PEMANDU Acting Fast And Loose With The Numbers…Again

Once is an accident, two a coincidence, three times…well.

I first remember seeing this particular stat at the ETP Open Day, but didn’t think much of it at the time…maybe I should have looked closer. But this article shows that others are picking up on the “fact” that loan growth has moderated in the last five years compared to the early part of the decade (excerpts; emphasis added):

ETP to help revitalise financing sector

High loans growth seen in construction, real estate and transport sectors

PETALING JAYA: Loans growth from banks’ domestic operations which had shown signs of moderation over the past five years is expected to be boosted by increased activities under the Economic Transformation Programme (ETP).

Based on statistics released under the ETP, loans growth from banks’ domestic operations had moderated to a compounded annual growth rate of 10% in the five-year period of 2005 to 2009 versus 13% between 2001 and 2005…

ETF’s, Index Tracking Investment, And Irrational Markets

One of the seminal contributions to the macroeconomic literature of the last fifty years was the Lucas Critique, which in short states that changes in policy affects individual behaviour, which in turn means that you can’t reasonably expect that policies implemented would have the intended effects based on historical macro relationships. More generally, everything affects everything else, and you can’t take things in isolation.

While this is part and parcel of the now controversial doctrine of rational expectations (for which Robert Lucas won the Nobel Prize in 1995), the fundamental point that Lucas was driving at is still valid – you can’t assume that interrelationships will always stay the same, if you change something within a system. The mania over structured finance products that helped drive this past global financial crisis is a case in point, but it applies to virtually any financial product or government policy.

Which brings me to this article in The Star today:

What are ETFs and why is it beneficial to buy them?
Personal Investing - By Ooi Kok Hwa

LATELY, the number of ETFs that get listed on Bursa Malaysia has been increasing.

At present, we have a total of five ETFs listed in Malaysia. Unfortunately, we have noticed that not many investors are aware of these instruments and there is also a lack of understanding on the true value of these ETFs.

The Purchasing Power Of Gold Part II

A couple of months back, when the contretemps over the Kelantan Gold Dinar was at its height, I did a post on testing the stability of gold’s purchasing power. But in the last couple of weeks, gold on the international markets has been breaching new highs, virtually on a daily basis:

Gold price rises to yet another high, other commodities too rise

PETALING JAYA: Gold rose to a new all-time high yesterday, while other major raw materials – from copper to cotton – continued to head north as some investors see commodities as safer bets against inflation.

Spot gold price hit US$1,328 an ounce following a surprise pledge by the Bank of Japan yesterday to keep interest rate at virtually zero and to step up purchases of assets.

This had sparked fresh worries that central banks in developed countries may have to further their so-called quantitative easing policy to bolster their ailing economies...

If You’re Taking Academic Research Too Seriously…

…you have to read this. My favourite:

ENGINEERING PRIZE: Karina Acevedo-Whitehouse and Agnes Rocha-Gosselin of the Zoological Society of London, UK, and Diane Gendron of Instituto Politecnico Nacional, Baja California Sur, Mexico, for perfecting a method to collect whale snot, using a remote-control helicopter.

REFERENCE: "A Novel Non-Invasive Tool for Disease Surveillance of Free-Ranging Whales and Its Relevance to Conservation Programs," Karina Acevedo-Whitehouse, Agnes Rocha-Gosselin and Diane Gendron, Animal Conservation, vol. 13, no. 2, April 2010, pp. 217-25.

(H/T Dan Hirschman)

iPhone 4 Winners and Losers

This article had me grinning – the last line is sooo full of irony:

iPhone 4 launched by Maxis, DiGi; but which has better plans for subscribers?

PETALING JAYA: Hundreds of buyers queued for hours to get their hands on the newly launched iPhone 4 when it was up for grabs last week. Both Maxis Bhd and DiGi.Com Bhd launched Apple’s latest iPhone 4 last week…

…Teo, a first-time iPhone user, said she had been waiting for the phone ever since it was launched in the United States in the middle of the year.

Teo said she was attracted more by the “cool” aura that iPhones conveyed than the technology itself.

Economics As A Religion

Andrew Sheng turns into a satirist:

Economics is a religion, not a science

…But let us come back to the big debate: Should governments cut deficits or increase them to get jobs going?

My personal view is that if the United States suffers from fundamentally excessive consumption financed by excessive leverage, then simply increasing public debt to substitute for Wall Street losses does not make sense.

De-leveraging has to happen some time, either in the private or public sector and de-leveraging means cutback in consumption…

…The Keynesian argument that if the private sector lacks confidence to spend, the government should spend is not wrong. But Keynes did not spell out where the government should spend. Nor did he envisage that lobbyists can influence government spending to be wasteful. Hence, every prophet can be used by his or her successors to prove their own points of view. This is religion, not science.

August 2010 Monetary Conditions Update

With most of August falling within the month of Ramadhan, an uptick in the money supply is to be expected – much like for Chinese New Year, BNM makes available newly printed money (the physical kind) for “duit raya” and “ang pow”.

On that basis, an acceleration in M1 growth is normal (log annual and monthly changes; seasonally adjusted):

Sometimes Government Policy Does Work Part II: Not All Bailouts Are Equal

During the depths of the global financial crisis, there was a lot of anxiety over the “bailout” of the US banking system (later extended to other corporates such as GM) via the Troubled Asset Relief Program (TARP), which on its own amounted to nearly USD700 billion (about half of which was expected to be lost). Consisting of injections of capital and purchases of illiquid, risky assets, TARP provided a backstop to the banking system’s liquidity risks when the interbank market collapsed in late 2008.

While TARP can be criticised for reinforcing moral hazard problems in the banking sector, it looks like the US Treasury might get off with at worse a small loss (excerpt):

TARP Didn't Bust the Bank
The much-maligned bailout program made money on most Wall Street investments and cost less than expected

Bailed-out banks, insurers, and automakers are a sore spot for millions of Americans hit hard by the financial crisis. Candidates running in November, especially those waving the Tea Party banner, are using "no more bailouts" as their mantra to attract voters. Yet there's a disconnect between the political rhetoric and the facts on the ground.

Credit Rating Agencies In The Spotlight

The IMF says that markets should reduce their reliance on credit ratings (excerpts, emphasis added):

Reducing Role of Credit Ratings Would Aid Markets
By John Kiff

New IMF analysis says that ratings have inadvertently contributed to financial instability—in financial markets during the recent global crisis and, more recently, with regard to sovereign debt.

The analysis, in the IMF’s Global Financial Stability Report, recommends that regulators reduce their reliance on credit ratings as much as possible and increase their oversight of the agencies that assign the ratings used in regulations...

...In the case of sovereign debt, the IMF said in the report released September 29, the problem does not lie entirely with the ratings themselves, but with overreliance on ratings by market participants, coupled with deleterious selloffs of securities when they are abruptly downgraded — called “cliff effects.”…

Part-Time Work Regulations Implemented

If you recall my post on Dr Fong Chan Onn’s thoughts on the minimum wage, one of the things that he recommends and foresees is greater part time work and a more flexible labour force.

Well, the changes to the Employment Act 1955 enacted in August will come into force tomorrow:

New rules on part-time work

PUTRAJAYA: Only those working between 30% and 70% of the eight-hour stretch daily will be considered part-timers under new rules from next month, said Human Resource Minister Datuk Dr S. Subramaniam…

…He said staff working below 30% of the eight-hour stretch would be categorised as casual workers while those putting in more than 70% were full-timers.

Beyond GDP Part II

Back in July, I highlighted an article that argued for a more holistic approach to measuring changes in human welfare that goes beyond simple income/output based measures such as GDP. Now along comes this new paper by Charles Jones and Peter Klenow of Stanford University that takes the idea a step further (abstract):

Beyond GDP? Welfare across Countries and Time

We propose a simple summary statistic for a nation's flow of welfare, measured as a consumption equivalent, and compute its level and growth rate for a broad set of countries. This welfare metric combines data on consumption, leisure, inequality, and mortality. Although it is highly correlated with per capita GDP, deviations are often economically significant: Western Europe looks considerably closer to U.S. living standards, emerging Asia has not caught up as much, and many African and Latin American countries are farther behind due to lower levels of life expectancy and higher levels of inequality. In recent decades, rising life expectancy boosts annual growth in welfare by more than a full percentage point throughout much of the world. The notable exception is sub-Saharan Africa, where life expectancy actually declines.

The Minimum Wage And Bargaining

Over the weekend, Dr Fong Chan Onn wrote a very long focus article in The Star with an interesting perspective on the minimum wage proposal, summing up most of the arguments for and against (emphasis added):

Should we set a minimum wage?
By Dr FONG CHAN ONN

The issue of minimum wage for labour has been hotly debated since the advent of the industrial revolution in England in the 1760s.

Employers, using economic theories, argued that wages for labour should be determined by market forces – that is, the wage level at the interaction point of the supply and demand curves for labour. Any attempt at setting a minimum wage higher than that determined by the (assumed) efficient market, they argued, would lead to a distortion in the economy, and in fact would reduce employment opportunities for workers.

This argument held sway in industrial Europe for over a century.

But by 1824, Australia (Victoria) and New Zealand recognised that the labour market was imperfect and that employers would always have greater power in terms of setting wages. They enacted legislations to establish arbitration boards to set basic wages for industries that were deemed too lowly paid...

...In Asia, countries such as China, Indonesia, Thailand and Singapore have established national minimum wages or national wage councils, and as recently as in June this year, Hong Kong passed a law to set the minimum wage for its workers (at HK$ 28 or RM11.17 per hour)...

...Employers’ groups, led by the Malaysian Employers Federation (MEF), vehemently oppose any such move. Recently, they successfully lobbied for a delay in the implementation of the long overdue Wage Regulation Order for private security guards...

...The employers’ assertions, of course, assume that the Malay­sian labour market is efficient, with employers and employees in all sectors having equal bargaining power. This is obviously not true...