RON97 price would be the same as RON95 price soon?

The recent hike in RON95 petrol price by another 20sen to RM2.30 is of course, least welcomed by all Malaysians. This is because it will not just affect driving cost but will cause prices of other essential goods to rise as well. Anyway, with anger subsiding and Malaysians starting to adjust to higher oil price, it is interesting to take a look at the world oil price currently.

 

 

 

The chart is interesting because on 9th September 2014, RON97 price was actually reduced by 10sen to RM2.75 from the last revision in June 2014. From the chart above, Brent Crude Oil price in June 2014 is about USD107/bbl and in September 2014, it has dropped to about USD103/bbl. As such, if a drop of USD4/bbl translates to 10sen reduction in RON97 price, based on the latest Brent Crude Oil price of about USD85/bbl, the reduction of USD18/bbl would translates to 45sen reduction in RON97 price? This would mean RON97 price would be RM2.30 and would be the SAME AS RON95!!!

 

Isn't that interesting? Not sure what would happen then and how would the government justify the increase in RON95 price or are we expecting a reduction in RON95 price in line with falling international crude oil prices?

 

Disclaimer: The above computations are based on simple assumptions. Of course, the price mechanism would be more complicated as it is based on a managed float mechanism (I don't know how that works though) but the assumptions that RON97 price should drop in line with dropping international crude oil price should hold.

 

 

David & Goliath: Underdogs, Misfits and the Art of Battling Giants by Malcolm Gladwell

Once again, Malcolm Gladwell has written an excellent book which makes you think differently about conventional wisdom. Well, it actually should not surprises us anymore as Malcolm is after all, the guy who introduced concepts such as tipping points, 10,000 hours training, etc. In his latest book titled David & Goliath, Malcolm have elegantly shown us that what we perceived as weakness can be turned on its head and becomes an advantage just like how David with its perceived weaknesses can defeat the giant Goliath by using its advantages such as being more mobile and agile compared to the cumbersome and slow Goliath. The book is such a joy to read (as usual and what we have come to expect from Malcolm Gladwell) and it will makes you think differently about different aspects of life from money, sports, crime, etc. The book certainly makes it argument clear that sometimes too many of a good thing may be bad for us and this also applies to money and even also imprisonment of criminals. Surprising findings? Well, it would not be surprising anymore after you have read Malcolm's latest book. As such, I would recommend this book to everyone just for the sole objective that we should always be open minded to so-called foregone conclusions. For me, it is important that we approach life with an open and inquisitive mind and we will find life such a joy and full of excitement.

 

As usual, some extracts from the book which I find useful:

 

1) "Any fool can spend money. But to earn it and save it and defer gratification - then you learn to value it differently." (Such a simple and yet powerful statement. The marketing media is actually very powerful and they have successfully created the image that anyone who is careful with their money is perceived as stingy and is not desirable. Similarly, I have met a lot of women who is proud to display their "skills" in spending money and how they can differentiate different branded goods. For this I would like to add my own quote: "It is easy to find women who can spend money but it is very difficult to find a woman who is careful with your money and values it. When you find such a woman, then you have found a woman who loves you and cares about both of your future.") :p

 

2) Money makes parenting easier until a certain point - when it stops making much of a difference.

 

3) ..... we form our impressions not globally, placing ourselves in the broadest possible context, but locally - by comparing ourselves to people "in the same boat as ourselves." Our sense of how deprived we are is relative. (We always compare ourselves with people surrounding us. As such, ask yourself which one would be happier? The person who is the worst among the best or the person who is the best among the worst? Is it worth it if your child's results are average and you still force him/her to pursue tough career such as medicine where he/she will likely ends up being the worst among the best?)

 

4) "A lot of people think that going to an academically selective school is going to be good," he said. "That's just not true. The reality is that it is going to be mixed." (By the psychologist Herbert Marsh who pioneered the Big Fish - Little Pond theory).

 

5) ...... if you want to see the positive effects of elite schools on self-concept, you are measuring the wrong person. You should be measuring the parents." (Another powerful statement. Are we as parents guilty of fulfilling our own pride and ego when we make certain decisions for our children and then mask it as for their own good?)

 

6) ..... what is learned out of necessity is inevitably more powerful than the learning that comes easily. (It is important for any leaders/managers to develop a culture of curiosity within your organisation where people would look for solutions out of necessity as opposed to an organisation who expects to be spoon-fed with solutions from their leaders/managers.)

 

7) As the playwright George Bernard Shaw once put it: "The reasonable man adapts himself to the world: the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man." (Again, this makes you thing. Is it a bad thing if you have a team member who is "unreasonable" and who may seems difficult to manage but can deliver if given the right motivation? Well, everyone has their own skills and weaknesses. As such, as leader/manager, it is up to us to nurture the various talents and bring out the best from each individual.)

 

8) ..... learning how to deal with the possibility of failure is really good preparation for a career in the business world. (I guess this not only applies in the business world but on life too. It is important that we learn how to deal with failure.)

 

9) Courage is not something that you already have that makes you brave when the tough times start. Courage is what you earn when you've been through the tough times and you discover they aren't so tough after all. (So, courage is earned through experience.)

 

10) ..... we need to remember that our definition of what is right is, as often as not, simply the way the people in positions of privilege close the door on those on the outside. (This can be seen in politics where the ruling party would term those who are challenging them as ungrateful, disloyal, etc. even though for a healthy democracy, it is important to have opposing views.)

 

11) "It has been said that most revolutions are not caused by revolutionaries in the first place, but by the stupidity and brutality of governments," Sean MacStiofain, the provisional IRA's first chief of staff, said once, looking back on those early years.

 

12) We often think of authority as a response to disobedience: a child acts up, so a teacher cracks down............... disobedience can also be a response to authority. If the teacher doesn't do her job properly, then the child will become disobedient. (This certainly got me thinking. If someone reporting to me starts to acts up, is it because of his/her inherent difficult behaviour or is it because I have not done my job as a leader properly?)

 

13) Instead of responding in a 'let me control your behaviour' way, the teacher needs to think, 'How can I do something interesting that will prevent you from misbehaving in the first place?' (Applies to any manager/leader as well. How do I do something that will prevent my staff from misbehaving in the first place?)

 

14) When people in authority want the rest of us to behave, it matters - first and foremost - how they behave. This is called the "principle of legitimacy," and legitimacy is based on three things. First of all, the people who are asked to obey authority have to feel like they have a voice - that if they speak up, they will be heard. Second, the law has to be predictable. There has to be a reasonable expectation that the rules tomorrow are going to be roughly the same as the rules today. And third, the authority has to be fair. It can't treat one group differently from another. (Important points to all leaders/managers. This principle of legitimacy also applies to how a company is run!).

 

 

 

15) And when the law is applied in the absence of legitimacy, it does not produce obedience. It produces the opposite. It leads to backlash.

 

In summary, this is an excellent book which I would recommend to everyone. The extracts from the book which I listed above is short not because there are not many useful lessons from the book but because Malcolm is such a good writer than reading his book is like reading a story book. As such, to do justice to his works, it is important to read the book itself to appreciate his arguments and reasoning.

 

Have a nice weekend!

 

Gandhi, CEO: 14 Principles to Guide & Inspire Modern Leaders

Gandhi, the name itself will invokes awe and admiration. A man known to be steadfast in his beliefs and principles and continues to inspire us that anything is possible as long as truth is on our side. The principles embodied in Gandhi's revolution are important lessons to all leaders as it is a truly sustainable path towards leadership. Before Gandhi, revolutions are commonly associated with violence, war and riots but Gandhi turned this association on its head with his concept of non-violent resistance. What I admire most is Gandhi assumed the British Lords to be ignorant rather than evil and the best way to counter ignorance is education rather than retaliation. If we believe in this in our day-to-day challenges as a manager/leader, we would certainly do better and time would be far more productive if we focus on educating our co-workers or clients rather than retaliating. This book by Alan Axelrod provides a quick reference to modern leaders on principles of management inspired by Gandhi but of course, readers are advised to form their own judgement because after all, the principles are interpreted by Alan Axelrod and not directly from Gandhi himself which is why my next target is to read Gandhi's autobiography. Nevertheless, the book is concise and easy to read and would be useful to any leaders/managers.

 

 

Excerpts from the book summarised below (Words in blue are mine):

 

1. Never compromise on your no-compromise zone, but never confuse a refusal to compromise with a refusal to communicate.

 

2. You want to be neither an unthinking autocrat nor an unthinking democrat. You don't want to lead in the blind conviction that you and only you are right, but neither do you want to lead by following the majority. (It is not easy to be a good and inspiring leader. For me, the middle path is the best way as demonstrated by the statement above. There are times when you need to be an autocrat and there are times you need to be a democrat.)

 

3. If you mean to make a difference in the world or in your company, you cannot wait for others to begin the change, and you cannot wait even for your own changes to become widespread, let alone universal. Begin the project, no matter how ambitious, with yourself. Begin now. (Just do it!)

 

4. Do not hesitate to set perfection as the goal of your organisation, but, in so doing, you must also recognize that only imperfection will move you and your enterprise toward that goal. For this reason, never criticize imperfection. Nurture it. Exploit it. Manage it. It is the fuel that drives every worthwhile endeavor.

 

5. It is never a good leadership strategy to ignore potential problems, to fail to evaluate risks, to willfully refuse to anticipate pitfalls, or to turn your back on contigency planning. However, it is an invariably fatal strategy to allow the anticipation of trouble to paralyze you or your enterprise.

 

6. The best attitude is to embark with the expectation of success, not failure. (Plan for the worse, hope for the best!)

 

7. A complex business enterprise cannot be run on forced obedience. Voluntary cooperation - self-direction toward common goals - is required, and it is the task of CEOs and managers to secure it day by day. (Important question to ask ourself is does your employees believe in what they are doing? Do they feel they belong to the organisation and will do their best to uphold the company's good reputation? I have seen this in some companies and that would be the task of any CEOs or managers that ultimately, their employees are proud of what they are doing and also the company)

 

8. An organization built on coercion is designed to collapse.

 

9. Businesses do no business with other businesses; people do business with people. Treat everyone with respect, render everyone fair value for value received, and those people will return to you time and again.

 

10. An effective manager ensures that each worker understands not just the assigned task, but what that task contributes to the greater "commonwealth" - i.e. the company.

 

11. The best-run companies are characterized by individual pride and satisfaction in doing excellent work toward common goals that pervade the entire organization.

 

12. Whatever else Gandhi's campaign to abandon caste was, it was a call for each person to strive to earn a worthwhile identity through hard work, noble service, and necessary sacrifice. These constitute virtue, and virtue, in turn, constitutes moral identity. This lesson applies in any field of endeavor.

 

13. The will of the majority, he held, must not cancel the vote of the minority; however, where "there is no principle involved and there is a programme to be carried out, the minority has got to follow the majority. But where there is a principle involved, the dissent stands, and it is bound to express itself in practice when the occasion arises."

 

14. In any collaborative endeavor, if everyone is thinking alike, no one is really thinking. (Dissenting views are not evil and rejected outright. What is important is how we manage it)

 

15. The CEO cannot afford to neglect the human capital of the enterprise. Whether you make shoes or sell stocks, every business is first and foremost a people business.

 

16. The ideal toward which any CEO should lead his company is a productive, profitable existence without him and, indeed, without any central authority.

 

17. A CEO's effectiveness can be measured by the degree to which she renders her presence optional to the organization. The best leaders lead to become unnecessary. (Not easy to emulate in real life situation. It requires the person to have strong confidence in his own abilities so that he is confident enough to make himself unnecessary)

 



18. Accept the past as a teacher, but remember that the measure of a successful teacher is the number of students who rise above his example, and the very greatest teachers are those who produce students much greater than themselves.

 

19. "A foolish consistency," Emerson (Ralph Waldo Emerson) wrote, "is the hobgoblin of little minds." Emerson did not scorn consistency, but only foolish consistency - consistency for the consistency's sake, that serves no rational and valuable purpose.

 

20. The great leadership issue, therefore, is one of navigation: the creation of purposeful, productive movement within an environment of movement.

 

21. An organization should be more than the sum of its people, just as a viable government must be more than the sum of its leaders.

 

22. "History shows that all reforms have begun with one person."

 

23. A leader earns his stripes every day.

 

24. Gandhi taught that leadership is not a title or an official position, but rather a way of life, and life is lived when you are in company as well as when you are in solitude.

 

25. To avoid escalation and bring about amelioration, begin by making an effort to understand the motives behind the behavior you wish to change.

 

26. The most successful generals are those who never allow the enemy to select the battlefield. To do so yields a significant advantage, often both strategically and tactically. Similarly, the most successful CEOs never allow their company to be forced to compete on someone else's terms. The surest way to win is to play to your strengths. The surest way to lose is to play to the strengths of your competition.

 

27. ..... the effective CEO devises means of persuasion that demonstrate a benefit to all, including all those who take different sides in a dispute.

 

28. Winning is not about the gratification of the ego - "bragging rights" - but about doing the best you can for your organization. (Actually, it is not about winning. It should be about doing what is best for the organization)

 

29. Restraint is the surest mark of true leadership power. Compliance won is always more effective  - and far easier to sustain - than compliance coerced.

 

30. Provided that you dream ambitiously enough, the approach - not the attainment - defines success.

 

31. Leadership requires the exercise of judgment. To surrender judgment to principle, policy, or ideology is to surrender leadership itself.

 

32. Serve people, not ideas. This is the one item of ideology that is of unfailing value to all, at all times.

 

33. If your destination is a mile away, you would be foolish to refuse to take the first step just because that single step did not span the entire mile. (To take small steps is very important in any endeavour even if that step may not be in the right direction. With wrong steps, at least you found out the right direction and starts walking towards your goal)

 

34. Blame achieves nothing; whereas taking responsibility lets you take command by identifying those aspects of a transaction, a project, or a problem that are under your control or on which you can act. Assigning blame is almost always valueless, whereas taking responsibility offers great value insofar as it empowers you to act productively.

 

35. Make it your business to identify discontent among all your customers, external and internal, and among your potential customers - the segment of the market you have yet to penetrate. Having found it, explore it, embrace it, and work with it. Let discontent drive the innovation of your enterprise.

 

36. Never let yourself be boxed in or your subject limited by a question posed to you. Don't evade the question or withhold an answer. Instead, remake, rework, and redefine the question so that you can give the fullest, most useful, and most accurate answer possible - an answer that delivers the greatest value to the questioner, to you, and to your enterprise.

 

37. Battles must be chosen with the same care as that devoted to choosing anything costly. Squandering your treasure and your time on a cheap battle is no way to lead your enterprise to prosperity or to assert yourself as an effective CEO. Before you embark on a dispute, consider that, win or lose, you will incur costs.

 

38. A creative, productive enterprise requires individually creative, productive people who routinely contribute their individuality to achieve common goals, yet do not yield their individual responsibility. The only viable leadership path for such an organization is that of noncoercive example.

 

39. The CEO who merely bemoans the existence of competitors in a crowded market deserves the failure to which he dooms his enterprise. An effective business leader, on the other hand, is always thankful for competitors because their existence makes his enterprise competitive.

 

40. One of Gandhi's favorite American writers, Ralph Waldo Emerson, wrote that "nothing great is ever accomplished without enthusiasm." (I am a great believer in this. If you hate your job, it is time to look for a new job)

 

41. A corollary to the smell test is the following rule of thumb: If a proposed course of action requires elaborate rationalization, there is probably something wrong with it. Ethical and ethically profitable ideas are generally capable of the most elegantly simple presentation, whereas ethically dubious ideas usually call for long-winded exercises in tortured logic. (Good to remember this to detect dubious schemes)

 

42. The ideal motivational talk marries head to heart, and the best way to do this is to present ideas, objectives, and goals that, in themselves, join together intellect and emotion. A genuinely inspiring program embodies inherently inspiring values and, therefore, readily lends itself to a motivational presentation that is both intellectually cogent and emotionally compelling.

 

43. Gandhi's great innovation in conducting revolutionary change was to regard the powers that be, in so far as they do wrong, to be suffering from ignorance, not evil intentions. The appropriate response to ignorance is education, not retaliation.

 

In summary, Gandhi has shown us a sustainable approach to leadership and it has withstood the acid test of time. Unlike modern approach which focuses on short-term rewards which is often accompanied with catastrophic failure in the long-term (e.g. financial crisis of 2008), the guiding principle of leadership should always be to serve society with honesty and sincerity. This would never go wrong. 

AND THAT"S THE WAY IT WAS.........

Was going through my old man's stuff and found a piece of old yellowed paper. Such inspirational words that it reminded me again why I chose this profession in the first place.

AND THAT'S THE WAY IT WAS..........

"Engineering. It is a great profession. There is the fascination of watching a figment of the imagination emerge through the aid of science to a plan on paper. Then it moves to realization in stone or metal or energy. Then it brings jobs and homes to men. Then it elevates the standards of living and adds to the comforts of life. That is the engineer's high privilege.

"The great liability of the engineer compared to men of other professions is that his works are out in the open where all can see them. His acts, step by step, are in hard substance. He cannot bury his mistakes in the grave like doctors. He cannot argue them into thin air or blame the judge like the lawyers. He cannot, like the architects, cover his failures with trees and vines. He cannot, like the politicians, screen his shortcomings by blaming his opponents and hope the people will forget. The engineer simply cannot deny he did it. If his works do not work, he is damned...

"... unlike the doctor his is not a life among the weak. Unlike the soldier, destruction is not his purpose. Unlike the lawyer, quarrels are not his daily bread. To the engineer falls the job of clothing the bare bones of science with life, comfort, and hope. No doubt as years go by the people forget which engineer did it, even if they ever knew. Or some politician puts his name on it. Or they credit it to some promotor who used other people's money... But the engineer himself looks back at the unending stream of goodness which flows from his successes with satisfactions that few professions may know. And the verdict of his fellow professionals is all the accolade he wants."

-Herbert Hoover-

Focus: The Hidden Driver of Excellence

This book by the bestselling author of Emotional Intelligence, Daniel Goleman is timely as I believe we are becoming the most distracted generation in recent history. With all the distractions presented by electronic gadgets such as smart phone, tablet, television, etc. and social media such as facebook, twitter, etc., focus has been become a rare commodity. I guess all of us are guilty of being distracted all the time and we may not realise that we are not living up to our full potential simply because we are easily distracted all the time. This book is timely as it shows us that focus is very important in all aspects of our life from working to personal relationship. It also shot down the myth on the importance of multi-tasking and shows us it is more important to be fully engaged at a particular task instead of juggling multiple balls and ended up dropping all the balls. I am a believer that focus is very important and in this age of distractions, the one who is able to stay focus and ignore the distractions will emerge triumphant.

 

 

Some excerpts from the book which I hope you will find useful in your journey towards being focus (and stop checking your facebook news) - words in blue are mine:

 

1) For leaders to get results they need all three kinds of focus. Inner focus attunes us to our intuitions, guiding values, and better decisions. Other focus smooths our connections to the people in our lives. And outer focus lets us navigate in the larger world. A leader tuned out of his internal world will be rudderless; one blind to the world of others will be clueless; those indifferent to the larger systems within which they operate will be blindsided.

 

2) Writing about the coming information-rich world, he (Nobel-winning economist, Herbert Simon) warned that what information consumes is "the attention of its recipients. Hence a wealth of information creates a poverty of attention." (The challenge for us is to make use of appropriate information and not be swarmed by information overload)

 

3) ..... Rick Aberman, who directs peak performance for the Minnesota Twins baseball team, tells me, "When the coach reviews plays from a game and only focuses on what not to do next time, it's a recipe for players to choke." (It is always better to be positive than negative)

 

4) While mind wandering may hurt our immediate focus on some task at hand, some portion of the time it operates in the service of solving problems that matter for our lives.

 

In addition, a mind adrift lets our creative juices flow. While our minds wander we become better at anything that depends on a flash of insight, from coming up with imaginative wordplay to inventions and original thinking. In fact, people who are extremely adept at mental tasks that demand cognitive control and a roaring working memory - like solving complex math problems - can struggle with creative insights if they have trouble switching off their fully concentrated focus. (The key is knowing when to focus and when to relax. Relaxation of the mind is also important. The part of our brain for intensive focusing also needs a refreshing break)

 

5) Open time lets the creative spirit flourish; tight schedules kill it.

 

6) A random survey of thousands of people found focus in the here-and-now understandably was highest by far while they were making love (apparently even among those people who answered that badly timed inquiry from a phone app). A more distant second was exercising, followed by talking with someone, and then playing. In contrast, mind wandering was most frequent while they were working (employers take note), using a home computer, or commuting. (Sex is also good for the mind!)

 

7) At the neural level mind wandering and perceptual awareness tend to inhibit each other: internal focus on our train of thought tunes out the senses, while being rapt in the beauty of a sunset quiets the mind. This tune-out can be total, as when we get utterly lost in what we're doing.

 

8) Tightly focused attention gets fatigued - much like an overworked muscle - when we push to the point of cognitive exhaustion. The signs of mental fatigue, such as a drop in effectiveness and a rise in distractedness and irritability, signify that the mental effort needed to sustain focus has depleted the glucose that feeds neural energy.

 

9) Such restoration (attention restoration) occurs when we switch from effortful attention, where the mind needs to suppress distractions, to letting go and allowing our attention to be captured by whatever presents itself. But only certain kinds of bottom-up focus act to restore energy for focused attention. Surfing the Web, playing video games, or answering e-mail does not.

 

10) ..... our tone of voice matters immensely to the impact of what we say: research has found that when people receive negative performance feedback in a warm, supportive tone of voice, they leave feeling positive - despite the negative feedback. But when they get positive performance reviews in a cold and distant tone of voice, they end up feeling bad despite the good news.

 

11) Another antidote to groupthink: expand your circle of connection beyond your comfort zone and inoculate against in-group isolation by building an ample circle of no-BS confidants who keep you honest.

 

A smart diversification goes beyond gender and ethnic group balance to include a wide range of ages, clients, or customers, and any others who might offer a fresh perspective. (Go and meet people!)

 

12) "Sunlight", as Supreme Court justice Felix Frankfurter once said, "is the best disinfectant." (This statement refers to transparency as the best policy)

 

13) Epigenetics, the science of how our environment affects our genes, tells us that inheriting a set of genes is not in itself enough for them to matter. Genes have what amounts to a biochemical on/off switch; if they are never turned on we may as well not have them. The "on" switch comes in many forms, including what we eat, the dance of chemical reactions within the body, and what we learn.

14) Willpower emerged as a completely independent force in life success - in fact, for financial success, self control in childhood proved a stronger predictor than either IQ or social class of the family of origin. (Delayed gratification must be trained from young)

15) High self-control predicts not just better grades, but also a good emotional adjustment, better interpersonal skills, a sense of security, and adaptability.

16) Bottom line: kids can have the most economically privileged childhood, yet if they don't master how to delay gratification in pursuit of their goals those early advantages may wash out in the course of life.

17) Another bottom line: Anything we can do to increase children's capacity for cognitive control will help them throughout life.

18) The timing of the gesture interprets its meaning. If your timing is off, a positive statement can have negative impact.

19) Empathy entails an act of self-awareness: we read other people by tuning in to ourselves.

20) One cost of the frenetic stream of distractions we face today, some fear, is an erosion of empathy and compassion. The more distracted we are, the less we can exhibit attunement and caring.

21) As William Osler, the father of medical residency training, wrote in 1904, a doctor should be so detached that "his blood vessels don't constrict and his heart rate remains steady when he sees terrible sights." Osler recommended doctors have the attitude of a "detached concern."

22) The most robust entity takes in the greatest amount of relevant information, understands it most deeply, and responds most nimbly.

23) Smart practice always includes a feedback loop that lets you recognize errors and correct them - which is why dancers use mirrors. (We must always learn from our mistakes)

24) Positive emotions widen our span of attention; we're free to take it all in. Indeed, in the grip of positivity, our perceptions shift. As psychologist Barbara Fredrickson, who studies positive feelings and their effects, puts it, when we're feeling good our awareness expands from our usual self-centered focus on "me" to a more inclusive and warm focus on"we".

25) ...... positivity, in turn, has great payoffs for performance, energizing us so we can focus better, think more flexibly, and persevere. (Ever wondered why successful people are always positive? I don't think they are positive because they are successful but rather it is because they are positive that they became successful)

26) "You need the negative focus to survive, but a positive one to thrive," says Boyatzis. "You need both, but in the right ratio."

That ratio would do well to flip far more to the positive than the negative, in light of what's known as the "Losada effect," after Marcial Losada, an organizational psychologist who studied emotions in high-performing business teams. Analyzing hundreds of teams, Losada determined that the most effective had a positive/negative ratio of at least 2.9 good feelings to every negative moment (there's an upper limit to positivity: above a Losada ratio of about 11:1, teams apparently become too giddy to be effective). The same ratio range holds for people who flourish in life, according to research by Barbara Fredrickson, who is a psychologist at the University of North Carolina (and a former research associate of Losada). (A balance between negative and positve feelings is important and successful people is generally more positive)

27) Global economic data shows that once a country reaches a modest level of income - enough to meet basic needs - there is zero connection between happiness and wealth. Intangibles like warm connections with people we love and meaningful activities make people far happier than say, shopping or work.

28) Directing attention toward where it needs to go is a primal task of leadership. Talent here lies in the ability to shift attention to the right place at the right time, sensing trends and emerging realities and seizing opportunities. (Leaders take note. One of our main task is to keep the team focus and at the same time are attuned to others and the outside world)

29) Leadership itself hinges on effectively capturing and directing the collective attention. Leading attention requires these elements: first, focusing your own attention, then attracting and directing attention from others, and getting and keeping the attention of employees and peers, of customers or clients.

30) ...... "deciding what not to do is as important as deciding what to do."

31) "The most successful leaders are constantly seeking out new information," says Ruth Malloy, global director of Hay Group's leadership and talent practice.

32) ..... nonacademic abilities like empathy typically outweigh purely cognitive talents in the makeup of outstanding leaders. (We all know why academic abilities alone would not guarantee future success. So, remember to always hone your soft skills like empathy, communication, etc.)

33) Baron-Cohen's research finds that in a small - but significant - number of people this strength (excels at systems analysis) comes coupled with a blind spot for what other people are feeling and thinking, and for reading social situations. For that reason, while people with superior systems understanding are organizational assets, they are not necessarily effective leaders if they lack the requisite emotional intelligence.


In summary, the book is timely for this generation which are constantly distracted. When we say focus, it is not merely at work or the task at hand. It encompasses every aspects of our life. When we are focused on our relationship, the relationship would flourish and we would have meaningful and quality connections with the people we love and care about. If we are distracted, what we have would be superficial connections and it is therefore, not surprising if the relationship do not work out or we feel something is missing. The same thing applies to work, the environment, etc. In summary, we should FOCUS on things that matter in our life, work, etc. during our short adventure on earth and hope that when we leave, we would leave our mark here, in a positive manner of course.

 

This Time is Different: Eight Centuries of Financial Folly

This book by Carmen M. Reinhardt and Kenneth S. Rogoff is well- researched and the title basically summarises the sentiment preceding a financial crisis, i.e. people always think that the party can always goes on, i.e. stock market will continue to rise, house prices will continue to rise and we can continue to "gamble" in the financial markets and retire in the Maldives because "this time is different". This book demonstrates that financial crisis is a norm rather than the exception from the early days of gold coins until the recent crisis in the late 2000s which the Authors termed as the Second Great Contraction. As such, it is important that we learn from the recent crisis and realise that perhaps there is nothing different from each financial crisis and it is always driven by greed and our ignorance. One of the main theme of the book is that fast rising house prices is an important indicator of potential banking crisis leading to full-blown financial crisis and regulators should also look at house prices for signs of trouble. This is important because traditionally, people always view investment in real estate as "safe" and house prices will never go down. However, in this book, it is shown that house prices will also go down in a financial crisis and it usually takes longer for it to recover compared to equities. Another danger of real estate fueling asset bubble leading to financial crisis is that politicians are usually reluctant to burst real estate bubble and very often, election pledges include a promise of everyone owning their own house including providing loans to those who would not be able to service the loan at the first sign of economic downturn such as rising interest rates, etc. and also encouraging speculative activities in real estate because it gives the impression of encouraging economic growth. However, this is all not sustainable and it is always the same leading to financial crisis, i.e. easy credit fueling unsustainable equities, real estate, etc. which ultimately lead to popping of the bubble. Perhaps, it is not so different after all.

 

The followings are excerpts from the book which I hope you will find useful (Words in blue are mine):

 

1) If there is one common theme to the vast range of crises we consider in this book, it is that excessive debt accumulation, whether it be by government, banks, corporations, or consumers, often poses greater systemic risks than it seems during a boom.

 

2) Economists do not have a terribly good idea of what kinds of events shift confidence and of how to concretely assess confidence vulnerability. What one does see, again and again, in the history of financial crises is that when an accident is waiting to happen, it eventually does. When countries become too deeply indebted, they are headed for trouble. When debt-fueled asset price explosions seem too good to be true, they probably are. But the exact timing can be very difficult to guess, and a crisis that seems imminent can sometimes take years to ignite.

 

3) Periods of prosperity (many of them long) often end in tears.

 

4) It appears that those that risk default the most when they borrow (i.e., those that have the highest debt intolerance levels) borrow the most, especially when measured in terms of exports, their largest source of foreign exchange.

 

5) ..... without taking into account country-specific debt intolerance factors, we can see that  when the external debt levels of emerging markets are above 30-35 percent of GNP, risks of a credit event start to increase significantly. (Note: Malaysia's debt is currently about 55 percent of GDP without taking into consideration other government-guaranteed debts and it does not look like it will reduce anytime soon. Scary numbers don't you think?)

 

6) ..... modern literature on empirical growth increasingly points to "soft" factors such as institutions, corruption, and governance as far more important than differences in ratios of capital to labor in explaining cross-country differences in per capita incomes. (Is it any surprise that Malaysia's per capita income is far less than Singapore? Just look at public institutions, corruption and governance of both countries)

 

7) ..... economic theory tells us that even a relatively fragile economy can roll along for a very long time before its confidence bubble bursts, sometimes allowing it to dig a very deep hole of debt before that happens.

 

8) Weakening global growth has historically been associated with declining world commodity prices. These reduce the export earnings of primary commodity producers and, accordingly, their ability to service debt. (I am just wondering if Malaysia's government ever consider the scenario when oil and palm oil prices start to drop and whether we would be able to service our debt?)

 

9) Peaks and troughs in commodity price cycles appear to be leading indicators of peaks and troughs in the capital flow cycle, with troughs typically resulting in multiple defaults.

 

10) An even stronger regularity found in the literature on modern financial crises is that countries experiencing sudden large capital inflows are at risk of experiencing a debt crisis. (We should remember that one of the contributors to the Asian financial crisis in 1997/1998 is the strong yen with massive capital inflows from Japan to other Asian economies and the bubble burst when the yen starts to appreciate and the capital inflows reversed. Interested readers should read the book by Andrew Sheng for first hand account of the Asian financial crisis of 1997/1998. Summaries of the book are in the following link: http://businessmanagementbooksreview.blogspot.com/2011/06/from-asian-to-global-financial-crisis.html)

 

11) As has been shown repeatedly over time, the governments of emerging markets are prone to treat favorable shocks as permanent, fueling a spree in government spending and borrowing that ends in tears.

 

12) Inflation during the year of an external default is on average high, at 33 percent. However, inflation truly gallops during domestic debt crises, averaging 170 percent in the year of the default.(Brace for massive inflation in the event of default)

 

13) Although many now-advanced economies have graduated from a history of serial default on sovereign debt or very high inflation, so far graduation from banking crises has proven elusive. In effect, for the advanced economies during 1800-2008, the picture that emerges is one of serial banking crises.

 

14) We find that real estate price cycles around banking crises are similar in duration and amplitude across the two groups of countries (advanced and emerging countries).

 

15) Periods of high international capital mobility have repeatedly produced international banking crises, not only famously, as they did in the 1990s, but historically.

 

16) One common feature of the run-up to banking crises is a sustained surge in capital inflows, which Reinhart and Reinhart term a "capital flow bonanza".

 

17) Mendoza and Terrones, who examine credit cycles in both advanced and emerging market economies using a very different approach from that just discussed, find that credit booms in emerging market economies are often preceded by surges in capital inflows. They also conclude that, although not all credit booms end in financial crisis, most emerging market crises were preceded by credit boom.

 

18) Notably, for both groups (developed and middle-income countries) the duration of declines in real housing prices following financial crises is often four years or more, and the magnitudes of the crashes are comparable.

 

19) ..... the outsized U.S. borrowing from abroad that occurred prior to the crisis (manifested in a sequence of gaping current account and trade balance deficits) was hardly the only warning signal. In fact, the U.S. economy, at the epicenter of the crisis, showed many other signs of being on the brink of a deep financial crisis. Other measures such as asset price inflation, most notably in the real estate sector, rising household leverage, and the slowing output - standard leading indicators of financial crises - all revealed worrisome symptoms (Malaysia is showing similar symptoms, i.e. asset price inflation, rising household leverage and slowing output. Should we be worried?)

 

20) Between 1996 and 2006 (the year when prices peaked), the cumulative real price increase was about 92 percent - more than three times the 27 percent cumulative increase from 1890 to 1996! Refer Figure 13.2 from the book which is reproduced here:

 

 

 Now, let's compare Malaysia's housing price index for high-rise below:

 

 

See any similarities?

 

21) Empirical work by Bordo and Jeanne and the Bank for International Settlements suggested that when housing booms are accompanied by sharp rises in debt, the risk of a crisis is significantly elevated. (This seems to be case for Malaysia where the housing booms are accompanied by sharp increases in household debt which reached a record high of 86.8% of GDP at end-2013)

 

22) This literature on financial crises suggests that markedly rising asset prices, slowing real economic activity, large current account deficits, and sustained debt buildups (whether public, private, or both) are important precursors to a financial crisis.

 

Let's have a quick comparison for Malaysia:

 

a) Markedly rising asset prices (Malaysia have that)

b) Slowing real economic activity (Looks choppy at the moment but let's assume that it is not slowing down at the moment)

c) Large current account deficits (Not yet, but it appears that our current account surplus is on a downward trajectory. Refer graph below.)

d) Sustained debt buildups (Malaysia have that) 

 

(Source: http://www.tradingeconomics.com/malaysia/current-account-to-gdp)

 

So, from the above, it looks like Malaysia is showing some signs of vulnerability and I guess we should monitor closely our current account and economic activity and hope it would not go into negative territory.

 

23) ..... sustained capital inflows have been particularly strong markers for financial crises,..............financial liberalization or innovation has also been a recurrent precursor to financial crises........

 

24) ..... a massive run-up in housing prices usually precedes a financial crisis. (Scary thoughts isn't it?)

 

25) More often than not, a financial crisis begins only after a real shock slows the pace of the economy; thus it serves as an amplifying mechanism rather than a trigger.

 

26) Broadly speaking, financial crises are protracted affairs. More often than not, the aftermath of severe financial crises share three characteristics:

 

- First, asset market collapses are deep and prolonged. Declines in real housing prices average 35 percent stretched out over six years, whereas equity price collapses average 56 percent over a downturn of about three and a half years.

 

- Second, the aftermath of banking crises is associated with profound declines in output and employment. The unemployment rate rises an average of 7 percentage points during the down phase of the cycle, which lasts on average more than four years. Output falls (from peak to trough) more than 9 percent on average, although the duration of the downturn, averaging roughly two years, is considerably shorter than that of unemployment.

 

- Third, as noted earlier, the value of government debt tends to explode; it rose an average of 86 percent (in real terms, relative to precrisis debt) in the major post-World War II episodes.

 

27) Kaminsky and Reinhart's "twin crises" work;....... concluded that financial liberalization often preceded banking crises; indeed, it helped predict them.

 

28) For banking crises, real housing prices are nearly at the top of the list of reliable indicators, surpassing the current account balance and real stock prices by producing fewer false alarms.

 

In summary, this is an excellent book compiling various financial crises from the early days of Napoleonic wars to the recent crisis in late 2000s which the Authors termed as the Second Great Contraction. As the title suggests, too much of a good thing usually led to tears and we should learn from previous crises and not fall into the "This time is different" syndrome. I particularly like this quote from the book:

 

There is nothing new except what is forgotten.



 - Rose Bertin

Malaysia's Economy: Why we should look at oil price closely

Recently, The Edge, through its regular updates on Malaysia's current economic conditions has highlighted that Malaysia's revenue consists of up to 47% from petroleum or petroleum-related exports. Well, according to official estimates from the Ministry of Finance (Estimates of Federal Government's Revenue for the Year 2014), some of the important figures are summarised below:

 

Total revenue:

RM 224,094 Million + RM150 Million (additional revenue from measures announced in Budget 2014) = RM224,244 Million

Petroleum income tax:

RM 28,275 Million (based on average crude oil price - Tapis of USD 110.00 per barrel in 2014)

 

From the above, it can be seen that a sizeable portion of Malaysia's revenue is from petroleum income tax alone which is approximately 12.6% of total revenue.

 

Based on 2014 budget, the total allocation of RM 264.4 billion translates to fiscal deficit of 3.5% of GDP (revenue of RM 224.2 billion and GDP of RM 1154 billion - backcalculated based on fiscal deficit of 3.5%) or deficit of RM40.2 billion.

As can be seen above, the petroleum income tax forecasted for 2014 is based on average crude oil price - Tapis of USD 110.00 per barrel in 2014. As such, it would be interesting to take a look at historical oil price shown below:

From the above, it can be seen that the current oil price is near its historical high (nominal price) and it is also high after adjusted for inflation. The current high oil price is not expected to persist and in fact, the current commodities boom is known as the commodities super cycle and the high price is attributed to demand from emerging markets such as China, India, etc. However, recent data from China and other emerging markets have indicated that the stratospheric growth rate of early 21st century is a thing of the past and growth is expected to moderate. In addition, the production of crude oil in US is on an uptrend (chart below) due to the discovery of shale oil and this will have an impact on oil prices simply because US is the top consumer of oil in the world (refer table below).

Source: Wikipedia

As such, assuming crude oil price moderates to USD60 per barrel, that would translate to Tapis oil price of approximately USD70 per barrel (assuming USD10 premium for Tapis over crude oil). This would be mean a drop of about 36% from the assumed price of USD110. Using back of the envelope calculations, this drop of about 36% would translate to RM10 billion reduction from petroleum income tax alone. The actual reduction is expected to be even higher because the estimated revenue for 2014 is expected to decrease by 7% due to a reduction of Tapis oil price from USD115 per barrel in 2013 to USD110 per barrel in 2014 which is equivalent to a drop of approximately 4%. So, a drop of 4% in oil price translates to a 7% reduction in petroleum income tax and therefore, the RM10 billion reduction calculated above is conservative.

The reduction of oil prices would also of course reduce our government fuel subsidy and if oil prices were to reduce to USD60 per barrel, the government would probably save about RM2-3 billion after taking into account the recent price hike.

 

Note: EPU reported subsidy of RM2.4 billion based on average WTI crude price of US25.24 per barrel in 2001. In 2004, the subsidy is RM4.8 billion based on the average international oil price of US41.60 per barrel (Source: http://www.epu.gov.my/c/document_library/get_file?uuid=f438db0e-8106-489b-ac5e-2ee3f04d2575&groupId=283545)

So, the savings from reduction of subsidy is far less compared to reduction from revenue and let's not forget that we are only looking at petroleum income tax which is only 12.6% of total revenue. As mentioned earlier, other petroleum related revenue contributes up to 47% of Malaysia's total revenue.

As such, I am not entirely convinced that Malaysia will be able to achieve the reduction in fiscal deficits as highlighted in the recent budget. If oil price starts to go down, our fiscal deficits will go up as well and just the RM 10 billion reduction in petroleum income tax will results in our fiscal deficits going up to about 4.3% (from target of 3.5%). The deficits would be significantly even higher if other reductions in petroleum related revenue are taken into consideration.

 

Therefore, I would urge fellow Malaysians to look at oil price carefully and not to celebrate if oil price were to go down as we would not be able to enjoy the cheaper oil price if the economy is not doing well. If our fiscal deficits go up, our credit ratings would also be downgraded and borrowing costs would also go up and that would be really painful for the country. That is why some countries such as Norway actually save up on excess revenue generated due to high oil prices in order to prepare for rainy days. I hope my analysis is wrong and we would continue to be prosperous and live happily.

 

p.s. Other pieces of news recently which seems to reinforce my view that our country's finances are not well-managed:

 

1. 24th March 2014 - Additional RM2 billion sought for additional expenses.

(http://www.thestar.com.my/News/Nation/2014/03/24/Parliament-RM2bil-additional-expenses/).

 

2. I also noticed that one of the revenue stated in the Ministry of Finance's estimate is securitization of government employees' loan which translates to a "revenue" of RM4.2 billion. To me, this just means we are borrowing more money now to spend. Don't seem to me to be a prudent move.