Moving to a higher plateau

AT YOUR SERVICE
By DATUK NICHOLAS S. ZEFFERYS

After three years, Pemudah, initially set up to make public delivery service more effective and efficient, now faces the same question it put to others. Has it been effective in effecting mindset change?

PEMUDAH (Government’s Special Task Force to Facilitate Business) has been in existence for over three years now. It is perhaps appropriate to review how and why it came about.


In his book, Business at the Speed of Thought, billionaire Bill Gates wrote that business would change more in the next decade than it had in the past 50 – and it has indeed. The speed of change requires all organisations to conduct an honest stocktaking, asking “How are we doing?” and then doing something about the gaps.


In the private sector, this usually comes in the form of continuous feedback from customers and investors. Failure to listen to feedback in the private sector leads to complacency and, ultimately, insolvency and bankruptcy.


In the public sector, feedback comes in the form of complaints from stakeholders and also the global ranking of countries. Failure to heed either leads to complacency and a slow, gradual decline in service delivery.


Once, when somebody asked him how he had gone bankrupt, a businessman replied. “Gradually, then suddenly.” It is in the nature of people and organisations to gradually fall into a pattern of complacency, particularly when things seem to be going well. Then, suddenly and inexplicably, they are shocked to find themselves hopelessly adrift.


Investment in Malaysia – both foreign and domestic – has been on a declining trend for over a decade. A reality check came from a World Bank report comparing countries on several measures. It showed that it was just too difficult to do business in Malaysia, which was ranked very poorly on nearly all components of the business life cycle processes.


Pemudah was formed on Feb 7, 2007, during Tun Abdullah Ahmad Badawi’s leadership. He wanted a customer-centric government that was world class in the delivery of government services. He had in his mind a new vehicle – drawing on the private sector to provide another lens through which to evaluate and transform government processes and procedures.


The Chief Secretary to the Govern­ment was appointed the Chair to the Taskforce. Abdullah conceived Pemudah as a public-private partnership (PPP) that went well beyond being a dialogue between the two. This was demonstrated by sharing its chairmanship with private sector leader Tan Sri Yong Poh Kon.


Pemudah’s goal was to vault Malaysia to the Top 10 in global competitiveness. The first official meeting was on Feb 23, 2007. The principle shared goal by all members in the public and private sectors was to “McDonaldise” government delivery. It was, among others, to ensure accountability, deadlines on action items, and question the need for burdensome rules designed to catch less than 1% of the abusers.


The Chief Secretary expressed the need for mindset changes and encouraged ministries and agencies to take proactive initiatives, even beyond what Pemudah may recommend or emphasise.


The private sector representatives expressed concern about flip-flops on decisions and the need to shake the bushes with stakeholders before the implementation of policy changes or new policies. Among others, they placed importance on Malaysian Investment Develop­ment Authority’s empowerment as a one-stop shop, enhancing the “rule of law” and a review of unnecessary procedures in order to speed up delivery. The mindset change was to transform processes to achieve transaction completions in days, rather than months.


Government and private sector processes came under the lens of both effectiveness and efficiency – “doing the right things right”. Nothing was sacred – neither entire organisations nor processes within or across ministries and sectors. The focus was not only on improving what was in place, but also defining new measures, processes, or Acts.


Indeed, when Prime Minister Datuk Seri Najib Tun Razak met with Pemudah, he expanded its role to cover not only business but other outcomes which affected the rak­yat.


Ultimately, sustainability of the transformation process requires a mindset change. The Pemudah model takes the public-private relationship beyond dialogues that are simply an often inconsequential airing of issues and gripes. It moves it to a higher plateau of shared responsibility for effecting change in the status quo. The private sector is invited to sit equally at the same table with government officials and the collective “team” is charged with the responsibility to improve Malay­sia’s positioning.


PPP collaboration has yielded not only measurable outcomes but it has perhaps, more importantly, yielded a change of mindsets. The public sector has moved from victims and functionals to energised and empowered leadership under the guidance of Pemudah co-chairs Tan Sri Sidek Hassan and Yong.


Of great pride to all Pemudah members is the recently conferred award to Tan Sri Hasmah Abdullah for her efforts in modernising and creating a customer-centric Inland Revenue Board, the modernisation of the judicial system and the creation of Commercial Courts, new guidelines on registering property and many others that Pemudah either directly or indirectly effected.


Pemudah is a work in progress and this PPP remains committed to continue to improve the government delivery system to serve the rakyat and all stakeholders in Malaysia.

God did not create the universe: Hawking

LONDON – God did not create the universe and the "Big Bang" was an inevitable consequence of the laws of physics, the eminent British theoretical physicist Stephen Hawking argues in a new book.

File photo shows Canada's Prime Minister Stephen Harper applauds beside British physicist Stephen Hawking (R) after making an announcement at the Perimeter Institute for Theoretical Physics in Waterloo July 6, 2010. [Agencies]

In "The Grand Design," co-authored with US physicist Leonard Mlodinow, Hawking says a new series of theories made a creator of the universe redundant, according to the Times newspaper which published extracts on Thursday.

Related readings: Stephen Hawking honored at NY science, arts gala Stephen Hawking 'very ill' - reports  Stephen Hawking to unveil strange new way to tell the time Stephen Hawking to divorce from second wife

"Because there is a law such as gravity, the universe can and will create itself from nothing. Spontaneous creation is the reason there is something rather than nothing, why the universe exists, why we exist," Hawking writes.

"It is not necessary to invoke God to light the blue touch paper and set the universe going."

Hawking, 68, who won global recognition with his 1988 book "A Brief History of Time," an account of the origins of the universe, is renowned for his work on black holes, cosmology and quantum gravity.

Since 1974, the scientist has worked on marrying the two cornerstones of modern physics - Albert Einstein's General Theory of Relativity, which concerns gravity and large-scale phenomena, and quantum theory, which covers subatomic particles.

His latest comments suggest he has broken away from previous views he has expressed on religion. Previously, he wrote that the laws of physics meant it was simply not necessary to believe that God had intervened in the Big Bang.

He wrote in A Brief History ... "If we discover a complete theory, it would be the ultimate triumph of human reason - for then we should know the mind of God."

In his latest book, he said the 1992 discovery of a planet orbiting another star other than the Sun helped deconstruct the view of the father of physics Isaac Newton that the universe could not have arisen out of chaos but was created by God.

"That makes the coincidences of our planetary conditions -- the single Sun, the lucky combination of Earth-Sun distance and solar mass, far less remarkable, and far less compelling evidence that the Earth was carefully designed just to please us human beings," he writes.

Hawking, who is only able to speak through a computer-generated voice synthesizer, has a neuro muscular dystrophy that has progressed over the years and left him almost completely paralyzed.

He began suffering the disease in his early 20s but went on to establish himself as one of the world's leading scientific authorities, and has also made guest appearances in "Star Trek" and the cartoons "Futurama" and "The Simpsons."

Last year he announced he was stepping down as Cambridge University's Lucasian Professor of Mathematics, a position once held by Newton and one he had held since 1979.

"The Grand Design" is due to go on sale next week.

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Link Between Everyday Stress and Obesity Strenthened With Study Using an Animal Model

ScienceDaily (Sep. 1, 2010) — Stress can take a daily toll on us that has broad physical and psychological implications. Science has long documented the effect of extreme stress, such as war, injury or traumatic grief on humans. Typically, such situations cause victims to decrease their food intake and body weight. Recent studies, however, tend to suggest that social stress--public speaking, tests, job and relationship pressures--may have the opposite effect--over-eating and weight gain. With the rise of obesity rates, science has increasingly focused on its causes and effects--including stress.

A recent study conducted by the Departments of Psychiatry and Biomedical Engineering at the University of Cincinnati College of Medicine, examined the effects of stress on the meal patterns and food intake of animals exposed to the equivalent of everyday stress on humans. The results suggest that, not only does stress have an impact on us in the short term, it can cause metabolic changes in the longer term that contribute to obesity.

The study was conducted by Susan J. Melhorn, Eric G. Krause, Karen A. Scott, Marie Mooney, Jeffrey D. Johnson, Stephen C. Woods and Randall R. Sakai at the University of Cincinnati College of Medicine, Cincinnati, OH. Their study was published in the American Journal of Physiology - Regulatory, Integrative and Comparative Physiology.

The Study

Previous studies have found that meal patterns (number, duration and size of meals) can affect metabolism. Studies of both humans and animals have shown that taking fewer and larger meals promotes the gain of fat mass and can increase triglycerides, lipids and cholesterol independent of total caloric intake. Conversely, weight gain--even while overeating--can be prevented by consuming smaller, more frequent meals. Whether social stress alters the microstructure of food intake, however, was unclear.

The current study used the visible burrow system (VBS), an animal model of chronic social stress, which has been shown to produce stress-associated behavioral, endocrine, physiological and neurochemical changes in animals. Long-Evans rats (90 days old) were individually housed for three weeks prior to the experiment. During this habituation time, they were briefly anesthetized and implanted with a unique subcutaneous microchip just behind their ears which allowed for identification and monitoring of feeding behavior. Meal pattern characteristics were measured for seven days during habituation. Data were calculated for each animal for each day and then averaged together to provide an overall habituation measure as a baseline for all of the conditions.

For the experiment, rats were formed into colonies, composed of four males and two females, and matched with a control group. Within a few days, all colonies formed a hierarchy which established the dominance of one male and the subordination of the other three males. Each colony had equal hours of light and darkness. Meal pattern characteristics were calculated for each animal on a daily basis. As documented by behavioral video analysis and microchip data, both subordinate and dominant rats reduced their initial food intake and body weight compared to the habituation period and as compared to the control group. After the hierarchy was stable, however, the dominant rats recovered their food intake relative to the control animals, while the subordinate rats continued to eat less by reducing their number of meals. Furthermore, although rats are nocturnal animals, the subordinate rats ate primarily during lighted periods, indicating a shift in circadian behavior.

The Result

After two weeks, the male rats were individually housed for a three-week recovery period and allowed to eat freely. Compared to the control group, both dominant and subordinate rats over- ate during the recovery period, but the dominant animals ate more frequently, while the subordinate animals ate larger meals, but less frequently. The dominant rats gained weight and lean mass, but only as comparable to the control group, while the subordinate rats gained significant fat in the visceral (belly) region. Throughout the recovery period, subordinate rats continued to overeat, eat longer meals and gain fat, suggesting long-term, deleterious metabolic changes.

Interestingly, the study results suggest that the signals controlling ingestive behavior become impaired or are overridden during social stress. Hypothalamic neuropeptide Y (NPY) is a well-known chemical messenger within the hypothalamus that stimulates food intake in times of negative energy balance, possibly by increasing meal size. In this case, NPY did not mediate the consumption patterns of the animals during the VBS period.

Conclusion

This is the first study of its kind to examine meal patterns in real-time during exposure to chronic social stress and during a subsequent recovery period, as well as to begin to evaluate the neuroendocrine and neurochemical underpinnings of the altered ingestive patterns observed. Stress and recovery induced changes in animals' body weight and composition and the alterations in meal patterns observed may have contributed to these physiological changes.

Stress is experienced by animals and humans on a daily basis and many individuals experience cycles of stress and recovery throughout the day. If, following stress, we consume larger and less frequent meals, the conditions are favorable for weight gain--especially in the abdomen. We know that belly fat, as well as stress, contributes to the development of cardiovascular disease, immune dysfunction and other metabolic disorders. Further studies using the VBS model will help us understand the relationship between stress and obesity and help us treat and prevent the development of these diseases.

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Brain Exercises Can Delay Mental Decline, But Then Watch Out

By Jeanna Bryner, LiveScience Managing Editor

Brain exercises may keep cognitive decline at bay longer, but once dementia hits it mysteriously seems to progress faster than if it hadn't been postponed, according to an ongoing study that began in 1993. 

"Our results suggest that the benefit of delaying the initial signs of cognitive decline may come at the cost of more rapid dementia progression later on, but the question is: Why does this happen?" said study researcher Robert S. Wilson, of the Rush University Medical Center in Chicago. 

Mentally stimulating activities, such as crossword puzzles and reading, seem to keep the brain functioning relatively normally for a while despite the buildup of the plaques and tangles in the brain that are linked with dementia. However, there seems to be a threshold, after which a person's brainy lifestyle can't hold off the outward signs of dementia, the researchers say. 

How often do you read?

 

For their study, Wilson and his colleagues enlisted 1,157 people, all at least 65 years old and with no signs of dementia, and then evaluated their mental activities over the years. 

At the study's start, participants indicated on a 5-point scale how often they participated in seven  activities: viewing television, listening to radio; reading newspapers; reading magazines; reading books; playing games like cards or doing puzzles; and going to museums. (A rating of 5 meant a person did some of these activities about every day; 3 meant several times a month; 1 meant once a year or less.) 

About every three years, clinical evaluations were used to determine signs of dementia, mild cognitive impairment and Alzheimer's disease. (Dementia is a decline in mental capabilities, especially memory, which is primarily caused by Alzheimer's disease but also can be the result of Parkinson's disease, stroke, or infections in the brain.) 

During the first six years of the study, the researchers determined the number of individuals who had developed mild cognitive impairment, Alzheimer's, or no cognitive impairment. Then, they followed them for another six years and found that the rate of inevitable decline in those people still without cognitive impairment was reduced by 52 percent each subsequent year for each point they scored on the cognitive activity scale. 

But, perhaps surprisingly, for people who had developed Alzheimer's disease at the first six-year point (which accounted for about 90 percent of the dementia diagnoses), the average rate of decline per year actually increased by 42 percent for each point they scored on the cognitive activity scale. 

"Actually, the person with a cognitively active lifestyle has more severe disease than it appears when dementia is first diagnosed, and they decline more rapidly thereafter," Wilson said. 

 

Why reading delays brain decline

 

"There's been a long debate as to why people with a cognitively active lifestyle are less likely to experience cognitive decline," Wilson told LiveScience. One idea is that keeping the brain active protects against the decline, while another school of thought proposes that people who are less cognitively active are really showing early signs of the disease (and so decreasing cognitive activity is just a consequence of cognitive decline). In fact, past research has suggested people who have healthier brains are more likely to read and practice other mind-enhancing activities. 

The longitudinal study — meaning one in which participants are followed over time — is part of the Chicago Health and Aging Project, focusing on risk factors for Alzheimer's disease in four Chicago neighborhoods. 

The latest findings suggest the protective effect may be at work. Essentially, the plaques and tangles are still forming on the brain, but people who stay cognitively active don't show signs of those brain plaques until later.

The researchers aren't sure what's going on in the brain to keep decline at bay for cognitively active people. But past brain-imaging studies offer clues. 

One study over a three-year period of German medical students cramming for a sort of final exams found that their brains' hippocampus and neocortex had grown, Wilson said. Another study, focusing on jugglers, revealed corresponding changes in the parts of the brain devoted to juggling. 

The size increase in various brain regions means that some people will have an extra buffer for the cognitive decline that inevitably comes with age. Or as Wilson puts it, the beefed-up brain regions give you "a little more mileage out of what you have." 

Keeping your mind sharp

 

It's not too late for those who are creeping into old age to ward off the onset of mental deterioration, Wilson said. [Play brain-training games.] 

Wilson wouldn't recommend just mindless crossword puzzling; clues from neuro-imaging studies suggest the activities that make a difference in brain-boosting are the ones practiced regularly and intensively. 

"They need to be challenging activities and also intriguing or fun to the individual," Wilson said. He added:  "Any activity that involves reading is a good place to start." 

The study, supported by the National Institute on Aging and the National Institute of Environmental Health Sciences, was published online Sept. 1 in the journal Neurology.

• 7 Ways the Mind and Body Change With Age
• 10 Ways to Keep Your Mind Sharp
• Top 10 Mysteries of the Mind 

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Bank Loan Price War, Banks to try to prevent speculation on property prices, Possible mortgage cap on property not a concern

There may be a price war to give out cheaper bank loans

By TEE LIN SAY
linsay@thestar.com.my

KUALA LUMPUR: There may be a new round of price war among banks for consumer loans, with the new mortgage rate going down to as low as base lending rate (BLR) -2.3%. The current BLR rate is 6.3%.
Some analysts said this comes as a surprise to the market after a mutual understanding was reached earlier to set a minimum rate of BLR-1.9%.

The new mortgage rate is now down to BLR-2.2% since end-July and some banks have started offering BLR-2.3%.

A home loan officer from CIMB Bank Bhd told StarBiz that housing loans have been revised downwards.

Which one shall I take? So many choices! Can't believe it.

 

“Previously we were offering BLR-1.9%. Now, we are revising the rate to BLR-2.1%. We had been losing some market share to foreign banks and decided to join in the price war,” he said.

The BLR is a minimum interest rate calculated by banking institutions based on a formula which takes into account the institutions’ cost of funds and other administrative costs. The BLR is measured against the overnight policy rate (OPR). This year, Bank Negara has raised the OPR by 75 basis points in three rounds of rate hikes points to 2.75%.

This means that the BLR also goes up by 75 basis points to 6.3% currently. The BLR is one of the major components used by banks to determine the pricing of home loans.

StarBiz called up the customer service departments of some of the major banks for verification. While rates change depending on the mortgage taken, some banks have become very aggressive in their rates.

It appears that CIMB’s rate is now BLR-2.1%, Hong Leong Bank Bhd is BLR-2.3%, OCBC Bank (M) Bhd is BLR-2.3% and UOB Bank is BLR-2.3%.

While the website of Malayan Banking Bhd shows that it is offering BLR-1.8%, one of its home loans officers contacted said it could offer up to BLR-2.2% depending on the loan taken.

“The price war has also spilled over to credit cards, with offers to absorb the government annual service tax. This was previously borne by card holders,” said an analyst from UOB KayHian.

The analyst added that the start of government infrastructure projects and robust property launches would drive business loan demand in the second half, in time to mitigate the impact from slower external trade.
Business loan is now 44.7% of total loans as at end of July 2010.

Property brokers agree that the outlook for the property sector has been improving.
Zerin Properties CEO Previndran Singh has a “neutral to positive” outlook on the property sector in Malaysia.

“Prices are not moving up as fast, but interest is returning. Yes, there are issues of products being mismatched, but they are not big issues,” he said.

A real estate agent from Reapfield Properties Sdn Bhd said interest in Malaysian property was moderate. People were adopting the “wait and see” attitude because of the rising interest-rate environment.

However, she said there was “lots of interest in our properties below RM2mil”. There was less movement among the higher end homes.

She added that her client list included foreigners from Singapore who were keen to invest in Malaysia due to its affordability.

The UOB analyst said banks’ net interest margin was expected to trend up again after Bank Negara made another 25 basis points hike to the overnight policy rate on July 8. Average lending rate inched up to 5.19% in July from 5.05% in June.

This impact might be offset by the new round of price war among banks for consumer loans.

Loan growth fell from 12.5% in June to 11.9% in July due to higher repayment by the real estate and finance sectors. Consumer loans remained the driver on resilient demand for big-ticket items.

The banking system’s capitalisation remained strong with risk-weighted capital ratio and core capital ratio sustained at 15.1% and 13.2% respectively.

The level of non-performing loans including impaired loans remained stable, accounting for 2.1% of net loans. Loan loss coverage was stable at above 90%.

Banks to try and prevent speculation on property prices

By ANGIE NG and SHARIDAN M. ALI
starbiz@thestar.com.my

PETALING JAYA: Bank Negara is engaging with banks on possible measures to curb excessive speculation on property prices while developers caution that it should not be imposed across the board to avoid dampening the property market.

Responding to queries on whether the central bank will be imposing a 80% loan-to-value ratio (LVR) for mortgages to avert the risk of a potential property bubble, the central bank said: “Bank Negara regularly engages with industry players as part of its surveillance and supervisory activity. The engagements cover a broad range of issues and areas that relate to developments on the ground, safety and soundness of the institutions and the overall system.”

Datuk Michael Yam ... 

‘Bank Negara should not impose a mandatory LVR cap on loans.’

 

It added that to ensure prudent management of credit risk in the banks’ balance sheets, the central bank regularly engages with the industry on developments in the underwriting and selling practices of financial institutions.

The share of housing loans to total loans is about 26%, according to the central bank.

When contacted, banking industry players said it was likely that any measures to be introduced would be pre-emptive measures to target certain quarters of purchasers and would not be across the board.

The measures are believed to be targeted at the high-end and non-owner occupied house purchasers.
Currently Bank Negara does not impose any standard policy on mortgage loans but leave it to the banks to manage.

But following a rise of between 10% and 30% in the prices of landed houses in some parts of the Klang Valley (including Kuala Lumpur) and Penang in the past one year, banking sources said Bank Negara might be looking at discontinuing the 5:95 and 10:90 housing loan packages, and preferred banks to impose higher downpayment for property purchasers.

Tan Sri Leong Hoy Kum ... ‘We hope that any implementation of the 80% loan to value ratio will take into proper consideration the industry’s feedback and current market conditions.'

The bank sources concurred that over the longer term, there must be the flexibility to allow more relaxed loan quantum if the market needs it, especially if there is a recession.

OCBC Bank (Malaysia) Bhd head of secured lending Thoo Mee Ling said part of the rationale for the 80% LVR for mortgages could be to curb speculative property prices in the market currently.

“If it is implemented, home buyers will have to self-finance a higher amount than they do now. In the short term, coupled with entry costs such as legal, stamp and valuation fees, the property market will take a dive and it will subsequently dampen the mortgage business.

“In the long term, the measure would curb speculative property buying and promote a healthier property market. Therefore, both the banks and property market will become more resilient to any potential crisis,” she said.

Datuk Michael Yam, the president of Real Estate and Housing Developers’ Association Malaysia (Rehda), said Bank Negara should not impose a mandatory LVR cap on mortgage loans at this juncture as it would dampen buying sentiment with spillover effects on other related industries such as construction and building materials suppliers.

“The local banking industry is well regulated and banks are very prudent and stringent in their credit assessment of borrowers. Banks have, on their own initiative, cut down loan margins to borrowers and only those who are credible and can afford to repay their loans will be offered a higher loan margin.
“Banks also are very selective of what projects they extend loans to.”

Caution and prudence should be exercised when considering any measure for mortgage loans, said Yam, adding that it should not be across the board.

“It is better to leave it to market forces to decide as the banks’ stringent lending criteria is enough to ensure the quality of loans in the market,” he added.

Yam said that up to 90% of the country’s population are living in affordable houses priced below RM250,000, and the current low downpayment for property purchases has promoted home ownership among the lower to middle income group.

Mah Sing Group Bhd group managing director cum chief executive Tan Sri Leong Hoy Kum said a conducive financing environment was important to support the property industry, which was a significant engine of growth for the economy.

“We hope that any implementation of the 80% loan to value ratio will take into proper consideration the industry’s feedback and current market conditions.”

Leong said there was no property bubble at this juncture “as property price increases have not been across the board.”

“The properties which have been enjoying price appreciation are those with good concepts by branded developers, and sited in good locations.

“One must also take into account the construction cost, and also increasing price of good land in considering the prices of properties, which have gone up by 10% to 25% in the past 1½ years,” Leong added.

Possible mortgage cap on property not a concern

By TEE LIN SAY
linsay@thestar.com.my

Buoyant consumer sentiment, demand for good locations seen supporting property purchases, say analysts

KUALA LUMPUR: Preemptive measures to curb purchases in certain property segments may yield temporary results as buoyant consumer sentiment and demand for good locations are expected to sustain.

Property analysts said there could be a short-term knee-jerk reaction to Bank Negara’s possible imposition of an 80% loan-to-value ratio (LVR) for mortgages to avert the risk of a potential property bubble.

CIMB research head Terence Wong is not overly concerned over such moves, pointing out that the previous imposition of a 5% real property gains tax last October had only resulted in a short-term cooling of demand.

“This will be effective in cooling down the market for a few months. People will step back and pay more attention to the launches and product offerings instead of simply jumping onto the bandwagon,” he said.

Wong, however, feels that the measure should not be imposed across the board. It should be applied to landed homes rather than condominiums, as it is mainly the prices of landed properties that have gone up extremely fast.

On the other hand, price increases for high-rise condominiums and apartments have been relatively subdued due to an oversupply situation.

“We know there is a finite supply of land in the Klang Valley. Everybody wants his own plot of garden. So logically, that is why prices of landed properties are going up. In that sense, this potential move (to curb certain property loans) is not a serious concern,” said Wong.

Analysts are not surprised by the possibility of a cap on the LVR as the prices of selected properties in prime locations in the Klang Valley have shot up in recent months due to a combination of factors including pent-up demand and speculation.

Bank Negara is currently exploring this measure to reduce excessive speculation and prevent the housing market from overheating as the economy recovers amidst a low interest rate environment.

Developers have enjoyed record sales this year and in some instances, sales have been so strong that some developers have the luxury of slowing down their launches.

NewAsia Capital associate director Sherilyn Foong agreed that the possible measures would, to an extent, cool down speculation in the property sector.

In Foong’s view, these potential measures could affect the take-up rates, especially among the higher value primary transactions which have benefited from innovative financing schemes.

“Pending more details, if the cap is only imposed on higher value transactions of say, RM1mil and above, the lower-middle range should, technically, not be affected.

“This is unless the entire sector turns bearish against the sentiment induced by sector-specific measures such as impositions of capital gains tax,” she said.

Credit Suisse research head Tan Ting Min, in her report on Tuesday, said capping the LVR at 80% would put a dent on the Malaysia property sector and dampen sentiment in the near term.

“The cap on LVR will indirectly reduce affordability and may cool demand in the mass market and mid- to high-end segments.

“We may also see some downtrading as affordability will be determined by the higher 20% equity upfront requirement.”

In the longer term, Tan views the preemptive role taken by Bank Negara as positive.

“It is critical in ensuring the sustainability of the Malaysia property market and reducing the risk of a major ‘shock’ to the sector should the economy slow or interest rates rise,” she said.

In the region, similar moves have been made to cool the property market over the past 12 months.

Singapore announced another round of cooling measures on Monday, including lowering the LVR to 70% for buyers with one or more outstanding loans, from 80% previously.

Broadband pricing in US and Europe falls

Broadband pricing in Europe and the US fell €5 a month, on average, as broadband speeds went up by an average of 20 per cent during the last year, says researcher Analysys Mason. This is after a relatively flat period during the past recession, when prices held up.

Now the average price paid for a fixed broadband service bundle, which includes any single service or double and triple play bundles, has come down to €40.7 a month. Analysys Mason says that it tracks over 1000 fixed broadband-based bundles in Europe and the USA to track this pricing. Our guess is that this tracking is done on web sites and that these are published prices. In the US, cablecos are well known for using call centers to match rival pricing, going below published prices, so the real number may be far lower.

Martin Scott, Senior Analyst at Analysys Mason said, “Almost 20% of the tariffs we tracked during the second quarter of 2010 offered down- stream bandwidths of 30Mbps or greater although the proportion of subscribers that actually take these ultra-fast services is likely to be much lower than 20%. Consequently, the average price per Mbps per month has declined from €7.5 in the fourth quarter of 2009 to just €5.8 in the second quarter.” Competition from mobile broadband services contributed to the downward pressure on fixed broadband tariffs, the company said.

But it also warns that the premium which cellular providers charge for mobile broadband services is also eroding. Prepaid mobile broad- band services with usage caps of 3GB or more now undercut entry- level fixed broadband propositions.

Over a six-month period the median price of fixed broadband services, excluding voice and TV services – fell €25.9 a month. When all service bundles are included, it was €40.7, down from €45.8 six months ago.


Copyright © 2010, Faultline
Faultline is published by Rethink Research, a London-based publishing and consulting firm. This weekly newsletter is an assessment of the impact of the week's events in the world of digital media. Faultline is where media meets technology.

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Mathematicians Create Objective Quality of Life Index

The US comes second in a new quality of life index designed to be mathematically objective

 

Here's a thorny problem: to develop an objective way to rank countries according to the quality of life they offer their citizens.

There are various ways of approaching this problem. For example, the Economist Intelligence Unit compiles its quality of life index using surveys, a useful technique but one that is hard to show is objective. Another widely quoted index, the Life Quality Index is based on life expectancy at birth and the gross domestic product per person but is only able to rank countries by applying a correction factor for each country that some critics say is open to bias.

Is there another way? Andrei Zinovyev at the Institut Curie in Paris and Alexander Gorban at the University of Leicester in the UK think so, using a mathematical technique developed in the mid-90s that can cut through this kind of problem .

They chose several widely-measured and well-studied indices on which to base their index: GDP per capita, life expectancy at birth, infant mortality rate and the incidence of tuberculosis. This data from 2005 is available for 162 countries.

Zinovyev and Gorban then plot this data in four-dimensional space. To create a ranking, the important question is whether there is a linear function that reduces this four-dimensional dataset to a one-dimensional set. Unsurprisingly, the answer turns out to be no. "Any linear mapping will inevitably give strong distortions in one or other region of data space," they say. That's what makes this problem tricky.

However, in the mid-90s a group of mathematicians devised a technique for reducing the dimensionality of complex data sets. This technique is essentially equivalent to connecting various data points together with springs and allowing the system to relax; hence it's name: elastic mapping. The trick is to find an arrangement of springs that "flattens" the data set, or in other words, reduces its dimensionality.

And that's basically what Zinovyev and Gorban have done, creating what they call the Nonlinear Quality of Life Index in the process.

Here are the top and bottom 5 from 2005:
1. Luxembourg
2. USA
3. Norway
4. Ireland
5. Iceland
.
.
.
158. Zambia
159. Mozambique
160. Zimbabwe
161. Kenya
162. Swaziland

No real surprises there, although there are some interesting features of the list. For example Equatorial Guinea is ranked at 140 although its GDP per capita is more than Saudi Arabia's ranked at 37. That's because of Equatorial Guinea's appalling health statistics: 123 infant mortalities per 10,000 inhabitants, for example, compared to 21 in Saudi Arabia.

For similar reasons, Russia is ranked 71st despite having a GDP per capita that is significantly higher than other countries with a similar ranking.

Every list throws ups anomalies like this. The important point about this one is that it is done objectively and transparently.

That's important because these kinds of indices are widely used by economists and politicians as a measure of economic and social development and so used to determine spending polices and legislation.
Objectivity is hard to come by when making these kinds of decisions. If the people who matter would agree to use it, this index could help.

Ref: arxiv.org/abs/1008.4063: Nonlinear Quality of Life Index


Source: Technology Review
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Threat of a double-dip deflation

What’s happening in the US, euro zone and Japan points to a hard slog ahead.

MORE than a year ago (on May 9) I wrote in this column – “Deflation is not an option”, worried as the world was then of the possible coming to pass of the worse-case scenario, and that “the brutal truth is, less-worse is not recovery. The world is not out of the woods yet …”

But by late September, things had begun to brighten up. The Pittsburgh G-20 Summit pronounced triumphantly that the vast global stimuli “had worked” – indeed, it rescued the world from the knife’s edge of the most severe recession since the Great “D”.

What a difference a year makes. In May this year, I wrote “PIIGS can’t fly: the Greek tragedy”, brought about by Greece’s insolvency spreading ripple effects all over the euro zone. Overall, the Greece debacle casts a long shadow over market sentiment which has since become dormant, as of now. But many risks still remain.

Double-dip talk amidst unusual uncertainty

It is amazing how fast things do change. My column in mid-June –“In for a bumpy ride: perhaps even a double-dip?” reflected the fragility of the evolving situation. In the face of a weakening economy, premature tightening raises the risk of a relapse into recession.

Markets have since moved with greater volatility, essentially nervous about fiscal deterioration in US and many euro zone nations, and a darkening growth outlook outside Germany. Any upheaval there raises further the risk of a double-dip.

Indeed, Wall Street has since become increasingly convinced fiscal tightening by UK and euro zone nations and recent lack of confidence in US have dramatically shifted global macroeconomics for the worse. I hear many leading fund managers are already acting to re-position their funds for a double-dip recession – just in case. Some have even started to aggressively de-risk their portfolios.

How real is the risk of a double-dip? For sure, recovery has lost momentum. Second quarter (Q2) GDP growth in the US is lacklustre at 2.4% annual pace, down from 3.7% in Q1, and below expectations. Key components exports and consumption contributed less to growth than in Q1.

In the 12 months since the onset of recession, the economy grew just 2.3%. In contrast, during the equivalent period after the ’81-’82 recession, output rose 5.6%. It is clear the initial boost to demand from inventory build-up has faded.

The housing bust still casts a long shadow. US home sales fell 27.2% in July to a 15-year low. Households are saving more to work off debts. Worse, firms fearful of the future are preferring to squeeze yet more output from existing employees.

So, unemployment is stuck at 9.5%, even though US corporates are flush with cash. Yet, bank credit is scarce. Bankers have turned risk-adverse. All these stand in the way of a wholesome recovery. Little wonder businesses are reluctant to hire with such “unusual uncertainty” as Fed chairman Bernanke puts it.

No doubt, the risk of double-dip has since increased. So much so the Fed recently made a U-turn to counter a weakening US recovery by resuming quantitative easing (dubbed QE2) through re-investing cash from nearly US$1.3 trillion of maturing mortgage-linked debt.

By buying new debt, the Fed pushes bond prices up and long-term interest rates down (since bond yields move inversely to prices). This way, it increases money supply and stimulates growth as credit eases. The message to the market is clear - the Fed will do everything and anything to put a back-stop on the risk of a double-dip!

But, as Professor N. Roubini aptly describes it, “whatever letter of the alphabet the US economic performance ultimately resembles, what is coming will feel like a recession.”

According to Prof M. Boskin of Stanford, double-dip downturns are technically more the rule than the exception. The US ’01 recession was one brief, mild double-dip. Within the current recession, there is already a “double-dip”: a dip at the start of ’08, some growth, another long deep dip, then renewed growth.
Another dip is still possible – it will represent a triple-dip. But not yet an outright second recession which is what most are concerned. In Europe, in the early ‘80s, UK, Japan, Germany and Italy all had double-dips.

History suggests economies seldom grow out of recessions continuously, without occasional subsequent falls. Dips – double, triple and even quadruple – have been part of the US recessionary experience since WWII. So, it should not be surprising to see another decline in growth before sustained stronger growth emerges.

I note the Fed has become concerned over the long time it will take the US to achieve full recovery (and restore the eight million odd jobs lost since the onset of recession) as economic growth turned more sluggish. In addition, the downside risk of a double-dip recession and a deflationary spiral has since increased. Fears of deflation on the back of a still faltering inflation and worries about the return of recession is now flavour of the month.

Deflation is poorly understood

What is deflation? Why worry about it? Deflation refers to persistent and sustained falls in prices. It is usually associated with the Great Depression and its cause – a sharp drop in demand. With it, incomes, consumer prices and asset prices fall. Interest rates move towards zero.

But the cost to borrowers in servicing doesn’t fall, sucking live out of the economy and pushing prices further down. This bad situation gets worse. In 1932, US consumer prices fell 10%; between ’29 and ’33, they fell 27%.

The most recent experience is in Japan but it pales in comparison. Rather than being deep, destructive and concentrated in a few years, Japanese deflation is a mild, drawn-out affair. Consumer prices faltered for 15 years, but never by more than 2% a year. It has been a morass but not a destructive downward spiral.

Why? Economics don’t have a way to rationalise steady multi-year flat deflation. Japan remains a puzzle because its problems persisted for so long. Some turn to the psychology of households and businesses for the answer – if people believe prices will fall, they act to create the environment that becomes self-fulfilling.
Government plays a role through intervention to keep the economy from going through the floor. Other explanations include consumers who are aging and thus, more inclined to save for old age instead of spend.

But deflation is not all bad. For some, falling prices are good because incomes and assets can buy more. Such “good deflation” occurred in US in 1870-95 in the face of strong economic growth, during a period of rising productivity and technological innovation.

Falling electronic goods prices are a modern-day example of good deflation. However, deflation has its bad side – falling prices are associated with falling wages, rising unemployment and falling asset prices. In the US in the ‘30s and more recently in Japan, deflation reflected economic collapse and rising unemployment made worse by high debt and falling asset prices. This delays spending and weakens economic activity.

In today’s environment of high household and public debt, deflation raises the real value of debt in the face of falling asset prices and declining incomes and public revenues. To the extent households and government attempt to reduce their debt burden by cutting spending and selling assets, a “debt deflation” spiral can set in, and so will a double-dip recession.

With “core” inflation (i.e. excluding fuel and food) now below 1% in the US, euro zone and Japan and headline inflation falling again, it is little wonder deflation worries have re-surfaced. The key to inflation outlook lies in capacity utilisation.

Historically, inflation falls or remains weak when business capacity utilisation is well below normal (as in ’08-09 recession). The bottomline is simple: as long as recovery in the US, euro zone and Japan remains anaemic and excess capacity in industry and labour markets remains high, inflation will likely fall further.

If major developed nations return to recession, the risk of deflation will rise. As a general rule, deflation favours cash and government bonds over equities, property and corporate bonds, as well as defensive shares like utility stocks. It’s now clear more aggressive QE2 and sticky service prices are being relied upon to break the back of possible sustained deflation. But with oodles of global spare capacity, I see risks favouring deflation rather than a return bout of inflation.

Concern but not panic

Make no mistake, the threat of deflation is taken seriously on Wall Street. Bond fund heavyweights like El-Erien (who manages US$1 trillion plus in assets) bet US has a 25% chance of falling into deflation. Put it this way: if I told you that my kid has chicken pox and there is a 1 in 4 chance of passing it on, would you allow your kid to come over and play?

To many, the US faces a serious risk of falling into deflation. As slowdown takes hold, consumer prices fell 0.1% in June after falling 0.2% the month before. Growing increasingly wary of deflation (which eats into corporate profits and raises real borrowing costs), many fund managers are prompted to hedge against stock falls, while buying interest-bearing assets.Indeed, it has altered behaviour by encouraging firms to accumulate cash, unthinkable a year ago. Investors pile onto public bonds where fixed interest payments provide good returns when prices and stocks are falling. Investors are positioned well ahead of the Fed.

This surge in bonds has pushed yields to multi-year lows. Ten-year US Treasuries yield dropped to a 20-month low of 2.418% in late August, while its 2-year yield marked an all time low of 0.498%. I think there is still room down; yields are still too high. After all, the yield on 10-year Treasuries is still 1.7 percentage points higher than the Japanese. In euro zone (considered to be more prone to deflation than the US) the gap is still 1.5 percentage points. As I see it, bond investors are slow to catch on, as Japanese were when deflation began. Since late 1992, average Japanese inflation was negative 0.1%, but it took six years for yields on 10-year bonds to move from 5% to less than 2%. Today, it’s 0.9%. The question remains: are US bonds selling at too high a price? Only time will tell.

Biflation

The risk of deflation varies between regions. Japan is already in deflation. The risk is highest in the euro zone because recent fiscal tightening and hard-line approach to monetary easing imply rising risk of a faltering economy. In contrast big nations in Asia (notably China and India) have had strong growth with less spare capacity, and hence higher inflation; the risk of deflation is much less.

That’s the real world where biflation exists, i.e. where deflation and inflation co-exist in different parts of the world. It even exists in different parts of the same economy: rising prices for globally traded commodities and falling prices for homes and autos bought with credit domestically.

As I see it, the anxiety about a double-dip deflation is well founded. The Fed has sent the right signal – one of concern but not panic. It is unclear more stimulus will create more jobs, suggesting unemployment may have deeper roots. What’s happening in the US, euro zone and Japan point to a hard slog ahead. Asia seems able to hold itself. But clearly, its ability to decouple from the developed world has still to be fully tested. Much interdependency remains.

Yet, not so long ago, the US was confidently moving forward and the euro zone the laggard. The dollar was riding high as investors fled from Euro’s debt crisis. Within months, the roles were reversed, with Asia still squeezed in the middle – but confident and kicking. This underlines the critical point for public policy: the economic fortunes of the US, Europe and Asia are as tightly bound as ever.

B the Former banker, Dr Lin is a Harvard educated economist and a British Chartered Scientist who now spends time writing, teaching & promoting the public interest. Feedback is most welcome; email:
starbizweek@thestar.com.my.