My Analysis on the Recent PTPTN Issue in Malaysia

After around 6 months absent due to extreme busyness, I finally have time to rant a little and I select the PTPTN issue as the topic of discussion.

For those who don't know, recently the opposition party of Malaysia (Pakatan Rakyat) suggested the possibility of free tertiary education in Malaysia. The issue has been snowballing ever since with various comments from various parties arised. Most government officials denied such possibility, claiming that this will lead to bankruptcy. Most current tertiary education "undergraduates" welcome the suggestion and even orchestrate an "event" at Dataran Merdeka to show their support towards this suggestion. Besides, many so-called analysts offer their comments on such issue, mostly oppose to this suggestion; and of course we have the public opinion. Public have been somewhat mixed in such issue but from my observation, most oppose the suggestion.

However, almost all analyses (or comments) so far have little credibility as they offer very little evidence or data. The level of objectivity is not up to par, leading to biases in their comment. Undergraduates, due to the concept of "self interest" will undoubtedly support the suggestion while government officials will (for whatever reason) oppose to the suggestion of opposition party. This time they claimed Malaysia will not benefit from this, to and extent that bankruptcy is a possibility if tertiary education is made free.

THE FOLLOWING IS THE ANALYSIS FROM THE AUTHOR AND AUTHOR ALONE. THE ANALYSIS IS BASED ON DATA OBTAINED FROM VARIOUS RELIABLE SOURCES AND ANALYSED USING OBJECTIVE ANALYTICAL TOOLS TO ELIMINATE ALL BIASES INVOLVED. VIEWERS DISCRETION IS ADVICED.

Bear in mind that I only channel the concept of free tertiary education towards the local students in our public universities and college universities. Private colleges and universities are profit oriented, thus impossible for the state to fully subsidise all fees involved.

Lets start with some important statistics. According to official statistics from Ministry of Higher Education (MOHE), we have 82,296 new enrolment into all public universities and college universities (U/CU) undergraduate programme. Averagely, we have almost 80,000 new enrolment every year to our public U/CU undergraduate programme. Mean study fees for each student every year (2 semesters) is RM 2,500.

If such information is considered, it costs Malaysia around RM 200,000,000 (two hundred million) to finance each batch of students. Since most undergraduate courses take about 3 years to finish, roughly estimation for Malaysia to fully finance all public undergraduates is RM 600,000,000 annually (six hundred million).

Six hundred million sounds very high considering we are a developing economy relying on domestic demand to boost our aggregate demand. However, if we reconsider our information so far, six hundred million for 240,000 students (8,000 x 3 years) every year merely means around RM 208 per month. If the benefits (increase in productivity) we obtain from such proposition exceed RM 208 per month, Malaysia should do this.

However, there are three visible problems: first, opportunity cost involve for the six hundred million is significant for the economy with only RM 766 billion annual gross domestic product and almost RM 740 billion gross national income. Investment in infrastructure could yield higher return in the long run for the economy, and even if it doesn't, it will still add significant weight to the RM 208 we talked about earlier.

Second, the capital needed to finance such a proposition required significant commitment from all agents of economy. With a population of 28.25 million, we need around RM 21 per capita to achieve such proposition. Tax is imminent under such event. Additional increament of six hundred million Ringgit into our money supply will result in enormous inflationary pressure to the economy.

Third, the characteristics of public goods, namely nonexcludability and nonrivalrous in consumption for public goods can't be satisfied. Tertiary education in U/CU is both rivaled and excludable services. With that, public can't enjoy this services at free will and utility may not be maximised. Furthermore, requiring public finance for a service that is both rivaled and excludable may not be welcomed by everyone, especially those with less possibility of enjoying it.

Nonetheless, numerically, using a moderate 5 percent opportunity cost rate, RM 30 million should be added into the total costs of this proposition, or RM 125 per capita. This equates RM 333 per capita every month. With such number, per capita "contribution" for every Malaysian would be merely RM 1 higher at around RM 22.

Next, we need to determine the increase in productivity of undergraduate compared to their primary and secondary eduation counterparts. This is not an easy task especially for the case of Malaysia as not much labour market researches focus on such aspect. However, from most researches that I can gather, with some slight ammendments to fit the case of Malaysia, productivity of higher education graduates are around 10-25 percent higher than primary and secondary graduates. Furthermore, the gap is proportionally higher, indicating that the difference in productivity between the 2 groups will grow bigger, supporting this proposition. Free tertiary education might increase the number of graduates in higher education, thus increasing the productivity of labours in general at increasing margin.

10 to 25 percent increase in labour productivity will generate an increament to our gross domestic product by RM 38 billion to RM 96 billion, way above our RM 630 million annual expenditure required to finance such proposition.

So, free tetiary education can really be possible and beneficial to the economy in general. Although such proposition requires significant investment and may result in higher tax rate or public debt level, with such significant growth potential to our economy, it may be a extremely good suggestion.

However, growth in output level, deficit budget and public debt are still main problems of Malaysia economy, increasing the difficulty of such proposition to be implemented. In the short run, the time lag involved may cause ineffectiveness of such implementation.
In the long run, free tertiary education could be one of the catalysts that lift Malaysia towards a high income economy.

Italian Job for Manchester Duo?

As we all know, the City of Manchester Duo: Manchester City and United are out of the Champions League and England are left with Arsenal and Chelsea to carry their pride. We can feel the pain of it especially in England with English press exaggerate the misery of English football in Europe this year and also in Malaysia where most football fans here can't name more than 10 players playing outside England.

However, you may wonder why such miserable feeling exist? I mean they still have 2 teams to carry their pride. Spain, Germany and France, they all have 2 teams in the knockout stage as well (Real and Barca for Spain, Leverkusen and bayern for Germany, Lyon and Marseille for France). Only Italy have more team in the knockout stage than England (3 teams). So it perfectly ok to say England are on par with teams from other prestigious leagues in Europe

Nahhh. For English football fans, they are better than everyone in Europe and should have more representatives than any league in the knockout stage of the highest level European football tournament. Such pride and ego started in the 1970' with clubs such as Liverpool, Nottingham Forest and Aston Villa that dominated European Cup in 7 of 8 seasons from 1976/77 to 1983/84 season. After that, Heysel incident stopped English football momentum and they did not recover until 1998/99 with the amazing win of United over Bayern. During that period, Italian football were king of Europe and world. From 1988/89 to 1997/98 (10 seasons), Italian club only missed 1 European Cup final (1990/91). All the world's biggest football stars were playing at Serie A and it was deemed the "mini world cup"

The success of Italian clubs in Europe and fierce competition of Serie A killed Italian football (in my opinion). Serie A clubs did not take European competition seriously and often sent their second team to play in Europe while their best were reserved for domestic competition. Clubs such as Milan, Inter, Juve, Fiorentina, Roma, Parma and Lazio made Serie A the absolute best of Europe and the world. As a result, after the 1997/98 season ended, their performance sunk. Their ignorance toward European competition coped with their ego to become bigger caused them to financially failed. Domestic competition alone couldn't generate enough revenue to offset their huge wage expenses needed to attract the best football players. By the time they realized this, it was too late.

Similar case may be developed in the case of England. Before this, lets face it, English Premier League were not competitive. ( I am sure most English football fans are either very mad now or straight away leave the page lol but let me explain.) English Premier League had less league winner in the past 15 seasons than any prestigious league in Europe including La Liga, Serie A, League 1 and Bundesliga. Only 3 clubs managed to snatch the EPL trophy in the past 15 seasons.  Even Spain with the dominance of Barca and Real produced 4 league champions during the period.

The relatively less competitive domestic league enabled English clubs to focus all their firepower towards European competition and as a result, they managed to play some of the best football in Europe for the last 10 seasons. However, even with such conditions, they still didn't manage to dominate Europe. (1 more time EPL fans will probably be very angry). Yes, I know, English clubs had good performance in the knockout stage of Champions' League but they did not dominate the UCL finals like Italy did 10 years prior. In the last 10 seasons, they managed to be featured in 6 finals (less than 9 for Italian clubs) and of that 6 finals (although 2007/08 they had 2 clubs in the final: Chelsea and Man United, it is counted as 1 as it was in the same year), they only managed to win it twice. Clubs from Spain (4 wins) and Italy (3 wins) are more successful than English clubs.

So here we are, 2011/12 season, the strong rise of Manchester City and Tottenham Hotspur make the English Premier League more competitive than ever (in my opinion still not as competitive as Italian Serie A in the 1990's) and immediately we can see the effect. Top 2 teams are out of European top football competition and had to play in Europa League. It shouldn't surprise us as even with ideal conditions for the last 10 seasons (less competitive domestic league, financially successful, 100% focus in European competition, right mentality, fans support etc.), the English clubs couldn't dominate Europe. It's no surprise why their play so mediocre in Europe this season. Unless Chelsea or Arsenal sacrifice their domestic competition, I don't think Chelsea and Arsenal can go very far. (well Arsenal may do so since they are 12 points behind Man City).

Only 2 clubs in the world can dominate a competitive domestic competition and Europe: Barcelona and Real Madrid. Many football fans claimed that Spanish La Liga isn't competitive. Well when you have Barcelona and Real Madrid in the same league, any league will have similar scenario. Put these 2 teams in English Premier League and you will have Barca and Real dominate EPL as well. Fact is Spain are more competitive than EPL. Look at where are Villareal this season (4th last season, currently at 15). How bout Levante (14th last season, currently at 4th). That's the sign of competitive football: all teams have equal opportunity of finishing in any position (with the exception of Barca and Real of course as they are by far the 2 best clubs in the world).

So will English football follow the footstep of Italian football 10-15 years ago and left behind in European competition caused by fierce competition in domestic league? only time will tell. In the mean time, it's time to wake up for all English fans and media. Put aside your ego and pride. Watch other football leagues and discover their beauty. You are not a true football fans if you know nothing about football club competition except for English Premier League. To prove my point, here's a question for all the English football fans: Manchester City were eliminated by Bayern and Napoli and both of them are big clubs in their country. Can you name 5 players currently from Bayern and Napoli? If you can't? What? Football Fans? LOL

Ministry of Tourism Malaysia (Kementerian Pelancongan Malaysia)

Currently terribly busy with my work and study. Wrote so much articles (all at half way) but do not have time to finish them. Anyway I have a great story to share with all of you as I think it's a joke to our beloved nation, Malaysia.

Was dealing with my eductional matter at Malaysia Ministry of Higher Education (MOHE), Putrajaya and found out that Ministry of Tourism of Malaysia is just beside MOHE so went there for some tourism brochures and materials for my next holiday.

Went to the main entrance of the Ministry of Tourism, asked the security guard for direction, greeted by a surprised looking guard that direct me to the customer services counter directly in front of the main entrance.

So went to the counter and greeted by few Malays that speak very poor English. Asked for tourism maps and brochures. Again these receptionists showed surprised expression and did not answer anything at first. Then after few minutes of clarification in Bahasa Melayu, finally they understood and told me to go to first storey. However before I could go, I had to get a visitor pass by putting my driving license there (what if someone doesn't have one?).

Went to first storey and found out that it was the wrong floor. There was nothing there except for few counters dealing with licensing matters.

Went down again to the main entrence counter and re-asked those receptionists and they told me to go to second story this time.

So went to second storey. Came out of the lift and there were 2 doors: the one on the right (door A, I think) was locked and the one on the left was wide opened. Seriously, take a guess: which door is the correct one?

Wrong! The door on the left was the entrance to the library of Tourism Ministry. Went to the librarian. Again greeted with surprised expression. Asked by the librarian to scan my visitor pass on a scanning machine on the side of the locked door (door A).

Once scanned, the door unlocked and there was another person there, responsible for all the tourism brochures and maps. So took some and went out of this miserable place.

So let's make everything clear: to get tourism brochures and maps at Ministry of Tourism of Malaysia, I need to walk into the building, hand over my driving license (wonder what happen if I don't have 1), deal with few receptionists who don't know much, go to the second floor of the building, scan my visitor pass on a machine next to a locked door with no instruction at all from those receptionists, then finally ask for them at a counter. I wouldn't call it user friendly.

How bout just put those brochures and maps beside the main entrance? Why make it so difficult for tourists to get tourism informations at the Ministry of Tourism? Does it make sense that people will go to Ministry of Tourism of a nation to get some tourism information? Or are they intend to purposely create a fun maze for tourists to enjoy?

Nevertheless, do you all (Malaysian) have similar story? if so, why not share......

Economic Crisis???

Recently I am superbly busy with my works and my PhD thesis. Just finished couple of researches and a seminar as speaker. Finally have some time to rant about some of my thoughts and understanding especially on the subject of economic crisis.

3-4 years ago, we all know what happened. Burst of subprime market cause the economy to went south and we experienced then greatest economic crisis since Great Depression.

After that, everybody started talking about recovery and stimulus as well as quantitative easing. Everybody was optimistic about the future including all those central banks, investment bankers and investors / speculators. Asset prices started increasing and profit was running wild in derivative markets, commodity markets, stock markets and other tradable financial markets. Majority stock markets rallied more than 100% compared to their September 2008 low. Some even managed to rally more than 200% (Latin America SE).

Now, with just 10 - 20% retracement in the those tradable financial markets, we are all doom!!!!! There is no tomorrow!!!!! US will be recession!!!!! Economy is going south!!!!! Sell sell sell!!!!!

Look at the chart of Hang Seng Index from 2008-2011 available from Stockcharts.com. It drops more than 20% compared to early August. However compared to September 2008 low, it is still almost 70% higher. It's not even at the first level of fibonacci retracement (61.8%) which should be at around 17274.


Furthermore, did economy recover compared to 2008?

Unemployment is worst (in most developed economies) now compared than 2008, output did not increase much compared to 2008 due to high level of umployment (deflationary gap). monetary expansion does not yield any quantitative and/or qualitative improvement other than inflation. Productivity did not improve as well. The only change that we have is the liquidity in tradable financial markets due to the significant aggresive monetary expansion from central banks and fiscal expansion that cause governments around the world to have budget deficit problems. So I wont be surprise if stock markets visit their september 2008 low.

WAIT?

Most investors / specualtors / trades do not like to listen to economics stuff. What they want is that how to gain profit in such economy condition (at least that's what my asset management client ask all the time).

Well, if you listen to what I said in 2008 (invest in commodity market), I am sure you have gain at least 200%. Furthermore, investment is always long term. It's much better to buy a good firm at fair price than fair firm at good price. If you own shares of good and profitable firms, keep it. Warren Buffett will not be the (second) richest man in the world today had him sold Coca cola or Gillete during the US recession of 1993.

Another question that I often get from my client is that how do I earn profit during bearish market sentiment? Well, how bout put option, put warrant, Bear contact, short derivative etc. Investing in safe instrument such as money market and bond market can also maximise the return. Furthermore cash is king now. Lower loss = higher gain.

Unless economy improves (ie lower unemployment and more stable positive economic growth), do not rush into the market. This is probably the best time for us to find a good firm with fair price. (KO maybe lol.)

Well Done US Congress

Predictably, US Congress have approved a new debt ceiling, more than $ 2.1 trillion over the initial debt ceiling and hooray, US can start spending again.

Wait, according the the deal, tax won't be increased but spending will be cut starting from defense spending. Wow, what a superb plan, at least on paper. US is not defaulting their T-bill / note / bond, spending will be cut, tax won't be raised, finally US could be doing the right thing...... or is it?

Well, not really......

Spending cut won't be implemented at least until 2013 which mean from now until the next presidential election in 2012, Obama, Geithner and other government official and still spend like hell. That's probably the reason the deal said more than $ 2.1 trillion. BTW, how much is more than $ 2.1 trillion? $ 100 trillion? Well, it all depends on how much US government want to spend.

Furthermore, although the deal seems like there is government spending cut (by more than $ 2.4 trillion over god knows how many years), in reality, US government is not cutting spending nominally, but in percentage of growth. In other words, US government spending will still increase by a smaller margin in the coming years.

Politicians are politician. Some are wise and know economics but most aren't. Some oppose with cut in defense spending and others oppose any cut in US government spending at all claiming the action is going to take money out of the economy.

Well, there is a term in economy called crowding out effect. Cutting government spending actually does not harm economy at all as resources used in the public sectors will shift to private sector. As long as there is demand, supply, whether from public or private sector, will be there. Ricardo Equivalence explains the same concept as if government spending increases, sooner or later, tax would increase as well (according to bloomberg, US tax rate will be increased after 2012). In other words, consumers, one way or the other, have to finance government spending. Since government is never a efficient and effective economic agent, government spending should be eliminated and all public spending will be shifted to private sectors.

So, as usual, US government and Treasury department manage to fool everyone just like what they did previously (2001-2003 and 2008-now rapid monetary expansion fueled by enormous spending from government). Well done US congress!

$14,300,000,000,000

$14.3 trillion debt ceiling. What a magical number. Who would thought that $14.3 trillion will be reached?

US gross domestic products of 2010 was $14.7 trillion in nominal term and who knows the percentage of phony output growth stimulated by rapid monetary expansion especially in the finance and banking sectors.

$14.3 trillion debt ceiling or almost 100% of US gdp of 2010 has been reached in May of 2011 and technically, that means US is unofficially bankrupt. To Repay the debt, they have to sacrifice 1 year of national output. That would be ok provided US has high international reserves to finance their spending. According to treasury department, as of 29/7/2011, the official US international reserves is around $145 billion or less than 1% of gdp. In other word, US can only finance their import for just around 14 days (2010 data). Compared to international standard of 8 months, US is not as wealthy as we think.

Furthermore, US government is terrible in managing their budget. Around 40% of government spending is financed by debt. Most debt are foreign debt sold to country like China, Japan, Russia, middle east countries etc. In other words, US debtor now own 40% of US economy and US resources (since debt / gdp = 100%). How about if US GDP figure did not include the phony banking and financial sectors junk loan and fake transaction, we could be looking at around 50% of US economy is foreign own.

Combined with terrible data in labour market (unemployment rate of almost 10%) and fake general price level (low inflation according to treasury and feds), US economy is at the worst level ever (even worst than ww2 and Great Depression era).

To make things worse, Fed funds rate is kept at 0-0.25% which encourage more borrowing and leverage. Since money is free in US, debt financing activities will keep going. In the short run there are no visible way US could improve on their deficit and overspending problems.

To make things worse, nobody seems to understand the problems and US congress is it the process of adjusting debt ceiling to a higher level. At the moment, no agreement is reached yet but I guarantee at the end, everything will be sorted out and debt ceiling will be lifted.

Using simple logic, if our income is much lower than our spending and every month, 40% of our spending is financed by debt (credit card). There are only 2 solutions: increase income or decrease spending right?

Wrong!

US government can't increase their revenue (ie taxes) as tax rate is already at such a high level and Obama would risk public support if he choose to increase tax rate. So the best way should be decrease US government spending. Start with military spending which cost US trillions of dollar every year.

Wrong again!

US try to use the third way: negotiating term with banks to increase the credit card limit so that they can borrow even more money and pile on the debt that got them into trouble in the first place. Remember, US was in subprime crisis because of too much debt, and their solution to deficit spending is...... more debt?

So, to all American, you still think your country is the biggest economy in the world? You still think America is the wealthiest country in the world?

Harry Potter and Deathly Hollows Part 2 Review

WOW!!!

This is my first feeling when I walked out of the cinema. Definitely one of the best movie in 2011 and together with part 1, I would say one of the best movie ever.

Movie always starts with story regardless of the genre and part 2 has one of the best story i've seen. Of course we should give all the credit to Ms Rowling but either you have read the book or not, you will like the story of this movie nonetheless.

Then the directing. Many felt that the movie is too action oriented and pace is too fast. However this is part 2 of a 5 hours movie and combined with part 1, I think David Yates did a fantastic job in setting the pace and set up one of the greatest climax in recent movie history.

Acting is not perfect but very good nonetheless. Daniel Radcliffe, Emma Watson and Rupert Grint have matured so much since the first movie and it's a very nice feeling seeing them grow not only as the characters they portraying but their acting as well. Supporting casts play a fabulous role too. Neville Longbottom rocks!!!

The action scenes is well done especially the Hogwarts battle scene as it managed to avoid the common problem of crappy action movies such as 2012, clash of the titan or transformers (all 3) which is too much actions. Action scene in an action movie, similar to horror scene in a horror movie, should not be overused. Otherwise the suspense elements will be lost. Deathly Hollows part 2 incorporate great transition period within action scenes to maintain the suspense.

The duel between Harry Potter and Voldemort was great. After 7 movies and 10 long years, it is superb too see the epic "good vs evil" and I guarantee if you've watched all 7 movies prior to this one, you will have goosebumps running all over your body.

Other elements such as dialogue and editing were done superbly too. Of course they are not as good as the first Deathly Hollows but great nonetheless.

Small problem such as too little characters development and stupid epilogue aside, Harry Potter and the Deathly Hollows part 2 is a fantastic movie and definitely one of the greatest movie of 2011. Either you are a action movie lover, a movie lover or movie hater, you should not miss this movie. Together with Deathly Hollows part 1, this is one of the greatest 5 hours in cinema history and to me, on par with other great movies such as Indiana Jones series, Back to the Future Series, Lord of the Rings series, Citizen Kane, Gone with the Wind....... and more recently, The Dark Knight and Inception.

9.5/10