High income nation, what it'll take

So, we want to be a "high income nation" as quoted from Najib. But unfortunately, this feat will take more than just a strong currency. Malaysia unfortunately doesn't have the intangibles of a high income nation.

Work culture. Generally the work culture here isn't much like that of a high income nation. Great work cultures are a thing of beauty which encourage and reward ingenuity and realize people have lives outside of work. It is no wonder why many Malaysians living abroad in western countries don't want to come back to work. All things equal, yeah working life in western countries is much better.

Can Malaysia "think outside the box"? in terms of workplace productivity?

Next, we have economic and educational policies. Malaysia's economic and educational policies still need major revamping. First, an even playing field needs to be out there. Racial divides need to be cut down in terms of business. Next, the culture of education needs to be stronger in terms of creative thinking and be neutral about racial issues, promote secular ideas.

Religion is something that should be really cut out of media and not encouraged to involve anything of national importance. It would also be nice if the mosques do not blast prayers on the loudspeakers. Religion should be private and or congregate within the confines of the religious facility. A lot of economic progress has been put in slow motion because people cannot make impartial decisions affected by race and religion.

On GST in Malaysia, blinded by other country's GST successes

GST may be just another sales tax, but my opinion is that it is sort of an attack on small company formation and outsourcing. It is true GST is used in a few countries, and rational logic would say, ok it works there without the country going under, therefore, yes Malaysia should be fine.

But the truth is, GST hasn't really been tested in a developing country such as Malaysia which many of its industries are reliant on manufacturing exports. GST is used in Australia, New Zealand, Hong Kong, Singapore, and Canada where the income is relatively high on a Gross national income basis and the economy is fully developed. It is true, Australia and New Zealand do export quite a lot of items, but their products are mainly natural resources and agricultural goods, relatively low on the value chain of manufacturing.

Malaysia does not have a high national income per ca pita and the economy is not developed. Costs do matter as the country is a manufacturing export based economy and is in competition with worldwide exporters.

Services are built around the manufacturing sector. E&E exports are very dependent on the structure of the economy. In A GST structure, companies will outsource less and build up the value chain more to avoid the taxes. A lot of small time vendor services will be much more costly as companies toward the end of the value chain rethink their outsourcing strategy.

E&E will suffer the most cost increases as their whole structure is based on outsourcing. The number of parts involved in the products is quite dependent on outsourcing costs. If the products become too costly, the end manufacturers will vertically integrate, killing thousands of vendors which compete for their business.

If you are in the camp that small businesses drive economic growth, then yes, GST will hinder economic growth.

Astro shareholders should accept offer

Astro is going private:

IT has finally happened. Astro All Asia Networks will be taken private, putting to rest rumours that have been been brewing over the last two years, with continuous denials from company officials. Not surprisingly, it has happened at a time least expected.

In a style similar to the RM16bil privatisation of Maxis Communications Bhd in 2007, Ananda Krishnan is taking his pay-TV company private at a price of RM4.30 per share, equivalent to a RM8.5bil deal.

The reason? The same as when he took Maxis private; going private would provide a more conducive shareholding and operating structure given the company’s future high capital expenditure (capex).

Astro’s estimated capital requirement is between RM3bil and RM3.5bil. Half of that will be for the domestic market, while the other half is for its overseas markets in the Middle East, Australia and North Africa.

The article came out a few days ago, but is significant for shareholders. Unfortunately, the shareholders will be bought out, many at a significant cut to the highs. The good thing is, they should take it, if Astro wants to lever up its balance sheet for future expansions into risky markets, then it's all good.

At this time when TM is coming into the market and offering HD quality TV to homes everywhere, (Word is they are coming out with 40 channels in the official trials) Astro wants to use its cash flow here to expand in services elsewhere. Ok! If they want it that way!

Shareholders should be glad Ananda is willing to buyout the Astro shares at a fair price. It's not horrible, but not great either. Perhaps Astro should be listed as a growth company instead of a dividend paying one. They might not get a huge IPO following, but at least there will not be any conflict with future shareholders who will know what they are getting.

Zeti hints at higher interest rates, why this is significant

From the Business Times:

Bank Negara Malaysia said it may increase interest rates further to avert asset bubbles and discourage risky investments by people seeking better returns, even as inflation will likely remain "modest" this year.

"We will review the conditions at our next monetary policy meeting and work toward further normalising if necessary," governor Tan Sri Dr Zeti Akhtar Aziz said in a March 12 Bloomberg Television interview in Kuala Lumpur. "Inflation will continue to be modest and therefore it would not prompt us towards tightening, but that does not preclude that we will continue to normalise interest rates."

"Certainly the first half of the year, all the signs are pointing to stronger growth" as domestic demand and investment recover, she said.

Inflation of about 2 per cent would be considered "modest", Zeti said. Malaysia's consumer prices rose for a second month in January, climbing 1.3 per cent from a year earlier from an average 0.6 per cent in 2009.

Should price gains accelerate further to 3 per cent, for example, "we would begin looking at what are the sources of inflation because if it was demand-induced then" the central bank would look at "tightening" monetary policy, Zeti said.

Zeti refrained from raising interest rates in 2008 when consumer prices rose as much as 8.5 per cent in July and August amid soaring oil and commodity prices, saying inflation wasn't driven by higher demand and would ease as global growth slowed.

Malaysia's policy makers aren't "inflation targeters", she said last week.

While the rise in interest rates is not insanely surprising, given many other countries are currently tightening, the tone used in explaining the rationale of the interest rate moves point towards moving in a different direction that other central bank uber money printers.

For one, the bank has openly stated that it is not an inflation target-er, and is willing to repay back the savers who have been sitting patiently financing the Malaysian economy through this difficult time. This is excellent. This is a central bank that is willing to break from the crowd and not just follow inflation and economic data like a mindless lemming.

They are willing to raise interest rates and acknowledge savers which is fantastic given the ridiculous amount of money printing by everyone out there. Countries that have raised interest rates are doing so because of what inflation data tells them, following in the footsteps of the US; not because they want to compensate savers. While interest rate increases do give investors confidence, the knock on these central banks is that they will just as likely reverse actions if the data tells them to. Rarely is data ever stable especially given the current volatile economic conditions, so what currency investors crave is foresight on what a bank will do. Foresight that the bank will act accordingly to data is about as stable as an earthquake.

In a world where every central bank is hell bent tunneling in on economic growth, the Malaysian Central bank has taken a refreshing change in tone. This currency is going up, and the economy should be decent. If you want to break from the pack, Malaysia central bank is a prime example. Nothing says confidence like a country that is willing to acknowledge it will do something different from the money printing crowd and defend the savers and spending power of its currency, even if the economic recovery isn't as strong.

The Edge Malaysia v. Business Times v. Star Newspaper

Frequently, I quote various publications for content fodder.

I use the Business Times for the majority of the posts v. The Edge Malaysia and The Star for good reason. The Business Times, in my opinion is the easiest to read Malaysian business publication. The Star news paper is next, but it gives you the runabout when going to the business section while the Edge has content but personally i don't think much of the way they present their information.

For instance, in the Business Times, I click on "Today's newspaper"and BOOM, I get the latest stories and yet do not get bogged down with too much content like the Edge. It's easy to scan their site. I feel their articles are generally more relevant and of greater substance than the Edge Malaysia site which just spits out article after article in the politics and business section. The headlines are not informative and sound quite useless.

The Star Newspaper, to be fair isn't a business publication, as they cater to many audiences. The business site is just an extension of the main newspaper. I would rate theirs better than the Edge Malaysia and not as good as the Business Times.

On the other hand, the papers of the Edge financial Daily and the Edge is quite good. Unfortunately the website leaves much to be desired.

Thoughts on high speed train travel, skybus might expand to Bandar Utama

The Business Times posted an interesting article on the skybus service possibly expanding its services to Bandar Utama and Sunway.

"We have ferried more than 4.5 million passengers since LCCT was opened on March 23 2006," he said.

After one-and-a half years of service, SkyBus - which is one of two LCCT bus service providers operating from KL Sentral - was appointed as budget airline AirAsia Bhd's official bus.

The tie-up has enabled AirAsia passengers to enjoy an online bus fare of RM6.50 for one-way trip, instead of the normal RM9 one-way ticket.

SkyBus is now looking at carrying passengers from Bandar Utama to LCCT.

Chris said the service will start in the second quarter this year.

He said the company has also received invitation letters from the management of Sunway Pyramid and Genting Theme Park as well as other bus terminals to transport budget airlines passenger from their terminals.

Currently, SkyBus controls 20 per cent of traffic to LCCT. With more routes being opened in Klang Valley, its market share its expected to increase.

I've taken the economical route of going to kl sentral, sitting on the bus to the LCCT, and taking one of Air Asia's cheap flights to Penang.

Basically it costs me RM9.00 for the bus, RM15 for the taxi, and some 60 bucks for the flight. So this comes out to about RM85 for the entire trip. Not only do we have to consider the financial impact, but the opportunity cost in time taken. We're talking about 3.5 hours for a trip to Penang which normally takes about 4 hours to drive, not a great bargain there. (1 hour bus ride, 30 min taxi ride, 1 hour flight wait, 1 hour travel time)

High speed trains have a couple of interesting advantages that I only realized because of how ridiculous the costs I paid to get to the the airport in terms of time and money spent.

First and foremost, the high speed trains will most likely stop right in the middle of the city, at KL Sentral, so the only extra cost paid for is the taxi ride to the station. The bus trip is cut out, saving some one hour of time. You get to the train station 30 min before, one hour later you are in Penang or Singapore. (20 min taxi ride, 30 min wait for train, 1 hour travel = 2 hours of time spent)

In Singpore the train would arrive at a more convenient location so you would save on time spent traveling from the Singapore airport to your place of abode. Taxi costs in Penang are also outrageous, so you would save on costs there as well.

High speed trains have their demand for places with a 1-2 hour flight time. A 3.5 hour ordeal to fly to Singapore or Penang is quite ridiculous given that it equates to roughly half a working day. On the other hand, 2 hour travel time for train is much more tolerable. People commute 1 hour to work anyways, what is an extra hour?

If the US is stock buying futures, what does that mean?

This is to follow up on the previous post that the US government may have been buying futures to artificially increase the stock market. In the following, I give a hypothetical scenario if the government had bought futures, and when the positions expired, what would happen.

Suppose the US government may have put bought index futures at some date a couple of years away. Given a margin requirement of say...10%, 100 billion worth of futures over 6 months would translate into some $1 trillion of buying power.

When people buy these futures, the sellers will have to buy the index to hedge their positions. They would buy 1 trillion dollars worth of stock so they might deliver these to the government some years away.

So, what happens when the government closes out their positions by offsetting at some earlier date. Well, the opposite happens, there will be no buying power and a lot of shorts. In fact, all the institutions which took the other side of the trade don't have to hold their stocks any more and will more likely sell the positions. As we approach the futures date, we will get a lot of selling, to the tune of a trillion dollars of selling power in the stock market.

When closing out futures contract, the government could theoretically take delivery, but that would translate them into putting up even more money for the basket of stocks they take delivery for. This won't happen. I don't know how the treasury could justify a hundreds of additional billions to congress just to purchase stock.

The last option is that they could roll over the futures position to an even further date. The government would close out, the counter parties sells one trillion worth of stocks, and reopen, the counter parties buy another one trillion worth of stocks. Nothing much except a flat and choppy market would ensue in this case.

Either the treasury/fed could perpetuate the positions or close them out.

Possible manipulation on the stock market by US government?

Usually I tend not to write about this kind of speculative thing, but I find this rally fishy and evidence presented by zerohedge, although circumstantial, shows most of the rally since September 2009 has taken place in the after hours. The data might be coincidence, but yes, the US government boosting stock prices through buying futures would be a perversion of government intervention in free markets and this is showing the world that the stock market can be gamed through the futures market.

The world has believed that investing is something that is based on the performance of companies and economies. If they have to account for whether or not the government will buy or sell futures to game the market, then basically they will have wrecked decades of faith and trust by the public in markets. More people will know that the market is really a gamble and investing will have become a thing of the past. Why would people invest in the market if they know that it can be manipulated?

Of course, this after hours manipulation might just be nothing but an anomally but hopefully this thing gets sorted out or people will just lose faith.

Maybank Monitoring Dubai Situation closely

From the Business Times:

Maybank's branches in Bahrain and London are monitoring the situation closely even though its loan exposure there is only a fifth of a per cent of its total.

MALAYSIA'S biggest lender Malayan Banking Bhd (Maybank) (1155) does not expect to be affected by the debt crisis in Dubai as its loan exposure there is only a fifth of a per cent of its total.

"Our branches in Bahrain and London are monitoring the situation closely. We are hopeful and believe the issues in Dubai will be resolved," said chief executive officer Datuk Sri Abdul Wahid Omar in Kuala Lumpur yesterday.

On November 25, Dubai sought a freeze on repayment of US$26 billion (RM89.44 billion) debt linked to Dubai World and its two main property units, Nakheel and Limitless World.

I quoted from an earlier post [1] that Malaysia should be proactive in the Dubai siutation. Finally, Maybank came out and said they are monitoring it closely. Islamic Finance as a whole is under scrutiny. It's a rather profitable niche for Malaysia, and it's ridiculous to take a lackadaisical approach. The government should send some people over there to keep track of the situation and lobby in Malaysia's interest as an Islamic Finance stronghold.

[1] Dubai bonds, what are the implications?

The public officials here should be mindful of the risks and take a proactive approach to the UAE handling of this situation. That means sending people over there to lobby the rulers not to screw up. We have vested interest.

Review of Poker Face of Wall st., Aaron Brown

I just finished reading The Poker Face of Wall St. by Aaron Brown, by a professor of finance and ex trader who graduated from Harvard and University of Chicago in Applied mathematics and Finance. For anyone who is into statistics, poker, game theory, and trading; this is an excellent book.



I've always been fascinated by the game of poker, and not for the drama where people put millions on the line for a single hand. I find the way that people interact with each other given uncertainty is a bit mesmerizing.

In most gambling games, black jack, roulette, craps, etc; people bet against the house, there is no uncertainty and only odds, and over a large number of hands, you will more than likely lose money. Poker is the only game which combines both uncertainty of people and odds to make a wonderfully unpredictable game.

The human involvement in the game brings ways to make money and make it consistently. Why do you think the house never have their dealers play poker? They aren't sure if they can win over a large number of hands. Even if they give themselves an edge, its not certain as there are so many unknowns. They only get a cut of the winning pot. This isn't the best way to make money for casinos.

First, the book talks about how almost every economic activity takes on a gambling twist. The author gives examples and dispels common notions about securities and investments that they are mainly a gamble, and not the safe instruments we are spoon fed by sales people. He even asserts that major stock market crashes were more of an unpredictable event, there were no real big news events before or after that just caused the plunge. This lends credence to the unpredictability in markets. He then talks about how gambling played a pivotal role in providing capital to those who needed it in business such as Bill Gates who used poker money to start up Microsoft.

He talks about trading, poker, bluffing, and game theory and asserts some major pitfalls of practitioners of game theory. He thinks that knowledge of game theory is more useful as a way to win over people who use game theory. I think so too. Game theory works better in one on one games but horribly in Poker games which involve groups of people. People who use game theory will generally lose over time especially when they continue to meet people who are better than them.

He also says that people need to take risks to make real money in the world. When you've got a good hand, you have to have the guts to take risks. I believe he doesn't say that people should take dumb risks. For me, a person who thinks he should run a business when he sees so many successful people running a business is a dumb risk. Most people fail. Don't believe me, believe in the statistics.

On the other hand, if they got nothing to lose, yes it may be a worthwhile risk much like a lottery ticket or a business. For those with money it's a horrible bet. Humans also have this false confidence that say "I will make it work" which is a fallacy. They read all these books which give them confidence that they too can do it, they follow the advice to the letter, and fail. In running a business, a lot of it is luck. Don't believe all the hype out there about the Warren Buffetts or Bill Gates and their stories.

Definitely, this book is food for thought. I also read Nassim Taleb's Fooled by Randomness, which is an excellent complementary read to Poker Face on Wall st. Reading both will give you a greater understanding than if you were to choose just one as both books talk about fairly difficult abstract concepts.

Bursa Malaysia should look into Options

The KLSE needs more financial innovation within a "structured" manner. Options are an excellent way to produce arbitrage opportunities that could make the market more efficient. Fisher Black, nobel prize winner and one of the creators of the Black-Scholes theory for option pricing reasoned that options were another instrument that could aid in price discovery and arbitrage.

For the Malaysian securities market, we need more ways to derive daily prices. Options will create volume in stocks and securities. At the same time, with these extra revenues, Bursa Malaysia and the Government stand to cut some of the taxing stock transaction fees. This will also create a more liquid finance system.

So to summarize:

1. Better price discovery for stocks.
2. Extra revenue will bring in room to cut current commission rates.
3. Higher security volume resulting from lower commissions and hedging activities.
4. More liquidity and efficiency.
5. More foreign investor interest as a result

Astro to launch HDTV services

From the Business Times:

ASTRO All Asia Networks plc will launch high-definition television (HDTV) in Malaysia on Friday, said Astro TV chief executive officer Datuk Rohana Rozhan.

HDTV is a digital television broadcasting system with higher resolution than traditional television systems.

"Astro TV is now available to some 2.875 million residential subscribers who will be able to subscribe to its next generation of services, commencing with HDTV and high level interactivity and connectivity," she said.

"The roll out of these services is estimated to cost some RM200 million, including marketing and operating costs of approximately RM150 million, over the next financial year, ahead of revenue and earnings from these services," she said in a statement today.

Rohana said Astro TV will continue to focus on evolving content and technologies ahead of consumer trends, to lead by innovation in response to demanding and sophisticated customers.

Astro All Asia Networks today announced a higher pre-tax profit of RM195.69 million for the third quarter ended Oct 31, 2009 compared with a pre-tax loss of RM212.37 million in the same quarter last year.

Its revenue grew to RM863.49 million from RM744.54 million due to a strong growth reported by Astro TV.

"Astro TV delivered a strong set of results this quarter on the back of a price increase, the introduction of new packages, net subscriber growth of 94,000 and disciplined cost management," Rohana said.

The direct-to-home TV joint venture business in India, Sun Direct TV, reported strong subscriber growth with some 500,000 new customers activated for the quarter ended Oct 31, bringing the total to 4 million customers, she said.

It also announced an interim tax-exempt dividend of 2.5 sen per share for the third quarter, bringing total dividend to-date to 7.5 sen. - Bernama

From what I heard from my Astro installer, HDTV won't actually be available for some time. This launch seems to be merely a formality. In addition, not all channels will be HD, the electronic HD box will cost more, and HD channels will cost more. We're looking at a year or two away at least.

Disclaimer: This is just what I heard from my Astro installer, who knows, Astro could change its mind at any time or my installer could be lying.

Goldman Sachs in Malaysia

From the Business Times:

MALAYSIA has given U.S. investment bank Goldman Sachs licences to set up fund management and advisory operations in the country, as the Southeast Asia nation competes for foreign investments.

The licences were given as part of the liberalisation measures announced by Prime Minister Najib Razak earlier this year, the country’s securities regulator, Securities Commission Malaysia , said in a statement today.

Goldman Sachs’ entry “demonstrates the group’s confidence in the growth opportunities available in the Malaysian capital market,” said the SC.

Other global financial companies such as JPMorgan and Credit Suisse already operate in Malaysia.

“We look forward to playing a larger role in their development,” Leissner said in the SC statement.

Malaysia in June unveiled a raft of measures to boost investment in the slumping economy and lift a laggard stock market, including waiving the condition that local companies should reserve 30 per cent of any post-IPO share sale to Malay investors.

Corporate activity in Malaysia is expected to rise next year and bolster the stock market, analysts say.

Malaysia this year saw Southeast Asia’s biggest ever IPO after the US$3.3 billion offering by Maxis Bhd the country’s biggest mobile provider.

Malaysia is the worst-performing market in Asia so far this year, up just 44 per cent, compared to Indonesia’s more than 80 per cent gain and Thailand’s 56 per cent rise. - Reuters

Wow...looks like Goldman Sachs is coming to Malaysia. I think competitors should be scared. The great vampire squid is coming to town:

The first thing you need to know about Goldman Sachs is that it's everywhere. The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.

That doesn't paint a pretty picture. Well, after all the bad media, they try to paint themselves in a better light in that they are doing God's work. Oops, just a little too bright. Now they are declaring themselves holy to the world.

When it comes from their CEO, the statement will almost be certainly taken out of context. Seems to me he seriously misjudged how many people still felt betrayed by the government with their tax payer dollars paid out in bonuses to Goldman Sachs.

Anyways, with so much notoriety, they feel like they can be accepted in a country such as Malaysia. Perhaps, maybe they'll be welcomed with open arms as people generally go to those who can get them the most money. Go with Goldman, their reputation to win at any cost, and you can't lose, or can you?

Dubai bonds, what are the implications?

I've heard some interesting stories from my friend about doing business in Dubai. He sells jewelry and regularly makes trips over there. His customers over there buy jewelry in large and lucrative quantities and he has built the contacts and relationships so that it is worth it for him to hand carry his jewelry from Malaysia and sell it in Dubai.

Sometimes, when my friend would call up, they would tell my friend they were busy and then out of the blue tell him to come NOW. They treat him like a dog. That example speaks a lot about the over cocky style of business over there. So it doesn't surprise me when Abu Dhabi tells Dubai to handle their own problems.

But now, the world is placing a huge microscope over the situation and how it is handled. This also has huge implications for Islamic finance. If the bond holders pull the nuclear option and take the assets over in court, we will see how the UAE responds as they probably will not be prone to letting foreigners come up and take over nationally backed companies. Further opaquing the situation, the Islamic Sukuk bonds may not give holders the legal strengths of bonds as they are considered a form of equity and bonds. Although, I'm sure the sukuk holders would prefer bond power in re-organization. I think a lot of people buying the Sukuks believe they are a type of bond.

The law system in in the UAE is also suspect as the courts basically do what the rulers say if they so deem it. For small cases, I think re-organization is not a problem, but for something like Dubai World, international investors will scrutinize their decision.

Even if Malaysia does not have a lot of interests directly affected by Dubai's crisis, their future growth and confidence in Islamic financial instruments are under scrutiny. They are affected as an Islamic finance hub. Future slow down in growth from this area will cut valuations of players in the Islamic finance arena today. A dubious ruling will definitely see the financial arena in Malaysia drop in value to investors. The public officials here should be mindful of the risks and take a proactive approach to the UAE handling of this situation. That means sending people over there to lobby the rulers not to screw up. We have vested interest.

Malaysia property bubble in the making?

This is a conundrum that I've been debating. I've yet to see very many housing articles, data, and research seriously critiquing the housing market here.

When I look information such as household income to price, I see a lot of houses overpriced. Consider the average household income is RM4000. How can they afford houses that run in the RM270 to RM300 per sq. ft range. I see young people going for new properties running at RM400, RM500+ per sq ft price. Not only that, the standard down payment here is 10%. Most people can't put up the 20% equity.

In fact, I've been hearing that consumers can get around that 10% down payment with a measly 3% down payment (7% covered by the contractor)! A lot of the practices such as option arms, almost no down payment, and interest rate resets into the second and third year that doomed the US are prevalent here. People should use the low rate period to pay down the amortization on the house and instead are spending it on consumer goods as evidenced by the growth in consumer loans and consumption.

The government isn't doing much to curb the risk although they mentioned that they are concerned. We have the housing capital gains tax supposedly to cool down the market. But we all know the main purpose of the tax is for revenue. There are far more effective ways on clamping down on the housing market. For one, increase the down payment and ban all these shady teaser rates and zero down payment ideas.