Wednesday, April 30, 2014

Japan's Deep Seated Problems Are Finally Surfacing

Great write up from Maudlin's site:

In case you are not familiar with the GPIF in Japan, it is the largest pool of government-controlled investment capital on the planet — outstripping even the infamous Arab sovereign wealth funds. The GPIF controls ¥128.6 trillion, or $1.25 trillion.

The GPIF holds almost 70% of its assets in bonds — and the vast majority of them are of the local variety. The reason for this is because the GPIF is (and has always been) run by bureaucrats from the Ministry of Health, Labour & Welfare, as opposed to, say, investment professionals.

Source: GPIF

How did that allocation to domestic bonds do last year? Well, as it turns out, not so great:

Q1 2013
Q2 2013
Q3 2013
Q4 2013
Total 2013
Domestic Bonds
Domestic Stocks
Int’l Bonds
Int’l Stocks
Source: GPIF

Fortunately, over the last twelve years the GPIF has managed to meet its targets — by growing at an annualized rate of 1.54%. In any other professional investing mantra, it is a pathetic figure.
Thankfully for the GPIF, despite their largest allocation throwing off negative returns, the BoJ’s actions in weakening the yen boosted the Nikkei, and the central-bank-inspired strength in equities and bonds elsewhere in the world helped GPIF’s performance to pass the smell test for 2013.

(Japan Times): The national average annual income of a local government employee was ¥7 million in 2006, compared to the ¥4.35 million national average for all company employees and the ¥6.16 million averaged by workers at large companies. Their generosity to even their lowest-level employees may explain why so many local governments are effectively insolvent: Drivers for the Kobe municipal bus system are paid an average of almost ¥9 million (taxi drivers, by comparison, earn about ¥3.9 million).

School crossing guards in Tokyo’s Nerima Ward earned ¥8 million in 2006. (Such generosity to comparatively low-skilled workers may explain why in the summer of 2007 it was discovered that almost 1,000 Osaka city government employees had lied about having college, i.e., they had, but did not put it on their resumes because it might have disqualified them from such jobs!) 

Furthermore, unlike private sector companies, public employees get their bonuses whether the economy is good or bad or, in the case of the Social Insurance Agency, even after they lose the pension records of 50 million people (2008 year-end bonuses for most public employees were about the same as 2007, global economic crisis notwithstanding).

In addition to their generous salary and bonuses, public servants get a wealth of extra allowances and benefits. Mothers working for the government can take up to three years’ maternity leave (compared to up to one year in the private sector, if you are lucky). Some government workers may also get bonuses when their children reach the age of majority, extra pay for staying single or not getting promoted, or “travel” allowances just for going across town. Perhaps the most shocking example Wakabayashi offers is the extra pay given to the workers at Hello Work (Japan’s unemployment agency) to compensate them for the stress of dealing with the unemployed.

Back in November 2013, a seven-member panel led by a Tokyo University professor Takatoshi Ito and convened by PM Shinzo Abe published its final recommendations for the future of the GPIF, and those findings set the behemoth on a course into far more turbulent waters:

(Pensions & Investments): The panel’s Nov. 20 final report said the GPIF’s 60% allocation to ultra-low-yielding Japanese government bonds — defensible in the deflationary environment of the past decade — should not be maintained in the inflationary one Mr. Abe has promised as a centerpiece of his quest to revive Japan’s economy.

The seven-member panel ... urged the GPIF and other big public funds in Japan to diversify into real estate investment trusts, real estate, infrastructure, venture capital, private equity and commodities, while shifting more assets to active strategies from passive and adopting a more dynamic approach to asset allocation.
Governance of those public funds, with combined assets of roughly $2 trillion, should be strengthened by making them more independent of the ministries that oversee them.

The recommendations make sense, but the challenges of revamping investments at a fund controlling such a large chunk of Japanese retirement savings will be considerable. To put the size of the GPIF into perspective, should the decision be made to allocate a mere 5% of its assets to a particular asset class, that would require the deployment of $60 billion.

The redeployment of those holdings of JGBs is likely to cause future problems, but that didn’t concern one of the GPIF panel members, Masaaki Kanno, an economist at JP Morgan in Tokyo, who, after the findings were published, made a couple of predictions:
(P&I): In a Nov. 20 research note, Mr. Kanno predicted the GPIF would be permitted enough flexibility to allow allocations to yen bonds to drop to 50% by the summer of 2014.
The Bank of Japan’s recent policy initiative to flood the market with liquidity, meanwhile, could set the stage for a seamless transfer of that huge amount of Japanese government bonds, Mr. Kanno said.

Eventually, Japanese government bonds should drop to between 30% and 40% of the GPIF’s portfolio — higher than the 20% to 30% range typical of leading public pension funds abroad to account for Japan’s rapidly aging demographic profile, Mr. Kanno said. Meanwhile, another ¥30 trillion ($300 billion), or a quarter of the fund’s assets, should eventually shift into “risk assets,” according to the J.P. Morgan report.

The BoJ certainly does have a policy initiative to “flood the market with liquidity,” but that policy initiative is the continuation and expansion of a policy that has been in operation for 20+ years — namely, the purchasing of the government’s own debt with freshly printed yen.
In 2001 the Japanese termed it ryōteki kin’yū kanwa, but today everybody knows it as quantitative easing.

In a paper which analyzed Japan’s initial experimentation with QE, published in February 2001, Hiroshi Fujiki, Kunio Okina, and Shigenori Shiratsuka (all three senior BoJ economists) suggested that once a zero interest rate had been reached, if the situation still appeared dire, MacGyvering an alternate solution might not be the greatest idea in the world:
(Monetary Policy under Zero Interest Rate: Viewpoints of Central Bank Economists): [F]urther monetary easing beyond the zero interest rate policy, most typified by the outright purchase of long-term government bonds, should be viewed as a bet which we would only be forced to explore in the event the Japanese economy stands on the brink of serious deflation. Considering the uncertainty and risks surrounding these unconventional measures, it is quite inappropriate to introduce them merely on an experimental basis. Of course, this does not mean that further monetary easing may not be warranted in any circumstances, nor that other easing measures not covered in this paper are infeasible...


With regard to monetary policy in Japan, there seems to be some oversimplified idea that the adoption of inflation targeting would be a panacea for current economic difficulties. This should remind central bankers, who must make policy decisions on a real-time basis amid drastic structural transformation, of the unfruitful traditional “rule versus discretion” debate in terms of monetary policy implementation.

Perhaps Abe and Kuroda prefer watching reruns of Friends to perusing BoJ policy recommendations?

The subsequent expansion of the BoJ’s QE policy can be seen clearly in the chart on the previous page. It highlights beautifully the problem with heading down the treacherous QE trail: ever-increasing amounts of money must be printed to keep the wheels turning.

Once you start, to stop is not a decision that is made by you, but rather it eventually gets made for you. In the meantime, your balance sheet just swells and swells. The BoJ’s has increased almost five-fold since 1997 and is up 80% since the beginning of 2012:

... and, if you’re Japan, your monetary base goes vertical:
That’s three very similar charts, but the next one looks nothing like the preceding ones:

Japan’s population is actually declining — fast. And under the crush of that breaking statistical wave, everything gets harder for Japan.
Japan’s population “pyramid” looks more like a top-heavy baking dish. There are already more over-65s than under-24s; but it is estimated that by 2060 Japan’s population will have fallen from 128 million to 87 million, and roughly half of those remaining will be over 65.

The ONLY answer for Japan is immigration — lots of it — but that, I am afraid, is a total non-starter for the insular Japanese. The depopulation problem already loomed on the horizon like a distant oil tanker in 1989 when I lived in Tokyo. What has changed since then is that the tanker has now docked.
In 2003, it was estimated by the UN that Japan would need 17 million new immigrants by 2050 to avert a collapse of the very pension system we’re examining this week. Those immigrants would amount to 18% of the population in a country where immigrants currently amount to...wait for it... 1%.

It gets worse.
Of that 1%, most are second- or third-generation Koreans and Chinese, descendants of people brought to Japan from former colonies.
As of October 1, 2013, there were all of 1.59 million foreigners in Japan, and that is after net immigration ROSE for the first time in 5 years, with 37,000 new immigrants taking a bit of the sting out of the 253,000 decrease in Japanese citizens in 2013.

So... Japan’s fate is set. In coming years the ageing population will be drawing down its pension funds at an ever-increasing pace, even as the largest pension fund in the world is being forced by the government into allocating more of those funds to riskier assets in order to try to stimulate growth in the moribund economy.
Meanwhile, the Bank of Japan is embarking on an experiment in monetary prestidigitation the likes of which has never before been seen; and in order for it to be successful they will need the GPIF to not only not SELL JGBs but to BUY MORE of them.

In addition, Shinzo Abe is promising the Japanese (and every holder of JGBs, which are yielding a paltry handful of basis points) that he will generate 2% inflation, thus rendering their JGB holdings completely useless.
The whole thing is madness — madness built on the promise of the delivery of a dream.

Already the BoJ is buying up to 85% of some JGB issuances, and an estimated 91% of Japanese bonds are held domestically. What do you think happens when the GPIF turns from buyer to seller?

Monday, April 28, 2014

You Raise 'Em, We Milk 'Em

Singapore's success story, professionalism and other economic positives ... owe a substantial debt to Malaysia, or rather Malaysians who have chosen to study and/or work there. Even I was there for 3 years. I am only guessing but I think maybe one third of the upper management of the whole of Singapore are Malaysians (or ex-Malaysians). That is the big reason why, Malaysians cannot take out their CPF when they decide to move back to Malaysia to work (before retirement), they will make it as "unenticing" as possible for Malaysians to move back. Many would want to in particular if their flat is already worth S$700,000 and their CPF balance is over S$300,000. You are talking close to RM2.5m for mid level exec to move back to Malaysia. But I digress.

Singapore is laughing secretly and keeping hush ... they do not bear any cost of bringing up the kids, but at their ripest, they get to cherry pick the top 5% of the crop - where got such good deals????

You may have your reasons to let them go but it only drives down the quotient for capable labour force over time. You want to create "more opportunities" for bumis, thats not the way to do that. You end up with a prolonged deteriorating capable workforce, thus less value added services to overall economy. You compensate by bringing down average labour cost to maintain competitiveness - EVER WONDER WHY A SO-SO ECONOMY LIKE MAYSIA KEEP INCREASING ITS RELIANCE ON FOREIGN WORKERS ... thats the only way to maintain competitivess. At the same time it drags normal Malaysians' wages lower in growth.

Yes, we may still be able to make a living, yes, plenty do make money from the property market and maybe stock market - ever wonder why???, these are not absolutely value driven industries, these are vehicles that attract liquidity. Without oil and gas, we are dead a long time ago, I mean worse than Cambodia or Burma even.

Yes, some people do benefit from the policies, the elite few at the expense of the vast majority of all races.

You can ignore these often said sentiments, you are taking the whole country down the road of no fucking return.

Malaysia’s bright sparks head south of the border

KUALA LUMPUR: Malaysia’s standard of education has deteriorated over the years while
Singapore can take pride in having one of the best education systems in the world.
According to a World Bank report, Malaysia did poorly in an international educational
benchmarking study. The 2012 PISA (Programme for International Student Assessment)
results, which was made available last year, showed Malaysia languishing near the bottom
of a list of 65 countries surveyed.
Singapore, on the other hand, is ranked among the top three in the study that evaluates
the knowledge and skills of the world’s 15-year-old pupils in mathematics, science and reading,
thus providing a benchmark to gauge the quality of education in these countries.
However, a study by Education First, a Singapore-based English language school last
November found that Malaysia has the best English language proficiency skill in Asia, beating
its southern neighbour. According to Education First’s findings of their English Proficiency Index,
Malaysia has the highest level of English proficiency out of 13 countries in Asia.
Despite the higher standard of English among students in Malaysian schools, most Malaysian
parents have better faith in the education system of their neighbouring country. Many have gone
to great lengths to ensure that their children are schooled on the island republic despite the 
higher costs and logistical demands.
Many non-Malay families view Singapore as a base for quality education, and their prayers
would be answered if that could be provided for with scholarships. Another push factor is the
race-based quota system, which makes it tough for non-Malay students to enter public
universities or pursue courses of their choice.
The Singapore government has long recognised this and has been using it to advantage.
For years it has offered scholarships to young talents from middle-class Chinese families,
providing a chance for better education at Singapore’s expense. This is done with the hope
that as these children adapt to the Singapore lifestyle, they would eventually decide to reside
in the island state. The end result is Singapore having a pool of talent it grooms from a very
young age while Malaysia deals with this brain drain.
Although, not all these young talents survive the pressure of studying under the Singapore
education system while away from home, most still excel. For three consecutive years since
2009, the top scorers for Singapore’s General Certificate of Education (GCE) O-level
examination were Malaysians.
While it benefits Malaysians, especially bright students from poor families, Singapore stands
to gain more. This move is part of Singapore's social engineering plan to tackle its problem of
an aging population and low-birth rate. It has also been said that many Singaporean women
have chosen not to settle down as most men their age are deemed inferior to them.
Singaporean men lose two years prior to university or work, having to serve compulsory
national service. Hence, when they enter the workforce, they rank lower than the women in
terms of financial or work status.
Currently, Singapore also has an influx of foreigners especially from China. Although they
are Chinese, culturally they are different. Those from China have different values and ethics
from Singaporean Chinese. Malaysians are seen as the best option as being closest
demographically, they would have no problem fitting in.
Chances are that the children who have completed their studies there would make Singapore
their home as their friends are there. There is an informal arrangement where Singaporean
educators come to handpick the best Malaysian students, solely from Chinese schools.
Although this is not known to many, it is normal practice in top Malaysian Chinese schools.
For years the Singapore government has surveyed younger Malaysians, as young as 11
and 12 years of age mainly from Chinese schools. The ones approached are mostly
straight A students. Class teachers inform these students about this ‘schoolbased
scholarship to study in Singapore, which is similar to the Asean scholarship and they are
asked if they are interested to apply for it.
After their parents are told of the opportunity, the students sit for several tests. These tests
measure their IQ, proficiency in mathematics, English composition and command of the
spoken language.
Most of these tests are held in the middle of the year and do not coincide with the Standard 6
Ujian Penilaian Sekolah Rendah (UPSR) examinations. Once they pass these tests, they go
for interviews a month later. If they pass the interviews, the students are offered scholarships
to study in Singapore tertiary schools.
These students are granted four-year scholarships in secondary schools, and many proceed
to junior colleges. Excellent students are given five years to reach A levels. Hence, by age 17,
these students are eligible for university studies.
Upon completion of the scholarships, the students are given the choice of staying in
Singapore to seek work opportunities or to return to Malaysia. Although there are no bonds
attached, parents of these students are required to repay the amount spent for sponsored
courses in the event their children decide to quit half-way.
The perks for students on scholarship include free food and lodging and paid school fees.
They are also provided uniform allowances and monthly allowances. Malaysian students
on scholarship receive a well-rounded education. Besides shining academically, they are
also required to perform well in sports, and social services. Their performances are
reviewed every year.
There is no doubt the Singapore education system is stressful as it is academically focused
with examinations held every two to three weeks. The outcomes of these tests are taken into
account to assess yearly performance. It is very competitive with many students striving to
be the best.
There is no doubt that Malaysia has among some of the best talents internationally, but the
country is losing the battle to ensure these bright young talents do not pack their bags and
head across the straits to Singapore due to lack of opportunities at home.
While the scholarships offered may benefit some Malaysians, it does not help Malaysia
economically as the country faces a constant brain drain should these students decide
not to return.
The offer of education scholarships from Singapore is just the tip of the skill loss as many
Malaysians are also moving there for better job opportunities.
This article was first published in the March 1, 2014 issue of The Heat.
- See more at:

Saturday, April 26, 2014

Tribute Concert To Alan Tam

Tickets going fast. Shows on 7th and 8th May (Wednesday & Thursday) @ 9.30pm. Have dinner somewhere, miss the jam and go relax on a weeknight. Location: NO BLACK TIE, 17 Jalan Mesui, KL. Organised by poppopmusic. Cover: RM60pp. Reservations absolutely necessary, call Kylie 016-2877538.

Thursday, April 24, 2014

Apple Needs New Hits

Embedded image permalink

Even as the most attractive company for the past 10 years, investors will only look at growth potential. The chart shows the quarter's year-on-year growth for Apple's top products. As you can see, iPod has been on a downtrend for sometime already. So what are the runners and gym junkies using to listen to music while they work out? Or has the number of people exercising started to deplete? 

The ever popular Mac is a solid performer over a much longer period. Looking forward to the next Mac, always a design wunderbar. What is worrying is the declining, almost flat growth year on year for IPhone. The trend is worrying as the longer it stays that way, it will allow others to eat into their market share. They had better come out with a new Ipohone within the next 3-6 months, and not just cosmetic changes.

The IPad saw great acceptance two years back but is seeing a similar fate as IPhone. If Apple fails to be innovative as they were under Jobs, then they will turn into another Microsoft. Investors will rate it for its cashflow, cash hoard and dividends.

Wednesday, April 23, 2014

House of Cards, Its All Kevin Spacey

Following Breaking Bad, it was hard to try to watch anything that would generate the same amount of satisfaction. I tried Mad Men but it was a bit slow, and I always thought creative types at advertising were over-hyped anyway. But I found something almost as good, well nothing can be as good as Breaking Bad, but this one has guile. Its House of Cards (based loosely on the British series back in the 90s and on a memoir by Margaret Thatcher's right hand man) and Kevin Spacey's turn was riveting as he was as Kayser Soza in the mind blowing The Usual Suspects. We can get up to Season 2 and cannot wait till Season 3. Why is it so good ... Frank Underwood the character is so conniving, corrosive, the devil probably has to applaud. The relationship F.U. (pun intended) has with his wife (played brilliantly by Robin Wright) needs redefining, ... its pragmatic, symbiotic, evil and romantic.

While on Kevin Spacey, not many realise just how multi talented he is. Besides being a great actor, he could very well survive just doing stand up and impressions. His impersonations of fellow actors are near impeccable.

While we are at it, I watched the wonderful tribute to John Lennon many moons ago and Spacey was the host. I know he can sing as he did very well playing Bobby Darin in a movie. There were so many great artistes giving great renditions of Lennon's songs. At the very end, Spacey came out, and the audience not expecting anything, went agog at his remarkable rendition of Mind Games.

Amazing Pencil Art By A 16 Year Old

Shania McDonagh, (16), has become an overnight sensation in Ireland, where her pencil drawing of an old man has won the Texaco Children’s Art Competition. She is a schoolgirl in Claremorris, County Mayo.
She has won first prize in her age group for many years, but her portrait of “Coleman” has the critics raving.
It is almost impossible to distinguish the drawing from a photograph, so finely is it created, and she appears to have a huge career ahead as a portrait artist. She drew it from a photograph in a book called “Vanishing Ireland.”
Judging panel chairman Prof Declan McGonagle, director of the National College of Art & Design, told the Irish Times her work has established her “as one of the most talented artists of her generation, and one whose skill could see her become one of Ireland’s foremost portrait artists of the future.”
A major international career is being predicted for the young girl.
She said it took her only a month to draw it and she will be presented with her $2,000 first-prize next month.

Read more: 
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Sunday, April 20, 2014

Tracking Murasaki

Updated recent highlighted stocks

Stock CodeStock NameHighlight Price(RM)Highlight DateLiked
0151KGB 0.610 18/04/2014 09:05:24 AM 0 
7212DESTINI 0.625 18/04/2014 09:04:10 AM 0 
0059MMODE 0.565 17/04/2014 03:35:51 PM 0 
7073SEACERA 1.050 17/04/2014 03:33:18 PM 0 
9083JETSON 0.680 17/04/2014 03:31:54 PM 0 
1538SYMLIFE 1.090 17/04/2014 09:04:40 AM 0 
2208PTGTIN 0.345 17/04/2014 09:03:31 AM 0 
8893MKLAND 0.480 16/04/2014 03:08:45 PM 0 
0108N2N 0.880 16/04/2014 02:21:11 PM 0 
6181MALTON 1.030 16/04/2014 09:05:30 AM 0 

Friday, April 18, 2014

Gaming Global Trends

A very interesting article from Seeking Alpha:


 Gambling Revenues (GGYs) for Selected Countries and Macau, 2013
Source: GBGC and Morss Analysis
US gambling revenues are twice as large as any other country, while its per capita level is about average. Macau is a gambling "destination" site for many Asians, as is the west coast of Australia. Per capital gambling revenues in Sweden and particularly France are low.
The preferred gambling activity differs significantly among our countries/region (Table 2). In Macau, most of the gambling is done in casinos, while in France and Sweden, the lotteries dominate. In Australia and the US, slots/machines outside of casinos are very important. In casinos, there is a striking difference: in the US, slots dominate with revenues almost 3 times greater than card games. In Macao, Macau, card games, especially Baccarat, are the primary gambling activities.
Table 2. - Gambling Shares by Vehicle, 2013
(click to enlarge)
Source: GBGC and Morss Analysis
Gambling Growth
In most of our countries/regions, legal gambling is a growth industry. As Table 3 indicates, Macau's growth is torrid, with healthy growth in 4 of our other countries. The US is a special situation to be examined later in detail.
Table 3. - Gambling Methods by Country:
Compound Average Growth Rates, 2001-13
(click to enlarge)
 GGY Growth (US$)
Source: GBGC and Morss Analysis
To highlight the differences, consider gambling in Macau and the US.
Macau is a destination site for Asian gamblers. The government limits its gambling growth by how many visas it issues to Chinese citizens. The Macau "package" includes smoking, drinking, gambling and sex.
Things are quite different in the US: there are indications that the demand for gambling per se has leveled out. The casino mainstay is individuals who want an opportunity to smoke and drink indoors. So the vast majority of casino space is given over to slots and other gaming machines where smoking is permitted. But most Americans are concerned about second-hand smoke. The casino operators are aware of this, so they are trying to convert gambling sites into Disney-type locales that will appeal to families. Indoor malls are primary recreation sites for families, and casinos want to copy them. So Foxwoods is putting in 75 discount outlets. It is interesting that when MGM announced plans for its new casino in Springfield MA, it focused on plans for a new 5-star hotel and a number of high-end restaurants.
Investment Implications
"Governments are now seeing the taxation of gambling without any backlash from voters so there is a drift upwards throughout the world except Nevada and Macau. Gambling companies are therefore easy targets. So taking that into account those that supply the industry have more insulation and are best placed. Playtech on the London Stock Exchange (PTEC.L) (OTCPK:PYTCY) and Net Entertain (NET-B.ST) provide software for e-gaming companies. Otherwise, you have to look to Macau: Galaxy Entertainment ((27:HK)) (OTCPK:GXYEY), Wynn (WYNN) (OTCPK:WYNMY) and Las Vegas Sands (LVS). For a pure Macau play, buy Galaxy.
What are the risks?
China's economy. I doubt the Chinese government will issue so many visas to Macau if economic growth suffers. It would not be politically correct. Also, the medium to small business owners may have less money to spend in Macau, but over the next 10 years it is a no-brainer. The Zhuhai Bridge will be complete in 2015 making it much easier to get to Macau. Huge developments are taking place by Galaxy and these will add to earnings (phases 2, 3 and 4 on Cotai)."

Croatia - (Zagreb-Split-Hvar-Dubrovnik-Prague) #1

Why Croatia? The decision to go to Croatia was taken way before they fared so well in the World Cup, for a population of just 4.5m. If you ...