Sovereign Funds: White Knights or Sparks of Nationalism?

There has been a recent hike in news of sovereign funds from Middle East and Asia infusing capital into major US banks burdened by sub-prime mortgage write downs. Singapore has been relatively frequently mentioned with GIC buying in S$14 billion into UBS and Temasek Holdings to spend S$5 billion into Merrill Lynch. Other sovereign funds includes Abu Dhabi Investment Authority buying into UBS with GIC and the China Investment Corp (CIC) buying into Morgan Stanley.

Capital infusion from these sovereign funds, especially a sensitive topic on middle eastern and asian countries buying into major banks of a super power economy, can contribute to liquid the current credit crunch in the United States but will it be another spark for nationalistic opposition? News of GIC and Abu Dhabi Investment Corp buying into UBS has already sparked voices of concern on unfair trading terms that might disadvantage current shareholders of UBS. While the sub-prime crisis has provided ample opportunities for sovereign funds to buy fundamentally strong US bank stocks on the cheap, the question is whether it is cheap enough and opposition--corollary effects of nationalism. There is still uncertainty on whether the UBS-GIC deal would go through.

On a pure economic note in Singapore, overseas investments amounting to almost S$20 billion by GIC and Temasek Holdings would result in large capital outflow and loss of foreign reserves to the United States (with higher demand for US capital investments). The Singapore dollar would be expected to depreciate even more against the US dollar, ceteris paribus. Time to buy US dollar-dominated assets??

Ministers and Senior Civil Servants Wages Up Up Up, Inflation Up Up Up

The wages of our dear ‘super-elite’ ministers and senior civil servants are going up ranging from 4 to 21 per cent. The funny is, the more money you earn, the more you are going to get. The President and Prime Minister enjoy the highest increase of 20-21 per cent. How the logic goes about increasing the most for the highest paid is beyond me.

In 16^th December 07 Lianhe Zaobao (yes, the economics journalist reads Chinese newspapers daily) page 4, Senior Minister Goh Cheok Tong mentioned, “The aim of increasing wages is to attract more talents into our government service and not so much about for the ministers. The ministers do not care about how much they are paid. In fact, most of them, including myself, donate part of their income to the charity.”

Increase wage to attract talents. Yet the ministers do not care about their page package. Aren’t the comments contradictory? If ‘talents’ are attracted into service by high wages, how can they not care about their pay package? And why does our SM have to mention the charity thingy? Who can confirm that? And why play the charity card now? Is it for the sake of promoting ‘understanding and sympathy’ among Singaporeans? Although Prime Minister Lee Hsien Loong had pledged to donate his pay increase to charity for 5 years, it must be taken note that pay increase is a permanent thing. Donating to charity is not. And basing the increase on the earnings of the top earners in 6 industries has no logic. These top earners earn the bulk of their enviable income as bonus. Next year, whether or not they continue to earn as much or more is not something you and I can say for sure. But, increases for the elites are permanent! Let's say the economy slows next year and the top earners earn less, our dear elites would still be receiving their nice pay package.

It is, however, the best time now to rise wages for our ‘super-elites’. Being elites educated in top universities, they very well know that with the phenomenal economic growth (which favors the capitalists aka the rich but at the expense of the low waged), even though inflation is at an all time high, delaying it any longer when inflation rate spirals out of control or recession in US pulling down the world’s economic growth and most importantly, as the election date nears, the government will not have a second chance to increase their wallet size from 50 inch to 50 feet.

The government keeps mentioning that there is a high rate of talents leaving the public service into the private sector. Ex-Minister Mr Cedric Foo is now cited often as a ‘quitter’ who had turned to the private sector (NOL as CFO) because of ‘higher wages’. Well, if a minister is only concern about his wallet, I do not want him to be my minister. I would be very much glad that he left (although he still retains his post as MP -- extra allowances from the government, so why not?). But is ‘low wage’ the real reason for them leaving? Many a times, it is not.

The private sector had always been perceived as a more dynamic and exciting place to work in. The problem lies more than pure cash. Can’t the government do up a simple Ishikawa Diagram to investigate the real reason for the ‘high’ turnover rate (turnover rate isn’t nearly as high as in banks). If the government keeps thinking that increasing wages will bring in talents and keep them loyal to the government service, then that is pure myopia. Buying ‘talents’ and loyalty with money, how long can this stance continue and how then can Singaporeans trust such money loving ‘super-elites’, who care about their wallet more than their willingness to serve the country, to manage the country? Greed knows no bounds and how much would be enough?

Then we come to the question of whether the ministers deserve the kind of pay package that they are having. Let us look at wage structures around the world. Wages compensate skills. The higher responsibility you have, the better skilled you are, the rarer your skills, the more you are compensated.

In terms of responsibility, any one of our ministers is managing a land mass and population size that is far less than any officials in the US or Britain or Japan or any other major first-world country you can think of. Yet, they earn far more than their over-worked counterparts. The government loves to argue that any of their ‘talented super-elite’ ministers and senior civil servants can earn more in the private sector. But is that so? A simple check with the corporate world CEOs, CFOs, COOs, CIOs, MDs shows that these top executives are seldom top scholars. This shows that the argument is flawed in the first place. But the government takes in ‘spotted talents’ when they are young and grooming them by giving out scholarships and sending them to elite universities and prepare nice career routes for them assuming that these book muggers are the top brains both in public service and private sector. How different is this system compared with the imperial examination system of ancient China? With the complexity in international responsibility some top executives are handling in certain companies, their share of responsibility may equal if not surpass that of some of the ministers or senior civil servants.

Next we talk about skills. Since the government says that the ministers and civil servants are top elites, we are not wrong then to say that they possess super-extra-ordinary brains right? But have they been able to solve problems like inflation, income disparity, social security, transportation (this bugs me the most) etc?

“Oh no, inflation is a natural thing to happen given higher oil prices and good economic growth. We can’t help it. Income disparity….we do not have a choice. It’s globalization’s fault. Social security? Look at Europe! It’s pulling the entire economy down! You want social security? Fine, you must earn little, work, prove to me that you are pitiful and beg me to give you assistance so that we can prevent moral hazard. In return, I give you a bit of monetary assistance capped at $290 a month. Transportation? Oh we can’t please everyone can we? We allow LTA to make all the decision on whether to intervene into the market or not. We are also pleased to announce that we are merciful and we forgave them for their stupid mistakes in constructing lame cyclist blocks at one end of the bridge but not at the other end rendering a cyclist paralyzed, or having the Nicole Highway Collapse, or allowing SMRT and SBS to prevent duplicating routes leading to commuters being compelled to take longer routes, or being complacent in not regulating the taxi industry only to react after furious Singaporeans write into the papers to show frustration on taxi touts and disappearing taxis.”

So it seems, their skills are not unique, nor are they better than other governments. And what is happening to the humongous S$1 billion (that is one followed by 9 zeros!!) sinking funds that the town councils are keeping? Instead of providing rebates to citizens, they want to invest! Is there a need to invest the funds? Those funds are not meant to invest! It only shows that they are collecting too much from us. Are they going to create a 3^rd investment arm after Temasek and GIC? There is too much principal-agent risk at our expense. Why are we still paying so much when they have more than 1 billion dollars in excess!! 1 billion is enough to provide a great deal of financial assistance for many years to come! Any losses are at our expense. Will any gains be shared with the public? I think that would be a resounding N-O-!!

There are seriously too many things going on wrong with the government. There is simply no counter-balance of control! A report a few months ago shows that there are no proper checks in place in many ministries. The current government aspires to be both the governing body and the opposition check. But how can that be possible? Can God be the Devil at the same time? Apparently, our dear elites think that they can be both.

Multi-millionaire gave up US Green Card for S'pore

Sometimes I wonder why the heck would our dear Straits Times/ Sunday Times report on such 'mundane' stuff. Either our editors are running out of things to write or our country is just boring to begin with. Or is it propaganda?

The reported millionaire from US is Mr Satinder Garcha who had recently outbid 7 other developers for the 71,600 sq feet prime site at Sentosa Cove for S$80m where he will be building 20 villas which are expected to sell for $10m each. Given the buoyant economy and rising property prices in recent months, it spells a viable business opportunity.

Reason for coming into Singapore? Not for our 'world class' city. But for the sake of buying land and property. Plus low taxes and a conducive business environment. Singapore has become a haven for rich capitalists. Going by the Hecksher-Ohlin Model, the Stolpher-Samuelson Theorem states that abundant factor gains while the scare factor loses. Meaning in capitalist Singapore, expect the rich (capitalists) to get richer and the poor (labourers) to get poorer. On the other side, there's gains to be made, as in this case there could be more tax to be collected and more money could be attracted into Singapore's booming economy. The question is whether the losers can or will be compensated for being the sacrificial lamb.

Trying to be God in creating a Money Making Machine?

"Morgan Stanley 3Q Profit Down"
Screams the headline after the Fed announces a half point cut in interest rate which got all markets bullish.

Then I came across this news. Morgan Stanley 3Q profit down due to global credit crunch of the sub-prime mortgage.

Profit for the three months ended Aug. 31 fell to $1.54 billion, or $1.44 per share, from $1.85 billion, or $1.75 per share, in the year ago period. This year's third quarter included only one month of results from Discover Financial Services, which split from Morgan Stanley in June.

Stripping out profit from the credit-card unit, profit fell 7 percent to $1.47 billion, or $1.38 per share, from $1.59 billion, or $1.50 per share.

Stronger investment banking fees, largely from deals announced well before the third quarter, helped drive revenue up 13 percent to $7.96 billion from $7.06 billion a year earlier.

However, that still was not enough to beat Wall Street projections for a profit of $1.54 per share on $8.35 billion of revenue, according to analysts polled by Thomson Financial.

The company said it saw losses of $940 million in the quarter from the decreased market value of loans on its books as well as other financing commitments. Those losses cut 33 cents per share off of its bottom-line results.

Quantitative investments, which use computer models to automatically decide when to buy and sell stocks, were also a problem across Wall Street this summer. Morgan Stanley pegged its quantitative trading losses at $480 million during the quarter.

Investment banking was among the bright spots; revenue from the business surged 45 percent to $1.4 billion.

Morgan Stanley shares fell 76 cents to $67.75 in premarket electronic trading after closing Tuesday at $68.51. The stock has tumbled 24 percent since the end of the second quarter, as financial services firms were squeezed by defaults in mortgage positions and a tightening credit environment.


I laugh on seeing an investment banking giant like Morgan Stanley thinking that they could profit on creating a money making quantitative model. If only the world is so simple (sure, all quants would argue their models are intricately designed to handle all complexities), the banks can just design a model that helps them predict TOTO/Lottery winning combinations. I think it's more sane than creating models that automatically invest for you.

Wages rising faster than at any time since 2000

So the wages are rising faster than anything in Singapore since 2000? And just a few days ago, the Straits Times reported on increased inflation. Is that a justification for the inflation? I wonder....

One of the things that we must look into is: where did Ministry of Manpower Labor derive this statistic? If one is talking about the top echelons, sure. Top CEOs are paid exorbitant bonuses and salaries, even Warren Buffet view it with much negativity. How on earth HP finds the justification for 'compensating' ex-CEO Carly Fiorina by sacking her for the slowed growth of HP during her tenure with US$21 million in cash is beyond me or any sense of logic. And how can mere singaporeans forget the millions paid to the government and the increases for civil servants? If such payments are taken into considerations, of course wages are rising.

Why would the paper not report on the other side of the coin where the less privileged of the society are under threat from globalization on downward pressure on their wages? The Straits Times can afford to be more objective.

And the recent price increase in bus fares--another controversial topic. While there is nothing wrong with businesses wanting more profits (we live in a capitalist world after all), the social question we need to ask is: how much is enough? Microsoft irks many with their humongous profits that got many competitors jealous many years ago (and still do now). And the monopoly status SBS enjoys (no, SMART is under the same umbrella if you ask me. The bus routes never duplicate citing efficiency in using resource as a reason)does not help much in convincing singaporeans on the increase.

The poor would view the rich as being greedy in wanting more profits at their expense. One year of voucher for a permanent increase? Who are they gonna fool? The thing is, the price increase is never consistent with the service standards. Buses are slow to arrive (the longest I have ever waited is 1 hr in 64km square Singapore), cramp to the brim (SBS wanna optimize their resources at the citizen's discomfort?), and poor facilities. While they blame external factors, I do not see how they plan to tackle these problems.

If you do not believe me, all you have to do is to take a few buses at any point in time and look closely. Dusty window panels, falling seats, screws falling apart, and (this irks me the most) dripping air-conditioners especially in rainy days. The worst I've ever seen is a 'free-flow' dripping air-conditioned bus in a stormy day. It's like raining in the bus as well. So much for 'first-class' transportation in Singapore huh? While they love to compare to higher cost cities such as London, USA and even Hong Kong and Taiwan, which also command higher salaries, they NEVER did compare with cheaper cities like Thailand and Malaysia.

Increase fares? Please rise standards of service as well.

Comics: Nash Equilibrium

This is funny. Taken from the link:
http://xkcd.com/182/
Wonder how will Mr Nash react when he sees this.

Just an excerpt

I read this comment, which I believe is from a nationalistic Indonesian:

Only way for business to thrive is to minimise regulations. No labour laws, no currency laws, no limit on foreign shareholdings etc.
But too much emphasis on capitalism will bring great volatility, and this is not good for the community.

During the time of the british, Singapore was already an established trading centre.
The only university in Malaya was in Singapore(mahathir studied there). All trains from Malaya stops in Singapore. Singapore has the only international port and airport to serve Malaya. All rubber/tin whatever that come from malaya, was exported from Singapore, and some from penang. Singapore already had refineries and was one of the busiest port during the british.
Singapore was not a swamp PAP and LKY wants all of you to believe.

After the british left, Singapore traders made money by smuggling, due to punitive luxury import taxes imposed by the then independent indonesia and malaysia.

During the time of suharto, unscrupulous businessmen from indonesia smuggled subsidised refined oil and sold to bunker companies in Singapore. Those money never came back, but indonesian taxpayers suffered as they had to pay the difference between the selling price and the subsidise prices. The subsidised refined oil actually helped the rich as they are the owners of cars and transport, and eleviated the poor, who could have got that money instead in the form of educational aid or grant for communal upgrade.
In fact, money from much of indonesia resources never came back but are parked in Singapore. So Singapore do not require any resource to be rich. Those resources include timber, coal and possibly sand which were underdeclared when exported.
Now you know why Singapore evolved into a financial centre. presently, it is trying to attract unscrupulous businessmen from china who are uneasy about parking their money in hong kong, which is in chinese territory.
The idea of a casino is more about money laundering than gambling tourist.

LKY hates dissent. hence anyone who challenge him will be put away under ISA or made bankrupt, if they decide to stay put.
Paying ministers and civil servants good money is how he corrupts Singapore. Because they are so highly paid, nobody will dare question LKY’s policies.
Cronyism exist in Singapore. Tat Lee bank belonged to his brother. It was rescued after 1997 financial crisis by merging with Keppel finance and after that both were rescued by merging with DBS. LKY’s son is current PM. His other son was the CEO of singtel, until he was discovered to be having an affair with a women in australia. He resigned, and is now living in australia, I suppose with the new girl. Funny enough, the women is from the company singtel bought at a high value called OPTUS.

If you regard LKY highly, then think about the fate of the current PM’s first wife, who was a doctor from Malaysia, who committed suicide, maybe due to the fact that their two children were albino and the other autistic. But I think it was more due to disappointed father-in-law who could not obtain a perfect grandchild who pressured her into the ultimate oblivion.

LKy’s father, I believe was from semarang. During WWII LKY was a translator for the japanese, whilst his chinese counterparts were fighting against them. The most successful anti japanese army was the MPAJA (Malaya peoples anti japanese army) which were mostly ethnic chinese. They were fighting the japanese because Japan conquered China and the fighting in Malaya was an extension of that war. After the war, the MPAJA transformed and became the CPM (communist party of malay) following the footsteps of China’s Mao Ze Dong. Anyone with any socialist inclination was jailed by LKY under ISA (intenal security act-no need for legal proceedings). The biggest challenge to PAP in the first election, incidentally was Barisan sosialis. The leader of that party have just been freed after many decades in confinement.

Temasek is now controlled by PM’s second wife, LKY’s daughter in law. In fact the whole of Singapore are controlled by one family. Nobody dissent because they are paid to be silent.

The two child policy of LKY rebounded on him. Singapore’s populations is now shrinking. In order to maintain the standard of living, the country now welcomes any rich people from anywhere to reside as PR or citizen. That of course includes many indonesians. These rich indivuduals will bring countless millions into the island state, i.e. making money without having to work is Singapore’s policy from the start.

LKy’s wife has a legal frim which controls the S&P agreement to all HDB flats. One of her junior partners was her ex-daugther-in-law (not sure divorce already or not) who married her second son, who was caught with an affair with a buxom australian from Optus. (Now we know why singtel paid so much for that australian telco).

In the 70’s most Singaporean can speak a sprinkling of bahasa melayu. Presently, the aid workers they sent to aceh in the tsunami aftermath couldn’t communicate with their indonesian counterpart.

Singapore is rich only because the natives of Nusanatara do not understand business philosophy and how the world revolves. As an example, people of timor who welcomed the australian army, only to be told that the gas under the timor sea now belongs to australia.

The natives of nusantara are so comfortable with their lives in the islands that they could not be bothered to sail just a little bit more and establish in australia. Because of this attitude towards life, Singapore has no competitor in the vicinity.

It's interesting to know how Indonesians view Singapore, and maybe a part of how Malaysians or Thais view Singapore as well. Capitalism seems to have create a monster out of Singapore. Scary.

The Herd follows....

The Herd has followed the west. SGX and many indexes worldwide are taking the plunge. In Singapore, companies like Keppel that has reported a strong financial statement for this quarter only a couple of days ago are also taking the hit despite seemingly strong fundamentals. Is it wise to sell off fundamentally strong shares amid this global credit risk uncertainty? My take is No. Although difficult to quantify, I am optimistic on the outlook of the world economy with a growing Asia that it is strong enough to withstand such an episode from the US. Of course, all these are just speculation. Further research has to be done. Rely on facts, data, but not on human behavior.

The Singapore economy has indeed been doing well. Growth has been good and the economy forecast has even been raised. Call for celebration? Nope. Never. The Monetary Authority of Singapore is renown for being conservative. They never over-promise. In a way, it is a strategic move. Politically. I have seldom, if ever, heard of the economy forecast being revised downwards apart from the tumultuous 1997 Asian crisis and 2001 Sars period. Private sector economists predications of the economy growth is now closer to the revised rate as reported in the Straits Times. So what does this show? Either MAS is not as competent as the private sector or they are politically driven, which I believe is a bit of both.

This creates the impression that the Singapore economy is doing well thanks to the government. But is it so? In a way, maybe yes. The tax cuts are indeed a factor in pulling in all the investments, although at a cost of citizens paying more for their part. Just look. The GST will be raised again. Aging population, more infrastructure, tax competitiveness, compensate 'competent and extraordinary' ministers, buffering up the already humongous country reserve/treasury....where's the money got to come from?

While the government tries to put too much credit into their portfolio, lets look at the macro picture. Economies worldwide are performing. The growth of China and India are key components to propel growth elsewhere. Not surprisingly, Singapore economy is boosted too. When times are good, the government claims credit. When times are bad, they try to implement some policies (CPF cuts), and advised the citizens that the government have no choice and it is beyond their control, but will definitely 'assist' the citizens to go through the tough period. So much for propaganda and 'extraordinary ministers that deserve a big pay package'. And when the economy recovers, as every economy does, they claim that it's due to their policies that has helped savage the Singapore economy from doing further south.

An interesting excerpt from the Prime Minister's speech as published in the Straits Times yesterday (national day),"The Government cannot solve all these problems alone. Everyone must play a part. We each must take responsibility for ourselves, make the effort to do well and provide for our families and our old age. At the same time, the more successful Singaporeans must pitch in to help the weaker ones. The more you have gained from society, the greater obligation to give back something to your fellow citizens. Let your giving come from the heart." The problem in this statement refers to widening income gap. Oh, so our dear million-dollar scholastic extraordinary super human ministers cannot solve all the problems. And they expect the citizens to take ownership instead.

It's a sinister plan. Really. Tai-qi-ing all the responsibilities back to the people. Then what does the government does? A best paid government in the world that do not have to bother about social welfare and aging population? How nice. Who has benefited the most from the Singapore society? Who else? The scholars. People who are paid to study at renown universities and sponsored with millions of dollars from the tax payer's' coffer every year. And when they are back, they are paid millions again on their elitist career in the government. So how are they giving back to the society? "We serve the society in the cabinet and help make Singapore a better place to live in!" shouts one. "We discard our million dollar career opportunity in the private sector to work for a basket of peanuts and under scrutiny." shouts another. 'Obligation' to give back 'from the heart' huh? It's laughable. If the pay package can be slashed by half, and even then the ministers are still among the world's best paid, and use that money for the poor, would that not have been better? That would narrow the Gini coefficient greatly. $290 a month for the poor and old? A million dollar is enough to assist 3440 over such people base on this miserable sum of $290 a month. Income distribution, distribute from the top to the bottom. Not middle to bottom and total back to the top. Hypocrisy.

A group of sheeps....where's the shepherd?

The economics journalist is tired and burdened with some personal issues. So this post will be kept summarized and short.

Dow fell more than 2% last Friday, causing panic in most Asian markets the following Monday with fears of burgeoning sub-prime mortgage risk in the U.S. Bear Sterns with their affected under-performing 2 hedge funds with large credit risk exposure (to the sub-prime mortgage risk), Macquarie Bank from Australia, and shortly the liquidation and bankruptcy of American Home Mortgage Investment Group lead the pack in a bear push in the global financial meltdown. The news sent investors rushing to liquid their shares for fears of more downturns. Of course, this lead to a domino effect. Singapore was badly hit at down ~3%. Only the Shanghai Stock Exchange was not battered an inch and went on to register a slight hike, which I suspect is due to the Chinese optimism of their red hot economy.

The next day, the US stock market bounced back strongly prompting other stock markets around the world to follow. SGX, with the news that exposure to the sub-prime mortgage risk in the US in the 3 local banks as minimal gained strongly, mimicking the US scenario. It seems to me that selling and buying of shares, and in turn leading to ups and downs of the markets, have been primarily fueled by emotional and perceptive actions rather than based on hard facts. Take for example you bought a share at $10. Last Monday, it fell to $8. You panicked and sold it off. On Tuesday, you looked in disgust as the share climbed to $9. You gained confidence and purchased back the share at $9. It closed at $10. So what have you lost? ($10-$8)+(-$9+$10)=$1? No. You did not. You have lost far more than that. You lost (1) transaction fees when you sell and buy the shares. (2) emotional strain. While I am in no position to comment on the mechanics of the market , I believe that what is more important is: the company fundamentals. As long as the company is fundamentally strong, there's no reason to sell out in bearish times as it should perform positively in the long run.

Yet, just when I am typing this post, the US market is taking another tumble with the Dow falling more than 100pts and other major indices like Nasdaq and S&P 500 going south. This is reported to be due to BNP Paribas freezing three securities funds that struggled to find liquidity in the U.S. subprime mortgage market. Other reasons include credit risk exposure being almost impossible to quantify and investment banks taking the most hit from this episode. Although ought to learn their lesson, there's high probability the Asian market will be taking hint from the west again. Should it happen again, it will present another good opportunity to grab gems on the cheap.

The human mind has the uncanny ability to turn a blind eye to facts and play on emotion and (usually distorted) perception. And like sheeps, they flock in groups. Herd mentality.

I read this statement somewhere and although I have no way of authenticating it, I like what was stated: Einstein once said,"There's 2 things that are infinite in the world. The Universe and human stupidity. And I wasn't sure about the Universe."

Citi's new credit card

So Citi (Citibank) has finally announced a new credit card that needs no minimum income requirement, targeting young students and adults. While there are some concerns on students going on a spending spree risking payment default which could end up with rolling interest rates, it does offer another function.

The card serves as an alternative to payment through NETs, the one topic that I had discussed greatly in my blog. Now, anyone in Singapore can get a Citi clear card. It makes more sense for all shops in Singapore to install Visa/Master transaction processors and abolish NETs. Moreover, there is great benefits in holding the card.

Of course, as a trade off to keeping the risk of default payment low, credit limit is low at S$500 a day. The 28% interest rate, which is higher than other credit cards, also seems unattractive. But with the introduction of this innovative product, competition is bound to result in more such cards to be issued by other banks. And this, if popularity among users is to be gained, may spell an end to NETs in the near future.

Irrational Exuberance?

The last book of Harry Potter was released officially worldwide on the 21st July 2007. Not that I am a Potter fan, but with news of over zealous fans queuing outside bookstores at over twilight the day before the release date (earliest at 9pm outside Borders according to the Sunday Times), it seems to parallel the common scenario in the stock market.

Yes, demand for the book 'Harry Potter and the Deadly Hallows' is indeed great. Potter fans all over the world pay their homages on the release day with much fanfare. Worldwide, while queuing for the book, harry lovers dress in wizardry costumes and toy wands, chanting in unison as the second hand approaches the much anticipated magical moment when the gates of the bookstores were opened to them. The cult following no doubt attracted some criticism from religious leaders but as I am no Divine theorist nor sociologist, I am not going to debate on the religious or sociological aspect. What I am interested in is my old friends, Mr Supply and Mr Demand for the Harry Potter books.

Despite the great demand, I am pretty sure there is more than enough supply to cater to it. Reasons: With 6 books before the last book, going by experience and historical sales records, it is highly probable for the demand of the book to be estimated with slight deviations. Going by the Sunday Times (22nd July 07), reporters commented on 'less popular' bookstores having tonnes of the last Harry Potter series with no queues -- equating the notion that supply is readily available.

Going by the experience of the 5th and 6th Harry Potter series, some time after the official release day, many of those books would be left on the shelf after all the anticipation and excitement has waned and died off. With lower demand, prices for the book (especially later released paper-backs) tends to drop. From a pure economical point of view, if I am a rational and practical Potter fan, I would not mind waiting for a few months to get my book instead of spending more time (queuing), money (higher price) and effort (to join in the fanatic crowd queuing overnight to buy the book dressed like Harry or Dumbledor). "You moronic economist! You do not understand our love for Harry! Passion cannot be quantified!" I can almost hear all Harry fans rebutting and rejecting my views, and therefore rationality.

Similar behaviors were replicated in many other scenarios.

(1) Long queues for donuts from Donut Factory in Singapore and Taiwan.
(2) Strangly high demand for a simple food - Roti-boy, but only for a very short duration.
(3) Long queues for the infamous Bubble Tea and thus results in the droves of new tea shops opened during the Bubble Tea Bubble in Singapore.
(4) And of course, the fanatic rush to buy and speculate stocks in China on the Shanghai Stock Exchange.

While different in terms of context (such as the Harry case is due to passion while the Stock craze in China is mainly due to greed which brings it closer to the Tulip Mania in Holland in the 1600s. ) it does shows a similar notion -- Humans are followers and tends to be absorbed into Group Think. If the Harry case is passion and the Stock craze case is greed, then what is the craze for donuts? Is it really so good? I've tasted them myself. Didn't really like it too much as it is too sweet. And definitely not something I would queue for more than 10 min to buy. The next craze I would like to verify is the 'Aston's specialty' at Katong which serves western food. It has been serving long queues since the day it came into operation. Ironically, by saying that I wish to verify the popularity of the restaurant, it is this curiosity that put myself as part of the group think. Curiosity kills the cat. Period.

When someone says something is good and worth buying or queue for, many people follows. "He said it's good, so it MUST be good!" "I heard from AAA that this book is good" "I read from the papers that this restaurant is good" "I heard....I read.....I heard...." and finally, the all familiar story : "I read that the economy is booming. I heard my friend's son's wife's father is earning a windfall by buying stock ABC. I think I should buy now while it is still cheap. I think you should buy too" blah blah blah. Stock price of ABC becomes overvalued, bubble burst, money lost. Over time, market forces have determined whether the choice made is authentic. Bubble Tea bubble burst. Roti-boy and his family members (roti-papa, roti-mama, roti-dunno what) have gone the way of the Do-do in Singapore. And it will be a while more before people get sick of donuts.

Looking at today's red hot Property market and Stock market in Singapore, I sense a lot of irrationality. A single news (media is a great influence and more often than not, never a good indicator) on a 5 room flat sold for over S$700,000 immediately send sellers upping their asking price at least S$100,000 over valuation. With such optimism, peppered by reports of strong economy in Singapore, the STI flickered above 3,500 points contrasting the 2,500-2,600 points only slightly over a year ago. The question we have is: Now that the economy is booming, are we nearing the peak of the business cycle. And when is the bull going to exist?

Going by how irrational people are, and the hordes of people entering the stock market (no thanks to an additional business concentrated university, constant news on the competition and comparison between the 3 local universities in terms of career prospects and pay and courses and teaching methods which translates to more interest in the field of business and finance, and hypes of how lucrative the finance line is, which is true to a certain extent) I doubt the optimistic fervor is ending any time soon.

NETS fee hike doesn't infringe Competition Act: competition panel

NETS fee hike doesn't infringe Competition Act: competition panel

Well well, what do you know. It's not surprising that once again, CASE (which has no real power anyway), lost the case against the big and powerful corporate giants. My prediction has come true once more. Most people familiar with how the local citizens operates, thanks to the paternalistic government and restrictive laws that was designed by some scholars to work for the government, will know that Singaporeans can complain all they want but at the end of the day, they have short attention span that render them to forget about anything deemed negative as long as it does not affect them drastically and move on with life. One can hardly beat this Singapore system. If you can't beat'em, join'em!

Liberalized....at least for the moment

Liberalized....PageOne gave me my book XXX that I had mentioned in my previous post....reading time:)

US grads with basic degrees see sluggish income growth

According to a research by the renowned Massachusetts Institute of Technology (MIT), findings show that earnings of the average US worker with undergraduate degree have not kept up with gains in productivity in recent decades, challenging traditional explanations of rising income inequality.

Conventional economic explanation of income inequality state that the rise in the Gini coefficient is largely due to technology trends that disproportionately benefit skilled workers. So if you are skilled, usually proven through education qualifications, your college diplomas will get you bigger bucks than non-skilled workers.

However, this research by MIT seem to suggest a change in definition of what constitutes a skilled worker. As the economy booms, the average graduates in recent decades seem to fail to keep up with the gains in economy-wide productivity, once those productivity gains are adjusted for the composition of the workforce. The premiums one used to get armed with a diploma seems to have diminished. A basic degree had been relegated to the same spectrum as high school qualification. The law of diminishing returns was witnessed in this scenario.

But is this situation viable? Even so in Singapore? Microeconomics taught us that education qualifications allow employers to discern out the productivity of each worker. However, the 3 prong fork of grade inflation, increased supply of degree holders and increased supply of diploma holders, have seeped off the perceived value of a basic degree.

Let me illustrate this clearer. As the economy booms, the number of degree holders has increased dramatically. Pull back to the context in Singapore. 30 years ago, an undergraduate degree is more than enough to qualify one into the exclusive club of degree holders in the country--a figure that do not surpass 5%. This year, in 2007, an estimated 23% of the cohort gains admission into the local 3 universities. Add in the figures for those that embark on degree programmes from overseas universities and those that took up Distance Learning degree programmes, the total figure of those that possess a degree easily surpass 30-40%. With such a large supply of degree holders, the demand for graduates with bachelor degrees could not catch up resulting in a drop in premium for an undergraduate education.

To make things worse, new technological advances demand people who are more skilled than what an undergraduate education can give. Masters and PhD holders are now actively sought out in the working society. Flip to the Saturday classified of Straits Times. More often than not, a bachelor degree seems to be the bare minimum in recent times. To add salt to wound, the boom in diploma holders had blurred the line between the value of a polytechnic diploma and a basic bachelor degree. I should know. Very well in fact. I had a couple of jobs that paid me what is now equivalent to the pay of a fresh graduate with a basic degree when I had only a diploma. I have also seen friends getting well paid jobs with their diplomas and also seen a fair share of friends struggling to get better jobs with their basic degrees. Still, the perception that a degree is the minimum one should get in this competitive society prevails in many JC and polytechnic graduates' minds. This includes myself, thus prompting me to forgo a nice company with a relatively nice pay package and go down the road of a university education.

So what will this vicious cycle leads to? 20 years down the road, bachelor degrees may no longer be the bare minimum. People may have to strive for Masters, Phds or more prestigious universities. I call it a vicious cycle because this situation has no bright future. People want their economy to boom. In doing so, more people will be educated. As the economy grows, more people possess bachelor degrees. Demand for bachelor degree holders could not catch up with the increased supply. Premium for bachelor degree drop. Demand for masters and phds increase. Masters and above constitute the new skilled workers. People start to go for masters. Economy grows further. Demand for masters degree holders could not catch up with the increased supply. PhDs constitute the new skilled workers. People start to go for PhDs. Economy grows further. What next??

The above scenario is anticipated by many of the new generation (including mine), reflecting the bleak outlook for fresh graduates. However, rationally, most economists and academics will deem this scenario as absurd. After all, universities do impose a cap on the number of degrees it issue out. And not anyone can gain an admission (or gifted enough, at least intellectually, to gain a place) to a good Masters or Doctorate programme. In place is an outpour of new universities to cater to the increased demand for undergraduate education. Professional certifications to the likes of CPA, CFA, ACCA, CFP et cetra gains popularity. In some industries, such certifications are almost a pre-requisite in addition to the degree. Degrees from prestigious universities and/or a good honors is of utmost importance if one is to secure a bright future with big MNCs or government boards. Even a second lower rarely gives one a competitive edge (a side note: no matter what some universities claim to be, a UK classification of honors do correspond closely to the US classification of honors like 'magna/summa cum laude').

But a more sinister truth beneath this trend is: as the economy grows, in reference to the above illustration, we can see that the gap between the skilled and the unskilled workers will shift, and most probably widen. The income inequality gap will worsen. The pyramid of social stratification will then stack up further resulting in a larger hierarchy gap. No doubt, the inevitable corollary of social conflicts will arise. A quintessential outcome from growing capitalism.

This is a major problem faced by many countries including Singapore. To combat the problem, the Singapore Government had announced an increased budget to help lagging citizens and implement more 'social welfare' programmes (the words 'social welfare' are still considered an extremely dirty phrase to the Singapore Government) by introducing a 2% hike in GST--A concept endorsed and encouraged even by Greg Mankiw, a renowned Economics professor at Harvard University. How many people support this policy I do not know. Personally, I do not support this very much as it may give rise (or rather, it had) to further inflation, compounded by the multiplier effect of the tax. I will list my reasoning in another entry in the near future. For now, let's hope that I am wrong and the government is correct in adopting this approach.

Case slams Nets fee hike as a 'great disservice'

For this, i wish to give CASE a pat on their backs. Finally, an advocate for the commoners against corporate giants! As what I had predicted in my previous entry, the 2% hike in GST is going to be used as the perfect reason for anyone or any business to hike up their pricing citing increasing costs and thinning profits.

Before I go about bashing the 3 local banks, OCBC, UOB & DBS that owe the Nets system, we have to recognize the fact that banks exist to make profits. And corporations have their loyalty linked not to any single individual or even their own CEO. They are only loyal to dollar signs. It is as cold as it can be but it's reality. It is therefore, understandably justified, that when a chance present itself to increase price which in turn increase profits, they have to grab it.

The 3 banks cited that because debit cards and credit cards earn the bank between 1.15 to 1.69 percent of the purchase price, which is much higher than the current rates of 0.35 to 0.55 percent of purchase price for purchases through NETS, they have to increase the NETS rate to 1.5 to 1.9 percent, so as to avoid the NETS system being priced out of market. A rather noble reason if you ask me. But all the same, it is bullshit. By increasing the rate, the 3 banks effectively have 2 payment methods -- NETS & debit cards (and credit cards, but that is not within the scope of this discussion, nor is it comparable, so it will be very much taken out of context here) that earns them higher transaction fees.

And no no no, the 3 banks should never cite increased competition as a reason to hike fees. A perfectly competitive market would mean the lowest price possible with zero economic profit. Saying that, it would mean that the banks should not have the market power to move prices. By saying that they have to increase price due to competition would only mean one thing: They have the power to change price across the market. They have great monopoly power! It was simply an insult to our intelligence by expecting us to buy their crap story after that statement. The worst part: citing competition between NETS and debit cards. Hey, the 2 products are products of the SAME organization! It's like telling me Microsoft XP is S$150 and the company earns S$100, and Microsoft Vista is S$160 and the company earns S$120. And because Vista earns the company more profit, microsoft has to up the price of XP to S$170 to avoid being 'priced out of market'. It does not make any sense!! You wanna cite competition? Fine, bring in Citibank (since renamed a simple 'Citi', and Singapore's first licensed full-fledged offshore bank), bring in StanChart, bring in RBS, bring in Barclays, let them collaborate on a new Nets system. In fact, I encourage these offshore banks to come together to provide more debit cards to Singaporeans. I see business opportunity here in wrangling business away from the local banks.

On closer analysis, going by the figures, they are planning to make it more lucrative through NETS as one can see the higher percentage charged for purchasing price. 1.15 to 1.69 percent for debit and an increased figure of 1.5 to 1.9 percent for NETS. A no brainer if you ask me. And by pricing debit cards transactions lower than NETS would mean more profits as it is generally known that more people pay through NETS than debit cards. 5-10 years into the future, because more people pay through debit cards due to its lower transaction costs, and as the banks see their gold pot dwindling in NETS but another new pot of gold appear with big letters stated 'debit card', will the banks then say, "Oh, because the NETS earn a higher fee for the bank, I think it is just right that we increase the rates for debit cards so as to avoid debit cards from being priced out of the market."?

Here is the true story. 22 years ago, debit cards are almost non-existent in the United States, all the more unheard of in Singapore. Because not many people qualified for a credit card, the banks bank on a new system called NETS that can contribute to much convenience and the evolution of a cash-less society. For all that, the banks get to earn transaction fees from all purchases, a lucrative market worth at least S$10 billion [I do not have concrete data here. But if lecture notes from the National University of Singapore is any reliable data, the figure is placed at S$8.1 bn in 2004, adapted from the module Money & Banking 1]. The best part is, the banks do virtually nothing except putting up ads encouraging people to spend via NETS.

15-18 years down the road, the financial system has evolved. Debit cards are introduced and promoted in Singapore and as debit card functions similarly to credit cards and NETS, the banks priced it higher than NETS and similar to credit cards. Now one fine day (only recently), the 3 top bankers at the 3 local banks realized that debit cards serve the same basic function as NETS in local context and earn them higher fees. 'Ding!!' a Big gigantic lightbulb lights up in their heads. "Eureka! We have strike GOLD!!"

They have 3 options. Allow the situation to continue and accept the fact that they are losing out on opportunity costs by leveraging on increased prices for transactions through NETS. Second option: Face out NETS, bear the full brunt of public outcry and in turn compel everyone to get a debit card so as to earn higher fees. Third option: Increase the transaction price for NETS, price it higher than debit cards, with a noble reason of avoiding the system being priced out of market hoping that the public 'understands'. In the process, they will earn even higher fees than choosing option 2, and has 2 money making channels instead of one. By doing a cross benefit-cost analysis and a weathered down discounted-cash-flow model, these MBA/CFA bankers conclude that Option 3 is the best option. In fact, option 3 will bring in more monies and pave a path for future increments.

It is mentioned that CASE will file a complaint with the Competition Commission of Singapore against NETS's monopolistic practice. But I do not harbor much hope. A prospective fee hike equates to higher potential net profits. This will then be enjoyed by large and powerful individuals, investors and financial institutions, shareholders of the 3 local banks, including our dear Temasek Holdings and probably GIC (since GIC is supposed to be the 'safe investor' of national assets as opposed to Temasek's more aggressive investment style, and banks are traditionally rather safe bets). So all price increase benefit business owners, benefit shareholders, benefit government, but all paid for by commoners who have no choice but to live with it. It is no surprise that the Gini coefficient continues to rocket up. I will be surprised if the government acts on this issue, of which I would believe is done more to mollify the public furore against inflation due to the 2% hike in GST rather than to go against monopolistic practices. After all, we do have a monopolistic government to begin with.

Discounts = Lower Supply + Higher Demand

So it's the annual GSS. Once again, given the 20% discount for all English books, I am washed with joy as I made my way to PageOne at Vivocity in the hope of getting the books that I have always wanted. As I went in for a kill, to my great disappointment, I could not seem to find the books that I had aimed for so long. Determined to get it, I approached the counter staff and consulted them about it.

Me: "Excuse me, I am looking for this book called XXX. Can you possibly help me check whether the shop has any stock?"

Staff: "Please wait for a moment while I check for you sir." [typing away at the computer while I waited earnestly for it]

Staff: "I am sorry sir but the book that you are requesting is out of stock at the current moment."

Me: "Oh [disappointed]...So what about the book YYY?"

Staff: [without checking]"Oh I am afraid that this book is out of stock too."

Me: "WHAT!? So are you guys stocking in the 2 books mentioned?"

Staff: "Yes sir, I believe that we are making orders for it. But it may take a few weeks to come. Maybe you would want to leave your particulars so that we may contact you when the stocks arrived?"

Me: "Haiz, ok"

and then I left the store a dejected person, wondering how could the staff possibly know there isn't any stock left for book YYY without even checking. There are only 2 possibilities. Either the demand is so great that hundreds of people rush to buy and hundreds more like me who asked the staff so many times that she has to know, OR there's a conspiracy going on with the staff hiding all the popular books during promotional period. After all, when people gives discounts, it's to encourage buyers to spend more on their product. But if you have some products with a very inelastic demand curve, giving discounts on it does not make any business sense as you know that people may still buy even when it is at it's original price level.

This scenario is just so common. Whenever there are any discounts given, suddenly the supply curve would turn to the left 1000 miles while the demand curve turns to the right another 1000 miles. Because price is rigid, the quantity reverts into zero (since common sense will tell you a negative figure is not possible). Take Borders for example. One fine day (or any other fine days without promotion), I see stacks and stacks of book YYY. The next day, when I got some vouchers on 20-35% discount, those stacks of book YYY suddenly magically disappeared and I was told again that there is no stock. Upon consulting the staff, I will be told that orders had been made for the books and it will come in a few weeks time--conveniently after the promotion period.

For those in the know, book YYY is written by Benjamin Graham, a very classic book. I didn't know that there is such a huge fan base for Benjamin Graham here in Singapore. And no, I am not telling those who are not in the know what is book YYY, in case you are going to contribute to a rightward shift in my demand curve.

What goes up comes down? Not in Singapore. At least in the next 50 years

One magical aspect of the laws of supply and demand (with reference to singapore especially) is: in regard to price, the laws of gravity hardly works. Once the price goes up, even when the supply problem is solved, other factors come into play. Predictable factors such as increased labor costs, increased materials cost, increased demand (such a convenient reason isn't it? Anything has to be brought about by an increase in demand, including the hoo har over increased demand for university places, so publicized in our local news lately), increased A, increased B, increased C blah blah blah. So the price remains at that level, paving a trend for more upward revisions. The increase in GST is the perfect reason to up price for all other industries. Result? Inflation.

On the other hand, inflation to any economist is not something that is undesirable. We are taught that inflation is normal. In fact, it's good. It shows that the economy is booming. People spend when they feel rich. In turn, demand goes up. And through some intricate mechanism of the asset market, labor market, capital market etc, which I am not going to explain due to its technicalities, prices go up. And tadah, the government believes they had made you and I happy and rich, and they elevate themselves a step closer to nirvana short of being labelled saints, rewarding themselves with offerings from taxpayers.

What is not taught in textbooks: When measuring the economy, say in terms of GNP or GDP, even if only an individual profits a pot of gold, but if it far exceeds any drop in production by other commoners, it is still recorded as an increase in production on the overall. This situation is nothing special. It is just the offspring of typical capitalism, which exists in any industrialized or capitalized country such as the motherland of capitalism, the United States of America, Japan, England, and now, Singapore as well. This phenomena is most often referred to as effects of globalization nowadays. I rather call it The Global Engulfment of Capitalism. So you have the economy booming but only enjoyed by the top strata of the society. The Gini coefficient goes up, and because the government is part of the zenith level of society, they blame it on globalization.

A paradox isn't it? On one hand, the government encourages globalization. "Globalization is good! The entire world is your oyster! We will become more prosperous." Then because globalization creates a larger gap between the Rich and the Poor, they say, "Oh, we have no choice. Globalization is to be blamed. But do not worry, we will help you." So people at the bottom part of society waits for help. So they wait. And they wait. And wait. And wait.....And help finally comes in subsidies that could barely support their basic daily needs in ever inflating ever expensive Singapore. The last I saw on Straits Times is something like S$250 a month? Or lesser? I could not remember.

"Oh, our resources are limited. We have to save for the rainy day when M'sia or Indonesia decided to enter war with us and at least we have the cash to buy US military help" The same reason used for the past 42 years since independence. US$130bn in Temasek, another US$150bn in GIC, another US$130bn in CPF, US$140bn of foreign reserve, plus some unclassified money lying elsewhere, a conservative estimate would be US$600bn of wealth. In case some of you do not know the magnitude of this money, it is written as US$600,000,000,000.00. Dividing it by 4m population (take note that 1.5m are PRs cum foreign talents or whatever stereotypical terms you wanna name it), that amounts to an average of US$150,000.00 or S$225,000 per capita! That is equivalent to a 3/4 rm HDB flat for every single one of us! Oh, by the way, when you purchase a HDB flat, it essentially still belongs to our dear government.

And that is still a conservative number. Who knows? Maybe the government has hundreds of mini accounts spread out over the world and a secret vault containing tonnes and tonnes of goldbars/money hidden in the Singapore equivalent of the AirForce 1, parked 1000m under the Istana, ready to soar into another country with all the elites when war broke out?

So at the end of the day, when is 'enough' enough? 10 years down the road, even when the total reserves reaches 5trillion, the same reasoning is, more likely than not, appear again. This question will continue to linger. When is 'enough' enough? Look at the pay scale of our elites. Being elites, having looked at complex mathematical formulas and educated at renowned universities to the likes of Harvard, Stanford, Oxford, Cambridge, I doubt 6-7 zeros can hardly be considered a large number. Maybe they are aiming at this thing called

∞

I wonder who invented it...this guy's a genius and an elite of the elites!

Milk, condensed/fresh/evaporated price up up up

So the price of milk has gone up. As usual, the supply and demand logic comes into play. Higher demand with decreasing supply brought about by drought in Australia and removal of subsidies from the European Union.....sure, for anyone who had studied basic economics, or anyone with common sense for that matters, will know that it is a no brainer that the price of milk HAS to go up.

Now, let us decipher this closer. Drought in Australia. An issue that has been ongoing for the last 5-6 years. It wasn't any new news. Why not increase price years before? Why now? Increase in demand worldwide. So suddenly every single person on earth is rushing to buy milk? "No! Increased population! Increased demand" shouts some economists-wannabes. "No! China has become more westernized and realized the importance of milk!" shouts another. I do not know which one is true or maybe both are. But 1 thing I know for sure is that demand comes in slowly. The time mechanism has to play a part. Keynesian law dictate that demand and price is rigid in the short run. So are we in the long run now? I thought in the long run we are all dead. I suspect a cartel in play here.

A,B,E, C not good enough for local university

In regard to the recent hoo ha of the seemingly overly protective father of this tragic little girl who could not get a place in local university even though she had performed relatively ok (in her father's words), I would say, further education does not ends at local universities. In any case, the minimum bar for local harvards is 3 A level passes. Having A, B and E effectively meant that she has only 2 A level passes. It wasn't surprising if she was rejected by all 3, and more so if the courses she applied for were competitive ones.

There are so many other options. Get into SIM, work for a few years, retake your A levels (so what if the syllabus has changed? That should not stop anybody), apply again, save up for overseas etc. There are a thousand and one routes to a degree.

Despise SIM/MDIS/Other private education providers? Come on, this perception is so outdated. I am saying it not because it's politically correct to say so, but I have seen the course materials from these schools. It's not exactly easy stuff. It's not as if NTU/NUS/SMU is all glamorous and elitist. But I do agree that the local harvards do provide more opportunities and a more 'holistic' education (the term 'holistic' is over-used, seriously.....).

Unless you are gunning for some top posts or further education in some lvy leagues or scholarship, a distance learning degree (this term itself serve a discriminatory purpose) will do just fine. Many companies don't really differentiate, especially so for junior positions. Take it from someone who had worked in the industry. When I left my last job, I have someone who took a private diploma (from a private institution, not the local 5 polys) taking over my job.

Truth is, degrees will only show you the doors to the interviews. Whether or not you get the job is another matter altogether. Despite the nice pictures painted by all 3 universities on how well their graduates have been doing, truth is, only those with extraordinary academic/non-academic records and those with strings to pull around are awarded those few gems that propels them into the top 20% earners aka semi-elitist group of the society. The other 60-70% are left out in the cold scraping on the left-overs.

Now, I am staunch advocate of the conspiracy theory where the fittest survive with the assumption that everyone is selfish, which would equates to man in power are always corrupted, no matter how righteous they would want you to believe. If you can't beat them, join'em!

Economics is everything

Economics is everywhere and is in everything. Fact.

The world runs on the rules of supply and demand. Fact.

Man creates supply and man creates demand. Fact.

Anything that can be created by man can be manipulated. Fact.

Anything that is manipulative and meaning or interpretation not being stationary is fiction. Fact.

So fiction = fact = economics. Fact.

Fact = Fiction. Fact.........And Fiction.