Saturday, October 24, 2015

Malaysian Budget 2016: Comments

Budget 2016 is about the government's budget, not about the economy although it has implications for the rest of the economy.

To be fair, the strategic thrusts for the economy where already spelt out the 11MP announced earlier.

In straightening out the books of the government, the government did the following:

1. Increasing personal income tax for those earming RM600,000 a year or more by 1 and 2 percentage points. Move in the right direction.
2. There should be an increase in the corporate income tax as well, especially for big multinationals. They must contribute more to the economy.
3. I am dismayed that the government gloated at the massive amount of money they have raised and will raise from the GST. This is taxing everybody for the benefit of government revenue to pay civil servants who do a bad job in running the country and economy.
4. I am concerned that the extra GST money may have come from the reluctance of the government to refund businesses. If the government can go around to every shop and demanding GST payments and fines, the government is not thinking of fairness in implementing the GST but in collection extra revenue, by hook or by crook.
5. The minimum pay for civil servants at RM1,200 per month is a good move, being socially just though the economics is another matter althogether.
6. The move to ramp up the average speed of the internet to 20mps is a good move.

Having said that, a good budget is one that inspires investors. This budget does not do that.

Thursday, October 22, 2015

Economic Transformation: Right Way, Wrong Way

We are being told that transformation is the way for our nation to get out of the middle-income trap and progress. I am afraid that transformation is just a nice word. Yes, we need transformation but not of the kind you are taking about. The current transformation is bogging down the whole nation.

1. Reducing the budget deficit to a manageable size is good. But going for a balanced budget is not so clever.

2. Reducing the budget deficit by reducing mega projects is good, but reducing the budget deficit by taxing the general public more is no good as it bogs down the private sector.

3. Reducing the budget deficit is good but increasing the cost of living and doing business by the removal of subsidies and imposition of more taxes is no good because it burdens the general public and the private sector.

4. Enhancing rural development is a good transformation for the rural areas, but it will not enhance economic growth and transformation.

5. Putting in a public transportation system is good although belated but it is good only for KL and not the rest of the nation and it by itself will not transform the economy. It only solves a perennial problem in hindsight but forward looking into the future.

6. Assisting low income households is good for low income households which exist because of deterioration in productivity growth, increase in the cost of living, and bad economic planning which is unable to create good paying jobs. It is not going to transform the economy into fast growing.

My apologies for yet another negative post. This is my long winded way of saying that we need better policies than the ones we are having if we want this nation to have a good economic future. Our policy makers have no good ideas. We are only doing the management of the economy by treating symptoms we can see, but not inspiring our young people and old businessmen to fight in the frontier of the technological war in the international market.


1. To keep the GST, you must abolish personal income tax but keep corporate income tax.

2. To impose tax on stock market transactions because it is no more transfer payments but a money making industry on its own.

3. To increase the levy on foreign workers who are using the public transport system and other public services for free.

4. The government to divest itself out of business areas and introduce more competition to create more business opportunities in services and to reduce the cost of living. Why do I have to pay more for my internet connection while access to the line has deteriorated.

5. The banks to start recovery action on default loans especially on commercial and residential properties in order to bring the market price of properties to affordable levels instead of waiting for another boost of liquidity to inflate asset prices.

6. To get banks to allocate at least 40% of their loans on commerce and businesses, excluding property purchases.

7. To bring savings interest rate to 5% pa, and limit the mark-up by banks to 4% pa, so that the maximum loan interest rate is 9% pa for businesses.

8. To limit the loans for buying cars.

9. Not to protect the plantation businesses by pursuing a low currency policy, since subsidies have been removed for the general public and the pursuit is higher productivity growth.

10. To make English the national language of business so as to empower more young people to have the world as their oyster.

Wednesday, October 21, 2015

Is Govt Ineptitude Killing the Economy?

I wish to contend that government ineptitude is killing the economy.

The quality of the government has deteriorated so much that it is detrimental to all and sundry who are unfortunate enough to those who are part of the economy, not just who has to deal with the government.

1. It is morally wrong for the government to raise its revenue through additional taxes and fines. What is worse that with its latest objective of raising raising money for the government, government ministries and departments and their officers are now behaving like gangsters terrorising ordinary people with threats. Small businesses now would rather close down their businesses altogether rather than having to deal with this new crop of government officers who are inept and who try to show result through psychological and pecuniary coercion. Small businesses are forced to react in a manner that these officers imagined the real business world to be, accusing businesses of being greedy and dishonest. It takes a thief to imagine that everyone is crooked. Small businesses have to lower prices because the price of petrol has fallen regardless of the mighty fall of the local currency and the imposition of the GST which is now kicking up the honest nest of business tax reporting where businesses are being fined for every conceivable accounting crime, helped no doubt by the accounting firms which concocted such schemes in the first place before. Yes, the government will get its bucket of blood but the economy will die in the end.

2. The distribution of wealth in this country is deteriorating in this country because the political class has colluded with big businesses to maximise their profits by underpaying sub-contractors and contract workers. We are now back square one. This economy is not about the welfare of the ordinary people any more. This economy is not about training local citizens with good skills and paying them decent salaries on which they and their families can live on. This economy is now about making big money by not working but by creating fantastic ideas on which to make use of other people's savings as capital and other people's efforts as labour. The big banks colluded with this politics and big businesses to create extraordinary profits for bankers and for which the future generations will have to pay for the bad loans that are surely on the way to hit all of us as the economy deteriorates. Those with no access to big bank loans and depending on their meagre wages and salaries who have whatever little they have squeezed further by the GST, the hike in tolls and the imported inflation. The worst part of this skewed distribution of wealth is that the loot has been squirrelled away in overseas assets to avoid taxes and is the main cause of the persistent depreciation of the value of the ringgit. In return, we import cheap unskilled labour to generate more profits for the capital employed in property development and mega infrastructure projects. The spending addiction of the government helps to distort the distribution of wealth and destroy the future potential of the economy.

3. The key to the growth of the economy is always investments and investment opportunities always arise from new territories that emerge from the mixing of two or more spheres of seemingly incongruous nature. This nation should not be reduced to a mono-culture, and not be seen to allow such tendency even to have a toe-hold. It is unfortunate that top politicians have allowed themselves to play with the fire of racism if only to again momentary political mileage but at a tremendous cost to society cohesion and the future of the economy. This nation needs the confidence of its people to sink the future of their children here. This nation needs to exploit the tremendous opportunities that exist from having probably one of the richest cultural mixture in the world by allowing that diversity to bloom in its full splendour. For a start, we should introduce bilingualism in all our public communications - the national language and English. We should have Malay and English in all our official letters and public signs. Even the Japan that Malaysia has followed in the past into mono-culture is now anglicising its street signs. Malaysia seems to have lost our common sense, not being able to respond to the market logically but being enslaved by an ideology that is bringing us back to the Stone Age. This nation needs to shake out of its spell of doom.

4. I think I have written enough to give an inkling of how I feel about the state of the nation. There are many more things to write but they will just be more words. To cut the whole thing short, I will make this simple policy recommendation. I disagree that the GST should be reduced from 6% to 5% or 3%. I strongly believe that the GST should be abolished although and the person who sold this idea to the PM should be sacked. This one simple act will do much good in bringing back some hope for this economy. It will also demonstrate that the PM has some sense and guts to do the right thing.

Wednesday, October 7, 2015

Malaysia: State of Economy

1. The economy is undergoing one of the sharpest adjustments in recent world economic history, after having gone through the glory times of the US quantitative easing of money printing. The rise and collapse of the asset markets - stocks and properties - is what we are seeing as the current business cycle. During the downturn, the sellout in the stock market and the subsequent outflow of funds depresses the local currency. How far down the adjustments will go is left to be seen.

2. As we have seen in Japan, if the adjustments are small and managed, then the adjustments will take a long time. In Japan, three decades and counting. Property prices have gone up to levels which the average young person in the job market could not even dream of owning a simple housing. This will create an entirely new generation of youngsters who have to cope with a high cost of living. At the same time, the property developers continue to milk their land bank by developing real estate based on inflated expectations. They can do so because they are already cash rich in their projects in the last three decades. Rents will remain high or properties vacant, and the only available market is the foreign market. In the world today, there is a class of the super rich who have the privilege of buying prime properties in any major city in the world. In the world today, there is also a class of the super poor who cannot afford to subsist even when they work very hard everyday. Those who cannot work are of course suffering the greatest miseries of human life especially in cities.

3. But do we dare to do major adjustments and how can we do it? The only balancing act is between the cost of living and wages. Ordinary people find it hard to live even when they are working hard. It means that wages are insufficient and therefore should be raised by an amount which is deemed sufficient, maybe 40%. If this happens, employers will say they cannot afford that as business is now bad. The other adjustment is to say that, given the current wages, the cost of living should come down. The cost of living is not just food, but importantly transport and housing. In the modern world, the cost of telecommunications and utilities now feature prominently.

4. The greatest spanner in the works today is the current great currency depreciation of 20%. This raises the prices of all imported stuff. This squeezes the livelihood of ordinary people into a pulp. As a result, overall demand for imported stuff drops. This squeezes even further the ability to own properties. This means that for those who are already invested in a property or properties, they may already be defaulting if they cannot find good tenants.

5. The greatest dilemma for banks today is how to deal with the aftermath of their reckless lending frenzy. The bad consumer debts and the non-performing loans in shares and real estate. Do they forgive these bad debts and move on? Who pays for the debts ultimately? The answer is simple - savers and depositors.

6. In such a depressed economic environment, the role of the government is to revive investor confidence. This good and generic statement is often mistaken to mean that we must sell our country cheap to foreigners. The most important thing for the government to do is to revive the investor confidence of Malaysians. This is of prime importance. It is really unbecoming of irresponsible politicians, just for the sake of rhetoric and showing courage, to deride businesses of all kinds in all occasions. We have the ministry of domestic food prices accuse businesses of profiteering by not reducing food prices when the price of petroleum drops a sen. We have the customs now going around witch hunting legitimate businesses for that gangster money called GST to the point, as I have heard, of outright harassment simply because every business in town is assumed to have always been evading customs duties and taxes and now GST. The response of many old businesses is to close down shop because it is simply too bothersome. The customs people are new in this game of the GST collection and in order to show results they use fear. In a word, the imposition of the GST will worse the business climate of this country and we should see a great economic slowdown and a rise in poverty as the government gleefully go about solving its deficit problem. Really, the best way to cut government deficit is to stop spending money you don't have on silly projects proposed by half-past-six management consultants.

7. I believe the political issues are mere political issues and should be isolated from economic issues. If there is any connection, I would say that the economics have a greater influence on the politics than the politics have on economics. Of course, in this country of ours, the politics have driven the economics for so long that it is assumed to be the only and correct for human beings to live. I believe we have been living under a dark cloud and that dark cloud will be passing even if reluctantly. That doesn't mean that the current shenanigans are acceptable. They are not, and they are silly. But in the end, it is going to be the economics that is going to influence people how they are going to vote.

8. How do we put the economy back together again? Confidence in ourselves. Start working with each other for the greater good. Politicians should stop making social comments and start straightening their policies and implement projects and programme. Give more money to the department of statistics so that they can get a more accurate picture of the social and economic profile of the country and the states. DOS has been so grossly underfunded and findings are approximated from sparse surveys and we get an unchanging picture of a blurred reality. Make the utilities more competitive through watchdogs and remove their monopolistic elements. Hopefully, basic facilities can be affordable and efficient and hence improve the overall competitiveness of the living and economic environment. Keep finance a separate and independent function. Charge finance with the role of ensuring the financial health of the nation. Remind the central bank of its role of preserving the value of the currency in a proactive manner. (Eg. ban inflows of short-term capital for the stock market.) Stop spending on silly projects - the LRT is the recent one, totally underplanned and hastily put together. Stop imposing silly policies - the GST is the recent one, totally uncalled for, with stupid arguments.

I better stop here.

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.

Thursday, August 6, 2015

Global Economic Structural Change

Sorry for the big title. The purpose is to give an alert that what has been festering is likely to happen later this year or early next year. The US has decided to stop printing money - thank God!, the inflation and the arms rampage.

The next thing that is going to happen is that interest rates in the US and the UK are going to rise. This is a major structural change for the world which had been enjoying low interest rates and an abundant supply of money and bank loans.

That is why the US dollar and the British pound are strengthening steadily. Is this high already? Will it reverse soon? Because we think that this is a major structural change for the world, therefore, we expect the strengthening to go on further.

How long will it go on for? Do not think of small incremental changes. Small incremental changes are changes in the margin when there is no structural change. Structural changes bring along big sizeable changes.

Have we seen big sizeable changes in the world lately? Yes. The massive inflation around the world. The awakening of the China economy. The cooling of the China economy. The asset bubble in China. The burst of the asset bubble in China. The war in the Middle East, funded by the quantitative easing and the buoyancy of the arms industry. The coming onstream of shale gas, a major strategic and structural change by the US to shore up its economy. The sharp drop in the price of oil. The sharp drop in the price of gold. The economic disaster of fringe EU countries. The coming of 3D printing. The bowing down of Windows in Windows 10.

The debate now is whether the US and UK economies have recovered strong enough for interest rates to  go up. Of course, from near zero, everything else would look big. But it is very important that money has a positive value, and we can start with savings deposit rates of at least 3% pa going all the way up to 6% pa. The mark-up should be small because banks are now transacting in massive volumes, which means that base lending rates should be about 4.5% pa to 7.5% pa. I think depositors and borrowers are tired of paying for the incompetence of banks and their reckless lending. This are restraints that central banks can stipulate for those institutions they take care of - what we used to call "prudence" in the old days.

I will brace for the sustained strengthening of the US dollar and the British pound against the ringgit, firstly, because I think the local central bank will not follow those interest rate increase when they come for fear of upsetting the performance of the vulnerable local economy and, secondly, because there is nothing to invest the money kept at home apart from buying another apartment.

The local politicians have to get their act together, whoever is going to be in government. There is no point shaking the confidence of the entire society and economy just for the sack of being in power. There is no glory in that power when we have laid the whole environment in waste. This country is built on hard work, sweat and tears in hope of a better future. Without this hope and commitment, there is no investment and hence no economic prosperity, no matter how much investments the government is going to pour in. The government is only a small group in the entire society.

Wednesday, August 5, 2015

Top Five Regrets Of The Dying

>>There was no mention of more sex or bungee jumps. A palliative nurse who has counselled the dying in their last days has revealed the most common regrets we have at the end of our lives. And among the top, from men in particular, is 'I wish I hadn't worked so hard'.
Bronnie Ware is an Australian nurse who spent several years working in palliative care, caring for patients in the last 12 weeks of their lives. She recorded their dying epiphanies in a blog called Inspiration and Chai, which gathered so much attention that she put her observations into a book called The Top Five Regrets of Dying.

Ware writes of the phenomenal clarity of vision that people gain at the end of their lives, and how we might learn from their wisdom. "When questioned about any regrets they had or anything they would do differently," she says, "common themes surfaced again and again."

Here are the top five regrets of the dying, as witnessed by Ware:

1. I wish I'd had the courage to live a life true to myself, not the life others expected of me.
"This was the most common regret of all. When people realise that their life is almost over and look back clearly on it, it is easy to see how many dreams have gone unfulfilled. Most people had not honoured even a half of their dreams and had to die knowing that it was due to choices they had made, or not made. Health brings a freedom very few realise, until they no longer have it."

2. I wish I hadn't worked so hard.
"This came from every male patient that I nursed. They missed their children's youth and their partner's companionship. Women also spoke of this regret, but as most were from an older generation, many of the female patients had not been breadwinners. All of the men I nursed deeply regretted spending so much of their lives on the treadmill of a work existence."

3. I wish I'd had the courage to express my feelings.
"Many people suppressed their feelings in order to keep peace with others. As a result, they settled for a mediocre existence and never became who they were truly capable of becoming. Many developed illnesses relating to the bitterness and resentment they carried as a result."

4. I wish I had stayed in touch with my friends.
"Often they would not truly realise the full benefits of old friends until their dying weeks and it was not always possible to track them down. Many had become so caught up in their own lives that they had let golden friendships slip by over the years. There were many deep regrets about not giving friendships the time and effort that they deserved. Everyone misses their friends when they are dying."

5. I wish that I had let myself be happier.
"This is a surprisingly common one. Many did not realise until the end that happiness is a choice. They had stayed stuck in old patterns and habits. The so-called 'comfort' of familiarity overflowed into their emotions, as well as their physical lives. Fear of change had them pretending to others, and to their selves, that they were content, when deep within, they longed to laugh properly and have silliness in their life again."<<

As for this blogger, the simplest way to live is to live the life of a liberal and celebrate liberty. After all, John Stewart Mill defined liberty as (my paraphrase) "the right to live our life in the best way as we see fit without preventing others from doing the same."

In the current climate of ours, we are looking at political infighting. Honesty is the topic of discussion among thieves. And sometimes, honour.

But I am nothing. So, just let me do what I wish to do, so long as I do not prevent you from what you want to do. Likewise, you should not prevent me from doing what I want to do, so long as you get to do what you wish to do.

I think wish for peace over violence, no matter how great the treachery. I can live with treachery but not in violence.

Tuesday, July 7, 2015

China Market Tumble

The China stock market is tumbling by nearly 30% after a year of run-ups of 150%.

This is nothing. Say, if the run-up is from 100 to 250 and if we consider that the run-up had been pure fluff, i.e., "leverage retail investors, egged on by bullish statements by official state media (Bloomberg), then for the index of 250 to return to 100 is 60%. Technically, at 30% down, there is still a lot of fluff.

We are talking in aggregate. If we were to think in spectrum, there may be stocks which have been super-hyped while some may be slow and steady. In the end, in the market, the focus is always on the so-called blue chips, if only we know what they are.

But the official reactions to the market is not something which Malaysians have not seen before.

This is the same old story where the government of a country gets involved in the workings of the stock market, on the illusion that the buoyancy of the stock market is a good indicator that the government of the day is clever.

Their first instinct is to try to intervene in the market, to prevent the market from adjusting to the fundamentals.

In the Malaysian case, they used government funds to prop up the market, prevent people from selling, prevent people from taking their money out of the country (when they had happily welcomed the short-term capital inflows).

No doubt, China may attempt to repeat these little silly tricks. The major consequence will be that the market will become less "real" in the sense of private-sector market determined, and more of a reflection of the delusion of the government of its perceived libido.


The referendum vote of "No" yesterday was no to austerity drive which the creditors demanded if they were to lend more money to Greece. The call for austerity is part of the economic thinking that if a country needs to borrow all the time in order to keep going on, then there is a structural change and one way to restructure is to cut spending and reduce the deficit.

But with many people without jobs, further austerity will mean that more people will be made unemployed and social benefits will have to be cut.

Being in the eurozone means that the Greece economy is tied to the euro whose value is determined basically Germany, the strongest economy and probably the most powerful partner of eurozone. This means that, for Greece, the currency it uses (the euro) is too strong for it which makes it uncompetitive. The major consequence is slow growth or recession and high unemployment.

If Greece gets out of the euro, its own currency (the drachma) will probably depreciate sharply and this could be a boost to its economy, at least to tourism. (Presuming that the current financial fiasco, the banks not opening their doors, ATMs without cash and capital controls are not scaring tourists from the Mediterranean paradise.)

I think the creditors of Greece should cancel off most of the debt (as called for by the IMF) because it is only money and this could save lives, in as much as possible so long as the creditors do not themselves get into bankruptcy.

I think Greece should get out of the eurozone but continue to be part of the European Union, as Britain is.

Wednesday, June 17, 2015

Morality & Rights

If we were to live alone by ourselves in isolation in the middle of nowhere, we can practically do anything we like and we will not bother anyone else. Except probably ourselves only because, maybe, we want to live long - but how long is long we would not know if we were to be all alone - or even healthily, if we know what it is to be healthy if we were to be all alone. There will be no morality and we will have complete rights.

Morality is an issue that comes up when we try to live together in peace and harmony with each other. We try not to offend others nor do we want others to offend us. That is why all communities have their own sets of manners and courtesies and customs. The social rules are usually not made up artificially but after many years of trial and error and the consent of generation after generation.

A community will develop along a strict code of conduct when somebody decides to put down all the commonly acknowledged rules on paper (or carved in stone). This strict code of conduct is likely to be biased, religiously or politically. It will be followed until it reaches its golden age. This happens in the high societies of India, China, Europe and even the more ancient tribal societies of Africa, South America and even Asia.

In their golden age, the societies stagnates because they could not change anymore. Everything has become so rigid that every deviation is immediately eliminated. The form of social manners is unchanging.

This stagnation can go on for a long time, but eventually it will break down. The gene pool deteriorates and society degenerates. Or, new thinking is introduced through interactions with different societies. New ideas are formed that either challenge the existing orthodoxy or new ideas that no one has ever thought of before. The line between right and wrong becomes thinner and blurrier and sometimes disappears completely. As this happens, there is less compulsion from the moral police and more exertions of individual rights.

In modern societies, it is the sacred right of individuals to defend common sense and fight against the tyranny of the ignorant. The ignorant are usually self-serving persons who exercise the little power that they have to the great annoyance and irritation of everyone else whom they can bully. They do not know what they are doing but they wish others to know that they are important because they have this power, small though it may be.

Ignorance is everywhere and the only solution is honesty, integrity, and common sense which all together comes under the word "wisdom".

Thursday, June 11, 2015


Since he mentioned it, I thought I might just as well add in my bit of understanding of our recent economic history.

I disagree that the weakening of the ringgit in the past during his tenure was due to currency traders who were speculating on the ringgit in order to make money out of the ringgit. Of course, it is the business of currency traders to make money out of currency trading, either up or down, but not unchanged and hence the currency trading business was killed (along with a major portion of the financial industry) with the subsequent currency peg. The currency controls that were installed to reduce the outflow of currency were at the very centre of the subsequent loss of investor confidence in Malaysia as a country where you can trade without the rules being changed halfway at the convenience of top politicians. The loss of investor confidence has not recovered even until today, so that the slight sign of trouble is a signal to get out of this country, literally.

The ringgit was trading at around 2.70 against the US dollar for a while in late 1980s. When money flowed in to invest in privatised infrastructure companies, the ringgit went up to 2.50 and our foreign reserves swelled. Everybody was happy and congratulated themselved on a job well-done in running a successful economy. The stock market was up because of the inflow of short-term speculative funds and the government was using this temporary to fund long-term infrastructure. In so far as the foreign stock traders are concerned, they were waiting for the signal to get out of the Malaysian stock market. The signal came from Thailand when the Thai Farmers Bank could not pay back an offshore loan syndication for a private real estate development. The Thai central bank refused to support the Thai Farmers Bank and this was rumoured as the Thai central bank running out of money. All the stock investors from Europe bailed out, or tried to bail out out of Asia and this exodus of funds is now called the Asian Financial Crisis of 1997.

It must be obvious when funds which had been accumulating year by year for twenty years suddenly wanted to exit within a day or a week, it is similar to the crowd trying to rush out of a cinema in panic. As the central bank refused to support the currency, the value of the currency dropped. This gave opportunity to currency traders to short the ringgit in the hope of selling ringgit cheap and honouring the trade with cheaper rinngit later. But the market should be self correcting because once the currency traders think that the currency cannot go down any more, they will then have to quickly reverse their position and in the process strengthening the ringgit subsequently. Rumour had it that the policymaker panicked and was angry and slapped his close buddy who shorting the ringgit as well. Then he imposed the peg.

It is incredible that Malaysia, which has undergone a major economic policy change to open up the economy and to encourage growth such as that is now such a deficit of labour that we have to import many foreign workers for almost all economic sectors, has been suffering from a weakening of the ringgit since 1997. Why couldn't the ringgit go back to 2.50 or 2.70?

It is clear that there has been a persistent outflow of funds from Malaysia ever since we opened up the economy for rapid growth since the late 1980s. While we have seen the rapid development of real estate as plantation lands are converted, we are also seeing a heavy congestion of our roads as we expand our national car project. Instead of encouraging savings and investment, we are encouraging consumption and speculation in the stock market and the property market. The main driver for the economy seems to be the government spending itself to bankruptcy.

Could it be that the money that is being made from consumer indebtedness and government spending is causing the outflow of funds as Malaysia becomes less an attraction for investment as it is being overpriced?

Monday, May 25, 2015

11th Malaysia Plan (2016-2020)

This is rather late as a comment on such a critically important document which came out on 21st May, 2015. This 11th Malaysia Plan (2016-2020) is the five-year plan that is supposed to bring us (the nation) out of the woods of our current economic doldrums and into the bright shiny world of an advanced developed nation by 2020 when everybody under the Malaysian sun will live happily and without a care in the world.

The overall theme of "Anchoring Growth on People" is laudable, although the immediate question I would ask is how else would anyone anchor the growth of any economy on except its people. Are the planners thinking of foreign capital or the invasion by drones of other rich countries?

"Anchoring Growth on People" being theme, there are Six Strategic Thrusts to bring out that flavour of policies. I shall be unfair here. I do not agree with what I read, so I am going to put down what those thrusts ideally be.

1. Enhancing Inclusiveness. You either have inclusiveness in the first place, or you do not have. I therefore do not think that "enhancing inclusiveness" is a good term to use. "Inclusiveness" itself is another ambiguous term. In simple English, it means everybody is included. In what? The common sense answer is in everyday life, of course - decent education, economic opportunities, decent public amenities, good law and order and security. These are very basic things in life. But the 11MP takes "inclusiveness" as a term to conquer problems which could take a new political system and decades to achieve: eliminating the low income groups (this is technically impossible unless we do a communist model where everybody is equally poor), the rural areas which by definition are those that are not as developed as urban centres (remember that urban centres grew out of once rural areas), and the Bumiputra economic community whose status is to be further enhanced (and this brings us right back to the NEP).

2. Improving Well-Being. Quality healthcare, affordable housing, neighbourhoods, sports and physical activity. I suppose this is about town planning and not letting developers ruin the cities by overbuilding and escalating real estate prices year after year. This is about controlling bank lending into unproductive real estate development.

3. Speeding Up Human Capital Development. The Plan says the government will create more jobs opportunities for highly-skilled workers. But it doesn't say how. It elaborates on how to train potential workers.

4. Pursuing a Green Agenda. Better quality of life and all that. It is a repetition of (2) above.

5. Strengthening Infrastructure. This is an integral part of any economic development plan. In fact, these are triggers to direct investments. This overlaps (6) below.

6. Re-Engineering Economic Growth. What we want to do here will have implications for (5). We want to value-add in all industries in all sectors through creativity, innovation, entrepreneurship. But do we know how? Are we inclusive here, or are we assuming that only one group needs extra help while the others can fend for themselves.

High Income
This term is badly used. The US$15,000 per person is old hat. Basically, the target is the lowest income of the group of countries which the World Bank, in its wisdom, termed as "High Income". As rich countries grow, as they inevitably will, even at 2-3% p.a., the target is constantly drifting further away. I think the figure is now higher, and can look it up in the World Bank website.

Malaysia is supposed to be one rung down last time, but we could not be classified in the "stuck economies" group - economies going sideways because they have squandered this capital through corruption and hence outflows while leaving the economies deficient of investments and hence incomes unable to rise.

Concluding Remarks
This is obviously not a very professional review of the 11MP. It is not meant to be professional. It is meant to be critical veering on cynicism. But there could be much more truth here than in the document, which is a bunch of pages with words and figures. But I am not connected with it. It does not excite me as a person, as a citizen, as a worker, as an investor. I think it was just another ordinary day, that 21st May, 2015.

Monday, April 27, 2015

Power: 10 Points

We see many media reports nowadays about the abuse of power across the board. Why?

1. Human beings have been abusing their powers all their human lives on earth. They conquer their surroundings, they conquer other creatures, they conquer other people. But they have no conquered themselves.

Each of us starts by being nothing. We get bullied when young, and we didn't like it. One reaction is to begin to bully others when we have the power. The other is not to bully at all, because we disagree with it and we don't like it.

2. We start being a nobody at first. One goal in life then is to try to become someone. Many try to be someone by associating themselves with well-known people and claiming friendship with these people. They name drop often. They become sycophants. When they manage to get themselves to be recognised by the general public, they start lying about their importance. They can also enhance their importance by lying about other people to their well-known friends.

3. When the government sanctions that a certain section of society or any of its characteristic is privileged. Privileged is taken to be special and exclusive. "I have the right, you do not have the right." This sense of privilege is dangerous because it can be easily taken to extreme. All the massacres in history came from here. It started from lowliness, fear and insecurity. This government-sanctioned right, privilege and exclusivity of a certain section of society is dangerous.

4. Power cannot be bestowed on anyone. This is why human beings are born ignorant, myopic, and short-lived. The Tree of Knowledge is a dangerous thing, especially when it grows in a person without wisdom. Knowledge is power, and that's why power must be exercised with great caution, restraint, discipline and reluctance, together called enlightenment.

5. Power must be accompanied by compassion. So that we can use our power to do good. If you cannot do good and offer power, you do decline the power. Don't acquire power to abuse others or yourself. The whole world is not about you. You are about you, but not necessarily all about you. Pity those who have no power. Help them with the power you have.

6. Fear power. You may not be good enough to handle it for your own good, or for the good of others.

7. Power in the hands of the incompetent is a dangerous thing.

8. Wise people with real power pretend to be powerless. Ignorant people with no real power pretend to be powerful.

9. Don't seek power; seek energy.

10. Don't just seek knowledge, seek wisdom which is real power.

Wednesday, April 15, 2015


I think the Employees' Provident Fund (EPF) has been doing an excellent job in firstly safekeeping our retirement fund and secondly in providing probably one of the best rates of return on investments for those funds.

What the banks give as interest rates on savings are at best half of the EPF rates of return. For those retirees who are going to just rely on their retirement funds as sustenance in their twilight years, the best thing to do is to leave their money with the EPF for as long as they can (currently, 75 years of age) or until the deposit rates in financial institutions in Malaysia rise to decent rates.

Of course, there are people who have their dreams to pursue on retirement (currently 60 years of age). There is this "big" sum of money that they are going to get their hands on to "solve" all the money problems they have been having all their lives. Or, for once in their lives, they do not want to be bossed about anymore and they are going to be their own bosses. They are going to invest their own funds and set up their own businesses ("fried kway teow" stalls used to be a very common idea). Some may simply want to "take their money out" and live abroad and be done with their wonderful country which has been feeding their grandparents, parents, themselves, children and grandchildren. Everybody has dreams that the "grass on the other side is greener."

This is not the current issue. Everybody can do what they like about their own money, their "hard earned" money, money they have "slogged all their lives." The issue is whether the age for full lump sum withdrawal should be increased from 55 to 60 years of age, as this official retirement age has now been extended from the government sector to the private sector in 2013.

It is logical for EPF to consider whether this issue of raising the age of full withdrawal from 55 to 60 years of age. It is an administrative issue which needs to be addressed, whether EPF likes the idea or not.

The most logical answer is that, in line with the increase in the official retirement age for all employees in Malaysia to 60 years, according the age for the full withdrawal of EPF funds should also be on retirement on reaching 60 years of age.

But there is such a thing as "early retirement" or "optional retirement" and it is only natural that these options should be built into the scheme for full withdrawal. Nobody wants to be caught in a situation when one opts for early retirement but have no access to one's entire EPF funds.

The argument that usually the entire EPF funds upon withdrawal will be gone within three years or so. (I know of a case where the cash didn't last three months because of excitement over an investment dream.)

But this is not for EPF to impose its value judgment on the retiree. It is for the retiree to take full responsibility for his or her money.

The only thing that EPF can do in this regard over the quick disappearance of fully withdrawal EPF funds is to offer more attractive schemes for the retirees to keep their money in the EPF. If EPF is interested in doing a customer outreach or a PR exercise, it may want to put some effort in building the confidence that EPF is the best place to keep your hard earned savings, as it is safe and the returns are the best. EPF can think think more like an insurance company.

I think various schemes have been rolled out in the past and they are good. But this may be the time to overhaul the entire EPF framework to take of retirees who do not seem to be in a hurry to go. I think this is an opportunity for EPF to put its best foot forward and do real public good. There may be hope for Malaysia in EPF.

Tuesday, April 14, 2015

Service Charge

The systematic attack on the poor consumer by the authorities and the businesses is a concern which should not be taken lightly. The service charge is a virus.

The story of the service charge started with the imposition of the service tax in 1975. The service tax is the precursor to the current goods and services tax imposed on 1 April 2015. The GST extends the indirect tax to goods after having restricted itself to services. It was the wisdom of the government of the day that a value-added tax such as the GST is very difficult to impose in a society like Malaysia because of the varying structure of commerce and businesses as well as education. So the decision to cut off the tax for small businesses and only restricting them to hotels and restaurants which were assumed to be run orderly by a hotel or restaurant manager with accountants and lawyers to assist them.

But, of course, once the government has sanctioned a way for itself and businesses to impose a sum of money on the consumer which has very little to do with the food or drink or even service, the government has created a whole new avenue for all sorts of charges to be imposed.

In some restaurant tradition, the tips to the staff are taken from the towels, peanuts and tea that they serve. This was understood by the restaurant owners and the workers. With the advent of the service tax, for restaurants that were not supposed to impose the service tax, they created a new entry called service charge. This service charge could be imposed in lieu of the towels, peanuts and tea. Worse, the service charge could also be imposed on top of the towels, peanuts and tea.

The most recent adaptation of the charging system is that there is a service charge and the service tax is called government tax, because they may have too many customers asking why there are two service fees.

The biggest problem of the current GST is that it is reawakening everybody to the same old world of how the government can collect more taxes and how businesses can abuse the system alongside it. The government is being badly advised and the civil servants have very elementary knowledge of how to tax properly without damaging the economy. To make a bad idea work, we now have the enforcement agencies newly hiring ignorant fresh officers to harass businesses that are not compliant with the GST laws. At the same time, businesses are now having a great time imposing GST or some other charges on the poor consumer whether they are supposed to or not. The exemptions are an art in themselves, and the consequence of this confusion will be that everything will now be charged more.

The consequence of this confusion is a major economic slowdown as investors cannot read the future. This can have major political implications.

Tuesday, March 24, 2015

Lee Kuan Yew

Lee Kuan Yew died yesterday at 91.

Lee Kuan Yew fought for independence for Singapore from the British which, together with Malaya, Sarawak and Sabah, created a new federation called Malaysia on 16 September 1963. He also fought for the independence of Singapore in Malaysia and finally got in on 9 August 1965 when Singapore was ejected from the Federation. The story of the development of Singapore after 1965 is the story of the greatness of Lee Kuan Yew.

The economics of the development of Singapore was fairly simple. Singapore has not much natural resources, so agriculture was not the way to go. The first means of survival was the development of the entrepot trade where Singapore became the hub for all shipments from Malaya, Sarawak, Sabah and Indonesia with the rest of the world. The development of the port was paramount. Singapore also built its economy on tourism with its duty-free shopping and the promotion of the charm of Singapore. Lee Kuan Yew made Singapore pristine for tourists. The next major stage of development was manufacturing, and capital was brought in to create high-paying jobs. Alongside that was the development of Singapore was an international financial centre, which took advantage of the management of money from Malaysia and Indonesia. He did not favour the current push of Singapore into the casino industry.

Lee Kuan Yew built Singapore on its comparative advantage of a strategic position in Southeast Asia, and created a rich and modern nation with its world-class efficiency, something which Michael Porter has coined as competitive advantage.

World-class efficiency is an excellent thing in the abstract because it is about everything performing like clockwork. For the whole system to work exactly how it was designed and to produce the desired results, no one is allowed to think or do otherwise, without threatening to destroy the system. Efficiency means everybody is taken care of, with a basic pay and housing and social amenities and an education system which is good meaning that it feeds into the operating system. No thinking outside the box.

Singapore's problem is what do you do after you have hit full employment. Economy theory says you have achieved your policy objective and therefore you should relax.

At full employment, the policy objective then switched to the corporate objective which is to sustain the rate of growth of profit. In political terms, this objective is translated as GDP growth.

It was nor should it be surprising that the People's Action Party (PAP) has made sustaining the GDP growth the raison detre for its continuing mandate to rule Singapore. For the economy to grow after full employment, there is a need to import foreign workers and professionals. This deliberate infusion of more foreign people into a nation of migrants creates a new dynamics which the government of the day has to try to resolve.

The important point is that if sustained GDP growth is important for Singapore, then Singapore must find a way not to view the new influx of people as foreign workers but as new citizens. This, to be fair, the Singapore government is doing. But the newer people are in newer industries which are necessarily more productive than the older industries that the older citizens are stuck in. Herein lies the folder for the opposition. The important for Singapore today is the reconciliation and resolution of the generational gaps of migrants in Singapore, in a city state that is made up of migrants.

In this perspective, one must give very high marks to Lee Kuan Yew for having a vision and delivering that vision for Singapore and Singaporeans. He was focused and steadfast and the system he created was efficient in delivering his vision. In management terms, Lee Kuan Yew was an effective leader and an efficient deliverer of his results.

There were and are of course other visions which may or may not share with Lee Kuan Yew's view. This was and is normal. But these different views do not make Lee Kuan Yew's view less correct or less honourable. The test is in the results which were good. The test is in the way he delivered the results, and it was honourable. On all counts, one must give the greatest respects to Lee Kuan Yew for a life well fought and a life well lived. How we all envy him.

Thursday, February 26, 2015

Deduction & Inference

Most people take logic to be objective; but it is not necessarily so.

Logic is just another way of thinking. Logic is the basis for the advancement of science in recent times for humans.

Much of logic, as we know it, is called deduction.

Deduction means that you look at reality, the real world and examine what it is. Deduction tries to discover things as they are. To look hard at what is in front of our noses and what what it is. It is not what you imagine it to be. This is what it is, exactly like this.

Logic and science have a difficult birth in this current civilisation of ours. It was strongly opposed by the religious establishments that ruled the world at the time.

Religions are of great service to manking. Religions bring men and women to the spiritual side of life on earth.

But religious establishments, when they ruled the world, were political establishments. They laid down the rules and laws of how ordinary people should behave in their ordinary lives in order to be religiously correct, and hence politically correct.

All religions are founded on good common human values. Religions exist to make people humble, especially when their circumstances are capricious, when people cannot be trusted anymore. We act as nobodies, humble, unobtrusive, undamaging to others.

The problem with religious establishments is that they stagnant. They go back to the distant past to look for the source of the truth. From that truth, they try to identify the implications.

Inference is from the general to the particular.

Religious doctrines are inferred from perceived religious truth.

The danger of inference is that if the basic proposition is incorrect, then all the derivatives are false. There is a need to check on the basic proposition all the time.

There is inference in science. Once deduction has conclusion on a general proposition, that general proposition is then used as a basis for inference.

Some religious doctrines do get re-examined and revised. Some don't and they stick to what they want to believe.

In a lot of ways, political establishments work similarly to religious establishments. Political parties that constantly revaluate their missions will find themselves better align to the majority of the people. Political parties that rely on old ideas for longevity are fighting an uphill task trying to convince the majority of the people that their arcane ideas are still good.

There is that new trend from the business management gurus who say everybody, not just businesses, must have their visions and missions. This is jolly well and good if you are pursing your own personal jihad or crusade. But personal visions and missions may be at odds with the aspirations of society, especially when one thinks that one has the solution to all problems, and that is to eliminate others who stand in the way of one's vision.

The elimination of obstacles, rather than going round them, seems increasingly to be the way forward.

There is no more resourcefulness; there is now force.

The rise of militancy is now a global problem, caused by the expansion of the military complex supported by the printing of money. Weapons are now being exchanged for oil. Those with money and weapons now pursue higher level of goals, and that is spiritual fulfillment. They try to dominate others.

It is a fact generally accepted in economics that work makes people disciplined and circumspect and encourages respect for others who they have to trade with. Financial independence create arrogance, of people, of nations.

The overplay of the power of politics and religions is a dangerous thing for ordinary people. There is no mercy for people on the other side.

There is a need for discussion and consultation, which take longer time, but it will produce great benefit of understanding of each other, or how other people think and feel, and how we can all live together peacefully. These are simple truths, as fundamental as any religious truth, and which forms the basis of a tolerable life on earth.