Our New Deal

4 days to go to UMNO general assembly. Blogs are brewing with juicy speculations, particularly on the return of one former prime minister and several former ministers back to government pay roll.


Not a bad move, considering Obama himself activated several senior aides during the Clinton administration while attempting to duplicate FDR's New Deal to revive the severely battered economy. FDR was touted to be the American Savior from the Great Depression, using methods such as buying up mortgages using government funds and reducing the monthly payments for consumers, allowing them to return to their homes.



More watchful eyes are on Dato' Seri Najib and his choice for cabinet ministers. Tan Sri Sanusi is rumored to become National Security Advisor, with Tun Dr Mahathir and Tun Daim in advisory roles.

Meanwhile, TDM was commenting on froggy Zaid Ibrahim's plea to the King to choose a better premier.

Bartering - Is it Really A Primitive Option Now?

I stumbled upon this interesting article about bartering. US consumers are saving up every penny they can. Spending has gone down a fair bit. Luxury item sales have plummeted. Banks are running out of liquidity to support businesses. Businesses on the other hand cannot establish solid cash flow to survive. Is it primitive to research whether bartering could be a transitional fix?

With US being bankrupt with excessive toxic debts and every sector having a plastic cup in their hands at the Hill, Tun Mahathir had urged numerous times to switch to Gold Dinar, practically back in the old days where currency produced is proportionate to gold reserve. The monetary rule correlating currency to gold was governed by the Bretton Woods Agreement, signed by 44 countries after the second World War. In addition, TDM also suggested that if a country trades RM10M worth of goods to a nation that exchanges that trade with products worth RM1M, only the difference of RM1M will be paid, which is how banks handle cheque payments with other banks.

"Most people associate bartering with poor or undeveloped societies, or with small, infrequent, and informal exchanges made within economies that use traditional currency. Bartering has also had a role when once robust economies falter. During the Depression, for example, farmers directly traded crops and other services with each other, since what little money the farmers had was of negligible value. And after the Soviet Union fell apart, inflation was so high that individuals and businesses found it safer to trade goods and services directly. (Traditional currency was still used, but the street value of the currency stretched to fit the need of the purchased item: rubles used to buy staples such as food were considered to be of greater value than rubles used to buy luxury items such as fur coats.)

We now see a growing movement of individuals and businesses that prefer to use bartering in a wide variety of transactions, including multi-million-dollar purchases. In New Zealand, a house and surrounding property, valued at 5.1 million United States dollars, was sold for 1.7 Barterdollars (BDs), a form of credit used by about 9,000 individuals and 50 businesses in four countries. Though the deal did not involve legal tender, it is not illegal, and a contract secured the sale through business property owned by the buyer. In this case, the seller will use most of the BDs to obtain plumbing and electrical work -- for both office space and his new home -- from the buyer, who owns a business that provides these services. The seller is under no obligation to use the BDs this way, however, and can spend them elsewhere or simply save them as credits for later use. There is, however, little incentive to save, because, as with most barter systems, the currency does not generate interest. This also applies to loans: several bartering organizations have set up facilities that lend currency in exchange for an agreement that stipulates that the borrower will "pay" it back with products and services over a set period of time, interest-free, though a transaction fee is charged.

Community-based non-profit bartering is generally not subject to taxation, but virtually all governments consider bartering by businesses identical to cash transactions, and taxes need to be paid accordingly. However, the nature of these transactions has made them harder for governments to track, especially as bartering on the Internet has become more popular. Determining the value of the terms of a barter can also be problematic. If A designs a website for B in exchange for barter credits, A should pay taxes on the value of the services provided, while B can consider the credits as a business expense. For tax purposes, A has an incentive to underestimate the value of the transaction and B has an incentive to overestimate. To minimize this sort of problem, some governments have set a standard, so that 1 credit in a non-governmental but nationally recognized barter system corresponds to a certain valuation of the official currency".

Corporate Pirates

It's dumbfounded when you review the credit crisis in the US. AIG is in the brink of collapse, yet they have spent almost 1/2 million bucks to send their lackeys for away day, USD20 Gs for spa , USD7,000 for golf and USD150,000 on just food. At the same time, they are crying out for help to get a piece of the USD700B stimulus that was approved by Congress earlier.

On the other hand, corporate titans cringe at the idea of paying too much bonuses to their hardworking staff when their revenues sky rocket in "historic proportions" (to plagiarize Obama's description of the ailing economy). Corporate bosses spend in excess of USD20-50k per trip on their private jets on the basis of time optimization, convenience, security and efficiency (in other words, they don't like to wait in line or wait for the plane to take off). Not to mention their ridiculous pay, stock options and golden hand shakes (see my earlier notes). Don't misconstrue me. I think CEOs and Senior Management should be paid handsomely proportionately to performance, same with their working staff. However, when times are bad, it should also be proportionate. We all work for money, there's no denying that (with the exception of Buffett & Tiger Woods alike). This is when staff morale plummets seeing their big bosses perusing the latest yacht catalog while you see your colleagues being thrown out.

Obama is likely to stir the pot. He has refused lobby money profusely. He is therefore not bounded by pressure from the lobby groups. That is encouraging. The fate of the US economy will affect us and the longer it is hurting, the worse it gets for our exports & services, hence money into the country.

Meanwhile, Main Street is not happy at all. People are flabbergasted to see all their hard-earned money taxed by the Government and given back to the same people and corporations who kicked them out of their homes and took away their jobs.

Malaysian Economy is Doing Fine?

We read everywhere in international mainstream channels of the plaguing economic horror in the horizon. Some say it will be worse than the Great Depression in the 30's. People are being retrenched in the US and Europe especially by big corporations to reduce operating expenses. Companies are finding it difficult to pay salaries. Investors are exiting to get their hard cash out of the beat up market. Confidence is running low.

In China and India, real estate value has dropped more than half. People in the US are being chased out of their house because of loan default. Airline industry will face yet another challenge with losses in the billions of dollars and will be forced to consolidate even more. Banks are being closed down in heaps in the US. The US Government is forced to pump funds into the ailing banks, lest they will cause the whole economy to collapse. No banks would mean no loans, no homes to pay, no cars to use. Detroit is asking for US25B to stay afloat. Everyone's pulling their hair out.

Somehow, Malaysia's way above everyone else. We're not worried about all this. We're far too embroiled with whether yoga is permissible for Muslims, what language we should use on road signs and whether bloggers need a code of ethics. Meanwhile, crime rate and inflation are increasing, food is becoming less affordable, projects are being shelved, demand in exports is slowly dropping.

Malays are still phobic of losing their Constitutional rights but at the same time not stepping up to the challenge. We scorn at the prosperity of the Chinese and the social imbalance but don't force our kids to learn Math and Science in English, in fear of getting behind further. We don't understand the dangers of subsidy and ask for more. At the same time, we lambast GLCs who are not performing, yet demanding huge 'social obligations' especially to Malay companies. The Penang Government wants Petronas to fund the second Penang bridge but at the same time wants petrol price to be reduced (thus increasing subsidy money from Government's coffers, although it doesn't directly impact Petronas' revenue).

We need to know what inflation is forecasted to be for the next 2 years and how this would affect the middle and low-income groups. We need to know whether the over-issued hire purchase loans for cars would impact the economy, similar to the subprime crisis in the US. We need to know how Petronas would be affected if oil price drops to pre-war price of USD25/bbl, how much this would boost MAS' income and other oil-dependent businesses. We need to know if we have strict enough regulations to avoid issuing too much debt by banks. We need to know if credit card spending and debt will be our 'subprime loan crisis'. How much of our exports are affected? If this reduces, what is the remedy? Will people lose jobs? What is our backup plan? Are we exiting from losing investments in the US?

Reading our dailes, it would seem to an average Joe that all is hunky dory. Perhaps Malaysia's economy is isolated from the rest of the world. We should be fine then!!

*(Headline in Star read: "Inflation rate lower"). If you read the article, the inflation rate went from 8.2% to 7.6% in Oct. That's very soothing to know that inflation rate dropped by 6 points!

All Going South

1. Oil price has plummeted from a high USD140 per bbl to USD53 per bbl in less than 3 months. OPEC has cut down its production in view of the global economic slow down.

2. Because of the low oil price, many exploration and development work have been re-evaluated. This will cause capex reduction by operators and consequently affect service companies. The investment made in reactivating "cold" rigs and aged boats will be in vain.

3. US consumption of retail goods have declined in lieu of paying off high mortgages and credit card debts. The average household now spends close to 70% just to pay off debt. The overspending in US above its mean is a clear cut example of how capitalism and the 'invisible hand' that corrects the market have failed.

4. Detroit has failed to secure USD25B stimulus package to help the ailing auto industries. This in return further dampened market confidence and reduced the Dow Jones by another 6% last night. Japan's Nikkei lost 7% and HK lost 5.5%. Japanese exports declined by7%, the biggest in decades. Trade deficit in Japan is absolutely abnormal.

5. There are over 1.5M jobs lost over the last few months in the US. Rolls Royce has announced its job cut plan recently.

5. Property value will go south due to foreclosures in the US. Property market has always been a good indication of how healthy the market is. Except nothing less in Malaysia as well.

6. Because Asia has been prudent and learned her lesson from 98', the cash-rich Asian countries are not feeling it just yet. That doesn't mean a slow down is not in order. Already we have seen drops in traveling, hotel occupancy, retail business and such.

7. Malaysia is in a better shape, but is not out of the dog house just yet. Viable projects cannot be shelved. Projects will benefit the construction industry and attract investors. The reduction in EPF monthly contribution is not a viable option for the long run.

8. What Malaysia needs is creating value. We are merely making patches for the leaks, but the big flood will come. We have yet to have a strong second engine of growth and oil revenue is not sustainable for the next 20-30 years.

9. Space programs should be shelved for now. Archways and bullet trains can wait. Subsidies have to be reduced. Tax cut could work to reinvigorate local spending. Corporate taxes and wind fall taxes could be studied and expand to businesses shielded from the recession or enjoying subsidized fuel or electricity.

10. The RM7B is too important for a few people to decide where it goes. The National Economic Action Council and other agencies and groups should sit together and ensure that every cent in the stimulus package is put to good use. Parliament should also form a special committee to be part of it, similar to how Congress and President-Elect Obama are handling it. This committee must also include corporate chiefs, leading CEOs and senior economists, not just politicians. Malaysia is eager to know how this money is spent.

11. We need to exit from failed investments abroad (especially the ones in the US) and reorganize our foreign portfolio. It's not a bad idea to pump money into the ailing banks in the US as they will recover from this in the next 5-10 years. The banks are projected to receive at least half of the USD700B stimulus package.

12. The food industry should be monitored and ensure that recession would not hamper food production and price.

13. This is also a good time to study sustainability projects, such as power generation from waste, alternative energy generation. Cost optimization for running the Government (fed, state and local) could also be studied and implemented. Skype and video conferencing should be encouraged. Travels should be reduced unless totally necessary.

14. It's also not a bad idea to scrutinize how zakat money has been spent. An audited account should be made public, if it hasn't. Zakat money will definitely help out the poor & needy to cope with rising food prices.

15. All eyes are on Dato' Seri Najib, our soon-to-be 6th Prime Minister. This single economic challenge will, without a doubt, define his prime ministership. We should all give him our fullest support, despite political affiliation. Malaysia must remain vigil. Get productivity up and stop changing road names....

Big Bubble Popped

Wall street recently crashed and banks folded. The biggest injection of funds from the Feds is arguably ineffective to put the brakes on recession. It is looming in the horizon or maybe it has arrived. Hedge funds exited from their gambling ventures. The big bubble from overspending, securitizing debts and unregulated speculations popped. Now oil is back in the 60 dollar-range. America drove 15 billions fewer miles last month. OPEC is cutting their production to optimize prize. Is the market stabilizing? Expect oil companies in the service sector to get hit especially those who have not secured long-term contracts. Massive investments have been channeled to build rigs and ships. If the oil price continues to go down and oil operators chew slower on their development projects, this would render the new-builts useless.

US college admission is plumetting. This is because thousands of American kids depend on financial aid and loans from banks and other institutions. If money is being channeled to fill in the holes left by the subprime mortgage and bankrupt banks, I gather there won't be much money left for kids to go to college. Doesn't help that tuition cost increases at 6.6% for the last 20 years. It is pricey to go to school in the US. Also, universities generate a huge chunk of their revenue from admission of international students. Because of the recession, expect a lower admission rate for the next few years. Students might choose a better destination the likes of Australia or Singapore.

Meanwhile, people are losing jobs especially in the financial sector. Expect low recruitment of fresh grads in the US for the next few years. Same thing across the causeway.

Back home, Bursa is getting killed and is now below 900 points.

Anwar is still trying to figure out how to get 30 MPs to jump the BN ship and still retain >60% Muslim MPs in Pakatan. By the time he figures that out, it'd be 2013 already, in time for the next election. Take your time Dato' Seri.

Of Pegging and Freedom of Speech

To peg or not to peg? That is the question. Surely this would affect the entire export import structure. The oil & gas industry would not be spared. Many contracts especially with American vendors require the use of the US dollar as the currency of choice. With billions and billions of Ringgit in question, how will the US protect its businesses? If Petronas were to enforce the Euro as the currency of trade, the US would face another economic upset. There would be less US dollar exchanging hands in the market, thus plummeting the value down further. Many countries in debt with the US would find it easier to service their loans and might be give them a breather to rejuvenate their economy. During this time of turmoil, it is also open season for take overs and buy outs. The Oracle of Omaha had just injected a cool US5B into Goldman Sachs. China and India are eyeing their prospects. Temasek bought an interest in Meryll Lynch. Should the US dollar value depreciate further, it would mean cheaper price tags on these banks and investment houses especially for cash-rich China.

UK Parliament in now discussing about passing a law that would prohibit anonymous blogging. The intent of blogging should also be clarified. I personally think freedom of speech is over-rated. We talk about the need for transparency and openness but we get offended when Denmark makes a mockery of Islam. We get offended with those who set up hate sites about Islamic extremists. If there is such a thing as freedom of speech, should we then let the homosexual communities voice their opinions in mainstream media? How about atheists, crackers and communists? Should they be allowed to voice their opinions? How about people who throw stones at you and hide their hands? Freedom of speech comes with responsibility and moral obligation and we all know how much maturity is shown especially in the comment sections of popular blogs and websites (perhaps the author should also introduce himself to the cyber world).

Mindset Part 1

Mindset is defined as “a fixed state of mind” according to Merriam Webster. Notice the word “fixed”.

The big buzz in Senator Obama’s US presidential race is “Change”. A change in the way the country is run, a change in foreign policy and how he thinks America should handle the Iraq war, a change in increasing tax for the rich and minimizing the astronomical deficit. The most important change that might happen is getting a black American elected in office as POTUS. Talking to some American rig hands on board – they blatantly answered that America is not yet ready for a black President and this is coming from grass root people. Sure, poor Black Americans especially those discriminated during Katrina in New Orleans would willingly vouch for Obama, hands down, but does this swing the entire pendulum to Obama’s side? Less than 50% turned up to vote in 2004 and it was almost a 50/50 split. It clearly means 50% of voters (who didn’t turn up) don’t really care and have better things to do.

However, Obama did set some tones in his “change” regime such as the use of Facebook for campaigning and the massive fund raising he collected through the Net. Clinton staffers were still struggling to teach her how to use the Blackberry. What does this have to do with mindset? It’s got to do with everything. If majority of Americans who turn up to vote has a fixed mindset that they’re not ready for a black President, then they’re not ready. Simple as that. Not because he’s not qualified or he doesn’t represent the right values, but because he’s black – period. Like it or not, some Americans will vote for him because he's black and some will not vote for him because he's black.

How about Malaysia? People are still interested about bloggers, freedom of speech, DSAI, why Pak Lah should step down, demonstrations, provoking Malays by questioning their rights, why Malays need the crutches and why Malaysians deserve more subsidies because Petronas is churning out money left, right and center?

While we quarrel about things that happened in the past like the Tun Salleh Abas saga, Vietnam is set to overtake Malaysia in terms of GDP soon (although the calculation of GDP is questionable in today’s economic sampling). Australia has exported their proven fuel cell technology. The French number 1 export is electricity from nuclear power. US is adamant to keep their tertiary education system private and competitive, as it is the best in the world (Harvard boasts of approximately USD20B in endowment funds). China is now set to produce more than 6.4 million passenger vehicles a year with 120 car makers in the country and will overtake Germany as the third biggest manufacturer, after the US and Japan (In 1979, China was just manufacturing 13000 cars). Cars in the future are expected to be cheaper, lighter, smaller and more fuel-efficient. Americans are trading in their humongous SUVs for efficient Prius (to some extent. Houstonians still love their Cayennes, Lincoln Navigators and big Ford pick ups – very “oil field”-like). This is the global scenario.

While Google, Johnson & Johnson, Ebay and Swatch Group continue to increase their global economic influence and decentralize their organizations like a starfish, we are still bickering about petty things (some think they're not petty). Obviously the majority of Malaysians mindset is still fixed at being at “bickering petty issues” level (like whether to wear the Songkok when swearing in or whether we should raise our left hand when swearing in as MP). We vote for our politicians for certain criterion and they are our voice at Parliament. If some of the rookie and veteran MPs at Parliament are labeled as childish and talking rubbish, they represent the voice of their constituents, isn't it ‘safe’ to conclude that the Malaysians they represent are still thinking about petty things? If this is not so, why did we vote for that politician? Or is it because we vote for the party regardless of candidate? Or is it because the lack of viable candidates these days? In the end, it boils down to our mindset as voters, politicians, constituents, Malaysians.

Of Flash floods, Bloggers, Puspakom and Crude Oil

Ok wow, DSAI won the Permatang Pauh seat, big surprise there. Let's move on, shall we.

KL and Klang Valley was again hit by flash flood. Even after the massive spending on SMART tunnel, it seems that the construction of the tunnel for the sole purpose of deviating rain water has been proven to be ineffective.

Just after the by-election, the latest news is about Malaysia Today to be blocked by all 19 Internet Service Providers in Malaysia. Bloggers are furious claiming that it is breaching the MSC Act of not censoring the Net. Wiki had some issues with falsified claims about personalities but it also had a self-correcting system whereby web users worldwide voluntarily "police" the contents of the site. If bloggers want complete freedom of speech, bloggers must be responsible for what they write and be accountable for it. It says a lot about your character.

With the arrest of 28 Puspakom staff over alleged corruption, it goes to show that Malaysians are willing to pay off everyone and everything to get things moving. No wonder we still have illegal buses operating during the festive seasons with half-drugged drivers with enormous amount of unpaid tickets and fines. The crackdown is commendable and should be continued. Quality staffing for ACA should be increased as I reckon their workload is piling up heavily and it is a matter of time before they begin suffocating with bureaucracy and red tape.

It will be a couple of years to go until Malaysia becomes a net importer of crude oil. What does this translate to us? Definitely less revenue from local production. That is why Petronas continues to invest in hot properties around the world for continued supply and revenue for the Government. However, how long can Petronas become the cash cow for Malaysia? What is the next engine of growth for the country? Palm oil? Services? Manufacturing? Retail? Tourism?

What's next after Permatang Pauh?

It will be hours till we know who would be crowned the new MP of Permatang Pauh and perhaps if DSAI wins, this is his first step to Putrajaya. Of course, desire and reality should not be colluded as one. If DSAI wins with a bigger majority, I reckon these would be people pissed off with BN, not so much of their support for DSAI. If he wins with a slimmer majority, perhaps the sumpah by Saiful made a huge impact. The one good thing about the by-election is the increase in business for the locals, whether it's the banana fritter hawkers or hotel owners. Whatever the outcome is, it will be back to normal for Malaysia with a staggering 7% inflation, low market confidence in Bursa and lagging economy.

Good that the price of petrol was reduced to give us a breather, whether it's politically motivated or not. Budget is coming its way in September promising more goodies for all Malaysians. Whether it's lower income tax or more rebates, hopefully the extra cash translated in our pockets would be put to good use and rejuvenate the sluggish econ.

Despite huge media coverage on inflation and such, I was quite surprised to find high-end properties sold out in recent launches around the city. These people, whether fortunate to have some inherited wealth or skillful in their business, are definitely not effected with the high oil price or inflation.

A big chunk of money in the Budget is expected to be spent for public transportation. The rise of usage ever since the fuel price hike has FINALLY made some leaders prioritize the issue. The challenge in implementation would be streamlining the many groups involved in this: MOF, Prasarana, MOT, PM's Office, RapidKL, local govts, vendors. Of course, everyone would be eager to be the champion.

DAP has announced its intention to oppose Malaysia being an Islamic state and abolish the NEP once and for all. With Tunku Aziz as their Deputy Chairman, they are supposedly showing off their multi cultural/racial stand. Aren't there more Chinese Excos in Penang now than before? Do you really think this Tunku Aziz would have any political clout whatsoever in the pre-dominantly Chinese party? Please lah. He was the Vice Chairman for Transparency International for 2 terms. What business does he have to be in a political party?

On another note, being a PJ resident, lotsa people were talking about changes during the General Election. Free water (which translated to about RM3 I think), Projek Khinzir Raksasa, etc, etc. I wrote an email to my DAP MP regarding pot holes in the area. I was amazed with the quick response from him. Within a couple of weeks, the pot holes were covered......with just sand. The sand eventually was gone and the pot holes were still there. So what's all this fuss about change?