Friday, November 27, 2015

Pension Adequacy in an Ageing World

[Disclaimer: Since I work for a pension fund, this blog post should be taken as biased and not wholly objective. You have been warned]

From Project Syndicate, Allianz Asset Management on pension adequacy (excerpt):

Rehearsals for Retirement

MUNICH – Over the rest of the twenty-first century, the global human population is expected to keep growing; more important, it will keep growing older. By the year 2100, the United Nations expects there to be more than ten billion of us, up from 7.3 billion today. In the meantime, the number of people older than 60 is expected to double by 2050 and more than triple by the end of the century.

As societies around the world prepare for swelling numbers of retirees, the policy challenge will be to ensure the financial sustainability of pension systems while guaranteeing adequate incomes for those no longer working. Today, according to recent research by Allianz, only four countries appear to have achieved this: Finland, Norway, the Netherlands, and New Zealand....

Wednesday, November 18, 2015

Interest Rate Parity and Exchange Rates

[If you want to skip all the math and theoretical stuff, go ahead and jump down to the conclusion]

Take a bond, any bond.

Actually take two. Make them zero coupon as well, with a one year maturity (for ease of exposition). Bond A is issued in Country A, while Bond B is issued in Country B, both at a discount of 5% to face value i.e. both bonds yield 5% in a single year.

Let’s define the spot exchange rate (S) as the ratio of currency B to currency A, say for example, $4 of country B currency is exchangeable to $1 of country A currency.

Monday, November 16, 2015

3Q 2015 GDP: Flip A Coin

Last week’s GDP report was a mixed bag. On the one hand it paints a picture of an economy slowing down, especially in terms of domestic demand. On the other hand, some of the indicators appear to have bottomed out.

The headline numbers aren’t appealing (log annual and SAAR quarterly changes; 2010=100):


Friday, November 13, 2015

Low Interest Rates: It Isn’t Just QE

We’re nearing Fed “liftoff” with a better than 50% chance that the US Fed Funds Rate will rise above 0%-0.25% for the first time since 2008. But even taking into consideration the extraordinary monetary accommodation conducted by the major advanced economy central banks, interest rates globally have been in secular decline for very nearly 50 years, since the heyday of stagflation in the 1970s.

Money printing doesn’t half explain what’s going on.

Thursday, November 12, 2015

Adventures In Measuring Productivity

Noah Smith has a headache (excerpt):

Big TFP data mystery!

I had been under the impression that over the last three decades or so, the rich countries had all experienced similar rates of TFP growth. My source for that was the OECD's time-series on multifactor productivity (another name for TFP).....

Wednesday, November 11, 2015

September 2015 IPI: Steady Recovery

Monday’s industrial production figures paint a picture of recovery (log annual and monthly changes; seasonally adjusted; 2000=100):



Manufacturing output has been steady for most of the year, but mining output (read: oil & gas) had been on a downtrend. More worrying to me was the sharp drop off in electricity generation – that pointed to underlying weakness in both business and consumer demand. Unless this was a dead cat bounce, September’s figures suggests whatever malaise hitting both sectors is now over.

Monday, November 9, 2015

Budget 2016: Some Thoughts

The best laid plans of mice and men…

I was going to put up an analysis of Budget 2016 the day after the budget, but as luck would have it, I managed to come down with pneumonia and have spent most of the last two weeks trying to recover. So here’s a very belated, quick overview of what I think of the budget.

Or you can take this is as the confused, feverish ramblings of a diseased brain.

Friday, October 23, 2015

Live Blogging Budget 2016

I’m back at work, and just in time to catch the budget. In case anybody’s wondering where I disappeared to over the past month, I’ve been on a spiritual pilgrimage and only just got back a few days ago. It’s been a bit depressing having to come back to the real world (and the haze), but it was a simultaneously fun and scary break from work, responsibility, and everything else.

As has become traditional, I’ll be live–blogging (and tweeting) on Budget 2016 as the speech is delivered this afternoon, subject to my internet connection holding up. So stay tuned on this page.

  • We’re almost live – PM has arrived at Parliament
  • Some of the media outlets have jumped the gun already on the numbers
  • Oh well, me too:
  • 2016 Growth forecast at 4%-5% - no surprise
  • Budget deficit at 3.1%, a little lower than this year’s 3.2%
  • Revenue and Opex almost unchanged
  • Development budget up by RM3b
  • Inflation expected to remain between 2%-3%
  • GST registration and compliance much better than expected (about twice as much as initially expected)
  • Petronas dividend affected by oil prices – oil-related government revenue dropped 1/3 this year to RM44b
  • RM21b drop in revenue, if GST had not been implemented
  • 7 improvements to GST
  • Controlled medicines and some others will be zero-rated (doubling the list)
  • Zero-rated list for food also increased
  • Decrease in registration threshold
  • Approved traders scheme
  • Temporary imported goods
  • Vocational education
  • Rebates given for prepaid telephony
  • Income tax raised for the rich? 28% nice
  • Investments – Malaysian Vision Valley, Cyber City Centre, Aeropolis, RAPID – doesn’t sound like much of it is actually borne directly by the govt
  • Lots of other small projects, mainly rural
  • MRT1/LRT extension to be completed next 2016
  • Status updates on MRT2/MRT3/HSR/BRT
  • RM1.2b for rural broadband
  • Extension of income tax relief for tourism
  • RM5.3b for agriculture
  • Tax relief and exemptions for some agricultural projects – some aren’t new but extensions however
  • Also for export-oriented SMEs
  • 2016 – Malaysia Commercialisation Year (?)
  • Focus on raising labour productivity
  • A few small grants for innovation and entrepreneurship
  • Taking on KRIS’ idea of industrial building system
  • RM41.3b for education
  • Cash and book vouchers students from for low income households
  • Big money for vocational education
  • Women’s corporate participation reiterated, but that’s it
  • Bumi agenda – grants to existing agencies
  • Sabah & Sarawak – Pan Borneo Highway (RM16.1b and zero toll), domestic air travel GST exempt, RM70m in zero-interest loans for longhouses (RM50k per unit), rice planting fertiliser subsidies, RM115 for special projects, mobile clinics
  • B40 assistance
  • RM600m for Bumis and Indians via Tekun
  • RM60m for SME Bank
  • RM200m for AIM
  • RM100m for Indian NGOs
  • RM90 for Chinese hawkers
  • Waiting for BR1M (….)
  • RM300m for Orang Asli
  • RM852m for Risda and Felcra (for rice and rubber smallholders)
  • Affordable Housing – Pr1ma, SPPK etc etc
  • RM2b for social safety net
  • RM17.3b for defence and security – quite a bit of procurement, including drones
  • Civil service pay rise, minimum civil service wage set at RM1200, minimum pension at RM950
  • No bonus?
  • BR1M
  • Under eKasih RM1050
  • Under RM3000, up from RM950 to RM1000
  • RM3001-4000, up from RM750 to RM800
  • Single individuals below RM2000, raised from RM350 to RM400
  • Total cost RM5.9b
  • For the M40:
  • Child Tax relief increased from RM1000 to RM2000
  • Tax relief for single earner households raised from RM3000 to RM4000
  • Tax relief for university going children, raised by RM2k
  • Socso eligibility raised from RM3k to RM4k
  • Minimum Wage Raised!!!!
  • RM500 gratuity to civil service and RM250 for pensioners

And that’s a wrap.

I’ll post my first impressions here later tonight, so check back tomorrow morning.

Monday, September 14, 2015

Global Value Chains and Exchange Rates

From (excerpt):

The age of global value chains

João Amador, Filippo di Mauro 09 September 2015

There is an urgent need for policymakers to fully acknowledge the extent to which conventional indicators related to gross trade are severely flawed as policy benchmarks because they fail to take into account the existence of global value chains and their increasing role in shaping the global economy. This column, which introduces a new Vox eBook, urges academics to start proposing workable indicators that are systematically produced and readily available.

Thursday, September 3, 2015

Exchange Rates Are Relative Prices

I used this analogy  in a conversation last week, and its too apt not to publish it.

Imagine you’re in the stock market and trying to evaluate two different stocks. Now, fundamental based analysis would look at earnings, book value, gearing, corporate strategy and so on, and come up with a target price for the stocks which reflects what the price of a stock should be.

Tuesday, August 25, 2015

Market Psychology

The thing that struck me the most about yesterday’s global market selloff, is the sense of déjà vu. The more things change, the more they stay the same:


Thursday, August 13, 2015

What To Do About The Ringgit

My advice to BNM and the government, not that they need it, would essentially be the following: