It's taken me this long to really delve into last week's GDP report, largely because I wanted to try something different (results forthcoming). But before getting into that, the headline numbers themselves are mostly encouraging (log annual and quarterly SAAR changes):
From VoxEU (excerpt):
The ‘real’ explanation of the Feldstein-Horioka puzzle – and what it means
Nicholas Ford, Charles Yuji Horioka…The nature of the Feldstein-Horioka puzzle concerns the mobility of the world’s supply of capital. There is a presumption amongst economists that financial markets can rapidly, and nearly without cost, divert ‘financial capital’ from one country to another. This being the case, it would be expected that savings should be diverted from wherever they occur to where the best investment opportunities are by agents seeking to maximise returns. There is no reason the best investment opportunities should be in a savers’ home country; as a consequence, according to this reasoning, the levels of investment and saving should not be correlated across countries. However, Feldstein and Horioka (1980) found that this is not the case and that most incremental saving is in fact invested in the country in which it occurs. The puzzle is to try to understand why this should be the case….
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):
From last week’s 4Q2014 GDP report, it looks like the IPI was more than just a harbinger, it was spot on (log annual and quarterly SAAR changes; 2005=100):
I was going to cover this when it came out, but didn’t find the time. Still, better late than never (excerpt, emphasis added):
Prepare for tough times ahead
BY DATUK ZAID IBRAHIMWe have often heard the phrase ‘we must change our lifestyles’ and the truth is that it will be difficult to adjust – but adjust we must….
…I wish our leaders at all levels would come together and ponder what it would be like if our country were to face a deep economic crisis.
I’m still torn. Last week’s GDP report was a little better than I thought, but might just be the best growth we’re going to see for a while (log annual and SAAR changes):
Note that while annual growth is holding up pretty well, quarterly growth in 3Q2014 is actually the weakest in nearly two years. There’s little in either the global or domestic economy to suggest that growth will get any better over the short term.
I was tickled pink when this link turned up on my twitter feed (excerpt):
...One project is Michael Marcovici’s Rat Trader. The book describes the training of laboratory rats to trade in foreign exchange and commodity futures markets. Marcovici says the rats “outperformed some of the world’s leading human fund managers.” The rats were trained to press a red or green button to give buy or sell signals, after listening to ticker tape movements represented as sounds. If they called the market right they were fed, if they called it wrong they got a small electric shock. Male and female rats performed equally well. The second generation of rattraders, cross-bred from the best performers in the first generation, appeared to have even better performance, although this is a preliminary result, according to the text. Marcovici’s plan, he writes, is to breed enough of them to set up a hedge fund...
No, this isn’t an April Fool’s joke. Because believe it or not, here’s what I came across a day later:
Holy shit, the rat traders NAILED the bottom of the market. Went long banks in March, 2009. http://t.co/eRdnlvFIKQ pic.twitter.com/oFjxTPELlb
— Joseph Weisenthal (@TheStalwart) September 23, 2014 The website is here, and the training methods are detailed here. Check out the record of Mr Kleinworth Morgan Jr 5. Brings a whole new meaning to the term “alternative investment”.
I might just recommend this to our investment committee. They could even take me seriously, if they don’t die of laughter first.
I’ve heard this from more than a few people (excerpt):
Mahathir expresses concerns on fund outflow
KUALA LUMPUR: Former Prime Minister Tun Mahathir Mohamad has expressed his concern over local funds, including the Employees Provident Fund (EPF) on their property investment overseas as it promoted fund outflow from the country. "At a certain extend it is desirable to invest abroad, but we should always have to balance between inflow against outflow of funds," he said…
…He pointed out that too much of fund outflow from the country would not be good for the economy, especially overseas property assets that were acquired.
"Instead of supporting local industry, they (funds) have gone abroad," he said….
My, oh my, how things have changed (log annual and quarterly SAAR changes; 2005=100):
We ain’t talkin’ bout no base effect no more. T’ain’t bout prices neither. At 6.4% in percentage terms, the economy has put up a pretty solid growth number. If the low level of output in 1Q2013 influenced growth this year, that’s less of a consideration for 2Q2014. And if export and commodity prices trended up in 1Q2014, they’ve been flat or trending down in 2Q2014 (log annual and quarterly SAAR changes; 2005=100):
A little stronger than I thought it would turn out to be, but not too much so (log annual and quarterly saar changes; 2005 prices):
Don’t go overboard though – the quarterly growth numbers tell the real tale. 1Q2013 was a really horrible quarter, which means growth for 1Q2014 will flatter to deceive. Note that 1Q growth was stronger in 2011 and 2012, but weaker in the last couple of years (including this past quarter).
I got a call from a reporter the other day asking about this, so I’m going to set my thoughts down on paper (figuratively speaking, of course).
There’s this idea that government and government linked companies (GLCs) dominate Malaysia’s corporate landscape – Maybank, CIMB, Sime Darby, Tenaga, Telekom, and the like. These companies are either virtual monopolies, or dominate their respective industries, possibly crowding out competition and investment.
It turns out direct investment abroad isn’t exactly a zero sum game (excerpt):
Do multinationals that expand abroad invest less at home?
Theodore H. Moran, Lindsay Oldenski, 31 October 2013There is a long history of politicians accusing US MNCs of “shipping jobs overseas” when they invest outside the US…This line of attack implicitly assumes that expansion abroad by US firms substitutes for domestic expansion, harming US workers. It is equally possible that foreign expansion increases the productivity and market share of firms in a way that benefits US workers….
Growth in the last quarter of 2012 was shockingly fast. But for every action, etc. etc. Growth in 1Q2013 was shocking too, but in the opposite direction (log annual changes; log quarterly changes, SAAR):
The annual growth number fell from a revised 6.5% in 4Q2012 to 4.1% in 1Q2013 (4.0% in log terms). This was actually a little lower than forecast by my IPI based model – for once, it wasn’t being overly pessimistic – but is still respectable growth, and not bad compared to our regional peers.
This post is a little late because…for once…I had to actually write a report about it. Be that as it may, the numbers were, to put it mildly, rather shocking (log annual change; log quarterly change seasonally adjusted and annualised):
Real GDP hit 6.4% in percentage terms on the year, but zoomed 8.5% SAAR from the previous quarter – that’s the fastest expansion since 4Q2009. That’s way, way above the estimates generated by my preferred forecast model (about 5.4%), and even almost past the 95% confidence interval range forecast. The only model I track that came really close was – of all things – a naive trend model with seasonal factors, which predicted 6.5%. Sometimes simple is best.
From the December issue of Third World Resurgence comes this accessible, and potentially explosive, article (excerpt; warning: pdf link):
Transfer Pricing and Tax Evasion: Beyond the trans-Atlantic furore
Smitha Francis...The charge facing US TNCs [sic] like Google, Amazon and Starbucks is that despite generating billions of dollars in revenue in the EU, they get away with paying little or no corporate income taxes in Europe by distributing their income between different tax jurisdictions. They use complex tax accounting strategies to exploit tax loopholes and differences in national corporate tax rates across Europe, which range from less than 10% to more than 30%...
One of the policy problems after the recovery from the Asian Financial Crisis, was the steep drop in private sector investment relative to GDP. There have been not a few papers on the subject, with multiple explanations put forward.
This new one under the IMF working paper series offers a fresh take on the issue (abstract):
Explaining ASEAN-3’s Investment Puzzle A Tale of Two Sectors
Zhou, Yong SarahSummary: The prolonged investment decline in post-Asian crisis emerging Asia, in contrast to the swift recovery of economic growth, has remained a puzzle. This paper shows that the post-crisis investment recession has been mainly concentrated in the nontradable sector, and hypothesizes that the slowdown is because firms operating in that sector are financially constrained. Empirical results based on macro and firm-level data from Indonesia, Malaysia, and Thailand (ASEAN-3) support this hypothesis.
Well, I’m back from my break, and what an interesting bunch of numbers to come back to. The national accounts data released last Friday showed the economy chugging along at 5.2% in 3Q2012 (log annual and quarterly changes, seasonally adjusted):
There really hasn’t been much variation in the growth numbers either on an annual or quarterly basis since the beginning of 2011, indicating a trending economy.
What a nice lead up to the holidays. While I thought 2Q GDP might turn out to be pretty good, 5.4% annual growth is outside all my expectations (log annual and seasonally adjusted annualised quarterly changes; 2005=100)
Seasonally adjusted quarterly growth has been pretty solid too at 5.9%, holding up above 5.7% for three straight quarters.
Larry Summers has a reputation. He was a key figure in the deregulation of US finance in the late 1990s, as Treasury Secretary under the Clinton administration, that ultimately led to the banking crisis of 2007-2008. As President of Harvard, he was accused of sexism, conflict of interest, and carried responsibility for the university’s nearly US$2 billion in losses from derivatives trading. Professionally, he’s known as being acerbic and dismissive towards others – arrogant is one of the kinder words used. His academic work tends towards supporting free market, Republican views, despite serving two Democratic presidents.
You might remember Global Financial Integrity’s report on illicit money flows early last year, where they reported Malaysia as being the fifth highest victim of uncategorised capital outflows in the last decade.
At the time, I partially validated their findings at least in terms of the trade mispricing channel – wildly different reported values for exports and imports between different trade partners.
So since I had a bit of time, and lots of curiosity, I decided to take a bit of a deeper look into the question of Malaysian trade mispricing, using the United Nations Commodities Trade database (Comtrade), which carries data on both imports and exports as reported by nearly every trading nation (Taiwan not included).
Did I find capital outflows? Yes, I did, and on a scale that conforms to the GFI report.
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