This Week’s Top Headlines

i) Bitcoin slips below $23,000 as the Fed’s preferred measure of inflation unexpectedly rose by 0.6% in January, disappointing analysts.

ii) EPF withdrawal chaos - Malaysians are struggling more than ever as 71% of contributors aged 55 and below have inadequate funds to elevate themselves above the poverty line.

iii) Budget 2023 highlights - increased taxes for the wealthy and luxury goods, lower taxes for the middle income group. Govt to contribute RM500 to EPF members aged 40 to 54 who have less than RM10,000 in their account 1.

*Note: Budget 2023 will be covered in a separate newsletter. It will be sent to all patrons by Monday (Feb 27) or Tuesday (Feb 28).

Scroll down to read the details.

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Bitcoin retraces, again.

The world’s largest cryptocurrency is undergoing yet another retracement after an impressive run to its 5-month high resistance at $25,200.

In my previous issue, I covered the divergence pattern observed between the Relative Strength Index (RSI) and Bitcoin’s price, which signified that buyers were beginning to lose dominance.

This week has seen sellers taking over the market, pushing Bitcoin briefly below $23,000 on Saturday (Feb 25) before rebounding to its current price at $23,139.

Considering the outstanding rally in January, I believe the market still has room to retrace, and a decline to $21,000 for Bitcoin should not be overlooked.

The Fed’s preferred measure of inflation rose more than expected. Markets bled in response.

On Friday (Feb 24), the latest personal consumption expenditures (PCE) index, a measure which the Federal Reserve monitors closely to track inflation, was released.

The figure came in at 5.4% compared to a year ago and registered an increase of 0.6% for the month, compared to 5.3% and 0.2% in December.

Excluding food and energy, core PCE rose by 4.7% compared to the prior month’s figure of 4.6%. Wall Street was expecting a lower reading at 4.4%.

Markets experienced a significant decline after the report's release as investors processed the unfavorable news, which was a primary cause for Bitcoin's retracement this week. All three major indices, Dow, Nasdaq, and the S&P, fell by an average of 1.20 percent.

Since March 2022, the US central bank has increased interest rates by 450 basis points due to inflation reaching its highest level in over four decades.

While inflation has recently shown signs of moderation, the latest PCE report indicates that it remains stickier than anticipated. This puts the Fed in a position where it is expected to maintain higher interest rates for an extended period, creating additional pressure on earnings and negatively impacting the markets.

According to the latest probabilities, 27% of investors are anticipating a 50 basis point hike during the next Fed meeting, which is a significant increase from the previous 25 basis point increment.

51 percent of EPF members under 55 have less than RM10,000 in their accounts.

Just last Thursday (Feb 23), Prime Minister Datuk Anwar Ibrahim made a shocking reveal about the current status on the retirement savings of Malaysians:

• As of December 31 last year, 6.7 million out of 13.1 million EPF members aged 55 and below have less than RM10,000 in savings following the four withdrawal schemes approved by the government.

• 8.1 million members for withdrawals, which saw a grand total of RM145 billion or 15% of the total EPF funds siphoned.

• 71 percent of active EPF contributors do not have sufficient funds to transcend them above the poverty level.

• The percentage of active members who have achieved the basic savings target of RM240,000 by the age of 55 fell by 36% in 2020 to 29% at the end of last year.

At this rate, EPF estimated that contributors would have to work four to six extra years to recuperate the amount that was withdrawn for the pandemic, or they may be left with roughly RM42 per month in retirement savings over 20 years.

In a separate statement by the Deputy Finance Minister, Datuk Seri Ahmad Maslan said that the median savings of all members fell by 50% in 2022, to RM8,100.

"The Malays, who number more than seven million members, had RM16,900 in April 2020. Now, they are only left with RM5,500,” he told a media conference in Parliament. "This is one of the reasons the government has decided not to allow any more special withdrawals.”

Despite this, many are still pushing for withdrawals.

Just last week, Former PM Ismail Sabri called for the government to allow another round of withdrawals for Malaysians due to rising prices and the expected slowdown in global demand this year.

The Ex-PM believes that the withdrawal will only subtract a small percentage of the total EPF funds, and said “What is the use of the fund if we are declared bankrupt by the time we want to withdraw the money later on? The urgency is now, not later.”

Several non-governmental organizations (NGOs) also stood by Ismail Sabri’s views and urged the government to approve targeted withdrawals immediately.

Regardless of the reason for withdrawals, you should understand the power of compound interest.

EPF’s returns have been comfortably above 5% per year since 2009.

With a mere contribution of RM100 per month starting from zero, you’ll have RM79,726.62 after 30 years.

Taking the median savings of RM8,100 and adding a similar contribution of RM100 per month, you’ll have RM114,734.35 after 30 years, significantly higher than the previous example.

This highlights the exponential growth of compound interest. The earlier you save, the more you’ll have.

To understand how I derived these figures, use the investment calculator here.

Those who are loaded with debt should get it restructured.

With regards to Malaysians who are currently struggling to pay off their debts, I asked the CEO of RinggitPlus, Hann Liew, on the matter.

In a private conversation, he mentioned that the withdrawals should never be allowed in the first place. The “Pandora’s box” needs to be closed.

He went on to suggest that individuals who are facing difficulties in meeting their repayments should explore the possibility of restructuring their debts with their respective banks

Read his reply here:

I also consulted Economist and Certified Financial Planner Sani Hamid on the issue of using EPF to pay off debt.

He emphasized that EPF should be considered as an asset and cautioned against using assets to pay off loans.

He went on to explain that overspending is often the root cause of debt, and that unless individuals address this underlying issue, withdrawing funds from EPF will not suffice.

Listen to his thoughts:

That’s all for this week’s newsletter!

Disclaimer: I am not a financial advisor. This newsletter is based on my own analysis and research. Do not take any of it as financial advice.

*This newsletter was written at 10.30 AM on 26 February 2023 and completed at 3.30 PM the same day. To get early access to our newsletter, be our patron for as little as $1/month!