Saturday, April 25, 2020

The Lurking Dangers For Malaysia






It is easy to be over-cautious. It is better to be safe than sorry. I have written before that we need to balance the need to curtail the pandemic and minimize the economic fallout from the situation. It is all well to come out from the pandemic with minimal lives lost ... but there can be massive repercussions on wealth and careers destroyed. We have to be cognizant of the need TO HAVE SOMETHING TO COME BACK TO.

Lives lost to COVID-19 is a bad thing, but many livelihoods and families could be destroyed as well in the process. As we are well aware, Malaysia IS NOT a country full of safety nets. Luckily we have some sort of unemployment insurance kicking in last year, but it is not a prolonged solution at all unlike in many developed nations.

UOB Kay Hian came out with a timely report on "Grave Consequences Of Covid-19 Prescriptions". Some of the more pertinent points, to which I am in full agreement:


The plight affecting the F&B, entertainment outlets and mall tenants have been well discussed. The cashflow ramifications for the majority of SMEs have not been fully appreciated by the government, I feel. The number of jobs lost when we come back from the brink will be worse than any economic recession we have ever seen, and that includes the PanElectric debacle in the late 80s and the Asian financial crisis in the late 90s.

What will be the number of jobs lost? 1 million, 2 million? How many will be able to find employment after 6 months? Maybe, at half their old pay? How will they service their home mortgage, car loans, children's education ... Knowing full well that most Malaysians are already supporting their parents. That will take a hit as well. 

The economic and social displacement costs have not been fully analyzed and accounted for.

Wealth destruction is a major issue. During good times, pump-priming economics will generate a multiplier effect. Every RM100m of new projects or injections can result in an 8-10x effect on the real economy. Called the velocity of money i.e. in simpler terms, every ringgit spent will travel round the economy 8-10x. In the current situation, its the deflation effect that is in play. For every ringgit diminished from the system, it has a deflating effect as well.

Tourism, Airlines ...

Just these two industries alone should give us an insight into how bad things can be. Malaysia Airlines will have to be sold off or merged with AirAsia/X. As if that is not bad enough, oil prices have gone off the charts literally. Our much-revised budget will have to be revised again. USD35, forget it, maybe more like USD25 for the rest of the year.





While our Covid-19 case management figures have been solid and improving. We also may see some trepidation with respect to our testing capacity. If you only test 100 people a day, you are not going to get a high figure of positives to Covid-19. As things stand, we have tested less than 0.5% of the entire population.

What is more worrying is that the Singapore experience tells us that more testing is required for our foreign workers. Singapore has only 300,000 odd foreign workers. Malaysia has 2 million documented foreign workers, and probably another 2 million illegals. That is more than 10x Singapore's figure.

Please note that the higher infection rate for foreign workers is largely due to the cramped dormitories or housing facilities they are usually housed in, and not a slight on their jobs or cleanliness.

As Of April 21, 2020:

For every million of its population, Singapore has tested 16,203 or 1.66%.

For every million of its population, Malaysia has tested 3,344 or 0.33%.

Total tests done: Singapore 94,796; Malaysia 108,216.


Is it a damned if you, damned if you don't situation? Malaysia already has one of the LONGEST countrywide lockdown imposed thus far. However, the level of testing leaves a lot to be desired. I am sure it has to do with obtaining sufficient supplies, and also a matter of cost (i.e. we cannot afford to get everybody tested).

Hence, come May 14, we MUST remove some of the lockdown measures for the greater economy. We must also be vigilant with potential new clusters, which are bound to occur. For those clusters, they should be immediately lockdown, controlled, and tested.

We can no longer afford to lockdown 100% of the population for the sake of possibly an infected 1%. It will be more prudent and pragmatic to loosen MCO but be wary of new clusters. Increase our capacity for testing immediately, otherwise we look like dummies at home as we still don't know who and where are infected.

Some of the social distancing measures should still be imposed for another two months or so: diners only every other table; cinemas should still be shut; MITI to be more proactive to approve SMEs wanting to reopen; shipping and logistics ops should be prioritized for clearing and delivery purposes; important exam years students to start school first; all malls to restrict the number of shoppers to 50%-60% of capacity; face masks mandatory; all offices and factories to implement twice daily temperature testing of all employees and other additional precautions. 

Biggest Threat

Its the Ramadan effect. Though I believe we should lift the MCO come May 14, we have to be very wary of the Indonesia link. Indonesia, where the population is a lot bigger, and where decent testing of cases is grossly limited. Compounded by the vast ness of the country. Hence there should be very restrictive TRAVEL to and from Indonesia for the next 3 months at least. Travelers coming back should be quarantined immediately. 

The trouble is that our borders are so porous. Our navy and police will have to be more stringent and vigilant to stop any form of illegal ferrying of passengers from Malaysia to Indonesia over the next 3 months.

Sunday, April 05, 2020

Things To Do During Lockdown


All local councils, utility companies, construction firms (those with permission) and city planners in Malaysia should take the opportunity during the lockdown to:

- repair roads
- lay your lines 
- finish your towers
- change faulty lightbulbs
- speed up construction projects that creates congestion
etc ....

Basically try to finish up things that would disrupt traffic.





Saturday, April 04, 2020

Why I Think Markets Are Too Optimistic

Bastardisation Of Currencies

When governments keep throwing money at the problem, some succeed while others are restricted by their fiscal constraints and prudent financial management. There's only so much budget deficit you can stomach. Not the US and Eurozone, they can literally print their way out of the problems at hand, with no need for any asset backing, particularly from the USA. The rest of the world, we can't do that. Our printing capacity has to correlate with our foreign reserves, government debt to domestic and international bodies, our GDP, etc...

What that does is that at every major financial crisis, involving the big guns, its the smaller guys that get whacked. The big guys has printed more monopoly money, get the money circulated, pay down debt, give people money to spend, and spend trip way out of the issues. The smaller nations just have to tighten our belts and compete ever harder to maintain status quo. Its colonialism in the financial age.

Just when you think colonialism is over, in financial markets, the masters still get 10x, 20x, 30x more than the slaves earnings per day. Even when the master make mistakes, its still the saves that kena.






The Horny Black Swans That Keep On Reproducing

That rant aside, have a look at the video. You will begin to appreciate why swiftness, preparedness and commitment to curtail were so important. Just look at China, South Korea, Singapore and HK. Compare that to the top 4 European countries, plus UK, Iran and USA.

Looking at the trajectory alone, the latter countries have not even peak yet, although Italy has shown positive signs of peaking. USA at near 277,000 confirmed cases, and the equity markets there seemed to have rallied. All markets are forward discounting machines. I want to know how many cases has the US markets discounted thus far, taking into account the substantive trillions of dollars worth of stimulus: 300,000 ... 500,000 .... one million or 2 million? Mind you, China and South Korea seem to have peaked at 80,000 and 11,000 respectively.

How can you discount something that has not peaked? You cannot take the statistical distribution for China or South Korea and extrapolate because: the level of preparedness were different; the "more authoritative governments" have better deployment and effectiveness in curtailment strategies; the level of resources and testing are different ... hence it is likely the trajectory will be pushed out higher and further than the former group.



Look at the above statement from US White House (reported in CNBC)... 93,000 deaths, at 1% mortality rate = 9.3 million cases. OK let's take a 5% mortality rate (which is very worrying for the public) = 1.86 million cases. Look at those figures for a while and compare China's 80,000 and South Korea's 11,000. Even if you double both those figures: 160,000 and 22,000 ... compare that to 1.86 million.

OK, let's not even look at those figures, let's halve that further from 1.86 million to 930,000 cases to deal with say over 2-4 month period. There is no way the US system can take it. There are only 924,107 hospital beds. Other illnesses may require at least 50%-70% of those beds.



So, you still think the US equity markets have discounted the fallout from the virus? If its 1 million cases over 4 weeks .. I think US cities will descend into a state of anarchy ... making handguns very handy indeed.





The Latecomers

Has anyone looked at Japan? Its about to boil over.  Last Thursday the prime minister's plan was no lockdown and everyone gets 2 cloth masks. Look at the table above. On 2nd April  Tokyo had 97 new cases, still hunky dory. That's just Tokyo, in Japan the total has surged past 340 cases.  Ueno Park was only closed on 24th March to the public.

Well, everyday in March 2020 till they closed the park, the scene was like this everyday:




Now imagine the scene below being played out 20 hours a day in every major city in Japan with no lockdown:



... at schools, Disneyland, malls, cinemas, etc...

Japan is a time bomb.

There are other latecomers as well, places where "proper testing" had been insufficient, masking the real numbers. Consider Indonesia and Pakistan to start with.


The Bigger Time Bomb For Us

Unfortunately, Ramadan is just around the corner. Will Malaysia allow the 1 million legal and 1 million illegal Indonesians and other foreign workers to go back for Ramadan. Do we have the resources to check, test/quarantine them when they come back. What about illegal channels of entry? Will we have another wave after Ramadan?