Dynamic Economy for a modern society

The educational system is constantly evolving as it prepares us to be informed citizens as well as preparing us to be productive in the workforce. These changing goals include modern workforce development and be connected to join the global community

The education system accommodates multiple goals in providing resources so that students can continue to improvise until they revolutionize learning and teaching. The Industrial Revolution 4.0 (IR4.0) can be used to transform pedagogical and human infrastructures. Society needs to improve dramatically in order to support the complex working environment with exceptional capabilities and adaptability especially with the emergence of new technology. IR 4.0 can be multiple providers of different learning practices and mechanisms in providing innovative skills such as innovation and creativity.

IR4.0 integrates industry through smart manufacturing and industrial internet that can affect entire industries through the transformation of goods, design, manufacturing, distribution, and methods of payments. Business models can be significantly influenced by IR4.0 and economic knowledge can further explore the formation of innovative business models and in establishing product-oriented innovations and customer-driven products. Increased automated tasks will be introduced in IR4.0, and therefore, organizations and employees have to be prepared to perform innovatively tasks.

Economic education trains and cultivates in-depth knowledge regarding how legislators can have a powerful effect on the economy. Economic education is essential in understanding and evaluating the future shape of the country’s economy. This will enable students to construct practical ideas in helping them to build a sound financial future.

The importance of financial success needs to be emphasized so that students can achieve their financial aspirations. Financial security can provide a feeling of security as financial resources can enable them to fulfill their needs and wants. With economic knowledge, students can understand the importance of debt, savings for the short and long term, building their future, investing in their goals, and ensuring their future. Therefore, this can empower them with the necessary knowledge and tools that can be used successfully to improve their economic wellbeing. This optimism can strengthen the nation’s economy in the future.

Economists recognize the importance of basic economic and financial knowledge so that an informed citizen is able to make personal economic decisions. When consumers are able to create wealth, they will be able to build more economically stable communities. Knowledge is considered as power in accommodating the present competitive financial marketplaces. People are living in the era of the communication revolution and it has overwhelmed them with additional information. The marketplace is now very complex. Therefore, having additional information can provide the necessary tools for people in responding to market fluctuations.

Some of the learning will be on creating an innovative workforce by focusing on economic perspectives, questions concerning government policies, global, regional, and investments in technology as well as innovative approaches in managing operations and processes. The current business environment has become increasingly complicated. Therefore, knowledge needs to be expanded and the education platform is crucial for students in serving different environments. Technological solutions need to be emphasized and with the incorporation of economic knowledge, the skills of workers that are related to the concepts of digitalization and smart production can be realized.

The concepts of labour and capital substitution are processes that take place in all industries in reducing costs, and as such, economic theories are important in the implementation of innovative technology in enhancing productivity in order to facilitate customer solutions. Economic knowledge discusses the business and economic implications such as transformation in business processes, environment, digitalization, working ecosystem, skills development, intelligent engineering, policy changes, sustainability, and economic growth.

Economy implications are crucial for businesses. Therefore, there is a need to analyse the impact to the relevant stakeholders so that they can prepare themselves to transform according to market needs. With IR4.0 in place, businesses need to engage in current trends of digitization and automation in order to be successful. 

Every single human being in this world is a participant in the global economy, and today’s younger generation will face a plethora of possibilities in the future. It is our duty to provide the younger generation with the tools that they will need to ensure the achievement of their goals. As such, economic knowledge can provide the essential tools for them to make the best choices among the endless possibilities.

 Sanmugam

Pacific trade pact ministers agree on tariff elimination rule on final day

October 07, 2013

Ministers of the 12 countries in the Trans-Pacific Partnership Agreement (TPPA) free trade negotiations agreed yesterday to uphold a basic rule of total tariff elimination in wrapping up their three-day meeting on the Indonesian island of Bali, with the goal of reaching a deal by  year-end.

During their efforts to compile work plans for advancing talks on contentious areas, the ministers discussed market access that covers tariff elimination rules and intellectual property rights among others, despite each country having its own sensitivities.

On Japan's sensitive items, a ruling party lawmaker in charge told reporters after the meeting that Prime Minister Shinzo Abe's Liberal Democratic Party now plans to study the possibility of eliminating tariffs on the items that have been considered untouchable, including rice.

 "We need to consider whether we can take them out or not" from the exceptional items in Japan's negotiation policy – adopted in line with the party's proposal, said Koya Nishikawa, head of the LDP's TPP committee. He added that it does not necessarily mean the party has removal in mind.

"If it doesn't hurt (Japan's agriculture), it would be up to the government to negotiate" and decide policies, Nishikawa said.

The Japanese government faces strong domestic pressure to retain tariffs on imports of rice, wheat, beef, pork, dairy products and sugar to protect domestic agriculture, but challenges are expected in its attempt to protect them from cheaper foreign products.

To speed up the talks that are already over three years old, the member countries are now planning to arrange a ministerial meeting in December.

"The ministerial meeting is expected to be held toward the end as we aim to conclude a deal within this year," said Japan's TPPA minister Akira Amari after the meeting, adding that Japan will work to facilitate talks to meet the year-end target.

The ministers will submit a report on the outcome of their latest meeting to the leaders arriving for a TPPA summit to be held tomorrow as scheduled despite US President Barack Obama's cancellation of his trip to Bali due to the partial shutdown of the federal government over a budget impasse, officials said.

Before the day's meeting began in the morning, Amari told reporters TPPA members are making progress in the talks and Obama's absence will not affect their aim of reaching a deal this year.

"We were shocked that President Obama couldn't make it, but we quickly decided that we'll maintain the momentum" of the negotiations, Amari said.

But Malaysian Prime Minister Datuk Seri Najib Razak said at a press conference it will take longer to conclude the TPPA than its initial year-end timeline, Malaysian media reported.

"We will have our discussions in Bali and we will have a sense of whether that timetable is feasible," he said, adding, "But our sense is that (the TPPA conclusion) may take longer than the time horizon of the end of the year," according to the report.

The ministerial meeting began Thursday and was also held Friday. The meeting, together with the preceding meeting of chief negotiators and the summit, is being held on the margins of the Asia-Pacific Economic Cooperation forum.

After receiving the ministers' report, the leaders are expected to announce that the members' work on the TPPA is close to a finish, according to negotiation sources.

The report will be announced together with the leaders' statement at the end of the TPPA summit.

The 12 TPPA countries – Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam – have been aiming to reach a broad agreement in October. - Kyodo, October 7, 2013.

Malaysian Insider

Time for Gates to go, some top Microsoft investors tell board

Published: Tuesday, 1 Oct 2013 | 9:50 PM ET

Reuters

Adam Jeffery | CNBC

Bill Gates

 

Three of the top 20 investors in Microsoft are lobbying the board to press for Bill Gates to step down as chairman of the software company he co-founded 38 years ago, according to people familiar with matter.
While Microsoft Chief Executive Steve Ballmer has been under pressure for years to improve the company's performance and share price, this appears to be the first time that major shareholders are taking aim at Gates, who remains one of the most respected and influential figures in technology.

A representative for Microsoft declined to comment on Tuesday.
(Read more: Ballmer goes out punching at last Microsoft meeting)

There is no indication that Microsoft's board would heed the wishes of the three investors, who collectively hold more than 5 percent of the company's stock, according to the sources. They requested the identity of the investors be kept anonymous because the discussions are private.

Who's on the list to head Microsoft?

Ford CEO Alan Mulally may be in the running to take Steve Ballmer's job at MIcrosoft but she's not the only one, says Kara Swisher, All Things Digital.

Gates owns about 4.5 percent of the $277 billion company and is its largest individual shareholder. 

The three investors are concerned that Gates' presence on the board effectively blocks the adoption of new strategies and would limit the power of a new chief executive to make substantial changes. In particular, they point to Gates' role on the special committee searching for Ballmer's successor. 

They are also worried that Gates - who spends most of his time on his philanthropic foundation - wields power out of proportion to his declining shareholding. 

Gates, who owned 49 percent of Microsoft before it went public in 1986, sells about 80 million Microsoft shares a year under a pre-set plan, which if continued would leave him with no financial stake in the company by 2018. 

(Read more: Cramer: Microsoft's dividend is a move of desperation)

Gates lowered his profile at Microsoft after he handed the CEO role to Ballmer in 2000, giving up his day-to-day work there in 2008 to focus on the $38 billion Bill & Melinda Gates Foundation.

In August, Ballmer said he would retire within 12 months, amid pressure from activist fund manager ValueAct Capital Management. 

Microsoft is now looking for a new CEO, though its board has said Ballmer's strategy will go forward. He has focused on making devices, such as the Surface tablet and Xbox gaming console, and turning key software into services provided over the Internet. Some investors say that a new chief should not be bound by that strategy.

(Read more: Can Bill Gates save Microsoft?)

Microsoft is still one of the world's most valuable technology companies, making a net profit of $22 billion last fiscal year. But its core Windows computing operating system, and to a lesser extent the Office software suite, are under pressure from the decline in personal computers as smartphones and tablets grow more popular. 

Shares of Microsoft have been essentially static for a decade, and the company has lost ground to Apple and Google in the move toward mobile computing. 

One of the sources said Gates was one of the technology industry's greatest pioneers, but the investors felt he was more effective as chief executive than as chairman

Malaysia should ditch Pacific trade pact – it will hurt trade with China, UN economist warns

BY TRINNA LEONG
October 03, 2013

Jomo says Malaysian negotiators are inexperienced to deal with complex issues in the TPPA. – Pic courtesy UN RadioA 12-nation Pacific free trade pact pushed by the United States will not benefit Malaysia as it is meant to isolate fast-growing economic giant China, United Nations economist Jomo Kwame Sundaram said last night

Malaysia is currently in talks to ratify the Trans Pacific Partnership Agreement (TPPA) but there has been growing opposition to the deal due to its impact on procurement, medicines and business regulations in the country.

“The purpose of the TPP is to isolate China and you don’t want to do that to your main trading partner,” the prominent Malaysian economist said at the launch of his latest book in Kuala Lumpur.

The former University Malaya academic has worked as the United Nations Assistant Secretary-General for Economic Development in the United Nations Department of Economic and Social Affairs (DESA) since 2005.

Jomo said the trade agreement’s main purpose to isolate China became meaningless after the US narrowed its deficit against the Asian giant.

“The US dollar has devalued the last few years so the huge US deficit with China has closed,” he said after launching his book Malaysia@50 in Universiti Malaya.

“So now it’s yesterday’s problem. Why should we get stuck in such a policy and an agreement which was hatched up earlier?” he added.

The trade pact has been viewed as the US’s entry point into market dominance within Asia, which China sees as an attempt by Washington to overstep on the Chinese’ backyard.

The Wall Street Journal had quoted the former World Bank chief for China, Yukon Huang as saying the pact discouraged and complicated shipping of parts to and from Asian countries.

He pointed out the implication would affect China’s role as the final assembly point for electronic items whose parts are usually from other nations.

Jomo believed that instead of getting into trouble, the Malaysian government should be aware of the potential trade agreement between the US and the European Union.

“The bigger problem now is that the US and EU will come up with an economic NATO that’s going to weaken the WTO,” he said, referring to the North Atlantic Treaty Organisation defence pact and the World Trade Organisation.

Jomo expressed concern that a trade pact between Western nations would affect Malaysia’s exports, in particular palm oil which competes with other vegetable oils including the popular soya oil in the US.

“That’s why we need to keep multilateral agreements,” the economist said, explaining that such agreements allow Malaysia to have more control over negotiating the terms.

He also reasoned that Malaysia’s trade negotiators are inexperienced to deal with such a complex agreement, placing the country at a losing end at the bargaining table.

At the centre of the protests against the TPPA is concern that it would destroy the local and smaller enterprises. The agreement has appeared more favourable to foreign established firms that would have the technology and skills to receive tenders. While the awarding of contracts appear merit based, many are worried that Malaysia got the worst end of the deal.

“If this was an APEC deal, we have partners that are negotiable,” said Jomo, referring to the 21-member Asia-Pacific Economic Cooperation.

“But with bilateral agreements, what power does Malaysia have against other countries?” he added.

Apart from the TPPA, Malaysia is also involved in the negotiations for Regional Comprehensive Economic Partnership, another trade pact that includes China. It is between Southeast Asian nations, China, India, Australia, Japan, South Korea and New Zealand. - October 3, 2013

Obama warns Wall Street over fiscal crisis

October 03, 2013

President Barack Obama (pic) sent Wall Street a blunt warning Wednesday that it should be very worried about a political crisis that has shut down the government and could trigger a US debt default.

Obama said he was "exasperated" by the budget impasse in Congress, in an interview with CNBC apparently designed to pressure Republicans by targeting the financial community moments after markets closed.

The president then met Republican and Democratic leaders for their first talks since the US government money's ran out and it slumped into a shutdown now well into its second day.

 But few informed observers held out much hope for a sudden breakthrough.

Obama was asked in the interview whether Washington was simply gripped by just the latest in a series of political and fiscal crises which reliably get solved at the last minute.

In unusually frank comments on issues that could sway markets, Obama warned that investors should be worried.

"This time's different. I think they should be concerned," Obama said, in comments which may roil global markets.

"When you have a situation in which a faction is willing potentially to default on US government obligations, then we are in trouble," Obama said.

Obama said he would not negotiate with Republicans on budget matters until House lawmakers pass a temporary financing bill to reopen federal operations and raised the $16.7 trillion (RM54 trillion) dollar debt ceiling.

If the borrowing limit is not lifted by the middle of the month, the US government could default on its debts for the first time in history.

"If and when... that vote takes place and the government reopens, and if and when they vote to make sure Congress pays our bills on time so America does not default on costs it's already accrued, then I am prepared to have a reasonable, civil negotiation around a whole slew of issues," Obama said.

The president said he had "bent over backwards" to accommodate Republicans — a statement his foes would dispute — but warned it would set a terrible precedent to allow lawmakers of any party to hold a White House to ransom over raising the debt ceiling.

"Absolutely I am exasperated, because this is entirely unnecessary," Obama said.

The government shutdown has sent 800,000 federal workers home, closed museums, national parks and monuments and crippled government services.

Obama wants a straightforward temporary spending bill to end the first shutdown in 17 years, while Tea Party Republicans have repeatedly tied the measure to a dismantling or delay of his signature health care law.

With neither side willing to budge, hopes of an early exit to the shutdown are fading.

"Most of the time you can see an end game," Republican Senator Johnny Isakson told MSNBC. "Right now there's no end game in sight."

Some signs of incremental movement emerged, with Democrats pledging to appoint negotiators to thrash out a long-term budget — provided that the Republicans agree to an immediate six-week federal spending measure with no anti-Obamacare provisions. — Reuters, October 3, 2013.

Is the M'sian market over-valued? How deep will KLSE plunge in the COMING CRASH?

One mistake most investors make when building their portfolios is using the bottom-up approach where they tend to concentrate on stock picking without paying attention to the overall market.

When you apply the bottom-up approach you tend to ‘not see the forest for the trees’ because you are focusing on the ‘micro side’ of the market. Or put it another way, you concentrate on the companies but miss out on the overall market.

The right approach is to apply another strategy known as top-down investing. This approach focuses on the ‘macro side’ of the market. To build a top down portfolio you must first look into the macro economy. By this I mean you should have some idea not only where the stock market is heading but also its valuation.
Anyway, to cut the long story short on how the top-down approach works, I present you the following chart.

As from the above, before we proceed to stock pick our portfolio we need to do some analysis on the macro side of our market to determine its valuation. But how do we do it?

Market Cap to GDP Valuation Metric
Fortunately, there is a one valuation metric that can be used to gauge the valuation of our stock market. It is called the Market Capitalization to GDP (%). This metric is derived by multiplying the share price of all companies with their shares outstanding and then divide by the GDP. The result is a percentage which measures the total value of the stock market as compared to the output of the economy.
The equilibrium being the 100% level and if the metric is above the equilibrium then it is considered overvalued or trading at a premium and vice versa.

What is the Benchmark?
When asked about the Market Capitalization to GDP valuation method in his article appeared in Forbes in 2011. This is what Warren Buffet has to say.
“It is “probably the best single measure of where valuations stand at any given moment. If the percentage relationship falls to the 70% or 80% area, buying stocks is likely to work very well for you. If the ratio approaches 200%-you are playing with fire.
The following is the chart of the Market Capitalization of all listed companies to GDP (in %) in Malaysia as from 2002 to 2011.

In 2012 our Market Capitalization to GDP was 156% and this meant that our Stock Market trading at a 56% premium over the GDP. That meant our market is overvalued. Another thing to notice is that the best time to buy stocks in KLSE is during 2008 where the valuation is only 84%. The next thing we want to know is how expensive is our market as compared to others?

How expensive is our Stock Market?
To gauge how expensive our Stock Market as compared to others we need to look into the benchmark on Market valuations of other countries. The following table is compiled from data available from World Bank, which is the Market Capitalization to GDP (%) for selected countries from around the world for 2012.

Country	(Capitalization/GDP)
Greece	18
Iceland	21
Italy	24
Portugal	31
Indonesia	45
China	45
Ireland	52
Japan	62
India	68
France	70
Spain	74
Australia	84
Philippines	105
South Korea	105
Thailand	105
Sweden	106
Zimbabwe	109
USA	119
Luxembourg	123
U.K	124
Singapore	150
Malaysia	156
South Africa	159
Switzerland	171
Hong Kong	420

Evidently, our KLSE is the 4th most expensive Market in the world and is trading at 56% premium over its GDP. Other Asian Stock Markets that are trading at a premium over their respective GDP are Thailand (5%), South Korea (5%), Philippines (5%), Singapore (50%) and Hong Kong (320%).
Also notice that Stock Markets from countries that are affected by the current ongoing Financial Crisis are trading at a discount to the GDP. Take for example the PIIGS with Portugal (-69%), Italy (-76%), Ireland (-48%), Greece (-82%) and Spain (-26%) and even Iceland is trading at a big discount (-79%). Their relatively cheap valuation has to do with their market selloff in the past couple of years.

How deep will our Market Plunge?
Honestly, it is definitely not going to be mild because the current carnage is just the beginning. As some of you can recalled in my article dated on 17/08/2013, titled ‘Asian Stock Markets Review and Opportunities’. I mentioned on our market’s correction when the trend line (in black) is broken and volatility will surge and losses will be big. I again present below the daily chart of our FBMKLCI.

There are a few things that I would like to point out. It already fulfilled the conditions that I put forward previously and they are.
1. Broke the Trend line on the 19/08/2013
2. Cover the 5 months Gap on 23/08/2013

Moving forward are we going to see further turbulence? The answer is YES and it’s not only in Malaysia but the whole region. Our FBMKLCI will see further downside due to the following.

1. Increased outflow of foreign funds from this region.
2. Further Currency depreciation in the coming weeks. The main threat coming from India and Indonesia.
3. Threat of increase yield in bonds that will affect our interest rates. 10 year bond yields are soaring across the region in the past weeks and if not contained will provide bigger threat to the real economy.

4. No firm policy guidance from Central Banks in the region including Malaysia. They are trying to do everything at once meaning accomplishing several policies targeting with limited policy tools. At one moment they are Quantitatively Easing and the next they are doing Monetary Tightening. They are intervening in the foreign exchange market by selling dollars to prop up their own currency. Even our Bank Negara sold several billion of USD to prop up our Ringgit this week. In short there is no ‘Policy Coordination’. As a result this mess is causing jitters among foreign investors.

5. We are going into the second stage of the Crisis and this is where volatility in financial markets is heightened. Events can take a turn for the worse in a short period of time. This can be seen from the Asian Financial Crisis in 1998 where the contagion effect spread within weeks. Also in Argentina during their hyper-inflationary experience in the 1980s and early 1990s. Their monthly inflation rate can drop from 110% to 20% in a matter of days after government intervention and stabilized before it resumed its next surge to 230% the following month.

Hence as for the midterm (about 2 months), I reckon there is a good chance that our market is heading towards the 1620 points level which was set on 18/03/2013. It is marked with the pink circle. Before that we have to contemplate the first support which is at the 1694 level which is indicated by the blue circle. However this support will not hold and will be easily overcome as there is no solid base building.

Rounding up
In rounding up, I reckon that we have being taken for a ride by the dis-information of facts parroted by our mainstream media. Bank Negara through its ‘reassurance babble’ assured us that everything is fine and within fair valuation, deficits don’t matter, inflation is within expectations, real estate is not in bubble, our debts are manageable and so on. But now the chicken is coming home to roost and we will have to take the brunt of this coming downturn.

Since we know that anything goes up must come down and as the saying goes, ‘The Higher it goes, The Bigger the Crash’. Hence the most important thing to do is to be prepared and get ourselves educated for any eventuality. Anyway any Market Crash is not the end of the world but a form of ‘Wealth Transfer’. But transfer to whom? Well, from the ignorant to the informed because those informed are going to capitalize on this Crash and will emerge much wealthier than before.

MC

Next Asian Financial Crisis

Asian Financial Crisis in 1997-98 affected Malaysia which was very badly hit. Stock market dropped from 1,385 to 295 points while Ringgit went down to as low as RM4.80 to the dollar. At the height of the crisis, interest rates went up to as high as 18%. The last time the Asian Financial Crisis started in Thailand and this time if it cannot be controlled it will blow from India.

Measures taken by Indian authorities

In an attempt to stamp further outflow of funds, India has recently resorted to some limited capital control such as the following.

> Reducing the amount of money Indian residents can sent out overseas annually from $200,000 to $75,000

> Indian firms can only invest 100% of their net worth down from 400% previously

> Total ban on all importation of Gold coins and Medallions from abroad

However such measures are only temporary in halting further outflow of funds as it is counter-productive and will only slow the economy.

Part of the blame goes to the Multinationals that are allowed to operate in India during the opening of its economy in the 1990s. The Indian government states that instead of contributing to the Indian economy through the transfer of technology and also managerial skills they ended up raping the Indian economy high and dry. And when it is all done they now depart for greener pastures and as a result exacerbated the outflow of funds. India’s economic fundamentals have been deteriorating for the past couple of years. India recorded a trade deficit of INR 733.33 billion in July 2013. For the past 35 years, India’s trade deficit average about INR 120.83 billion. Although India’s Government Debt to GDP decreased from 68.05% to 67.57% but its external debt increased to USD 345 billion in 2012 from USD 305 billion in 2011. With a depreciating Rupee it means India has to pay more Rupees for its external debt which is quoted in dollars.