preferences are different.
            2. An investor normally expects 6% yield on his investment. This has come down to almost 4% due to prolonged lower interest rates world over. I will stick to 6% as a general rule.
               1. If an investor expects 6% yield, it means that he expects to earn 6 on his investment of 100 (in any currency). That is if rental yield is 6% per annum, the capital value could be 100. In other words, if monthly rent is X, the annual rent will be 12X. If the yield is 6%, the capital value will be (100*12X )/(6) or 16.33 times the annual rental value (ARV). or say 16 times ARV
               2. If the market is super bullish, then the expected yield is 4% and in that case, the capital value could be 100/4 times or 25 times the annual rental value.
               3. If some one demands more than above as his Sale Price (your purchase price), then you would be overpaying.
               4. The best bargain, usually in bear market, is 12 times the Annual Rental Value. If it is 8 times, then you will never lose money (in 99% of cases)
               5. Say, you are able to get a monthly rent of 10,000, the Annual Rent will be 120,000. The possible capital value on 6% yield basis will be 16 x 120,000 = 1,920,000 on approximation basis. OR it will be 192 times of monthly rent. For simplicity sake, use 200 times the monthly rent.
               6. Often, the broker or seller quote overstated price for properties on sale,. You can not go to Architect to have valuation all the time – it costs money. How to find the nearest value in such cases? Here is the answer – check the monthly rent for similar property in same building or area with similar location. Multiply 200 times, and you get the rough numbers to start the negotiation. The reason for using Rental value is that the seller or his broker may inflate the sale price, but would be honest in telling you the correct rental value. An unwritten rule in real estate is that the “Rent Never Lies”‘. When you know the realistic rental value in the locality where you intend to buy the property, you will have nearly correct sales value based on above stated formula.
               7. If the location of said property is prime in that area with good view (mountain or sea view), you may add a few hundred thousands more.
               8. Exercise-1: You want to buy a home in good location. The seller is demanding 3,000,000 (3millions). The annual rental value for similar property is 12,000. The Fair value comes to 16 times Annual Rental or 200 times monthly rental or 2,304,000. If the interest rates are lower in your country, to say 3% to 4%, then the valuation will be 25 times Annual Rental Value or 300 times monthly rental or 3,600,000 which is well above offered price. But this is a top valuation model.
               9. Exercise -2: If you are an investor and not actual user, you can work out the possible future value based on expected interest rate in future. Based on those rates, work out the possible future value. If the rates go higher, the valuation goes down, and if the rates go lower, the valuation goes higher.
            3. These are the rough diamond tools. Once you use them frequently, the seller/broker would be surprised how you arrived at fairly good price of the offered property. Once they know that you are clever, they will sit down with serious negotiation if they want to sell.

         The next installment on this subject will be on 11^th November, 2009.

         Please visit Scribd to have PDF downloadable version of this article.

         Anil Selarka (Kalidas)

         Hong Kong, 1^st Nov, 2009 Article Ref No: 09-034A

Ref: 0909-033A of 5^th September, 2009

In earlier part 5, you saw how Zero could build your massive wealth. In this part, you will see many practical application of this wonderful instrument. Before I start, let us have a quiz – what is the figure before “1” and what is the figure after “9”? It is ZERO. The whole life oscillates between these two extremes.

Zero could plan your savings, your future, your Children’s education, their wedding, build property, houses, renovate homes, give start up capital for your adult children, handle unforeseen medical expenses, give you investment capital and finally, divide the wealth within the family during your life time. It also secures your retirement age. Combined with Recurring Deposit accounts, Zero could act as engine with double horse power without even knowing about it.

BUILD UP YOUR MASSIVE SAVINGS:

While Zero involves a lump sum investment, Recurring Deposit permits small installment savings drop by drop. It is said that “an Ocean is built with the collection of millions of tiny drops”  I have shown you in Part – 5 how you can secure large and consistent cash flow by deferring maturities year by year. You never have to extend hand before anyone for help. I would avoid the repetition here.

FINANCING FUTURE EDUCATION OF YOUR CHILDREN

Supposing you have two children aged 10 & 8. You are in mid 30s, the best age to have rising income. It usually lasts for 10 to 15 years minimum. The Age 36 is the threshold for almost every one. Now, the higher education years last 3 to 4 years. Following is the plan: (you use combination of Zeros and Recurring Deposits)

1. Invest in Zeros like South African Rand bonds maturing in 2017 to 2027.  Do not bother about the maturity date as far as 2017 to 2032 – you can sell these bonds at any time. When you are buying today, some one is selling you also. They are investment grade. Say you bought bonds for the year 2017, 2022, 2027 and 2032 investing just 11% to 18% of Face Value. You can buy in multiples of 5000. However, good lot to buy is 250,000 Face value, preferably 500,000 ZAR Face Value.
2. Say you bought the highlighted bonds as under. You will be investing from US$ 3685 per 250K Face Value as under:

• Bond Bought : ESKOM 0 32/ER maturing 31/12/2032
• Price: 11.50 (including expenses. The rate will be lower if you buy in 1 Million lot)
• Investment Amount: 250,000 @ 11.50 = ZAR 28,750 = US$ 3,685 (@R7.80/$)
• = Rs 180,200 based on Rs 48.90/$
• The yield may be around 11% or so (I have not actually worked out). Thus, after 10 years, that is, in 2019, the bond may be quoted at R24.15 or about. If 10 years rate on ZAR falls, the bonds may be quoted higher
• When they mature on 2032, when your children are of the age 33 or 31, they will get R250,000 or US$ 32,051 (today rate R7.80/$). I take the view that ZAR will appreciate, but we are ignoring currency potential or risk.

1. In India, one can buy NABARD 10 years Zeros having Face Value Rs 20,000 which was issued at Rs 8500 in 2007. It may be trading higher to compensate for 2 years build in interest rate of 9% (that is about 18% higher than Rs 8500 theoretically,. One has to see the actual price on BSE)

Say, you bought 20 bonds having Face Value Rs 400,000, you will get this maturity value, when your Children are 18 years old and wish to go for Engineering or medicine.

FOR WEDDING PURPOSE:

One can buy bonds specially earmarked for special family occasions like wedding. Depending on your needs, you may increase or reduce the size of the bonds. One may also open Recurring Deposit account of Rs 3000 per month for 10 years in lieu of Zeros.

FOR BUSINESS PURPOSES AS SECURITY FOR LOANS

You can buy bonds say, 50 bonds of NABARD bonds having Face Value Rs 10 Lakhs and Investment Value (Rs 4.8 Lakhs). The bond value increases every year by at least 9% to 10%, and if the rates go down, the value may rise by additional 10% to 15%.  Instead of giving Rs 10 Lakhs flat deposit as security, you may give the above security at reduced amount of Rs 480,000. On the paper it appears that the bank has security of Rs 10 Lakhs. Your cash outlay is reduced.

BUYING PROPERTY FOR CHILDREN AT LATER AGE

One can reserve the savings especially for Children to buy property after 10 years, (or 20 years for SA Rand Bonds) when they are grown up and have married.

DIVISION OF FAMILY ASSETS WHILE YOU ARE ALIVE

When your family grows with 3 to 4 children, it is possible that dispute may set in especially when they are married, have their own children and wish to separate. When you have only one major property asset, you have to sell it to distribute the wealth.

Say, you have Rs 18 Lakhs to spare for 3 children now. Divide into Rs 6 Lakhs lot for each Child A,B and C. Invest into SA Rand Bonds of DBSA (Development Bank of South Africa).  A bond having Face Value ZAR 500,000 will cost you ZAR 90,000 (500k@18%) or USD 11,538 or Rs 564,200  today.

When the A B and C are 18 years older than now, the bonds will mature for payment of ZAR 500,000 or US$ 64,100 @ R7.80/$ or Rs 31.3 Lakhs per child. Yes, Exchange rate will play more important role for increased or reduced return. However, I take the view that ZAR will appreciate from 7.80/$ to 4.30/$ due to progress in South Africa, perceived and consistent weakness in US$ and higher gold, and commodity prices which may enhance the appeal of South Africa. Thus, your children will get anywhere between Rs 25 Lakhs (if exchange rates go against you) to Rs 56 Lakhs per child.

The family wealth could be easily divided without selling core property in which you are living. Your retirement days will be safer even if your children do not take care of you. This is better than even Life policy where you do not see benefits during your lifetime.

In short, every thing can be planned with Zero Coupon Bonds and Recurring Deposits. Depending on where you live, you will have option in same or different currencies. The basic rules are as under:

• Select only Government guaranteed bonds. No corporate bonds for long term.
• Select the long time frame.
• Select the weakest currency having potential for rise (example, SA Rand, Aussie Dollar, Canadian Dollar, Indian Rupees and above all Brazil Real. The giant oil find will catapult Brazil into top sphere.)
• Select the currency that has higher interest rates locked in, such as SA Rand, Brazil Real and Indian Rupee where yield is almost 10%. In other words, you are locking in yield of 10% for 15 to 30 years or more with potential rise in exchange rate in your favor.
• Prepare a note on this bond and keep it with the statement or physical bond certificate to inform your heirs how to handle this instrument, where to sell and how. (When I sold DDB of IDBI and SIDBI, I personally prepared the note for managing this investment in future and asked my customer to retain it with their bonds, so that future generation will know how to handle this investment.

I will be away for about 10 days and will return on 16 Sept, 2009. Until then I will not be able to reply to your comments if any. Please bear with me.

Anil Selarka (Kalidas)    PDF Download
Hong Kong, 5^th Sept. 2009 (Ref: 0909-033A)

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Pages 4; Words 1,316; Paragraphs 38; Lines 120
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Many centuries ago, Indians and Egyptians were regarded as great mathematicians. They invented the calendars of 360 days and measured the speed, rotation, angles of various planets around the earth. The Indians, known as Hindu, had invented one of the greatest theories of the mankind.

It was ZERO. Hindu believed that the entire universe was created out of Zero. In Hindu parlance, it was known in Hindi as “ Shunya me se Shrushthi” . Modern science created non verifiable dictum – Big Bang theory – for which there were neither understanding nor enough scientific evidence.

The whole world revolves around numbers 1 to 0 or 1 to 9 and then Zero. Another series begins after each “Zero”.  Everything around us moves in rhythmic motion in perfect unison. There are also 9 planets – 7 major and 2 minors – 7 days a week, 7 basic colors, 7 seas, 7 wonders, 7 musical nodes, 7 mountains etc. All numbers are in perfect harmony over years, centuries and ages. This is the perfect Arithmetic, the most powerful branch of mathematics.

In Investment world a similar principle was invented – known as Zero Coupon Bonds.  It was Zero that created enormous wealth for brilliant investors, and yet very few consciously knew about it.

WHAT IS ZERO COUPON BONDS?

Understand the word “Coupon” first, often abbreviated as CPN. The coupon is the rate of interest. When a bank says that it pays 2% for Savings, 3% for Short Deposits, 5% for medium term deposits and 8% for Long Term deposit, the % rate is known as Coupon. If there are no coupons, then it is known as Zero Coupon.

In normal bonds or deposits, the interest is paid regularly at monthly, quarterly, half yearly or annual interval. So, if you deposit 100 with 6% CPN at annual rest (that means, interest on interest is compounded at the end of  every year). At the end of one year, you get #100 as principal and #6 as interest, making a tally of #106.

In Zero Coupon, the yield is built in the principal itself, that is, the interest is not paid separately, but the principal value is discounted to the extent of interest rate built it. Thus, if 10% interest rate is built in, the #100 bond is discounted to say about #91, so that one gets #100 on maturity in return on investment of #91 in one year. Most of the treasury bonds of government are issued on this basis. They are treasury zeros. The higher or lower than #100 price determines the yield (interest rate per year)with reference to the period of issue.

If the bond period is 10 years carrying a built in coupon of 10% but paid only on maturity, the #100 bonds is issued at  about #38.55 as per the following table:

This is known as Zero Coupon bond for 10 years with Yield of 10% (Yield = built in interest rate). In this case, the maturity value is 100 but it is discounted to 38.55 at the time of issue. The issuer undertakes to make the payment of #100 on maturity at the end of 10 years for each lot of #38.55

CASH CERTIFICATES

In some Public Sector Unit  (PSU) banks in India, they issue deposit known as “Cash Certificates” where the deposit is issued for #100 face value @ #38.55. The difference between “Cash Certificate” and “Zero Coupon Bonds” is that former does not trade on the stock exchange. But the latter does trade on stock exchange.  If interest rates go lower, the value of bond goes higher, and vice versa. The bank deposits do not move with interest rates.  If the bond maturity period is longer, then the interest rate will have multiplier effect. In interest bearing bond, the rise could be just 5% to10% but in Zero coupon it will be 30% to 40%.  See the following table of 25 year bond Zero Coupon Bonds issued by IDBI in 1992 for 25 years with built in interest rates of 15.6% with initial value #2700 or multiple thereof.

I take #27,000 as initial value and #1 million of maturity value after 25 years. That is, your #27,000 becomes #1 Millions after 25 years, or 37 times nearly. In other words, you make 3600% return in 25 years or 140% every year on simple interest basis. See the following table:

Table for Discounted Value: #27,000; Maturity Value also known as Face Value = #1 Million; Investment period #25 years, Rate locked in 15.544% presumed to be Annual Rest (Interest compounded every year) and 365 days = 1 year.

Note the following:

1. The Face Value of the Bond will be #10 Lakhs or 1 Million (also known as maturity value)
2. Deep Discounted value (original investment value) = #27,000
3. Interest locked in 15.544% for 25 years.
4. At the end of 10 years, IDBI refunded #120,000 (Normal value was # 114,500 as per table above). That is they paid early redemption premium of 5,500 or about 5%
   1. That is, if the investor invested #27,000, he got back 120,000 after 10 years on first call date. Call Date is the option reserved by the issuer (IDBI in this case) under which it may redeem the bond (cancel the bond before maturity) at certain value + 5% redemption premium. (it is decided at the time of issue by the issuer)
   2. Although the bond was quoted for 25 years, the investor may sell it at any time in the market.
   3. When the bonds are sold, the interest rate is worked out until the date of settlement. For instance, if the bonds are sold after 5 ½ years, the market price will reflect the enhanced return, depending on the demand and supply situation.
5. Presuming that the bonds were not recalled (say, it did not have recall clause) the holder may
   1. sell it unit by unit as under: after 15 years, sell one – realize 235,801 (or more if rates go down);
   2. sell second unit after say, 20 years (realize 484,593) and
   3. sell 3^rd after 23 years (realize #749,049), presuming that he was holding 3 separate units of 27,000 each investment value having #10 Lakhs (1 million) face value.
   4. In other words, he will have increasing cash flow every 5 years, after initial 15 years.
6. Above is hypothetical example with real numbers (as issued by IDBI – the numbers may not exactly match due to minor details)
7. RECALL or EARLY REDEMPTION OPTION: Some issuer does write early redemption rights in case the rates turn in their favor later. If there were no recall clause, the issuer is obligated to pay full face value on maturity.
   1. it happened to Sardar Sarovar (Gujarat, India) Deep Discount Bonds issued in 1997 for 15 years where the company’s attempt to retire the bonds early by force were thrown out of window by Gujarat High Court). The bonds carried built in interest of 19% whereas market rates dropped to less than 6% at one time causing enormous loss to the issuer.

HOW INTEREST RATES AFFECT BOND PRICES?

Bank deposits (except CD or Certificate of Deposits in USA) do not rise or fall in value with fall or rise in interest rates. The interest rate risk is assumed by the deposit issuing bank. In treasury or commercial bond, the interest rate risk is assumed by the investor (CPN interest rate is the contracted rate of the issuer)

For instance, a company issued bonds for 5 years with 8% CPN. That is, the company will pay interest rate @ 8% for a period of 5 years. Supposing, at the end of first year, the market interest rates for remaining 4 years dropped to 6%.  The prices of 8% CPN Bonds will rise in value to the extent of yield differential. For holder of 8% CPN Bonds, the yield is 8% .

However, market yield being 6%, the bond price will rise by 8/6×100 = 133.33, so that a person investing in that bond will get a yield of 6% (8/133%).

In other words, the bond prices will be so adjusted that its yield reflects closely the market yield.

The longer the period, higher the bond prices in early years in falling interest rate regime. Similarly, the lower bond prices in early years will reflect the higher interest rate regime. In other words, the bond prices have “inverse relationship” with the Market Interest Rates (MIR). If the  MIR goes higher Bond prices go lower; if MIR goes lower, the bond prices get higher.

This is where the ZERO CPN BONDS with longer maturity give the best return. In Zeros, the initial capital base being low, the % return becomes very high. Zeros lock in interest rate for long time at minimum value.

This is why Zeroes are best bought when the rates are near high and have tendency to go down later.  If one is a foreign investor, he also locks in currency at favorable rates when the rates are highest.  Contrary to popular belief that higher rates make a currency stronger, only the reverse is true. Interest rates are like a “support stick” for the currency. If the currency can not stand on its own, it needs higher interest rates to support its value. If the currency is strong, the rates move down.

For example,

• When Indian currency became very weak due to FOREX crisis, the rates shot up to 15% to 19% on deposits.
  • This is when IDBI, ICICI, SIDBI and LT came out with Zero coupon bonds showing the people moon, hey give me #2,700, we give you back #1 Lakh (#100,000) after 25 years.
• When the currency strengthened to 39/$ during BJP rule, the market interest rates (MIR) dropped to 3% to 6% on deposits and housing loans prospered creating biggest rally in real estate market.
• When the RBI manipulated the exchange rates by constantly intervening in the market via Sterilization measures, the rates shot up with the result that Real Estate prices crashed.
• This is why stronger local currency is in the best interest of the nation. This is the reason why United States always wanted strong US$ so that its interest rates could be kept low and import cost reduced. The people world over imitates US in every respect, but never follows its exchange rate policy.
• Now, that US is running into severe economic problems, with UK and EU, a time is going to come when the people will start demanding higher interest rates to compensate them hold weaker currency.
  • When these governments are not able to raise money by normal interest bearing bonds, they will start issuing Zero CPN Bonds.
  • Wait until when that happens, when the rates get into high double digits similar to what India faced in 1992.
  • That will be the time to invest in USD/GBP/Euro when those currencies are weak and the interest rates are high.

HOW DID I MAKE MOST MONEY via ZERO COUPON BONDS?

I have already explained how I made most money in IDBI/SIDBI/Sardar Sarovar Deep Discount Bonds. I learnt Zeroes early state (first when my father taught me investment through NSC or National Savings Certificates issued by Government of India).

I made more money in Zeros when during my search on the net. I used Bloomberg dedicated terminal when I was the stockbroker. It was 100 times more powerful than what you see on internet.

I found the South African Rand Zero Coupon Bonds. I had set the following agenda (this applies to all overseas citizens outside their country of citizenship – such as NRI or Expatriate).

1. Find the currency which is the weakest over the last 10 years
2. Find the country where the interest rates are  also higher with weak currency
3. Find the country whose strength of currency depends on its export products that are also at the weakest point.

This is when I found the South African Rand, Canadian dollar, Australian dollar, Russian Ruble, Brazil Real. I found the South African Rand the most attractive due to following reasons:

1. United States and other Western countries were deliberately suppressing Rand to control the gold, silver, palladium, and other commodity prices. Some major banks started issuing Zero Coupon Bonds in SA RAND as hedging operation.
2. SA RAND was depressed to 12.81 per $ versus 2 per $ during apartheid days.
3. Interest rates were above 10%
4. SA MAIN EXPORT products such as gold, silver, palladium, coal, iron ore etc were near 20 years low.
5. I guessed that if the commodity prices go higher, the SA RAND (symbol ZAR) will go higher, rates will fall, so the Zeros will give me the best return. I had learnt this from IDBI DDB earlier.
6. Most of the issuers were World Bank, Swedish export import bank, Deutsche bank, and some South African entities like DBSA (Development Bank of  South Africa) and ESKOM (largest electric utility
7. I took the view that other international issuers were gamblers and issued ZAR Zeros to short the currency. Since only South African government could issue ZAR, I preferred issues of SA entities like DBSA and ESKOM, although they were rates A or A+ compared to AAA of other banks. It was my view that the only way for Aaa to go was only down, not up, whereas A or A+ could become AA or AAA, that is up (and down also)
8. I bought DBSA at 2.79 to 6 level, and ESKOM from 1.90 to 5 level, paying for Rand from 11.30 to 12.31 per $.
   1. Today, after about 10 years, my bonds are at 17 and 12 level (they rose to 21 and 16 at one time) and currency improved to 7.8 today (it rose to 5.81 at one time).
   2. Thus, my return is almost 800% in my local currency in 10 years or 80% per year, fully guaranteed by Government of South Africa.
   3. SA is rated A+ whereas India’s rating is still BBB

For full details of SA RAND Bonds, please  click  SOUTH AFRICAN RAND ZERO CPN BONDS .  I used to buy these Zeros through RBC Dominion Securities (investment branch of Royal Bank of Canada), Morgan Stanley, HSBC, Rabo Bank, Deutsche Bank, Barclays and Merrill Lynch.  RBC was the best. If you have account with them, ask them to send you full list of zeros with bid/offer prices and full details/table.

Beware of banks like HSBC who give you the most inferior exchange rates. Once I lost about 8% in exchange rate alone. It is a lousy bank – it converts your USD into HKD and then converts HKD t o RAND, causing enormous loss to the customer or investor. 60% of HSBC profit comes from such cheating, because there are millions of TT and other exchange related transactions every day – just imagine, when they take the spread of 0.25% in both currencies, they make clean 0.5% per transaction when they do not pay even 1% interest per year. There is no one in Hong Kong to listen to such complaints.

Better it is one opens an account with SAXO BANK or still better INTERACTIVE BROKER (you see their Ad on Bloomberg channel always). IAB will let you buy anything anywhere in the world at minimum cost and giving you the best exchange rates, and lowest account maintenance charges.

HOW ZERO CPN HELPS PLAN EVERYTHING IN YOUR LIFE, Personal or Business

This article is long. So it is written in two parts. You will find second part (part 6 of the New Series) under REJOINDER below within 3 days before I head off for India tour. This will be most useful part of Zero CPN bonds how it helps you most.

from 4/9 to 16/9 during which I will not be posting anything NOR will reply to any of reader’s queries (because of lack of internet access over there).

With Warm regards

Kalidas (Anil Selarka) – click for Scribd PDF Download
Hong Kong, 1^st September, 2009

Document Statistics:
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Personal Blog :  http://anilselrka.com
Bookweb: http://subprimeresolved.com

Ref: 0908-031A of 21-08-2009

In the days of Kings, Queens, Sultans, Moguls and Rajahs, there were only two currency denominator with reference to which a person’s wealth was measured. – Gold and Silver. Other units used were the number of sheep’s, goats, horses, cows and buffaloes.

However, these objects were relatively scarce, and hindrance to trade development. When paper was invented, especially Security paper, the concept of bank notes was introduced. It revolutionized the coming century. A time came when Alan Greenspan was spoken of more than the Jesus Christ.

Having seen the investment medium of Gold (Silver and Palladium will be discussed later), let us see how a person should build wealth that is liquid, earning and transferable. East and West followed different philosophy, thanks to many Nobel Laureate Economists who invented number of theories understood either by them only or some small fraction of so called professionals who brought the financial ruin as you witness today.

WEST followed the policy of “Spend first, Save later” and used plastic money (credit or debit cards) with gay abandon. Paper and Plastic were the two numerators of proof of wealth. When I went to USA a few years ago, I tried to pay them with greenback, that is, $ 100 green dollar bills so much loved by the Asians over here.  They love dollar more than their wives and children. The counter clerk asked me “Sir, don’t you have credit card?  We can not accept this note” I asked him for reasons to which he replied, we do not know whether it is genuine or fake. WOW, we Asians go mad after dollars, and these Americans do not trust their own currency!

EAST followed the policy of “Save first, Spend later”, diametrically opposite of western philosophy. This is why Asians prospered, and West was brought down to knees. After contracting debt via credit card, if the consumer can not pay, the remedy was easy – go bankrupt!

Look at the following table, how much consumers gain or lose in following West and East policy.

We compare two countries – USA and INDIA for simplicity.

Let us say, an American bought a few items for US$ 10,000 via Credit Card, paying interest @ 12% on average (it varies between 7% earlier to 16% to 24% now) for say, 3 years. An Indian saved the money for 3 years earning 9% interest and then decided to spend it. The cost of the items is worked out as under:

MORALE:

1. If Debt via credit card is used for consumer item, it is irrecoverable expense. The item also depreciates over 3 years, so that realizable value also diminishes.
2. If no debt is used for consumer items, but savings resources were used instead, the cost of the item is reduced by interest income on savings.
3. Debt is useful for a businessman because he employs the amount for earning. Though he pays interest, he also earns income or profits. His loss or gain is the difference between the two. It is“two way traffic” for him.
4. For an employee, having no other income than salary, he loses on contracting debt, because no income is created out of debt. It is a “One way street” for him – loss only.

This is why the East is asserting on West now. America is technically bankrupt with years of consumer spending financed by Credit cards. Eastern countries like China, India and other Asian nations have acquired wealth due to their reliance on savings rather than debt.

Make your First Million by Savings (very difficult), Subsequent millions are easy.

Making first million in any currency anywhere in the world is extremely difficult. One makes or loses continuously, learning all the time. The balance so accumulates make the million after long time, may be 3 to 8 years.

Once one has made real one million in the currency of his country, he has sufficiently learnt the art of making a million. If he is able to hold on that million for at least 3 months, making of further millions become relatively easy process. There is a saying that “Money attracts More Money”. It works both ways – once one begins to lose, the lost money attracts more money from the holder, compounding the losses. Similarly, when one has made a million, the chances are the money that he holds will attract more money inward to make him rich.

So let us make our first million in the currency of your country. A million is a million, regardless of any currency. The PPP or Purchasing Power Parity operates silently in every currency to make the above idiom true.

Bank Deposits vs. Bonds;  Currency Risks, Capital Risk and Exchange Risk

Each country has its own products for savings. For instance, it is easy to buy Treasury bonds in USA, howsoever small amount may be. In a country like India or Hong Kong, the availability of Treasury bond is limited to large amount, often 250,000 minimum. An ordinary saver can not handle such amount. He is not millionaire yet. Now again, I remind you of the difference between “Savings” and “Investment”.

• When one makes a deposit in the currency of his country with assurance to return the same currency in same principal amount (plus interest), it is called “Savings”. Example, one takes out bank deposits for say 100,000 in currency “X” with interest @ n%, with assurance to return the money on maturity in same currency with interest, it is Savings. (He gets X100,000 + n% interest)
• Where one makes deposit in the currency of his or other country if his local currency is convertible), with no assurance that same amount will be returned to him later on maturity, it is called “pseudo Savings cum Investment”.
  • He is assured here the same amount of foreign currency on maturity + Interest, but he is not assured the same amount in his local currency. He takes exchange risk that may give him increased or reduced return. This is the first level of risk he undertakes.
• If one buys the Treasury Bond, in his currency or foreign currency, he takes on one more risk – the interest rate risk. If the interest rates go higher/lower, the capital value of the bond reduces/increases during transit time (until it matures). On maturity, he gets the same capital value in respective currency.
• If one buys corporate, municipal bond or state government bond, then he takes one more risk – the credit risk of respective corporation, municipality and state government.
  • For instance, in USA, many of the Municipalities or state governments face severe liquidity strains or nearly bankrupt.
    • The federal government in USA is not kind enough to guarantee the bonds of state government or municipalities (FED would stupidly guarantee $306 billions of Citibank bonds, but not even $ 25 billions of the State of California)
    • A country like India is more responsible. The Central government always comes to the rescue of the state governments or local semi government authorities

Having seen the difference between Savings and Investment, let us dwell on the specific products and their variations.

BEFORE that, please note that if you do not understand any investment products, simply say NO. In investment world, there are many conmen or crooks that are out to reach your pockets with innovating scheme or theme. They get paid liberal commission by the issuers. You must therefore be prepared to say firm NO. These two letters will save your life’s savings.

Also, when you are talking of the savings, do not include “investment” or “credit risk” profile. Savings must be Savings – totally risk free – returnable to you intact on maturity with interest on maturity. Here are some principles of how to save in bank deposits:

Fixed Deposits: (with Banks)

In centers like USA, Japan, Hong Kong and other dollar block countries, the interest rates are near zero. It would be stupid to invest in such deposits on long term basis. Use the following guide:

If interest rates are very low, follow the table as under:

Remarks :

• Do not lock up your money for long, if the rates are not so favorable
• Until rates rich 9%, do not lock up for longer period. Eat interest every quarter.
• By rule of thumb if the interest is over 10%, one may lock in yield for 12 months to 36 months. Make it cumulative, so that you earn interest on interest. That is, your effective interest rate is 11% (10% regular + 1% (10% of 10%) = 11%)
• DO NOT make single large deposit. Make 3 to 5 units minimum. The reason is if  you need the money for any emergency, you can break the deposit (withdraw before maturity, paying some penalty).
• If you are making deposits for 3 years or more, do as under to maintain continuous cash flow. Say you have X 500,000 to keep as bank deposits, keep 100,000 each maturing on expiry of 36 months, 38 months, 40 months, 42 months and 44 months.
  • This will ensure that after the expiry of 3 years, you have cash flow of 100,000 every two months.
  • Further, if you need some amount earlier, you need to break or withdraw premature only one unit without disturbing others.
• CHECK the maturity value before leaving the counter. Most people presume that banks are always correct. It is not so. The clerk who is servicing you may make clerical error and write wrong amount.
• USE the following Interest calculator – one of the best tools around. It is free software which works out interest and cumulative amount on loans, deposits, recurring deposits etc.
  • It has small limitation. It uses 360 days per year which is international standard for Bond market, not Fixed Income market like Deposits where they use 365 days per year as standard. (In India and Hong Kong, for instance)
  • This tool is very useful in planning your savings. Fixed, Savings, Recurring Deposit (very powerful concept discussed later)

While opening Fixed Deposit account, please ensure that –

1. You are opening jointly with some member of your immediate family, say spouse, if your own age is 55 or more. Make it “Either or Survivor” (E or S) if you trust your named partner.
2. In some countries like India, nomination facility is available where you can nominate non-depositor but your immediate family members like son or daughter, should anything happen to you or your spouse. This will avoid all legal formalities like will, probate, letter of administration etc.
3. One may avoid nomination by including one more name after his name, say of Son or Daughter, but limiting operation in account as “Former or Survivor” which means that one will get the payment on maturity, not other beneficiaries. Former means you. If one makes a mistake in writing his Children’s name ahead of his own, then they will get the money on maturity, not he. Other beneficiaries will get if only original depositor dies.
4. If you are 55 years or older, NEVER EVER give away your entire wealth to your children,. They will take care of you only when they know that money will be theirs when you are no longer around. Otherwise, you may have to wash dishes in their homes and reduce your status to that of a house servant or even worse. Money always talks, remember that always.
5. In liberal countries like USA, where marriages often do not last long enough, it will be advisable to keep deposit in your own name without the knowledge of spouse. Such confidentiality will avoid substantial payment or alimony in divorce proceedings.

1. Many frauds have been reported in India, when a Non Resident Indian (known as NRI) remits large amount without taking adequate precaution.  Note the following example (Illustrative)
   1. A NRI remitted US$ 100,000 by wire or TT to a small town branch of a nationalized bank with request to open the Cumulative Fixed Deposit (CFD) for 3 years in favor of the depositor and his wife. Since the online account opening facility was not available, he requested the Branch to send him the “Account opening form” for his signature and documentation. This was perfectly normal.
   2. The Branch Manager was not honest. He sent the FD Acct. form to the depositor with specimen signature card. At the same time, he issued the FD in the name of same depositors and attached the signature card with fictitious signature.
   3. On very next day, he created a loan in favor of third party and pledged the FD duly discharged by him and also signing necessary loan documentation forms.
   4. Meanwhile, the depositor sent him the Account form. The Branch Manager sent him another FD with similar particulars. Since the FD was for 3 years, and interest being cumulative, he did not know of this fraud for 3 years until his FD came for maturity and he wanted to cash it out.
   5. The Branch Manager was changed. He informed the depositor that third party had defaulted on loan, so the deposit was adjusted against the loan. No further amount was payable.
   6. The depositor then complained to his Regional Office, who instead of investigating rehearsed what the branch said. When he approached its HO, the Inspection department conducted the investigation and the entire fraud came to light. Meanwhile the original Branch Manager had taken voluntary retirement and absconded from town.
   7. It took for more than 6 months for the depositor to get his claim settled, and that too, without additional interest for extended period from maturity.
   8. If the FD was non cumulative, the depositor would have known non payment of quarterly interest into his Savings account, and the fraud detected early. Alternatively, the depositor may ask for “Certificate of Non Encumbrances” from the Regional Office sending them a copy of your FD received.
   9. The best course is to maintain account only with large branches or Main Branch where the chances of such irregularities are almost non existent.

SAVINGS ACCOUNT:

Same as above.  However make sure that you know the bank’s Minimum Balance requirements, Otherwise they go on debiting your account every quarter with Rs 750/quarter. I have bad experience with Axis Bank in Mumbai, India. I opened NRI-PIS account with them with one ordinary NRE where I was maintaining decent 6 figure balance and another sub account for stock purchases. They disabled my Internet access on some fictitious ground. After a year and half, I realized that my account was debited 6 times with the bank charges of Rs 750/Qtr or Rs 4500 over 18 months. I tried to close my account, and lodged a strong complaint, that my relationship balance was 20 times their minimum balance required. But no one listens – you have to press 1, 2 4 5 6 and what not and finally told that it was a call center.

A new Manager assured me proper service again and refunded Rs 1500 only. Again, for last quarter, I was debited with Rs 750 again. I am going to close down my all accounts with such glossy electronic banks who do not know the basics of banking. (I was a banker for 19 years, so I know what is called Banking!)

The purpose of referring above episode is to help you understand that banking is not what it used to be 10 years ago. Modern day MBA bankers are too procedural to meet the requirement of ordinary depositor. Make it a habit to check your bank account regularly so that no charges are improperly levied.

CURRENT ACCOUNTS:

Same as above.  This is non interest bearing account, so avoid keeping large balances. Instead, keep major portion of your balances in Savings account so that your deposit earns some interest.

MANDATE FORMS

Some banks, especially in India, have a facility of “Mandate Form” under which you may authorize signing powers to known third person (mostly in your family) without executing complicated Power of Attorney document.

As far as possible, try to avoid joint bank accounts with some third person with only intent to authorize him to operate your account for sundry purposes. Use Mandate form instead, which can be cancelled at any time, if you find inconvenient or your account is not properly administered.

There is a legal risk too in opening Joint account with third person for only operational purpose. By opening joint account, he earns the status of being joint owner or co owner of the funds. If he runs into financial problem, your account could be subject to court seizure or attachment. If he holds “mandate power” nothing happens or could happen to your account. He is merely authorized signatory, not co-owner of the account.

RECURRING DEPOSIT ACCOUNT – Sure way to build wealth:

This kind of facility is only available in India, not in advanced countries (they are not that advanced). This account is the most important savings instrument available to individual investors on long term basis. This is like an Imprest system under which you contribute some amount every month and receive lump sum at the end of contracted period.

This account helps you manage the following:

1. One can lock in higher interest rate for 5 to 10 years with meager sum.
   1. Example: Supposing one is in era of high interest rates, say 15% on long term deposits. The rates have stopped rising and may fall.  One wants to lock in such rate with minimum cash outlay. He can open 5 different RD account with maturity of 5,6,7,8,9 or 10 years contributing say, 1000 per month. He has to pay just Rs 5000 every month for which he can give standing instructions to debit his Savings account monthly. Now look at the maturity scenario:

Simple Yield = {Interest Gain / (Average Investment) %} divided by No. of years

(Average Investment = Initial Investment (=0) + Final Investment /2)

1. It will be observed that current yield of 10% become compounded yield of  12% to 14%
2. Above method ensures steady cash flow after 5 years in greater proportion every year
3. If you plan from the age of 51, to retire after the age of 60, you will have steady cash flow every year from 77000 to 205000 per year, enough to pull on without much external support. This is your self made Provident Fund on which you have total control
4. You can vary the amount in multiples of 5 or 10 to make larger sum available to you at later age.
5. You can also open separate RD account for each activity, Children’s college education, wedding or purchase of property. Say in above case, you contributed Rs 10000 for 10 years for your children’s education, you will get Rs Rs 20 lakhs after 10 years, when they are about to get into higher education. No more educational loans at that time which will reduce your net worth. This will enhance your net worth…
6. In 1992 to 1994 FOREX crises in India, one bank offered very long period RD (for 20 years). By depositing Rs 5000 per month for 20 years @ 13% interest rate, one would get   5,619,929 against total investment of 1,200,000 (240 x 5,000) netting simple yield of 36%.  Longer the period, higher the simple yield. The average investment is worked out on this basis: Initial Investment is ZERO, Final Investment = Installment x no. of Months in a period. Divide it by 2 to have average investment over the period.
7. In short, if you plan your cash flow from early age, you will have worry less future, be it education for your children, their wedding, purchase of property or own retirement.

How to use Recurring Deposit (or Remittance) to avoid Exchange fluctuation?

While living in Hong Kong, I came across hundreds of instances from local people who always complained about exchange loss due to currency devaluation against USD. They also tried to time the remittance, and always failed. I used to tell them to send the remittance periodically taking out advantage of weaker destination currency. See the following example (we used Indian Rupees for illustration purpose. You can replace it with your national currency.)

Say, you remitted USD 10,000 @ Rs 50, 46, 44, 39, 43, 48, and 49 on seven occasions.  The average works out to Rs 45.57, marginally lower by 7% over 7 years or just 1% per year.

The people always average down, never average up. This is where they lose profitable opportunity.

Anil Selarka
Hong Kong, 21^st August, 2009

Ref: 0908-031A          For PDF file Download from SCRIBD

Document Statistics: (without this block)
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Another article SR 05  on Bonds (Zero Coupons) in continuation of series ” How to Invest into Anything? “will appear on 31^th August.

Ref: 0908-030A of 16.08.2008

In this part, we will discuss how to buy physical gold – form, buying source, timing, management and ultimate sale. It also depends on the physical location of the buyer. Some currency issues are also involved.

Having already discussed “why to buy gold” in Series-2, we focus on the subsequent subjects:

WHAT FORM TO BUY PHYSICAL GOLD?

1. For Long Term Savings & Investment
   1. I expect tremendous price rise in gold and silver (of late, silver is fast riser than gold). The reason as mentioned by me in Series-2, that United States has virtually lost gold up to minimum 6297 tons of gold. Although it holds the gold physically, the true ownership lies elsewhere (most possibly in Europe and Switzerland)
   2. When any investment rises 100% to 200%, there is no need to invest on longer terms. When the gold rises, as I expect, one must sell it in the rally. When world economy recovers, and gold prices begin to consolidate at upper level, it will be time to sale and use the proceeds for property and other assets.
2. Price increase in USD an other currencies
   1. Gold will rise most in USD. That is, other world currencies such as Japanese Yen, Swiss Francs, will rise more than others. The investment gain in terms of local currency such as above and also Euro, GBP, Rupee will be less to the extent the currency has risen. That is, if the gold rises by 200% and currency rises by 20%, then the gain in those currencies will be adjusted downward due to currency gain. For example:

   	Gold Price	Yen/USD	INR/USD
   Now	$950	95	48
   Say, 2010	$2,450	81	45
   Gain in % in local currency	158%	120%	142%

   2. If you are living in country with pegged currency, like Hong Kong, the gain will almost same as USD. Or may be 0.5% t 1% smaller up to the movement allowed within the bandwidth for currency mechanism. (In Hong Kong, they allow 0.5% to 1% maximum)
3. Buying Physical Gold in USA: There are many counters, but the best is APMEX and MONEX. They have no hidden commission, the mark up is smaller and delivery is fast. APMEX delivers only within United States. They do not store it.  MONEX does.
4. Buying Physical Gold in Hong Kong: Bank of China, Hong Kong sells gold (0.9999) with bank’s marking in 1 to 5 tael bars (1 Tael = 37.5 gms appx). Mark up is about 1%. They also sell Paper Gold (called gold by pass book). One can also buy Gold from reputed gold dealers in tael form from say such as Wing On paying just 1% to 2% mark up. The licensed gold shops are generally safe in Hong Kong. However, be careful of the shops who sell imitation jewellery along with gold. Check out their licenses. Gold usually bear 0.9999 stampHong Kong is also unique in selling 24K gold jewellary which is cheaper than centers like India. The making charge is fixed (not per gram as in India) per article. I once paid only HK$ 150 for gold chain for myself weighing 50 grams or just HK$ 3 or Rs 18 per gram compared to what you pay @ Rs 100 to Rs 120 per gram in India.Yes, in Hong Kong, they do quote ornamental gold prices separately which is usually higher by 3% to 4%. They may also charge 2% commission which, if one negotiates, will not be charged.I once tried to sell HK made 24K ornament in India. The Ghatkopar dealer paid me full value instantly in cash. The gold dealer also need 24K gold from reliable source.
5. Buying Physical Gold in UK/Europe: through GoldMoney. They buy for you and also deliver in many countries in Europe and others. Check out their list. Mark up is 1.25% to 2% at the most. Further, there is no charge when selling; so the cost of buying and selling is halved. If required, they provide storage facility at London and Europe at little cost. The gold is physically held on your behalf at the storage centers.
   1. Buying Gold in India: There are two issues here. Buying gold bars and gold ornaments:

1. i.      Private and Nationalized Banks: They make only one way market, and charge almost 10% higher than the international market. This is acceptable, because the price also include 2% import duty and 2% sales tax. This is 0.999 fine gold, not 0.9999. Not much difference (price difference just 1%)
2. ii.      Buying from MMTC: One can buy from their own or franchised retail shops. They sell medallions with 0.999 fineness. (see the picture on the title). They also make only one way market. The mark up is nearly 11%. They will not buy back from you. You end up losing 8% in real terms, but when your gain could be 150% (as I expect, but that is only opinion), who cares for 8%?
3. iii.      Buying from large Gold/bullion dealers: One may buy gold bars or lagdis from gold dealers at cheaper than bank prices. However, do take the invoice even if one has to pay 2% sales tax. The reason is Tax department usually equate the raw gold investment as evidence of “black money” though they do not bother about investment up to Rs 5 to 10 Lakhs now. If it is “ornamental” gold, it is known as “Stree dhan” or “Woman’s Wealth” which is usually untouchable.

1. 1. Buying Gold Ornaments: There are 2 or 3 constraints. Indian women do not allow their family members to sell gold, especially when they are in ornament forms. The reason is, the moment they buy ornaments; they show up to friends or other family members. If they are sold, their friends and relative may presume financial difficulty for their families.22K and 24K The gold ornaments sold in shops are mostly 22K (in reality they are 20K). The price is also lower than 24K. The reason being that the gold being soft material, and Indian women usually work physically more in kitchen, the ornaments if made of 24K will deformed. When such ornaments are sold, the gold dealer reduces the price by “kasar” being the loss of gold on melt if the ornaments are of 22K or 90% fineness.
   2. Buying into Gold Pool: Some online dealers like KITCO offer facility of buying into Gold Pool. It means that they do not segregate your purchase from common pool, although Gold is physically bought by them. It is not derivative or options. It is straight forward spot sales or purchase. If one needs physical delivery of purchased gold, then only they separate it from the pool and deliver it to you. The charges are usually heavy. Please check from the dealer KITCO before buying, so that you have no troubles later.
   3. Buying on Imprest system basis: Many people try to time the purchase of gold. This is not an asset where an Investor can follow price movements. Gold price movement depend on multiple factors, such as exchange rates, oil prices, political stability, violence, bomb blasts, social tension and present days of economic crisis.Whey one knows nothing, he should not bother to use his brain for timing. Instead, he should adopt the system to buy the gold on “Imprest system” basis, that is, buying little by little every month, and buying when the gold has corrected. Such Imprest buying averages his cost gold purchase, and more often than not, he is always below the market price, that is he is always in gain.
      The Imprest System of Buying is the best method of investment. It is similar to Recurring Deposit account with the bank.

      In families in India, Imprest system is automatically and unconsciously followed by the women folks. Most families have more than 3 children or adult members. The elders start buying gold, when an adult is about to attain the marrying age in 5 or 6 years time. He buys some gold every year.  This is nothing but the Imprest system I mentioned above.

2. STORAGE OF GOLD
   1. Gold does not require much storage space. Further, women folks do not take care of their nails, but will take good care of gold. If house is secure, and has safe, one can store there. Alternatively, one may keep it in Safe Deposit Locker with any bank. It is better than any other place. Insurance not necessary, if it is in bank locker.
3. MANAGING PHYSICAL GOLD ASSETS: You have bought gold as an investment. You must be prepared to sell it if the rise is sudden and gain is very large. If you have ornamental gold, the selling will not generate profits unless the gold has advanced by 50% (because you pay about 15% higher due to ornamental gold price differentials and making charges, and losing of “kasar” , another 10% at the time of selling. (This is applicable only in India, do not bother if you are in some other country)If you are holding gold bars, biscuits, lagdis, or even 24K gold ornaments, it is easy to sell them without losing much on selling commission side. The women folks (in India, Middle East) at home also do not object to selling of such gold. Your purpose of investment is better served. This is why buying proper form is more important at the start of investing process.In centers like Hong Kong, the dealer pays immediately on spot when one sells the gold. Most trades in Hong Kong are in 24K quality or 0.9999 fineness. In a country like India, the practices vary. Large dealers pay immediately, but small dealers who sold your gold to some one, will pay only when he receives the payment from his buyer. There is a trading risk involved for 2 or 3 days.If one has bought gold from US or UK from the dealers mentioned above, there is not much trading risk. The traders like APMEX, MONEX or KITCO release the payment as soon as they receive the delivery of gold sold. If they have gold in account, they pay immediately on 3^rd day.
4. BUYING BOOK ENTRY GOLD (via Gold passbook): Some banks in Hong Kong and Singapore do allow their customers to buy gold through accounts known as “Paper Gold” or “Paper Silver”. The extent of gold purchased is credited to customer’s GOLD PASSBOOK account and his normal account is debited. The gold need not be taken physical delivery. When one sells the gold, the gold account is debited and normal account is credited. Since the customer is not dealing with third party, but deals with his own bank, the trading, storage and other risk is reduced. This is what they call “Paper Gold”.If one does not want to hold “physical gold” he may opt for “Paper Gold”. In spite of advantages, I never like “Paper Gold”. This is already explained in detail in Series 2 on my article dated 11^th August, 2009 (ref: 0908-029A). I therefore avoid repetition.
5. BUYING GOLD ETF: This is relatively new phenomenon. ETF stands for Exchange Traded Funds. Such ETF usually have mandate to invest into physical gold. However, there is no guarantee that they will not misuse the mandate to buy into gold derivatives like futures, options or even short selling. We have to rely more on the integrity of the managers and their level of competence.Such ETF trade in Units. Each unit usually represents certain fraction of physical gold. Each ETF may have different charter. It is beyond the means of the investor to study such charters.The Paper Gold is otherwise a better investment because the investor is in total command. In GOLD ETF, an investor has to consider the managers smarter than he is. He has to trust him. Such ETF do not pay dividend in cash. It is more like Mutual Fund investing into gold assets.Many investors make mistake in believing that each Gold ETF is same in character. It may not be so. An individual investor should always invest into very simple products. Such simple investments traditionally make more money than complex instruments, Looks at today’s economic crisis – most so called professional banks lost in products they never understood at first place, and the investors used to trust them as “professionals”
6. BUYING INTO GOLD FUTURES AND OPTIONS: These are high end derivative products demanding your constant attention. This is not part time job – but almost full time job. It requires lot of reading of various items affecting gold prices, such as financial crisis, government policies, interest rates, oil prices, exchange rates etc. Yes, if one is on right side of the trade, it will make money several times. But 99 out of 100 people lose in this game.Yes, if one wants to take risk and also make or lose large money, he may buy options. If long term options are bought, it may be manageable. Since I am not in favor of this product, I do not want to suggest them to the Individual Investors. Mutual Funds and ETF deal with OPM or Other People’s Money, whereas as an individual, you deal with your own money. If they lose money, they can raise more money in new IPO but you can not.Losing no money is another way of making money. Money saved is also money made. My simple principle is that focus on single simple product. When you have to buy gold, why go for ETF, Futures or Options. Just buy gold and store it. That’s it.
7. BUYING GOLD STOCKS: This is yet another fashion to invest into gold assets. We go backwards. If gold is to go higher, the companies producing it must be making more money. This is where many make serious mistakes.Almost all producers sell their gold 2 to 7 year’s forwards at premium.Even gold producers do not understand how the gold price moves. They know only how to extract the gold, not the markets surrounding it.Many large producers like American Barracks, Ashanti Gold lost heavily in such forward trades what they called “hedging”. They sold 4 to 7 years of gold production forwards when the gold was trading at $ 250 to $350. They used to take the cue from sale of gold by IMF, Australia, Belgium and Britain as indicator of future. They were proved to be terribly wrong. Ashanti Gold from Ghana came into serious problems due to such untidy hedging.When the oil prices rose, dollar fell, the gold prices trebled in less than 5 years. These gold miners could not capitalize on higher spot prices. They had sold millions of ounces of gold, almost entire production, in 5 to 7 years forward market say at US$ 350 to US$ 450. When the gold prices rose to $ 800 to $ 1000, they had no more gold to sell. They even did not buyback the future contracts on seeing the trend, because whatever money realized by them were used to buy more mines.Since I am taking a view that gold prices may double or treble in less than 1 to 2 years, due to my belief that United States does not have gold as projected – they lost over 6200 tons of gold – in hedging or shorting operations surreptitiously, (Read my new book SUB PRIME RESOLVED – Chapter 14 – Where is Mackenna’s Gold?) If major gold funds or hedge funds take a clue from this Chapter, hell may break lose in the gold market. This kind of rise is not yet anticipated by the market, and as such, the gold stocks do not reflect such trend.
8. However, the major factor is whether the concerned Gold Mining companies have enough un hedged or free gold stocks from their production, so that in the event of major rise in gold prices, they could sell in the spot market? Such information is known only to the management of those companies, and usually not disclosed even in balance sheets. However, major gold stocks like American Barrack, Newmont Mining and Newmont Gold, and some other names in Australia, Canada, South Africa and USA may offer good opportunities.Whether these companies have hedged or un-hedged position or not, no one bothers, because they put 1+1 together, and buy the stocks without any investigation or study. So they will make money. One may buy large cap gold mining stocks in correction because the major run on gold is few months away.

   Further, most of South African gold mining companies trade as GDR or ADR on London Stock Exchange or on American exchanges such as NYSE, NASDAQ or ASE. If the gold rises as anticipated by me, the currencies of those countries will also rise. I therefore feel that the currencies of Australian Dollars, Canadian Dollars, and South African Rand will rise against USD. Indian Rupee may also rise.

Let us not get into sophisticated (complicated) gold related stocks, derivatives etc. Make it simple. If Gold is likely to go higher, just invest into Gold only – no futures, no options, no gold stocks, and no derivatives. Invest into something you understand, and if you don’t understand the exotic issues relating to gold, don’t break your head into it. Just make it simple like a Bread and Butter. Just buy physical gold, that’s it.

Next article will be on other core Savings products – Bank, CDs, RDs, and Corporate Deposits. You will learn many things in such simple instruments that you will often wonder why did not you know that before? Wait until 21^st August, 2009

Anil Selarka,
Hong Kong, 16^th August, 2009

Ref: 0908-030A

Book Web: http://www.subprimeresolved.com

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GOD and GOLD

When almighty GOD created this planet and HIS most precious creation HUMAN, he did not have idea how to make them live in a herd or society as different from millions of other life forms. HE knew that the tiny little brain created for human was the most creative and destructive part of his body. HE also knew that the human will be competent enough to communicate with another human by creating a medium of his own. This is what the brain was meant for.

However, the GOD was nonplussed at the very idea of a human exchanging any material item with another human without set standard. The Almighty then amused at Himself; and looked at some of the precious items exchanged between Deva and Devi (subordinated Gods and Goddesses) – the precious stones like diamond, pearl, stones etc. but they were not so definable. HE finally looked up in the sky at Sun and Moon and looked at their bright and dull colors – shining Yellow and grayish white. He found similarity of those colors in earth’s mineral – GOLD and SILVER. He decided to use them as “Common Definable Exchange Medium” as means for humans to deal with each other.

FOREIGN EXCHANGE

This is how the word “Exchange” appears to have been invented. The humans went a bit further – they used another adjective “Foreign”‘ as different from own. This is how “Foreign Exchange” was born.

Too long name, felt the human. He was used to using abbreviation such as “Bob for Robert”, Bill for William”, “Mike for Michael” and “Don for Donald”. He thought; three, four and five letters should be enough to describe the object. So “FOReign EXchange” was reduced to FOREX. This is how the human advanced his knowledge to “FOREX Reserve”.

GOLD & SILVER – Real Money

Gold and Silver were therefore the earliest form of exchange medium called “Money” used by the human society from time to time. Kings, Queens, Sultans, Mughals, Raja and Maharajas have always used this “money” as reference to prosperity what we call Wealth. In earlier times, we also had “www” that we use very liberally in internet as World Wide Web; the meaning only changed. Earliest form of www equaled to Wine, Woman and Wealth – the main objects of war. Most of the wars were fought for these three elements.

Even today, when a person becomes very wealthy, he drinks wine and then seeks a woman. In the process, he loses his wealth. He earns and then destroys himself. Nothing has changed so far as human psychology is concerned.

Gold and Silver were therefore most primitive form of investment. Even property emerged as second choice of investment because of larger outlay of funds at one time. Gold can be bought in small lots.

We therefore start with the GOLD (and SILVER) as a means of investment. Most people in their conscious or sub conscious mind always start with the investment in gold or silver. These are the metals gifted by GOD, so let us pay attention how to invest into them. I am now bringing you back to today’s age. Who has seen God anyway – this author must be bluffing!

When a human could not get enough gold or silver, he created money or paper currency. When the paper money was not enough, he created electronic money called derivatives, options, warrants, stocks, bonds, convertibles and host of structured products that really had no structures such as CDO or CDS. However, the most important element was that all these products were ultimately convertible into gold. Since the gold was scarce, and the papers were plenty, an inverse relationship developed between paper (currency) and gold. If papers were limitless, the gold has to rise in tandem with the supply of paper currency. This is theoretical of course. There is no coordinated timing between the two. But when the excesses exceed the expectations, the gold rebalances itself and starts asserting. It is happening now.

Today however, most people hate and love GS. They hate Gold and Silver (GS) and love Goldman Sachs (GS again). Ask Warren Buffet. It is a battle royal between physical and paper.

TIMING TO BUY

Before I explain various products under Gold category, I would explain the timing of buying gold now. According to my research, the United States has frittered away most of its gold by lending to hedge funds for shorting operation. It will never come back. They shorted it in $260~$360 range. now the gold is at $950. They are losing over $600 per Troy Ounce.

The Treasury/FED shows holding of 8134 tons of gold which has remained constant for over years. However, the loss of gold has been cleverly concealed in the form of “Earmarked Gold” and tricky language similar to Yudhisthir’s famous quote “Naro va Kunj rova” in Mahabharata.

Although United States has 8134 tons of gold physically, it has lost title to it for almost 6297 tons of gold. It is like a warehouse keeper who holds your inventory. It is not his, but yours. But he holds it physically but its true title vest in you. Similar is the situation for gold.

The world production of gold is about 2500 tons. If the loss of 6297 tons of gold by United States becomes public knowledge, hell will let lose in the gold market, and shorts will rush to the market to cover their position. Read my book: “Sub Prime Resolved” Chapter 14 under the title “Where is Mackenna’s Gold”. (buy it by clicking the banner on the right)

It is absolutely eye opener. This reason is alone to push the price of the gold through the roof in days or months to come.

Type of gold Investment

In olden days, right up to 1980, Gold was traded in its metal form and at the most in the form of Futures and Options contract. With advances in paper currency age, the gold has become tradable in many forms.

DIFFERENCE BETWEEN SAVINGS AND INVESTMENT

What is the difference between “Savings” and “Investment”?

1. When the certain form of money or asset is returnable to you without any monetary loss in same currency, it is called “Savings.”
2. When the owner of funds deposits the money into any other form of local or foreign instrument (stocks, bonds, options, futures, ETF, Mutual Funds etc.) or foreign currency that can rise or fall in value in or against the local currency, it is called Investment.

GOLD IS UNIVERSAL CURRENCY

Gold is a real universal currency. It can be exchanged into local currency of any country at any time. In other words, the Gold is fully convertible currency in real terms. It never loses its quantitative value – If you buy 10 grams today, it will remain 10 grams even after 50 years.

Further, it is purest form of metal which never gets tarnished or loses shine. If you throw anything into fire, it will be burnt to ashes, not Gold. It will shine. Go to any jewelers’ shop for polishing the gold. Some old fashioned jewelers use the ordinary flame (gas or even candle) to purify or polish the gold to its original finish. (No chemicals are needed). It is the only inert metal not affected by any acid or base.

There are 4 purest form of life or matter that exists today, some are visible, and some are not.

1. GOD   – Invisible and yet exists, He is felt everywhere
2. SOUL  – Invisible and yet exists. It is felt everywhere
3. Truth – Invisible and yet exists, it is also felt everywhere
4. GOLD – Visible, touchable and tangible.

Following are the various forms of products relating to gold which can be either savings or investment. Many consider long term savings as long term investment.

GOLD AS SAVINGS – Forms

(To see the pictures and description, Click here)

1. Physical gold in purest form (999 or 9999 quality)
   1. Bought mostly by Central Banks, Mints, IMF, Jewelers, Coin makers, Gold based funds, Gold ETF, and individuals. This is traded on COMEX and other commodity exchanges. This is BEST OF ALL
   2. Gold in ornamental form (18 to 22 carat category)
   3. Mostly by citizens of AAA countries – that is – Arabs, Africa and Asia (Indian subcontinent included) (THIS IS BEST FOR INDIVIDUALS)

GOLD (PHYSICAL) AS INVESTMENT

1. Gold in Coin form – issued by government, banks and private mints. Although at 999 purity, they are marked up by 10% or about. Examples: Maple Leaf, Eagle Coins, Kruggrand (from South Africa)
2. Gold as Collectors Coins – of 999 purity. They have store value and trade anywhere 15% to 30% premium. You will never see the gain by yourself. This is meant for hobbyists or for person having too much money

GOLD (Non Physical) as INVESTMENT or SPECULATION

Most people find hard to buy the gold physically due to several constraints – source, storage and liquidity in local market. If the gold is bought as “ornaments” in Asian nations like India and China

1. Paper Gold – in the form of Gold Passbook issued by many banks such as Hong Kong Bank (HSBC) Bank of China and Hang Sang Bank in Hong Kong.
2. Gold Pool: Some leading gold traders like KITCO offer an investor to buy into gold pool. That is, your holding in gold is physical but held in common pool. If you need physical delivery of bought gold, they will deliver by insured mail subject to administrative and shipping cost. The advantage is the investor can buy the gold as if it is physical, held in trust with the gold trader and exchangeable into physical gold if necessary. However, level of protection differs from firm to firm.
3. Gold ETF – exchangeable into physical gold if required. No one has tested them for physical delivery as yet. ETF stands for Exchange Traded Funds. These are in electronic form of security, listed on stock exchange, providing for liquidity, satisfaction that one invested in gold and charges for buying, selling or storage (in account with brokerage firm or DMAT form in India) at minimum cost. This is liquid if only the {Name} ETF is popular.
4. Gold Stocks: of mine producers. You will find them more in USA, Canada, Australia, UK and Africa. Many mine owners are listed on USA and UK as GDR or ADR.
5. Gold Futures & Options: traded usually in multiples of 100 Oz on commodity exchanges like COMEX and many exchanges all around the world. These are leveraged instruments. On some exchanges, they are physically exchangeable into physical gold or cash settled (meaning, one gets the dollars or currency of trade, being the difference between purchase and sale price)
6. Currencies of Gold producing countries: The nations like US, Canada, Australia, South Africa and Soviet Union are leading producers of gold. If the gold rises, these currencies also rise, though not in same proportion. However, it works at its best if you buy the Convertible Bonds of Mine Producers in respective local currency (convertible). When the gold rise, the stock of mine producer rises, and the currency may also rise.

Gold Units: The most common unit is ounce or Troy Ounce. This is used by investors or gold traders while buying physical gold. Again, the popular units depend on cultural practices in the country. In Hong Kong and China, the common units is TAEL (= 37.5 grams), in India Tola (used to be about 11 grams, now replaced by 10 grams). The prices are usually quoted in international market as $/Troy Ounce. All other units are referenced to this price.

Many investors get cheated by the price. There are two Ounce measures as under:

1. Ordinary Ounce (used in normal measurement. 1 lbs (Pound) = 16 ounces. 1 Ounce = 28.3495 grams or 28.35 grams (if quantity is not large)
2. Troy Ounce (= 31.1035 grams. This is the universal standard in which the gold prices are usually quoted. The gold price is quoted as $ PTO or US Dollar Per Troy Ounce.

Some banks in India for example, use ordinary ounce to quote the price. So they charge the investors 31.1035/28.3495 = 109.71% or the customer is overcharged by 9.71% or nearly 10%.

Troy Ounce:

The traditional unit of weight for gold

1 troy ounce              = 31.1034768 grams.
32.15 troy ounces     = 1 kilograms (Kilo)
32,150 troy ounces   = 1 metric ton (1,000 kilos)
1000 troy ounces      = 31.1 kilograms

BEFORE YOU BUY GOLD, Consider the following factors:

1. Like any investment product, before you buy anything, consider the most important thing – whether you can sell as easily as you can buy? If your answer is NO, do not buy that form of Gold. PERIOD
2. In which country you are buying – in a country with convertible currency or in a country with non convertible currency regime with fixed or pegged rates. Examples: US, UK, Australia, New Zealand, Euro, Canadian dollars, Singapore dollars
3. If you are buying outside your country, you will be taking exchange risk of the foreign currency vs. domestic currency. This could be advantage or disadvantage.
4. Do you want to buy in Physical or Paper form? The rule is physical is physical and paper is paper. I personally never trade physical for paper – that is my self discipline. But you as investor may decide which form suits you best.
   1. We live in internet age. If war erupts, the very first casualty is Internet. If the World War III erupts, the paper based gold will simply disappear. You can not even access your account over the net. The bank or broker can also refuse to pay saying that their server is down
   2. When you buy paper, you rely on the credit worthiness of the bank or the broker. You know pretty well how worthy the top banks are. Many brokers like Lehman Brothers, Barings have simply disappeared. Thus, your investment could still turn zero if you deal in paper gold.
   3. If political stability of the country where you live is not so good, and if you are an alien (immigrant), do not take chance with paper gold. If your ethnic community is driven out (the way Jews were driven out by Hitler, Indians by Idi Amin in Uganda, and Military Junta in Burma), the paper investment could turn zero.
   4. Still, paper form is good so long as the orderly market for papers exist. Unless major banks sink to the bottom of the sea and financial crisis deepens further (which I believe it will), the physical gold will win over the paper.
5. If you decide to buy physical gold, decide whether it is
   1. for investment purpose or savings purpose. Most Indian women will not let their family members to sell gold even if the prices may have risen 3 times. They consider outgo of gold as bad omen for their prosperity, especially if you have bought ornaments instead of gold bars or lagdi (another form of gold bar. This term is used in India. They also call “Biscuits” because some rectangular bars look like Biscuit. The round shape is often called “lagdi”.)
   2. Never buy investment gold in ornamental form. The dealer usually charge 10% to 20% more while buying and also deducts 10% when you wanted to sell. Thus, if the gold has not risen by 30% at least, you do not make any profit.
   3. For Investment purpose, buy only 999 or 9999 gold. They are easily saleable in any retail market.
   4. Do not buy larger unit, say 100 oz. Buy in multiples of 1 or 5 ounces or 1 to 5 taels (in Hong Kong). If you have bought from the bank, the bank will instantly pay you on spot.
   5. However, if try to sell to a gold dealer (say in India), you take a trading risk. You deliver gold to a dealer who will pay you after 3 or 4 days. If the dealer has existed for long time, then the risk is reduced. While selling to a gold dealer, who will pay only after a few days, sell it bit by bit that is in small lots at one time. Until previous payment is cleared, do not sell any more.
   6. If you decide to sell gold in a country like India, and you have to wait for 3 or 4 days, better sell against invoice (even if you have to pay 2% tax), so that you have proof that you delivered the gold to him and payment is due from the dealer (must be mentioned on the invoice itself)
   7. If you do not have storage space in your home and you do not have bank locker, do not buy physical gold. Instead, consider Gold ETF where the ownership is secured in the form of statement from broker or authorities. Other instruments like Paper Gold may also be a good substitute.

This article is not complete. Second part will appear on 16^th August, when each investment product will be discussed in greater detail. Resource links will also be provided. Please note that the entire subject may take a long series which is not the intention of this primer series. The idea is to show major points as briefly as possible. The practical issues will be given more importance than the theory of gold or charts etc. This article is meant for ordinary individuals who want to know why, when, in what form and from where he should buy the gold, and how to avoid major losses in preventive steps.

Anil Selarka,
Hong Kong, 11^th August, 2009

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