Wednesday, September 23, 2015

Blaming others to cover inadequacy

Cyberspace is hot over whether Bank Negara Governor, Tan Sri Zeti Akhtar actually blamed 1MDB for the ringgit fall. Someone send us her video and it confirmed that she actually said it.

As a former currency trader used to follow statements of Central Bank Governors and Ministers of Finance of major economic powerhouses, her statement to implicate 1MDB was a pathetic excuse to cover her inability to manage and that led into a crisis. 

The words of a Central Bank Governor are usually loaded and have far reaching impact. It is a signal for upcoming monetary policy. In some countries, it is gives an insight into possible future budget and fiscal policies.

Currency traders and other financial market traders analyse their every words and nuances for hints of policies on interest rates and their assessment of existing monetary issues.

Unfortunately, Zeti's words on Ringgit means nothing.

Her assessment copy cats the simplistic assumptions made immediately upon the availability of information. In most cases, it is the twisted words of online media with vested interest.

Doubt that there was a study or availability of a model able to isolate sentiments on 1MDB, politics and bullish US dollar due to expectation of US interest rate rise.

There is hardly a study able to determine the right valuation of currency and meet real world expectation. The often used Purchasing Power Parity (PPP) is over rated and of no value. Let alone calculate the difference between right valuation against real market price to enable isolating factors like sentiment.

Zeti was buying-in into the words of people on the street at their convenient kopitiam and Starbuck. Gullible public subsequently bought her words.

Unlike a certain ex-currency trader not easily impressed with her pseudo British style of speaking from deep within her throat, the common instant mee maggi forex expert will resonate her repetition of some propagandist. 

As an economist, which spend much of her career doing countless numbers of regression and econometric analysis at Bank Negara training centre in Petaling Jaya and isolated from the application side of central banking operation, her training will not enable her to read and "quantify" market sentiment.

That was something traders could do to a limited short to medium term senario. The ability to do so is quite judgemental though there are attempts to mathematic-ise it. Good traders do have a certain ability to spot market behaviour and peculiarity.

The limitation is that their ability is merely for quickie. In-out, in-out, in-out and the end of the day, after the pluses and minuses, is net profit or loss. The ability is not applicable for policy making.

Since the words of a Central Bank Governor is keenly watched by traders for indication on policy, Zeti had not given any serious assessment but laying blame for her inability to do her work.

She failed to manage the Ringgit till it blew over into a crisis. Can't expect Dato Najib to also do that work already assigned to a Governor. Najib also is no Mahathir.

Returning to her statement on Astro Awani, she said Ringgit will recover when political issues including lMDB are answered. Can she be sure it will? Can she be held for those words?

Can Ringgit recover after a major fall that busted many major support levels and god knows, how messed up the Elliot Wave count and Fiboncacci numbers are with endless recounting?

The Ringgit could readjust itself had we stick to the practise in the 1960s to call it in English as Malaysian dollar. For national pride, the currency was later referred by the national language of Ringgit.

Along the way, it picked up the local habit. The Ringgit has a peculiar behaviour as the Malays. Often Malay are accused as having a feudel dependent mentality and partly being less economically endowed are dependent on subsidy and government help.

Just kidding, but it is more complicated and involved Petronas. The currency needed much nudging in the form of intervention and application of monetary policy tools accessible to Bank Negara Malaysia. It will not readjust by itself.

Unfortunately, Zeti's Monetarist religious sect will not allow for it.

She was too afraid to occur the wrath of the mighty guru Milton Friendman for messing with the market. Thou shall only ticker with money in circulation.

Friedman believe that gold standard inhibit growth in money supply. Fiat money and floating currency is a financial menace in today's economy.

During the financial crisis of 1998-2000, Zeti was part of think tank to monitor and ponder over solution at operational level in relation to the currency problem of the time. An insider accounted her involvement.

She was in a state of fright to take on the IMF and World Bank. Sensing her fear of going beyond her realm of academic understanding, someone had to comfort her, "No worry. All of us do not have the answer. We will think this together."

The someone is one of the loud critic of 1MDB and involved in making reports around the world.

Assuming there is more than meet the eye.

There is a believe that there is an unstated policy for a weaker Ringgit so as to make Malaysian exports more competitive and build up the reserve. Ringgit slide started two years ago with the concurrence of Bank Negara. Reserve had been on the up since the steep decline. 

Have not had time to check. But why would a Central Bank Governor act in a deceptive manner? She should have expressed it in policy statements. It would not have resulted in a pandemonium.

There is now in circulation facts highlighting the documents in Wall Street Journal expose of money going into Dato Najib's private account from abroad was fake.

But since Najib sort of indirectly admitted and discussion shifted to an Arab donor, what did Zeti do at the material time? Why had she not sounded the alarm and warned the Prime Minister?

Her credibility as regulator is at stake and she is blaming a ghost ...

Why is she afraid to reveal?

Oh yes, she said she will finish her 2 remaining 5 year extenstion. And now conveniently blaming others too ....

It is a cheap trick by Zeti as 1MDB replied:
1MDB is disappointed that Tan Sri Zeti appears to single out 1MDB for the current weakness of the Ringgit. This is despite the well-known fact that the Malaysian Ringgit is one of many currencies including the Norwegian Kroner, the Australian Dollar, the Russian Rouble and the Brazillian Real, for example, that have dropped in value mainly due to the abrupt fall in oil prices, expectations of rising US interest rates and concerns of economic slowdown in emerging markets.

We take this opportunity to highlight that the value of 1MDB's assets exceeds its debt. Furthermore, Tan Sri Zeti will be aware that 1MDB has consistently met, with no default, its interest service and principal repayment obligations, to both foreign and domestic lenders.
Her University-mate at University of Malaya and someone familiar with happening behind the Selective Currency Control policy of 1998-2000 sent a text:
"...congratulations kerana being able to remain calm during this turbulent time whilst others like Zeti prefer to pass blame on others..

"From the beginning close friend knows that the job is too heavy for her. She prefer to blame others when she failed to manage our forex ..."  
Maybe it is not long arm of the law outside the press conference room she is most afraid but the one  closely watching on her husband and son.

Her past accolade during peace time does not matter any more. She failed at the moment when it matters most and that is during combat to manage a crisis.


Anonymous said...

now now brick, what is this article doing? zeti is blaming X and you are blaming her? are you the pot that is calling the kettle black? at the end of the day, any tom dick and harry would know that 1mdb is exacerbating the problem. it has been making the rounds that the borrowings are guaranteed by the government. we need all the money we can muster up and this blackhole is making things messier. 1mdb's statement is laughable. technically and i mean TECHNICALLY they have never been late and have been able to honour their commitments. but we all know they barely did. had to shelve certain plots, had to ask for delay had to this had to that.

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Tebing Tinggi said...

A very simplistic analysis, at best.

How can the BN Governor be expected to catch a falling knife? By running down reserves to support the Ringgit?

Can the BN Governor call the government to task for running years of budget deficits and subsidies?

Can the BN Governor be blamed if the credit rating agencies look unsentimentally at the country's finances?

Can the BN Governor second-guess the intentions of the US Federal Reserve?

Let me remind you that back in 1965, the Ringgit and the Singapore Dollar were on par 1:1. Fast forward to September 2015 and where the SGD is against the MYR.

Blame that on the BN Governor too?

If you have hot money inflows coming to support the market and the inflows now reverse to outflows, what can the BN Governor do? Play the role of King Canute?

Being a forex trader is not the same as running a central bank. Or managing the nation's finances or helping to provide good stewardship of the economy.

If Malaysia is now in a "funk" politically, with consequential implications on the economy and the Ringgit, who is to be held accountable? The government of the day or the BN Governor?

I think therefore I am... said...

A nice article you have written here. However, I beg to differ even though I agree with you that no model could really explain sentiment, where most finance models depend on a sacred mother word of ‘ceteris paribus’, which helplessly makes up the assumptions of majority of finance models. Nor does any regression models could quantify what is going on and forecast what is going to happen. However, it is academically proven that during economic turmoil, market risk always gulps in anything bad and multiply the effect substantially. One easy example here is the 1MDB brouhaha, a company under the ministry of Finance, which is chaired by no one else but the prime minister of the country. What is seen here is a deafening alarm of highly questionable corporate governance. What matters most is, if the government could engage itself in a peculiar business practice and is trying to get away with it by taking questionable actions of shutting up the mouth of those investigating it, what more could be expected from the country.
Your words of Zetty making assessment upon availability of information (media), downplays the fact that she knows a lot about the whole situation but is bound by the regulations, restraining her from making any revelation at all. It is more like she is grousing about her helplessness in making things right and is giving hints that something has got to be done to rectify the problem. She also hints that she knows about the money trail by saying no transaction can be done with anybody (FATF) noticing it. By the way, do you think having 95 billion in the reserves grants her the ability to play up the market? Even if she did (as a matter of a fact BNM did try to intervene by hopelessly pouring a couple of billions down the drain, and at the same time reducing our reserves below 100B mark), the degree of uncertainty is very high indeed that no rational bank governor would dare to take that action. And I believe, she too believes that currency and capital control won’t work as apart from uncertain global scenarios, it is being compounded by our own major internal flaws too. We would become laughing stock for it and could become a historic example of shamefully bad corporate governance. Haven’t the advisors surrounding our pm ever heard that artificial propping of the market never work, especially by a puny nation with a puny reserves like us?
I don’t argue that any political leaders would do anything to capitalize himself for the sake of remaining in the position. However, capitalizing himself by selling the country to the dogs and at the same time having family members spending lavishly like nobody’s business, is something any sane rakyat would utmostly despise.

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Anonymous said...

Encik. Brick. Saya hadir pada forum dan sy rasa gabenor cakap secara general. Ringgit pulih kalau jelas hala tuju kadar feadah us, eko china pulih dan domestik isu selesai. Domestik isu yg jejaskam keyakinan dan political distortion adalah 1mdb. Semua tau itu.
Gabenor tidak dlm denial stance.

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Anonymous said...

If you create bad news and bad hallucination you'll get negative perception. She's doing not giving solution. She's as gomen technocrat should stay neutral and take side. All this with Khairuddin as the info career telling bad story have put negative perception about Malaysia. So impact on ringgit overshoot due to this other factor.

Ini bukan issue rakyat bodoh Ini issue rakyat di bodohkan.

A Voice said...

Thanks for the critics but some comments have to be removed as it is more insult that a fair comment. More so it sounded personal.

Policy is clear and it will be abide.

The comments made are only expected and predictable comments.

If only we could share with you all as to who is the close friend referred in "From the beginning close friend knows that the job is too heavy for her."

There is more happening behind her somewhat "cakap secara general" statement.

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