Monday, September 22, 2008

Why Do Stock Markets Recover?

Stock markets recover because the professional investors are still holding the fort - the ones who know their stocks well.

When stock markets are about to crack, the professional investors will be the first to throw their shares in the markets - knowing that others will follow and those who throw last will lose the most because everybody panic.

But those who throw their shares first will be those who will have have cash to pick up the cheapest shares from the last ones who throw.

They only have to know that they do not pick up bad shares.

In this modern day and age, the government is unconstrained in the printing of money and is therefore inclined, in order to save its neck, to bail out companies that have been badly managed - in the name of protecting public interest and confidence.

The pouring in of money to bail out bad companies only prolong doomsday - but at least the hero is there to save the day, just for the day.

Banks, for example, are likely to be under-capitalised and therefore unlikely to have the capacity to engage in new lending. The day may be saved, but it does not mean that the economy will happily rebound and grow.

A lot of the recovery will be a lot of cash chasing a few good stocks while the economy struggles.

A lot of the mirage will be the focusing on stock market performances with government interventions and schemes, while real businesses struggle to make ends meet.

The day just drags on.

Thursday, September 18, 2008

Why Do Stock Markets Crash?

Stock markets crash because investors have arrived at a state of disbelief in their investment valuation as evidenced by the collapse of banks. There is a double whammy.

Normally, stocks are properly valued with respect to their investment prospects based on real sector activities such as doing research and producing goods and services and selling them. If they believe that a 10% pa rate of return is reasonable, then a p/e of 10x is reasonable. If they want a 8% pa rate of return, then a p/e of 12.5x. This is assuming a fairly stable and steady stream of income which can only be got from a big corporate which has been in business for sometime - not your young upstart with lots of speculative promises.

There is a chance for stocks to be overvalued when companies make overblown forecasts of their prospective profits with expectations of mega projects. A lot of these things are hot air.

There is a more insiduous mechanism at work. When real businesses are bad and banks have too much deposits, they tend to lend to consumers for the purpose of cars and houses. Real estate is excellent investment for banks because it represents solid collateral - better than a mere good cashflow project. But when banks begin to lend big time to the property sector, you know that the fundamentals of the economy are weak and asset inflation and speculation is going to be main game in town.

As bank loans grow, their prospective income grows and their share prices rise. The stock market index climbs and investors become excited and poured their hard-earned savings into the market - better, they invest and speculate in the market on credit - which could be good for the loan books of banks again. The banks and the stock market enjoy a fruitful conspiracy...

Until the bank customers start having problem repaying. The cycle reverses. Banks collapse, their earnings collapse, and stock prices collapse.

What does one do when this happens. Somebody once said that fortunes are made in bloodbaths. Buy low, sell high. But know your stocks first.

It is high time that we de-focus the discussion of economic policy based on the stock market. Let the stock market die. Focus on building proper businesses. R&D, investments, meet market demand. Do some real work - rather than trying to pull easy cash from the zero-sum stock market.

We have suffered too long from misguided politicians who think that stock market speculation represents the healthy of the economy.

In a perfectly well-managed private sector with a strong balance sheet and careful investment, there is no need for a stock market. In an imperfect world, the stock market is the joker in the pack.

The Finance Portfolio

On 2 September 1998, the Prime Miniser sacked his Deputy cum Finance Minister. On 4 September, the Prime Minister became Acting Finance Minister. On 7 September, the Prime Minister became Finance Minister I.

Ten years later, on 17 September 2008, the post of Finance Minister I was passed on to the Deputy Prime Minister.

Traditionally, the Finance Minister post belonged to the Finance Minister, who is now relegated to Finance Minister II.

The role of the Finance Minister traditionally is to take care of the finances of the nation, particularly, how much to spend and how much to tax, and when necessarily how to raise funds to fill in the gap.

The management of the national economy belongs to several agencies, of which the most important is the central bank. This is because the Finance Minister tends to overspend as an expansionary fiscal policy is the no-brainer means of stimulating the economy.

The role of the central bank is to try to play alongside the political master - monetary policy to be contractionary when fiscal policy is expansionary and monetary policy to be expansionary when fiscal policy is contractionary.

In a politicised environment, there is a tendency for both fiscal and monetary policies to take the same stance - pushing together which often results in an overextension of the productive capacity of the economy to the extend that oversupply becomes a major problem. To solve oversupply, more cash is pumped in to hold up asset prices - now with the reason of saving the banks. Nobody wants to do anything, in order not to be blamed for the implosion which will surely happens.

In the end, the market is allowed to display its awesome power - to reward those who succeeds and punishes those who misjudge. The market collapses. The banks go under because their overgeared customers cannot repay their debt. The central bank becomes a one-trick pony - it keeps on pumping in cash.

No - the way forward to a better economy in future is to de-policise the finance portfolio - by prohibiting the Prime Minister or his Deputy from touching finance - so that those who know economic and monetary history may have a chance to do some pre-emptive measures to manage the economy.

Yes - get a more independent-minded Governor for the central bank. Or, do we get a governess?

Tuesday, September 16, 2008

September 16 (Reprise)

A long time ago
A wise old man said:
We are like the kenyalang
We are the kenyalang
When you don't see the kenyalang
Any more, we are also no more.

The kenyalang flew from
Our high forest hills down to the wide open sea
In the freshness of the jungle green
In the brightness of the midday sun
And the warmth of the tropical breeze
Our heaven and paradise
Our little patch of widerness.

For ten weeks in nineteen sixty-three
From July twenty-second, a Monday
To September fifteenth, a Sunday
The kenyalang flew free.

Now the kenyalang cannot find its home
The hole in the trunk is gone
The hole is there, the trunk is not
The kenyalang is now no more

My Fair Land, how have you been
We have failed to protect and honour you
When you were given up to be
Federated, on September sixteenth.

Monday, September 15, 2008

How To Save the Country...Or Rather The Economy and Yourself

The foundation is cracking...stock markets fall, two US brokers (Lehman Brothers and Merrill Linch) collapse, the American International Group calls for help, the People's Bank of China reverses its monetary policy and cut interest rates to stave off an economic slowdown, while unemployment in Britain could rise to two million next year as the economy goes into recession.

In the meantime, in Malaysia, we are happily playing the fool.

How do we save ourselves when the shit hits the fan?

Or, how does an economy create jobs?

In the simplest fashion, people are said to be employed when they keep themselves busy. I suggest that everybody takes a keen interest in their hobbies. If no hobby, get one soon. The point about a hobby is that it is enjoyable, and enjoyment is payment itself.

If you need income, then you may have to forgo your enjoyment for the time being and think seriously of how to be useful to others, especially those with cash so that when they are happy with you in whatever you were doing for them, they would or might give you some cash.

If you are without talent or ideas, and you are hungry, then I suggest that you go to the countryside or maybe your parents back home and go to the nearby forest and gather some fruits or vegetables or hunt for some meat in order to feed yourself.

If you wish to engage in wishful thinking, you may imagine that you may support some charismatic leader who promises you and others a lot of changes with the impression that it will be good for you. This may or may not come true. After all, if you are fighting corruption, for example, you may not get to have projects offered to you - it is against your principle. So, go back to square one above about hobbies, and doing some useful.

As you could be disgruntled about life or the current situation, maybe you could write in the hope that somebody may pay you for it. My advice is not to write about your gripe, for it makes your readers feel miserable and they are unlikely to touch your article or novel again.

Now is the time to keep cash and don't spend unnnecessarily like buying expensive custom-made guitars. Sure, it is against the teaching of Keynes, but don't you follow the advice of defunct men, as he himself said long ago. Let others spend. You save money. If you can't, then you lose. When the crunch comes, cash is king.

You would have multiple properties which are mostly vacant, you may want to offload them in the market. Let's face it, the promised yield of 8% pa has not materialised and it is hard to find tenants. While construction material costs have gone up, it is precisely these inflated material prices that are making products uneconomically and uncompetitive. Speculators believe in asset inflation to earn a living. I wonder when they will stop speculation - isn't there a limit before the issue of affordability hits and send demand crashing...look at the global crude oil market.

Consolidate, simplify and be self-sufficient. Don't rely on others...they can't even help themselves, less help you!

The Politics of Economic Discontent

Have Malaysians screwed up their economy really badly? Could the current rumblings in politics as well as education be signs that the macroeconomy is grinding to a painful halt?

Malaysia had natural resources, and still has, some. This was proven not to be enough. The national income was raised by attracting FDIs to boost the manufacturing sector, which had difficulty coming to maturity. This had come and gone. The national income was also further raised by easy money in the stock market, through the inflows of foreign speculative funds. These had gone. The regime of easy money policy has fueled easy money in the property market, as well as a depreciation of the currency and an escalation of domestic prices. The central bank is unwilling to control inflation for fear of discouraging investment.

But direct investment has mostly been from foreigners. With China in ascendent, many have left. Could they also have been discouraged by the unprofessional practices after decades of the politics of easy money where the only proven method of growing the economy is more government spending?

With direct investments in the doldrums, unemployment opportunities declined. Is the problem of unemployed graduates due to the inability to understand Mathematics and Science in English? Or that there is now greater competition for jobs and the lower grade graduates are now being left high and dry?

On top of this, the decision to fund projects rather than subsidy has pushed up retail prices by 40-50%. The central bank is waiting for next year to show that the inflation rate will have slowed down. But retail prices will stay high. And this adds to the burden of the people at large. No wonder, all the people are up in arms - the haves and have-nots.

Sunday, September 14, 2008

I Say Arrest

Do you detain a person without trial because he or she has committed a crime against society or because he or she is a nuisance to you?

Do you detain a person without trial because you have no evidence against him or her or because you simply want to shut him or her up?

Do you detain a person without trial because you know more than him or her or because he or she knows more than you?

Do you have to detain a person without trial?

Wednesday, September 10, 2008

Marginalised vs Mainstream vs Elite

Will there be chaos in Malaysia? With everybody up in arms against each other, and things coming to a head?

The old thinking is that there was a social contract between two groups - citizenship for special privileges. That was one generation ago. The old generation of one group is very old, and some members may have already died. The old generation of the other group has enjoyed the special privileges. The only stirrer now appears to be an old man telling stories about the old compromise.

The new thinking of the new generation of the two groups is that nobody wants to be marginalised. One group does not want to be marginalised in the land of their forefathers. The old group does not want to be marginalised in the land in which he is born.

The question now is how not to be marginalised. In other words, how do members of society participate in the mainstream of economic life without being marginalised through penalisation.

Now, members of both groups fear marginalisation. This means that a third group has taken the ball and run off. The system must change so that the elite group will not monopolise the economic gains through quotas and licences. There is a genuine need to provide a better set of redressal measures to bring marginalised groups into the economic mainstream. The political power can stay with the descendents of the soil.

Now, it is unfair to blame the guy who has to clear up the mess, instead of the mess created by his predecessors.


Malaysia has, for a while, an excellent base for building a good future - with the many many quirks and fancies. I do not even mind fanatical views, so long as they do not harm other individuals or society as a whole. It is good to be eccentric and way out - doing one's own little thing.

It might at first be just separate mutually exclusive enclaves which do not seem to give a care to the others. But slowly the little entities have discovered that they love many things in common.

No Malaysian can claim not to like food. Malaysians eat twenty-four hours a day, for no other reaon except to eat. Coffee shops and restuarants are always packed with people who are just sitting around. But incredibly, Malaysians can eat and talk at the same time, sometimes very loudly.

No Malaysian can claim not to like curry - real hot spicy curry like no other in the world - not even probably India. Malaysians can take a lot of heat. But of course, Malaysians may have to settle just for chicken and mutton if all have to eat together.

No Malaysian can claim not to like visiting eat others. They like open houses, which means they are not disinclined to visit one's house without notice, and very happily stayed on forever.

No Malaysian can claim not to make use of each other. Everybody is doing everybody a favour all the time, maybe sometimes at the expenses of getting real work done. But everybody is always very helpful, maybe sometimes at a price.

No Malaysian can claim not to be agreeable. They can agree with each other on everything, even if they do not quite agree. They can also agree to disagree and kept on arguing over little things, as well as big things. They can agree to argue and kept on to their own point of view until they work themselves to a frenzy and then when one of them explodes, everybody agree to attack that one poor individual. They can even agree to voice the opinion of someone else, even if they do not quite agree but then they feel that that view should be expressed, even to the detriment of oneself.

No Malaysian can claim to be too serious. Malaysians are happy to be forgiving and take risks on themselves foolishly and then be happy that everybody is happy. What to do if things don't turn out well. Jolly good, if things turn out unexpectedly well, surprising even themselves.

No Malaysian can claim not to be adventurous. Malaysians take risks at every possible instance, doing things in areas they may not even have the competence but still be happy to do the things they are being asked to do it, even against their will. They will try no matter how impossible the task at hand may be. No Malaysian medical doctor will claim no competence in economics and will happily proceed to make daring moves when most well-trained economists will lose sleep even contemplating the idea.

No Malaysian can claim not to be ambitious, no matter how illprepared they may be. They will not hesitate to make money by taking the shortest cut possible - that is, by taking - even in bright daylight under the noses of every other Malaysian who is supposed to be watchful but in fact is sleeping with eyes wide open, dreaming of the good times. You can see all these ambitious Malaysians in the mass media, those whose suits and dresses shine in the spotlight and whose arms noticeably ache under the glory of expensive brands round their wrists.

The only thing I know Malaysians are not is that they do not really care that much about anything. They are quite happy with who they are and what they are and therefore are quite happy to let the world pass them by. They are happy in their own little world. If only each Malaysian has a little bit of all the other Malaysians, I can imagine a richer Malaysian without having to chop down the jungles to prove that they really are that rich.


Excellence is a quality desired by many, either as individuals or as a society.

Excellence is a frame of mind, a vision of effort, in pursuit of perfection. Perfection is absolute, excellence is relative and thereby more feasible.

The first level of excellence is the excellence of mind. The mind reaches out for ideals which it treasures. Ideals are always good and beneficial to people.

The second level of excellence is the excellence of character. Integrity is to be true to one's ideals. Honesty is to be true to oneself, one's words, and one's possession. A hallmark of honesty is the brevity of words, for one speaks with thought and caution. It is so easy to fall into the trap of giving in to one's flash of emotion. Temper is always raised by the coward as an excuse for unkind words or unjustified action.

The third level of excellence is the excellence in one's handiwork. At the end of the day, all work is done by the hands, as translated by the mind. Excellence can be seen, as well as heard, read or felt.

But excellence is hard work. For it requires a discipline, a way of life which is stringent on one's resolve and behaviour. Excellence requires practice in the coordination of one's senses and thoughts, which all performing artists can tell you will require at least eight hours of practice every day.

In other words, excellence is a way of life. And so is laziness and sloth.

Culture vs Economics

Under ideal conditions, I would choose culture over economics.

But as an individual, I put my economics above culture for the sake of personal survival. That's why, successful individuals have learned to be adaptable, adjusting to the external environment while defining for their individual selves a sense of identity - rather than holding strictly to their culture while trying to change the external environment to their defined ways. This is the constant struggle between the liberals and the conservatives.

But then what is culture - Language, Way of Life or Way of Thinking?

Language, in the old unglobalised world, is an infinite variety of sounds made by people to communicate among themselves. In a globalised world, the sounds are now reduced to a few dominant ones for the purpose of mass communication. Purely from an aesthetic point of view, we should try to preserve as much as we can the exotic sounds of humans, within reasonable economic cost.

Further, our culture is defined by our way of life. And our way of life is defined by our social organisation for economic survival. The rural communities have their way of life, the urban centres have their way of life. We have a tendency to think of our culture as the way of life of our parents or ancestors, while we are busily adapting ourselves to the immediate environment for survival. Our way of life is the way we go about our daily business of living, with our "culture" giving us a sense of identity.

But the greatest meeting point must be the meeting of minds, when different people agree to think in a certain way although they may not agree totally with each other's view point. Do we think based on reason or emotion? That is the words of "wise" men and women have been preserved in different languages and handed down thousands of years for the enjoyment and enlightenment of modern people.

What is economics - the alleviation of fears over animal needs?

Animal needs are very easy to satisfy - as the vagabond or the beggar.

But the alleviation of fears over animal needs seems to be creating an enormous problem for the world, where the perfectly fine and living environment is covered with inanimate materials by humans so that they can control the environment. They compact themselves to maximise economic value, which is nothing but the labour of others for the benefit of oneself which is conversely the labour of oneself for the benefit of others.

Culture and economics are intertwined in constant evolution. We are merely in the midst of reaching for a new horizon.

Tuesday, September 9, 2008

Medium or Mediocrity

I am fairly neutral on the medium of instruction in schools, for one has to learn in school whatever it may be. Whatever the medium of instruction, it should be taught well by masters.

What I am really cross about is the pervasion of education in schools by mediocre teachers (and headpersons?). It seems that teachers in (some?) schools are the prime examples of stupidity, laziness, and all things which schools are supposed to teach students not to be. This is a grave travesty of decency, and a breach of public trust. If there should be reform in the country, we should start by throwing out the bad teachers.

In the modern world of the internet, children are knowledgeable but probably with an under-developed ability to think objectively for themselves and form their own opinions. Teachers must teach students how to think clearly: how to define an issue clearly, analyse objectively and draw logical conclusions.

If our people can think, we should have more reason than unchecked emotions in public life. We would have well-thought out long-term plans rather than last-minute fire-fighting. We would then have democracy based on well-argued differences rather than bigotry and narrow-mindedness. We would then have entrepreneurship and hard work rather than politicking and corruption.

We should fight against mediocrity, and allow a glimpse of excellence and brilliance and reason and creativity in some corner of society.

Language: A Perspective

Language is important for cultural as well as for economic reasons.

Within a community, it is important that there be a common language that everybody can communicate. In China, it is Mandarin. In India, it appears to be Hindi and English, though there are many other languages in use. In Malaysia, it is Malay. In this situation, language defines the culture and influences it. It is always lovely to listen to locals speaking their own variant of the language. The variety makes for cultural richness.

For economic purposes, it is important to be conversant with the trading language. Within the local economy, it is Malay. Within the global economy, English is the dominant language for commerce, as Spanish and Portugese were in the olden days. In the last few decades, Japanese was thought to be important. Now, Mandarin seems indispensible.

In the field of learning, especially Mathematics and Science, the current contention is that English is the proper medium of instruction. This objective kills two birds with one stone - to enhance the use of English and to enhance the learning of Mathematics and Science - which implies the availability of super-teachers who are good in all three subjects. The idea behind this may be to create an elite scientific class of students who could compete in the international arena.

This idea is not flawless: (i) The Chinese schools have always claimed supremacy in the teaching of Mathematics in Mandarin. (ii) It may be hard enough to get ordinary school children to master their Mathematics and Sciences in their own languages, without adding the burden of learning the English. (iii) Teachers may not be up to the composite task of teaching English, Mathematics and Science at the same time.

At the end of the day, knowledge in multiple languages is important for survival in the global economy. Proficiency in Malay (for culture) and English (for economic survival) is important. Some may wish to add Mandarin or Tamil or Hindi to the arsenal of modern-day survival kit, but as supplementary. While Malaysia is unique in that all these three languages are well spoken in the country, they are by different segments. For integration, there is a need to strengthen the teaching of languages in schools. The education system may take a Malay+English+1 language policy, with Malay as the medium of instruction in national schools, English as a compulsory area of study, plus the need to choose an option (Mandarin, Tamil, Japanese, etc.).

This language formula can be applied to the vernacular schools. In Chinese schools, the medium of instruction is Mandarin, with Malay as a compulsory subject, plus an option (English, Tamil, etc). In Tamil schools, the medium of instruction is Tamil, with Malay as a compulsory subject, plus an option (English, Mandarin, etc.).

For Mathematics and Science, the teaching should be in their respective medium of instructions. For Science, maybe the answer is to leave the terminology in English.

Monday, September 8, 2008

September 16

September 16 is significant in that it shifts the focus from Malaya's independence on 31 August 1957 to the formal declaration of the formation of Malaysia on 16 September 1963 (which incidentally is also Lee Kuan Yew's birthday).

But the date of Malaya's independence was first announced by Tunku Abdul Rahman, the then Chief Minister of the Federation of Malaya, on 20 February 1956 at the Melaka Central Padang - that Malaya would gain its independence from Britain by August 1957. This was immediately after the London conference; instead of heading to Kuala Lumpur, he went to Melaka to acknowledge Melaka's significance as the starting point in the history of Malaya. The Federation of Malaya Independence Bill was passed by the British House of Commons on 12 July 1957, paving the way for Malaya's independence on 31 August 1957.

The formation of Malaysia was made concrete when the Malaysia Bill was signed on 9 July 1963: for Sarawak by Temenggong Jugah, Dato Bandar Abang Mustapa, Abang Openg, Ling Beng Siew and PEH Pike; for Sabah, by Donald Stephens, Dato Mustapha, Khoo Siak Chiew, G S Sundang, WS Holley, and WKH Jones; for Singapore by Lee Kuan Yew; for Malaya by Tunku Abdul Rahman; and for Britain, by Harold Macmillan. The Malaysia Bill was passed by the British House of Commons on 22 July 1963.

In Sarawak, Stephen Kalong Ningkan became the first Chief Minister with the first state cabinet formed on 22 July 1963 - the date held on most dearly by Sarawakians. Independence celebrations were postponed from 31 August to 16 September, when Tun Abang Openg appointed Governor of Sarawak on 16 September 1963 - the date which has been known as Malaysia Day.

Could 16 September take on a new significance in future - as the Day of Justice or Judgement?

Thursday, September 4, 2008

Storm from the Arctic

Last week, satellite images showed the Arctic has become an island as ice melts.

This opens up the North-East Passage through Canada and North-West Passage through Siberia, for Europe to reach Asia throught the North Pole.

This opening of the trade route through the Arctic is as momentous and the first circumvention of the earth and the cutting of the Suez Canal. There could be an economic revival in the Northern Hemisphere within the next 50 years.

However, as traffic increases through the Arctic, heating up the place, there could be accelerated melting of the ice cap.

Stormy weather ahead for the world on a mega scale.

Tuesday, September 2, 2008

How To Be Optimistic about the World Economy

Many, I believe, find solace in optimistism. Let me be helpful.

Assume the world to have been decoupled from the US economy so that nothing the US can do or say can hurt anyone (true?).

Assume the economic power in ascendent is China. The brilliance of the Chinese means they can always find a way out of any problem. If the world go in recession, China alone will survive - by building the fastest train from Beijing to Shanghai, by building the highest railway to Tibet, by building the biggest dam in the world.

I constantly remind myself that the Chinese have been brilliant for the last 4,000 years. What is it in the last two decades that makes the difference?

The most important factor has been the inflow of foreign direct investment, on the argument of the cheap Chinese labour and the largest market in the world. The first two decades have ridden on the first factor: cheap Chinese labour.

Whether China has a large market or not is yet to be seen - afterall, China has always had the largest population in the world. To turn the population into market, China must put cash in people's hands. So China have to pay higher wage rates, which means higher costs of production. Whether China growth can be sustained depends on whether China can innovate.

China therefore must be able to produce higher value-added goods for which its people desire. Only then China can raise wages and creates its own internal markets. If not, China will still have to rely on the global market to make dividends for their investments.

Critical to China today is whether it can stand tall without further FDIs and generates its own investments.