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.

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.

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.

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.

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'

More On The Role Of Parenting In Inequality

From The Economist magazine (excerpt):

Minding the nurture gap
Social mobility depends on what happens in the first years of life

Our Kids: The American Dream in Crisis. By Robert Putnam. Simon & Schuster; 386 pages; $28 and £18.99.

THE most important divide in America today is class, not race, and the place where it matters most is in the home. Conservatives have been banging on about family breakdown for decades. Now one of the nation’s most prominent liberal scholars has joined the chorus.

Robert Putnam is a former dean of Harvard’s Kennedy School of Government and the author of “Bowling Alone” (2000), an influential work that lamented the decline of social capital in America. In his new book, “Our Kids”, he describes the growing gulf between how the rich and the poor raise their children….

Living Beyond One’s Means

Overspending is fairly straightforward when it comes to households. It’s a little more nuanced with corporates, but its a lot more convoluted when it comes to governments and nation states.

Here’s a quick rule of thumb, when it comes to governments:

1. A country is living beyond its means when its running a current account deficit
2. A country is living within its means when its running a current account surplus

How does this relate to governments? It doesn’t.

A country can be running a surplus or a deficit irrespective of whether the government is running a surplus or deficit. It’s really about the balance in the flow of funds between the different sectors in an economy – governments, households and corporations. Just because a government runs a deficit says nothing about whether the country as a whole is living beyond its means.

First Day Of GST

…and the world hasn’t ended. Car prices have even come down, as predicted (so will furniture, and quite a few imported manufactured goods). There will no doubt be teething troubles along the way, but Malaysia’s most significant tax reform in a generation is now established.

But confusion abounds. Take this article from yesterday:

Students claim GST in university fees and services despite exemption

KUALA LUMPUR, March 31 — University students have complained that they will be charged the goods and services tax (GST) on their fees despite Putrajaya insisting that education is exempted from the tax.