Sunday, May 31, 2009

USD Weakness Underpinning Stocks' Climb

If you look at the cumulative show of economic indicators, we are seeing some recovery. Naturally, economists being good economists, will NEVER embrace them as signs of total recovery, but will question the sustainability - thats what pisses me off about economists, one of many things. While economic figures are good, the one binding factor which is sustaining markets globally is the weaker USD. That alone makes US stocks that much more attractive. If US stocks are not falling, chances are good that the rest of the world will not be falling.

The one reason that could shake the upward climb has to be the North Korean situation, so monitor it closely.

Improving vital signs across the globe - from US GDP to Japanese factory output and British house prices to German retail sales - raised hope on Friday that the world economy was responding after months in intensive care. The US economy shrank 5.7 per cent from the first quarter of 2008, less than the previous estimate of 6.1 per cent and slightly worse than market expectations for a 5.5 per cent fall. The report confirmed that economic activity declined for three straight quarters for the first time since 1974-1975, but US stocks rose in part on data showing corporate profits after taxes increased 1.1 per cent - the first increase in a year and a turnaround from a 10.7 per cent drop in Q4.

The potential General Motors Corp bankruptcy also hovered over the world financial picture as GM shareholders and bondholders braced for a Chapter 11 bankruptcy expected by Monday's restructuring deadline.

It's clear that based on the market action, that we've turned a corner in this economy. The question that I have is, when we get a clear view of what's around the corner, is it going to be better growth and moderate inflation, or is it going to be slow growth and bad inflation? While US stocks marked their third straight monthly advance, the dollar fell to five-month lows against a basket of currencies as an advance in global equities and signs of an easing global recession drove investors to snap up higher- yielding currencies and riskier assets.

Gold, metals and soft commodities also rose on the weak dollar. Oil rose to a six-month high above $US66 per barrel.

The United Auto Workers union ratified a new cost-cutting labor agreement with GM to clearing a major hurdle in the automaker's restructuring. With US and foreign automakers, suppliers, workers and retirees all holding a stake in the outcome, GM and Canadian auto parts group Magna International Inc also reached an agreement in principle that could rescue GM unit Opel. The GM saga is also a test for US President Barack Obama, hoping for a quick resolution of the process in which the US Treasury would temporarily hold a majority stake in the venerable US automaker. Obama got a boost when advisers to GM bondholders representing $US27 billion in the automaker's debt urged investors to support a debt swap negotiated with the White House over the past week. Bondholders have until Saturday to register their support for the terms of a deal that would give them up to 25 per cent of a reorganized GM. That offer is contingent on the US Treasury determining that enough investors have signed on in support.

In Asia and Europe, data pointed to signs of recovery. Japanese factory output rose 5.2 per cent in April, the biggest jump in more than half a century, and manufacturers forecast further gains, while South Korean industrial output expanded for a fourth straight month.

German retail sales showed a 0.5 per cent month-on-month rise in April, while private consumption for the first quarter rose a similar amount, despite a 3.8 per cent contraction in GDP. In Britain, house prices registered a surprise rise in May - the second time in three months - but economists were cautious. Indian GDP beat forecasts with growth of 5.8 per cent year- on-year in the March quarter, with strength in services and construction outstripping a decline in manufacturing.

p/s photos: Satomi Ishihara

Friday, May 29, 2009

A Quick Run-Through Of Global Real Estate Hotspots

Real estate is a cumbersome slow moving asset. Its not like stock prices which can move up and down a few percent on the same day. Real estate is however a reflection of liquidity, a wealth indicator, a confidence indicator, a leading indicator, and a lagging indicator as well, depending on how you argue and look at things. Hence it opportune to have a peek at some real estate hotspots to see if the surprising bull run ties in with the investing situation in real estate.


The Australian housing market downturn is likely to be milder than in the U.S., UK and EU in 2009. Australia's house price correction had a head start going back to 2003. Furthermore, housing demand from migrants to the commodities-rich west and the chronic housing shortage in eastern Australia will keep prices from stabilizing back at pre-boom levels unless Australia fails to avoid a deep recession. Indeed, building approvals and housing loans to owner-occupiers began to recover since October 2008 after the government doubled grants for first-time purchases of homes until December 2009. Mortgage interest rates fell to their lowest level in four decades after the Reserve Bank of Australia cut the overnight cash rate 425bp within a year to 3% in April 2009, the lowest since 1960. Tax cuts, government handouts and lower petrol prices will also raise the affordability of housing. Affordability may not mean higher house prices, though. Despite increased sales (new home sales in Q1 2009 rose 20% since end-2008), house prices fell 6.7% y/y in Q1 2009. Rising unemployment and lower household wealth will keep buying sentiment mild this year but, short of a deep recession, improved affordability and ongoing housing shortages will help Australia avoid a housing crash as bad as in the U.S. and Europe.

New Zealand

New Zealand housing market is in worse shape than Australia's but is also likely to avoid as deep a correction as in the U.S. and Europe. The Reserve Bank of New Zealand has cut 575bp since July 2008 to 2.5% in April 2009 but longer-term, fixed mortgage rates have recently begun to rise again due to expectations of a quick recovery and higher interest rates. Fiscal policy has been laissez-faire towards the recession, opting merely for tax cuts as the government would rather not stand in the way of the economy's structural adjustment. With housing assets 5.7 times the household disposable income, New Zealand property markets are even more leveraged than their U.S. counterparts. House prices fell 8% in 2008 and are down 9.2% y/y as of April 2009. Some analysts believe the housing market will bottom on an annual basis in 2009. The housing market has already bottomed on a month-over-month basis, with the median price rising from $325,000 in January 2009 to $340,000 in April. Immigration has revived housing demand and sales have been strongest in the low-end segment thanks to increased affordability. However, new building starts and new home sales remain below the boom levels of 2004 and will likely remain so due to credit constraints, rising unemployment and sluggish economic growth in the year ahead.

United Kingdom

The housing sector is one the most important factors affecting the economic slump in the UK, which is similar in many ways to the difficulties facing the U.S. economy. The latest data on the UK housing sector continues to be mixed but some analysts are tentative to call the bottom in Q2 2009. The latest Halifax price index fell 1.7% m/m in April with price levels back to 2004 readings. Nationwide data brought a 0.4% decline in April but the y/y contraction fell from 15.7% in March to 15% in April. Mortgage lending showed some signs of recovery in April according to the data from CML with a 9% m/m drop. Despite hopes of a recovery, lending is still 60% lower than a year. The monthly data could be quite volatile in the coming months, drawing a slow bottom-like pattern. A real recovery of the housing sector will depend on improvement in the personal income and employment situation in the economy, which are not yet foreseen.


Asia has witnessed sharp real estate correction led by the Asian Tigers, plus China, India and Vietnam. All these markets saw declining home and office prices and rentals, lower sales and rising vacancies. Prices are approaching fundamental values and slowing construction activity might somewhat close the estimated excess supply. But further price and rental correction are imminent. This because household and corporate demand will remain subdued in 2009 despite policy measures such as interest rate cuts and fiscal incentives as well as attractive discounts offered by realtors. Slowing or contracting consumer spending and rising job losses in most economies are hitting residential and retail markets. Slowing corporate earnings and capex, declining exports and liquidity crunch are weighing down on commercial real estate. Though banks are reducing exposure to the real estate sector, lower earnings among realtors and income pressures among consumers are raising the risk of delinquencies. Nonetheless, as the global liquidity crunch abates overtime, high growth potential and attractive returns, given rising incomes and urbanization in developing Asia, will revive domestic and foreign investor interests in Asia's real estate.


Unlike many global markets, the residential property market in China is showing some signs of stabilization. Significant price discounting, lower mortgage rates, incentives and overly ample credit extension are contributing to an increase in transactions and helping to reduce the existing inventory. Chinese property prices began falling in mid-2008 as anti-speculation measures and slower economic growth reduced investment. However, transactions could slow if authorities rein in lending growth in mid-2009. Commercial property has yet to show signs of recovery. The global capex retrenchment is also putting pressure on commercial property as it delays some expansion plans especially by foreign companies. Although domestic companies are somewhat less affected, a slower pace of consumption growth may weigh on both office and retail property markets.


The HK real estate seems to be bubbling up again at least in terms of sales to investors as increased credit availability, and a weakening US and Hong Kong dollar, encourage investment. However, new tenants remain scarce and vacancies are on the rise, suggesting further downward pressure on prices, especially as Hong Kong’s economy, including the financial sector, continues to contract and consumption weakens.


Home prices in India have corrected 15% to as much as 40% in some prime areas since September 2008. The recent pick-up in demand due to discounts by realtors and mortgage rate cuts by banks will be largely outweighed by the excess supply of homes in the market. So another 15-20% price correction is underway in residential and office markets over the next 6-to-8 quarters. This is especially because bank lending standards have tightened, households face wealth erosion and slowing job market, affordability remains low and corporate sector faces liquidity pressures. Mall construction and rentals have taken a hit and so have activity and employment in the construction sector. Drying funding from foreign investors and domestic equity market is forcing the indebted real estate firms to divest shares to raise capital, hold back expansion plans, and refinance bank loans which has been helped by recent central bank measures.


Singapore's real estate sector started moderating in Q2 2008 and home and office prices witnessed record decline of over 10% in Q1 2009 with rents also falling sharply. Another 15% to as much as 25% correction is expected in the residential sector and may be even higher in the luxury section. Woes in the financial and service sectors, negative wealth effects among households and shrinking population due to outflow of laid-off immigrants – all will weigh down on residential and retail real estate. This will be exacerbated by falling speculative investment due to tight domestic and foreign liquidity.


Vietnam's property prices are down over 30% in some markets with luxury section taking the biggest hit and office rentals showing steep decline. Though realtors have been cutting prices and banks are resuming lending, demand has been slow to pick up. Investors also remain reluctant to enter the market since they largely depend on foreign liquidity. The sector is unlikely to improve in 2009 and this will be exacerbated by lower investment via remittances and FDI.

Economic downside risk in Japan was highlighted when exports plummeted by 49% year-over-year in February. The steep decline in exports, a key driver of economic growth, stemmed from faltering global demand and the strong Japanese yen. Amid the dramatic drop in external trade, domestic consumption slowed in the quarter as well. The government reports that, on a year-over-year basis in February, household spending shrank 3.5% and retail sales contracted by 5.8%, the steepest decline in seven years. Imports declined 43%. Bank of Japan’s latest tankan survey in March shows that large manufacturers turned more pessimistic about business prospects, which does not bode well for industrial production or the labor market. Indeed, the unemployment rate rose to 4.4% in February, a three-year high. The excess capacity resulting from the collapse in demand and consumption has increased the risk of deflation. Headline inflation contracted by 0.1% in February. In one of the few bright spots in the Japanese economy, bank lending in Japan grew by nearly 4% year-over-year in January and February, much higher than the growth during the same months last year.
Commercial land values are falling. Land prices in the three major urban areas (Greater Tokyo, Nagoya and Osaka) in January declined by 5.4% year-over-year, the first drop in four years, according to the government. The decline was more pronounced in Greater Tokyo, where the government said that prices dropped 6.1% in January. Meanwhile, the tightened lending policies adopted by banks, coupled with the difficult business environment, have pushed up the number of companies filing for bankruptcy. In the first two months of 2009, corporate bankruptcies rose 25.5% over the previous year. That helped prompt a rise in office vacancy in Tokyo’s five wards to 6.1% in March, from 4.7% at year-end 2008. Vacancies are likely to rise further as companies consolidate their space requirements. Newly constructed buildings will be hard to fill as demand dwindles. We believe that weak demand will persist this year and competition for tenants will lead to more concessions from landlords – rental discounts, longer rent-free periods and other incentives. With demand for class-A office space likely to remain soft and rents under pressure, cap rates for class-A offices will likely rise in the quarters ahead, possibly by 10-30 bps. Commercial land prices will see further downside as well. Residential land prices are also falling. Land prices in the three major urban areas declined by 3.5% in January from a year ago, according to the government, which said that the decline was a bit steeper, 4.4%, in Greater Tokyo. The volume and velocity of transactions has slowed sharply. In Tokyo, only 621 new condominium units were marketed in January with a contract ratio of 67%. The number of unsold units stood at about 4,200 units at the end of January, almost double from a year ago. As part of the national budget for fiscal year 2009, the government has included steps to rejuvenate housing demand that include tax breaks of up to 6 million yen for home buyers who move into their property in 2009 or 2010. The amount of the tax break will be lowered gradually after 2010.

REIT Markets
REIT markets in Asia posted mixed results in the first quarter. REITs gained in Hong Kong (14%) and Malaysia (5.3%), but J-REITs and S-REITs posted negative returns, as investors raised concerns about refinancing issues. Still, REITs mostly outperformed the broader equity markets, possibly because investors were attracted by the deep discounts to net asset values (NAV) and higher dividend yields.

Total Returns, REITs vs. All Equities

1Q09 / 2008 / 2007 / 2006 / 2005


Hong Kong 14.0% / -28.9% / 10.4% / 9.8% / 2.0%
Japan -4.7% / -49.0% / -2.3% / 29.7% / 13.5%

Malaysia 5.3% / -14.8% / 17.8% / N.A. / N.A.

Singapore -1.1% / -56.1% / 2.8% / 57.9% / 22.2%

All Equities

Hong Kong 0.2% / -52.4% / 40.3% / 32.6% / 11.3%

Japan -8.9% / -41.4% / -11.3% / 2.9% / 47.4%

Malaysia 1.0% / -39.7% / 43.0% / 31.4% / 1.1%

Singapore -3.7% / -50.9% / 22.1% / 33.9% / 16.1%

Indeed REIT yield premiums ranged from 569 to 940 bps above long-term government bond yields. As of the end of March, the region had 83 REITs with a total market capitalization of US$44.4 billion, which is moderately down from US$45.2 billion at end of last year. The weighted average dividend yield fell by 30 bps in the first quarter, to 8.2%.

Market Cap and Dividend Yields of Asian REITs

No. of REITs / Market Cap (US$ bil.) / Average Dividend Yield / Risk-free Rate /* Risk Premium (bps)
Japan 41 / 26.28 / 7.03% / 1.34% / 569

Singapore 21 / 9.93 / 11.40% / 2.00% / 940

Hong Kong 7 / 6.92 / 7.80% / 1.93% / 587
Malaysia 11 /1.10 / 10.80% / 1.89% / 891

Korea 3 / 0.17 / 10.60% / 4.68% / 592

Total 83 / $44.4 / 8.20% (weighted average based on market cap)

p/s photos: Zhou Weitong

Tuesday, May 26, 2009

Randy Roubini, Not That There's Anything Wrong With That!

Its a tough life being Nouriel Roubini. He has been written disparagingly a number of times for his now famous parties at his NY loft. Party-having economist Nouriel Roubini is no longer inviting reporters to parties in his vagina-studded we hear! *(A single tear)*

So, what makes his parties so great?

"Fun people and beautiful girls," Roubini said, grinning. "I look for ten girls to one guy." His friend Bill Clinton, he added, is a fan of this ratio.

Nouriel Roubini has quite the reputation. A Turkish-born Iranian-Jew that was educated in Italy and the US, Roubini’s name recognition shot through the roof after his stubbornly bearish outlook on the US economy turned out to be true. Since 2008, the head of RBE Monitor has made countless appearances on most of the network business news channels, pushing his gloomy views of the US, and the world economy in general. His private party boy life came into mainstream media when a leaked email which Roubini invited his friends to one of his parties, boasting Scarlett Johansson had moved in upstairs to him having paid more than he had for his. Details of the artwork in his loft were rumoured to resemble some aspect of the female genitalia. Hilarity ensued when the Gawker started referring to Roubini as the “playboy professor” who inhabited a “vulva” and “vagina-encrusted Tribeca loft”.

Its bound to happen when you are so high profile. I like it when business experts and professors can party, it shows they have a good sense of balance between professional work and play time. I am also happy to see that my subscription to RGE is being well spent.

State Wealth Funds, Only In Malaysia

Well, we didn't know that our country can actually support so many sovereign wealth funds. A bit of trivia, the most number of monarchies in the world reside in Malaysia, by virtue of our Sultanate states within the country. Looks like we will have the most number of sovereign wealth funds within a country as well soon. Obviously, the Penang's initiative is to "counter reflect" how audacious the move by Terengganu was, and not an entirely genuine request. I guess Penang leaders will argue that it is genuine if we all treat things at face value.

The key point is that the Federal government will act as guarantor for the bond issuance by Terengganu. A similar backing will almost allow any state to start their own sovereign wealth fund, or should I say, state wealth fund. Cynical yet smart, now Federal government has to come up with a reasonable rebuttal on how to say no to Penang.


The Penang government today sent a proposal and letter to Prime Minister Datuk Seri Najib Tun Razak office, seeking the approval from the federal government a guarantee of RM5 billion for the creation of Penang Sovereign Wealth Fund.

Chief Minister Lim Guan Eng said the fund to be known as Penang Investment Authority (PIA) shall be capitalised at RM5 billion, to be raised via an Islamic Bond issuance, fully guaranteed by the federal government. "PIA is something similar to the Terengganu Investment Authority (TIA), where the fund is to be given to Penang to carry out the state's high-impact economic projects with high-end value," he told reporters after receiving a courtesy call from a delegation comprising members of the Thailand Senate Committee of Foreign Affairs here today. TIA, which was set up in February this year, will have an initial fund size of RM11 billion, with RM5 billion to be raised from the capital market on the back of a government guarantee and the remainder to be raised through the assignment to TIA of some of the future oil royalties due to the Terengganu state government. Lim said if the federal government can guarantee in support of the PIA with RM5 billion, the state government was confident of raising another RM5 billion.

"With RM5 billion guarantee from the federal government, we believe we can raise another RM5 billion to carry out infrastructure works, research and development and education projects for Penang. "We are not asking for another RM11 billion, we are only asking for RM5 billion guarantee from the federal government," he said. In the letter to Najib who is also the Finance Minister, Lim stated that the state government has identified several economic activities as key growth drivers for the state over the next five to 10 years. He hoped for a fair treatment from the federal government, saying Penang was are also in dire need of infrastructure projects. He said all the projects were crucial in order to turn Penang into an international city to be a destination of choice for tourists, a location of choice for investors and a habitat of choice for those who desire sustainable living. - BERNAMA

p/s photo: Fasha Sandha

Monday, May 25, 2009

How To Speak Like Obama

One of the main reasons why Obama is so popular and effective is his oratory skills. Yes, oratory skills can be honed. You can actually improve your public speaking skills by joining Toastmasters. You will learn how to develop the necessary skills in engaging your audience, build on your subject matter, learn about delivery, phrasing, etc... To get to Obama-level, you need natural charisma, much like JFK and Martin Luther King. Leadership qualities, to a large extent can also be honed, but to be a natural leader where people instantly look up to you is a quality that is hard to find. I have come across a few articles that tries to look at how Obama works his oratory skills. Here are the main points:

a) Always know your audience, their expectations, their anxieties, their concerns. When you speak to a group of parents-teachers, its different, when its with union workers about to lose a lot of jobs, its different, when its in front of TV, its different, when you are speaking to political reporters, its again different.

b) Following on the first point, you then broadly define the issues at hand, bring up the context of issues in the audience's perspective, show that you know what they are concerned about. Anticipate what they are thinking. Bringing up points on both sides of the issue and clarify your stance. Justify your stance. At the same time, you must not be seen to be playing your audience - hence you must show integrity, honesty, pragmatism and be realistic about the issues.

c) You have to learn to pause, to allow the audience to reflect and absorb the points. You need to build up your argument and thesis and let your words resonate. When you rush past prepared text, you will lose the impact key words and phrases can have on the audience... e.g. "yes, we can" long pause...

d) Use short phrases. Use phrasing techniques to bring your audience along, like a boat ride, riding out each wave of euphoria and reflection.

e) Be aware of your body language. No fidgety movements. Eye contact and facial expression must be correlate. You have to rehearse how to maintain calmness. If you have to flip pages, do it slow and deliberate. Always look out to the audience as if you were commanding the troops.

f) Always have a good beginning, a casualness (or light hearted humour) to embrace the audience to your side before you launch into your speech. Be aware that you do not climax in your speech too soon, you need to b uild it up, much like a conductor writing the various parts for his orchestra - you want to bring things to a crescendo.

g) Always end well, with the key phrase or what the audience should get from your speech.

A person even of Obama stature cannot do all things by himself. In Obama's case, he has a very very good speechwriter in Jon Favreau. Though only 27, he has the necessary energy and idealism to act as the sounding board. He has the tenacity to understand various tough issues, and drive through the points in a clear way in line with Obama's political views and leanings. That is not an easy task. He has to write the way Obama is thinking, and even the way he usually speak, because if not the speech will sound contrived and regurgitated.

Its not easy to speak well with integrity and class.

p/s photos: SPEED is an all Okinawan female J-pop group

Interview With Charlie Munger

Just who is Charlie Munger. To many people he is the other half of Berkshire Hathaway. Buffett's partner, sounding board, confidant, strategist, etc... Charlie has often allowed Warren to hog the limelight, but his contribution has been significant as well. Just read Warren's notes and memoirs.

Charles T. Munger is a man of many interests, much like his hero Benjamin Franklin. Self-taught in a range of disciplines, he's a strong advocate for interdisciplinary education saying, "If I can do it, many people can." A student of physics and mathematics before entering law school, he left his mark on the legal profession early in his career by co-founding Munger, Tolles & Olson in 1962—a firm that is today consistently ranked at the top of its field. Now an icon of the business world, he joined forces with Warren Buffett in the mid-1960s—leaving law to become vice chairman of Berkshire Hathaway and a partner in one of the most successful firms in the world.

Over the years Munger has gained a reputation as something of a no-nonsense voice for sound investment strategies and responsible business practices—as well as simple common sense. But lately it is the mythical Greek character Cassandra who is much on his mind. After living through the Great Depression, serving in WWII, and entering the business world in an era of restraint and sensible regulation, he is irritated by what he calls "the asininities" of today's government and business leaders that led to the current crisis. He saw the financial train wreck coming and voiced his concerns loudly. But almost no one shared them.

"It is painful to see the tragedy coming, to care about all the people who are going to be clobbered, and not to be able to do one damn thing about it," said Munger, as we prepared for the interview that follows. As the nation navigates through this crisis, entering waters previously uncharted, perhaps the powers that be will be more willing to address issues previously ignored.

Joseph Grundfest is the W. A. Franke Professor of Law and Business is more than familiar with many of Munger's complaints. A former commissioner at the Securities and Exchange Commission (SEC) and counsel to the President's Council of Economic Advisers, Grundfest is today a prominent voice for sense and responsibility in corporate governance. Grundfest founded Stanford's Directors' College, the premier venue for continuing education of directors of publicly traded firms, and also founded the award-winning Stanford Securities Class Action Clearinghouse, which provides detailed, online information about the prosecution, defense, and settlement of federal class action securities fraud litigation. His scholarship focuses on matters related to securities fraud, complex litigation, corporate governance, and statutory interpretation, and his name regularly appears on lists of the nation's most influential attorneys.

GRUNDFEST: I'll begin with two words: Bernie Madoff. What do you think "l'affaire Madoff" teaches us about the operation of our financial system?

MUNGER: One of the reasons the original Ponzi scheme was thrown into the case repertoire of every law school is that the outcome happens again and again. So we shouldn't be surprised that we have constant repetition of Ponzi schemes.

And of course there are mixed schemes that are partly Ponzi just shot through American business. The conglomerate rage of buying companies at 10 times earnings and issuing stock time after time at 30 times earnings to pay for them was a legitimate business operation mixed with a Ponzi scheme. That made it respectable. Nobody called it illegal. But it wasn't all that different from mixing a significant amount of salmonella into the peanut butter.

Harry Markopolos, a hedge fund expert, sent a detailed memo to the Securities and Exchange Commission (SEC) articulating why Madoff must have been a fraud. The SEC did nothing with it. We don't know the reason why, but I'm willing to suggest that the lawyers who received Markopolos's warning simply didn't understand the finance or math that Markopolos relied on.

Lawyers who only know a mass of legal doctrine and very little about the disciplines that are intertwined with that doctrine are a menace to the wider civilization.

Why didn't the SEC understand the warning that was clearly placed at its door?

The SEC is pretty good at going after some little scumbag whom everybody regards as a scumbag. But once a person becomes respectable and has a high position in life, there's a great reticence to act. And Madoff was such a person.

Why aren't our regulators capable of addressing many of the issues that we confront in the market today?

Most of them plan to go back to living off money made in the system they are supposed to regulate. You can argue that financial regulation is so important that no one in such a position should ever be allowed to do as you partially did—serve and then leave to make money in the regulated field. Such considerations led to lifetime appointments for federal judges. And we got better judges with that system.

So government service should be a little like a monastery from which you can never escape?

What you can opt to do is retire, which is pretty much what our judges do.

What about the idea that investors should be able to fend for themselves?

We want the sophisticated investor to protect himself, but we also want a system that identifies crooks and comes down like the wrath of God on them. We need both.

And here I think what's intriguing is we have a failure of both.


As we look at the current situation, how much of the responsibility would you lay at the feet of the accounting profession?

I would argue that a majority of the horrors we face would not have happened if the accounting profession developed and enforced better accounting. They are way too liberal in providing the kind of accounting the financial promoters want. They've sold out, and they do not even realize that they've sold out.

Would you give an example of a particular accounting practice you find problematic?

Take derivative trading with mark-to-market accounting, which degenerates into mark-to-model. Two firms make a big derivative trade and the accountants on both sides show a large profit from the same trade.

And they can't both be right. But both of them are following the rules.

Yes, and nobody is even bothered by the folly. It violates the most elemental principles of common sense. And the reasons they do it are: (1) there's a demand for it from the financial promoters, (2) fixing the system is hard work, and (3) they are afraid that a sensible fix might create new responsibilities that cause new litigation risks for accountants.

Can we fix the accounting profession?

Accounting is a big subject and there are huge forces in play. The entire momentum of existing thinking and existing custom is in a direction that allows these terrible follies to happen, and the terrible follies have terrible consequences. The economic crisis that we're in now is, in its triggering circumstances, worse than anything that's ever happened.

Worse than the Great Depression?

The economy hasn't contracted as much as during the Great Depression, but the malfeasance and silliness, the triggering events for today's crisis, were much greater and more widespread. In the '20s, a tiny class of people were financial promoters and a tiny class of people were buying securities. Today, it's deep in the whole culture, and it is way more extreme. If sin and folly get punished appropriately, we're in for a bad time.

And do you see a chance that our current economic woes could reach to a level closer to the Great Depression?

Well, nobody can predict that very well because we've never faced conditions as extreme.

Very few people realize how much we've screwed up. Even in leading law schools and business schools very few people realize that the mess at Enron never could have happened if accounting customs hadn't been changed. What we have now is a bigger, more widespread Enron.

When the regulators put in the option exchanges, there was just one letter in opposition saying "you shouldn't do this," and Warren Buffett wrote it. When they wanted to make the securities market function better as a gambling casino with vast profits for the people who were croupiers—there was a big constituency in favor of dumb change. Buffett was like a man trying to stop an elephant with a pea shooter. We're not controlling financial leverage if we have option exchanges. So these changes repealed longtime control of margin credit by the Federal Reserve System.

You get unlimited leverage.

Unlimited leverage comes automatically with an option exchange. Then, next, derivative trading made the option exchange look like a benign event. So just one after another the very people who should have been preventing these asininities were instead allowing foolish departures from the corrective devices we'd put in the last time we had a big trouble—devices that worked quite well. The investment banks of yore, chastened by the '30s, were private partnerships, or near equivalents. The partners were dependent for their retirement on the prosperity of the firms they left behind and the customs and culture they left behind, and the places were much more responsible and honorable. That ethos, by the time the year 2006 came along, had pretty well disappeared. Our regulators allowed the proprietary trading departments at investment banks to become hedge funds in disguise, using the "repo" system—one of the most extreme credit-granting systems ever devised. The amount of leverage was utterly awesome. The investment banks, to protect themselves, controlled, to some extent, the use of credit by customers that were hedge funds. But the internal hedge funds, owned by the investment banks, were subject to no effective credit control at all.

You and your partner, Warren Buffett, have for years warned about the dangers of the modern derivatives markets, particularly credit derivatives, and about interest rate swaps, currency swaps, and equity swaps.

Interest rate swaps have enormous dangers given their size and the accounting that has been allowed. But credit default derivatives took that danger to new levels of excess—from something that was already gross and wrong. In the '20s we had the "bucket shop." The term bucket shop was a term of derision, because it described a gambling parlor. The bucket shop didn't buy any securities. It just enabled people to make bets against the house and the house furnished little statements of how the bets came out. It was like the off-track betting system.

Until the house lost its money and suddenly disappeared. Or the house made its money and suddenly disappeared.

That is right. Derivatives trading, with no central clearing, brought back the bucket shop, because you could make bets without having any interest in the basic security, and people did make such bets in the billions and billions of dollars. Some of the most admired people in finance—including Alan Greenspan— argued that derivatives trading, substituting for the old bucket shop, was a great contribution to modern economic civilization. There's another word for this: bonkers. It is not a credit to academic economics that Greenspan's view was so common.

Isn't it ironic in a sense that what we now have is a world in which every major financial institution is a federally chartered bank.

We had a rule that a business couldn't also be a deposit-insured bank, because we didn't want every business to be able to use the government's credit to do anything it wanted. It was a profoundly good idea to prevent the banks from being in other businesses.

Well now, when the captive finance companies like General Motors Acceptance Corporation are too big to fail and get in trouble, we give them a bank charter so that a company whose main interest is to preserve employment in Michigan gets to use the government's credit in huge amounts to sell more cars. This is crazy. Our whole regulatory system was long designed to prevent what we're stumbling back into as a reaction to a crisis. We do not need a bunch of non-banks with unlimited access to the government's credit.

So some of the steps that we're putting in place now to try to correct the problems are creating new problems.

Yes. We're also recreating old problems because we're reacting hurriedly to a crisis.

I think it's a given that you have to change General Motors in order to save it.

Well, of course. But count on some changes being silly.

The Federal Reserve is today buying assets that it wouldn't have even considered looking at a year ago.

I think the problem is so extreme that nothing non-extreme has any chance of working. I like the fact that it is so willing to do things that have never been done before, because we have problems that we have never seen before. I am a right-wing Republican, and I like the fact that Obama has put into the White House Larry Summers, who is a ferociously smart human being and will try to do the right thing even if it offends some people. I think that's a quality that we need right now.

What do you think of the job that President Obama is doing so far?

Given the circumstances, I think he's doing very well indeed. I don't want to trade him in at the moment for any other Democrat.

Do you have any views on the fiscal side of things—the mix of fiscal stimulus, tax cuts, and the like?

We have to save the financial system, in spite of our revulsion about the way many of its denizens behave. We also need a huge spending stimulus from the federal government. We have a whole lot of things that are worth doing. By and large, the president does not plan to have people standing around holding shovels in the middle of some forest. He is talking about fixing infrastructure and so on. In the city of Los Angeles, where I live, the streets are a disgrace compared with the streets in Japan. Japan had so much fiscal stimulus that you can't find a pothole on a side of a mountain.

As part of the response, the U.S. government and governments worldwide are printing money at a rate that is absolutely unprecedented. Should people be worried about deflation?

Sure. But the dangers from what we have to do are less than the dangers that would come if we responded much as we did in the '30s.

I think it is dangerous to have big disasters in a modern economy. I regard pre-World War I Germany as an advanced, decent civilization. After all, little Albert Einstein got a very good, subsidized primary education in German Catholic schools. But in its economic misery, Germany became dominated by Adolf Hitler. We've seen some god-awful people come to power in various miseries in various countries. Enough misery has huge dangers in a world where we have new pathogens, atomic bombs, and so forth. So we can't afford to have huge economic collapses. I think we have to do what we're doing. We're hooked. And so are the other advanced nations.

What I'm hearing from you, Charlie, is "so far so good"?

It is very reasonable to react with the extreme vigor that's been shown. In retrospect the vigor wasn't quite enough. I would argue that it was pluperfectly obvious the government had to save all these banks and major investment banks.

So on a scale of 1 to 10, how big a mistake was it that they let Lehman Brothers go?

I don't think that was a mistake. You can't save everybody. That would have created unlimited revulsion in the body politic. I probably would have let Lehman go, too.

Even though the market seized up very dramatically afterwards and we had some of the most difficult short-term financial consequences of that failure?

We needed a total correction to a system that was evil and stupid. You can't have a rule that no matter how awful you are, you're always going to be saved. You have to allow some failure. We don't need all our bright engineers going into derivative trading and hedge funds and so on. We need some revulsion.

How and why do you think economists have gotten this so wrong?

I would argue that the economists have not been all that good at working concepts of good and evil into their profession. Nor do they understand, at all well, the economic consequences of bad accounting.

In fact, they've made a profession of driving value judgments out of the subject.

Yes. They say it's not economics if you think about the consequences of good and evil, and good and bad business accounting. I think what we're learning is that when you don't understand these consequences, you don't have an adequately skilled profession. You have big gaps in what you need. You have a profession that's like the man that Nietzsche ridiculed because he had a lame leg and was very proud of it. The economics profession has been proud of its lame leg.

So in order to cure the lame leg, you would lean more toward an approach to economics that takes human nature into account?

If you totally divorce economics from psychology, you've gone a long way toward divorcing it from reality.

The same could be said of psychology. If you divorce economics from psychology...

That's what's wrong with psychology professors. There are so few of them that know anything about anything else. They have this terribly important discipline that all the other disciplines need and they can't communicate that need to their fellow professors because they know so little about what these other professors know. This is not an unfair description of much of academia.

You've often said that one of the keys to your success has simply been to avoid making the garden-variety mistakes that you see other people make.

Warren and I have skills that could easily be taught to other people. One skill is knowing the edge of your own competency. It's not a competency if you don't know the edge of it. And Warren and I are better at tuning out the standard stupidities. We've left a lot of more talented and diligent people in the dust, just by working hard at eliminating standard error.

If you had to characterize a few mistakes that you see executives making, which ones jump out at you?

An extreme optimism based on an inflated self-appraisal is one. I think that many CEOs get carried away into folly. They haven't studied the past models of disaster enough and they're not risk-averse enough. One of the very interesting things about Berkshire Hathaway is how chicken it is, how cautious, how low is its leverage. But Warren and I would not have been comfortable with more risk, entrusted with other people's net worths. There was no reason for our financial institutions to stretch as much as they did, with the leverage, the shady people and the compromises.

Let me play devil's advocate. People might say, "Wait a minute. I'm at bank A and I'm competing with banks B, C, and D, and they're running at higher leverage and the system is willing to give them that additional leverage and they're making more profits. Unless I operate at their leverage ratios, I can't pay my traders competitively and I will fail."

You've accurately described the way the culture generally works and you have seen in the present crisis how well it works for the wider civilization when everyone insists on not being left behind in lowering standards. I think the culture is simply going to have to learn to work more the way Berkshire Hathaway does, instead of the way Citigroup did.

Do we go back to the old partnership model?

It would be vastly better. The culture of Goldman Sachs as a partnership was morally superior and better for the surrounding civilization than the culture that came after it went public.

Do you think we're going to be able to go back to some of the more traditional models that you value?

A lot of it is going to be forced, so we'll go some in that direction. However, there are powerful forces intrinsic to the system that resist reform. But I have lived in my own life with responsible investment banking. When I was young, First Boston Company was an honorable and constructive firm and very much served the surrounding civilization. Investment banking at the height of this last folly was a disgrace to the surrounding civilization.

Looking forward, I think we'll be fortunate if we're able to muddle along with 0 to 1 percent growth, 2 or 3 years out.

If you're used to growing 3 to 4 percent per year and you go to no growth at all for 10 years, which is roughly what happened in Japan, then, as human tragedies go, that's not major. That's not the rise of Hitler. It's painful, but it's quite endurable.

Are you worried about China and the possibility of unrest there, given this global economic slowdown?

The people rising fastest in the Communist Party are engineers, and that's hugely desirable. The Chinese people have vast virtues intrinsic to their culture and their nature that make me optimistic that China will keep advancing. If China has to adapt to 4 percent growth instead of 10 percent growth, China will manage.

In many ways I see China and the United States as being natural allies. Both economies are tremendous importers of oil. It's in both of our interests to come up with effective, low-cost, clean energy solutions. Yet we have these perpetual frictions that tend to dominate the debate. Any views on that and what we could do to address those questions?

China is a nuclear power with more than a billion people, talented, driven, and achievement-motivated. I think we have no practical alternative but to get along with China. I think, properly handled, our relationship can be a big plus.

Getting back to prospects for growth, I would bet on technology.

We think alike. And we may even take our present misery and use it to boost our chance of ending up where you and I want us to go. We probably have a man in the White House who is quite friendly to this concept.

A crisis is...

We may be forced into much desirable change. If there aren't a lot of new jobs in derivative trading, maybe the engineers will have to do more engineering. If you look at the history of Berkshire Hathaway, you will find that time after time we did something that I describe as turning lemons into lemonade. Part of my Berkshire Hathaway holdings came from a dumb investment.

I didn't realize you made dumb investments.

I certainly did. I think it's part of a life lived right that you learn how to make some lemonade out of your lemons.

So turn the clock back. Imagine that you're a young law school graduate from a top law school, one of the top grads the same way you were several years ago, what advice would you give to a graduate looking at the world today?

Well, that's easy. I would avoid fields where prosperity depended to a considerable extent on misbehavior. I would not go into a plaintiffs' law firm. I would be afraid of what that would do to me. And I would want to work for people at a business that I admired, and I would take less money to do that.

p/s photos: Nozomi Sasaki

Sunday, May 24, 2009

Dissecting Nouriel Roubini

Just who is Nouriel Roubini? A lucky guy? Like I always say, if you are bullish or bearish long enough, you will eventually be right. My two New York fund manager friends who were down a few months back told me that Roubini is a party animal when he is not speaking like a diplomat on TV. Not that there is anything wrong with that!

The following is a revealing piece on him from The New Republic:

Some economists--strict academics mostly--have long considered Roubini a quack. They sneer at his approach, which is wide, deep, and deeply unconventional. When he travels, for instance, he says his research includes talking to "everyone from the airport cab driver all the way to the finance minister." One prominent economist who studies recession indicators recently slammed Roubini for his "subjective," "wild man" predictions because they don't always rely on econometric modeling. And Roubini certainly didn't help his case at an IMF conference in September 2006, when he guesstimated the chances of a world recession at 70 percent before offering, by way of explanation, that he had pulled the number "just out of my nose."

Anirvan Banerji, an economist with the Economic Cycle Research Institute, has been particularly dismissive of Roubini's forecasting abilities: "The average time between recessions is about five years in the postwar period," he says. "So, if you forecast a recession one year and it doesn't happen, and you repeat your forecast year after year ... at some point the recession will arrive."

And Roubini has undeniably overshot. In 2004, he predicted that the oncoming recession would precipitate the crash of the dollar. The crisis has mainly buoyed it. On September 1, 2005, three days after Hurricane Katrina made landfall, Roubini told Reuters that economic disaster was imminent. What followed instead was a bump in financial activity that forestalled the recession for more than two years.

Nouriel Roubini. Credit: Jonathan Twingley

Nouriel Roubini. Credit: Jonathan Twingley

All the while, though, Roubini understood better than anyone just how weak the fundamentals of our economy were. The day after the now-famous 2006 IMF talk, he went on "Kudlow & Company," on CNBC. Roubini was, as always, the foil to Kudlow's chipperness. "All my friends are in a great mood, Nouriel. They're in a terrific mood. They love America," Kudlow sang. Roubini countered starkly: "Well, they're all rich," he said. "The average American actually is in debt"--a sign to Roubini that housing would only be the catalyst of something larger.

What sets Roubini apart from his fellow economists (and what occasionally gets him in trouble) is his willingness to intuit broad patterns and connect the dots, something that became apparent early in his career. While others spent years refining one econometric model or drilling down on one microsubject, Roubini gorged on a range of diverse topics that, to him, were all related: Japanese public debt, tax evasion, liquidity and exchange rates, monetary policy in the newly formed European Union, the effect of political cycles on industrial economies. As a graduate student, he attracted the attention of older, more established academics both for his ambitiously sweeping econometric analyses and his ability to synthesize vast swaths of seemingly unrelated information.

But the first real test of Roubini's eclectic methodology didn't come until 1997. That summer, the government of Thailand--highly in debt and over-leveraged after a long and poorly regulated real-estate boom--cut its currency from its peg to the dollar. Investors panicked, and Thailand's surging economy froze, triggering massive layoffs in real estate, finance, and construction. The crisis, which quickly spread to the rest of the region, took most economists by surprise.

Roubini, by then a young professor at NYU, was trying to stay on top of the rapidly shifting situation in Asia for a class he was teaching. He found it nearly impossible until he hit on a relatively new technology: a website. He hired some students versed in HTML and set up the Asia Crisis Homepage. The bright yellow portal pooled news reports, academic work, and policy debates on the subject, filtering, organizing, and contextualizing the information in real time under no fewer than 32 headings.

Wading through the data on Thailand, Roubini found that corruption and bad policy created a vacuum that sucked in a flood of foreign capital. This skewed the country's financial reality and accelerated an unsustainable boom. (Roubini later spotted this distinctive pattern in the United States when the Chinese, Russians, and Gulf states were hungrily snapping up U.S. debt and inundating the market with foreign cash.) But, at the height of the Asian financial crisis, Roubini was, again, in the minority. Many economists saw it as a simple comedy of errors: Misinformed investors panicked, they said, and pulled the rug out from under the Thais. Roubini, on the other hand, saw the crisis as a systemic failure rooted in Thailand's policies. And he was right.

More than a decade later, Roubini-ism--sprawling, non-linear, and hypercaffeinated--looks pretty much the same. His prescient February 2008 blog post that predicted the Rube Goldbergian collapse of the world financial system, for example, was called "The Twelve Steps to Financial Disaster," but, if you include all the sub-steps and sub-sub-steps, the real number is likely twice that. On television, his talking points are similarly pluralized, rushing out quickly, like a magician's scarves, to a grand and logical finale. (At the diner, I clocked him: 295 words on the intricacies of the European monetary crisis in under 90 seconds.) This, of course, means that brevity goes out the window. Roubini's weekly Web column for Forbes comes in at close to 3,000 words and runs at half that length. A recent Roubini academic paper tracks no less than 47 emerging countries over the course of 32 years using more than 50 variables. Giancarlo Corsetti, who was Roubini's advisee at Yale and is now a frequent collaborator, presents with Roubini at conferences, and sometimes finds this expansive approach frustrating. "I go up, I present one or two points," Corsetti says. "Nouriel goes up and gives you twenty-six points, three or four of which are contradictory."

Robert Shiller, who also worked with him at Yale and was one of the first people to warn of a housing bust, isn't surprised that Roubini, of all the great minds staring down our financial future, emerged as the one to piece it together. "A financial crisis needs general thinking, and a team of specialists will have difficulty understanding the whole thing," he says. "Nouriel's approach has always been worldwide, which is not rewarded in academia. There's an element of luck in everything, but it's not random who he is."

This is what the life of a prophet looks like: Two days after we met at the diner, Roubini is back at the airport. He's off on another long jag--four continents, seven countries, eight cities, ten days.

He's been thinking a lot not just about the way down but the way out. With the help of the Obama administration's policies (not great, he says, but better than nothing), he sees "a light at the end of the tunnel." To actually get to the end of it, though, the United States will have to get used to consuming less, which means China, Germany, and Japan will have to get used to producing less, which means that all the intermediaries--Chile, Australia, Brazil--will have to scale back and turn inward like everyone else. The world may curve and warp a bit, and it will be difficult, but Roubini sees good in this. Given the right changes, perhaps the United States can develop with the productive long view in mind, and maybe its human talent can be spread more equitably. "When you have more financial engineers than computer engineers, you know that the brightest minds have gone into something where, probably, the margin was excessive," he had told me earlier. "Maybe some of these bright people are going to do something entrepreneurial, more creative, or go into government. I think that's actually a good change. The transition is painful, but the result may be good."

On the other end of the line, I can hear him fumbling with his luggage as he talks, and there's a sense of noble resignation in his tone. He hasn't had any rest since we met, but, he insists, "I cannot get sick. I can't stop." His is hard, life-shortening work, but someone has to tell the world that only its wholesale rewiring will get us out of this.

p/s photo: Rachel Maryam

The World's Biggest Debtor Nations

The world's biggest debtor nation is surprisingly not the USA. The best way to calculate that is to look at external debt as a percentage of GDP. When you go past 100%, its dangerous times. HK is surprisingly at #4 but one must also look at their financial balance sheet as a whole - HK is an anomaly. Looking at the list one can now easily understand why Milton Friedman thinks that the Euro is a very flawed currency, and may not even outlast one major recession - its happening now, let's see how things turn out.

1. Ireland - 811%

External debt (as % of GDP): 811%
External debt per capita: $549,819

Gross external debt: $2.311 trillion (Q4 2008)
2008 GDP: $285 billion

2. United Kingdom - 336%

External debt (as % of GDP): 336%
External debt per capita: $153,616

Gross external debt: $9.388 trillion (Q4 2008)
2008 GDP: $2.787 trillion

3. Belgium - 327%

External Debt (as % of GDP): 327%
External debt per capita: $155,362

Gross External Debt: $1.618 trillion (Q4 2008)
2008 GDP: $495.4 billion

4. Hong Kong - 295%

External debt (as % of GDP): 295%
External debt per capita: $93,539

Gross external debt: $659.93 billion (Q4 2008)
2008 GDP: $223.8 billion

5. Netherlands - 268%

External debt (as % of GDP): 268%
External debt per capita: $145,959

Gross external debt: $2.439 trillion (Q4 2008)
2008 GDP: $909.5 billion

6. Switzerland - 264%

External debt (as % of GDP): 264%
External debt per capita: $171,478

Gross external debt: $1.304 trillion (Q4 2008)
2008 GDP: $492.6 billion

7. Austria - 191%

External debt (as % of GDP): 191%
External debt per capita: $100,787

Gross external debt: $827.49 billion (Q4 2008)
2008 GDP: $432.4 billion

8. France - 168%

External debt (as % of GDP): 168%
External debt per capita: $78,070

Gross external debt: $5.001 trillion
2008 GDP: $2.978 trillion

9. Denmark - 159%

External debt (as % of GDP): 159%
External debt per capita: $107,026

Gross external debt: $588.7 billion (Q3 2008)
2008 GDP: $369.6 billion

T-10. Germany - 137.5%

External debt (as % of GDP): 137.5%
External debt per capita: $63,767

Gross external debt: $5.25 trillion (Q4 2008)
2008 GDP: $3.818 trillion

T-10. Spain - 137.5%

External debt (as % of GDP): 137.5%
External debt per capita: $57,091

Gross external debt: $2.313 trillion (Q4 2008)
2008 GDP: $1.683 trillion

12. Sweden - 129%

External debt (as % of GDP): 129%
External debt per capita: $73,245

Gross external debt: $663.58 billion (Q4 2008)*
2008 GDP: $512.9 billion

13. Finland - 116%

External debt (as % of GDP): 116%
External debt per capita: $62,579

Gross external debt: $328.56 billion (Q4 2008)
2008 GDP: $281.2 billion

p/s photos: Julie Hoi

Saturday, May 23, 2009

2,000 Movies All On One DVD!!!

How do you like to store 2,000 movies on ONE DVD.... a piracy business owner's nightmare, so too for movie companies and producers... how easy will it be to duplicate and transfer if you could store in the one DVD. You could be a traveling piracy dealer with just a notebook and that one DVD.

Dr James Chon of the Swinburne University of Technology, holds up a DVD containing new technology that can store data in five dimensions.

Dr James Chon of the Swinburne University of Technology, holds up a DVD containing new technology that can store data in five dimensions.

May 21, 2009

Australian scientists have unveiled new DVD technology that stores data in five dimensions, making it possible to pack more than 2000 movies onto a single disc. A team of researchers at the Swinburne University of Technology in Melbourne, have used nanotechnology to boost the storage potential nearly 10,000-fold compared to standard DVDs, according to a study published in the peer-reviewed journal Nature.

"We were able to show how nanostructured material can be incorporated onto a disc in order to increase data capacity, without increasing the physical size of the disc," said Min Gu, who led the team.

Discs currently have three spatial dimensions. By using gold nanorods Gu and colleagues were able to add two additional dimensions, one based on the colour spectrum, and the other on polarisation. Because nanoparticles react to light depending on their shape, it was possible to record information in a range of different colour's wavelengths at the same physical location on the disc. Current DVDs record in a single colour wavelength using a laser.

The fifth dimension was made possible by polarisation. When light waves were projected onto the disc, the direction of the electric field within the waves aligned with the gold nanorods.

"The polarisation can be rotated 360 degrees," explained co-author James Chon.

"We were, for example, able to record at zero degree polarisation. Then on top of that, were able to record another layer of information at 90 degrees polarisation, without them interfering with each other," he said in a statement.

The researchers are still working out the speed at which the discs can be written on, and say that commercial production is at least five years off. They have signed an agreement with Korea-based Samsung, one of the world's largest electronics manufacturers. Last month, US technology giant General Electric said its researchers had developed a holographic disc which can store the equivalent of 100 standard DVDs. - AFP/SMH

p/s photo: Huang Sheng Yi

Friday, May 22, 2009

The Best Malay Album Thus Far

I think this proposition would not result in any heated debate. One may quibble that all but one song were by P.Ramlee and not "original", but what is an album but a collection of songs, hopefully presented in a thematic way. Without doubt, Sheila Majid's Legenda album is so way way up there in terms of quality, musicality, the high level of musicianship, the superb production, the meticulous thought behind the concept and integrity of the album in order to be a fitting tribute to P. Ramlee - these were just some qualities attached to that album. The contribution and creative strategy by Jenny Chin, Fauzi Marzuki and Roslan Aziz cannot be understated. Sheila was all the way behind the conceptualisation of the album.

The album started off with a dream like sequence, as if it was beginning to tell a story, a dream of days where life was simpler and much better. Where good is good and people generally behaved better, where people do not have guess your motivations or motives, cause everyone regarded one another with sincerity and integrity. Where the girls were named Azizah or Fatimah, not Farah or Misha...

Liking Sheila was so easy. When she burst on the music scene, she was like a pocket dynamite... how can someone so smallish have such a powerful voice. Her first album Dimensi Baru was raw but had strong appeal. When EMOSI came out, that pissed a lot of people because suddenly Sheila Majid was the one Malay artiste whom every single young Malaysian can love and adore - there are still pockets of the Malay crowd that instantly does not like it when other "groups" embrace Malay culture.... you know who you are!!! Sheila solidified her status as the numero uno with the brilliant WARNA album. You go to her concerts, you will find truly all Malaysians going crazy. Safe to say, during those heydays, it was also a significant period where non-Malays were more open to embrace Malay pop. Maybe it was the quality of musicianship, maybe it was the the fact that we all studied all subjects in Malay except English, maybe it was just the right time, maybe it was just because we are Malaysians through and through ... It was a time when all Malaysians freely listened to Carefree, Black Dog Bone, Alleycats and of course the queen Sheila Majid.

Many of us thought after each progressively better album, what can Sheila come out with next. It was a long wait, but OMG, what an album in Legenda!!! You want to do a tribute to P. Ramlee, you better do something unique cause everybody has sung P. Ramlee.

The selection of the songs were broad based, there were the light hearted tunes, the classics but all were given a refreshing new take, either via the new beat or the instrumentation. Staying true to the melodies and not excessively improvising. The inclusions of the heart wrenching songs, similar to what I would call the torch-songs, such as Jeritan Batin and Di Mana Kan Ku Cari Ganti helps paint a full picture of P. Ramlee's talents and versatility.

The stable of musicians assembled were magnificent. Most significantly, listen to the wonderful contributions by Paul Ponnudurai on Aduh Sayang, Manusia, Bunyi Guitar and Larut Malam. Mac Chew's arrangement abilities and his sakuhachi on Legenda were superb.

The wonderful surprise was that of all the songs, there was basically only one original song, and considering that all were P. Ramlee's top songs (Getaran Jiwa, Engkau Laksana Bulan)... I think P. Ramlee would not disagree with me if I say that the one original song, Legenda, was better than any of P. Ramlee's songs on that album. The composers Fauzi Marzuki (melody) and Habsah Hassan (lyrics) were never more brilliant - the melody and the apt lyrics, OMG, talking about the confluence of all things possible. I certainly have never come across such thoughtful, heartfelt, passionate and revealing lyrics .... ever!

Sejuta bintang di angkasa
Sinarnya mempesona
Sebutir bintang di taman seni
Cahayanya berseri
Biar masa bertahun beredar
Satu wajah satu zaman takkan pudar

Tetap jelas di ruang mata
Setiap gerak gaya
Bergetaran merdu sinar
Di persada budaya
Hingga kini menjadi sebutan
Tetap terpahat namamu di ingatan

Kaulah satu satunya
Di antara berjuta
Insan teristimewa
Patah tak tumbuh lagi
Hilang belum berganti
Kerana kau tersendiri
Kau kebanggaan kita
Kau budayawan bangsa
Engkau lagenda

Kaulah satu satunya
Di antara berjuta
Insan teristimewa

Ironically, in doing the Legenda album, safe to say that by now, with her body of work, including Ratu, Ku Mohon and Cinta Kita... Sheila Majid is also a legend in her own right.

p/s my one quibble, I really think it should be "Lagenda" and not "Legenda"... and the following medley showcased why I love Sheila Majid:

Sharing The Music

Many of you might not miss my Radio Jukebox by Imeem. For those who do, the reason why I took the thing out was that Imeem finally settled with the music companies, in that when users put the jukebox outside of Imeem, they will only play each song for 30 seconds, which is quite annoying. So, I took it off. If you want to hear the full songs and playlists, you have to listen to them at the Imeem site. As in most things in life, they are a lot better when shared out. Those who liked my selections (I think I have over 30 playlists), you can access the songs through the site via my account:



password: Salvatore


(wait for 30 seconds)

It will then load all my songs playlists. Left click on any playlist will reveal the songs. Right click on the playlist, then click VIEW PLAYLIST will play the songs in a new tab.


p/s photo: Nia Ramadhani

Dissecting Temasek

Temasek now has a professional outsider as CEO following Ho Ching's resignation. Of course you can put a spin on the motivations and pressures and developments which led to that. Herein lies the trouble with many big asset management unit. Is it a personality driven outfit? Is there just one person dictating matters? Safe to say that Temasek have very well paid sector leaders managing their portfolio. How does the asset allocation strategy work? Every company has their own culture and ways of doing things. For a proper fund manager to work well, they have to believe what they bought and believe that when they sell, its their call. Anything else that gets in the way would diminish the "empowerment" element.

Good fund managers need to have the autonomy, yes they can be part of the strategy exercise on capital, currency and asset allocation meetings... but when the decision to buy and sell arrives, it has to be the fund manager's call. If everything is collective, then in the end, there will be no responsibility, as it is collective. Fund management is such that somebody has to take the blame or the glory. If you pay someone good enough, they won't mind doing things collectively.

How strong a personality in dictating matters, will somehow cloud the brilliance and contribution of top fund managers. Good fund managers have to be accountable, and to be accountable you have to let them live and die with their decisions. The decision to appoint an outsider, Charles Goodyear (ex-BHP) as CEO indicates to me that the powers to be want to make the entire organisation more like a proper fund management unit. That proper processes and boundaries properly laid out in making investment decisions.

Rightly or wrongly, too many investing decisions by Temasek have been on "relationship basis" such as the Indonesian banks and the ill fated Shin Corp deal. I am guessing here but those looked like decisions being mainly pushed and promoted by one person. The second part was that there was no understanding and appreciation of the "cultural nuances" when investing in sensitive big companies in your neighbouring countries. You cannot just treat these decisions purely on assets and liabilities, and expect the rule of law to fall into place. Certainly a fund as big as Temasek should know what they can do, should do and should tread carefully ... to me, thats where Temasek failed spectacularly over the past 10 years.


Hence when markets fall, it is not surprising to see the value of Temasek’s portfolio falling as well. The figure above shows major global stock indexes – nearly all of them have dropped more than 30 percent in 2008, with some losing more than 40 percent. The (not shown in figure) MSCI (Singapore) and MSCI (Asia ex-Japan) stock indices are good benchmarks for Temasek’s performance: 31 percent loss against the 44 and 45 percentage losses suffered respectively. Furthermore, Temasek’s drop “is exactly in line with the MSCI world share index”.

Temasek is also not the only ‘sovereign wealth fund (SWF)’ to lose money. According to The Economist’s report on 22 January this year, “Gulf foreign-reserve funds and SWFs (the distinction is often blurry) lost $350 billion last year, or 27% of the value of their assets”. Though Temasek has failed to produce results, it has not failed spectacularly, giving assurance to the public their money has not been squandered away. In fact a 31-point loss is arguably a better performance, given the context of the market.

Finally, Temasek is not plagued with structural financial problems. While it may have bled money in Barclays and Merrill Lynch, and also encountered problems with Shin Corp and the Indonesian government, it has made other sound investments too, such as in the Bank of China and China Construction Bank. Its losses are likely to be reversed once the recession ends, the banking system is fixed, and investors are once again confident in the markets. Public anger directed at Temasek over its losses, if any, is unreasonable – Temasek is not an immediate failure.

While the Western financial world fears an onslaught of SWFs with hidden agendas, Singaporeans fear that Temasek has skeletons in its closets. There are three broad categories of problems which Singaporeans can express some reasonable suspicions: Temasek’s lack of transparency, soundness of its investment strategy and Temasek’s relationship with the giant local companies here.

The first problem is a recurrent theme. A recent Wall Street Journal article summed it up nicely

“it has never provided historical financials to back up its claim of an 18% compounded annual “total shareholder return” by “market value,” nor has it released detailed results showing how money flows among its subsidiaries, the holding company and its government shareholder. Temasek outlines its compensation arrangements but doesn’t say how much it pays its top executives”.

What is the definition of ‘transparency’? Should Temasek publish its consolidated financial report like any other listed company, not just its summary – which is already quite detailed in stating its goals and investments? What stuff do Singaporeans want to see which is not publicly available?

The essence of this transparency issue is not regarding Temasek’s financial status, but more on its vague goals and the perception that it is a government-run body.

Temasek should be transparent for its own good – a pragmatic and financial purpose. Together with the GIC, they can detail their internal workings, goals and strategies to create a force of certainty and stability in the financial market. If Temasek, for no known reason, decides to give up its stake in a company, it will lead to speculations, rumours and uncalled panic, and Temasek will eventually be affected. More importantly, political tensions can be reduced in sensitive investments, as it has learnt in Thailand. Surely such benefits of transparency can better achieve its bureaucratically-crafted goal, “maximise long-term shareholder value as an active investor and shareholder of successful enterprises”?

The second problem is the soundness of Temasek’s investment strategy. Some have criticised it for pursuing a ‘high-risk strategy’, and so expose Singaporeans’ money to unnecessary losses. Temasek is not a low- or high-risk investor. Stashing money in fixed deposits or bonds are safe, but may not secure high returns. Similarly, pumping money into hedge funds or real estate speculation may offer higher returns, but Temasek is unlikely to be doing that. It is more likely Temasek is a mid-risk investor which made some bad decisions in Barclays and Merrill Lynch (Temasek’s losses cannot be fully attributed to just these two banks; as mentioned, it depends on the performance of stock markets worldwide).

Temasek holds stakes in companies in diverse sectors, ranging from financial services to consumer lifestyle to technology. Critics will jump at this again, arguing that diversification ought to act as a shock-absorber. However, 2008 was an unprecedented year where everything seemed to be going downhill. Even diversification may not work in such exceptional times, when confidence level is zilch in the market; but it will probably work once the economy recovers.

With the appointment of Charles Goodyear as chief executive, it looks set to diversify into asset classes such as commodities, where he has had experience. Benefit of the doubt can be extended to Temasek over its investment strategy, and Singaporeans need not be anxious that aggressive, high-risk investments will bleed them.

The third problem is the consistent link drawn between Temasek and companies where it is a stakeholder. Singapore’s commanding heights – the telecommunications, energy, industrial, transport and banking sectors – are anchored by local firms such as Singtel, Mediacorp, Singapore Power, SembCorp, PSA, SMRT and DBS. Some of these local firms were originally owned by the Singapore government to stimulate the growth of new industries, which then cut a route for private capital once viability was shown. As the economy grew, the government transferred part or all shares to Temasek, which is supposed to be an investment manager for the Ministry of Finance.

Temasek has stated clearly it is not involved in the commercial running of its companies. The evidence suggests so: in 2002, a battle was fought between DBS and 98 Holdings for NatSteel. Though Temasek owned shares in all three firms, there is no evidence to show it was the puppet master of this saga. Furthermore, Temasek firms such as SembCorp and Keppel compete actively against each other in their respective fields. Yet there are lingering doubts, especially when one of Temasek’s ‘investment themes’ is to ‘deepen comparative advantage’ – one can guess it means the ‘national champions’.

Singaporeans should be more rightly concerned at the government’s tendency to pick winners. The government’s current role in the economy is most prominent in their attempts to nurture dynamic comparative advantage in promising industries. Other countries do so through protectionism or creating state-owned enterprises to monopolise the industry, but Singapore does it through fiscal incentives and infrastructure investments to attract FDI. Electronics, pharmaceuticals, tourism, digital media etc – these industries are not grown from the bottom, but deliberately nurtured from the top.

The problem with this is not the government’s inability to pick winners – pharmaceutical output was partly responsible for vigorous growth before last year – but economic development in Singapore has reached a stage where orderly planning may not lead to the next frontier. Technological innovations and capital stock accumulation are required to expand the economy’s productive capacity; attracting FDI has done a fine job, but the next step must be taken. Singapore needs to unleash the local, so-called ‘creative forces’ for long-term growth.

Temasek is a prime example of the government’s belief of orderly mobilisation of resources to tap on market forces. Temasek’s grip on some local giants such as Mediacorp and Singapore Power may be essential for national security reasons, but ownership and control of the vital companies by foreign firms can be limited through regulations. But from a commercial perspective, Temasek owns shares in them simply because they are profitable. Not everyone believes so, again, due to their image problem of being government-directed.

Temasek and the local giants symbolise the sometimes unfathomable economic thinking of the government. On one hand, it says it does not interfere in the commercial running of national champions; on the other hand, its continued stakes in them evokes a nagging feeling the government believes such firms should still be tied to their aprons, for unknown reasons. The Singapore government combines a strange mixture of socialist and free-market thought in the economy –national champions, state-led planning, heavy public subsidies on housing, healthcare and education; free-trader, fiscally conservative and aversion to welfare as to polyesters.

To be sure, Singapore’s development can be identified as ‘dirigisme and free markets’. But it is time the state reduces its direct influence. Signs have been encouraging; the government decided on two casinos, and both are now being built by foreign firms, not TLCs or GLCs. The ‘creative forces’ can come from both local and foreign, but it’s unlikely they will come from the government.

p/s photos: Reiko Azechi

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