Monday, November 11, 2019

A Letter To British Voters from A Commonwealth Citizen

Dear Citizen of the United Kingdom, 

From a non-expert outside observer & a Commonwealth citizen (who had lived in England/France in the 1960s-1980s), the upcoming 12 December U.K. General Election is a landmark event that can either resolve a politically complex dilemma for Britain or be another prolonged crisis that overshadows a major economic region in the Western Hemisphere.


In view of the uncertain and complex permutations of how pro-Brexiters and pro-Remainers vote among the four key parties, a hung Parliament may be a potential outcome. This prospect has been raised by several political analysts.


At the end of the day, if you believe that you are rational-thinking citizens who seek a closure to the Brexit limbo situation (already three years plus), a hung Parliament will be the worse outcome for either Brexiters or Remainers. 


Those of you who do not strongly belong to either camp are presumably a substantial number and who, wishing for decisive action, will most likely choose to take the risk with the party leader who wants to move the nation on to other important issues (e.g. how to make Britain more competitive and restructure its economy outside of the deflationary problems of the Eurozone).


A second referendum (not to speak of another Scottish one for independence) without proper economic and political analysis will be just another useless exercise undermining the democratic purpose of the first referendum.

So for the sake of global economic and political stability (regardless of any strong emotions you may have towards the satirical personalities of Johnson, Corbyn or Farage), I think you should make a wise decision to bite the bullet and get Brexit (as agreed with the EU) done without further delays. In my view, a hung Parliament is the worse conceivable outcome for the UK, EU and global markets.

There are many new opportunities and fresh challenges coming into the new decade of the 2020s. Take a firm stand as a sovereign nation and focus your attention on your economic and political renewal.

Jeremiah Liang




Friday, October 11, 2019

Negative Interest Rates & The Deflationary Mindset

The preponderance of negative interest rates in the global bond market, comprising US$17 trillion in value and rising. This represents about one third of all high grade bonds, mostly prevalent in the Eurozone, Denmark and Japan.
 
The phenomenon of negative interest rates makes no economic sense as it means that banks (lenders) will pay consumers (borrowers) for lending them money. So instead of the borrower paying an interest on loans, the bank pays the borrower to borrow.
 
There are a few reasons for this situation to have arisen:
 
(1) The goal of the central bank in pushing down interest rates is to encourage consumers to spend instead of saving at the bank during a slowing economic climate. Commercial banks which have excess reserves with the central bank earn a certain interest rate known as the Interest on Overnight Excess Reserves (IOER) in the U.S.. By lowering this rate, the central bank will compel the commercial banks to lend out the excess cash. for the commercial bank, it is better to lend it out as the interest earned on holding excess cash is too low.
 
(2) Bond yields are negative as investors speculate that central banks will continue to engage in monetary easing policies such as Quantitative Easing and cutting interest rates. The bonds may be bought at a premium to par value and holding it to maturity will entail a capital loss. But bond investors will continue to buy these expensive bonds in the expectation that their prices will rise further and their yields will become even more negative (eg from -0.30% to -0.50%)
 
(3) Reflationary policy of central banks to encourage investors to borrow to buy assets such as equities and properties. The intended transmission mechanism is to reduce the cost of money so that people will go out to buy financial and physical assets. When asset markets appreciate, it will creat a wealth effect.

(4) There are simply too few places for large investors (pension funds, insurers and financial institutions) to store their wealth entrusted to them. Some investors are willing to pay a premium and ultimately take a slight loss because they need the reliability and liquidity provided by governments and high quality corporate bonds. 
 
Unfortunately, among these three key reasons, policymakers have failed in their objectives as negative interest rates have encouraged more saving as savers and pensioners anticipate a worse economic future and save more to fund their current and future needs. Asset bubbles engineered by reflation policies may have sustained stock markets (eg like QE in America's Wall Street) but it has failed to ignite economic growth. In Europe, negative rates hasn't helped the European economies to recover and sustain growth to above 2.0%. 
 
But more worrying is that negative interest rates and bond yields is symptomatic of a deflationary mindset among economic agents. The central bank as a key policy maker that launches negative interest rate policies is actually confirming to the public - both consumers and companies - that the economy needs drastic unorthodox measures to revive itself.
 
The two key questions facing the world economies currently are (1) will Europe and Japan continue their negative interest rates policy when their economies continue to stagnate especially in a slower global trade environment ? (2) Will the U.S. Federal Reserve bank also adopt negative interest rates assuming it hits the zero bound in an economic crisis?
 
The answer to these two question depends on the other key macroeconomic policy tool, fiscal policy. If fiscal spending can be increased (with or without regard to any self-imposed fiscal restraints), then there might be a way to push their economies out of a deflationary spiral.
 
However, fiscal spending, in many ways, is a short-term fix. It does not enhance the productivity of an economy unless the people actually benefit from better roads, more efficient public transport systems, better airports, etc. In cases such as China, how many additional highway tunnels can they build if the traffic flow in the next new tunnel is getting diminishing? So the multiplier effects of fiscal spending may be strong in six months to a year, but the long term impact will be limited. 
 
Besides, excessive fiscal stimulus will lead to higher debt burdens as governments incur ever rising fiscal deficits, which will push up the cost of borrowing and very likely result in currency depreciation as foreign capital exits the country.
 
Added to this dilemma of policy tools, is the emergence of new technologies (AI, robotics, digitalisation and business disruptions) which are gradually and steadily changing the labour market, making many people redundant and fresh graduates unemployable. These trends are by nature deflationary as overall wages will decline or not rise as fast as before. Companies may widen their profitability by employing labour saving and productivity enhancing technology. But in the end, the rising level of structural unemployment will reduce the revenues of companies.
 
These tough economic issues, apart from the ongoing trade and tech war between the U.S. and China, are keeping economists and investors awake at night as the next major economic crisis looms amidst an era of heightened uncertainties. Perhaps, deglobalisation and unilateral protectionism could be a temporary solution for countries to insulate themselves from the deflationary trends of globalisation. Or rather is it the globalisation of the deflationary mindset?     

Sunday, October 6, 2019

Empathy & Breaking The Golden Rule

Quite often the educated, professional man-in-the-street has no opinion or concern over current world problems (economic, political & spiritual). This Mind-My-Own-Business (MMOB) attitude is due to 4 common reasons:

(1) they dont see any link between the world outside and their own well-being

(2) they think it is none of their business and even if it is, there is nothing one person can do about world problems (esp outside their community)

(3) they have enough of their own problems/issues to handle much less be concerned about others

(4) they think that by having a religion (as opposed to genuine faith in godliness) they have done all that is needed to help the world. Like belonging to a boys scout club.

But Mr MMOB is quite mistaken to be completely indifferent to the problems of society: the reason is simply that it shows a deep lack of empathy.

In essence, it signifies a violation of a golden law of life: that man is to love his neighbor as he loves himself. He is to love people as he loves his own people. While many religions prescribe the same thing in principle, their impact on mankind is ambiguous.

What happens when we dont love (not the sentimental, passive, premeditated type) our neighbors as ourselves but instead hate them?

This deep rooted problem, sometimes crystalised in childhood, when left unresolved in later years, invariably leads to multiple problems in the psyche: racism, mental illness, tribalism, greed, envy and hate.

The least endemic and most common sin seems to be the self-preoccupation of the MMOB. (He may care about himself or his family but he cares not a hoot for others outside his sphere.) But lack of empathy is the seed of a tree of spiritual isolation.

That said, there is a big difference between being intellectually concerned about the world's sorrows on the one hand and loving your neighbor on the other.

Does it matter, from the human point of view, whether the enquiry starts from genuine empathy for others less fortunate than us or from intellectual idealism?

It is my opinion that there is a difference as love is a key axiom. Idealism may lead to an utopian society that subjugates individual freedoms to the welfare and the good of the community.

The other problem with starting from intellectual idealism rather than genuine conscience is that we are not mentally well equipped as well as economically incentivised to navigate through all the intellectual issues and counter arguments.

Indeed, the modern psyche has become so spiritually unbalanced and atrophied that  mere intellectual differences in political, economic and cultural values bring out the worst in people.

So what is the solution to the MMOB's empathy deficit in this age of fake news and multiple social media platforms of communication?

Should anyone care for people, especially grown, rational adults, who dont care? Should they not deserve what they get once reality bites into their lives ?

The answer lies in understanding the truth that we, as individual creations of our Creator, can and do impact the destiny of  man's affairs (poverty, starvation, Brexit, Hong Kong civil unrest, political and psychological oppression and bondages).

Our personal action and responsibility is not through political campaigns nor private meditation but through simple, heart-felt prayers to our Creator.

We are created to exist in this world for a purpose and that is to co-create with God to carry out His plan and desire. Every soul, weak or strong, poor or rich, is enshrined with this purpose and each one's life, thoughts and action matters.

Perhaps, a new version of Saint Francis's prayer is called for given the urgency of a world on the edge of collapse:

"Pray God give me the courage to change the things I have to change,  the fortitude to bear the things I cannot change according to Your will, and the wisdom to know the difference."




Wednesday, September 18, 2019

The Way out of Brexit Stalemate is a New Referendum on Fiscal Union

It has been my long-held view that Britain's unresolved and insufferable Brexit dilemma has been complicated by a complex maze of cultural, economic and social concerns that have essentially reflected not only a divide between euro skeptics and europhiles, but more importantly, a generational divide between the younger generations vs the baby boomers, between conservatives vs liberals, between nationalists vs globalists, between Northerners vs Southerners . 

There are essentially three things which the British parliament and government has to do to get out of this stalemate:

(1) Hold a second referendum that provides citizens with full and objective information as well as opinionated analyses (pros and cons) of the short-term and long-term costs and benefits of Brexit vs Remain. A questionnaire may be required to self-check the citizen's priorities and choices. 

(2) Include in the referendum a thorough scenario of the final political and economic implications of the Eurozone adopting a fiscal union policy whereby all fiscal decisions on spending and taxation will be centralised in Brussels. This policy is the only one that will save the Eurozone from its economic malaise given that it is a monetary union without a unified fiscal policy. In other words, there will be no longer any need for sovereign Parliaments for the members. If Britain is an EU member but still remain out of the Eurozone, does this mean it will be eventually powerless in dealing with a much stronger Federation of Europe? 

(3) After this referendum, hold a General Election for citizens to vote which is the best party or coalition of parties to lead the UK apart from the Brexit decision.

In contrast to the first referendum, this full-scale 2nd referendum will no longer be a simple binary Yes or No vote but will include a full survey questionnaire that helps citizens understand fully the political, economic and social implications before they put their decision on the polling form. These measures will hopefully result in a clearer referendum outcome that will be more decisive than the 48% Remain: 52% Leave result of the first referendum. 

Nonetheless, one of the biggest hurdles to the Brexit negotiations has been the Irish backstop and the Good Friday agreement which invalidates any border between Northern Ireland and the Republic of Ireland. I think this hurdle can be resolved once all the benefits and costs (short term and long-term) of leaving or joining the EU are fully weighed in and evaluated. 





   

Friday, July 12, 2019

The Creative Voice & A Nation That Lost Its Plot

Every nation and society will go through deep seated transitions like a seasonal cycle shifting from a pleasant summer into a harsh, prolonged winter. 

This is what has happened to my country: after coming out of 6 decades of a dark winter into spring, the prospect of an early winter looms even before summer can rear its head.

It seems that everyone of us, are silently and alarmingly watching the daily turn of events and news that are often a mockery of our deepest hopes. Will it be a matter of time before we start admitting defeat and share our indignation with the world at large?

(Incidentally, other countries are currently going through even more severe turmoil: The British wringing their hearts out over the divisiveness caused by Brexit in the last three years; and more recently, the Hong Kong street protesters expressing their utter disdain and rejection of their government, a proxy for mainland communist rulers, etc)   

Clearly, the cycle of optimism and pessimism is at the core of every growing nation. The key question is whether we are in permanent decline or going through birth pangs, a period of darkness which will bring us to a brighter era?

At first, a political awakening is full of promise (invigorating the nation with optimism and hope for true change at every level) and then gradually it peters out over the months and years. Like a majestic castle that is going to be built in a desert, the foundations are already complete.

But the planners start bickering about the final design. And there are now even doubts if the building will ever be finished. Skeptics and naysayers have emerged saying, "See, what I told you? our doubts are confirmed: that country is a good-for-nothing and will never rise up from its entangled destiny."

It was not too long ago that a new dawn greeted a nation on the morning of 9th May 2018.

Like the metaphor of the boy looking out the window, his perspective was at first gloomy as he looked below at the slums in his neighborhood. But then, one day an inner voice said to him, look up and gaze at the stars and the galaxy.

Once he changed his viewpoint, his mood completely changed and he decided to look upward every time he stood at his window. Soon enough, he saw a brave, new world and the destiny and vision for his country began to be formed.

But, alas, all that grows from the ground will turn into dust. Even more so, for every political and social construction of man, for every wind of political change.

Is it the system or the people at the forefront of the system? Who and what is it that keeps a country mired in its fate like a strong three-fold cord?

    

Wednesday, June 5, 2019

Positive Feedback Loop & Market Trends

There is a psychological concept of a positive  feedback loop. For example in the situation of anxiety: something triggers us to be anxious about something, perhaps our child is missing in a crowded area.

We start to have a higher heart beat but because we become acutely aware of our anxious condition, we become even more anxious.

Similarly, for the stock market, when we see our stock prices dropping sharply in one day we feel anxious..something about the company is not right with investors. But if the next day, stock prices continue to fall further, our fears are confirmed and the anxiety turns into a panic: soon we ask if we should sell now before it gets worse: should we buy later when the market stabilises?

When we finally succumb to this fear and sell our investments along with the crowd, the market crashes as the panic spreads to all other investors.

A positive feedback loop can also occur with a rush to buy. When we see stock prices rising amid general optimism, there is a tendency to buy more as we are ready to make more money. So if the overall market rises, the perception of optimism is reinforced and we buy more. As a result, this causes a widespread bull market.

The takeaway here is that human emotions can be self-reinforcing: the positive feedback loop.

Currently, the two themes driving market sentiment are: on the one hand, the trade war and on the other hand, speculation that the Fed will cut rates by 50 bps this year.

Among professional investors, positive feedback loops can be very profitable. A hot theme could be driving the bull market eg Internet stocks, China stocks, emerging market stocks or cryptocurrencies.

Momentum investing is when we buy more stocks because 8 out of ten investors are buying and expecting more upside. It may have some fundamental basis, profits may be robust but valuations are no longer cheap.

In fact, even when valuations are expensive, investors are nonetheless, unwilling to sell simply because others are still buying, the bull is still strong or as they say, the market still has legs to run.

(our anxiety systems are very practical: they assume that any markets that falls is dangerous. The proof of that is, of course, the fact that the market falls).



Friday, May 31, 2019

A National Spirit of Contrition

A National Spirit of Contrition

Remorseful, repentant, penitent, regretful, full of regret, sorry, apologetic, self-reproachful, rueful, sheepish, hangdog;

ashamed, chastened,shamefaced, conscience-stricken, guilt-ridden, in sackcloth and ashes;

Do You Want To Know God?

Do You Want To Know God?
Say this: Heavenly Father, I have sinned against You. Forgive all my sins. I believe Jesus died on the cross for my sins and rose again. I give you my life to do as You wish. I want Jesus to come into my life & heart. In Jesus's name. Amen