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Population Distribution. Labour Mobility. Storage and Transport of Labour PDF Print E-mail
Written by Burnham Banks   
Wednesday, 16 April 2014 23:41

Current economic wisdom is that geographical labour mobility is an almost unqualified positive and an inalienable right. This should not go unquestioned.

Last Updated on Wednesday, 16 April 2014 23:47
Risk. Capital. Conventional Asset Allocation is Inadequate. PDF Print E-mail
Written by Burnham Banks   
Thursday, 27 March 2014 07:45

It is almost elementary to professional investors that when investment decisions are made, the appropriate sizing of the investment is based on the quantity of risk that is taken and not the quantity of capital. This has a parallel in the Sharpe Ratio measurement of investment performance. Returns are only useful in the context of the risk associated in obtaining them. Similarly, returns are obtained at a price, which is risk. To obtain returns, one should allocate risk and not capital.

Divergence Between US Equities and US Treasuries PDF Print E-mail
Written by Burnham Banks   
Tuesday, 18 March 2014 01:52

The divergence between the US treasury market and US equities can be accounted for.

  1. US treasury yields are held down because.
    1. Floating rate note issuance is expected to be circa 180 billion USD. This will substitute away some of the fixed coupon issuance. This means less supply of fixed coupons.
    2. Tax receipts are up which will also slow the issuance of treasuries.
    3. Major trading partners such as China and Japan are seeing a reduction of trade surpluses or an increase in trade deficits implying slowing supply of USD offshore and thus weaker demand for treasuries.

  1. US equity markets:
    1. Economic growth remains robust. There was a speed bump due to the harsh winter but this has passed.
    2. Trend growth is not 3% but 2%. Given this, any ‘fail’ of the 3% mark is not a risk of reception but a cyclical slowdown within a global rising trend. Since 2010 GDP YOY has oscillated around 2%, which I regard as the new trend growth rate. Why is trend growth lower today than before? This is not an easy question and there are no definitive answers. One possibility is that credit creation has become impaired. Despite efforts to inflate the monetary base, bank regulation and scarcity of bank capital are constraining credit creation. The 3% average growth rate from 1980 – 2006 was probably boosted by a full 1% due to the early 80’s boom in junk bond issuance, the securitization of debt in the late 1980’s and the surge in securitized and tranched mortgage bonds in the last 15 years. Absent this credit innovation, trend growth would have been 2% as it is now.
    3. Given the above view of a secular recovery, US equities are in a secular bull market. That said, we could be at a cyclical peak given that price levels have run ahead of earnings.
    4. The continuation of the current cyclical bull requires a recovery in corporate investment which has not yet happened. The growth of the past 5 years has been driven by consumption and housing. Corporate profitability is now at a cyclical high and household savings rates have fallen from mid 5’s to low 4’s. While US equities remain fundamentally sound, a continuation of earnings growth now stands on a single pillar, corporate investment. I believe this will happen given the average age of the capital stock…

  1. Conclusion:
    1. I expect the US treasury market to be more resilient than consensus for reasons of demand and supply.
    2. I expect the US equity market to be in the early stages of a secular bull market.
    3. However, I do feel that the US equity market is currently vulnerable as fundamentals have yet to catch up to valuations.

Inequality and Injustice. Bad Moon Rising PDF Print E-mail
Written by Burnham Banks   
Wednesday, 19 March 2014 05:11

Inequality has decreased globally, yet this aggregate phenomenon hides a more disturbing picture. As countries have become less unequal, the distribution of wealth and income within countries has become more unequal. If the material and commercial motivation for conflict between nations has receded between nations, it has certainly risen within each country.

Last Updated on Monday, 24 March 2014 03:00
Singapore Economic Growth and Population. PDF Print E-mail
Written by Burnham Banks   
Monday, 03 March 2014 00:25


One of the commonly accepted models of economic growth is one where economic growth is determined by capital accumulation, innovation and growth of the labour force. The growth of the labour force quickly translates into growth of the population and particular age groups which are regarded as particularly productive. This is all fine, if you can grow the population without bound. The weakness of this assumption is most apparent in the case of small islands. Singapore is a good example. Progressive immigration policy has helped growth not just in population growth but also in capital accumulation and innovation. Lately, however, the limits of immigration have been tested. The storage and transport of labour has become difficult. Incumbents have come to regard further increases in population very negatively. The government, on account of the last election’s poor result, has begun to listen to the people, to an extent. They have tightened immigration policy in sympathy to the people’s preferences. These measures are not sufficient. If the government is serious about avoiding and reversing the momentum of overpopulation, it must cut back on the creation of storage of labour. This it has not done. One can only speculate that a longer term strategy still pursues rising immigration but that an interim solution has been formulated to manage the people’s expectations. Here is how one such plan could work:

  1. The people regard the country as over populated and register their objections.
  2. The authorities tighten immigration rules to slow population growth.
  3. The authorities continue to increase population storage by land sales and the approval of building permits, etc.
  4. The stock of housing increases.
  5. The authorities can then at a later stage present a housing oversupply to the people.
  6. They authorities can present also a strategy for preventing a crash in housing prices by allowing more immigration thus increasing the demand for housing.

Thus, it would have been possible to achieve the desired population growth to sustain economic growth with the acquiescence of the people. It is a clever gambit but it fails to address the limitations faced by the island state. Population cannot be grown without bound anywhere let alone on a small island. New goals and new strategies need to be established towards a more viable society. We can only hope that the authorities have the vision to see this.


Last Updated on Tuesday, 04 March 2014 02:02
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