Economics: Facts? Fiction?

Singapore loses out as UBS stumbles

2009-10-02T06:04:00.004+08:00

Thanks JJ for providing me some materials to add on this dead blog. LOLZ.

Singapore loses out as UBS stumbles

JOYCE KOH AND NETTY ISMAILSeptember 30, 2009

THE Government of Singapore Investment Corp's assets fell more than 20 per cent in the year to March 31 as a collapse in financial markets slashed the value of its stake in the investment bank UBS.

GIC, which invests more than $US100 billion ($114 billion) of the city's foreign reserves abroad, said it continues to lose money on its holding in UBS, though it has made a profit on its investment in Citigroup.

It has also recovered more than half of last fiscal year's loss as stockmarkets surged this year, its chief investment officer, Ng Kok Song, said in GIC's annual report.

Under its chairman, Lee Kuan Yew, Singapore's Minister Mentor and former prime minister, GIC has expanded through investments ranging from British shopping malls to European and US banks.

''The lion city was pretty well mauled compared to other sovereign wealth funds, and is now licking its wounds,'' said Song Seng Wun, an economist at CIMB-GK Securities in Singapore. ''While the worst may be over, given the excesses of the last few years, we could find that this recession could still affect the portfolio in years to come.''

GIC, established in 1981, said annual returns in the past 20 years averaged 5.7 per cent in US dollar terms, from 7.8 per cent reported in the previous fiscal year.

Its portfolio value had fallen about 25 per cent between October 2007 and December last year, the Finance Minister, Tharman Shanmugaratnam, said in March, after GIC bought stakes in UBS and Citigroup during the credit crisis.

GIC last week pared its shareholdings in Citigroup to less than 5 per cent from more than 9 per cent, realising a $1.6 billion profit.

Its investment in UBS will ''take longer to recover,'' GIC said in its annual report. The company said both investments have recovered ''significantly''. It did not take part in the recent placement of 6 billion Swiss franc ($6.6 billion) of UBS shares sold by the Swiss Government.

''The investment thesis was to capitalise on the unique business franchises of UBS in global wealth management, and of Citigroup in global consumer and corporate banking, especially in the emerging economies,'' Mr Ng said in the annual report. ''We maintain our confidence in their long-term prospects.''

The US is home to as much as 38 per cent of GIC's assets. Europe accounts for as much as 29 per cent and Japan as much as 11 per cent, GIC said. In the fiscal year ended March 31, 2008, its US investments were 34 per cent, while European investments were 35 per cent.

GIC's investments in stocks dropped to 38 per cent, from 44 per cent the previous fiscal year, according to the report. It increased its allocations to alternative investments to 30 per cent from 23 per cent in the year ended March 31, 2008. Its cash holding rose to 8 per cent, from 7 per cent. Bond investments fell to 24 per cent of its portfolio, from 26 per cent the previous year.

The company said it cut public equities by more than 10 per cent between July 2007 and September 2008, helping it avert a larger loss. It bought back the equities at the start of the year to restore its portfolio's public equities to its pre-crisis levels.

Article: Saying the Obvious

2009-03-30T02:34:00.002+08:00

This is an article by Jeremy Siegel, a very renown professor in Wharton. But when I read through this article, the thing that strikes my mind is: Isn't he saying the obvious???

U.S. stocks raised eyebrows this week and last, closing higher in six of seven trading days, including four in a row from March 10 to 13. But how does the market look for the longer term? In an interview with Knowledge@Wharton, Wharton finance professor Jeremy J. Siegel says he was pleased to see consecutive gains after so many declines. He adds that history provides lots of evidence that stocks remain good long-term investments, especially when they are down 50% from their peak.

An edited transcript of the interview follows:

Knowledge@Wharton: Were you surprised by the four consecutive positive closes that the market had last week?

Jeremy Siegel: I would say, "It's about time." We've had many consecutive declines.... It's time the bulls had a little bit of room to celebrate. Two events sparked the rally. The most immediate reason was Citibank's surprise announcement, around March 9, that its January and February operating data showed a profit. Obviously, Citi is the most beleaguered of all the banks. For it to say that it had a profit in the first two months of the year was surprising, and that boosted the financial sector. Ken Lewis, CEO of Bank of America, said the same thing a few days later. Then we got fairly good news on the retail sales front. The consumer is not tanking quite as rapidly as we had feared. That combination scared the short-sellers who had been counting on the market to fall and fall and fall. They covered their positions, and we had a nice, short cover rally.

Siegel: Right. What's interesting about the auto market is that sales outside the U.S. -- around the world, actually -- did much better in February: China was very strong and so was Brazil. This was also true in Western Europe, with some discounting. So auto sales in February were better than expected.

Knowledge@Wharton: It sounds like when the market gets the right combination of signs, there's likely to be an upturn. Are there any signs now that would, in normal circumstances, support a turnaround, or at least a downturn that's not quite as steep?

Siegel: Yes. We had, finally, some good news on housing starts today, which were up more than expected. Of course, they had been totally devastated, but that did surprise a lot of economists. I'm not calling for stability there, because there is still so much oversupply in the market. I tend to look at the weekly jobless claims that come out every Thursday morning at 8:30. They are very sensitive indicators of the labor market. Among all the indicators I look at, they are the ones that give a good read about current trends in the employment area.

Knowledge@Wharton: Taking a longer-term look -- for folks who have just retired, or are about to retire, this market has been a disaster. Should people be shifting money from stocks to less volatile investments earlier in their retirement planning cycle? Or, said another way, should anybody past the age of 50 have a substantial part of their portfolio in stocks?

Siegel: I get more and more of those questions now. I certainly can understand -- it has been difficult for all of us, including myself. You know, I've advocated stocks. It has been a very painful period. Investors must keep a couple of things in mind.
We Suggest...

First, you mentioned the word "50." I don't regard that as very old, I guess, because I'm well past that age. With modern medicine, a person aged 50 can look forward to at least 30 years or more of life. When you think in those terms, over 30-year periods, stocks have done extraordinarily well.

Even over the last 30 years -- despite the last 10 being so very bad -- it might surprise people to know that stocks have beaten bonds and have done well for investors. Once you get that far, it depends on a lot of circumstances. Once you get to 65, are you going to retire at that age? How is your health? Do you have other resources? What are your obligations? It's very hard to give a blanket recommendation.

One thing is very important for investors in stocks to keep in mind: You are now investing when stocks are down 50% from their peak. All the empirical studies, including my own, indicate that once the market has fallen 50%, your future returns are even better. It doesn't guarantee that next year will be good -- we know that in the short run, there's a lot of volatility. But the data are overwhelming. Once you're down 50% from the peak, there are almost no bad outcomes going ahead 10 years. When you're at the peak, such as we were nearly 10 years ago in March 2000, then there are periods of bad outcomes. We have had one of those bad outcomes, to say the least. But once you're down 50%, the chance of further rapid deterioration that keeps you permanently down is greatly diminished.

Knowledge@Wharton: Given the changes we have seen, and some of the ups and downs of the last decade that you just mentioned, has your definition of "the long run" changed at all? What is "the long run?"

Siegel: People can joke and say, "The long run is long enough so that you can be right." I mean, it's a continuous pattern. There's no break. The government issues a 30-year bond.... that's kind of considered the long run. People who are in their 20s, 30s or even 40s and have 401Ks are looking towards retirement. Thirty years is often that period. Obviously, as you get older, and depending on your resources, you might want to shorten it to 20 years or less. As I noted earlier, during the last 30 years -- even though the last 10 have been very bad -- stocks have offered investors a very good return. If you started in 1979, you got a return that was more than 6.6% a year. That is interesting. In the last 30 years, even with the terrible 10 we've had recently, the average return has been higher than the average of every 30-year return from 1871 and beyond. We had 20 fantastic years from 1981 to 2000 and we faltered subsequently.

Knowledge@Wharton: Looking at the broader economy, what will the beginning of the end of the downturn look like? What markers will you be looking for? You've mentioned the weekly unemployment numbers. Is there something that has a broader signal?

Siegel: Sure. There are two types of indicators here. There are the markets themselves. The stock market will tell me that the bottom is near. If we go back and analyze the stock market, it could be six to eight months before the recession officially ends. Let's hope early March was the low -- of course, we can't be sure -- but if it was, we're looking towards September or October as maybe marking the low of the economic cycle. So the stock market will be the first to respond.

I did mention that jobless claims are sensitive data. The first sign will be not that they're robust, but that they're not getting worse. We might actually see a reduction. Those numbers have been holding at around 650,000 jobless claims a week of people receiving unemployment benefits. We should also look at monthly payroll numbers, which have also been in the 650,000 range of losses. They will begin to moderate. They're going to be down to 400,000 or 300,000. Then, hopefully, by the middle of the year, they will be zero or even slightly positive. Now, that doesn't mean normal. Normal growth is 200,000, just to keep the economy growing at the rate of the growth of the labor force. But we should see moderating trends in the payroll loss and in jobless claims that tell us that the worst of the recession is behind us.

Knowledge@Wharton: To end as we usually do, could you give us your sense of what the individual investor should be thinking about? We've talked about people nearing retirement, and retirees.

Siegel: The problem with the safe government bonds -- although they have done well during the last five years -- is that their yields are so low. Even long-term treasuries are at 2.5% or 3%. I like inflation-protected bonds better, but even their yields are low. I would repeat that once the stock market has gone down 50% and you invest in it, you can expect, on average, a yield over five to 15 years of 6% to 8% after inflation. There's no bond that is that good.

I will say, by the way, that the so-called junk bond, or high-yield bond, looks attractive. You're getting 8% to 10% on many of them. You need a diversified portfolio. You need to go to a mutual fund that does a good job on diversifying. Those may also be attractive for individuals. But despite the discouraging returns on stocks, once they're down as much as they are now, history is very emphatic that they should be part of your future portfolio.

Temasek Portfolio falls 31%

2009-02-15T12:35:00.002+08:00

What a nice headline, just days after Ho Ching stepped down as CEO. I supposed all Singaporeans with fully functional brains would be clever enough to know the reason why, despite the government insisting it has nothing to do with the poor performance of the portfolio. For the uninformed, major stock market indices are not exactly a good benchmark to compare the portfolio against with. We have to look at the component and structure of the portfolio before a good benchmark can be established. Jumping into comparing with major market indices is simply a no-brainer simplistic lazy manner of comparison.

Almost anyone can achieve a relatively 'beat-the-market-major-stock-indices' portfolio as long as it is relatively diversified especially in today's economic climate where bad news land upon bad news. Probably I am wrong to say that, and itself a naive, unsupported suggestion, but a decline is a decline. By stating:

Mrs Lim also reiterated that the two companies are long-term investors, and should be evaluated as such.

'This is not the first major decline in markets that they have seen, and will certainly not be their last,' she said.

So what are they trying to say? When portfolio performs well it's the 'extraordinary' efforts of the Temasek/ GIC management. But when the portfolio performs badly, it's the global market's fault. It's normal. It's acceptable. And it's nothing much to throw a few billions away as long as you take in long term views. If you look at stock history, it has always been a rising trend especially when you take a much longer view, simply because technology advancement has to improve the economy as a whole. A simple economic model Cobb-Douglas Model Y = AF(K, L) would show that technology becames the main economic growth driver as capital and labor reaches it's limits (Solow Growth model). In other words, given that explanation, no matter what happens, the people at Temasek/ GIC will never be held responsible for any poor performance and will always enjoy credit for 'strong performance' even when the entire market is performing well.

This brings me to the topic of finance obsession among today's Singaporeans who view the finance industry as an ultra cool and rewarding (monetarily speaking) job. I myself used to be one of the cash-cow-chasers but has since grown to be disgusted at the kind of personality and character of students who view themselves as future bankers-and-I-am-gonna-earn-millions.

The local newspapers are all fired up again with the recent release of Financial Times MBA rankings for 2009. NUS and NTU were filled with joy as they made quantum leaps in their rankings. While NUS boost their 35^th spot, they stare in envy as NTU boosted a seemingly impressive 24^th spot, while knowing behind their back an upcoming SMU is ready to roar as well (since only MBA with 5 years history can qualify).

But then, it’s all just marketing. Simply leverage tools that both universities would deploy to entice the naive students to register for the universities in 2009. How powerful is marketing? They would use a MBA ranking to boost that the undergraduate programmes would be superior as well. After all, if the Masters programmes are good, needless to say, so would be the undergraduate programmes. Right? Well…maybe not entirely true.

Such rankings are subjective. And it’s kind of pathetic that our local universities need to derive joy and happiness from an external foreign source. Wharton was labeled number one 8 times for the past 10 years and no where on the website would they even bother to boost the rankings. Reason? Because they know they’re good, and they know they have strong alumni and they are world renowned. Harvard Business School isn’t bothered if they are number 1 or 2 or 3. The business cases they produced each year are humongous, and it was used all around the world, even in ‘Number 1’ Wharton. Why can I say that? Coz I am now at UPenn and I study them almost every day.

Make no mistake, I love my university and I think I have benefited quite a lot from studying there with so many opportunities abound. But I think we Singaporeans ought to have more confidence. We seem to be all caught up in rankings and deriving satisfaction from praises from others. Primary and Secondary Schools market their schools by wasting money on banners and posters boosting individual results (in some minute areas such as ‘Overall Most Improved Award’ or ‘5 7-As students produced in 200X’….omg, what is the world coming to). Does it really make a difference to the education standards the students are getting? It just contributes to an elitist-mization of schools. After being top for so many donkey years, the new elites came up with Integrated-Programme. While it doesn’t sound any elitist, we all know it’s the usual suspects that have this programme.

Singapore has too small a population to get really selective in the quality of their students and I would boldly say the quality of students across the 3 local universities is very similar with probably marginal differences in more competitive courses such as Medicine. Of course, there are outliers every where. Even in UPenn, not all are as impressive as they may seem to be. After all, it’s an Ivy League right? Singapore students ain’t too bad as well.

What makes a school good? The alumni they produced and the influence that comes with it. With so many alumni controlling the business world, politics, social programmes, charity etc, it’s no wonder the Ivy Leagues and Oxbridge (and many others as well such as LBS, Insead, MIT, Stanford) had such strong influence and reputation. However, one can also argue that it takes time for the universities to do so. After all, not even Stanford Business School becomes famous overnight, and Silicon Valley contributes to its rise as well. But I do think the marketing and competition especially among biz schools in Singapore is kinda irritating, pardon my language, creating a false elitist ‘phenomena’ among the business school students. I got pissed off when some biz students start to display an air of superiority in front of me. Don’t you?

Been Busy: Gov't Spending is No Free Lunch

2009-02-04T05:46:00.002+08:00

I haven't been posting for a long time ever since I left Singapore. Time isn't really on my side and I have been busy with work and studies. There is, however, one interesting article that I think it's worth a read. For the macronians, quoted entirely from WSJ written by Robert J. Barro:

Back in the 1980s, many commentators ridiculed as voodoo economics the extreme supply-side view that across-the-board cuts in income-tax rates might raise overall tax revenues. Now we have the extreme demand-side view that the so-called "multiplier" effect of government spending on economic output is greater than one -- Team Obama is reportedly using a number around 1.5.

To think about what this means, first assume that the multiplier was 1.0. In this case, an increase by one unit in government purchases and, thereby, in the aggregate demand for goods would lead to an increase by one unit in real gross domestic product (GDP). Thus, the added public goods are essentially free to society. If the government buys another airplane or bridge, the economy's total output expands by enough to create the airplane or bridge without requiring a cut in anyone's consumption or investment.

The explanation for this magic is that idle resources -- unemployed labor and capital -- are put to work to produce the added goods and services.

If the multiplier is greater than 1.0, as is apparently assumed by Team Obama, the process is even more wonderful. In this case, real GDP rises by more than the increase in government purchases. Thus, in addition to the free airplane or bridge, we also have more goods and services left over to raise private consumption or investment. In this scenario, the added government spending is a good idea even if the bridge goes to nowhere, or if public employees are just filling useless holes. Of course, if this mechanism is genuine, one might ask why the government should stop with only $1 trillion of added purchases.

What's the flaw? The theory (a simple Keynesian macroeconomic model) implicitly assumes that the government is better than the private market at marshaling idle resources to produce useful stuff. Unemployed labor and capital can be utilized at essentially zero social cost, but the private market is somehow unable to figure any of this out. In other words, there is something wrong with the price system.

John Maynard Keynes thought that the problem lay with wages and prices that were stuck at excessive levels. But this problem could be readily fixed by expansionary monetary policy, enough of which will mean that wages and prices do not have to fall. So, something deeper must be involved -- but economists have not come up with explanations, such as incomplete information, for multipliers above one.

A much more plausible starting point is a multiplier of zero. In this case, the GDP is given, and a rise in government purchases requires an equal fall in the total of other parts of GDP -- consumption, investment and net exports. In other words, the social cost of one unit of additional government purchases is one.

This approach is the one usually applied to cost-benefit analyses of public projects. In particular, the value of the project (counting, say, the whole flow of future benefits from a bridge or a road) has to justify the social cost. I think this perspective, not the supposed macroeconomic benefits from fiscal stimulus, is the right one to apply to the many new and expanded government programs that we are likely to see this year and next.

What do the data show about multipliers? Because it is not easy to separate movements in government purchases from overall business fluctuations, the best evidence comes from large changes in military purchases that are driven by shifts in war and peace. A particularly good experiment is the massive expansion of U.S. defense expenditures during World War II. The usual Keynesian view is that the World War II fiscal expansion provided the stimulus that finally got us out of the Great Depression. Thus, I think that most macroeconomists would regard this case as a fair one for seeing whether a large multiplier ever exists.

I have estimated that World War II raised U.S. defense expenditures by $540 billion (1996 dollars) per year at the peak in 1943-44, amounting to 44% of real GDP. I also estimated that the war raised real GDP by $430 billion per year in 1943-44. Thus, the multiplier was 0.8 (430/540). The other way to put this is that the war lowered components of GDP aside from military purchases. The main declines were in private investment, nonmilitary parts of government purchases, and net exports -- personal consumer expenditure changed little. Wartime production siphoned off resources from other economic uses -- there was a dampener, rather than a multiplier.

We can consider similarly three other U.S. wartime experiences -- World War I, the Korean War, and the Vietnam War -- although the magnitudes of the added defense expenditures were much smaller in comparison to GDP. Combining the evidence with that of World War II (which gets a lot of the weight because the added government spending is so large in that case) yields an overall estimate of the multiplier of 0.8 -- the same value as before. (These estimates were published last year in my book, "Macroeconomics, a Modern Approach.")

There are reasons to believe that the war-based multiplier of 0.8 substantially overstates the multiplier that applies to peacetime government purchases. For one thing, people would expect the added wartime outlays to be partly temporary (so that consumer demand would not fall a lot). Second, the use of the military draft in wartime has a direct, coercive effect on total employment. Finally, the U.S. economy was already growing rapidly after 1933 (aside from the 1938 recession), and it is probably unfair to ascribe all of the rapid GDP growth from 1941 to 1945 to the added military outlays. In any event, when I attempted to estimate directly the multiplier associated with peacetime government purchases, I got a number insignificantly different from zero.

As we all know, we are in the middle of what will likely be the worst U.S. economic contraction since the 1930s. In this context and from the history of the Great Depression, I can understand various attempts to prop up the financial system. These efforts, akin to avoiding bank runs in prior periods, recognize that the social consequences of credit-market decisions extend well beyond the individuals and businesses making the decisions.

But, in terms of fiscal-stimulus proposals, it would be unfortunate if the best Team Obama can offer is an unvarnished version of Keynes's 1936 "General Theory of Employment, Interest and Money." The financial crisis and possible depression do not invalidate everything we have learned about macroeconomics since 1936.

Much more focus should be on incentives for people and businesses to invest, produce and work. On the tax side, we should avoid programs that throw money at people and emphasize instead reductions in marginal income-tax rates -- especially where these rates are already high and fall on capital income. Eliminating the federal corporate income tax would be brilliant. On the spending side, the main point is that we should not be considering massive public-works programs that do not pass muster from the perspective of cost-benefit analysis. Just as in the 1980s, when extreme supply-side views on tax cuts were unjustified, it is wrong now to think that added government spending is free.

Mr. Barro is an economics professor at Harvard University and a senior fellow at Stanford University's Hoover Institution.

Principles of Economics simplified, and what it really means

2008-11-30T12:56:00.003+08:00

I can't help it, this video is hilarious. And for some 'shocking' facts, check it out.

Are foreign workers any good?

2008-11-21T18:19:00.027+08:00

No, I do not really want to debate on the merits and/or pits and falls of having foreign workers in the country. No doubt, they have their merits, although it's hard to educate the man on the street to understand the economics behind this. But I do think that the the social cost, which are mostly intangible especially in the initial stage, have to be considered.

In terms of tangibility, the area of the foreign workers' dorms along Old Tampines road is always filled with rubbish especially on certain hill slopes, and pictures of foreign workers relaxing and partying on the slope after work form in my mind. Whatever happen to green and clean Singapore? Ok, probably this is a sweeping statement and the new generation of Singaporeans aren't too particular about keeping the environment clean. But if you are to ply along the dorms of foreign workers, more likely than not you will see the same scenario. The psychological impact on locals is also evident, and I believe I do not have to talk about it too much.

The government allocates 20% of local university places for foreign students and if you belong to the engineering school or faculty of sciences, that would be most apparent. While I do not object to welcoming foreign talents with open arms since having them around increase competiton and raise the overall quality of the university, 20% is a bit too much in my own honest opinion. The ministers gave the reason of locals not wanting to study these important majors with most opting for business and arts. Well, one can't blame the young 18 year olds from having such preference given the much glamor and $$$ associated especially with the heated marketing campaign and competition among SMU, NUS Business School/ FASS and NTU Business School/ School of Humanities and Social Sciences. On the other hand, no marketing effort to spruce up the dull and boring image of engineering and science was done.

Technology is associated with being hip, world-changing, full of impact, and highly lucrative in universities such as MIT, Stanford (ok, having Silicon Valley next door is a marketing ploy in itself) and also universities in Japan and Taiwan where technology is the main catalyst of economic growth. Electrical Engineering, one of the most 'common' engine majors where NUS/NTU students do not view it with much pride, is actually one of the most competitive course to get in alongside traditional competitive courses like medicine and law in the National Taiwan University. But Singapore isn't doing so bad, with 80% of the global market share in microchip processors and a vibrant life science research center, the Biopolis.

So why aren't the students here viewing technology as an attractive option? Some, or rather, most said engineering/science subjects are too boring. So are they? Or is it the way it was being taught? Business/arts subjects are relatively easier to be perceived to be more interesting since it is mostly qualitative and can be related to real life easily, while the poor engine student struggles to make sense how knowing digital signal processing or linear predictive coding or symbol synchronization can make a difference to his life. This is one of the Singapore Economy-Education Paradox (ok, there's no such term, i coined it myself), where the economy's star industry is not reflected in the education system despite the close connection between the labor force and education. Another example would be while Singapore has one of the best ports in the world, no one seems to be very interested in logistics and port management. In fact, there is no such specialized bachelor degree offered in the 3 local universities. The closest one can find is the Bachelor of Engineering (Industrial & Systems Engineering) offered by NUS and till recently, the Bachelor of Science in Maritime Studies (with Business Major option) offered by NTU, as well as the 3 local business school bachelor degree with concentration in Operations Management.

And then the controversial issue of too many MOE scholarships being given out to foreign students especially those from India and China. With their home countries coming up as super-powers, which student in their right mind, in all logic and patriotism, would choose to settle in tiny limited opportunities Singapore? The resources spent on each undergraduate MOE scholar are immense, estimated at a conservative S$125,000! And that is no small figure. For those unfortunate Singaporeans who didn't get to be admitted into the local universities end up having to spend a fortune on private institutions such as SIM or MDIS, and also most commonly opt to go over to Australia and UK.

For the uninformed, one can get a very good undergraduate/ masters education in countries such as Germany, France, Sweden and Switzerland at a bargain. Look beyond the normal destinations. Sure, there may be some language barriers but there are also some english programmes. Education in Germany is in fact free! And there's Lund University and Stockholm School of Economics, both free as well (although there are plans to charge international students now) Or take the University of St. Gallen, which is one of the more renowned university in Switzerland. Total annual tuition fees is only 1170 Swiss Francs or in today's exchange rate, around S$1480. Take in the estimated living expenses of 2000 Swiss Francs per month, the annual education in Switzerland would cost around S$ 31,000. Almost equivalent to (just) the annual tuition fees at aussie universities. And I believe Europe would be a nicer and enriching place to receive your education than Australia.

Cost of Living

2008-11-16T15:52:00.002+08:00

This is kinda random. I was reading through Bloomberg when this heading attracted me.

Cost of Living in U.S. Probably Dropped by the Most in Almost Sixty Years - "Prices May Have Tumbled as Economy Sank: U.S. Economy Preview "

Well, with the USD strengthening so much against the SGD, I was pretty devastated. I can still vividly remember the rate is 1.43 in May. And now it's 1.52 and going on strong.....And apparently the rental fees I am inquiring will be increased 2-5%....

Classical or Keynesian prevails?

2008-11-15T18:54:00.011+08:00

I would love to post many of my thoughts especially after the turbulent October month but work load is not granting me the luxury of time. Facing this trade-off, to maximize my utility, this post would be 'pretty' summarized.

"Poor economic data exacerbates financial market" - But OF COURSE!! People reacted to bad news and now many companies are firing. The top catalyst has to be Lehman's bankruptcy. With uncertainty in the market, of course people will consume less and bad news such as increased unemployment, slowing sales in X company and declining profits in Y company would follow. What else do you expect? So it sets off a string of 'bad news on bad news' and what we see today is a lot of over-reaction and subsequent moral hazards playing out. I won't be surprised if after Hong Kong, more countries such as Japan (wait, has it ever really recover from the asset bubble a decade ago? lolz), Taiwan, Malaysia, Indonesia etc goes into technical recession.

10,000 miles away from U.S., DBS fired 900 staff and still have the cheek to say, "We are fundamentally strong, but is now prudent for us to realign ourselves to the challenging economic outlook." I would believe it's to raise enough capital for the payout of the Lehman minibonds which had angered the public. What's an easier way to ensure you have enough money for the payout in the very short term? Just fire off some, or rather, lotsa people in your company especially middle/ top management since they are the most expensive to retain!

While I may sympathize with some (some, mind you) that seemed to have been 'conned' into buying those risky products, somehow I would very much believe there are those who understands such risk, took the plunge and are now trying their luck at getting back some monies. See, moral hazard increased.

Switching back to the States, GM starts to approach the Fed for help citing that the cost of the company's collapse will cost the country more than to save it. GM sells cars. So if they can't sell their cars, it's obviously their own problem and why should the citizens pick up the tab for that? This happens in the mist of unprecedented government bailouts and companies seem to be taking advantage of this 'goodwill'. Moral Hazard is at play again. If GM can't sell their cars, so be it. Let it collapse. The law of the urban jungle cites only the fittest survive. No point spending to maintain a 'unrealized loss' akin to throwing money into a black hole.

How long more can the Fed continue to rescue the frail economy? As mass amount of assets lost value, money supply could shrink--recipe for a deflationary economy. But U.S. is lucky as it is the only country in the world where it can print more money and countries around the world are willing to buy them. But then, there is still a limit to how long more the world can and are willing to sustain the world's largest economy.

Then we have Alan Greenspan admitting the laissez-faire form of economics theory is flawed. Well, that is itself a centuries old debating topic. While the classical form of economics seemed to have failed in the current context, some may yet remember how the Keynesian way was rebutted as out of fashion during the economic boom of U.S. just 8-10 years ago (or even longer) where classical theory showed economic superiority.

I would not take sides although I am more of a Keynesian. Simply because if humans need laws and constitutions established to ensure law and order in the society, it just makes sense to have some regulation in place in the economy.

So what are you? A classical? Or a Keynesian?

P.S. Somehow I am glad yet grim that I would soon have the chance to assess the greatest financial fallout in the States since the Great Depression.

Comments on Samsung F480

2008-10-23T23:07:00.007+08:00

Ok, this is not an economics topic, or anything related to my 'original posts'. I test drive a Samsung HP F480 and part of the condition attached is I have to do a review of the HP in my blog. So here it goes:

Pros:

Aesthetically appealing (I love the leather cover & the half metal casing looks cool)
Small and Light (although Ultra edition still trumps.)
Alternative to Samsung Omnia (which I am currently using)
5MP Camera, no more bringing out of digital camera
Interface considered quite intuitive

Cons:

Screen not very responsive sometimes.
Does not run on Windows mobile = limited applications.
The camera function of Samsung still lose out to Sony Ericsson and Nokia. This applies to the Omnia too. The flash is simply a LED, far inferior to Sony Ericsson's Cyber-shot Xenon flash. The shots becomes very pixeated when using the zoom for photos/ videos recordings. (the digital camera market is still very safe!) This also implies night shots are lousy.
Touch screen is a killer for people with thick fingers. And there is no stylus! I tried to use my Omnia stylus and strangely, it doesn't work! Apparently the screen only works with fingers (some heat detecting technology?).
The small screen of F480 means people will only buy it for the better aesthetic appeal (though it's subjective) and a pain to use especially when sms-ing. Omnia will almost definitely cannibalize the product. LG's Soul looks almost exactly the same as F480 minus the leather design (which gives F480 the edge).
It's obviously a phone for women. Guys will go for Omnia, since it's more masculine and functional.

For some videos on Youtube.

A Personal Comment:
I think the Ultra edition is wonderful. I used the U600 before it spoils (just a couple of months after warranty ends...I hope the same thing don't happen for my Omnia or else I'll suspect Samsung is deliberately causing their products to fail) and out of novelty, I bought the so called 'i-Phone killer' Samsung Omnia. From what I know, Samsung has stopped producing the Ultra edition which to me is a pity. Samsung seems to be rolling out touchscreen phones as the main focus with the Omnia, Innov8 and then this F480 (it's newer than Omnia apparently).

In short, I'll prefer Omnia over F480 any time.

Welcome to Recession

2008-10-10T14:50:00.005+08:00

Finally the dreaded word was confirmed. Singapore is technically in recession, although that is jolly well anticipated given the market turmoil happening over at the States. The weakness of an export-driven economy flares up again. So how bad is the economy now? To give a perspective, the US stock market falls 7 days consecutively with the DJIA falling below 9000 points since 2003, the Japanese yen reaching a new high, a slowing economy in the U.S. showing up in the USD-SGD exchange rate now at 1.46 (it was 1.36 when i went China 4 months ago), the quick fire interest rate cut showing up in AUD-SGD E/R at below 1 (bid is 0.98 last check), and the stock of Citigroup is now traded at US$12.93 versus a high of US$48.95 for the last 52 weeks with the news of Wells Fargo trumping Citi's bid for Wachovia wreaking further havoc to the stock.

Why was I so concern? Coz I bought Citi heavily for my portfolio with a bet that Citi will win (damn it!). Luckily it's virtual. Haha. I admit it's pure speculation. But then, given the irrationality in the market, investment analysis no longer makes much sense. Prices just keep going down and down and down. Even with strong fundamentals, most stock prices are still going south. Probably the only consulation is dropping oil price. No amount of measures, be it massive amount of money pumped into the money market or coordinated interest rate cuts seemed to stem the market downturn with everyone adopting a wait and see attitude and the component of trust and confidence in the government and central banks dissipating.

Can the recession in Singapore be entirely blamed on U.S.? Probably, given our export driven economy. One interesting contrast is the low unemployment rate in Singapore although there might be some changes in the near future. Companies are now nervous about spending and banks are not lending to one another. One leads to another and you have a credit crunch that keeps getting worse. I remembered just a year ago the authorities are heaping on the strong economic growth in the country therefore justifying the wage raise for our dear government. Now, I must admit that they are indeed far sighted, to increase their wages at the peak of the economy.

So how will the Singapore authorities pull off this problem? For most countries, the most direct method would be to cut interest rate. But that was not the tool for MAS. Being a small country, we are basically price takers. And the MAS chooses to play around with the SGD exchange rate against a basket of currencies instead. To help propel growth, the variable bandwidth would be lossened to help export and also against inflation. We may also see the government increase public spending to expand the economy at least in the short term. How long the recession is going to last is everyone's guess. Economists put it at 12-15 months. Technically, the U.S. is not in recession yet, although all of us knows it is. The bottoming may not be ending any time soon.

So what's you gonna do now? Stop spending and eat more at home.

Financial Downturns = Opportunities?

2008-09-24T12:46:00.004+08:00

I think I don't have to talk much about the recent (or rather, an issue that has been brewing for more than 1 year) financial meltdown at Wallstreet given the great publicity and tremendous amount of news pouring in every day every hour every minute. 'Too big to fail' is no longer a guarantee when you see giants like Merrill, Lehman, Fannie Mae & Freddic Mac all going down. Morgan and Goldman were also compelled to turn to depository capital thereby ending the era of Investment Banking Giants as the standalone model gets questioned.

Just when Warren Buffet fans can still recall the guru saying that he won't touch IBs as they are overpriced, the news today scream "Buffet to Invest $5 billion in Goldman".

So what do you think about the US government pumping in more than US$700 bn into the money market and the curb down on short selling? Firstly, where does the US Government gets that much money? From taxpayers of course. And probably by printing more money (since the supposedly independent Fed is now a 'lackey' of the government) as well, you never know. And while all that liquidity pumped in may calm the market, it did not solve the problem at all.

The crisis starts from those institutions in taking in too much risk, a typical Moral Hazard. Whether or not Morgan or Goldman is a pure IB or now a bank holding does little, if not, nothing to solve the root problem. If one is greedy, and wants to take in more risk at the expense of others, you can do so anywhere. The institution does not matters. Even worse, should the management be as short sighted as Merrill or Lehman, more people's hard earned deposits will be at risk. Sure, some will argue that as bank holdings, these institutions are now regulated. But with all the hoo haa of the subprime crisis, few can still remember how a bank in UK almost failed due to the subprime as well. If you have forgot about this, please google "Northern Rock". And should such an episode play out again with the IBs replaced as banks, you get a magnitude of bank runs that will be more entangled with the people's lives and economy resulting in even worse consequences.

And with more money pumped into the money market system, one can expect inflation to come. Higher inflation to justify lower unemployment rate, back to the older styled Phillips curve. Should inflation spirals faster than expected, expect a very reactive interest rate cut.

On the topic of short selling, I have mixed thoughts about it. Sure, it did boost confidence into the capital markets. After all, the market is oiled by confidence. Without this, everything does not run anymore. And I am happy to present you a view by someone in the hedge fund research industry where I had interned:

Anyway, i disagree it is a necessary step.  Short-selling is not the
cause of the problem, it is a reaction.  Also, people are just
bunching the different types of short selling together and saying
it's wrong.  I think naked short-selling is detrimental because there
is a potential supply-demand mismatch but covered short selling is
perfectly fine.

In times of stress, the short sellers are actually the providers of
liquidity because the people who actually own the shares are loathe
to sell since it means monetizing losses. And by banning short
selling now, all the regulators have done is move people who want to
short to using derivatives such as swaps and structured notes. So,
they still have not resolved the issue of short-selling, but only
push it to a different part of the financial system.  And worse, at
least short selling is regulated as it needs to go through the
exchange so there is a clearing house.  But shorting via derivatives
is not.

Next, there are also a lot of strategies that have a valid reason to
short eg all the relative value, arbitrage strategies. They are not
shorting to make a firm go bust, they are shorting to hedge out an
undesirable exposure in their portfolio.  There is no evidence to say
that short-sellers caused the demise of the market.  A market comes
down because no one wants to buy in the first place so selling (in
any form) will push the price down.  Short-selling is just an easy
scapegoat because most people don't understand how it works and there
is no clarity on that aspect of the market.  In the past year, it has
been relatively difficult to short-sell because brokers are charging
very high costs of borrow so in fact, shorting of stocks amongst
hedge funds has really not been that prevalent (at least in the funds
in the emerging markets). Most have preferred to use cash or buy put
options and others will short index futures.

And finally, if short-selling really was the main culprit for the
mess, that means there needed to have been massive amounts of short-
selling in the system in order for the prices to be pushed down to
these levels, then someone or some group of people must be making
bucketloads of money. The people who are most likely to use shorts
are bank prop desks and hedge funds.  Banks are going bankrupt so
they're definitely not short-selling.  Most hedge funds are in the
red for the year and the ones who are positive total around 10 -20
funds of which a number are trading credit, commodities and futures
rather than outright equity. So, I have not been able to find any
beneficiaries from these mythical volumes of short-selling, then is
short-selling really as big as the papers make it out be? I think it
is just simple dumping of stock due to lack of confidence that is the
real problem.

Another anecdote, I was talking to a guy at Goldman Sachs who covers
the pension funds. The pension funds are cash rich and they all agree
that the markets are cheap now but they don't want to buy anything
because they don't trust the brokers and the custodian banks. This is
a full-blown confidence crisis on the mechanisms of trade rather than
problems with the trades themselves.

It does pay to never rely fully on the news that was reported even in the US press:)

Olympics Fever

2008-08-17T14:27:00.002+08:00

For a country that swept in more than 20 Golds as of now, the women's table tennis finals to be held in 5 hours time may mean nothing much to China. Turning it back to Singapore, the entire nation is 'nationalized' into this single event that makes history by entering the finals and guaranteeing the Republic's only 2nd medal (and silver) since 48 years ago. Although there is bound to be some people who does not feel 'at home' since it's our foreign talents that rake in these successes, we need to understand that Singapore is not the only country with non-native athletes. Look at the 100m dash finals yesterday. And you only see one colour -- black, even from Netherlands.

So long as a talent, foreign or not, is helping Singapore, we need to recognize them as one of us. That's my take. And probably Money Economics helps, since the Singapore Sports Council has generously announced S$750,000 for a Silver Olympics medal and S$1.5 million for a Gold medal. Comparatively, Michael Phelps, after making history winning by 8 medals only got US$1m bonus from his sponsor Speedo for matching his predecessor Spitz 7 medals record and US$670,000 in bonuses from the US Olympic Committee and USA Swimming. Should he had played for Singapore and won 8 Gold medals, that work out to S$12 million in bonuses!

Merrill Takes $5.7 Billion Writedown, Temasek to Buy $3.4 Billion of Stock

2008-07-29T11:52:00.004+08:00

Temasek has pumped in US$900million into Merrill again as committment of US$3.4bn worth of stock. The people there are sure optimistic about the seemingly gloomy future economy.

"Merrill said Monday Singapore's powerful state-owned investment fund Temasek was taking up 3.4 billion dollars of the offer -- but only after the investment bank compensates Temasek for losses on some five billion dollars it had already invested in Merrill this year.

The announcement came in the wake of Merrill's July 17 report that it had racked up a net loss of 4.89 billion dollars for the second quarter, another sign of the devastation of the US real estate crash on financial markets."

"The company said Monday it expects to record a pre-tax write-down in the third quarter of about 5.7 billion dollars, which includes a 4.4 billion loss on the CDOs being sold.

Merrill had already raised 15.3 billion from capital markets earlier this year, including share sales to the giant sovereign wealth fund Temasek.

Temasek's earlier investment though came with a requirement that if Merrill raised more capital within 12 months at a price lower that the 48 dollars share that the Singapore fund paid, it would be compensated for the difference.

Today's announcement meant that Merrill has to pay Temasek 2.5 billion -- which Temasek is turning around to put back into Merrill, along with another 900 million dollars."

Giving back Temasek Losses so as to gain more capital infusion.....although it sounds nice that Temasek is hedging some risk off by getting some cash back, they are investing in a company that has some serious cash problems. Then isn't getting some cash back gonna exacerbate the problem further (even though it will be pumped back)???

Merrill's a nice company, no doubt. But I aren't so sure in today's market. By pumping in more money, Temasek got itself even more entanged with Merrill. And as common sense, any capital raising efforts will almost guarantee more writedowns. Just wait and see.

On another note, Temasek's 30 year average returns is only 3%....far below industry average. Either the fund managers are useless (despite being paid so much; just by buying bonds will yield the same or more) or some of the money is flowing to somewhere you and I do not know....

MAS revise up Inflation Forecast

2008-07-25T09:41:00.004+08:00

"SINGAPORE: Singapore’s central bank has revised up its inflation forecast for 2008 for the third time. It now expects inflation to come in at between 6 and 7 per cent from its initial estimate of 5 to 6 per cent.

The Monetary Authority of Singapore (MAS) said this is due to the impact of external developments like higher oil and food prices on Singapore’s open and trade—dependent economy.

The central bank, however, is maintaining its current monetary policy stance for a slow and gradual appreciation of the Singdollar.

MAS believes that inflation in Singapore has peaked this year. Inflation has stayed unchanged for the previous three months, at 7.5 per cent — a 26—year high. For the first half of the year, consumer inflation averaged 7.1 per cent.

In the coming months, inflation is expected to moderate because the one—off impact of the GST hike last year will stop affecting headline inflation in July.

MAS also expects global commodity price increases to be milder. Domestic cost pressures are likely to ease as the economy slows and asset markets consolidate.

Recent employment surveys have also shown that labour market pressures could be easing.
While most economists agree that inflation will come off in July, they say what is key will be the rate at which it moderates.

Irvin Seah, economist at DBS Group Research, said: "It will decrease at a slower rate compared to what we thought so earlier, because of policy—induced inflationary pressure. Having said that, oil prices recently have shown signs of moderation. If that’s sustainable in longer term, it means inflation could come off quite a fair bit."

Between April 2004 and June 2008, the Singapore dollar appreciated 23.4 per cent against the greenback — a policy move that the MAS said has had a restraining effect on consumer inflation.
It said its monetary policy tightening will continue to restrain cost and price pressures going forward.

For example, while oil prices have increased by more than 70 per cent from a year ago, domestic electricity tariffs and petrol prices rose only by around 30 per cent.

Despite the full—year inflation being revised upwards, the central bank is keeping its forecast that the Singapore economy will grow between 4 and 6 per cent this year, which some economists say is optimistic.

Alvin Liew, economist at Standard Chartered, said: "We are looking at slower second half this year due to worsening external markets affecting export demand. Already, we see that the manufacturing sector did not do very well in the second quarter and might see the weakness being continued into the third quarter itself."

A hint of that could be found in manufacturing data out on Friday.

Mr Liew said: "One of the important things we can look out for is tomorrow’s manufacturing number for June. If it comes worse than expected, then we can probably see a downward revision for the manufacturing sector again for second quarter, and then maybe we’ll see the government’s forecast range being revised down. I’m looking at probably a half to one percentage point downward revision."

Between inflation and growth risks, analysts say, inflation will remain the larger risk for 2008, although this may switch in 2009 should global growth continue to slow.
Singapore’s economy grew 7.7 per cent last year."

Now I am puzzled. For MAS to revise 3 times (and more to come I believe), how on earth can they accurately (or inaccurately) say that the one-off GST hike last year's effect on inflation will stop affecting headline inflation by this month? What kind of funny 'forecast' is this if the revision is just playing a catching game with the macro trend as a whole? Price increase seldom, if it ever did, reverse it's path. Probably it is a nicer way of saying "You guys should have been used to the price increase by now".

Inflation is now a great concern and although there are some who are optimistic that inflation is wearing off with recent oil prices declining, I am still somewhat pessimistic about the second half of this year. The 4 days rally of the asian markets are somewhat weak with the STI being unable to cross the 3000 line. At the point of typing this post, asian markets fall (again) on re-newed concerns of widening credit-market losses and worsening global economic slump. Throw in the Iranian stand-off with the USA (or basically the rest of the Western Powers) on Iran's nuclear programme, a new US president, plus the wider effect of the Fannie Mae & Freddie Mac episodes unravelling, the future remains gloomy. Then you have the cold seasons coming in another 2-3 months, which may translate to higher oil price again. A word of comfort may be the OPEC cartel seems to have weakened with Iran, the 2nd largest oil producing country, to disagree over OPEC's agreement on increasing output.

Look out for more 'Economic growth justification' from the Singapore media & government in the months to come.

It's been long

2008-06-16T22:13:00.001+08:00

It's been a long time since i updated my blog as I was away to China for 1 month and apparently blogspot is censored in the country. I'll be writing again very soon.:)

A Poem: An Ode to Bernanke

2008-05-10T01:03:00.002+08:00

This poem is so funny that I just have to reproduce in my blog:

An Ode to Bernanke

Ben Bernanke is our crazy Fed chairman, you see
He’s convinced that the U.S. has a full forest of money trees.

So he creates fancy dollar bills out of thin air,
Trying to save the economy from its destructive flair

The first thing he wants is to keep homeowners from defaulting
So he gives a multi-billion dollar bail out to the criminals who were assaulting.

But that wouldn’t be enough to save the economy from a bearish turn
So is it any wonder he had JP Morgan bail out Bear Stearns?

But the one thing he doesn’t realize is that his tricks won’t solve a thing.
He’s just trying to keep the economy together on just one string.

So as he prints money with no regard for inflation,
He’s convinced by doing this he’s going to save the nation.

One dollar, two dollars, ten dollars to buy a bottle of coke.
And as soon as you walk into a supermarket, the prices will make you want to choke.

So what will Ben do when he finds his plan didn’t work?
Will he be forever regarded as an economic jerk?

Will the annals of history reflect on him well?
Not in my mind – and that’s the history I’ll tell.

Whether or not you agree with the 'poet' who composes this is entirely subjective:p.

"Mr Buffet has to answer to his shareholders every year, GIC doesn't have to"

2008-05-02T18:41:00.006+08:00

MM Lee said that in an interview by the local newspapers when consulted on whether GIC (and Temasek anyway) can afford to be more transparent. Citing 'strategic considerations' and for fear of 'dependency on pay outs' from the Government, MM Lee said it's best not to be too transparent. To be fair, Buffett is my idol, as to many millions or even billions of other people as well. And there may be a certain bias. But I do have many more questions to ask regarding GIC.

While I can understand the part on 'strategic considerations', I wonder whether it justifies the issue on transparency. While certain hedge funds and venture capitalists or private equity firms are indeed not transparent to the external world, they are fully answerable to their stakeholders. So who are the stakeholders of GIC funds amounting to more than US$300bn? You. Me. Every Singaporean. Then why aren't they answerable to us?

On the part of 'dependency' as people expects more payout: Who cultivate this dependency? While I am not complaining the government giving out cash transfers almost close to every General Elections, isn't it not the same action that is breeding more expectations from the citizens on more handouts? Admitting that it is not an easy issue to solve given the contradictory position on Singapore being a non-welfare state (to pull it from our government's lines: S'pore Inc cannot afford to offer welfare--which economically speaking is quite correct), it is a difficult yet the Government's job to ensure a balance in widening the social safety net and people's expectations. Why then are we paying them so much?

MM Lee went on to say that in comparison with the famed Berkshire Hathaway, GIC is looking at a longer term for investments. This is said so to justify the investments in the US/European banks that has registered paper losses amounting to millions of dollars for Singapore and therefore GIC will evaluate their investments in 5-10 year periods while Warren Buffett takes a shorter term view as he has to answer to his shareholders every year. This seems to insinuate GIC is far more far-sighted than Berkshire.

That statement, is fundamentally flawed. Everyone knows that Warren Buffet takes a very long term view. He likes to buy companies but rarely likes to sell. He looks for companies that can provide cashflow and more earnings indefinitely. In fact, he has held on to Coca-cola stocks longer than most people. And he does incur losses in certain areas sometimes, very much like any investor on Earth, which is clearly stated in the annual financial statements. Just that the gains are usually more than the losses. With a company racking in more than US$100bn in revenue and 1 year return of 23.297% (in USD), it would be interesting to see if GIC can even match up to that standard. To give you a perspective on how big (or how rich) Berkshire is, Berkshire's market capitalization is slightly more than US$200bn, which is almost equivalent to Singapore's GDP (PPP at 2007) .

While GIC pays millions to their board of directors (take it as the management fee--a cost my dear bloggers! for managing Singapore's funds), Warren Buffet opt to get only US$100,000 a year. Are the management in GIC liable for losses? Are their salary pegged to performance? What is the benchmark that GIC is using to evaluate performances of their management (Why would I want to pay a trader more than a million a year if he can only rack in 5% yoy return which barely covers our inflation rate)? Such information is not given to us.

In short, it is totally irresponsible to use that statement to cover up the mysterious GIC and an insult to the Oracle of Omaha.

PAP-The Singapore Graduate School of Taiji-ing

2008-04-24T12:46:00.005+08:00

As many of you should have heard about the Mas Selamat Escape Incident and the explanations given by Minister Wong Kan Seng and PM Lee.

So the top guy should not be held responsible for things that go wrong at the bottom. Given that every minister does their jobs through another person (come on, you don't really think that policies are crafted by ministers do you? They have an army of scholars/economists/policy planners doing the work for them. And their job is to peruse, ask questions, and approve), they are virtually immune from any wrong doings.

"Oh this policy A is wrong?...hmm, the ministry will review it. The economy is dynamic you see..."

"Ah, some terrorist bombed Ang Mo Kio MRT station! Why aren't the public more observing? Singaporeans, a complacent lot."

Then, the ministers claimed credit for anything good.

"Thanks to our very capable government, we manage to minimize the impact from the financial crisis." (Hey with more than US$500 bn in reserves, there are more than one way to mitigate economic downturn.)

"Our government is far sighted in planning for the future of our citizens. Therefore the extension of the CPF is absolutely necessary." -- What good planning. It makes good economical sense which I agree absolutely. Then you realize their far-sightedness is only based on theory but complacent on current establishments such as silly things on not checking that there's no grills in the toilet of the Detention Camp that Mas Selamat escaped from.

It's always easy to blame the government for anything. But at least be accountable. And responsible. When is the last time ISU did an audit of their operations and all important dentention camps?

To the government:
Since we are paying you millions of dollars a year, I think it's rather fair for us to expect what was being paid out. When you pay $5000 for a watch, you at least expect a Rolex, not a Swatch. You said you guys are an extraordinary lot of people. So at least match up the price. We aren't demanding a lot ya know. To use a financial analogy, I think you are over-valued. And maybe we should start selling ya in the next GE.

Thorough explanations? I can't sense the sincerity in apology. Well trained they are in the Singapore Graduate School of Tai-ji-ing.

Higher fees to watch EPL/Champions League in Singapore

2008-04-06T15:58:00.003+08:00

I haven't been posting, coz time is rather tight. But still, this fine Sunday afternoon prompt an inner side of me to post some stuff, just as an escape from the stress of life (laugh).

The Sunday Times Headlines screams "Football fans bear brunt of pay-TV battle' (actually, the headline SHOW ME THE MONEY on Ronald Susilo who might take legal action against his ex-fiancee Li Jiawei attracts my attention more. Haha).

While it is generally true that a more competitive market generally contributes to more consumer welfare, we have to analyze deeper than the simple competitive market model. While having another competitor offering similar products generally shift out the supply curve, the thing is, having another bidder actually increases the demand for the same supplier of the product -- the EPL and Champions League content. In the end, they end up paying more to win the bids of the content and in the end pass on the higher costs on consumers due to inelastic demand curve (and supposedly elastic supply). Plus the bundling pricing strategy captures a higher producer surplus (since most people who pay the bundle only wants to watch football more than the rest but has to pay 'extra' for the other contents).

The ultimate winners are the football clubs and football players (and the distributor of football contents) since they command high monopolistic power. It' s no wonder football stars are earning so much money.

Protectionism

2008-01-26T21:03:00.001+08:00

200 over years ago....or less...anyway, here's how the story goes:

US ship commander: "You Japanese, I demand that you open trades with us. You have much to gain and I have much to gain. It's a win-win situation. Being protectionist is no good, and I have my economists to prove you wrong."

Japanese shougun: No, you white monkey! I know your intention. You want to invade our national security and colonize us as what the other white monkeys have done to other asian countries!"

US ship commander: "You fool! It is unwise to go against our big modern cannons and guns. Surrender!"

Japanese shougun:"Nonoooooo...!"

And the rest, is history. Similar occurrences includes the British-China Opium war. Japan became a semi-colonized country, modernized itself, and began a series of horrific imperialistic expansionist war in Asia. Turning back the clock to year end 2007/ start 2008.

Asian/Middle East investors:"Dear americans and europeans, I see that you have much trouble in your sub-prime issue lately. Let us offer our friendly help to you poor white monkeys."

Americans/European battled bankers:"Oh yes please i beg you, help us!"

Other Americans (like, say Hillary Clinton?)/Europeans:"No! These sovereign funds are only out to purchase our nice bank stocks on the cheap! It's an infringement on our national security! Boycott these asian/middle eastern investors!"

Asian/Middle East investors:"Oh no no. We are most kind. We won't interfere in anything. We are just passive investors who wants to invest in a good stock."

Other Americans (like, say Hilary Clinton?)/Europeans:"Boycott! Reject! Protectionism rules!"

Americans/European battled bankers:"Noooooooo...!" (and they fight out with their own countrymen.)

It's funny how things turn out. Even some american/european economists wants to retain their banks' sovereignty by saying no to outside investments. Well, if the west do not welcome investments, there's always China and India to turn to. I'm sure the Chinese and Indian politicians won't mind it at all. Although protectionism is never a good thing (since it will just generate more dead-weight loss and decrease social benefits), people play on their emotion (and thus nationalism) more than anything else.

Take the recent roller coaster ride of the stock market. Anyone knows it's irrational. And yet, hordes of people sell when prices are dropping (and buy when the market was so bullish a couple of months ago. In other words, stock prices aren't cheap then). Ok, maybe those that went into 'margin call mode' doesn't really have much choice but to sell their remaining stock, but then, it's their bets. Whatever happen to the basic investment principle of 'buy low sell high'? It's more of 'buy high sell low' if you ask me.

Middle East and Asian funds Zooming into cheaper US Bank Stocks

2008-01-15T22:30:00.000+08:00

Mega US Banks, once proud and arrogant and rich and powerful are now bowing towards the Middle Eastern and Asian countries for crucial helpline in saving their reckless dump into the sub-prime mortgage crisis. For a record of the helplines thrown in, adapted from bloomberg:

http://bloomberg.com/apps/news?pid=20601087&sid=anjGWhqi0PSE&refer=home

Firm         Infusion    Investor                       Stake

Citigroup      $6.8      Government of Singapore         3.7%
                        Investment Corp.

               7.7      Kuwait Investment Authority;    not
                        Alwaleed bin Talal; Capital    specified
                        Research; Capital World;
                        Sandy Weill; public investors.

               7.5      Abu Dhabi Investment
                        Authority                       4.9%

Merrill Lynch   6.6      Korean Investment Corp.;        not
                        Kuwait Investment Authority;   specified
                        Mizuho Financial Group

               4.4*     Temasek Holdings                9.4%**
                        (Singapore)

               1.2      Davis Selected Advisors
                        (U.S.)                          2.6%**

UBS             9.7      Government of Singapore
                        Investment Corp.                 10%
               1.8      Unidentified Middle Eastern
                        Investor                          2%

Morgan Stanley  5        China Investment Corp.          9.9%

Barclays        3        China Development Bank          3.1%

               2        Temasek Holdings                2.1%

Canadian Imperial 2.7    Li Ka-Shing; Manulife           not
                        Financial; others             specified

Bear Stearns    1        Citic Securities Co.              6%***
                        (China)
             _____

TOTAL         $59.4

*    Temasek has an option to invest an additional $600 million.

**   Estimate based on purchase price of $48 a share.

***  Citic has an option to increase its stake by as much as
    3.3 percent.

It's amazing how Singapore's GIC and Temasek were involved in capital infusion into 5 out of the 7 mentioned banks, and the amount of money pumped into the banks easily surpass any other funds. This gives one an indication of how rich the Singapore government is handling.

The mortgage crisis has provided ample opportunities for funds around the world to buy into the cheap otherwise expensive US bank stocks that will be hard to come by. And the Singapore government is certainly not going to miss these opportunities. The large infusion of capital into the United States will help to alleviate some pressure off the declining US dollar. In a way, this will and can avert the scenario of further weakening of the greenback, which would spell trouble for countries holding large reserves of US dollar denominated deposits, currency and other investment vehicles.

Although no negative figure, the US economy had shown signs of slowing. How long can the Fed continue to bail out the economy through interest rate cuts before the economy tumbles into recession?

Sovereign Funds: White Knights or Sparks of Nationalism?

2007-12-21T22:33:00.000+08:00

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

2007-12-17T04:58:00.000+08:00

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

2007-09-30T17:16:00.001+08:00

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?

2007-09-19T21:08:00.000+08:00

"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

2007-09-16T18:08:00.000+08:00

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

2007-08-11T01:13:00.000+08:00

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

Just an excerpt

2007-08-11T01:02:00.000+08:00

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....

2007-08-10T12:35:00.000+08:00

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?

2007-08-09T23:25:00.000+08:00

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

2007-07-23T03:12:00.001+08:00

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?

2007-07-23T01:30:00.001+08:00

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

2007-06-26T09:39:00.000+08:00

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

2007-06-25T15:42:00.000+08:00

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

2007-06-07T18:15:00.000+08:00

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'

2007-06-06T18:22:00.000+08:00

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

2007-06-04T00:17:00.001+08:00

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

2007-06-02T18:12:00.000+08:00

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

2007-06-02T17:09:00.000+08:00

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

2007-06-01T23:27:00.000+08:00

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

2007-06-01T23:17:00.000+08:00

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.