Budget 2017: Gearing For Election

I have stopped compiling my own datasheets (Budget 2016 (see link)) as it is taking too much time. Furthermore it is now the digital age and the same information can be found easily elsewhere :)

Let's look at a few pointers highlighted by The Edge Malaysia (see link).

The numbers: The share of the operating expenditure (opex) of the budget rose to 99% of government revenue in 2013 and 2014, significantly higher than the 79% to 82% from 1998 to 2003 (excluding 91% in 2000). Opex has stayed above 95% of government revenue since 2008, during which there were two election years (2008 under Tun Abdullah Ahmad Badawi and 2013 under Datuk Seri Najib Razak).

What that means: High opex means more money is going to government operations, leaving less for development expenditure (devex). This is akin to a company having less money to grow the business as most of its income is going to administrative expenses. The saving grace is that the RM50 billion devex projected for 2016 is up from RM47.4 billion in 2015 and RM39.5 billion in 2014, although most of it had to be debt-funded due to the high opex.

Aboi: Development as a % to budget allocation is now only 17.6%! During Dr.M's time it was in the mid 30s, Pak Lah's at 20s and now Najib's a pathetic 10s. How low can we go? Revenue only grew 3% and that's after GST's RM30b being added, income tax is not growing as much it means the economy is not really expanding. Spending taxation is not like income taxation.

The numbers: Based on the total government debt of RM655.75 billion as at 2Q2016, Malaysia’s 2016 debt servicing cost is RM26.64 billion — that is RM2.22 billion a month, RM512.3 million a week or RM73 million a day — enough to give RM828 to every Malaysian (RM2.30 a day to 31.8 million citizens for the whole year).

Debt service charges have increased in tandem with rising debt. While the federal government’s debt remains below 55% of gross domestic product (helped by some off-balance sheet transfers), the absolute amount quadrupled in 15 years to RM655.75 billion in 2Q2016 (excluding RM178 billion in quasi-government debt in 1Q2016) from RM165 billion in 2002. In 2008, debt stood at RM306 billion.

Malaysia only saw budget surpluses between 1993 and 1997 when the economy grew 9.5% per annum on average. This year’s GDP is projected to slow to 4% to 4.5% from 5% in 2015 and 6% in 2014. If a balanced budget is only attained in 2020, Malaysia would have had 23 straight years of budget deficits. Budget 2017 is expected to be the 19th straight year, with the fiscal deficit target expected to be 3%.

What that means: While borrowings are usually needed to fund development, debt service charges are generally seen as unproductive. And nearly 12% of government revenue is needed for this purpose this year with debt service charges at RM26.6 billion — enough to buy Telekom Malaysia Bhd, whose market capitalisation is only RM25.1 billion currently and pays dividend of at least RM700 million annually.

The RM26.6 billion is also enough to give every Malaysian a KFC Dinner Plate meal (RM14.90 each) every week for the whole year with RM50 to spare.

If debt and debt service charges were lower, more money could also go towards helping the middle and lower-income groups. Tellingly, BR1M allocations for the five years from 2012 to 2016 totalled RM20.6 billion (allocation had risen to RM5.9 billion for 2016 from RM1.8 billion in 2012).

Petronas has contributed some RM900 billion in oil revenue (including dividend plus taxes) to the federal and state governments in the past four decades. If 15% of that had been set aside, the country would have at least RM135 billion to cushion the tough economic times.

Aboi: In fact we have been running budget deficits for 19 years! And we just broke a new record, 97.76% of the revenue is used for management - paying civil servants salaries etc.. Loan servicing/paying bank interest alone is a whopping RM27b while development's RM46b is funded solely through more debt.

The numbers: Some 40% of government revenue goes to paying the emolument and pension bill. The nation’s pension obligation of RM19.5 billion in 2016 alone is 8.6% of federal government revenue and 9.1% of opex. A decade ago, pension or retirement costs were only RM8.3 billion. It was even lower in 1997 at RM3.6 billion.

Pension obligation will only rise as Malaysians are living longer and healthcare costs for the elderly will also go up. By 2035, one in 10 Malaysians will be aged 65 and above. By 2021, Malaysia will reach that 7% threshold that the World Bank defines as an ageing society — not that far away.

The civil service emolument bill, on its own, too has doubled the past decade, from RM32.6 billion in 2007 to RM70.5 billion in 2016.

What that means: While it is good that employees get a bigger share of the profits of a company, in an environment of slowing economic growth globally, the odds are stacked against the government’s coffers, although it may well want to continue shouldering the rising civil service emolument and pension bill. That means a civil service and public pension reform would have to be on the cards in the medium term, unless Malaysia can successfully expand its coffers.

Aboi: First; the GST and the minimum wage policy is killing businesses so there is no way to expand the coffer. Second; the new perks being added are just the exact opposite of reforms. Computer loan, motorcycle loan, housing loan - more and more hutang! Quarantine leave - fully paid leave, tak payah kerja! And more bonus payouts RM500/RM250 which is becoming like a handout - similar to BR1M!

The numbers: Malaysia has clearly not skimped on education with RM436 billion allocated to it the past decade (2007 to 2016) — the need here is to get the desired quality from the money spent.

Over the same period, however, the country spent RM221 billion on home security and defence — more than the amount spent on healthcare (RM160 billion) and housing (RM12 billion) put together.

While defence allocation was reduced from RM27.1 billion in 2015 to RM26.9 billion in 2016, it is still nearly double the RM16 billion allocated in 2007 and RM6 billion in 1998.

Healthcare allocation was RM21.7 billion in 2016, almost unchanged year on year, but had more than doubled over the past decade from RM9.8 billion in 2007.

What that means: Malaysia is said to be subsidising more than 90% of healthcare costs, but as Malaysians live longer, there is added pressure on public healthcare funding. Adding to that is the prevalence of diseases such as diabetes, hypertension and cancer, which also adds to the cost of subsidising healthcare. Experts expect a public healthcare reform to take place in the medium term to shift more cost to the consumer.

Aboi: Reversed priority and yet our ESSCOM does not seem to be doing its fair share of funding. Ransom kidnappings is a weekly occurrence in Eastern Sabah. Talked about housing where are the PR1MA houses? Sudah 5 tahun tapi belum dapat kunci.

The numbers: Malaysia has cut subsidies for sugar, cooking oil, gas (for cooking) and petrol. The subsidy rationalisation to favour targeted subsidies rather than blanket ones, successfully reduced its subsidies bill. Before fuel subsidies were scraped on Dec 1, 2014, subsidies had reached RM44.1 billion in 2012, RM43.4 billion in 2013 and RM39.7 billion in 2014 — 20% to 21% of total government revenue.

The projection of RM26.1 billion for 2016 (11.6% of government revenue) is just above the RM23.1 billion in 2010 and is still more than double the RM10.5 billion in 2007.

What that means: Subsidies continue to take up just over one-tenth of government revenue. That is not necessarily bad if the money indeed benefits the bottom 40% of the population who need the aid the most. Experts have observed that the government could better stretch every ringgit used for targeted subsidies if resources to help a particular group are pooled, thus minimising agencies’ areas of overlap.

Aboi: We should expect prices of goods to go up in 2017 as the allocation has been halved to only RM10b. My best guess would toll, electricity, cooking oil and flour. Yet our MO1 increased BR1M, in a sense we are shifting and not eliminating subsidies.


This is like a big merry go round. When salaries are being eaten up by higher prices we will have to raise the minimum wage again. The prices will go up again. Why? because employers sufffer higher salary costs and they must recoup the higher salaries. Prices will go up. People will suffer again. Once again the budget is a Kerja Bodoh.

MO1 merely added condensed milk to it and made it an 'Election' budget. He read the budget using a teleprompter just to look good on national TV and he gave out perks/benefits/handouts largely targeting the ruling party's voter base. And lastly he ended his speech drumming up the idea of how there will be an “ultimate victory in the 14th general election to the Barisan Nasional.

Budget 2016: Ini Kerja Bodoh

Data sources: EPF's annual reports (KWSP), Ministry of Finance (MoF), Bank Negara Malaysia (BNM) and Auditor's General Report and Economic Planning Unit (EPU).

You may refer to my compiled sources here: Malaysian National Budget via Dropbox

Spending more than we earn for a new record of 17 years in a row.

Hence we have been running fiscal deficits since the financial crisis of 1999. *I do not know how Najib came with 3.1% deficit, my calc says 3.6%.

Operating expenditure has now hit another new record high of 82% of our national budget allocation. Development expenditure is being squeezed hard. During Dr.M's time it was 30s, Pak Lah's at 20s and now Jib Goh's a pathetic 10s.

The country's national debt (domestic debt + foreign debt) is just short of its self-imposed ceiling of 55%. Although it has improved to a gap of 1%, subsidies have been cut and cost raised across the board.

While the disturbing ratio of Operational versus Development Expenditure has already raised red flags, the budget is screaming troubles from whichever angle you look at it. For the first time, multiple ministries see their budget being cut although the fuel subsidies have been cut altogether. Even tax money from GST is insufficient to pay for Najib’s mismanagement. Proof : What happened to last year's billions?)

Najib has allocated for himself (PM's Dept) a huge budget of RM20.3 Billion - 7.6% of the total budget.  Banyak cantik. Inside this RM20 billion is a special allocation of RM1.6 Billion for 'special projects'? To pay for this, that and that. Thats RM20 billion up in smoke, with nothing to show for it.

A few things I would like to highlight, things that was promised but lied through his teeth.

[1] Housing – a whopping RM1.6 billion is allocated to build 175,000 PR1MA units, of which Najib administration claims to be 20% cheaper than market price. Last year during Budget 2015, Najib boasted about building 80,000 units of such affordable housing units with RM1.3 billion allocation. A year earlier in 2013, he promised to build 123,000 PR1MA with RM1.9 billion.

So, since the mouth watering project was launched in 2011 and established under the PR1MA Act 2012, PM Najib Razak was supposed to deliver at least 203,000 PR1MA homes under allocation of RM3.2 billion. However, based on Economic Report 2014/2015 released on Oct 2014, it had only built 7,336 units. So, where’re the rest of the houses?

So, how can Najib promise to build 175,000 houses with RM1.6 billion in his latest budget 2016? when he can't even build 203,000 with RM3.2 bil! The Maths doesn’t add up.

[2] Income tax - He said about lowering everybody’s personal income tax accordingly, in exchange to taxing people via new GST tax. Well he just increased from 25% to 26% for people earning between RM600,000 and RM1 million. Punishing the rich again for working hard. If you are lazier, you pay less tax. We should have one standard income tax rate for both corporate and individual - a flat rate.

[3] Investments - How many times you want to repeat bro? The Pan-Borneo Sarawak Highway, which is set to be completed in 2021, will be toll-free.  (I say I think this is the THIRD Budget where they are repeating this Borneo Highway project. Dah start ke belum?) Also about the so called RM137 billion of investment initiatives that were announced during the 2016 Budget Day. The number is huge and the money is sexy, provided they’re new investment and genuine. Unfortunately, only 3.1% of roughly RM4.2 billion can be considered “real” initiatives, if MP Dr Ong Kian Ming’s analysis is correct.

Treat Budget 2016 investment initiatives with caution – Ong Kian Ming

[4] Cost of Living - Sure, there’re some candies for the financial illiterates. Some items will be zero-rated GST. The tax relief for each child below 18 years of age is increased from RM1,000 to RM2,000. The tax relief for the individual taxpayer whose spouse has no income is increased from RM3,000 to RM4,000. Free money BR1M will be continued and the list goes on. But there’re many areas which suffer various cuts this time and let me tell you I'm 101% sure cost of living will go up, if this is proven untrue please email me I will give you my own version of BR1M. 

- A RM950 million cooking oil “subsidy” cut could probably mean a higher price for cooking oil.

- The Transport Ministry will see a budget reduction of RM648 million which means transportation cost is likely set to increase.

- The second largest cut was targeted at the Higher Education Ministry which saw its budget reduced by RM2.4 billion to RM13.378 billion. To make up for the shortfall, public universities will suffer the brunt of the cut as they will see their funding reduced by RM1.442 billion. Tuition fees will go up.

- The Transport Ministry will see a budget reduction of 14.1 percent, or RM648 million, to RM3.955 billion, the fourth largest cut among the ministries. Areas that will see cuts include subsidies for KTM trains and flights from rural regions. Habis, fares will have to go up to compensate.

- The Energy, Green Technology, and Water Ministry comes in at fifth place for the largest allocation cut under Budget 2016, with a reduction of RM605 million to RM2.262 million. Consumers who will suffer the most as the single largest slash is the electricity bill subsidy of RM150 million which will be completely defunded.

And I saved the best for last.

The worst part of the Budget is the RM1000 minimum wage. Why increase the Minimum Wage from RM900 to RM1000? Because the first round of Minimum Wage sent inflation sky rocketing.  

Whatever extra salary earned was eaten up in higher prices. Now they have to raise the minimum wage even more. The prices will go up again. Why? because employers sufffer higher salary costs and they must recoup the higher salaries. Prices will go up. People will suffer again.

Then the Minimum Wages will be raised up again and again. Prices will go up again. It is never ending.

Ini Kerja Bodoh. Yet Budget 2016 can deliver so little with every corner being cut....Najib Razak is such a pathetic finance minister.

Alarming Figures of Malaysia's Debt Problem

Following up on my previous post: Stuck in the Middle of Nowhere

Malaysia's economy has devolved into a classic credit and asset bubble-driven growth story. Ever wondered why house prices remained strong even during the Financial Crisis and the KLCI rebounded rather quickly following the aftermath.

The emerging markets bubble began in 2009 after China pursued an aggressive credit-driven infrastructure-based growth strategy to bolster their economy during the global financial crisis. Construction activity flourished. Drove a global raw materials boom benefited commodities exporting countries such as Australia and emerging markets. EMs began to attract the attention of global investors who were seeking to diversify away from Western nations that were at the epicenter of the financial crisis.

Rock-bottom interest rates in the U.S., Europe, and Japan, combined with the Federal Reserve’s multi-trillion dollar quantitative easing programs encouraged a $4 trillion torrent of speculative “hot money” to flow into emerging market investments over the past four years. 

A global carry trade arose in which investors borrowed at low interest rates from the U.S. and Japan, invested the funds in high-yielding emerging market assets, and pocketed the interest rate differential or “spread.” Soaring demand for EM assets led to a bond bubble and ultra-low borrowing costs, which resulted in government-driven infrastructure booms, alarmingly fast credit growth, and property bubbles in numerous developing nations.

Foreign holdings of ringgit-denominated bonds hit an all time high

While it is true that Malaysia’s $303 billion economy has been growing at an average 6 percent rate in recent years. But it is also due in large part to a growing government and household credit bubble.

Skyrocketed debt after an aggressive stimulus package was launched to bolster the country’s economy during the Global Financial Crisis

Malaysia’s government has been running a budget deficit since 1999

No surprise to see an inflating household debt bubble when Malaysia’s bank lending rate is at record lows

Ultra-low interest rates have caused Malaysia’s private sector loans to increase dramatically since 2008 (it looks exponential and no longer linear)

Malaysia’s household credit bubble is helping to fuel a consumer spending boom. Malaysian car registrations are up by 50 percent since 2008. With interest rates @ rock bottom (< 4%) how expensive can it be to borrow?

Malaysian corporate leverage, which includes corporate bonds and bank loans, is also rising at an alarming rate, reaching 95.8 percent of GDP in 2013 from 79.9 percent in 2007. (based from Forbes analysis). Like most other countries that are part of the emerging markets bubble, Malaysia has a property bubble in addition to its credit bubble. See the parabolic rise of overall Malaysian property prices.

Source: Global Property Guide, the real bubble began in 2009.

Accounting for nearly half of all household debt, soaring mortgage loan growth is a primary reason why Malaysia’s household debt is increasing at such a rapid rate. With the recent turbulence; lower Ringgit, lower Stock Market, lower Palm Oil, lower Oil, more gloom looks more probable, there is simply no catalyst to turn the negative perception around. I would say we are still considered lucky as one remaining factor: unemployed % remains low. People are still surviving it seems (note I did not say 'flourishing').

The way I see it at the moment, three factors that could POP us. 
[1] People start to losing jobs (retrenchment, companies moving out or stop hiring), we would begin to lose the economy, just like 1999 companies and people simply can't service any loans.
[2] When China’s economic bubble pops and/or as [3] global and local interest rates continue to rise, which are what caused the country’s credit and asset bubble in the first place.

Berhati-hati la....

Stuck in the Middle of Nowhere

Based on the original post from The Economist : 
http://www.economist.com/news/leaders/21660979-emerging-markets-are-being-squeezed-americas-recovery-and-chinas-slowdown-stuck-middle

My comments in blue.

• Emerging markets (EM) squeezed by America’s recovery & China’s slowdown. Malaysia is considered an emerging market.
• Unexpected devaluation of the yuan this week fueled fears about China’s economy, caused falls in commodities & EM currencies.
• America is the world’s biggest economy. Sets the tone for interest rates & currencies globally. 
• China has been the fastest-growing big economy by a distance.
• America’s recovery is gradually gathering pace, while China’s economy is slowing sharply. 
• Divergence causing trouble in EM which have lived the high life on China’s investment boom and on a flood of cheap credit from America. Malaysia is such a market.
• Healthy growth in the world’s largest economy is good news. However brings us closer to; possibly Sept - US Fed raises interest rates for the first time in almost a decade. 
• That prospect has pushed up the dollar; risen by 15% against trading partners past 2 years.
• Squeezed emerging markets in two ways. [1] capital is drawn towards higher-yielding American assets, rather than home [2] corporate borrowers in the developing world face currency risk on the $1.3 trillion of dollar-denominated bonds they have issued since 2010. 
• Figures this week showed an 8% fall in Chinese exports in July and a 5.4% drop in factory-gate prices. Output prices have fallen for 41 straight months, overcapacity in much of China’s heavy industry. 
• The impact of China’s slowdown is greatest for commodity producers (Brazil, South Africa, not so much for Malaysia). 
• Fears that this week’s devaluation presages a determined effort to drive down the value of the yuan to benefit Chinese exporters—and squeeze other emerging markets all the more.
• The yuan’s fall this week prompted declines in other Asian currencies against the greenback.
• GDP growth in Singapore, a bellwether of the world economy, has slowed to below 2%, the lowest rate for three years. 
• The lodestars of the global economy are moving apart, spelling more trouble ahead.

My thoughts : Am I worried? To a certain extent yes because apart from the super moron many of these external factors are out of our control. Furthermore we have severely incompetent folks running our country on auto pilot. No two crisis are identical. In 1998 it was really a currency crisis. Right now as I see it - we are in a confidence crisis as of now (Weekly Market Highlights August (1) - Special Malaysia Highlights). 

BNM continues to intervene day by day - though it is impossible for me to know how much it is. BNM will only publish the figures every end of he month. Whether they will run out of bullet in the reserve is still too early to tell. 

Technical Analysis - Defending the MYR

Back in 1998 - The Malaysian stock market dropped dramatically from almost 1,300 in February 1997 to a low of 262 in early September 1998, eighteen months later. The interest rate was raised to double-digit at 11% in an attempt to stop foreign funds outflow. It didn’t work and the stock and property market bubbles burst - hence the peg.

The "genius" Wahid (Minister in PMO) also justified that in 1997, the country’s reserve was below US$30 billion and borrowings among companies were high. True, Malaysia’s reserve is higher today but its depleting fast to US$96.7 billion as of July 31 from US$100.5 billion just 15-days earlier. And the central bank has burnt US$25 billion defending the ringgit since July 2014.

True, the borrowings among companies today are not as high as those during the 1997 crisis. But he conveniently forgets to mention about Malaysia’s household debt. The ratio of household debt to gross domestic product (GDP) rose to 87.9% in 2014, with total debt at “RM940.4 billion”. Most importantly, the ratio of household debt to income is 146%. Did he also deliberately miss out the government external debt, which has tripled to RM740 billion?

Note: Household debt to GDP 16% -> 87.9%, 

Now, do you know why Madam Zeti wasn’t in favour of raising interest rate, even though the ringgit is being slaughtered? Not only would it be an admission that the country is in trouble, but it would immediately send the country into recession. Why? That’s because a raise in interest rate would burst the RM940.4 billion household debt bubble, baby. The confidence crisis could very well become a classic credit bubble crisis.

 

Datuk Paul Selva Raj, CEO of the Federation of Malaysian Consumers Associations (FOMCA), said 47 percent of young Malaysians are currently in “serious debt” (debt payments amount to 30 percent or more of their gross income), something that could catch up with them very quickly. Ni bukan saya cakap kosong kie...Till debt do you part

But for how long can Najib administration resists a rate hike, considering the U.S. Federal Reserve is about to do so next month? The collapse in stock market is only the first step towards a recession. This time, you don’t need George Soros to send ringgit into toilet bowl. External (America and China) and internal factors (Super Moron & his gang of nincompoops) would gladly do the favor. 2017?

Weekly Market Highlights August (1) - Special Malaysia Highlights

Source: Amp Capital (here for full market update) & iCapital biz (subscription required)


United States
The US Federal Reserve is on track to hike interest rates (Amp says Dec but I think a hike in Sept is still on the cards & cannot be disregarded), but September is looking less likely thanks to very weak June quarter wages growth. A further improvement in growth and confidence that inflation will rise is needed. On the inflation front, falling commodity prices and a very weak rise in June quarter employment costs which saw annual growth fall back to just 2% suggests that a September hike is now looking less likely with the timing being pushed back to December.

The US June quarter earnings reporting season continues to better expectations. We are now 70% done and 74% of companies have beat on earnings. The focus will be on the July institute for supply management manufacturing conditions purchasing managers’ index (Monday) which is expected to remain solid at 53.5 and July jobs data (Friday) which is likely to show continued strong jobs growth of 220,000 but unemployment remaining unchanged at 5.3%.

Eurozone

Eurozone economic confidence rose in July to a four-year high, despite the noise around Greece, and is running around levels consistent with decent growth. On top of this bank lending is continuing to improve and the Spanish economy grew 1% in the June quarter with annual growth at its fastest since before the global financial crisis. Clearly Spain is not a Greece! Meanwhile, although Eurozone core inflation rose in July to 1% year-on-year it remains well below target and is likely to fall as lower commodity prices feed through, so European Central Bank quantitative easing is set to continue. 

Asia

Chinese shares had a bad week with their biggest one-day fall in eight years, largely in response to a rumour that the China Securities Finance Corporation was no longer committed to stabilising the share market. While this was subsequently denied volatility remained high. After very sharp share market falls like the 1987 share crash or through the technology wrecks and global financial crisis, it’s quite normal to see a volatile period of base building around the bottom. So the same is likely to apply in relation to China. That said further policy stimulus is still needed in China. 

Japanese economic data was mixed with household spending down and unemployment up, but against this the jobs-to-applicants ratio held at its highest since 1992, industrial production rose more than expected in June with an improvement in the July purchasing managers’ index pointing to further gains and core inflation at least rose to 0.6% year-on-year in June. The Bank of Japan (Friday) is unlikely to change monetary policy, although more quantitative easing remains on the cards at some point. 

On the Malaysian front, we are battered in several fronts; stock market, domestic spending and currency but they all have a common theme - we are suffering from a 

crisis of confidence.

[1] Sell-off in the stock market intensified amid weakening growth prospects continuing to weigh down on investor sentiment. Even EPF is selling since Monday of the week. 

At the same time, PNB had sold 25,000,000 shares of Maybank. Citi Research, a unit of Citigroup Global Markets Inc, yesterday projected Malaysia’s economic expansion may slow to 4% in the second quarter ended June 30 from the 5.6% achieved in the first quarter.
BNM will release this data 13th Aug 2015 (Release of 2nd Quarter 2015 GDP). If data is worse than expected, more market sell-off may occur.


[2] Domestic spending confidence is like tumbling monkeys - almost to the same level as it did during the financial crisis. With further weakening of myr (take oil as example, global oil has shed half its price but prices at the pump remains relatively same a year ago) and consumers still reeling from post GST effects it is very certain confidence level will remain low for a while.

[3] Currency woes can be summed up as = commodities bear market (palm oil & oil) + low IR  + the super moron. I will talk about each. 

- The two commodities are the country’s major exports after electrical and electronic products. Oil is now below $50 a barrel while crude palm oil is at near RM2,000 a tonne levels. Oil is expected to remain low (Saudis are in deep shit with their war against US shale frackers losing ground) while most analyst expect CPO prices to average between RM2,200 to RM2,400 a tonne this year amidst not so strong demand from India and China.

- Low interest rate. It will remain so (unless the currency gets far worse than it is now >4.5). I have said this many times.

BNM will continue to burn reserves to smooth the decline. It is very clear already. If this runs dry capital controls will follow or possibly interest rate rise.
The international reserves of Bank Negara Malaysia amounted to RM379.4 billion (equivalent to USD100.5 billion) as at 15 July 2015. 
The international reserves of Bank Negara Malaysia amounted to RM364.7 billion (equivalent to USD96.7 billion) as at 31 July 2015. 

- Super moron. Najib Razak himself (also the Finance Minister) is a crisis. If a prime minister can pocket RM2.62 billion and walks away a free man running the country, what is there to stop him from becoming the ultimate major shareholders of all the 940 public listed companies in the stock exchange? Meanwhile he is also surrounded by equal bigots:

"Nazri (Tourism Minister) stands by belief that weak ringgit is good for tourism." 
Kepala otak hang -> nak jadi Uganda, Madagascar, Siera Leone, Zimbabwe ke?

“God willing, the ringgit slide will stabilise,” said Husni (Second Finance Minister). “We will get a better picture when the US Federal Reserve decides on the interest rate.
Kepala otak hang -> when the US decides the only direction is going to be up. 

"Wahid (Minister in PMO): Ringgit slide not as bad as during Asian financial crisis."
Kepala otak hang -> the Ringgit is now 3.943 per dollar, its weakest since Sept. 2, 1998, the day before the government pegged it at 3.8000 per dollar to put a floor under the currency during the Asian financial crisis.

Aduhai..in 3 days 3.855 -> 3.943

What can you do?
Before you ask me. No, we are not even close to Greece (debt default crisis) is different than that of crisis of confidence. Please don't queue up to withdraw all your savings or EPF like there's going to be a RM60 max withdrawal per day.

Use your Ringgit and invest in Asia Pacific ex Japan funds - call it a form of hedging because the Malaysian Ringgit lost 2.8% to Singapore, 3.8% to Thailand, 4.9% to Indonesia. Within the same 3-months period, the ringgit also losses 7.6% to Chinese Renminbi, 4.1% to Japanese Yen, 2% to Korean Won, and even a staggering 7.9% to Pakistan Rupee and 8% to Indian Rupee.

I would avoid putting more money in the Malaysian market. As I have mentioned a month earlier in my July Portfolio Update, everything in Malaysia is already at HOLD.  

Hold some USD/SGD/GBP at least for the short term (6 months). Don't bother about Euro, Yen or AUD (they are expected to remain relatively weak). Don't even bother about Gold (a stronger dollar & suppressed oil will mean this asset class will remain weak). I prefer SGD as historically it has appreciated against MYR. There is a risk that the Ringgit gets pegged to USD.

Join the calls (blogs, Bersih 4, facebook and whatever) to demand Super Moron to step down. I can safely say that both the currency and stock market will have a knee-jerk 5-10% recovery or at least our endless bird droppings will stop further.

The Risk of Holding Ringgit is Skyrocketing, WTB Donations

I was told that this table is used by Forex dealers that rely on forecasts on currencies for their business. I did not verify it but judging by looks and the technicality of it, I don't think is worthwhile for anyone to falsify it. Some hard data below.
RatesFX: Daily foreign exchange rates, information about currencies and currency markets

The US dollar is the most important currency here simply because commodities are priced in USD and world trade is dominated by the use of USD.

Dealers are forecasting in 3 months that Ringgit will hit a new high of 4.3246 against the dollar down to a low of 3.8276. Aduhai...

Even while Japan is busy printing tonnes of Yen, we are still weakening against it. Yesterday I was at the money exchange, the Ringgit was around RM3.855, today it's already RM3.873! This is live rates btw. Aduhai...

BNM has burned $30 billion of our reserves (in less than a year!) to defend the Ringgit and yet the currency is still falling. Please note that this is $ (dollar) so it's more than RM 100 billion. Aduhai....

Our half-past-six minister to tell all how fabulous it is to have weak ringgit. The country can export more and increase foreign investments. Weak ringgit also encourages tourists. That’s why Uganda, Madagascar, Siera Leone, Zimbabwe are such a paradise.

I have said this before (see below). Now if the MYR really plummets more, capital controls might follow. The interest rate gun will be used as a last resort (like how Russia & Greece did). When that happens you'll wish you don't even have a housing loan. 2017?? 

Here's what on the news lately and on the on the ground:
-conclusion = economy crisis, good for export, good for tourism and good for songlap

-we are doing so well that we are able to attract donation for billions

-even USD/MYR at 4.50, the macais will keep donate to him.

-Slowdown? Many packed and close shops ady...migrating elsewhere

-$30 billion in reserve wiped out! wow!

Sunday Lite: Flip Flop In Malaysia's Property Market

Source material:
http://www.establishmentpost.com/malaysia-property-flipping-ugly-effect/#ixzz3gnWGEUdE

Malaysia Property Flipping and its Ugly Effect

• It was the lure of fast and easy money, lots of it, that made James Lam jump at the chance to be a Malaysia property speculator or property flipping. 
• “I was greedy.” says the 53-year-old who is in the top management of a multinational company. He already has a well-paying job, but the opportunity was too good to resist.
• One way of beating the system is to secure loans for several properties from as many banks all at the same time.
• Once Mr Lam gets the bank loans, he has to make sure he sells the properties quickly and at a higher price before the loan repayment commences. He has a small window period of a few months to get this done.
• But this did not happen for the two properties in a prime area in Kuala Lumpur that he now has. “I cannot get a buyer. Not even a tenant (to rent). I have to start paying the banks for the loans with my own money.” 
• He also realises that the property market is slowing down and his chances of selling these properties off is getting slimmer by the day. With Real Property Gains Tax made steeper in 2014 at 30 per cent for properties sold within three years, he would need to have a huge profit margin to offset the tax.

My comments : 

Indeed it has slowed down. Besides the house price index the number of property transactions has also fallen. If you don't believe in numbers just head to any property fair in town and you can count the # of visitors with your pair of hands.

The mighty flippers may flop

• Situations like this are nothing new to Siva Shanker. He has seen loads of such cases and he does not see a rosy end to this tale. 
• His 34 years of experience as a real estate agent tells him that Mr Lam will either start cutting down his expenses so he has spare money to service the banks loans until a buyer comes along. “Or he will start borrowing from relatives or, worst still, from loan sharks.”
• “A sharp rise in value (of properties) creates the flipping culture,” he tells The Establishment Post. “In 2010, 2011 and 2012, thousands of properties were sold to flippers. These are people who neither need the property nor can afford to buy it. They buy it purely on speculation,” adds Mr Shanker, the immediate past president of the Malaysian Institute of Estate Agents.

Getting the DIBS on Malaysia Property Flipping

• One of the reasons for a huge rise in flippers is the Developer Interest-Bearing Scheme (Dibs) where a house buyer need not pay down payment upon signing of the sale and purchase agreement. 
• The developer will also bear the other expenses like stamp duty, legal fees and also interest on finance during the project construction period until the handing over of the keys. In essence, the buyer only pays for 90 per cent of the property value. In Malaysia, down payment for properties is at 10 per cent.
• But speculators do not realise is that the value of properties sold under Dibs are actually marked up. This artificially hikes the property value and has caused the property market to rise unnaturally. 
• Dibs was scrapped in Malaysia Budget 2014. Bank Negara was forced to take this measure when household debt soared to 86.8 percent of gross domestic product in 2013.
• But the worst is not over. The effect of Malaysia property flipping is going to hit the property market in a bad way, according to Mr Shanker. “We will see a new category in property transactions – properties from flippers.” Presently, all property transactions involve the primary market, which are the newly built units, and the secondary market, which are the houses built and bought long ago that have now been sold.
• He feels this category of property transactions will constitute a sizeable “5 to 10 per cent of new stock”. Flippers may be forced to sell their properties at much reduced, or even lower than the purchase price, so not to be saddled with a property they cannot afford to hold. 
• So when a sizeable number of properties are made available in the market at much reduced prices, it is not going to be pretty for property investors and owners.

My comments : 
Everybody knows Malaysia has the highest household debt to GDP ratio in Asia. Below was taken in 2013, it is even higher now. 

House prices are lagging indicators of the economy (& our economy is not doing good) simply because it is illiquid (you can't sell it as fast as selling off shares). I told a couple of folks that the year it's going to be is 2017 and I still stand by it.  

At present economic conditions, BNM will not raise interest rates. It cannot and will not. [1] Lower interest rate is needed to spur economic borrowing and spending during bad times like now. [2] An increase in the rate will burden borrowers, make credit harder to obtain and certainly will mean bad news for property as it based highly on leverage.

This is why the Ringgit will continue to weaken and there is nothing much BNM can do about it except to smooth the decline by burning more reserves.

Elsewhere, property flipping is losing its appeal

• Property flipping is fast becoming a thing of the past in the West. “China, Singapore, Malaysia, Hong Kong are now where the West have been and gone through,” Vijay Manavalan, a property negotiator in Malaysia involved in promoting properties in UK for investment.
• “To get value out of property investment, it is best to get slow income, and not flip. There will not be many more markets around the world to flip. Investors need to look at the rental income that can be generated,” he tells The Establishment Post.
• With a combination of government measures and diminishing opportunities, Malaysia property flipping may just be a thing of the past and Malaysian property market can be allowed to grow naturally and at a steady pace.

High Income Nation By 2020?

Based on the original post: High Income Nation By 2020? Dream On. You should spend time to read this as well. There are figures to back up the arguments.


What upset me is when I read this news today:
http://www.themalaysianinsider.com/malaysia/article/1.5-million-bangladeshi-workers-to-arrive-in-3-years-says-home-minister#sthash.vfpBY8J5.dpbs

Here's the snippets:

• 1.5 million Bangladeshi workers to arrive in 3 years, says home minister

• These workers will be involved in various fields, especially in the plantation sector and will meet the demands of the job market in Peninsular Malaysia, Sabah and Sarawak.

• "However, this initiative only involves fresh workers from Bangladesh. Illegal Bangladeshi immigrants working here are not involved and we will continue to deport them," he said in Malacca today. (Belum kira illegals lagi beb)

Disease (One of it)

• Low-skill jobs equal low wages

• In Malaysia, not enough high-wage jobs have been created. In fact the share of skilled labour has declined across industries.

• The E&E sector, which is the major contributor to Malaysia’s growth, has experienced some 

• of the biggest declines in use of high-skilled labour.

• ...employers do not pay for skills, relying instead on tried and tested means such as a readily available pool of unskilled foreign workers and underpriced resources to generate profits.

• Immigration policies favour low skilled and cheap labour. Between 1990 and 2005, foreign labour contributed more than a third of the increase in total labour supply, and over 98% were low-skilled contract migrant workers.

• Malaysian firms prefer to undertake less sophisticated activities, such as upgrading existing product lines or machinery and equipment. Activities that give rise to greater innovation and require the filing of patents are undertaken less frequently.

Broad decrease in the use of high-skilled workers in all industries

I have stressed this before back in 2012 in my blog post (Malaysia 2020 Is Not A Vision, It's A Dream) as a big problem plaguing Malaysia: We attract "mainly" low skilled workers; laborers.