Monday, 2 February 2015

[IS IT TRUE?] ... Can Tong Kooi Ong Crash The Ringgit?

[IS IT TRUE?] ... Can Tong Kooi Ong Crash The Ringgit?

This is taken from this blog 'Exposing the truth of Malaysians'. Click on the link below to access the blog. I am reproducing their blogpost in full. It does not reflect my own views. My own comments are appended below. Thank you to the reader who sent me this and asked for my opinion.

Thats Tong Kooi Ong on the left. There is a reason the guy on the right has his one finger up. Both are creatures of habit. Hence they are predictable.

Exposing The Truth of Malaysians

How Tong Kooi Ong is attempting to break Bank Negara and crash the RM
January 28, 2015    

An owner of a prominent news media empire is casting undue influence on the financial and political state of Malaysia for his own personal monetary gain.

Sources within Bank Negara Malaysia (BNM) revealed that Tong Kooi Ong, the owner of the Edge Group and The Malaysian Insider has taken a USD1.4 billion short position on the Ringgit through a proxy. The first transaction took place in August 2014 and subsequent short positions have been taken leading up to January 2015.

Tong Kooi Ong is no stranger to investments, notably during the last financial crisis, Tong took a similar short position with Rashid Hussein which resulted in a significant gain.
He is a former stockbroker, financial analyst and banker who founded and built Phileo Allied Berhad, one of the most successful and innovative financial banking groups in Malaysia in the 1990s. Phileo Allied Bank was subsequently taken over and merged with Maybank in 2000.

According to the source, Bank Negara Malaysia and the securities commission are monitoring Tong closely.

How shorting a currency works:

A short position on the ringgit is essentially a bet that the ringgit will fall. The Malaysian ringgit will be traded for USD and if the ringgit reduces in value, the investor will make money when they buy back the ringgit at its lower value to cover the short position.

When a currency is being devalued, the central bank will step in to release reserves to balance the value of their currency against the currency that it is being most actively traded against.

In the Malaysian scenario as the RM drops, BNM will step in to buy RM in exchange for their USD reserves.

Speculators who short the currency will exploit this by taking a loan in Malaysia or using their own funds in RM to trade for the USD. The goal of which is to trade the RM for USD until the central bank is out of reserves so effectively the currency will crash.

The investor will then go back to the Bank that they initially borrowed money from and will convert it into RM to pay back the loan. The profit would be made off the gain that the USD receives against the RM. As the loan was made in RM and the currency has crashed the investor would have to trade less USD to pay back that initial RM loan.

Media and Mass propagation

With access to his media empire that spans from radio to print and online, Tong Kooi Tong is able change public sentiment through the mass distribution of articles that create doubt amongst the general public about the state of the Malaysian ringgit.

After reading headlines that spell doom and gloom above, what would you do if you were holding Malaysian ringgit?

Take into consideration that in order for the currency to crash, it is crucial that Bank Negara reserves are pushed to their limit. A media empire would be the perfect channel to damage the perception of the RM effectively facilitating the devaluation of the RM.

The unpatriotic acts of short selling coupled with media propagation will lead Malaysia into a recession causing untold suffering for the average man on the street whilst lining the pockets of a few individuals.

To give readers a better understanding of how investors make money by shorting a currency let’s look at 2 case studies followed by a comparison of how the same could happen in Malaysia.

Soros Breaks the Bank of England and earns $1 Billion in a day

This is certainly the most notorious forex market event which took place on September 16, 1992 which is called “Black Wednesday” and Soros got his nickname “the man who broke the bank of England” from transactions he performed together with other traders. They didn’t break it directly, but they devalued it so badly that Britain had to take it out from the European Exchange Rate Mechanism (ERM).

Fig.1. How Soros Broke the Bank of England in 1992.Fig.1. How Soros Broke the Bank of England in 1992.

Britain was in a recession from 1990 but despite this the pound (also known as Sterling) joined the ERM thus fixing the pound’s rate to deutschmark in order to make the investments more predictable and stable among Britain and Europe. But as the political and financial situation in Germany changed during the unification of Germany many ERM currencies were under big pressure to keep their currencies within the agreed limits. Britain had the most problems – its inflation rate was very high and the USD rate (many British exporters were being paid in USD) was also falling. So more and more speculators began circling and making plans on how to profit from this situation as it became clear that the pound was not able to artificially stand against the natural market forces. Speculators waited until the financial situation got as bad as it could naturally get and then created extra pressure on the pound by selling it in huge amounts. The most aggressive of them was G. Soros who performed this transaction every 5 minutes profiting each time as the GBP fell by minutes.

"The money that I made on this particular transaction would be estimated at about $1 Billion dollars. We very simply used the forward market – you borrow sterling and you sell the sterling that you’ve borrowed. And then you buy back the sterling when the loan expires”  – G. Soros.

How Soros earns $790 Million, crashes the Thai Baht and triggers the Asian crisis.

The second most notorious trade of Soros came in 1997 as he saw a possibility that the Thai Baht could go down so he went short on the baht (by going long on USD/THB) using forward contracts. His actions are often considered to be a triggering factor which sparked the big Asian financial crisis, affecting not only Thailand but also South Korea, Indonesia, Malaysia, Philippines, Honk Kong and others.

Fig.2. How Soros gained $790 Million and destabilized Thailand’s and Asian economies in 1997 – 1998.Fig.2. How Soros gained $790 Million and destabilized Thailand’s and Asian economies in 1997 – 1998.

Soros goes short on the baht.

Thailand spends almost $7 Billion to protect the Baht against speculations.

Soros sells all his baht resources and keeps telling everyone to do the same by publicly scaring people with the fall of the baht and crisis. It works.

On July 2, Thailand is forced to give up the fixed rate of the Baht and it starts to float freely. Thailand asks for help from the International Monetary fund (IMF).
Thailand takes on hard austerity measures to secure the loan from the IMF.

Baht has fallen from 1$ for 25 baht to 56 baht thus Soros had gained more than 790 million USD.

How Tong Kooi Ong would break Bank Negara Malaysia Fig.3. 

How Soros gained $790 Million and destabilized Thailand’s and Asian economies in 
1997 – 1998. Fig.3. 

How Soros gained $790 Million and destabilized Thailand’s and Asian economies in 1997 – 1998.

Tong Kooi Ong goes short on the RM
Malaysia spends reserves to protect the RM against speculators
Media empire is used to spread doubt to drive the RM down further
Tong Kooi Ong closes his trade after the RM has devalued enough for a significant profit
USD position of estimated USD1.4 billion is converted to devalued RM for huge profit. Bank is paid back initial loan of now devalued RM. The difference between the initial cost of the RM and the devalued cost of the RM is pure profit.

We urge members of the public to share this article with their friends and family Reports have been lodged with Bank Negara Malaysia and the securities commission but we urge the public to lend their support by lodging their own reports.

Revisiting the 1997 financial crisis.

During the 1997 financial crisis, the greed of a few unpatriotic speculators caused Malaysia to enter into a recession. Greed led speculators to make millions, if not billions, at the expense of the country.

Malaysian bankers then were hard at work unethically betting against the ringgit. Currency speculators borrowed ringgit from offshore forex markets and sold it. They proceeded to dump the money into the market – pushing the exchange rate down even further.

Once the ringgit was devalued sufficiently from all the selling down, these ruthless traders bought back the currency at a much lower price, paid back their borrowings and made a handsome profit, whilst millions of people in the country suffered and continued to suffer as Malaysia entered a recession.

Dangerous rumours were circulated about the deterioration of the economy, as it would aid the profitability of their short selling.

In response to the currency crisis in 1997, Malaysia banned short selling. However, once the economy recovered sufficiently, the ban was lifted in March 2006.

Why should a weakened currency matter to you?

During the 1997 crisis retrenchments soared by 444%. 83,865 people lost their jobs in the first 3 months of the crisis. The per capita income dropped drastically by half from USD5,000 to USD2,500. The ringgit drooped from RM2.50 per USD to, at one point, RM4.80 per USD. The KLCI fell from approximately 1300 points to nearly as low as 400 points in a few short weeks.

When a currency is heavily devalued unemployment rises and household incomes drop. Households change their spending habits to only purchase needs, this affects the entire economy as less people eat out or go shopping. A downward spiral begins as people lose their jobs, businesses have less customers resulting in the need to cut costs further which results in the lost of more jobs.

During the 1997 crisis despite strict counter measures from BNM, the country’s GDP suffered a sharp contraction of 7.5% in 1998, and the country went into recession.

During a recession people go out of business resulting in loss of jobs, projects get abandoned and local banks get huge withdrawals from customers.

As jobs become scarce people put up with lower pay with higher workloads and harsh working conditions. The number of bankrupts in the country increases as loans are defaulted on. People lose their houses, as they are unable to service their mortgage.

In the aftermath of the assault on the ringgit in 1997, Dr Mahathir said in reference to currency traders “There is absolutely no consideration given to the sufferings and miseries on the suddenly impoverished people and their countries. Going beyond the economic field, the threat of losing confidence was extended into the social and political fields. In one instance, the currency of the country was devalued by 600%”

“Currency war can achieve political objectives just as well as a military war.”

-Tun Mahathir wrote on his blog 29 March 2012 in reference to the 1997 currency crisis.

My comments :  Even with US$5 billion Bank Negara could not do anything to prevent the Ringgit from falling further. So I dont think Tong Kooi Ong on his own can crash the Ringgit. Not with US1.4 Billion. 

If these stories are true, Tong possibly read the ringgit very well. Just like Soros read the Pound Sterling very well in 1992. The Ringgit was already on its way down. Or it was already in a very weak position. Then when the slide began, it was easy for Tong (if he really did to what they say he did) to ride the Ringgit down hill. It was an opportunistic moment. The guy saw an opportunity.

My question is what happened to all those Exchange Controls that ayahanda Tun Dr Mahathir put in place in 2000?  The Ringgit was made ILLEGAL tender outside Malaysia. 

If this thing happened inside the country someone first had to borow Ringgit.  Then they use the Ringgit to buy the US Dollar.  Then when the Ringgit starts to slide, they sell their Dollars to buy Ringgit - more Ringgit because its value has fallen.  Then they pay back their original Ringgit loan and keep the balance of the Ringgit as profit.

The question is how could anyone borrow say RM5.0 Billion inside Malaysia and then use it to buy US$? Bank Negara tidor ke?

Dr Mahathir made the Ringgit illegal tender outside Malaysia. Who is the idiot who made it legal again? Still how can anyone transact in so much Ringgit outside Malaysia?

Here is my suggestion. There is a country called Singapore. No one messes with their currency - either its appreciation or its depreciation, especially against the Ringgit.

I know you cannot collect much allowance if you travel to Singapore (as opposed to say Davos) but please do go to Singapore and study how they protect their currency against speculators and speculation.  

Actually tak payah pi Singapore pun. Just read it on the Internet. The MAS (Monetary Authority of Singapore) should have some literature on this on their website.  Tak payah pikir panjang. Orang lain dah buat lama dah.

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