What about respect for the rakyat?

Perak Regent Raja Dr Nazrin Shah had to wait five hours to deliver his opening address to the Perak State Assembly due to the shenanigans last Thursday. As he was taking his seat, menteri besar, as reaffirmed by the High Court yesterday, Datuk Seri Mohd Nizar Jamaluddin requested to raise an objection on the forceful and illegal means employed by the Barisan Nasional to remove speaker V. Sivakumar.

The New Straits Times reported the Raja Muda then asked Nizar and the DAP’s Datuk Ngeh Koo Ham to approach him. The Raja Muda told the duo: “I don’t want to get involved in this. I just want to give my speech, so respect my speech, when I am giving it. You understand that? If you want to work with me in future, you have to respect my speech. Understand?
“So go and tell that." (to the Pakatan Rakyat state assemblymen)

The Raja Muda can demand respect due to his position as a constitutional monarch. Who will accord respect for the rakyat’s wishes? Only a minority of Perak folk voted for the Barisan Nasional. The majority of the people of Perak do not want a Barisan Nasional state government.

How have we come to the situation where the minority is allowed to rule over the majority? What does this say for the future of Malaysia? We took a huge step away from democracy last week. I fear we are on the path to kleptocracy. Dare I see a glimmer of hope following yesterday's court decision?

On ex-PMs becoming “advisors” …

Tun Abdullah Badawi is now advisor to Malaysia Airlines. The Malaysian Insider says “The Najib administration has manoeuvered around a potentially delicate situation … keeping Tun Dr Mahathir Mohamad as Petronas advisor.”

Apparently there is a “tradition” for a recently retired prime minister to be given the prestigious advisor position in the national oil company. This can’t be a long “tradition”. Petronas was formed only in the 1970s after our first prime minister Tunku Abdul Rahman had retired. Our second prime minister Tun Abdul Razak passed away in office. Tun Hussein Onn was the first such ex-PM “advisor”. And Tun M is the second.

I wonder why this “tradition” developed. The scope and terms of reference of these “advisors” has never been officially disclosed. It is less of an issue in the case of unlisted Petronas. But Malaysia Airlines is a public-listed company, with directors elected by shareholders. Where does Tun Abdullah sit in the overall scheme of corporate governance?

It would be wonderful if Tun Abdullah declines this ‘honour’ and nips this dubious “tradition” in the bud. Cushy GLC (government-linked corporate) positions should not become part of the expected retirement package for ex-PMs.

It would be far more meaningful if ex-PMs apply their influence to champion projects that benefit the ordinary rakyat. For instance, I am thinking of the Tun Hussein Onn Eye Hospital, a wonderful hospital that provides affordable specialist eye-care. Jeff Ooi was a very satisfied patient; and so was I.

Malaysians are poor – based on our tax records

Only 1 million or so Malaysians pay tax. That’s 10% of the working population. Take a look around you. 9 out of 10 adults you see don’t pay tax. That’s a phenomenally narrow tax base. 1 million Malaysians are paying for the government services for all 24 million of us; 26 million if you include the (legal) foreigners.

Or perhaps it’s more accurate to say 1 million Malaysians are paying for the “work” done by our government, which includes trips to Disneyland, Mount Everest and other exotic locations.

Hafiz Noor’s musings on income tax got me thinking.

Firstly, are the vast majority of Malaysians that poor, that 9 million working Malaysians don’t pay tax?

Secondly, if the core issues are not addressed, more and more Malaysians will do their utmost to avoid tax. Because, we don’t seem to be getting our money’s worth.

One function of taxation is to raise revenue to fund social services such as roads, schools, hospitals and security. Yet, in Malaysia, we 1) pay tolls, 2) are forced to send our children for private education, 3) go to private hospitals when we are very ill and 4) engage private security to patrol our home neighbourhoods because of the rising crime rates. Another function is redistribution, that is to take from the rich to help the poor. No right thinking human should be against that. But how much of that do we see going on in Malaysia? We see billions of ringgit being squandered on follies and some scandal or other; and on the other hand there are so many obvious examples of poverty.

So, where did all our tax money go? This lack of accountability fuels the sense of injustice by the taxpayer and increasing efforts to avoid or downright evade tax. Why pay tax when “the government is going to waste it anyway”?

Which brings me to the broader, third issue. There are about 12 million eligible voters. The fact tbat only a fraction of these voters pay taxes is fertile ground for populist politicians offering voters short-term goodies at the expense of longer term economic disaster.

Voters will be tempted to vote for whoever offers cheap petrol/electricity/[insert whatever you want here] because they don’t have to cover the cost. The only way the costs can be covered would be to raise taxes. Our taxes, once you factor in the indirect taxes, are already among the highest in the world. Raise them further and the brain drain will get worse. We will face economic ruin when our best and brightest are all gone.

How can we get around this? One – break the addiction to cheap foreign labour so that Malaysians can move up the value chain and earn enough income to pay taxes. Two - accountability by the government – so we know where our tax money is going and feel we have a stake in its spending. Dare we hope for the report on the Port Klang Free Zone problems to be made public; and just as importantly, the people responsible held accountable and penalized?

Is the next bull run here? (2)

The US equity market is still going great guns. So, is the bear market over? Last week, I pointed to a fundamental research piece offering one view.

This week, I came across another interesting piece. This one is from the technical research perspective.

For the uninitiated, here’s one technical mantra:
In a bull market, advances accompanied by increasing volume or declines on diminishing volume are taken to be bullish. Conversely, in a bear market, declines are accompanied by increasing volume and advances show diminishing volume. Volume should always be studied as a trend (relative to what has preceded) – Richard Russel, The Dow Theory Today.

Check out Hussman Funds for the full article.

Where are the good Malaysian employers?

The best employers in Malaysia are foreign, based on a study by human resource consultancy Hewitt Associates in conjunction with The Edge, The Edge Financial Daily and Asian Strategy and Leadership Institute (ASLI).

Only two home-grown firms made it to the Top 10 – property developer SP Setia at No 6 and Telekom Malaysia at No 10.

That's a sad indictment of 53 years of Barisan Nasional (BN) rule. BN economic policy is characterised by secure monopolies, oligopolies or various protections for industries ranging from autos to banks, gambling, telecoms and satellite tv.

All this protection resulted in some very rich businessmen emerging – enough to support the largest Ferrari showroom outside Italy. That's right – the RM20m showroom was officially opened on 31 March in a glittering ceremony graced by royalty.

So, we can been proud that our richest can now compete with the best in the world. On the other end of the scale though, our workers are forced to compete against the most lowly-skilled in a race to the bottom for the lowest wages and worst working conditions.

The BN government often defends protectionist measures as necessary to defend the rakyat's interests. The survey results suggest otherwise. Opening more industries to foreign competition could lead to better working conditions and remuneration for the ordinary worker.

For the record, the top 10 employers are:

1. The Ritz-Carlton, Kuala Lumpur
2. American Express (M) Sdn Bhd
3. Four Seasons Resort Langkawi, Malaysia
4. Federal Express Services (M) Sdn Bhd
5. Agilent Technologies
6. SP Setia Berhad
7. Hilton Kuala Lumpur
8. Intel Technology Sdn Bhd
9. Golden Arches Restaurants Sdn Bhd 10.
Telekom Malaysia Bhd

What’s happening in Perak?

For those confused by the plethora of articles, or, like me, are just too tired of this whole imbroglio to wade through all the reports, here’s a summary of the situation.

The mainstream media reports Barisan Nasional (BN) now has an undisputed majority in Perak following the Federal Court’s recent declaration that Speaker V. Sivakumar’s suspension of UMNO’s Datuk Seri Zambry Abd Kadir and his six executive councillors are null and void. Combined with the earlier ruling that it is the Election Commission (EC) and not the Speaker that decides an electoral vacancy, it is said BN now holds a 31-28 majority in the state assembly, including the three party-hoppers.

The alternative media on the other hand points out that only two declarations sought by the BN applicants were granted, which were to declare null and void the suspensions for Zambry and also his exco. The Federal Court omitted the application to declare that Zambry and his exco have the right to attend and take part in all assembly meetings. Constitutionally, the Speaker has full power in the assembly. If that is the case, then Pakatan holds a 28-24 majority as Zambry and his six exco members would be barred by the Speaker.

N.H. Chan, a former Court of Appeal judge writing in Malaysiakini says the relevant law, in the present context, is Article 72 of the Federal Constitution which states:

(1) The validity of any proceedings in the Legislative Assembly of any State shall not be questioned in any court.

(2) No person shall be liable to any proceedings in any court in respect of anything said or any vote given by him when taking part in proceedings of the Legislative Assembly of any State or of any committee thereof.

(3) No person shall be liable to any proceedings in any court in respect of anything published by or under the authority of the Legislative Assembly of any State.

Following the Federal Court decision, the Perak state assembly secretary Abdullah Antong Sabri, without the consent of Speaker V Sivakumar, issued a notice convening the Perak state assembly on May 7. Speaker Sivakumar subsequently suspended him indefinitely for this act of ‘insubordination’ and appointed Misbahul Munir Mardukhas, the political secretary of recently-elected Bukit Gantang MP Mohd Nizar Jamaluddin, as his replacement. “Meanwhile, the purported sitting on May 7 cannot proceed, pending clarification,” he said, adding that he would write a letter to the palace to seek clarification if the palace had given permission for an assembly to be convened.

So, that’s where we stand. A real constitutional mess with the BN quite ironically hamstrung by the various constitutional changes it had put through in the past which reduced the scope for judical review of the legislative branch. My hope? Prime Minister Najib will stop this BN attempt to impose a BN government in Perak that the majority of Perak rakyat did NOT vote for. Focus on fixing the economy and the states you rule, deliver “People First, Performance Now” and in the next elections you can convince the rakyat you deserve to be the government.

Is the next bull run here?

I’m often asked if economic recovery is around the corner and the bear market is gone. I share the views of Jack McHugh at the Big Picture:

“Nothing sows the seeds of doubt in the minds of money managers quite like a bear market rally. Thoughts like, “Is the bottom in?”, and “Am I missing a once in a generation buying opportunity at the beginning of a great new bull market?” cause institutional investors to reach for the antacid tablets. For many of them, losing money in a bear market is no sin, as long as everyone else is taking on water, too. But missing out on the gains of a bull market is a career-threatening problem. As such, large investors are all competing to strain their eyes in looking for Ben Bernanke’s “green shoots”. They almost hunger for the early bits of growth that often presage an economic recovery. What they forget is that many of these green shoots will turn out to be weeds, or, what’s worse, be lost to a spring frost.

I’m not trying to be an eternal pessimist, either, since there are indeed some hopeful signs. As you can see from the articles below, the credit markets are starting to pick up. Even if prices in the dicier parts of fixed income aren’t up as much as are stocks since March 6, they are starting to tick higher. LIBOR continues to recede, high yield bond issuance is climbing off the mat, and even carry traders are beginning to feel safe enough to re-establish risky positions. With all the cash now gushing out of Washington, I suppose these nascent signs of improvement should be both expected and welcomed. But since one of the primary goals of these scribblings is to offer a perspective that is ever mindful of risk management, I would like to call everyone’s attention to the fact that these same hopeful signs were on display in the autumn of 2007 and the spring of 2008.

The spring of 2009 may yet bring more upside for investors, but they should be mindful of the fact that when individuals, corporations, and even some countries all try to delever on a global basis, false springs are more the rule than the exception. After the 1929 crash, the Hoover administration spied similarly hopeful signs in the U.S. economy. “Recovery is just around the corner”, is first attributed to economist, Irving Fisher, but Team Hoover repeated this phrase and variations of it right up until he was crushed by the landslide election of FDR in 1932. It is true the U.S. economy in 2009 has yet to see the massive reversals suffered during the Great Depression, but the root causes of each period — easy monetary policy and an over-reliance on debt — are the same.

What’s different this time is that Mr. Bernanke and the successive Treasury Secretaries he’s teamed up with have long since ditched conventional policy responses. It’s been said, and I agree, that trying to foster sustained growth in an economy weighed down by too much debt is like trying to start a sustainable fire using wet logs. The matches and gasoline (some stimulus and a low funds rate) didn’t work on our debt-soaked economy, so Mr. Bernanke is resorting to the blowtorches and rocket fuel (a lot of stimulus and quantitative easing). I don’t know enough about the chemistry of combustion to accurately predict what will happen next. But my advice would be to stand well back and wait to see what happens next. I’ll risk being underinvested during this rally. Even if he’s successful, Mr. Bernanke might set fire to more than just the logs.”