Category: Economics

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Economics Society

[1335] Of now, moving on to something more important than Negarakuku…

I find it amazing how too many people are preoccupied with Namewee’s Negarakuku, especially but those that want punishment to be brought upon him for whatever he did. The thing is, he did nothing but criticized the state of our society. His action affects nothing but a lot of people’s ego, being too sensitive to criticism. It’s okay to disagree with any criticism but demanding a person to be silence by force because we disagree with him?

So much for a matured society.

Islamists and nationalists, the Cabinet even, are harping on the issue so hard as if there is nothing else that is important, more deserving of their attention. To me, the issue surrounding fiasco surrounding the Port Klang Free Zone, is much more crucial to our society.

And here is something that affects a lot of people but receives too little attention as well. According to last week edition of HSBC Research, quoted by The Edge, total trade for June 2007 is 0.9% lower than a year ago. It is pretty much attributed to a 22% drop in export to the US.

From the Malaysian Department of Statistics:

In June 2007, external trade data posted a surplus of RM8.7 billion as compared with RM8.2 billion in the same month of 2006. A growth of 5.6% or RM458.1 million in the trade surplus was due to a lower decline in exports of 0.4% or RM186.8 million vis-a-vis a higher decline in imports of 1.6% or RM645.0 million. Total imports and exports for the month were valued at RM40.3 billion and RM49.0 billion respectively as against RM41.0 billion (imports) and RM49.2 billion (exports) a year ago. [Malaysian external trade statistics, June 2007. Malaysian Department of Statistics. August 9 2007]

On the surface, several factors could be attributed to the fall in export. One is the fall in demand for electronics in the US, which itself could be attributed to the current slowdown in the US economy. Second is the appreciating MYR against the USD.

I however unable to find a reason for a fall in import. It might be due to slowdown in consumption component of the GDP which could signal an economic slowdown. I have yet to see a data on consumption to strengthen the base of my suspicion.

Regardless, issue of subprime mortgage in the US brought the Fed to do a helicopter drop. Several others central banks went to do the same thing in hope to increase market liquidity. In fact, increasing number of people now believe a rate cut is coming.

A rate cut would signal this: a transfer of focus from inflation to economic slowdown; there are few that prefer to use the word recession instead. The FOMC convened earlier this month and decided to keep the federal fund rate untouched, apparently confused whether the economy was growing or shrinking.

Given how important the US economy is to the Malaysian economy, I expect a dent though government spending via the Ninth Malaysia Plan might take up the slack. Keynesians would love that possibility.

As for the election, well, suffice to say, I think the government of the day has missed the chance to dissolve the Parliament during a time of exuberance. From now onwards, only uncertainty remains.

Categories
Economics Environment Science & technology

[1333] Of less trees means less cloudiness

A recent observation in Australia suggests that cloud formation is related to vegetation:

A fence built to prevent rabbits from entering the Australian outback has unintentionally allowed scientists to study the effects of land use on regional climates.

The rabbit-proof fence — or bunny fence — in Western Australia was completed in 1907 and stretches about 2,000 miles. It acts as a boundary separating native vegetation from farmland. Within the fence area, scientists have observed a strange phenomenon: above the native vegetation, the sky is rich in rain-producing clouds. But the sky on the farmland side is clear. [At Australia’s Bunny Fence, Variable Cloudiness Prompts Climate Study. New York Times. August 14 2007]

That may not sound as astounding as seeing a pig flying but wait till you see this picture:

NYT. Fair use. http://www.nytimes.com/2007/08/14/science/earth/14fenc.html

And what is so interesting about this finding?

Dr. Nair speculates that increases in the world’s population will prompt the clearing of more land to increase food production. But he wonders whether, in the long run, “we will reach a point of land clearing that will diminish food production,” because rainfall has decreased. [At Australia’s Bunny Fence, Variable Cloudiness Prompts Climate Study. New York Times. August 14 2007]

Can anybody say decreasing returns to scale?

Categories
Economics

[1332] Of is this privatization or nationalization?

With the proliferation of government intervention in the market nowadays, the terms privatization and nationalization can be confusing. For instance, PNB which has expressed its interest to take MIDF private:

PETALING JAYA: Pemodalan Nasional Bhd (PNB) has proposed to take private Malaysian Industrial Development Finance Bhd (MIDF) by buying the remaining 79.98% shares it does not own for RM1.90 each. [PNB offers RM1.90 to take MIDF private. The Star. August 14 2007]

Take private?

PNB is no private equity entity. Instead, PNB is an investment firm ultimately wholly-owned by the government of Malaysia through Yayasan Pelaburan Bumiputra. Wouldn’t that mean this exercise would actually nationalize MIDF?

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Economics

[1327] Of that rubbish that is technical analysis

When I first got back to Malaysia, I had a few job offers and one of them was with a small Japanese broking house in Kuala Lumpur. When I thought of broking house, I told myself, finally, a chance to put all those silly call and put options calculation into practice. Instead, I discovered what nonsense chartist brokers speak in; the way they work is so repulsive and that became one of few jobs that I am glad that I gave a solid no.

I always find it surprising how elaborate technical analysts or chartists go to extrapolate past prices into the future without any regard to fundamentals of companies. What is more shocking is the number of people in the public that believe in sophisticated senseless rationale and jargons used by chartists to predict future prices. Just open the business section of any local mainstream newspaper and observe how many chartists speaking bullshit there. But then again, these newspapers take feng shui seriously…

I have a real issue with individuals that try to forecast the economy through feng shui but I am going off tangent.

Anyway, how senseless is technical analysis?

Two of the common jargons used by chartists are support and resistance lines. Chartists believe — I stress: believe. You know, like tooth fairy godmother kind of thing — that these are the lines which prices find it hard to cross. But how do they derive these lines?

They basically choose a time frame at their wimp and then draw a line that corresponds to a couple of local minimums, or maximums, depending whether one is referring to support or resistance. After drawing the lines, chartists pretend that prices would have a hard time crossing the lines. If prices do go over these lines, chartists would find new lines based on past prices and say the same thing all over again. The problem with this is that these lines almost never able to help in making reliable forecasts.

In fact, these lines are so ridiculous that anybody could draw it. You do not need a broker to draw a freaking straight line for you. Go ahead, try it yourself. You can do it.

Another term, which I hate so much is correction. What the do they mean by correction? Do they mean somebody made a mistake in recording of prices? The only correction to be made is to their support and resistance lines, which by the way, are never right in the first place. Prices reflect the available information at a particular point of time. If information changes, so would the prices.

As if these support and resistance lines are reliable to forecast prices, chartists have the cheeks to even forecast their forecast! They call such forecast of forecast as pivot point calculation. I call it bullshit.

I do admit that superficial forecasting like this may hit the bull eyes from time to time. However, it is so only when enough people actually believe in that rubbish; very much self-fulfilling prophecies. Or mostly, it is just coincidence. At least one third of the time, a chart could get it right because of pure probability, not due to piercing insight.

In actual fact, prices depend on firms’ fundamental information like growth expectation and ability of management, not past market prices. Past market prices only reflect past information and do not incorporate relevant new information. That is why forecasting future prices cannot be done by reading past prices. If chartists are so good, tell me, how many chartists predicted the fall of Transmile from RM14 to merely RM4?

Oh, oh. Please do not tell me the support line right now is somewhere above RM4. And please, do not compare technical analysis with econometrics. Most of these chartists do not have an idea what time-series analysis is.

I will say this and I will say this only once: technical analysis or whatever you would like to call it is not economics.

Categories
Economics

[1325] Of the FOMC sits today

Though reports have speculated that the Fed will leave the rate at 5.25%, recent jitters might convince the Fed to slightly trim the rate.

The FOMC sits today. So, brace yourself.

For me personally, the last few weeks have been miserable. What was a 20% returns portfolio now gives only nearly 1%. Sigh…

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved

p/s — the rate stays:

US interest rates have been kept on hold, despite mounting fears about the state of the economy.

Analysts had widely predicted the US Federal Reserve would leave rates at 5.25% for a 13th month, and that was the unanimous verdict of the Fed panel. [US interest rates left unchanged. BBC News. August 7 2007]