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.

Middle East and Asian funds Zooming into cheaper US Bank Stocks

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

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

Firm         Infusion    Investor                       Stake

Citigroup      $6.8      Government of Singapore         3.7%
                        Investment Corp.

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

               7.5      Abu Dhabi Investment
                        Authority                       4.9%

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

               4.4*     Temasek Holdings                9.4%**
                        (Singapore)

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

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

Morgan Stanley  5        China Investment Corp.          9.9%

Barclays        3        China Development Bank          3.1%

               2        Temasek Holdings                2.1%

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

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

TOTAL         $59.4

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

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

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

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

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

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

Sovereign Funds: White Knights or Sparks of Nationalism?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Trying to be God in creating a Money Making Machine?

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

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

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

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

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

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

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

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

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

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


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

Wages rising faster than at any time since 2000

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

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

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

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

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

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

Increase fares? Please rise standards of service as well.