Economics Business Music Politics Altruism

Shostakovich Cello Concerto No. 1 Opus 107-A long wait

Good things are worth the wait cannot be more true than in the case of Shostakovich Cello Concerto No. 1 composed in 1959 and dedicated to Rostropovich. Rostropovich had been yearning for Shostakovich to write him a cello concerto but had to harbor it secretly on advisement of Shostakovich's first wife Nina. When asked by Rostropovich how to ask Shostakovich to write him a cello concerto, her advice was not to mention or even hint anything about it. It must have been a long wait as Nina passed away in 1954 and the composition was only realized in 1959; at least a good 5 years. Many did not realize that it was such a long wait until we put the time-line together. When the composition arrived, Rostropovich received it with such enthusiasm by committing it to memory in a matter of 4 days.

Shostakovich was teacher to Rostropovich I believe for orchestration in the 1940s and he certainly held a deep respect for his teacher. When interviewed by The Strad in their May 1959 issue by M.B.Stanfield, his account of the Shostakovich and Prokofiev cello concertos as "They are supreme masterpieces and one cannot expect all music to come up to their standard" says it all.

Both Shostakovich and Rostropovich share a common trait in having a heavy dose of Russian politics intertwined into their musical career. Shostakovich did it mainly through his composition and Rostropovich his stellar cello performance. Shostakovich had many brushes with Stalin having been publicly denounced by Stalin and thereafter living in paranoia fear of death as people who cross path with Stalin have a habit of disappearing from the face of the earth. Although he outlived Stalin who died in 1953, the mental torture has left a debilitating mark on his psychological landscape as evident in many mysterious and unexplainable passages in his compositions. It was mentioned in passing that the fear of death might have been a greater torture than death itself.

As for Rostropovich, it could have been a soul born in the wrong country so to speak as he was very much a libertarian at heart living in communist Russia. In-spite of this, he had great love for motherland Russia choosing to return once his revoked Russian citizenship was restored and was laid to rest in Russia. Some of his landmark political highlights including performing in London in 1968 on the day when Russian tanks rolled into Poland. There was widespread protest at the concert but Rostropovich continued playing Polish composer Dvorak piece with tears in his eyes. The second significant event this time of his choosing was an impromptu basking in front of the Berlin wall in 1989 when the wall came down.

As with most Shostakovich composition, there is little explanation or narration giving the performer and audience almost total free play in interpreting the music with little or no point of reference save for the historical canvas against which it was written in. My main aim in the review of this cello concerto is to provide that backdrop so that you can enjoy the music more deeply in whichever way you heart bring you as there are enough exposition on the music itself.

Briefly, the piece has the signature Shostakovich motif DSCH written all over the piece. Mainstream opinion that it is only a translation of his name could be too simplistic for this four note motif. I think this queasy four note motif that pervades most of his work has a very deep meaning of a man that has gone through much psychological torture and the equation to his name could be a mere coincidence.

This four movement piece also has a unique feature of having the third movement almost exclusively a cadenza. The possible raison detre is to hall mark the piece as a virtuoso to allow Rostropovich latitude to display his prowess. In reviewing the piece with Shostakovich, Rostropovich has told him not to worry about the outer limits of the cello and just let his soul lead the way. This also explain why this piece is one of the more technically challenging piece amongst the limited cello concerto repertoire.

In the last movement, there lies a distorted version of Suliko song which is a favorite of the now dead Stalin. Perhaps it is meant as a mockery of Stalin than a respectful acknowledgement. Unfortunately, he has brought it to the grave without mentioning anything about it.

Lastly Shostakovich has mentioned personally that he drew much inspiration of this piece from Prokofiev Sinfonia Concertante but perhaps my limited understanding of Prokofiev music has me finding it hard to see the relationship between the two. Maybe my love for Shostakovich music as this juncture has to do with the circumstances I am embroiled in.

Some of the recordings I have listened to while writing this article are as follows and it is not in any particular order of preference or merit.

1. Mstislav Rostropovich, Seiji Ozawa, London Symphony Orchestra
2. Mstislav Rostropovich, Gennady Rozhdestvensky, USSR State Symphony Orchestra

3. Mstislav Rostropovich, Eugene Ormandy, Philadelphia Orchestra
4. Yo-Yo Ma, Eugene Ormandy, Philadelphia Orchestra
5. Heinrich Schiff, Maxim Shostakovich, Bavarian Radio Symphony Orchestra
6. Jiri Barta, Maxim Shostakovich, Prague Symphony Orchestra
7. Alexander Ivashkin, Valeri Polyansky, Moscow Symphony Orchestra

8. Frans Helmerson, Valeri Polyansky, Moscow Symphony Orchestra

9. Mischa Maisky, Tilson Thomas, London Symphony Orchestra

Peter Lye aka lkypeter
Safe HarborPlease note that information contained in these pages are of a personal nature and does not necessarily reflect that of any companies, organizations or individuals. In addition, some of these opinions are of a forward looking nature. Lastly the facts and opinions contained in these pages might not have been verified for correctness, so please use with caution. Happy Reading. Copyrights of all contents in this blog belongs to Peter Lye unless stated otherwise.

Why Government Services Fails Sometimes? A Singaporean Perspective-March 2012

Why Government Services Fails Sometimes? A Singaporean Perspective-March 2012

There has been enough negative press about the state of services provided by our government, governmental agencies or government related companies. It ranges from train, bus services and road congestion in the transportation sector to cost of public housing both in the new and re-sale market in the property segment. Cost of tertiary education and basis of allocation of these highly competitive seats as well as entry criteria into primary schools have also invited comments of all shape and size. Even the environment ministry was not spared for the increase incidence of flooding as well as cost of rental of hawker stalls contributing to escalating cost of hawker food which is quite a staple for most Singaporean.

After thinking hard about the surficial causes instead of the root causes being a practical person with limited resources of an arm chair hobbyist commentator, citizenry is not totally innocent for all these as they have only elected the current government into office in the 2011 general elections including the recent presidential elections where the president was elected to add injury to the whole matter. Did the nation’s consensus and consciousness failed terribly in voting in a stupid and incompetent government and if so, we must live with the consequences until the next election and perhaps beyond as some policies of the current government will outlast their term of office. I can almost hear war drums of the vast majority descending upon me that the election was only fair within the sandbox drawn by the long suffering oops I mean long serving incumbent party and personas of People’s Action Party (PAP) which has been the ruling party since time immemorial since Singapore gain independence. Policies such as electoral boundary, group representation which can distort the electoral results in conveying the will of the citizenry but let’s grow up as no election rules will result in simple majority prevails. However, if we were to use the percentage of parliamentary electoral seats against the percentage of individual votes, the gap seems fairly wide. Perhaps some study should be made about this in Singapore and published as an academic paper from the birth of our nation to the last election in 2011 and see how the empirical information paints the situation.

Causes of Failure

There are very good reasons why government services fail sometimes we must recognise some of these premises before we can be part of the solution for the greater good of society. Being a capitalist at heart and one the believes in minimal government, I have seen fairly concerned and critical about the growth of government, this discourse seems out of place as there is a large element in defence of the government. I have not changed my surname nor DNA.

Firstly is the issue of transparency. Except for a few areas like defence relating to external and homeland security, diplomatic relations and perhaps justified covert operations if any. We sometimes forget about the tremendous constraints, cost associated with making transparency in its various shades of hues from opaque, frosted, tinted to switchable variety On one end of the continuum, where and what I decide to have lunch, is a totally private matter. I do not need to publish my rationale for doing so and whether there were interested party involved in the decision. In all likelihood, there might be an interested party like going down to a café owned by my aunt. On the other end of the continuum, in government decision making, there is a presumption it is rationale, free of conflict of interest and if there are, it is properly declared, and can withstand the naked scrutiny of oversight bodies or the public. Transparency is not binary in practice and it ranges from privacy of private individuals which the government must protect in some areas to private companies for which it need only transparency to a small pool of private shareholders to public listed companies accountable to larger audience of shareholders for which anyone can become a shareholder by paying the requisite market price. When private companies go public, they normally suffer the shocking underwear syndrome and see them retching from their mouths that they now need to declare what type and colour of underwear. For the more liberal male captains of these companies that might harbour or like to wear swanky G strings meant for the fairer sex. Metaphorically speaking.

Universal access is the second plague that I sometimes nickname it the 7Eleven solution. A private business have great latitude in deciding what product and services, when, where and who it decides to do business with. For government services, there is a presumption of universal access for all within bounds of stated level of service like operating hours, grade of service etc. For example, we expect police service to be available to us anytime we need and at the force level that mirrors and exceeds the threat we face on hand. However, when we engage the services of a private security company, the expectation is only for the stated hours and for so many people armed in a certain manner. The private security company could plan their resources based on expected volume of business with some expectation that utilization will not be 100% as demand might not be a linear or so closely correlated to the supply. If demand exceeds supply, the private company can call a stock out situation and not provide the service. Of course there would be many stock out cost to be considered in addition to the short term lost in profit opportunity like longer term customer satisfaction and of repeat customers. However, for the police service, if it fails to respond to any call for service, it risks a major public affairs situation as well as potential political collateral damage to incumbent elected officials. To be fair, the police can only plan their resources based on past records as well as future projections. The journalistic maxim of 1 life too many can result in an over staffed and resourced government services.

One of the commonly cited rationales that some services like certain segment of public transport cannot be privatized because of the need to provide universal access in terms of hours of operations and route to cover unprofitable hours and routes to provide universal access. My challenge is to re-examine the operations of the 7Eleven franchisor/ franchisee model whereby shops are kept open 24 hours a days all year round including new year holidays. This business model has been so successful that its operations is almost global and have even attracted copycat franchisor operating similar models in some countries. Perhaps the Singapore Land Transport Authority (LTA) that is both regulator and licensor of transportation services both private and public should re-consider their current practice of licensing public transport to a handful of companies to operate rail and bus to consider the public suggestion of allowing a larger pool of private small bus operators to be a part of the public transportation services like in Hong Kong which has quite similar population density and size as Singapore. Big buses and rail transportation is not likely to be a good answer to off peak hours as well as less densely populated areas and could actually represent a larger carbon footprint than private cars. Work on the licensing and oversight practical to small private operators and this could well be part of the solution to our current transportation woes than multi-billion dollar funding for more buses, bus lanes and bus stops.

The third item comprehensive planning to me is one of the greater joke. While failing to plan is planning to fail but planning like crystal ball gazing is comprehensive to the extent that is takes into consideration currently known variables and certain reasonable assumptions. Legislators and judges act as if current wisdom as embodied in the constitution/statutes and case law respectively are evergreen. I used to work in healthcare once and know of the need for the health ministry to license clinics and hospitals to ensure that they comply with certain requirements to ensure that they can provide their services safely and this is a very good idea. If a qualified doctor decides to operate a doctor on wheels service providing care to patients only on a house call basis without a physical address, I wonder how his so called clinic can be licensed. It makes sense in land scarce Singapore where rental cost is high and is passed onto patients indirectly. Here I go again getting LTA in the picture as it might be illegal to use a vehicle as a clinic as it is only meant for transportation purposes.

Smart Government

The basis for deciding whether a particular goods or service should be the exclusive enclave of the government or best left to the private sector is a very academic one and I would not want to repeat the wisdom of many before me here. There should be an oversight committee tasked and empowered by the people for the people to make recommendations to parliament. This is to ensure that in areas where the government should be playing a role and is not doing so be brought to task. It would also be empowered to investigate governmental involvement in the economy through various government owned subsidiaries, joint ventures or related companies. If the government needs to invest excess funds in the economy of Singapore, there should be a proper blind trust that does this for the government free of executive over lord or interferences.

Peter Lye aka lkypeter
Safe Harbor
Please note that information contained in these pages are of a personal nature and does not necessarily reflect that of any companies, organizations or individuals. In addition, some of these opinions are of a forward looking nature. Lastly the facts and opinions contained in these pages might not have been verified for correctness, so please use with caution. Happy Reading. Copyrights of all contents in this blog belongs to Peter Lye unless stated otherwise.

Effects of Government on Macro Economic Performance-Singapore Experience

Human nature prevails that where credit is due, the queue to claim it can be mile long and on the same note, when blames needs to be apportioned, all and sundry will stay miles away from the situation. This small and young nation of Singapore commonly known as the little red dot was once near annihilation due to a multitude of factors like racial/religious divide, poor economy, low rate of literacy with absolutely no natural resources to live on the land. This era of the 1960s bore witness to the bitter struggle for independence that was also opportunistically made use by the communist to agitate the populace against their old colonial masters flying the altruistic flag of our struggle for freedom but with a more sinister underlying aim of converting the country into a communist state. Racial and religious issues especially racial issues were polarized to stir the pot of multi-racial harmonious co-existence and tolerance into a struggle for a monolithic society. All these are behind us save for the historians whose records of these events through their individual looking glass on what and why of the past. History was never meant to be an objective study although foundational principles are there to shed light along our path towards the truth.

The then chief minister and the current minister mentor Lee Kuan Yew and his contemporaries many of which has left the cabinet and this life due to old age have pre-sided over a period of renaissance of Singapore economy with many years of double digit growth and structural transformation of the economy from a industrial/manufacturing to a knowledge and service orientated economy as Singapore survive one after another economic downturn with relatively small and quick healing battle scar of economic recession.

This period also witnessed the baton of premiership handed over from Lee Kuan Yew to Goh Chok Tong to our present prime minister Lee Hsien Loong who is the eldest son of Lee Kuan Yew. The issue of cabinet remuneration and sustainable leadership quality was maturely brought up in the open as a discussion point for the public to opined on. The basic argument being that we cannot expect a quality leadership to bring Singapore into the next leap on an altruistic only basis and a comparatively pittance financial reward. A novel model was brought to bear that benchmarked the political leaders and top civil servants salaries against the top n earners of the captains of various industries like lawyers, doctors, engineers etc. The application of the model had the effect of pushing up the salaries of the these leaders fairly substantially. The basis of which was that it would be a model that will serve us well in good and bad times as the cabinet salaries would decline if the top salaries were to decline in an economic downturn and provides for a certain level of social equity as well.

My basic belief being that poorly remunerated political leaders and top civil servants might lead be linked to poor economic performance but high remuneration is not a pre-condition for good economic performance and might not guarntee good economic performance in most cases.

First of all, we shall try to proxy good economic performance against a basket of indicators and this is not perfect or the best but would suffice for this discourse. The proxies are:

-GDP or GNP

-GDP or GNP compounded growth

-Measurement of government participation in economy - Fiscal Budget/GDP or GNP
-Years in power of head of state
-% of popular votes to ruling party
-% of seats controlled by ruling party
-Gini index
-UN Human Development Index

Our closest neighbour Malaysia has a parallel in having an iconic leader helm the top post for many terms. Mahatair Mohamed in the case of Malaysia and Lee Kuan Yew in the case of Singapore. Fortunately or unfortunately, both countries does not have a ruling to limit the number of terms the prime minister can stay in office like in USA where it is limited to 2 terms. We shall measure USA differently on this proxy in terms of number of presidents that managed to serve their maximum two term. It is indeed a good record as Bush, Clinton, Ragean all did two two terms. It was only in recent past that Malaysia saw some movement after Mahatair stepped down. In both countries, it is not invisible that both iconic leaders continue to enjoy some influence over the political landscape even though they are no longer prime ministers.

Peter Lye aka lkypeter
Safe Harbor
Please note that information contained in these pages are of a personal nature and does not necessarily reflect that of any companies, organizations or individuals. In addition, some of these opinions are of a forward looking nature. Lastly the facts and opinions contained in these pages might not have been verified for correctness, so please use with caution. Happy Reading. Copyrights of all contents in this blog belongs to Peter Lye unless stated otherwise.

MF Global Debacle-Singapore Moral Chapter

What is the difference between gaming and proprietary trading? The most obvious is on how you place your bets. In gaming, it is primarily based on instinct. There are some theorems that by card counting in the game of black jack, you are almost guaranteed in placing a winning bet but let's leave this controversial practice aside for the time being as casino operators have proven that they are guaranteed to be winners the world over.

In proprietary trading, it is usually based on a whole lot of analysis on the predictable and visible The little left that is not predictable and blind corners, human instinct and experience complete the process and a bet is made. Perhaps this is why a gaming license is needed to operate a legitimate casino but for proprietary trading, the amount of control that the monetary regulators ( MAS is the case of Singapore is both the central bank as well as banking regulator ) depends largely on your funding source. If funded by sophisticated investors with no retailing to the general public, MAS does little to control proprietary trading as well as protecting their investors in the name of free market. MF Global melt down is now common knowledge but little is mentioned that they also have a Singapore branch. Before I forget, the local press did mention that SGX has frozen their operations here for exchange traded products to reduce SGX counter-party risk. How about their positions in non-exchange traded derivatives and the like and their local investors and counter-parties? SGX stands for Singapore Exchange and also operates as security and exchange regulator of the stock market. A bit like NYSE and SEC all rolled in one in USA for efficiency and not to possible defray conflict of interest.

Singapore has been showcased the world over as a miracle economy that managed to achieve spectacular growth in the face of adversity starting with a tiny island state with no natural endowment of mother nature except for her people and geographical location along the major maritime trade lanes of East and West. The one and only ruling party since her independence is the well known Peoples' Action Party ( PAP ) and till date, they still hold more than 2/3 of the seats in parliament enabling them to change constitution, laws and policies almost unilaterally. To add injury, being a parliamentary system, there is the party whip to keep their own members of parliament in line. PAP's success both in winning the mandate of the populace at every election as well as making and keeping Singapore successful is based on a pragmatic moralistic meritocracy strongly espoused by the founder of PAP Lee Kuan Yew and I suppose accounts partly for their choice of all white 'uniform'.

Hong Kong is big in proprietary trading but has no legalized gaming and the same goes for major financial centers like New York, Chicago, London, Tokyo and Frankfurt. Cities known for big league legalized gaming like Macao, Los Angeles, Atlantic City and Monte-Car-lo have limited proprietary trading. If we combine casino gaming or what Singapore government white washed label as 'Integrated Resort' and proprietary trading in the financial center into the same gaming sector, this might place the city of Singapore uniquely in the gaming capital of the world. Well done PAP.

Cheaper Stock Brokerage?

Of late, the competition in stock brokerage has intensified drastically with non-clearing members offering brokerage rates unheard of previously. As with all cheap things, there is always a catch to it. If you are thinking of fattening your trading profits or reducing your trading losses, do read the fine print carefully. The list of clearing members in the case of Singapore is available at www.sgx.com The differential between trading with clearing and non-clearing members are mainly as follows:

For trades with clearing members, stocks would be placed in a custodial company or custodial division of the stock exchange that would also have a common modus operandi with companies providing share registrar service. Trades though non-clearing members are normally held in a separate custodial company normally owned by the non-clearing member as well. Some do use the custodial services not owned or operated by them.
Voting rights at annual or extraordinary general meetings are non-existent for the smaller retail traders as the custodial company is listed as the owner of the shares. If you are a big player, arrangements can be made for the custodial company to proxy it back to you. If you are in the habit of collecting nicely printed annual reports for your coffee table, there will be none in this case. The situation is similar to trading using CPF and SRS funds.
The custodial fees charged by the custodial company are standard and transparent and same for all clearing member. The custodial fees and fees structure varies widely and this is where the savings on brokerage fees can get wiped out. The fee structure for custodial fee can be broadly classed into transaction fees for buy and/or sell and a custodian charge levied based on a mix of quantity and value of share as well as the custodian period.
Switching between clearing members is seamless because of a common custodial operator so the clearing members fight tooth and nail for customers especially institutional and private clients. Switching from a non-clearing member either to a clearing or another non-clearing member can be a nightmare as any existing open positions would have to be unwound in one way or another and this is most probably not where anyone wants to be in. The switching cost can be very high and the process tedious. Once the non-clearing members have you, they have you for good ad infinitum because of this switching nightmare.
The security of the custody is normally more secured because the common custodial service has a more protective legal framework to guard owners interest in case of liquidation, bankruptcies or dissolution. For non-clearing member, the protection element varies. After Lehman Brothers, no one is too big to fail.
Most non-clearing members tend to be larger and international geographically and might hold non-clearing or clearing memberships in markets outside of Singapore. Very useful for trading across markets.
These non-clearing member also tend to have more products especially forex based products that can lower your forex transaction cost by offering more competitive forex rates on spot or forward hedging options as well positions in multiple currencies on demand or fixed tenure. Only applies to the more sophisticated traders.

Before making any brokerage decisions, you cannot be too careful especially with non-clearing members and only trading on the local market not that I have anything against them.

Peter Lye aka lkypeter
Safe Harbor
Please note that information contained in these pages are of a personal nature and does not necessarily reflect that of any companies, organizations or individuals. In addition, some of these opinions are of a forward looking nature. Lastly the facts and opinions contained in these pages might not have been verified for correctness, so please use with caution. Happy Reading. Copyrights of all contents in this blog belongs to Peter Lye unless stated otherwise.

Privatizing Profits/Socializing Losses-Economic Spring

Holidaying in one of Thailand's tiny beach island in La Laanta resort that offers both beaches with pristine water and modern day creature comforts like air-conditioning and internet to attend my brother's twin city wedding has awaken some deeply recessed thoughts on capitalism,socialism,communalism and communism. These topics have disturbed my intellect endlessly with no absolute truism or compromised resolution.

Deeply stalked by the apparent lesser of two evils between capitalism and communism as well as the humanity of socialism and communalism. I have long threw communism out as an essentially non-viable state of being. I believe the empirical evidence on the break down of communism in USSR and eastern european countries have fortified my beliefs. Thinking I could rest my case and out comes the rise of China's economy makes me want to be more guarded in wanting to throw the bath water of communism together with the baby. Communism is not only entirely non-viable but has powered strong economic growth in China. Confusion confronted me and shifted my grey matter into higher gear.

On the other end of the spectrum lies capitalism and I have always assumed that since much of the world and USA success at being the largest economic and military power must show the relevancy of capitalism. This was until the capitalists wanted to have the whole nine yards of privatizing the profits of capitalism into their own self interest but when matters head southward, the capitalists wanted to socialize their losses on the premise of too big to fail trump card. This has not happened not only on wall street like the banks and insurance companies and main street represented by the big three auto companies of GM, Chrysler and Ford but also the sovereigns like Greece. Cerebrally, I pause to fathom that this is liken to heads I win and tails you loose. This is tantamount to cheating in my humble sense of justice.

The banks and insurance threatened the sovereigns that their failure might lead to ca-strophic and almost non-recovery of the world economy. When the economy seems to have recovered with a rally in wall street, the executives and rain makers started paying themselves what some might term as obscenely large pay packets. The 'occupy wall street' fever has spread to many countries and I believe rightly so on the basis of justice which should sometimes rise above arcade written laws.

Some of the main street executives travelled in their private corporate jets to Washington to beg for money. I do reverb some of the congressmen for chewing these executives about new theorem of begging. When the Euro became a common currency more than a decade ago, I was elated that finally, there is a disciplined currency with good foundations and principles against the fiat issue of USD that in a single announcement made the convertibility of USD into gold vaporize into thin matter. Next came slowly but surely a USD currency printing press based economy. The joke or reality is that their sovereign bonds promise to pay the bearer at a future date in USD full stop. I do not think that China which is currently the largest holder of USA sovereign bonds is likely to be bullied into seating pretty without any counter-measures.

Greece government came next as a nation that has not exercised fiscal discipline and spiraling their national debt into an un-manageable state and threatening to either default or exercise some form of reset including resurrecting their old Drachma or a substantial hair cut of about 50% which could possibly start a nuclear like fission in destroying the economy of the world. To make matter worse, their citizenry has already taken to widespread protest as a preemptive move to warn their government, ECB, ESFS, IMF and possibly the world that they will not swallow the likely prescriptive bitter medicine of fiscal discipline as pre-conditions for bailing them out. My question is why these bodies are taking Greece more seriously as they have forced such bitter measures into some governments especially those in the 3rd world in the past without as much as betting an eye-lid. Perhaps IMF has failed like the league of nations and ought to re-constitute and have a clean re-birth like the United Nations.

Do you think there ought to be an 'Economic Spring' along the same lines as 'Arab Spring' to inject a good dose of justice into the world economy?

Lesser Evil-USD or Euro?

There aren't many international currencies to hide under current torrent of financial storm. In mind, USD and Euro is most probably the most liquid. Yen is predominantly still a bilateral currency used mainly in trade with Japan. RMB is not deliverable now although there are synthetic products by CME for RMB non-deliverable futures settled in USD. There are signs that the Chinese government is seriously examining the pro and cons as well as timeline and method to unleash RMB having been caught with one of the largest cachet of sovereign bonds issued by USA and Euro zone countries that seems to be in trouble. Of course we cannot exclude the shinning king of the hill Gold as an alternative but with many caveats.

My choice is simply and clearly the Euro instead of USD.

Now the complex reasons:

1. Euro is a good choice in the long or even medium term if Euro zone does not implode by itself.
2. Although USD is solvent as the Fed can monetize the debt by printing more USD to pay their sovereign bonds. Joke being that they promised to pay you at a future date stated on the bond in USD and definitely will.
3. Euro is structurally more secure on the monetizing front as ECB has a rigid golden constitution to prevent it from doing so. It seems that ECB has broken her silver constitution of not being allowed to buy sovereign bonds of its member states but has done so for 5 (PIIGS) countries on the open market.
4. Euro zone seems to be in a big mess and the most powerful man or oops lady i.e. Chancellor of German has kept almost silent and nonchalant about it. While I understand the need to turn domestic as her election is due in 2012 but surely this might be too early and careful. Sexist joke that she can hide under her own skirt for cover since she is a lady. Please laugh for my dry sense of humor.
5. Of the five problematic countries PIIGS, only Greece is real trouble if we were to take a second and more careful look of the situation. The rest Italy, Spain, Ireland and Portugal are most probably only knee deep if we keep speculators playing the credit default swap market betting on their failure and therefore might be self full-filling. A good numbers of the speculators are investment bankers in their seville row suits and my view of them is so low threatening that their extinction will not spell the extinction of mankind.
6. Another major stumbling block is the domino effect on the sovereign default is on the major banks that hold a large portion of these sovereign bonds and their failure will therefore spread like wild fire from wall street to main street. The major banks are mostly too poorly funded for what they are doing. We should revive Glass-Stegall to separate investment banks from commercial banks. I think it was a big mistake in the 2008 crisis to allow them to merge like ML brought under BofA. Commercial and investment bank can then have different funding ratios. Looked how Soc Gen stoc was hammered down by about 20% in a single day few weeks ago.

As a Singaporean, wonder if my fellow country men has noticed that SGD has weaken against USD in the last 3 weeks from about 1.19 to 1.29? Reasons like making our exports more competitive etc are tossed in state control media but might reflect the depth of market that hot funds occupy in our market. Perhaps money is going into USD for short term cover if arguement above is correct.

Peter Lye aka lkypeter
Safe Harbor
Please note that information contained in these pages are of a personal nature and does not necessarily reflect that of any companies, organizations or individuals. In addition, some of these opinions are of a forward looking nature. Lastly the facts and opinions contained in these pages might not have been verified for correctness, so please use with caution. Happy Reading. Copyrights of all contents in this blog belongs to Peter Lye unless stated otherwise.

SGX Prediction for 8 Aug 2011

I predict that SGX index will take a hit and might even test the 2900 point intraday for the following reasons even though DOW recovered on Friday on the back of better than expected employment figures:

1. A portion of the sell-off on SGX last Friday could be due to foreign funds selling index linked stocks due either to profit taking or to increase their liquidity for margin calls on funds that are more highly leveraged.

2. SGD weaken against USD last Friday on both the spot and forward market partly because foreign funds that have convert back to their home currency. I am not sure if MAS has intervened to support SGD.

3. SGX is closed on Tuesday 9 August due to national day celebrations.

4. To add additional time window risk, there is a FOMC meeting also on Tuesday 9 August in USA.

Just my common sense and I can be wrong.

Oslo Carnage-Singaporean Perspective

93 lives vaporized in a matter of about 90 minutes in Oslo on 22 July 2011 because 32 year old Anders Behring Breivik wanted to ensure that the authorities gave his beliefs the necessary attention. This event would change the Norwegian way of life like what 911 did to USA. Instead of taking his own life, he allowed himself to fall into the hands of the law and face the prospect of 20-30 years behind bars if convicted and accorded the full force of the law as Norway has no death penalty. Perhaps he wanted his day in court to promote his far-right ideology as by default, court proceedings are open to public and journalist. However, from his indictment proceedings which is unprecedentedly a closed one, his newsprint hours in court might not be that full. It was a surprising move as closed proceedings are the norm mostly in cases involving minors or of a sexual nature. Even the 911 court proceedings were open in US.

His actions are definitely pre-mediated over a period of 9 years but it most probably would not qualify for first degree murder as the victims are sort of random in nature. As of now, they prosecutors have not actually decided on what to nail Breivik and court has allowed a special 8 weeks of solitary confinement where only his lawyer is allowed access to give the prosecution more latitude in the conduct of the investigation and finally arriving at a charge. Perhaps extraordinary events call for extraordinary measures. On a lighter note on this very grave issue, perhaps it is a sort of reverse class action.

This event set me thinking on what can Singapore and Singaporean learn and take precautionary measures beyond policing and intelligence spheres but also on public, political, economic arenas and also rethink the meaning of justice beyond the restrictive meanings of those in the lawyering and judiciary profession. Perhaps also the parliament where our laws are made.

Punitive Measures
As a maturing society, we ought to come to terms that no amount of effort is enough to totally prevent such risks. On the same note, much can be done by our government and society acting in concerted effort to minimize the risks. To throw caution to the wind and do nothing just because it is an impossibility would amount to gross negligence.

The maximum punishment that laws in various countries differs widely but it can be classed as 3 broad categories. Death sentence by which ever means, time limited life sentence which can vary from 20-30 years and life sentence till death with no time limit. Various comparative especially between death sentence and life sentence and its impact on serious crime rates has not been totally conclusive that death sentence reduces serious crime rates. This is not a pro-life debate and one thing we can conclude that death sentence appears to be a cheaper alternative for the government in terms of managing such criminals. There is some co-relation that most first world nations consider the death sentence as cruel and so do away with it but in many states in USA, the death sentence is still the order of the day for serious crimes. It is rather conclusive that in almost all countries, the law is sufficient or perhaps too punitive in some cases.

Besides the law,the co-joining factors relates to policing and judiciary process. Being mostly libertarian at heart, I think that we need to titrate the level of policing to a sufficient level to have an acceptable level of public safety and law and order and not be driven to the extreme of being a police state with little or no freedom for the citizenry. This is a complex issue that the government in consultation with the citizenry must decide not only on the level of policing but also the matter and form as well.

Judiciary process is a very loaded item and I would be very careful else I run foul of the law. Basically, the two main categories are a judge based or jury consisting of the citizenry. There is no conclusive evidence of one over the other. I stand very economized here.

In terms of punitive measures, I am of the opinion that we overall fairly sufficient altogether there have been some controversies on both end of the spectrum. We had to contend with and grow up as a nation with regards to the escape whilst under Singapore custody of a key potential terrorist element Mas Selamat arrested by the police of our neighboring country Malaysia succeeding man hunting down Mas Selamat and extraditing him back to Singapore. On the other hand, we have also been criticized by NGOs like Amnesty International for Internal Security Act which allows for detention without trial. I recognized that this act is a caricature left behind by the British that used to be our colonial masters. I also see reasons for not dropping or changing this Act as Singapore was facing substantial struggle from communists or communalists elements both internally as well as externally like the Communist Party of Malaya and fast breeding of communism in our corridor like Vietnam, Cambodia and Burma with their larger over lords of Russian and China. This dispensation is most probably passe with communism running out of style as well as being reformed greatly like in China. Let not in our haste for popularism throw the baby out with the bath water by eliminating the Internal Security Act altogether but can explore changes to it to fit the political climate. USA enacted the Patriot Act and created a Homeland Security Bureau in reaction to 911 and perhaps having the backbone of an Act of similar nature, we can revise the Act instead.

As in all things, we must sought for balanced and well considered position rather than a knee jerk and more extremists measures. No doubt time is of the essence but we can always have temporary legislation subject to further review with a given time frame perhaps. The Patriot Act in USA is not without detractors internally as well as fear of turning the country into a police state or fear of misuse by those in powers for their own ends.

Social Glue-GINI index and Social mobility
There are research evidence co-relating high GINI with either terrorist activity, revolt and war. I see social mobility as part being a big part to address high GINI index overtime. It is my worry here as a Singaporean that our GINI index has been increasing even with a growing GDP. I am all for a meritocratic value system but it must be tampered with a humane heart and safety net for the those at the bottom of society as well as those that falls through the strict rules of the safety net. I know that the current PAP government is very resolute in not encouraging a lethargic socialist populace by holding back on expanding the social safety net. I am very concerned in this arena as a widening rich poor gap coupled with fairly porous immigrant labour laws which is a major part of the ingredients capitulating into the Oslo carnage.

Back on social mobility, history has shown that it is easy for a meritocratic society to transform into a class stratified society. The rich and powerful overtime will be tempted to change the rules of the game to preserve their place in society. Our now retired but still influential statesman Lee Kuan Yew recently was quoted by the press that he will feel sorry for Singapore if we were to have a two party government granted he has various merits for a one party system. History has proven in Animal Farm speak that absolute power corrupts absolutely. This is a very common tendency based on the strength of self interest as stated by Adam Smith. Many have mis-quoted or misunderstood his self interest for selfishness and if we look deeper, there is a big differential between self interest which is lawful, moral and normal to selfishness which can disintegrate a society into the vestiges of hell surely though it might not be immediately.

We have to be true to ourselves that in the same breathe that we speak of meritocracy, we cannot deny the fact that blood the flows in us is thicker than water. This is why I was very concerned when the PAP government decided to scrap Estate Duty totally as estate duty is there as one of the tools to guard against poverty trap. In addition, we ought to watch out and arrest the spread of nepotism as we push towards an equal opportunity society as it is a very human tendency to do so. The spread of the tax burden is also a very key policy instrument and I am in favor of an across the board consumption like our GST as a good and efficient tax practice as it is easier to administer, has fewer tax loopholes as well as encouraging savings for future versus consumption. GST also tend to have a negative effect of shifting the tax burden towards the poor as generally, the poor will save less than the rich as a percentage of their income. To add injury, we have also lowered corporate tax as well as skewed the personal income tax in favor of the rich by reducing the tax rate for those on the higher tax brackets. The rationale explained by the government for the corporate tax to for us to stay competitive with neighboring economies like Hong Kong and the tweaking of the personal income tax to discourage 'tax planning' activities. Perhaps we ought to re-examine the corporate tax, personal income tax, estate duty and GST holistically together.

I am certainly no anglophile but I endorse their making equal opportunity, transparency and equitable society as non-negotiable. England was as feudal state as one can be and remains one of the last few larger economies to continue constitutional monarchy. It took England about 200 years to transition itself from an executive monarchy to constitutional monarchy in a fairly peaceful manner although there has been bloodshed compared to the number of people that died in the communist revolution that overthrew the executive Tsar monarchy in one swoop.

This is not an opportunistic endeavor to use the stage of Oslo carnage to further my personal views but looking at the Oslo Carnage through Singapore looking glass.

Cheers,,,,, Pete

My Fellow American

Monetary Quadratic Mysteries-USD/Euro/Yen/RMB

Sometime back in May 2005, I wrote a similar topic called The Currency Trilogy Impact of USA Policy on the world Economy and it is timely for a review as RMB has gained much ground to warrant being ranked as one of the major currencies of the world. The economic backdrop and her twin sister; the political struggle has also changed significantly.

Technically, there are only 3 main currencies for international trade and reserve purpose because the RMB is non deliverable outside China due to exchange controls imposed by China. This is fast changing as China is experimenting on a limited scale in denominating both import and export in RMB. There is much controversy within China that it might in fact worsen the currency imbalance much like some patients dying from the chemotherapy treatment for their cancer instead.

While this is happening, fast thinking and creative investment bankers whom are partly if not mostly to be blamed for the economic hardship in 2008 following the demise of Lehman Brothers and CDO market have started to offer products like non-deliverable RMB forward contracts where the settlement is mostly in USD/Euro/Yen. Such products has reached such maturity for Chicago Mercantile Exchange (CMB) being the first exchange globally to offer clearing facilities for such instruments to provide more liquidity, price transparency and reduce counter-party risks which wrecked havoc in 2008 for non-exchange traded products. Various exchanges has also jumped on the band wagon to provide such facilities with Singapore Exchange (SGX) being one of them for Asia Pacific region. Being a Singaporean, instead of being jubilant for Singapore, I felt uneasy as the exchanges will now bear the counter party risks. Let's hope that SGX will be disciplined and shrewd in its conduct of such trades if not God help us all in the next crisis.

In addition, a number of Chinese Banks with overseas branches have started offering deposit taking accounts denominated in RMB. The catch is that they are both non-interest bearing and acceptance and delivery is not in RMB but usually the home currency of the branch or USD. Customers are attracted by the money making possibilities based upon the upward trajectory of the RMB.

The US federal government reached its debt ceiling of USD 14.3 trillion in May 2011 and is likely to face a technical default in August 2011 if the dead lock in Congress in approving an increase in the debt ceiling continues. Surprisingly or not so surprisingly, US federal debt instruments continue to maintain investment grade rating by all 3 rating agencies i.e. Fitch, Moody and S&P. Not known to many, the oligopoly of this industry by these 3 companies is protected by US laws therefore there is bound to be COI as these rating agencies does a delicate balance of maintaining its external reputation and not biting the hands that feeds it.

In today's complex web of financial derivatives, the impact of a technical default of US Federal Government will be further ashore than USA and beyond the holders of the bonds unlike similar circumstances when US defaulted on its bond sold in london by George Peabody of JP Morgan in 1800. Some instruments or products can vaporize into zero value if they have a Credit Event clause tied to the US Federal Government embedded within. Many of these instruments are likely to be traded off exchange and it might take longer for such defaults to become visible. There is also the domino effect of such systemic failures to contend with. All things considered, it is likely to be a larger fire ball compared to Lehman Brothers.

Since the probability of such Credit Events happening is deemed as highly unlikely, correct risk pricing becomes more complicated normally resulting in a bipolar price situation of swinging between extremes at very short notice. This could wipe out products or instruments deemed as safe haven to reach cynaide grade toxicity in a blink of an eyelid. Post Lehman Brothers, only the shorter termed instruments would have expired or re-termed on better conditions but the longer termed instruments continue unabated in carrying such risks. Another class of assets that are likely to be at risk are issuers Credit Default Swaps (CDS). Go check the definition of Credit Events in www.isda.org which is frequently referenced and used and you will be surprised by how wide and easily invokable the definition is.

With the US presidential election due in 2012 and Obama playing his cards towards a second term presidency, he is likely to go for temporal pain relief type of measures than hard to swallow bitter medicine to garner more votes. Surprisingly, his own Democrats in Congress are calling for a more difficult double barreled measure of spending cuts and increasing taxes while the Republicans are only calling for spending cuts.

Both the Euro and the Euro zone seems to be deep in trouble with Greece topping the list at present followed by lesser counter parts like Portugal, Italy, Ireland and Spain nick named (PIIGS). Greece seems to be in locked horns over the populace unwilling to swallow the bitter pre-conditions of ECB/IMF lead rescue package of spending cuts and increase in taxes reasoning that the economy is already in dire straits with high unemployment. Monetizing their debt is not an option if they continue to stay un ECB as only ECB can print money and not the member states who typically finance their deficits by issuing Euro denominated bonds. The differential for CDS on German Bundesbank considered the gold standard in Eurozone now against Greek government bonds have been rising to proportions equating such bonds on par with junk bonds regardless of how the rating agencies peg them. This makes it very expensive for Greece to finance its deficit compounding the problem further.

Should the inevitable but not impossible event happens that Greece gets out of the ECB, the whole un-winding process back to their own currency is likely to be 10 times more complicated, painful and long drawn than when Greece entered the ECB. Firstly, valuation wise, the formulation, basis would be so wide ranging and controversial that market sentiments will likely rule the day. Perhaps break fuse would be enforced to prevent sudden unprecedented drop but such relief is only temporal and finally, the market still dictates its valuation. Secondly, with little or no bilateral or multilateral currency swaps agreement with partner countries, the new currencies is wide open and naked to predatory practices of short term market speculators. ECB is most likely to be provide this air-cover as part of the agreement but it is likely to be only effective for short to medium term as the politicians behind the ECB are likely to loose voter support especially in Germany and France. As the ECB is an economic and monetary union with each member state preserving their own political sovereignty, the election time table is on a staggered time line unlike in USA and this would buy the ECB some more time albeit a small measure.

Perhaps the national anthem for Japan should be changed to "God Saved our Prime Minister" in japanese language of course. Naoto Kan was on the brink of being booted out of office by a no confidence initiative when a devastating earthquake, tsunami and nuclear accident hit Japan on 11th March 2010. The aftermath of both the earthquake and tsunami rebuilding is underway but the nuclear accident is still un-resolved with unpredictable future outcomes as of now. With the nation facing a national calamity, Kan stay in office was temporarily secured as he promises to step down once the situation is more conducive and stable for a power transition. Kan is still in office amidst smaller calls for him to step down. Although Japan is the 3rd largest economy GDP wise, it is drowning in a huge internal fiscal deficit luckily it has a strong external trade balance to buffer it. There are concerns that the disruption in her industrial output could hamper production capabilities of other countries because less forgiving supply chain measured in days instead of weeks or months. It is not uncommon for a product to consists of parts from at least a dozen of countries or more. The re-construction will add to the huge fiscal deficit and the benefit is less likely to be broad-based but more narrowly focused on construction related industries. This could also a cause of worry for the re-emergence of Yakuza power as many construction related companies are infested with Yakuza elements in some way like the post 1972 Kobe earthquake re-construction.

If history can be relied upon to repeat itself, we could most probably rest more easily about Japan and Europe as most world-wide recessions in recent past have their roots mainly in US save I think for the Asian and Latin American economic crisis.

Of bigger concern is the forth-coming shift in economic and military power. Of the USD 14.3 Trillion debt, about USD 1.3 Trillion is held by China. In addition, China is also a major holder of Euro zone government bonds. These were the results of trade surpluses accumulated by China. It is almost a no brainer that if the current growth and decline continues with China and USA, China's GDP will surpass that of USA in about 2020. On a per capita basis, pro-literate camps in USA argue that USA still reign supreme on a per capita basis and this is what counts most. The flip side to this 'per capita' argument will also mean that China's GDP has far more growth potential to tap on as development continues in the 2nd, 3rd, 4th and subsequent tiers of urban areas. My parting worry is that shifts in economic power rarely goes on peacefully and could result sew the seeds for another potential world war yet again.