Google Trends Search Term Data & Bitcoin Price

In a previous article, we demonstrated KLCI price forecast using Google Trends’ Data (Read more here).  This week, we are going to examine the relationship between Bitcoin Price and its search frequency on Google.

Google Trends (Read more here) is a website by Google that analyzes the popularity of top search queries in Google Search across various regions and languages. The website uses graphs to compare the search volume of different queries over time (source: Wikipedia).

The following chart shows the relative query frequency of the term “Bitcoin” in Google Search and the Bitcoin price from Jan 2016 to Sep 2018.  The blue line is the normalized “Bitcoin” search term frequency while the orange line is the normalized Bitcoin price.  There is a very strong correlation between these two parameters.  This could be due to Bitcoin traders or investors who are internet savvy at the same time.  Speculators may monitor the “Bitcoin” search term frequency to predict the next movement of the Bitcoin price.

Populist Policies, Business Issues and New Direction

The two populist policies by the Pakatan Harapan coalition – the zerorized GST and fixing of fuel prices (RON 95 and diesel) have helped boost the economy for 2018. GDP growth for 2018 is still anticipated to be above 5%. The re-introduction of SST will impact the economy by early next year (2019) and beyond. Private consumption will slowdown in 2019 without any further tax holidays. That together with an anticipated slowdown in the construction sector will impact growth for 2019 to below 5%.

The key issues for businesses, going forward, include:

·       Increasing operating costs;

·       Declining revenue contribution;

·       Uncertainty of prospects;

·       Direction for economy and Government support; and

·       Weakening domestic demand.

Investments (private/public) in new projects are now withheld, reducing further impetus to growth. Although in the immediate, trade “wars” have not impacted export volume/value, it could be of concern in 2019.

So the Minister of Finance really has to devise new strategies to spur investments and encourage further domestic consumption without any attendant effect on inflation. Fiscal tools seem limited with debt (including guarantees) to GDP above 65% while monetary policy and exchange rate determination remain critically poised. What could he do?

Sell non-strategic Government assets; refinance/reschedule existing debt; provide tax incentives for businesses; secure higher dividend from Petronas (with higher oil prices); and incentivise the services sector especially medical, education, tourism and financial in employing unemployed graduates. Large-scale projects will come into focus perhaps in 2020 or beyond. It’s not his immediate concern. He could of course, do an “amnesty” for corrupt funds to surface although Indonesia reportedly did not succeed. So he has a difficult game to play!

Have We Learned Anything From Lehman’s Collapse?

On September 15, 2008, Lehman Brothers, the U.S. investment bank collapsed. It sent shockwaves throughout the financial markets and remains the single largest bankruptcy filing in U.S. history. This was just the tip of the iceberg. The whole financial system was on the brink of collapse. Why?

The failing U.S. housing market, and particularly the sub-prime mortgage market was about to implode. Clever investment bankers had packaged the sub-prime mortgages with traditional mortgages and sold the bonds to generally unsuspecting investors. Unfortunately, the unsustainable housing market was turning south. And what turned to be clever instruments – CDOs, MBS and others – were now becoming toxic. The world was on the precipice of a dramatic systemic collapse.

Only unprecedented actions by policymakers changed the financial Armageddon. Although the catalyst was the downward spiral of the U.S. housing market, its root cause may probably lie in cheap money, lax standards and irrational exuberance.

A decade on, we have spiralling debt, growing tariffs and rising interest rates providing fresh impetus or ingredients for a perfect storm. Global debt is now USD247 trillion or 318% of GDP, according to the Institute of International Finance. Tariff wars have only just begun and interest rate rises from 1.75% to 2.0% in 2018 to 2.5% - 2.75% by mid-2019 (by the Federal Reserve) are envisaged in due course.

There are lessons to be learnt from the Lehman collapse including never resort to extreme leverage; never invest borrowed money in equity markets; never panic and cash out in a falling market. Nevertheless, be prepared for a 40% drop (in the Dow) if there is a crash in either 2019 or 2020. That’s the average drop (40%) before and in a recession.

References

1. Lehman Brothers Collapse: Key Lessons https://www.foxbusiness.com

2. Two Lessons from Lehman Brothers Collapse https://www.marketwatch.com

Of Black Shoes, UEC and Being President of IIUM!

The recently minted Minister of Education, Dr Maszlee Malik has surely created controversy with black shoes, UEC recognition and ambition to be president of IIUM.

Malaysia’s public spending on education as a share of GDP was 4.8% in 2016 (according to Knoema). It decreased steadily between 1995 and 2016. Public expenditure on education as a percentage of total government expenditure was 21.5% in 2013. This is an investment for the future. So money must go to provide measurable results and improvements in quality of education.

From 2019, all Malaysian students are not required to wear white shoes anymore. They will wear black shoes. What a relief? So we need not clean shoes anymore! While at it, why don’t we have black pants and shirts, so we don’t need to clean them either. And we could be the first nation in the world to celebrate black as beautiful! I remember my secondary school days, we had to wear white shoes that were spotless. I mean even if you had green soles and it was the Bata “Badminton Master” brand you got to paint it white. Otherwise, you got to face detention or better still face the Headmaster! But it taught many of us cleanliness and to do little a bit of hard work on Sundays – cleaning those Bata shoes. So what values are we infusing to the kids – don’t bother cleaning, just buy new ones after a year or two?

Then there is the UEC recognition. It was part of the PH manifesto. But the Minister is wriggling in the quagmire of political expediency. Now it should be approved within the next five years. The majority voted PH in with all its moles and warts. So recognise UEC for cultural integration, wider tertiary options and happier students.

Next, he (the Minister) is keen to be President of IIUM. Rather than focussing on a failed education system, he wants to build IIUM as the next “Oxford” of Islamic universities. And was Oxford built in three years or 300 years (or more)? How could one operate as Minister of Education and President of a particular university? Is there a dearth of talent? Or, why don’t he become President of all universities and thereby show that he is fair to all!

Taxpayers’ money must be spent wisely, not on silly controversies. Students need a good command of Malay, English and Mandarin. The economies of China, India and Indonesia loom larger than the western economies. And we need people who could transact with them. While at it, fix the sciences and mathematics. It’s a digital, automated, AI world that’s happening!

Reference:

Knoema (https://knoema.com)

Source: Class Posot

Hot Deals for Monday WW39'2018

Opportunity 1

Company dealing in outdoor and gym equipment, has been in business for 15 years.  NTA around RM7.5 mil.  Profit ranging from RM0.5 mil – RM1.0 mil.  Profit guarantee is feasible.  Offering price RM5.0 mil.

Opportunity 2

Client wants to sell estate near Teluk Intan with size of 2,926 acres at RM46,000 per acre. Potential for property development.

Opportunity 3

Oil Palm estate over 2,000 acres in Kedah.  With potential for property development.  Asking price RM3 p.s.f.

Opportunity 4

“Edupreneurship” opportunity!  An established education provider is offering an exceptional opportunity to grow entrepreneurs in higher education field.  The potential “edupreneur” will be given the chance to manage a college by taking a minor equity position (40%) in the education group for RM2.0 mil, with an option to buy-out the company later.

Opportunity 5

A European company is looking to acquire or JV with beverages company (including water or milk players) in Malaysia, Myanmar or China.

If you are interested in the above opportunities or would like to offer your hot deals, please contact info@mpcap.com.my or 603 - 2283 1170 for further details!

Ringgit Malaysia (RM) Exchange Rate After GE14

In previous articles, we demonstrated the RM exchange rate movement based on Brent Crude Oil and other political factors (Read more here), and (Read more here).  This week, we are looking at the impact of GE14 to RM.

The chart below shows the relationship between RM and Brent Crude Oil.  The scattered blue dots are the actual data of USD/RM corresponding to respective Brent Crude Oil price from July 2005 to July 2015 while the scattered red dots are the actual data of USD/RM corresponding to respective Brent Crude Oil price from August 2015 to December 2017.  The green dots are pre-GE14 data while the yellow dots are post-GE14 data in 2018.

Before the 1MDB scandal was exposed, RM was strongly correlated with oil price.  This is shown by the blue dashed curve (July 2005 – July 2017, R² = 0.74).  After the 1MDB scandal was exposed, RM was weakened to about one standard deviation from the historical trend.  It was trading on the red dashed curve four month before the GE14.  However, RM was further weakened to 1.5 standard deviation curve (dashed yellow curve) immediate after GE14.  This could be due to the additional negative news exposed by the newly elected Government.

Moving forward, RM is expected to trade along the yellow curve before Malaysia finds a sound solution to solve its financial and economic issues.  According to EIA and OECD data, oil price is projected to trade around USD69 – 73 per barrel in 2018 (Read more here).  This suggests the RM will be trading in the range of RM4.05 to RM4.15.  Meanwhile, on 4^th September, Standard Chartered Bank suggested the ringgit will trade at RM4.0 against the USD by end of 2018 and RM4.1 by end of 2019 (Read more here).

Source: Knoema

“Miswords” in the Corporate World

“Miswords” are words that gloss over an act lacking in integrity – it is worse than oxymoron. Oxymoron is two words with opposite meanings that are combined to create a new meaning. For example, “awfully good”, “clearly confused”, “deceptively honest”, “falsely true”, “living dead”, “true fiction” or “working vacation”.

“Miswords” is a development from the financial crisis of 2008 (or perhaps earlier). Banks or insurance companies are good at “misselling”. This is the deliberate, reckless or negligent sale of products or services in circumstances where the product or service is not suitable for the customer. Here, no one gets charged, banks may pay a suitable fine and promise not to do it again.

Then there is “misspoke”. What does that mean? To be fair, politicians use it more frequently than corporate CEOs. According to Webster’s dictionary, misspeak is to “speak, utter, or pronounce incorrectly, to stammer or garble”. President Trump is best at it! Corporate executives sometimes exaggerate performance of their companies to create a positive “spin” and hence improvement in their share price. So, is this just being less than honest? Embellishing a story, making-up events, projecting beyond reasonable bounds, rewriting corporate history knowing full well it is false is serious stuff!

Then perhaps you could add new ones like “misact” which is not acting in an appropriate manner or “misthink” which suggests you had some evil, deceptive ideas.

Admission of a false statement or act is better in the long-run. Integrity cannot be bought. Weak explanations and playing word games are just trying to avoid responsibility. Doing this raises serious questions of character and ability to lead. It is true in business or in government.

“No Deal” Brexit – What’s the Cost?

According to Centre for European Reform (“CER”), Brexit has curbed economic growth. The U.K. economy has stagnated. But how much has the decision to leave the EU has cost the U.K. economy so far?

According to CER, the British economy is 2.1% smaller in the first quarter of 2018 as compared to if the vote was to remain. Using scenario modelling, they created a “synthetic” U.K. and the real U.K. to examine the difference in growth between the “remain” and “leave” positions.

The leave vote is now costing the U.K. Treasury £440 million a week.

But what does a “No Deal” mean for the U.K.? A number of things:

·       The 21-month transitory period from March 29, 2019 is scrapped;

·       No legal obligations to pay £39 billion as divorce settlement to the EU;

·       Residency rights of EU nationals (3.7 million) in U.K. and those U.K. nationals (1.3 million) in EU disappear overnight;

·       Northern Ireland is out of the EU and over 300 checkpoints to manage;

·       WTO rules come into effect;

·       Tariffs (ranging from 2% - 60%) imposed on two-way trade between U.K. and EU;

·       With VAT, prices will increase by 20%;

·       Customs check on cross-channel freight, will create havoc at ports;

·       Businesses will have to obtain licenses in each individual country;

·       Products require authorisation and certifications;

·       U.K. individuals and organisations become ineligible for EU grants and contracts;

·       Void professional qualifications in EU and U.K.;

·       Mobile phone charges will hike; and

·       Organic farmers may be shut-out of EU.

The larger and better prepared firms will hedge now based on direct impact on themselves, supply chains, customers and competitors. The small firms are least able to take such steps and suffer the most.

The desire to leave the EU is little more than a growing nostalgia for Empire. Liberals may despise Empire, but arguments on intervention and governance are couched in imperial worldview. So interventions in Iraq, Afghanistan and Syria are perceived as not wrong but should have been earlier. Can you believe that?

Reference

1. What is a no-deal Brexit, what’s the government’s latest advice and what it would mean for the UK? Sofia Petkar, The Sun, 13 September 2018

2.What’s the cost of Brexit so far? John Springford, Centre for European Reform,
23 June 2018

Will Trump’s Trade Policy Lead to War?

President Trump is stuck in the 80s, not the Reagan era of the 1980s but the 1680s.

Mercantilism is a philosophy from about 300 years ago. It was the economic system of major trading nations during 16^th-18^th centuries. It was premised on the belief that national wealth and power were best served by increasing exports and collecting gold in return. The theory suggests that the world has only a fixed amount of wealth and to increase a country’s wealth, one had to take it from someone else. Essentially, a “zero-sum” game. High tariffs were an almost universal feature of mercantilist policy. Mercantilism is an offensive policy aimed at accumulating surpluses while protectionism is a defensive policy aimed at reducing a trade deficit.

Since the level of world trade was fixed, it followed that the only way to increase a nation’s trade was to take it from another. Hence, the Anglo-Dutch Wars and the Franco-Dutch Wars. Mercantilism fuelled the imperialism of that era. That’s why the Portuguese, Dutch and English turned up in Malacca and other parts of Asia, Africa and South America.

Adam Smith, David Hume and David Ricardo turned much of this thinking on its head. Wealth comes from increasing productivity not amassing gold! How do you increase productivity? By specialising in areas that you do well – that’s comparative advantage. Then when you trade with others, everyone gets richer. Trade is not a zero-sum game but positive sum. Trump has missed the point. And his advice comes from Peter Navarro.

Peter Kent Navarro (born July 1949) is an American economist who serves as Assistant to the President, Director of Trade and Industrial Policy and Director of the White House National Trade Council. A professor emeritus of University California, Irvine. He has a B.A. (from Tufts), Master of Public Administration (Harvard) and a PhD in economics from Harvard. His doctoral thesis is on why corporations donate to charity – not on international trade! Many noted economists consider him an “oddball” and “outside of the mainstream” for he endorses few of the key tenets of the economics profession.

So Navarro and Trump, like any 16^th century mercantilist, cannot perceive mutual gains from trade. In any transaction, from their point of view, there is only a winner and a loser. And the winner is the one with a trade surplus. And it will be no surprise, at least privately or in Trump’s mind, that he wants to go to war with Mexico, Canada, Germany, Japan, China and South Korea.

John Maynard Keynes once said men who fancy themselves as independent thinkers are usually just slaves to some defunct economist.

Reference

1. Mercantilism/ International Trade – pick any economics course on trade

2. Trump’s trade policy is stuck in the ‘80s – the 1680s by Catherine Rampell

Hot Deals for Monday WW38'2018

Welcome to Hot Deals for Monday, where you have opportunities to Buy or Sell!

Opportunity 1

Company dealing in outdoor and gym equipment, has been in business for 15 years.  NTA around RM7.5 mil.  Profit ranging from RM0.5 mil – RM1.0 mil.  Profit guarantee is feasible.  Offering price RM5.0 mil.

Opportunity 2

Client wants to sell estate near Teluk Intan with size of 2,926 acres at RM46,000 per acre. Potential for property development.

Opportunity 3

Client wants to build gas-fired power plant.  Early stage. Suitable J-V Partner to support initial development cost (RM5 mil) is important.

Opportunity 4

Oil Palm estate over 2,000 acres in Kedah.  With potential for property development.  Asking price RM3 p.s.f.

Opportunity 5

“Edupreneurship” opportunity!  An established education provider is offering an exceptional opportunity to grow entrepreneurs in higher education field.  The potential “edupreneur” will be given the chance to manage a college by taking a minor equity position (40%) in the education group for RM2.0 mil, with an option to buy-out the company later.

If you are interested in the above opportunities or would like to offer your hot deals, please contact info@mpcap.com.my or 603 - 2283 1170 for further details!

Malaysia Palm Oil Weekly Closing Price Histogram Jul 2011 – Sep 2018

The Executive Chairman/ Managing Director of Sime Darby Plantation Bhd suggested Malaysia Palm Oil (MPO) prices will be in the range of RM2,250 and RM2,500 per tonne for the second half of 2018 (Read more here).

We analyzed the support and resistance lines for KLCI using histogram methodology in our previous article (Read more here).  This week, we are looking at the MPO price using the same methodology.

Chart 1 below shows the volume weighted histogram of weekly closing price of MPO from July 2011 till September 2018.  Clearly from the chart, 2410 is a strong support/ resistance line.  At the time of this article, MPO was trading at 2213, the immediate strong support based on the histogram is 2160.  There are several major resistances ahead of 2213, as such, more positive developments are needed for the MPO to break the 2410 resistance level.

Chart 1: Volume Weighted MPO Weekly Closing Price Histogram

Is Minimum Wage at RM1,050 (in 2019) Fair?

Putrajaya has fixed the new minimum wage nationwide at RM1,050 or RM5.05 per hour for 2019.

MTUC Secretary-general, J Solomon commented the increase of RM50 was a “pittance” dumped on labour. The National Wage Consultative Council (NWCC) recommended RM1,250. Of course, employers are delirious with joy of this “insult to the 14-15 million labour force in Malaysia”, said Charles Santiago, the Pakatan Harapan (PH) Member of Parliament for Klang. The next two reviews will happen only in 2020 and 2022. It is impossible to raise the minimum wage to RM1,500 as pledged by PH, if increments are RM50 every two years. Under BN previously, there was a 24-month delay in the review and consequent adjustment of wages.

If we account for what was supposed to be secured under the previous Government, then the total minimum increment has to be RM150, which then translates to a nationwide minimum wage of RM1,150. That is not fair but at least it’s progress towards RM1,500. In this whole episode, the PH Government has not laid out the impact of this incremental increase on businesses. Meanwhile, “fat cats” (pardon the cliché) CEOs earn more than RM1 million a year. Can’t we tax them on super earnings tax (of 35%) and fund the poor, the B40? Or, is this capitalist system led by unbridled greed.

So, what is fair? An Indonesian odd job worker (with some skill) earns RM140 per day. That on a 5-day work is RM700 per week or RM2,800 per month. Try asking him to work for RM55 per day! We pay more to foreigners than Malaysians!

Again, what is fair? It has to be RM1,250 as recommended by NWCC. Otherwise, why consult them? Bank Negara Malaysia has indicated that the living wage (as opposed to minimum wage) in Kuala Lumpur for a single adult is RM2,700. We are nowhere close to that.

The key policy issue is, are we aiming to be a low-wage economy? We cannot compete with the likes of Vietnam or China. So it is best for us to up-skill workers in manufacturing, construction and agriculture. Automation, innovation and AI is the way forward.

Not Financially Savvy or Reckless Lending?

According to Bank Negara Malaysia (BNM), 47% of Malaysian youths have high credit card debt and 38% have high personal loans. An Assistant Governor said “I challenge all of you to break the myth... young generation are not financially savvy...” (The Star, 4 September 2018).

According to AKPK, the top five reasons for accumulating excessive debt are:

Of those who participate with AKPK, the profile looks like as follows:

(i)     Income level      -           73% have household income of less than RM4,000 per month

(ii)    Location             -           64% live in urban areas with high costs of living

(iii)   Age group          -           40% are between 30-40 years old

(iv)   Employment      -           64% work in the private sector

(v)     Borrowing type -           93% have unsecured debt (credit cards or personal loans)

The young could be financially savvy but are led to “slaughter” by the aggressive sales of commercial banks. All the banks focus on consumer lending and engage actively in selling their cards or personal loans. Just like sub-prime in the U.S., standards are waived to meet sales targets and commissions. In the early 1980s, it was difficult to get a credit card. It was as if you have arrived – a status symbol. Today it is the “Platinum” or “Premier Miles” card, otherwise you are a low level human being.

If behaviour is to change, it starts with the regulator and the banks. As long as bank managements throw “caution to the wind” (pardon the cliché), young people will end-up in debt beyond their means. It is time to rein in consumer lending or face the consequences.

Reference:

-The Star, 4 September 2018

-AKPK, Advancing Prudent Financial Behaviour, BNM, March 2018

China Will Strike Back!

The U.S. wants to impose another USD200 billion in tariffs soon. Some think China is limited to strike back.

In 2009, China imposed export limits, to build local demand. For example, battery production was shifted from Japan and the West to local producers. China then had 30% of global deposits of rare earths and accounted for 90% of production. It is somewhat the same today.

The U.S. used to supply all of its rare earth but could not compete against cheap Chinese production. Unilaterally China lifted export limits in 2012.

Imagine a U.S. battery producer having to pay 4,000% more for base metals. No batteries. No jobs. No Trump! There are a host of other goods that are not easily replaced. An example is zinc. China is the world’s largest producer – 5 times more than the next rival, Peru. And zinc is used for infrastructure to healthcare. Zinc prices were an 11 year high earlier this year and it could go further up.

So position yourself for select commodities, China will strike back!

Reference:

China Can Hit The U.S. Far Harder Than Anyone Thinks by Adam English, Sept 4, 2018 (https://www.outsiderclub.com)

Hot Deals for Monday WW37'2018

Welcome to Hot Deals for Monday, where you have opportunities to Buy or Sell!

Opportunity 1

Company dealing in outdoor and gym equipment, has been in business for 15 years.  NTA around RM7.5 mil.  Profit ranging from RM0.5 mil – RM1.0 mil.  Profit guarantee is feasible.  Offering price RM5.0 mil.

Opportunity 2

Client wants to sell estate near Teluk Intan with size of 2,926 acres at RM46,000 per acre. Potential for property development.

Opportunity 3

Client wants to build gas-fired power plant.  Early stage. Suitable J-V Partner to support initial development cost (RM5 mil) is important.

Opportunity 4

Oil Palm estate over 2,000 acres in Kedah.  With potential for property development.  Asking price RM3 p.s.f.

Opportunity 5

“Edupreneurship” opportunity!  An established education provider is offering an exceptional opportunity to grow entrepreneurs in higher education field.  The potential “edupreneur” will be given the chance to manage a college by taking a minor equity position (40%) in the education group for RM2.0 mil, with an option to buy-out the company later.

If you are interested in the above opportunities or would like to offer your hot deals, please contact info@mpcap.com.my or 603 - 2283 1170 for further details!

KLCI Histogram Using Daily Closing Data

In our previous article dated 31 August 2018 (Read more here), a histogram of weekly KLCI closing price was discussed.  This week, we shall look at KLCI histogram using daily closing price data.

Weekly data are useful for studying long term trend while daily data are preferred when investor would like to examine the short-term behaviour of the underlying.

Chart 1 below shows the volume weighted histogram of daily closing price of KLCI from May 2010 till September 2018.  Clearly from the chart, 1630 is a strong support line, which is similar to weekly histogram results.  At the time this article was written, KLCI was trading at 1800, the immediate support based on the histogram are between 1780 – 1790.  The next resistance line for KLCI is at 1820.  This again proven the strength of histogram as KLCI touched 1826 on previous week then started to trend backward to restest 1790 resistance.

Five Most Overrated Management Concepts/Steps

Making a company successful requires, above all, clear thinking and decisive action. Unfortunately, many management concepts or steps encourage fuzzy ideas and bad decisions. My favourite five are:

(i)        Synergy

           This is usually used in justifying a merger or takeover. In many cases it is not true – the acquisition is disruptive, counter-productive and destroys value, at least in the initial years.

(ii)       Voluntary or Mutual Separation Scheme (VSS or MSS)

This is retrenchment period. Companies may couch their words but it is a lay-off. A VSS invites employees to make an offer while in a MSS, the employer achieves the same result by selecting employees they want to lay-off.

(iii)      Rightsizing/Downsizing

          There is no such thing! Management was responsible for the “wrong” size in the first place. They use (ii) above to “right size”. Lousy management leads to big lay-offs, i.e. management failed!

(iv)      Consensus

         Only political parties and civil service should be allowed to use this jargon. It sounds reasonable. But “wisdom” of committees in practice drives weak decisions. Consensus favours conservative, safe and bland decisions. Then you will not have the likes of Amazon, Tesla or Alibaba.

(v)       Brainstorming

        Getting people together to bounce ideas off sounds great but it doesn’t work. Group think and dominant personalities will drive the agenda. Creativity is not a group process and great ideas do not emerge from half-baked ones. Otherwise, we will not need Edison, Ford, Galileo or Elon Musk!