Saturday, December 31, 2022

Wisdom of the Crowd - New Issues

1. Should countries screen travelers from China due to the covid outbreak?
2. Should a country enter into a long term contract for its energy needs?

Vote in

My positive view of the China government

Many people observed that I have a positive view about the government of China.

This is largely true.

But, I do not think that the government in China is perfect. There are negative aspects as well, but this probably applies to all governments.

I generally do not like to play up the negative aspect of any situation, unless it is systemic and cannot be changed.

I believe that the China government is working hard to improve the living standard and well being of the ordinary people, and they are doing it in an honest way.

They may have to adopt some harsh measures at times, but this is necessary to combat some forces that are intent on creating social disorder or to disrupt their progress.

On some occasions, they may have adopted the harsh measures wrongly. It may occur at the lower levels, due to the lack of experience of the officers. Mistakes are made. But they can be corrected.

I have less faith in other systems of governments which seek to enrich the elites and the super rich at the expense of the general population. They may claim to be "democratic" but I find them to be hypocritical and dishonest.

Tan Kin Lian

Introduce "common prosperity" in Singapore

I make these suggestions to introduce "common prosperity" in Singapore.
1. Provide an adequate wage for every worker that is sufficient to meet the cost of living. The wage should be guided by national statistics of the supply, demand and average wage for each job category. The wages should not be depressed by unrestricted entry of foreign workers from low cost countries.
2. Keep the cost of living low, by removing levies, GST and price gouging by suppliers.
3. Make education, health care and housing affordable to the average income earners.
4. Encourage people to save for the future and provide them with suitable non-speculative investments that offer a fair rate of return. They should get a better return than that offered by private banks or asset managers (who take off a large part of the returns).
5. Adjust the working hours according to the economic cycle to minimize unemployment and allow those who are unemployed to withdraw their retirement savings or access low cost government loans. This is in lieu of providing unemployment benefit.
6. Create suitable employment opportunities for every person who is fit to work until an advanced age, say 75 years. Allow the older workers to work for fewer hours and in non-strenuous jobs.
7. Manage the supply of housing to keep the prices in line with increase in median income, and avoid the excessive prices due to speculation.
8. Encourage a free market for small business, but keep large businesses under public ownership, e.g. energy, infrastructure, telecommunications, public transport, schools and hospitals. The capital cost can be funded by national savings and the operating cost by user fees.
9. Have a fair tax regime to collect tax on high incomes and luxury purchases.
I will elaborate more on this topic in separate articles
Tan Kin Lian 

Friday, December 30, 2022

Inequality dropped in 2022

How did it happen?

The collapse in the stock and crypto markets has wiped out $12 trillion of wealth. Divided by 8 billion people in the world, the average loss is $1,500 USD per person.

The top 1% own 43% of the global wealth. The same 1% will bear 43% of the $12 trillion loss. (I suspect that the loss of the top 1% will be more than 43%).

So, inequality will drop in 2022. But, it will still be quite bad.

Tan Kin Lian

WOTC - Blockchain technology

 Wisdom of the Crowd: 77 % of respondents said that the new crypto currency and blockchain technology is not useful, and has led to massive fraud.

How is e-CNY different from RMB?

China introduced the e-CNY as a central bank digital currency (CBDC). It has the same value as the RMB that is kept in bank accounts and e-wallets (e.g. AliPay and Wechat Pay).

Why does China introduced the e-CNY when they can promote the use of RMB, which is widely used as a digital payment.

I might have found the answer.

e-CNY is technically a different currency from the RMB. While it has the same value now, it may have a different value in the future.

What is the purpose?

The e-CNY is intended to be a currency for international trade. While it is being used domestically now, it is intended primarily to test the platform. Within China, the main form of digital payment will be the RMB in the e-wallets.

How can China promote the use of e-CNY for international trade?

1. For a start, China can ask its exporters to price its products in e-CNY, instead of USD or as an alternative to USD. The price in e-CNY may be slightly more attractive than USD, so that the buyers will opt to pay in e-CNY.

2. China will ask other countries to accept payment for their exports to China in e-CNY. This has already happened with the energy imports from Russia and the Middle East. This will be extended to other imports into China.

3. The exporters who receive the e-CNY can convert them into USD or keep them as e-CNY deposits. The China banks will offer interest on the e-CNY deposits that are as attractive as USD. This will encourage the foreigners to keep the money in e-CNY, instead of USD. They can use the e-CNY to pay for exports from China.

4. China may offer convertibility of e-CNY into gold. They do not need to offer 100% convertibility. A convertibility ratio of 20% would be attractive, as USD does not have any convertibility. This convertibility applies only to e-CNY and not RMB.

5. When the e-CNY becomes more attractive than RMB, the individuals and businesses in China may opt to convert their RMB into e-CNY. It is likely that China will set a limit on the amount of e-CNY that can be held by these individuals and businesses.

6. Some time in the future, the exchange rate between e-CNY and RMB may not be parity. It is possible that the e-CNY will have a higher value compared to RMB, as it is driven by supply and demand.

Some people think that China introduces the e-CNY to be able to track the payment made by individuals. I do not agree. If this is the intention, China already has the ability to track the digital payments that are now made through RMB payment platforms.

This is my personal opinion and forecast for the future trajectory of e-CNY. I will watch if it happens as I describe.

Tan Kin Lian

Thursday, December 29, 2022

Review of energy stocks

 Here are the financial fundamentals of the largest energy stocks - Saudi Aramco, Exxon Mobil, Chevron, Shell.

All four stocks have a dividend yield of about 3.5%. This is quite attractive.
Exxon Mobil and Chevron has a price earning ratio (PER) of 10 times. This is acceptable. Shell has a PER of 5 times. This is quite attractive. Aramco has a PER of about 18 times. This is somewhat high.
I will probably buy some shares of Shell, for the low PER and the dividend yield of 3.5%.
Tan Kin Lian
Note - this is a personal view. It is not "investment advice".

Price earning ratio and growth rate

 In this paper, I explain how a stock that has a high growth rate in revenue and earnings can justify a high price earning ratio (PER). I use Tesla stock as an example and why the price can recover to $250 in 2023.

WOTC - Reduce cost of living

 Wisdom of the Crowd: 83% of the respondents said that the best way to reduce the cost of living is to keep prices low through subsidy and removal of tax and levy, rather than to issue vouchers and give a cash subsidy to each family.

Wednesday, December 28, 2022

Review of stocks of car manufacturers

 I review the stocks of major car manufacturers - ICE and EV manufacturers.

WOTC - Temasek Holdings

 Wisdom of the Crowd: 67% of the respondents said that Temasek Holdings should not issue bonds to raise money for investments (speculation).

Tuesday, December 27, 2022

Crash of US dollar in 2023

 I expect the US dollar to crash in 2023 due to several factors and investors will rush to buy gold.

Review of my investment in Gold

 1. The following chart shows the gold price for the past 10 years. It was trading around $1,300 USD for several years up to mid 2019.It jumped by 50% to trade above $2,000 by mid 2020. It corrected to a low of $1,620 by mid 2022 and has since increased to $1,800.

2. Some analyst expected gold to increase in 2023 by 50%, perhaps to reach $2,700 or higher. The reasons are:

a) A recession in the US may cause interest rate to fall, and a rush to an alternative gold.
b) The central banks around the world increased their purchase of gold significantly during 2022.

3. I have $94,000 USD invested in Gold ETF (GLD) and a Barrick Gold (GOLD). It now shows a loss of $,500. I bought these stocks two years ago. At the worse point, I saw a loss of $30,000. It has reduced, with the recent recovery in the gold price.

4. I intend to invest another $100,000 USD in these assets.

This is a personal view. It is not investment advice.

Tech stocks lost $6 trillion in 2022

 I saw an article that reported tech stocks lost $6 trillion in 2022.

My rough estimate is that the tech stocks lost 33% in 2022, so the current value of the tech stocks is $12 trillion. I am not able to verify this figure.

I have this opinion.

Tech stocks were overvalued at the end of 2011. The price earning ratios of most of these stocks must be around 40 times. So, if the tech stocks dropped by 33%, the price earning ratio will, on average, be 26 times. This will still be too high.

The tech stocks did not lose its fundamental value. It lost a part of its bubble value. It is still overvalued.

The table below shows the largest tech stocks with a total market value of $8.8 trillion. The average PE ratio is 35 times.

If one looks at the high interest rate and a likely recession in 2023, the PE ratio is still too high.

The key point that I wish to make is this - we did not lose $6 trillion in market value in 2002 in the tech stocks. They were part of a bubble, and not the fundamental value of the stocks. The current market value is still too high. We may see a further drop in the market value, before it reaches its fundamental, long term value.

Tan Kin Lian

China stocks in 2023

 I have a large investment in China stocks. I monitor the China economy closely.

The China stocks were affected badly by the covid restrictions during 2022. Many of the stocks were undervalued. They are likely to do well when the China economy recovers. When will this happen?

China has now relaxed its covid restrictions and open up its economy. It is going through a large wave of covid infections. The western media reported that it caused a major breakdown of the health care system and large number of deaths.

From other sources, mostly from China but include some external sources, I conclude that the reports from the western media were grossly exaggerated and perhaps malicious.

The covid infections were indeed widespread, but the infections were mild. The virus had indeed spread rapidly through many parts of China, but many people have already been infected and recovered.

I expect that most people will no longer fear the virus and life will return to normal soon. The economy will recover faster than expected.

I will watch the China stocks to see if my assessment is correct.

Tan Kin Lian

WOTC - Digital payment platforms

 Wisdom of the Crowd: 88% of respondents said that there should be a single digital payment platform, or multiple platforms that are inter-operable.

Sunday, December 25, 2022

Liberalization of the retail electricity market

Singapore introduced liberalization of the retail electricity market on in November 2018. 

It allowed consumers to choose their retail supplier (from a list of approved suppliers) and to choose between fixed rate and floating rates for electricity. Those who do not wish to move to another supplier continues to pay the regulated rates charged by SP Services, which was the sole supplier prior to liberalization. 

At that time, the wholesale price of electricity had fallen by a lot. The regulated price remained much higher. Consumers who moved to an alternative retail supplier were able to get a discount of about 20% on the regulated rates. 

The water supply continued to be centralized under SP Services. The consumers, who changed their retail supplier, have to pay two bills. Most do.

Right from the start, I felt that the liberatization was a unnecessary, unproductive and costly exercise. The government could reduce the regulated rate (charged by SP Services by 20% to follow the wholesale rate). Instead, they chose to "liberalize" the retail market to allow consumers to enjoy the lower price. 

The retail suppliers obtained the electricity from the national grid. This was the same source as SP Services. They were not able to serve a purpose in finding a "more efficient" supply.

Each retail supplier had to incur a high cost to set up a separate operation, implement an accounting and billing system, arrange to collect the monthly payments, etc.  They also have to engage a team of marketeers to enroll customers. This was also another costly exercise.

I opted right at the start to choose one retail supplier to enjoy a discount on the regulated rate.

Over the course of the following months, I have been approached by the marketeers (working for the retail suppliers,  including the one that I had already chosen) to switch to them. They approached me at the shopping malls, bus interchanges and other public places.

It was a big hassle for me as a customer. It was also costly for the retail suppliers to pay their marketeers for their time and effort. 

Each consumer had to go through a complex exercise to figure out the different pricing plans offered by the retail suppliers, as the competition was based on small differences in the pricing plans.  They also had to judge the trajectory of energy prices to figure out if they would benefit from a fixed or flexible price contract.

I do not know how ordinary consumers can make a decision that have baffled energy traders coping with a volatile market. 

The retailers that charge lower rates were probably willing to accept a lower margin, or to incur an operating cost.

A year or two later, the wholesale price of electricity increased. The retail operators that offered a fixed price contract (fixed for 2 or 3 years) suffered a large loss. They decided to terminate their operations and leave the market. Their accounts were transferred to SP Services and the customers had to pay the regulated rates.

This was most unfair to the consumers. If the electricity price had dropped, they were forced to pay the fixed price agreed in the contract that they had signed. If the electricity price increased (as it had), they could not enjoy the fixed price, as the retail operators ceased to operate. 

The affected consumers where not compensated adequately for the loss that they suffered. It is a case of "head, the retail operator wins" and "tail, the consumer loses".

What would have been a better arrangement in November 2018? This is what it should be:

a) The government could reduce the regulated price by 20% to follow the wholesale market. There is no need to "liberalize the retail market" to lower the price. 

b) If the government wishes to give consumers the opportunity to enter a fixed price contract, they could have asked SP Services to provide this option. This would be a more efficient way for consumers to smooth out their energy bills and be protected from big fluctuations. Over the term of the 2 or 3 year contract, they were expected to pay the average cost, as it was not intended for them to be subsidized or exploited.

The above issues were obvious to me right from the start. I am surprised that the ministers in the government (who made and approved the decision to liberalize the retail market) could not see the ramifications of their decision. This appears to be quite common sense, and should e easily understood by ministers who are the top scholars of our education system. 

Tan Kin Lian

WOTC - Digital payment

 Wisdom of the Crowd: 54 % of respondents said that MAS should introduce digital payment if it is less costly and more convenient than cash. 46% prefer to keep to cash payment for familiarity and privacy.

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