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.
Friday, October 2, 2009
Monday, March 30, 2009
Article: Saying the Obvious
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.
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.
Sunday, February 15, 2009
Temasek Portfolio falls 31%
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.
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.
Wednesday, February 4, 2009
Been Busy: Gov't Spending is No Free Lunch
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.
Sunday, November 30, 2008
Friday, November 21, 2008
Are foreign workers any good?
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.
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.
Sunday, November 16, 2008
Cost of Living
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%....
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%....
Saturday, November 15, 2008
Classical or Keynesian prevails?
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.
"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.
Thursday, October 23, 2008
Comments on Samsung F480
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:
Cons:
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.
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.
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.
Friday, October 10, 2008
Welcome to Recession
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.
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.
Wednesday, September 24, 2008
Financial Downturns = Opportunities?
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:
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 theIt does pay to never rely fully on the news that was reported even in the US press:)
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.
Sunday, August 17, 2008
Olympics Fever
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!
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!
Tuesday, July 29, 2008
Merrill Takes $5.7 Billion Writedown, Temasek to Buy $3.4 Billion of Stock
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....
"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....
Friday, July 25, 2008
MAS revise up Inflation Forecast
"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.
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.
Monday, June 16, 2008
It's been long
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.:)
Saturday, May 10, 2008
A Poem: An Ode to Bernanke
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.
Friday, May 2, 2008
"Mr Buffet has to answer to his shareholders every year, GIC doesn't have to"
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.
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.
Thursday, April 24, 2008
PAP-The Singapore Graduate School of Taiji-ing
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.
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.
Sunday, April 6, 2008
Higher fees to watch EPL/Champions League in Singapore
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.
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.
Saturday, January 26, 2008
Protectionism
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.
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.
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