The mighty Yen

Don't be mislead by the weakening exchange rate of the Yen against the other major currencies into thinking that the Japanese economy is doing badly. On the contrary, the Japanese economy is on positive growth. The weak exchange rate is just an aberration caused by the exceptional low interest rate in Japan. At the current exchange, the Yen is very much undervalued.

The official lending rate in Japan is only 0.5% - the lowest among the major economies. There is a substantial interest rate differential between Japan and the other countries, especially New Zealand. This has encouraged huge outflow of funds in so called carry trades. Japanese are, in droves, using margin accounts to borrow Yen and place deposits in higher yielding foreign currencies. This has caused the higher yielding currencies like the Kiwi and Aussie dollars to rise.

Hedge funds have also been borrowing Yen to invest in higher yielding assets like Chinese stocks. The unwinding of the carry trade on Chinese stocks was blamed for nearly causing a global market meltdown in late Febraury this year.

The Japanese government is expected to raise interest rates later this year. What happens when the local interest rate is deemed high enough and the Japanese start to unwind their carry trades. Will it cause a tremor in the global financial market. Lets hope that this unwinding will be done gradually and hence not cause too much of a ripple in the market.

Makes no economic sense

This is one strange incidence where the government wants the manufacturer / retailer to increase the price of the good. Yes, I am talking about cigarettes. It is as though the cigarette companies are not making enough money.


The logic for the action is not very convincing. If the tax on a pack of 20 is RM3 and the companies are selling them at RM3.50 or RM3.80, very good. And if you want to set a minimum price of RM5 to discourage smoking, then just increase the tax to say RM4.50 per pack. Why force the tobacco firms to make extra profits.


The extra tax collected could definitely be put to good use. Public health services could surely use more funding.


If setting the minimum price of cigarettes too high would encourage smuggling, then you just have to tackle the smuggling problem. Beef up your anti-smuggling units and impose heavier penalty on those caught smuggling. You can't say you wouldn't increase the price of cigarettes because you are scared of the smugglers.

Time to run?

I suppose the smart money (foreign funds) is getting out of the KL market now. This is evidenced by two occurences.

One. The Ringgit is losing ground to the US dallar. It was trading at RM 3.18 to 1 USD late last month. Now it is close to RM3.42 to 1 USD. This could be due to foreign funds liquidating their stocks and converting their Ringgit to US dallars and transferring their USD out.

Two. The premium on the foreign tranche of shares on the Bursa is shrinking. Misc-F is trading at par with the local shares now. The premium on PBbank-F is only about 30 sen. This points to more selling than buying by foreigners.

Greed

Greed is a dirty word. In fact, it is slanted on the evil side.

Greed is what brought an ex prime minister into exile. Greed is what made the China stock market bubble and its subsequent collapse. It is the emotive force that drives rogue lawyers to run away with their client's money. It is what causes CEOs to engineer their company's accounts.

Then again, we live in a very materialistic world. Success is in part measured by the material possessions one holds. Thus, we are tempted to be greedy. The only difference is the degree you embraces greed. I suppose the extend of your greediness defines the standard you live your life.

The Transmile saga

The extend of the overreporting of the revenue for Transmile shocked many. What is worst is that the overreporting is not only for the accounts of financial year 2006 but also for 2005.

Its external auditors were suspicious of revenues of about RM300 millions (prorated for 18 of the 20 companies whose receivables were in doubt) for 2006. However, they (whether the same company or not I don't know) certified the accounts for 2005. It is now discovered that there was probably an overstatement of revenue of RM197 millions for 2005. So, how did they miss a doubtful revenue of close to RM200 millions?

This brings me to the next question. Are there any more 'Transmiles' out there? There were many companies on Bursa which recorded very good growths during the last few years. Were their CEOs all honest? Did their auditors all do a good job and not miss out on doubtful figures? This, only time will tell.

KL-Singapore air route

For too long now, MAS & SIA have been ripping-off travellers flying between the two destinations due to their duopolistic arrangement. This should not be allowed to continue further.

Low cost carriers like Air Asia and Tiger Airways have shown that air travel should not be so expensive. They want the KL-Sinagpore route opened so that they can offer travellers cheaper options for flying between the two cities. This should be done as soon as possible.

Before the sky is opened, MAS & SIA should do the right thing of lowering the fares for flights between the two cities now. This would only be fair to travellers. In any case, they would have to lower the fares once the route is opened. So why continue exploiting the travellers.

Cause of poor maintenance

Everything needs maintenance. Maintenance is important. More importantly, proper and correct maintenance must be done. This means maintenance must be done by professionally qualified people.

We all know this with our cars. We send our cars to well equipped and professionally manned workshops for servicing. These workshops may charge a little bit more but they look after the cars well. We don't mind paying the slightly higher fee.

Things may start to go wrong when maintenance is done by non-qualified personnel. Because of the lack of training, they don't see the root cause of problems. They may give surface or superficial treatments only. Soon, the real problem surfaces.

Another problem with non-professionals handling maintenance money is that very frequently, maintenance money is diverted to beautification work. A beautifully carpeted floor may be nice to look at and comfortable to walk on. But, when the roof leaks, the carpet is ruined. Similarly, a beautifully landscaped roadside will not appease the motorists when the road itself is riddled with potholes.

Also, when the allocation of funds is controlled by non-technical people, the importance of maintenance is often overlooked. More fund is often ploughed into new projects and insufficient amount allocated for maintenance. Without the required funds, proper maintenance cannot be carried out.