I have concluded that my IQ cannot be too high.
I cannot rejoice when countries are going bankrupt and bring myself to buy equity till I read this.
And of course it all flows back to China, the factory of the world.
How do central banks work ?
Since the GFC, the role of central banking has evolved, from just overseeing the smooth functioning of money supply, managing growth and tackling inflation, to a financial system comptroller. They set their policies to balance growth and inflation.
Bank of Japan now setting inflation target of 2% and the FED setting unemployment target of 6.6 % ? The rest of Asia now content to settle for pro growth monetary policies at the expense of inflation.
What is this inflation we are talking about ?
Well, the truth is, NOBODY KNOWS. Why is Singapore wrestling with inflation when Japan has too little of it ? And now the UK is substituting champagne with white rum for their inflation basket.
I got bored and started to examine the components of some CPI baskets and I was in for a shock.
Hong Kong’s CPI basket is weird. They calculate based on 3 categories of households; relatively low (60%), medium(30%) and relatively high(10%) expenditure ranges, based off 2004.
Items in Hong Kong’s basket
Away from Home
Ex. Away from Home
Alcohol & Tobacco
Clothing & Footwear
Singapore’s basket based off 2009-2010
All less Accommodation
I heard they even threw in lasik surgery to bring the CPI down, unverified.
The more I read about the topic of inflation, the more confused I become.
Inflation is too much money chasing too few goods.
Why are prices falling in Japan and rising here ? Their currency is weakening rapidly and yet Feb CPI was -0.9%, utilities up 3.8% (because imported fuel cost 10% more due to the JPY weakness) but food prices down 7.4%.
I have a theory its about the population.
Japan’s population has not changed in the decade, I would not call 127.1 mio to 127.8 mio, a discernible change.
Singapore’s population was 3.9 mio a decade and a half ago, it is 5.5 mio now, which makes it almost a 50% increase. I threw in Hong Kong for comparison’s sake because Hong Kong suffers similar issues with Singapore.
It just struck me that if Singapore had not allowed its currency to appreciate to dampen the impact of the population explosion, things would be a whole lot more expensive now.
I am not a trained economist and so the following could sound a little half baked.
It is also the cost of housing and the proliferation of REITS.
When housing prices go up, expected rentals go up to give the return on assets (only works on a growing population). When asset prices go up, the tendency is to securitise them via a REIT to maximise returns. When a REIT takes over, the rental yield goes up because they monopolise the assets and tend to favour the big chains which is why there is a Body Shop in every single Capitamall all the way to China. Body Shop gets bulk discount, ABC Cake Shop – no.
Price of rent gets imputed into retail prices, all the way from contact lenses to washing machines. I have been informed by some businesses that rental and labour takes up more than 60% of their gross income. So keep hiking the prices.
Is this bad ? No. It is a sign of a healthy economy. Japan would say because they are doing their jolly best to get prices up. It is hard even though they have just pumped up the stock market by over 17% this year, creating wealth and monetising bonds by buying them back. But no one is spending.
I think that is about all they can do before citizens start throwing rocks at them for the 3.8% per month rise in fuel costs. Now they realise its all about immigration, to take a page off Singapore’s manual.
From confusion to exasperation. I have given up trying to keep up with the new normal of central banking. Dylan Grice, a former strategist now hedge funder, spared no formality in un-appreciating the latest central bank antics.
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It is not about too much inflation or too little of it. It is about life, lifestyle and life’s necessities and their affordability.
I do not know whether its to do with the curly fries and my low IQ or the fact that I am trying desperately to short Facebook because I just discovered my son and his friends have stopped using it for over 2 months.
Things are not going right. New measures announced daily out of central banks, even in Singapore too – did anyone see the COE ? Policy uncertainty, coupled with 5,916 pigs floating around in Shanghai and another Tunisian burning himself up yesterday before the new Pope is picked, it’d appear that March madness has set in again.
- Fed in From Pluto, BoJ is from Mars and Santa is from Singapore (tradehaven.me)
- Singapore Inc : Pioneering The Migration Bandwagon