The advice given in this article is valuable, and spreading the word about re-financing option is a good idea; yet, in my opinion, promotion of such strategies should always come with BIG warnings signs. In capital letters and bold – as you can see.

Why should they come with such warnings? These strategies are the exact replica of the ones that were broadly promoted and followed in the US between 2000 and 2007; and we saw where the American Real Estate owners ended up.

Fauzi and KCLau argue that, should you know what you are doing, then there should be no problem… Yet, many Real Estate / Finance billionaires lost fortunes in the US Krach; and they certainly were better informed than most of us will ever be. So knowledge and information, while important, are not enough when dealing with Refinancing. Especially as these leverage-strategies can haunt you should the market turn around.

IMHO, we should follow Morningstar’s Why Diversification Still Matters advices. The past few months were certainly painful for just about all investors; Stocks of all kinds, commodities, and even bonds posted significant losses. Yet we should not forget the wisdom of the old saying: “don’t put all your eggs in the same basket”. This manifesto does just that, and I’d argument that you need to do just the same when dealing with refinancing.

I strongly believe you should diversify your positions when refinancing, and reallocate your realized-profit(s) to other asset classes to maintain a diversified portfolio. Otherwise you may end up with a portfolio inflated in one asset class – Real Estate in this discussion – which is unhealthy in the long run.

I agree with Fauzi and KC that information and knowledge are important. They are essential on your path to financial-freedom. But don’t forget one of the oldest wisdom of all on the way. Always keep your portfolio as diversified as possible, so you can weather down any bad surprises.

Do you agree / disagree with me? Do you want to join us in the discussion? What’s your take? Would you refinance to leverage within the same asset class, or would you diversify your positions? Would you do it reagularly? The comment section here under is yours

The Pace

His approach was to offer good, steady returns to an exclusive clientele. The decent returns lowered the guard of many, and their regularity, even during bear markets, made his reputation. This steadiness did ring a few bells. Yet they did not act earlier. Maybe it was thanks to B. Madoff’s marketing

The marketing

To those who questioned the scheme, the basic answer was that such feat was possible through a combination of index-tracking stock purchases, hedged with related options. Of course, the exact details were kept secrets… Those who asked too many questions were simply given their money back and shown the door.

As with all Ponzi, this strategy was very efficient because the loss of a potential steady profit made other clients think twice before asking questions. Additionally, B. Madoff clientele were very exclusive and most were referred to him by friends. Being kicked out of his scheme could be compared to a social rejection.

Last, but not least, Madoff’s scheme also differed in that some hedge funds also invested with him. Their clients expected them to diversify their portfolio and protect them against the market aleas – in search or the infamous Alpha – and were willing to pay expensive managements fees for their expertise. Most did not know they were exposed…

2008 as a revelator

The credit crisis and difficult market in 2008 forced many to cash out their positions. Madoff struggled to honor them until the end of 2008. By then, too many had done so at the same time, and the scheme collapsed due to a lack of liquidity.

Now what?

Markets’ ability to operate demand a strong confidence in the system. Without it, we would never accept paper payment, online trading and other modern marvels. The real feat or B. Madoff’s scheme, aside from working so well for so long, is the long lasting impact it will have on the financial circle of trust. The general public will think about it twice before investing their hard earned money, markets and hedge funds are going to face difficult times, security committees are going to be extra vigilant. All in all, not a bad thing if we learn from it. We should end up with a cleaner system.

The real question I still have is this one: Why is he not in Jail yet?

The first subject is Islamic Banking with two great articles. The first provides a quick back-ground history to better understand where it comes from and a quick glimpse at how faith-based finance work. The second focus on the struggle to reconcile savings and souls and the constant dilemma to between faith and finance. Very interesting read – I highly recommend both.

I personally like Islamic Finance. I see it as a great marketing strategy and a great opportunity to set Islam and Muslims on a path of discussion and exchange. It may be a door to more progressivism in Islam. But in order to succeed, slamic scholars should only define the right and what is wrong of a specific product or fund. They should always seek the collaboration of economists who truly understands the financial and  economic aspect of things in oder to prevent disillusions. I think Malaysia understood that with its “National Sharia Board”. If they can do that, then Islamic Finance has a bright future ahead.

The second subject is IT with a great report on technology and how it revolutionize how the world is working and thinking. 18 articles, 18 different ideas, 18 inspirations. This kind of report always haunt me for a few days after I finish reading them. So many great ideas to explore and think about. It really  help broadening my scope of understanding. Great stuff!

So when I received this very simple and straight forward summary in a Credit Suisse article recently & wanted to share it here.

Money before Money
The use of proto-money may date back to at least 100,000 years ago with the use of Shell or red Auchre.

Payments in Precious Metals
The Code of Hammurabi in Babylonia includes laws governing banking operations. It describes payments in weighted amounts of silver around 1780 B.C.

Coins
The first coins are produced in Lydia (in Asia Minor) around 650 B.C. They were composed of a mixture of gold and silver (electrum be the geek term).

Derivatives
Aristotle mentions the use of a call option-like agreement with olive presses in his writings dating back to around 300 B.C. By deduction – Philosophs love deductions – we can assume that option-like agreements were common in ancient Greece.

Bank Notes
Chinese were the first to use bank notes. We have a first record mentioning a note from 1024. Swedesh were the first European to issue bank notes through the private company Stockholm Banco in 1661.

Bonds
The earliest-known bond was issued by the Bank of Venice in 1157 to fund a war with Constantinople.

Commodity Futures
Merchants began to finance their trading expeditions by selling goods they expected to receive before actually possessing them during the Renaissance.

Shares
The Dutch East India Company, founded in 1602, issued the first negotiable share certificates in 1606. These were traded on the Amsterdam stock exchange.

Financial Futures
The first financial futures contracts were traded in 1972. Their popularity surged with the abandonment of fixed exchange rates in the ’70s.

E-payments
Electronic payments exceeded cash transactions in the US in 2003.

By the way – the scientific study of money and its history is called Numismatics. To your surprise, I’m sure you know some Numismaticians. All coins collectors are considered Numismaticians

The financial markets are packed with slang. I thought it would be interesting starting a new category which will describe a few specific words or slang concept associated with the markets. Let’s start this new “terminology” category with a slang which I recently came across in a discussion: Bull & Bear Markets.

The use of “bull” and “bear” to describe markets comes from the way each animals attack an opponent. A bull will attack with horns high up in the air. The bear will slash down its paws. It’s quite easy to grasp this allegory: if the trend is up it’s a bull market; if the trend is down, it’s a bear market.

Bull Market
A bull market is characterized by optimism. Investor confidence is high; the markets are on the rise, and they expect them to keep going north for quite some time. As investors are logical homo-economicus, they will take advantage of this situation and buy in anticipation of further capital gain. They usually happen as a result of an economic recovery, an economic boom or investor psychology.

Bear Market
A bear market is characterized by pessimism. Investors lose confidence in the market; they anticipate them to go south in the future; as a result, they sell their stock to freeze their profit – or limit their losses. The negative sentiment feeding on itself from there. They usually occur as a result of a moribund economy, with high unemployment and / or inflation rising.