Thursday, May 21, 2015

1Q2015 GDP: Something Wicked This Way Comes

I haven’t had much of a chance to write this week, with various things on my calendar (I’ll have some thoughts on the 11MP tomorrow, along with the April CPI). But I wanted to very quickly touch on last week’s GDP report.

The published numbers look pretty good (log annual and seasonally adjusted quarterly changes; 2010=100):


Friday, May 8, 2015

An Exorbitant Privilege

One of the big themes over the past year has been the strength of the US Dollar, which has appreciated against currencies and commodities since the middle of last year. That pushed many currencies into “undervalued” territory – exchange rate levels that are below what is suggested by their economic fundamentals. That’s certainly the case here in Malaysia, oil price declining notwithstanding.

But given that its been largely a move by the USD, it would be fair to flip the question on its head: If other currencies are “undervalued”, the opposite must also be true. How “overvalued” is the USD?

BNM Watch: No Change, And Don’t Expect Any

Yesterday’s MPC decision came as no surprise, with the OPR held steady at 3.25% (excerpt):

Monetary Policy Statement

At the Monetary Policy Committee (MPC) meeting today, Bank Negara Malaysia decided to maintain the Overnight Policy Rate (OPR) at 3.25 percent.

The global economic expansion remains moderate, with divergent growth momentum across economies in the first quarter of 2015…Downside risks to this outlook, however, continue to persist. In this environment, the international financial markets will continue to be affected by shifts in global liquidity and investors sentiments.

Wednesday, May 6, 2015

Social Progress

Michael Porter on social progress (excerpt):

Why Social Progress Matters

Economic growth has lifted hundreds of millions of people out of poverty and improved the lives of many more over the last half-century. Yet it is increasingly evident that a model of human development based on economic progress alone is incomplete. A society which fails to address basic human needs, equip citizens to improve their quality of life, protect the environment, and provide opportunity for many of its citizens is not succeeding. Inclusive growth requires both economic and social progress.

Tuesday, May 5, 2015

The Impact of Foreign Labour

It’s no secret that Malaysia plays host to a lot of foreign labour; a lot of cheap foreign labour. Among the criticisms of this happenstance is that it takes away jobs from locals, reduces the wages locals can command, and stunts productivity growth.

Underlying these concerns is a false view of the economy, that labour competition between foreigners and locals are a zero-sum game. The first concern isn’t true – given our ridiculously low unemployment rate, there’s not a lot of evidence that foreigners have taken jobs away from locals. Culling foreign labour from Malaysia would only reduce output, and remove industries that would only exist (or exist as cheaply) from the availability of that foreign labour.

Wednesday, April 29, 2015

Mean Reversion in Commodity Markets

In VoxEU this week (excerpt):

Commodity prices: Over a hundred years of booms and busts
Andrew Powell 28 April 2015

Commodity prices are very persistent. A boom is always followed by a bust, and after a slump, a boom comes along. This column reviews some basic aspects of commodity theory and their role in the last boom. Finally, it presents arguments stating that lower commodity prices are here to stay for a while. We may have to wait many years for the next boom to come along.

Commodity prices are very persistent. During booms we seem to forget that they have always (yes, always) been followed by busts (see Figure 1). And during a slump we forget that a boom is surely going to come along— we just have to wait long enough. What determines such booms and busts? Was the last boom exceptional? Where are prices today relative to long-run trends? And the big question – where are prices likely to go from here?

Great article on the history of commodity prices from the 1900s to the present. If Mr Powell is correct, we're in for a loooooong wait. And this is even without accounting for the relative prices of commodities against manufactured goods.

Tuesday, April 28, 2015

The Facts Of Life: Singapore’s Monetary Policy And The SGD Exchange Rate

Since the Ringgit has recovered (a little) there’s probably less of a need for this post. But given how angst ridden Malaysians are about Singapore and the Singapore Dollar (one commentator described it as humiliating), it’s probably still appropriate.

So here’s my take on this subject, and given how TDM is in the news so much these days, done “che det” style:

1. Once upon a time, the SGDMYR exchange rate was at parity. Now however, SGD1 buys MYR2.67. This is popularly viewed as a barometer of how badly the Malaysian economy has done vis-a-vis Singapore.

2. However, this would only be true if the SGD was a free floating currency. It is not; it is in actuality a policy variable.

Tuesday, April 21, 2015

Increasing the EPF Withdrawal Age

Since I’m hardly an unbiased observer in this instance, I’ll forbear from commenting. However, public feedback on this and on the other three proposed changes to the EPF Act can be given here. You will need to open an i-Akaun, if you don’t have one already.

The four proposals are:

  1. Raising the withdrawal age to 60, with two options given: Either a graduated increase in the withdrawal age (to take place over 15 years); or an immediate switch, with full withdrawal at 55 still available, but new contributions after 55 to be sequestered until age 60.
  2. Streamlining EPF contributions to the minimum wage i.e. those paid below the minimum wage will now be required to contribute as if they were paid the minimum wage, to apply to both employees and employers.
  3. Raising the dividend payout period from 75 to 100.
  4. Giving members a choice for a Shariah compliant portfolio.

Wednesday, April 15, 2015

Gender Pay Inequality

This is for the US, but the pay gaps are similar though smaller in Malaysia (excerpt):

Gender Wage Gap in Eight Charts

Most women will never earn as much as men in their lifetimes.

In Wyoming, it will take 144 years for equal pay, according to a recent report from the Institute for Women’s Policy Research that looked at trends in women’s employment and earnings. Other states with particularly high disparities included Louisiana, North Dakota and Utah. The state with the shortest wage gap, Florida, was still 23 years. And Washington, D.C. marks the best place for women’s employment and earnings, the report found, perhaps because it is small and urban. Still, the pay imbalance won’t close until 2055.

Tuesday marks national Equal Pay Day, an event from the National Committee on Pay Equity, a nonprofit advocacy group. The date represents how long into 2015 it would take a woman to earn what a man did in 2014.

Government Debt and FX Reserves

From Bloomberg via The Edge (excerpt):

Malaysia raising $2 billion as worst Asia currency saps reserves

SINGAPORE/KUALA LUMPUR (Apr 14): Malaysia is tapping the U.S. dollar bond market for the first time in four years as it burns through foreign-exchange reserves defending Asia’s worst currency.

The government is poised to sell as much as $2 billion of Islamic notes this week, one month after state-owned Petroliam Nasional Bhd. issued a record $5 billion of sukuk and conventional debt in the U.S. currency. Malaysia’s foreign currency holdings fell 9.4 percent this year, the steepest first-quarter loss since the 1997 Asian financial crisis. The ringgit dropped 5.4 percent, compared with a 4.6 percent slump in the Indonesian rupiah.

Tuesday, April 14, 2015

Health and Inequality

From Bloomberg (excerpt):

More Proof That the Richer You Are, the Healthier You'll Be
At every step along the income ladder, higher income means lower prevalence of disease

No matter how much you earn, people who earn more than you are likelier to be healthier and live longer. That's the takeaway from a new report by researchers at the Urban Institute and Virginia Commonwealth University examining the complex links between health, wealth, and income.

It shouldn't surprise anyone that poverty is often associated with poor health. Less obvious: Health and income improve together all the way up the economic pyramid. The wealthiest have fewer illnesses than the upper-middle class, who are in better shape than the lower-middle class, and so on.

The Urban report analyzed a dozen health problems for which the Centers for Disease Control (CDC) has recorded prevalence by family income. In every case, the rich are better off. With just a few exceptions, there's a steady improvement in health as you climb the income scale...

Just sayin'