Friday, April 20, 2012

Volume 4 Issue 15: Intelligent Investing

Senegal Can Have Proper Democracy. Why Not Malaysia?

For many Malaysians, we have only heard of this country in Africa, Senegal, because of football. 

Compared with its neighbors, it is relatively small in size. Its total land area is about 197,000 square km, about half that of Malaysia. As with most other African nations, Senegal is a relatively poor country, with GDP per capita less than USD2,000. Compared with Malaysia, Senegal's economy would make Malaysia look like Singapore - see Chart 1.

Chart 1
Despite the given circumstances, Senegal even manages to have a proper democracy:
Senegal’s democratic tradition deeply shapes ordinary people’s expectations. In June 2011, Wade attempted to amend the constitution to eliminate a second round of voting in presidential elections should the leading candidate win 25% in the first round, rather than 50%. This effort at a constitutional coup was thwarted by massive protests in front of parliament. Slogans like “Touche pas à ma Constitution” (Don't touch my Constitution) were accompanied by “Wade, dégage!” (Wade, get out!), reminiscent of the chants in Tunisia, “Ben Ali, dégage!” 
Democratic resistance worked, blocking the amendment and creating the possibility of defeating Wade’s run for a third term. In the first round on February 26, voters showed a higher level of trust in their electoral institutions than did many political actors, who urged postponement of the election, or a boycott, on the grounds that Wade’s control of the state apparatus made a free and fair election impossible. 
In fact, a well-organized civil society and an independent press ensured that the results could not be rigged. For example, as soon as results were counted locally, they were immediately announced nationally by independent television and radio broadcasters, even when state TV stopped disclosing results. International pressure, especially from the United States, France, and the European Union, also helped to marginalize the hard-liners in Wade's entourage. 
In the crucial first round, only 35% of the electorate voted for Wade. Opposition candidates like Macky Sall, who bet on high voter turnout, fared much better than candidates who took the fight to the streets or, hoping the election would be postponed, started campaigning too late. With 26% of the first-round vote, Macky Sall was on the ballot for the runoff. 
Voters, especially in Senegal’s cities, eschewed vote-buying and instructions by some religious leaders to vote for Wade, whose aggressive strategy of clientilism and ethnic divisiveness failed conspicuously. By violating the symmetry of respect and equidistance between ethnic groups that characterizes Senegal’s pluralism, he offended far more people than he attracted. 
In the second round, all 12 unsuccessful candidates supported Sall, as they had pledged to do. With the opposition strongly united, Sall more than doubled his first-round vote, reaching 66%, while popular support for Wade stagnated. The army adhered to its tradition of non-intervention and explicitly let the president know that the result had to be respected.
So, why can't Malaysia?

Monday, April 16, 2012

Yay For Me

As the title suggests, this is more of a "shiok sendiri" post. Last week, I posted a comment on Scott Sumner's post about the role of culture in economics. Here is my comment in full:
As a Malaysian Chinese, I can strongly relate to the culture argument. For those who are not aware, Malaysia practices “pro-Bumiputra (pro-indigineous/Malay)” policies, resulting in the vast majority of opportunities (education placement in top schools, business deals, cheap housing, etc) being channeled towards the Malay community. On the surface, it appears to be a form of affirmative action, but bear in mind that the Malaysian population comprises around 70% Malays. So, the so-called affirmative action policies actually favor the majority. And the Malay politicians in Malaysia insist on maintaining rights of Malays in obtaining these excessive privileges, which is often perceived as “racial supremacy” in Malaysia. 
Despite the oppressive policies that have been implemented since 1970, the Chinese community has continued to thrive and are responsible for the vast majority of business activity in Malaysia. They have still managed to succeed given the “handicap”, which demonstrates a cultural resilience and determination to overcome the overwhelming odds. I am not saying that Chinese are superior to other races in Malaysia, but there is a certain cultural element to it that is possibly unmeasurable as we do not see the same kind of success for other races in Malaysia. But I can attribute part of this to the kind of upbringing in Chinese families. Since I was young the message that was drummed into my head was to keep working hard in order to overcome the overwhelming odds. Despite 40 years of oppressive policies, Malaysia has remained rather peaceful and the Chinese community seemed to have accepted it as a way of life, simply working harder (among other things) to overcome the handicap. This is very much in line with the peaceful/passive approach taught by Confucius. 
Now, back to China. I think what a lot of analysts miss and what is written by Professor Zhang Weiwei in his book, “The China Wave – Rise of a Civilizational State”: 
“Good governance matters more than democratization. China rejects the stereotypical dichotomy of democracy vs. autocracy and holds that the nature of a state, including its legitimacy, has to be defined by its substance, i.e. by good governance, and tested by what it can deliver.”
“China is still faced with serious challenges such as fighting corruption and reducing regional gaps. But China is likely to continue to evolve on the basis of these ideas, rather than by embracing Western liberal democracy, because these ideas have apparently worked and have blended reasonably well with common sense and China’s unique political culture, the product of several millennia — including 20 or so dynasties, seven of which lasted longer than the whole of U.S. history ……… While China will continue to learn from the West for its own benefit, it may be time now for the West, to use Deng’s famous phrase, to “emancipate the mind” and learn a bit more about or even from China’s big ideas, however extraneous they may appear, for its own benefit. This is not only to avoid further ideology-driven misreading of this hugely important nation, a civilization in itself, but also to enrich the world’s collective wisdom in tackling challenges ranging from poverty eradication to climate change and the clash of civilizations.” 
These are just excerpts from his marvelous book, which I think gives some very insightful thoughts from a true Chinese perspective.
 I managed to get a response from Scott, albeit a short one:

Yay for me!

Tuesday, April 10, 2012

Who Is Mr Market?

Here is some insight on how the stock market behaves and why we need to feel like we understand it:
Why are journalists covering the market allowed, day after day, to write vapid articles about the market? What is it about using language like this that makes us comforted? 
My guess is that people want there to be such a man, and moreover want him to be understandable and reasonable. 
It’s primarily a question of control – control over our lives, as if we can say, as long as we kind of get his (the market’s) sentiments, we can avoid catastrophic risks. Like in those human nature tests where 85% of people consider themselves better than average drivers, we feel that we understand the market and so we’re covered and safe. Even when there’s plenty of evidence that we don’t actually understand the risks, we continue the market myth out of this need to feel in control.

Saturday, April 07, 2012

Volume 4 Issue 14: Intelligent Investing

The Malaysian Delusion

It's very difficult to be a Malaysian. One of the reasons is that, very often, we get compared with Singaporeans and are told how well they are doing. I mean, I am one of those people who probably compares Malaysia with Singapore a bit too much.

Very often, people point out that Malaysia is a much larger country compared with Singapore, which is why it is more difficult to manage. Singapore has a much smaller population, so it has less mouths to feed. That's why people there are richer. This is all a bunch of hogwash. 

Let us consider a very simple example. Korea has a population of about 49 million people, about 1.75 times that of Malaysia. It also has a much smaller land area (about 100,000 square km) compared with Malaysia's abundant land space (about 330,000 square km). This also means that Malaysia has more resources and space to grow. Malaysia is also not located next to North Korea, which boasts all sorts of nuclear weapons which can be seen as all kinds of threats to its sovereignty. 

But look at the economic performance of Korea in the last 30 years or so. Korea's GDP per capita was almost at par with that of Malaysia in 1980, but is now almost triple that of Malaysia - see chart 1.

Chart 1
And here we have our Bank Negara Annual Report (White Box - pdf) claiming that the Malaysian economy is doing well as it has managed to diversify further by relying less on manufacturing. This is ridiculous because Korea has an even larger dependence on manufacturing compared with Malaysia - see chart 2.

Chart 2
The real weakness is that Malaysia is becoming less and less competitive and is no longer able to attract low-end manufacturers as wages in Malaysia have kept on increasing without commensurate increase in productivity. Furthermore, it does not have enough skilled workers to attract high-end manufacturers. One of the most impressive achievements that Korea has made over the past 30 years is the little known fact (maybe it is just my ignorance) that Koreans have focused strongly on education. In chart 3 (source: OECD), we can see that more than 60% of young Koreans (25-34 year-olds) have attained tertiary education. This is in contrast with the older generation of Koreans (55-64 year-olds) whereby less than 15% have attained tertiary education.

Chart 3
The improvement is nothing short of tremendous. It is by far the best among all OECD countries. What is interesting to note is that the US actually went in reverse, recording a lower proportion of young people with tertiary education compared with the older generation.

This is one of the core factors that allow high-end manufacturing the thrive in Korea. Of course, in Malaysia, the amount of people with tertiary education has surged, but what kind of graduates are we getting? As Tony Pua wrote in his book, "The Tiger That Lost Its Roar", Malaysia has 20 public universities, 24 private universities and 21 "university colleges" to serve its "small" population of 28 million. That translates to about 430,000 people per university. In comparison, Singapore, which has about 5 million people, has only three universities. This translates to about 1.7 million people per university.

Sadly, the quantity of universities say nothing about the quality of Malaysian graduates. The quality of some of the universities are so bad that the graduates are deemed unfit to enter the workforce. So why is the Deputy Prime Minister still in denial about the poor quality of our education system?

In short, this myth about Singapore being an easier country to manage is just nonsense. Even a much more populated country like Korea which lacks the natural resources that Malaysia has can transform itself into a high income economy. The important lesson here is that in order to improve, we have to stop living in denial and start looking for where we went wrong. 

Thursday, April 05, 2012

For Students Who Think Their Professors Are Evil

From Professor Art Carden (from a long time ago, but I never got around to posting it):
One of the popular myths of higher education is that professors are sadists who live to inflict psychological trauma on undergraduates. Perhaps you believe that we pick students at random and then schedule all our assignments in such a way as to make those students’ lives as difficult as possible. The older I get and the longer I do this, the more I recognize that we (the professors) need to be more transparent about our philosophies of evaluation.

...the burden of proof is on you to demonstrate that you have mastered the material. It is not on me to demonstrate that you have not. My assumption at the beginning of each class is that you know somewhere between nothing and very little about basic economics unless you were lucky enough to have an exceptional high school economics course. Otherwise, why are you here?

That said, you should never take grades personally. I don’t think you’re stupid because you tank an exam, an assignment, or even an entire course. Economics is hard. A D or an F on an economics exam does not diminish your value in God’s eyes (or in mine) or indicate that economics just isn’t for you. It probably means you need to work smarter, and I’m here to help you with that.

Wednesday, April 04, 2012

Wasting Taxpayers Money - The American Way

I don't know if the US had taken a play out of the ol' Malaysian playbook, but when I read this, I can't help but stifle a chuckle as I reminisce about how rampant such occurrences are in Malaysia:
The chief of the General Services Administration resigned, two of her top deputies were fired and four managers were placed on leave Monday amid reports of lavish spending at a conference off the Las Vegas Strip that featured a clown, a mind reader and a $31,208 reception. 
Administrator Martha N. Johnson, in her resignation letter, acknowledged a “significant misstep” at the agency that manages real estate for the federal government. “Taxpayer dollars were squandered,” she wrote. At the start of her tenure in February 2010 she called ethics “a big issue for me.” 
The leadership collapse came hours before GSA Inspector General Brian D. Miller released a scathing report on the $823,000 training conference, held for 300 West Coast employees at the M Resort and Casino, an opulent hotel in Henderson, Nev., just south of Las Vegas. From $130,000 in travel expenses for six scouting trips to a $2,000 party in Peck’s loft suite, event planners violated federal limits on conference spending.
And in Malaysia, we have submarines that do not submerge, RM42,000 laptops and what not. The trouble with this is that, in Malaysia, no one ever gets fired. As I have proposed before, the easiest way to go about this is to fire the person whose signature is on the check. It is his job to check that all the payments are legitimate before it is paid out. If the check has Najib's signature, then it is even more worrying. He should immediately step down for failing the Malaysian people.

This is exactly what happens in the US. Accountability is key and it has to begin from the top. The people in high places with authority need to step up and take responsibility. It is useless to deny that there are any problems. As Lim Guan Eng has cleverly put it, if you keep denying any problem exists, then you won't be looking for solutions. It is as simple as that.

Tuesday, April 03, 2012

The Main Streeter Portfolio

Just a quick update on the portfolio, which is pretty much no update. There has been no transaction since end-Dec. Although it appears that the worst of the Eurozone crisis is over, there are still some uncertainties abound globally.

In the local scene, the KLCI has breached the all-time high and also the strong psychological 1,600 resistance. Will the rally be sustained, or will it lose steam and falter below the 1,600 mark again? This depends a number of things, which I believe I am bound not to divulge as it would conflict with my research done for my company, which I am actually paid to do.

Nonetheless, here is the portfolio update:

31 Mar 2012
Current Market Price: RM3.04
Cash Balance: RM90,048.48
NAV per share: RM1.0221

Disclaimer: All company analyses, including the paper portfolio that appear in this newsletter are derived from facts gathered from various sources and the contributors' personal opinions and for education purposes. It is NOT an invitation to deal in securities, and especially not a recommendation for buying or selling any stock. The contributor(s) do not guarantee the accuracy of the facts being presented. The accuracy of such facts are only as reliable as the sources that they are obtained from. Please consult your investment advisers before acting on any information provided by the analyses here. The authors most likely have interests in the stocks that are discussed in this website.

Volume 4 Issue 13: Intelligent Investing

The Disaster At Groupon

Since the middle of last year, I have harped on why Groupon was a sucky company and it was a sure-fire recipe for disaster. This was what the Groupon chart looked like in November 2011:

After yesterday's close, Groupon was at USD15.28, which was 41.2% off its post-IPO peak of USD26. Just imagine, in the short span of four months, an IPO subscriber of Groupon who did not sell off at USD26 would now by 41.2% poorer. In annualized terms, that is a plunge of 83.8%. And I have said time and again, which I simply can't stress enough, the arithmetic of investing is cruel. To break even at this point, from the lowly price of USD15.28, the "investor" would now have to gain 70.2%.

From a market-timing perspective, the S&P500 is very close to its all-time high. This means that there is no way that a market rally is going to carry Groupon back to its pre-crash price. Given all the hanky-panky that is going on (more here), I seriously doubt even a miracle can help them.

The Groupon model wasn't very sustainable to begin with. Out of all the companies that use Groupon to promote their products, only a handful have sustainable businesses due to high product quality. The others are probably failing businesses which have resorted to discount pricing as a last resort to save their business. They simply did not have the quality or the delivery system to survive and customers who use their products generally do not return without the discounts provided by Groupon.

Monday, April 02, 2012

Surrounded By Assholes?

There are many reasons to visit the Malaysia Finance blog. Some go for his insightful views on the stock market, some go for his dry humor, while others go for the pictures of hot chicks that he posts. To each his own. But I think some of his best posts are the ones like these.

Sometimes, you can say so much by saying nothing at all.