Tuesday, September 15, 2015

Malaysia: RM28 Billion Stimulus

The Prime Minister announced yesterday a RM28 billion stimulus package:

- RM20 billion to be invested in ValueCap to support undervalued shares
- RM4.5 billion for integrated development of hotel and theme park in Desaru Coast
- RM2 billion for a working capital guaranteed scheme for small and medium enterprises
- RM1.1 billion to enhance Muzium Negara, National Monument, Perdana Lake Gardens
- RM1 billion more to Domestic Investment Strategic Fund under 11MP
- RM80 million for health tourism promotion campaign in selected markets

- Asking international and local Malaysian companies to repatriate their profits and reinvest at home.
- Restructuring and rescheduling the loans of SMEs.
- Import duty exemption given to an additional 90 tariff lines including consumable spare parts and research apparatus used in manufacturing companies.

 1. If we take the view that a soaring stock market does not necessarily mean a bubbly real economy, whereas a sore stock market may indicate a sick economy, then we think that trying to boost the stock market is merely trying to produce a sign of well-being without taking a good look at the cause of the problem.

It is indeed exasperating that time and time again, the government tries to pander to the stock market all the time whenever there is a little sign of trouble.

I think we should tax the stock market, a specific transaction tax, first to discourage speculators and second to collect money for times like this when the government feels to urge to give a resemblance of helpfulness.

This attempt to shore up the stock market reflects very small and narrow economic thinking.

If we remove this RM20 billion stimulus, we are left with RM8 billion.

2. The next big chunk is a tourism development by Khazanah for RM4.5 billion. This is a one-off project. The RM1.1 billion refurbishment of tourism sites. This is the usual maintenance cost.

The depreciated ringgit is good for tourism and the thinking seems to be that it is good to encourage tourism. Does it imply that the ringgit to stay weak forever? You mean the government does not any idea of how to revive the economy or how to make the economy regain its vibrancy again?

Well, seriously, one small project does not an economy of RM330 billion make.

3. The rest are just sprinklings of stardusts all over the place to try to make the economy glitter.

If we take this to be the maiden outing of the Special Economic Committee, we may forgive it for being polite and demure. For the SEC to do any real good to the economy, as John Lennon's Aunty Mimi said to him on the release of the Beatles' first single "Love Me Do," "you've got to do better than this."

Monday, September 14, 2015

Malaysia: Post-Capitalism

I am rather unused to my current stream of consciousness that is plaguing me like mad about the very sorry state of this would-have-been great country of ours, our cultural diversity promising to be an example of the how the modern world could live with Islam as a major component, while we have many prominent and titled personalities sitting with the PM thinking of how to pick the brains of the not so prominent and not so titled individuals who have been putting up with incompetents in our daily lives. This is not supposed to be a rant.

I do not think that this time round, we can solve our economic problems like we did in the aftermath of 1997. Then, it was long-term investment funded by short-term capital, the mega projects instituted on the expectation that the economy was then on a quantum leap, and the opportunities affording the political boys to among the corporate leaders. The financial fallout put the political boys in a financial disaster and they just had to be rescued, if the political leadership of the day had to survive. That was prompted and expeditiously done.

Today, the problem is a more serious one, not that it is a direct home-made one because it is substantially not the case. It lies in that great global structural change that I had written earlier about.

But it is not enough that (a) we wish oil can go back to US$100, for it may instead go to US$20, some say; (b) we do not raise interest rates; (c) we do not impose capital controls, and this is what the market fears and unless this fear is removed, the ringgit will remain weak; (d) we remove the GST for we have already built in the inflationary expectations into the system and removing GST or zerorising it will not reverse prices, as official institutional inefficiency has already infested the private sector.

At the same time, we have GLCs that are monopolising and politicising the economy, maybe as desired, but certainly not without economic costs. Privatising those assets will be a step in the right direction but whether that will help or not would really depend on how it is privatised, or whether it will be put for greater efficiency.

We have to restructure the national economy and put it onto a proper footing for the future.

We all know that the information technology has now completely changed the world, and it has indeed. Social information is now creating a life on its own, and people are connected to create their own virtual world which they now enact in real life. Segments of society want to send out their messages and they do that enmass on foot. They idealise in their virtual world and they want the real world to be frictionless and instantaneous as well. They want sharp drastic and significant changes to society and life because they want the opportunity to create their own world. As not everyone will come to a consensus, it is likely that upheavals of all kinds will take shape for display in the social media. We are having a more versatile and more volatile society, and we would expect the authorities, those whom society has delegated some of our powers to, to be able to know how to maintain law and order in such a messy environment. The authorities have done well so far, and their continued ability to maintain public restrain and disciplined is important and critical.

Economically, however, we have the two superpowers - the US and China - sucking all the resources from the rest of the world. The QE has introduced this global inflation which is precisely the best way to siphon off resources. China has used its cheap labour to monopolise all labour-dependent activities such that global wages have been driven down to near zero, creating a standard of living among the labouring class at par with those in China. This is where Bangladesh and Indochina workers come to Malaysia to ensure absolute joblessness among working Malaysians at home. With this happening in the underbelly of the national economy, it is not unrelated an issue that Malaysians on both sides of the social divide are coming out to show their discontent. To have the red shirts pitching the yellow shirts and all the other demonstration of public strength and power is not but a reflection of the deep sense of insecurity that everybody is feeling about the state of the nation.

The government knows that the information system is basic to the new Malaysian economy of the future. That ICT backbone must therefore be competitive and efficient. But Malaysians are paying huge fees every months for a quality of IT service that cannot be said to be adequate for the present, and hence worse for the future. Monopoly and collusion are the killers. These big IT firms can make their huge profits to satisfy their shareholders but they are doing a disservice to the general public and the future of the nation.

A nation that is competing with the rest of the world on a fraction of its strength and capability is not living up to the full potential of its people. This creates discontent and hence a potential political disaster for the incumbent government. But a new government coming in will not do better either. Because we have not laid the future of our nation for our young to conquer. We must not allow old men who have past their prime to dictate the future; they have already done their damage in the past. Malaysia must really push all Malaysian youngsters to the forefront. The opposition which once was young is now not young any more. Their is a need for a third force to rise. The rising in the streets, in that one instant, is a good sign that the young is still keen and interested in the future of this country. This enthusiasm must be grasp as an opportunity to built the new Malaysia, instead of killing it and pushing everybody into the underground where only those with political might can show their emotions.

The future is the world of social media propagated information, no matter we like it or not. It may be utter true or false, but it is the reality. We act on perception, and confirm on facts. We do not act on facts, as it is always too late. Facts are for justice, not future.

The social media is all about inclusiveness, and the government has been talking about inclusiveness since day one. This is the way to go. Just accept it.

The government should promote current technology and expose it to society at large, so that society can innovate among itself to create a new way of life. New technologies, for them to be game-changers, must be disruptive to the existing way of doing things, to the existing system, to the status quo. The technology is challenging the way the government is run, how the government operates. The public service cannot be sleeping anymore, and its only communication with the general public cannot be as a bully and ticking off the people. Technology should be used to make redundant or bypass little napoleons whose incompetence and inaction is a scourge to our future. New technology should be used to interface by the government with the people in their daily dealings with the state, leaving face to face only as a matter last resort. But before full automation can take place, the systems must be tested to work efficiently. Almost all systems imposed by the civil service has become a bane on society. Competence is a rare commodity in our whole of highly educated people.

How can we allow incompetence to be so pervasive across our society? Is it our social experiment gone wrong?

I think the PM should ask those whom he has appointed to come out with their own individual recommendations of what should be done to improve the future of our nation. Those individual recommendations should be made public so that we know which one is competent and which one is just our usual titled prominent people pretending to be experts. Then ask for the feedback of society, so that you can which recommendation is favoured. You have listened in private to your advisers on the implementation of the GST and this has not gone down well. If any of your advisers in the SEC is no good, get new ones to come in. You don't have to be stuck with old men with old ideas. You should ask young people want they want for their future to set your policy direction.

This is as such as problem of our times as it is a problem of our own doing. We have to tackle both.

Saturday, September 12, 2015

A Great Haze Has Descended

A great haze has descended upon the whole country
At first a sprinkle of dust here, a dose of fudge there
But slowly the fog grows thick obscuring the reality
We cannot see far, the smell of the ashes hangs in the air.

They say it was due to a few hot spots not here but over there
A normal phenomenon in this part of the world, this time of the year
They say we must bear while they try to do something and persuade
Not that they know what to do and we know we must wait and wait.

But this is not a spot of fire in a small little place in an isolated incident
This is a great big fire of an open matter lit under an entire nation
The heat is getting stronger and stronger and we cannot bear any more
We give out a cry, a jolly big cry, they smile and give us back terrifying roar.

A great haze has descended upon the whole country
We cannot see the future clear but we can smell the aweful fear
Let there be more smoke and haze until we cannot gather
We may have no future but at least let us be alive together.

Monday, September 7, 2015

State Of Malaysia

With the wise men of the newly formed Special Economic Committee now deliberating on the state of the Malaysian economy and possibly on the future of our economy, I thought I will put in my two rapidly depreciating sen (not only in the international exchange market but also in domestic purchasing power) on what the state of the economy is right now.

1. Managing Expectations. I am amazed at how spoilt most of us can be, especially when we think about our success or failure. We tend to attribute all our successes to ourselves, and all our failures to others. When things turn out badly, we look for scapegoats. I was having a tough time in the last two decades trying to talk youngsters out of their cleverness in thinking they are millionaires just because they dabble in property investments, nay, speculations. Of course, I have to behave humbly in their mighty presence as I am only a poor wage earner. The question is whether the banks will now take legal actions to demand repayments by over-geared loan defaulters, be they in property, shares or credit cards. Everybody in the system seems to be holding together their house of cards. The spanner in the works will be a higher interest rate which will do some of the trick, but a stricter loan control which will really be the killer.

Politicians are always in a dilemma about bad news but sometimes bad news can be good. Good policy markers will always suggest that after a bout of good times, things may be going overboard and it may be good idea to start calming expectations down a bit to tell market players that, well, things can go the other way as well. Usually, politicians will like to postpone the day of reckoning until the problem of ballooning egos sets in. Then, the economy will simply implode.

Economic implosion is a natural phenomenon like a volcano eruption or an earthquake. It will happen, whether you like it or not. The last big one was in 1997 and Malaysia went around in search of Jews to blame. This time round, the shit hasn't quite hit the fan yet but the cracks are already showing and they are sizeable cracks. Even if the depreciating is a global thing, the old drop is a global thing, the high inflation is a global thing, the soft economy is a global thing. Look at China.

But China is running an admirable economic policy. China is slowing down the economy because the economy had run away on a single track to Timbuktu. China was building whole cities where no one lives. China was installing concrete blocks on perfectly good farm lands. China was covered in smog. China was killing itself. China did what was necessary, policy wise.

China fought corruption because it was corruption that led to economic excesses which led to unprecedented richness and arrogance without much sweat or effort. China was fighting a corrupt old regime which had used its political power to convert into economic power through real estate speculation. Without loosing itself from the grip of the old regime in the economy, the new regime cannot have a free hand to run the economy from export oriented to domestic consumption.

The current China regime of course made its own mistake. Just like any economy which runs to the problem of shoring up their GDP growth number, the tendency is always to push the money supply and in the process pump up the assets market, once again. This time, it is the equities market that responded for one complete year before the balloon burst. Boils grow even in an economy when things heat up.

The trick in economic policy is really to keep the temperature of the economy at a lukewarm level so that there is always monetary reward for effort and material discomfort for those who do not put in the effort. It is an economy bad shape when those who work hard are struggling to make ends meet and those who blow hot and cold in the political area with all kinds of nonsense make the most money through hot air.

A credit crunch with a higher interest rate is the necessary bitter medicine for the end of a prolonged party of excesses. Not all the villains will die, and as usual many of the good people will suffer. It may the harsh really that we cannot run away from. I wish things will not have to come to this end, but I think it is a bit too late to wish for only good things.

2. Exports. It is incredible how everybody is now an economic expert with the internet in one's finger tip all the time (or any other subject matter, for that matter, no matter the subject). With the fallen currency, ministers start talking about how this is good for exports like tourism. We are not talking about a currency that is always weak, but a currency that has been weakened. I do not think that tourists go to a destination because it is cheap. Tourists go to places where it is safe and they can have a good time. They have already saved up for the whole year to travel. So do we really wish for the currency to strengthen again and hence lose all the tourists again?

The other fear that we should have over the weak ringgit is that this great country that we have built up with concrete in the cities can all be foreign owned. Wait till the credit crunch ones, and the local speculators have to unload their assets onto the market and since the locals will most be the victims this time, the foreigners will be called in to help save the market value. Or we should let the market prices fall on real estate so that locals on low incomes can afford to buy very decent and prestigious properties.

3. Imports. A weak currency can also be used as a tool to restructure the economy into a higher value added one. The strategy Taiwan used in the 1950s to transform itself from an agriculture to a manufacturing economy was to devalue its currency by half. This made imported machinery expensive and all the graduates started to specialise in machine tooling and they ended up with a very specialised SME sector in manufacturing. Today, Taiwan continues to be innovative, no matter how quirky some of their innovations may be.

Because of the structure of our economy pillared by real estate speculation and massive consumption financed by a high household debt, we have become an economy that is soft in the belly. Our houses are no more built by our own people, our food are no more cooked by ourselves, and we are all busy looking for handouts through the social media and encouraged by some mistaken government policy of helping the poor with upfront cash. Our manufacturing backbone may no longer be there anymore.

4. Concluding Remarks. Whatever the official GDP numbers, I think the economy is in recession. People are already fighting for survival in the streets, either violently through robbery and other crime, or peacefully through demonstrations of their frustrations. It may be a bed of roses, but the people are being pricked by the thorns and are bleeding. Politicians and policymakers are probably the best paid in the nation, and they may be living in a separate strata from the common lot. But the common lot will want improvement which may not forthcoming any time in the coming future. Have we seen the storm, or are we just feeling the calm before the real one comes.

Brace yourselves, hold on to your cash.

Tuesday, August 25, 2015

Stock Market Crash

I am not going to write a commentary on what is happening to the stock markets around the world. Things are happening in ways that many do not expect. But some do expect such happenings and are therefore not surprised.

What I propose to do here is to bring some clarity to thinking about the stock market in general.

1. Market Capitalisation, Market Valuation

This is probably the most exaggerated way to think about value and wealth. The market cap or valuation is just a very bad concept to use.

Say there are a 1,000 shares. The price of the last share traded is $1. The market cap is $1,000. The price of the second share traded rises to $2. The market cap is $2,000. The market value is said to have "increased by $1,000" making everybody feel richer. If the price of the third share is traded at 50 cents, then the market cap is $500 and the market is said to have "lost $1,500" in market value.

It is incredibly how people are made to think that they have created and lost wealth just by the value of one last share traded.

So in the current "red lights" markets, speculators glorified as investors are said to have lost billions of dollars around the world. Bunkum! I think people really have to work hard for a living and just punting stocks and trying to be filthy rich overnight.

2. Stock Market Is Not The Real Economy

The stock market is not engaged directly with the underlying economy of investments and workforce and transportation and sales. The stock market deals indirectly with the underlying economy by trading in the shares of companies and in raising funds for investments.

The stock market functions properly with a well-controlled financial and banking industry, with relative scarcity of funds so that stock prices will be more reflective of fundamental values of the companies.

In an economy with ease liquidity and zero interest rates, stock prices tend to be over-priced because everybody is piling into stocks for lack of better assets to keep value. This is when investors become speculators, as share prices soar way above their fundamental values.

The stock market crash is one way to reduce the excess supply of money in the system.

Unfortunately, those who do not have money may be the ones to suffer in a stock market crash while those who have money may be the ones making the money simply because it is their business and they are experts in playing the stock market.

The stock market crash is not necessarily a bad thing; it may be positively desirable.

3. When Is A Stock Market Crash Bad For The Real Economy

A stock market crash is bad for the real economy when banks have also been lending to speculators or have also been speculating in stocks themselves, so that a stock market crash immediately and directly impairs the capital base of the banks themselves.

When there is a bad loan, the bank must set aside a portion of their capital corresponding that bad loan, with a view to writing off the loan in the end should the worse comes to the worse.

When the bad loans of a bank rise very sharply, the bank may not have sufficient capital to be set aside as reserves for the bad loans. This is when a bank becomes insolvent and shareholders must pump in money to pay for the bad judgement of their lending policy. If the shareholders have not enough money, then the government may have to step in to shore up the capital of the bank. If not, the bank cannot function and it has to close down, thereby leaving depositors with only a few cents for every dollar of deposit they have left with the bank.

A stock market crash is bad for the real economy when many banks in the economy are caught by insolvency and they have to curb their lending to real businesses or are unable to function as proper banks anymore. This is when the investments in the economy fall as a whole and the economy shrinks into recession.

4. When A Stock Market Crash Is A Good Time to Buy Stocks

When we know that the banking system as a whole is still strong during a stock market crash, we know that the stock market crash is the time when share prices have fallen sharply and sometimes to way below the values of the stocks. This is the time to start buying stocks.

5. Ways To Invest In The Stock Market

(i) Identify companies that you like. Good companies are those that sell products that are always needed by consumers into the far future.

(ii) Identify the fair value of the shares of the companies you have identified in (i). You must do your homework.

(iii) Wait for share prices to fall to below the fair value of shares as identified in (ii). The only input is patience.

(iv) You must have set aside a substantial sum of capital to invest in stocks in the first place. It will be money that grows by itself as the economy grows.

(v) If you can do (iv), then you may already found a way to make and save a significant sum of money and why on earth would you then want to dabble in shares.

Monday, August 17, 2015

British Economics Graduates

This is a recent piece from the UK magazine The Spectator which may be provocative for some people, and which I have copied and pasted below.


Note to those who don't read the fine print: This article is not written by this blogger. Author is James Bartholomew and if he protests, I shall have to delete this post!

British economics graduates have left a trail of misery around the world

From Nehru’s India to Varoufakis’s Greece, the trendy doctrines of our universities have much to answer for

25 July 2015 

So farewell, Yanis Varoufakis. You used to be Greece’s finance minister. Then you resigned, or were you sacked? You took control of the Greek economy six months ago when it was growing. Yes, honestly! Growth last year ran at 0.8 per cent, with forecasts of 3 per cent this year. The government had a primary budget surplus. Unemployment was falling. Until you came along.

Varoufakis was a product of British universities. He read economics at Essex and mathematical statistics at Birmingham, returning to Essex to do a PhD in economics. With the benefit of his British university education he returned to Greece and, during his short time in office, obliterated the nascent recovery. The economy is now expected to contract by 4 per cent this year — an amazing transformation. Greece’s debt burden has increased by tens of billions and many people have emigrated.

But Varoufakis is not alone. Plenty of other visitors to our universities have been influenced by the teaching here and returned to their countries to wreak havoc.

Jawaharlal Nehru, the first prime minister of an independent India, is understandably regarded by many as a hero. But unfortunately for that country he attended Trinity College, Cambridge. There he was influenced by British intellectuals such as George Bernard Shaw, a socialist, Bertrand Russell, who once remarked ‘communism is necessary to the world’, and John Maynard Keynes. He returned to India and started to put the ideology into practice with state planning, controls and regulations. This was a calamity. Following his rule, India’s share of world trade fell and a generation failed to emerge from abject poverty. Only when the ideology was abandoned with the free market reforms of the 1980s did India’s growth and amazing poverty-reduction begin.

Perhaps one of the most extraordinary rulers of the 20th century was Julius Nyerere, president of Tanzania, who was famous for living frugally and genuinely not being corrupt. Admirable though he was in this respect, it was his country’s misfortune that he read economics and history at Edinburgh (as did Gordon Brown). Naturally he was surrounded by leftist academics and apparently ‘encountered Fabian thinking’ in particular. The experience made it all but inevitable that Tanzania would endure a bloated bureaucracy, shortages and miserably low growth.

Nyerere had been to the University of Fort Hare as well as Edinburgh. This is a university set up by us British imperialists in South Africa for non-British people from all over Africa. It has bred an extraordinary array of future African leaders who, unfortunately for Africa, mostly developed left-wing ideas there. Among their number was Robert Mugabe, destroyer of the economy of Zimbabwe.

The dishonour of distributing economic failure around the world is spread around British universities but the London School of Economics can rightly claim more than its share, of course. Jomo Kenyatta, first prime minister of Kenya after independence, went there. True, under his leadership, the Kenyan economy was not the worst-performing in Africa — but overblown, corrupt state industries and attempted import substitution took their toll, so that GDP growth per capita was low and, in some years, negative.

Kwame Nkrumah also went to the LSE and then to University College London, although, to be fair, he had probably been radicalised already at Lincoln University, Pennsylvania. After thus overdosing on socialist indoctrination, he returned to Ghana and put through ‘forced industrialisation’, complete with state enterprises and ten-year plans. It was the usual formula with the usual result: decades of low growth, corruption and heavy debt.

In two further cases, Britain can again gratefully offload some of the blame to America. Pierre Trudeau was introduced to Marxism at Harvard and then came to the LSE for his doctorate. He did not finish it but the LSE nonetheless gave him a finishing course in leftist economics. Under his rule, Canada introduced wage and price controls while inflation, unemployment and the national debt all rose.

Zulfikar Ali Bhutto, variously president and prime minister of Pakistan, went to the University of California, Berkeley, as well as Christ Church, Oxford. It is unclear which bears more responsibility for teaching him the statist economics of academia. But once he had gained power, declaring ‘socialism is our economy’, he nationalised the steel, chemical, cement and banking industries along with the flour, rice and cotton mills. Economic growth slowed to a crawl at 1.3 per cent.

Most of our British university teachers imbue their overseas students with disastrous ideas and remain comfortably here, uninvolved in the misery they have sown overseas. One heroic-cum-tragic exception was Malcolm Caldwell, a communist lecturer at the School of Oriental and African Studies who was such a fan of Pol Pot and his murderous regime that he went over to see it in person. He had a private interview with Pol Pot himself and was murdered later the same day.

Are there any exceptions to the rule that British universities cause misery abroad? Yes, but only when they revolt against what they were taught. Singapore’s success is due to its first prime minister, Lee Kuan Yew, who went to Fitzwilliam College, Cambridge, and his economics guru Goh Keng Swee, who attended the LSE. They did indeed become imbued with socialist thought, to the extent that Harold Wilson once called Lee ‘one of us’. But after they left the clutches of British academics, Lee and Goh managed to think for themselves and observe how the real world works. They got over much of the socialism Britain had drummed into them and created one of the most successful economies in the world. It’s easy to imagine cardigan-wearing dons in a senior common room somewhere near the Aldwych shaking their heads and regretting that Lee and Goh were ‘the ones that got away’.

Returning to Greece, one might think that now Varoufakis has gone, things might improve. Unfortunately his replacement is Euclid Tsakalotos, who studied at Queen’s College, Oxford. He did his doctoral thesis under the supervision of a professorial fellow who had formerly been a Stalinist apparatchik in Poland. The British contribution to human misery may not be over yet.

James Bartholomew is the author of The Welfare of Nations.

This article first appeared in the print edition of The Spectator magazine, dated

Thursday, August 13, 2015

Ringgit Management

I wish to write on the behaviour of the ringgit and what we should and should not do in managing it.

1. Global Structural Change

I wish to emphasise that it is not only the ringgit that is weak but all currencies except probably that of the US and the UK.

This is a major change in the global economic fundamentals, or a global structural change.

The major change is that the US has finished with quantitative easing (QE) of the last three decades in order to shore up the US economy which was really in trouble. The US could and can print money to buy goods and services for free because everybody else is willing to hold the US dollar as the currency reserve. Japan and then China were the main accumulators where their people worked their lives off in return for a miserable living wage and inflation whilst their corporates became cash rich. The QE exported inflation to the whole world as the US tried to steal resources from everybody else for its own consumption.

But the real improvement in the US economy came when the US used its trump card of introducing shale gas, as a means to fight off Russia and possibly the Middle East. The US increases the supply of oil in the global market and this cuts the price of oil by almost half.

The two major effects are: (a) the US economy recovers because of the increase in output chiefly from shale gas production; and (b) the drop in the cost of doing business in the US and elsewhere.

For major oil producing countries, particularly the Middle East and Russia including Malaysia, oil revenue drops and this cuts government revenues and raises government deficits. This creates new budgetary problems and how they are tackled have great political implications as they will affect deeply the pockets of the average consumer.

Since the interest rate has been near zero for so long, the only movement for it is up. The question is when is the interest rate going to go up. The answer is" "Anytime now, when the US economy has seen to have recovered." As the UK economy has also been improving as a result of austerity, the UK interest rate is also set to rise as well.

Since the rest of the world seems so miserable, with China and Australia down and the marginal EU economies in debt troubles, the US and the UK seem to be the only two bright lights in the world for those with cash.

2. Regional Currencies

It is a bane of the economic policy of developing countries that they see the stock market as the main measure of the libido of an economy and hence political cleverness in economic management. This is utter rubbish.

The performance of the stock market is not the direct measure of the healthy of an economy. There is an indirect and tenuous relationship between the stock market and the fundamentals of an economy.

But there is a direct relationship between the stock market and the liquidity of an economy. The stock market will always go up whenever there is an increase in the excess liquidity of the economy, in the economy is closed or there are currency controls to keep the excess liquidity within the domestic system. If there are no foreign exchange controls, then an excess liquidity or an increase in excess liquidity will also lead to a depreciation of the currency.

It is therefore inevitable that when there are no more fools in the stock markets, the speculators will sell off the market and take their money and their profits out. A weak stock market and a weak currency always go hand in hand.

(Likewise, we have heard so much foolishness in the past when increased speculation in the stock market was welcomed as a sign of a strong economy argued on the simultaneously strengthening of the currency just because foreign fund managers were coming into the local market to cream off the local speculators.)

The worst that we have seen about increased excess liquidity was when banks and financial institutions were left to lent indiscriminately to fund asset inflation in real estate which are being used as collateral for the loans. There is no great madness than this, to allow banks to create their own collateral values for their loans at the expense of the average savers who were and are being paid nothing for their austerity and thrift.

No doubt the global impact of the US QE has been so great that it would have been impossible for local monetary authorities to sterilise short-term capital inflows. But there must be attempts to limit and restrict these disruptive flows as much as possible, as the police for examples must try to reduce a spate of crimes no matter how rampant. There were no signs of warnings and lecturing to reckless bankers, and everybody seemed to enjoy surfing the wave so long as they have a nice surf board to ride. Everybody else simply got drowned in high waters.

So the speculative funds which have had enough of ravaging the regional bourses, look up and see the two bright spots in the distance and decide to find new pastures. This the another global structural change in thinking.

3. Speculative Momentum

When we are talking about a major structural change, we are not talking about a person going to the toilet during a show in a theatre. We are talking about the entire audience leave the theatre because the show is over. One by one, they got up of their seats and head for the exit door.

Because of the enormous size of the audience, because the show was good, there appears to be a major exodus. And this probably brought the index to 4.

Well, let's see who is going to shout "Fire!"

You know it is very tempting to make that shout. How else can one think, to see everybody leaving, and may be you want to capitalise on it. You are way back in the queue and you have an urgent need to go to the toilet. You are dying for a cold drink. Whatever. You want to move the crowd faster. You want to change the scenario for your own gain.

Very tempting.

4. Currency and Democracy

If you believe in freedom of movement, in freedom of choice, in freedom of gains and losses, then you should let the ringgit be.

The ringgit had been glorious, and went to as high as 2.50. The many waves of speculative foreign inflows had made everybody in Malaysia rich, lifting the standard of living to unprecedented heights and be among the best consumers in the world. We have paid for all these with our oil money and many Malaysians now have the luxury of freely sprouting their views without thinking, though not without agendas. We have learned to be wealthy without working, though not worthy maybe.

Where the ringgit is today is a good reflection of the underlying fundamentals of the economy. Not exactly but thereabouts. More swings are to be expected as the currency market tries to find a fair value for the ringgit. This takes time. Many factors have to be considered, factors now and factors in the future.

At the moment, the last show is over and let's see what is the new show going to be. In the meantime, we all adjourn to another venue.

There are calls for us to get our act together. To start a new, not to replay an old one. The squabble is now over who is going to be the main actor, the star. There is intense competition among producers, over genre as well. Tragedy? Farce? Special effects?

The last thing we should go for is to shut the door and lock those who haven't exited inside. This will create a major loss of confidence.

The call to fix the exchange rate is not without its cost. If there is really a major exodus, then you are threatening to deplete foreign currency reserves which when it is depleted will mean a freefall for the currency because then there will be a total loss of confidence in the ability of the central bank to defend it under any circumstance.

5. Independence of the Central Bank

The independence of the central bank is a sacred doctrine of economists who wish to control inflation.

The head of the central bank is usually called the governor, which means almost like a head of this monetary world.

In principle, the governor of the central bank is to be able to say to the finance minister whose job is to manage the finances of the state that their is a limit to the spending by the government. The government of any country is a sovereign entity but not the head of the government, say the prime minister. The prime minister is keen to stay in power as long as he can, if there is no limit by law. As economies go through cycles, there is a tendency for the head of government to spend his way out of his economic problems. The job of the central bank government is to define that limit for that person heading the government.

We have already compromised the fiscal integrity of this country by having the prime minister taking up also the position of the finance ministership when these two posts should be separated.

If the independence of the central bank is lost, then we fear that the consequences will be dire: high inflation and a weak currency. Socially, poverty and confused social groups.

We need the governor of the central bank to be independent and strong.

6. State of Economy

We have gone past our golden age. The good life of a simple plantation life is over. The good life of an oil-rich economy is over. We have spent it all and we have destroyed the goose that laid the golden egg. We need to find a new economic force.

I am tired. Maybe we shall deal with this another time. Big topic.