Saturday, 14 September 2013

Inequality and the Poverty of Economics

The Journal of Economic Perspectives is an academic journal that summarizes the state of research in various fields of Economics.  Perusing this journal shows the extreme political bias of much of modern day economic research.  The Summer 2013 issue was devoted to "income inequality."  The main theme was that rich folks are getting richer, but, of course, the facts actually show just the opposite.  Not deterred by the facts, the various economists that opine in this edition blithely parrot absurdities such as wealthholders ability to "sustain their preeminence.

What is the analysis?  Imagine that you wanted to know if baseball teams created dynasties and "perpetuate" their dominance of baseball.  What facts would you want to assemble to prove this?

Here's the way economists think:  collect data that shows that back in the old days, the baseball teams that won the pennant won 65 percent of their games each year.  Then show that, today, the teams that win the pennant win 70 percent of their games each year.  (Don't bother to check whether the teams that won in the old days are the same teams that win today.  Why would that matter, say economists?)  Would that evidence convince you that certain teams are dominant and "maintain their preeminence?"  That is the precisely the kind of logic that perpetuates the factually incorrect myth that the rich get richer.  Check out the articles in the JEP and you will see.

The truth is that if you list out the 100 richest Americans today and then compare that to the one hundred richest Americans 25 years ago, you will find very little overlap.  The richest folks have more of the wealth (if you totally leave out the huge proportion of wealth transferred by government transfers such as social security, welfare, medicaid, food stamps and on and on), but it is a different set of rich folks as time goes on.  Wealth rises and falls in the US.

The opposite is true in Europe.  The wealthiest families in Europe are the same families that were wealthy 50 years ago.  Contrary to the complete nonsense you read from economists, the chances of improving your lot in Europe are almost non-existent.

Now, in the US, the Obama Administration would like to create the European model, which traps people into whatever economic group that are born in....or, actually reduces the life chances of the folks born into the bottom half of the income distribution.

Notice the data since Obama came into office.  Since mid-2009, long after the bottom of the financial collapse and well after the Obama $ 800 billion stimulus package, the economic position of lower income folks in the US has deteriorated.  The Obama sledgehammer on business has delivered results.  Jobs are scarce and what few jobs there are, are part-time.  (Obamacare, of course, influences this trend toward part-time employment by creating built-in disincentives to businesses to hire full time employees).

The real truth is that the US has historically always been the best place to be born if you want a chance to move up in the income distribution and it remains the best place for that purpose.  Obama is trying to kill off that opportunity, but so far he has not totally succeeded in this strange endeavor.

Economists have done a disservice to the public by presenting facts in a way that is totally misleading and obscuring the real truth about the economy and about the historical dynamism of the US economy.

Thursday, 12 September 2013

Let's Sober Up, Malaysia (Important Posting)

Finally, someone who can provide clarity to the foreign funds moving in and out Asia. It does not mean we should not be wary but need to put things in its proper perspective. I have added my take on the market capitalisation growth of the world's top ten markets as another viewpoint that should further lend credence to the long term trend. Need to distinguish short term noise from long term concerto.

 Economics – Markets – Strategy” for Asia and the G3.    
Three steps forward…
 Capital flows have always been a two-way affair.  When sentiment is strong, inflows push you up the mountain.  When it’s weak, they drag you out to sea.  The fact that Western central banks put interest rates on the floor five years ago and kept them there has only amplified the action – first inward, as Asia’s V-shaped recovery took off in 2009 and 2010 and then outward, as the EU debt crisis erupted in 2011 and, more recently, as fears over Fed tapering have grown.  

We estimate that in the two quarters ending June, some US$138bn flowed out of the Asia-8.  Is that a lot?  Surprisingly, no.  Two years ago, $152bn flowed out when the European debt crisis erupted.  When Lehman collapsed five years ago, $350bn left the region, 2.5x more than the current ‘exodus’.  QE and its tapering make a sexy story but the fact is today’s outflows rank only third in the standings, and that’s just in the past five years.  

 If all of this money is flowing out of the region, when does Asia run dry?  It doesn’t.  Today’s outflows underscore the fact that there have always been two types of inflow: short-run ‘hot’ money flows arbitraging differential rates and returns, and longer-term inflows seeking to profit from Asia’s strong growth.  The hot money is now going home – or at least this week it is.  The long-term money is staying put.  And the long-term money is the bigger force.  

 Since the dotcom / hi-tech downturn ended in 2001, some $2.4 trillion of capital has flowed into the Asia-10.  About $500bn flowed out temporarily in 2008/09 and another $300bn has flowed out since September 2011.  Net, net, that’s $1.6trn of long-term capital that has stayed in Asia, riding out the various global crises of the past 12 years.  Three steps forward, one step back – for every dollar that comes in, 66 cents stay for the long haul.  As capital flows go, that’s a pretty good signal-to-noise ratio.  

 Why is so much money coming to Asia?  That’s easy.  Asia is where the world’s growth is being generated.  And businesses want to be where the growth is. Think about it: Asia and the US are now about the same size – GDP in both regions is roughly $16 trn.  If the US grows at a 2.5% rate, it generates $400bn of new demand each year.  But Asia grows at a 6.25% pace, maybe a bit faster.  It generates $1000bn of new demand every year.  If you’re a businessman, do you want to invest where demand is growing by 4 cents per year or where it’s growing by 10 cents per year?  

 Extend the thought to Europe.  Many are encouraged by the fact that Germany returned to positive growth in the second quarter.  That’s good news and a good reason to invest there.  But put it in perspective.  If Germany grew at a 1.5% rate for the next 47 years – a feat few think it will accomplish – it would double in size.  It would ‘add’ a new Germany to Europe’s economic map by 2060.  Asia, by contrast, ‘adds’ a new Germany every 4 years, right here in Asia.  Five years hence, it will take only 3.5 years for Asia to add a Germany.  By 2060, Asia will have put about 25 Germanys on the economic map.  Pretty staggering.

This is why long-term capital will continue to flow to Asia.  Businesses and investors want to be where the growth is.  Inflows will continue to flip-flop in the short-run and yes, Asia will make plenty of mistakes – the West has no monopoly on that.  But the shift in economic gravity is the biggest structural change underway in the global economy today.  Structural inflows will remain, and grow, long after today’s hot and sexy but ultimately short-term outflows have become a footnote to the bigger picture.  

David Carbon, for
DBS Group Research
September 12, 2013

10 biggest stock markets in the World by domestic market capitalization in 2005 (USD bn)

1 NYSE Group 13,632.3
2 Tokyo Stock Exchange 4,572.9
3 Nasdaq Stock Market 3,604
4 London Stock Exchange 3,058.2
5 Euronext 2,706.8
6 Canadian TSX Group 1,482.2
7 Deutsche Börse 1,221.1
8 Hong Kong Exchanges 1,055
9 BME Spanish Exchanges 959.9
10 SWX Swiss Exchange 935.4

As of June 2013

1.  NYSE - Remember that it merged with American Stock Exchange and more critically Euronext after 2005. Hence their 2005 base should be 13,632.3 + 2,706.8 =  16,339.1. As of June 2013, its 14,000 which is 85.6%, a loss of 14.4%, largely due to European stocks devastating performance in recent years. (-14.4%)

2.  Nasdaq - June 2013 figure was 4,500 compared to 2005 figure of 3,604 ... more reflective of the resilience of the US markets despite the 2008 sub prime debacle. (+24.8%)

3.  Tokyo Stock Exchange - Current 3,300 compared to 2005 figure of 4,572.9. Despite the massive surge over the last 12 months, it is still not enough to wipe out the debilitating balance sheet recession from the excesses in the 80s and early 90s. Abe still has to be more aggressive to reverse the course for Japanese stocks. (-28%)

4. London Stock Exchange - Current 3,396 compared to 2005 figure of 3,058.2. Safe to say, Thatcher's insistence not to join the Eurozone has helped in a large way to allow them to rebuild faster than their neighbours. The government over the last 10 years have done sufficiently enough to propel London as a major and viable exchange for the world's biggest companies, thus drawing a large number of international companies to their shores, hence the real figure for UK may be inflated but still significant to compare. (+11%)

5. HK Stock Exchange - Current figure 2,831 compared to 2005 figure of 1,055. Naturally HKSE also continued to benefit from continued listings of red chips from China, still a significant development and trend. (+168%)

6. Shanghai SE - It was not even in the top ten back in 2005 with just 295 bn. Now its at 2,547 bn. Seen in this light, it makes the HKSE figure even more credible. (+763%)

7. Toronto SE - Again, another that was nowhere back in 2005 with 1,144. Its current figure is just over 2,058 bn. Largely they have stayed strong thanks to almost none of their banks participating in the subprime mess. (+80%)

8. Deutsche Bourse - 2005 figure 1,221 and the current figure is 1,486 bn. Germany is already the most resilient among the EU countries so you can imagine how bad it was for the rest. More significantly, even Toronto has overtaken the German bourse in market cap. (+21.7%)

9. Australia SE - Current figure 1,386 bn while the 2005 was around 720. Benefited from huge China investments in commodities and mines, and they were shielded from the subprime mess. (+92%)

10. Bombay SE - 2005 figure was 380 bn and the current is 1,263 bn. Despite the massive correction for India over the last 6 months, it is still in pretty good shape overall. (+232%)

Now the REALLY INTERESTING PART, we should compare apples to apples .... since 2005 how has Bursa Malaysia fared compared to our neighbours, bring out the tissues.

2005 Market Cap                        2013 June Market Cap

Malaysia  184 bn       490 bn  (+166%)
Singapore  227 bn                  752 bn  (+231%)
Indonesia 77.6 bn     477 bn  (+514%)
Taiwan  433 bn                      754 bn  (+74%)
Shenzhen  125bn                    1,190 bn  (+852%)
Philippines  32.4bn    230 bn  (+609%)
Korea  459 bn                       3,051  (+564%)
Thailand  122 bn       408 bn  (+234%)

The way its going ... the 3 highlighted countries lagged Bursa substantially in 2005. Indonesia looks likely to surge past Malaysia by end 2014 despite the recent massive correction there. Thailand has come up by leaps and bounds despite numerous vicious street protests, disquiet down south of Thailand and changes in government. Thailand looks set to over take Malaysia by sometime end 2015. Now the Philippines ... soon Malaysia will be sending maids to the Philippines ... fuckers!!! Maybe not now but look at the trend, I predict by 2018 the Philippines will bypass Malaysia if nothing changes.

Indonesia has really surged, you cannot just argue that it was from a low base because we are not really using figures from 20 years back. its only 8 years back. We have to look at why we lagged behind, has our growth stunted, have we maxed out? I mean, not just Indonesia, look at Thailand beating us by a comfortable 68%. Singapore is Singapore, fair enough. But just watch the Philippines.

We also cannot use the argument that we are maxed out, or that the best days are behind us, look at fucking Korea, they continued to post enormous productivity gains. I mean just Samsung stock alone, its market cap is 190 bn or 38% of Bursa Malaysia all stocks.

Something went very wrong over the last 10 years. We had no subprime crisis to speak of, and now we are talking of maybe even being part of the emerging markets sell down? We OBVIOUSLY did not invest well, we OBVIOUSLY had too much leakages.

You can either pooh-pooh these statistics as another angry commentator going ballistic or take the reality and DO SOMETHING CONCRETE about it because if we stay roughly the same, we will have the same end result over the next 8 years. Fuck the sloganeering ... the problems are so much more deep seated.

p/s  some of our problems:

Ratio of public servants to total country's population

Hong Kong

3 Tighter Rules for Property Sector? (Sept 2013)

Prior to Budget 2014 (to be tabled next month), speculation has rift up on a few proposal to tighten the rules, especially on property sector. Following the outcry from public stating the alarming high property prices, measure should be taken to tackle the issue before bubble was formed.

The Bubbling Biz...

Among the measures being proposed were:

  1. Non-other than Real Property Gain Tax (RPGT)

  2. Higher Stamp Duty:
    ~ 5% of purchase price for 3rd property
    ~ 7.5% for 4th property
    ~ 10% for 5th property onward

  3. Loan-to-Value ratio reduce to 60% for 3rd property onward

While the above info need to be ascertained further, some banks already implemented their in-house ruling. What's that? It was to limit the maximum term for refinancing of property to 10 years. Yes. Sooner or later, all of the banks will follow.

* Please note that the above 3 rules need to be ascertained further. Stay tune!

Always An Alternative

You notice a trend here ... all come from the same school of thought, same MBA course ... always offer an alternative choice to any problems or issues. Remember that any problems or issues you encounter from the rakyat is always their fault. As ministers, "to serve the public" should never be taken to heart.

Readership Statistics

Since we have just gone past the 10 million page views, it is substantive enough to cull some statistics on the readership of this blog. Where they come from, what devices do they use to access the blog, which operating system is popular. Its pretty interesting that so many still use Internet Explorer as their browser but I am pretty sure Chrome will surpass IE pretty soon. Another surprising figure was that my second biggest readership after Malaysia is from the USA and not Singapore, go figure?!!

p/s thanks a lot as well to all the referral sites ... you cannot do this alone

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Graph of most popular countries among blog viewers
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3349536 (32%)
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270718 (2%)
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