Toys R Us went bust – Internet retailing is not the main reason

It was a sad news that Toys R Us had to closed down. I have read many articles pointing out that internet retailing was the main reason they had to close down, since more people now were buying from Amazon or Ebay. Some articles also said that children now prefer to play with iPads instead of physical toysz

I would disagree with this. The last time I check, Toys R Us did sell its toys online.

In my opinion, demographic changes was the main reason of this. And we haven’t really paying much attention on this subject.

Lets go back into the history for one minute. So Toys R Us was founded in 1948. This was the perfect timing, as baby boomers started to come in. As we can see from the chart below, approximately 27% of the population were between 0 – 15 years old.

Spending behavior vary among age cohort. When you were a child, your income (I mean your parents’ income) was spent more on baby food products, clothing, and toys.

When you had reached your youth, spending will be more on education, maybe more on clothing as well. Food intake will be different since you need more calories.

Then when you get married, you will spend more on durable goods such as cars, refrigerator for your new house. Then you have to start to repay your education loans. Maybe if you’re lucky, you don’t have to hire a divorce lawyer.

As you age, you will spend more on healthcare, yet again your food intake will be different too.

What I am trying to say is, no one is buying any toys anymore due to demographic changes. Spending behavior is different in our lifetime.

And this was the biggest mistake that Toys R Us had made, where they didn’t really pay attention to the demographic changes in the US. Let me show you the current population pyramid in the US:

According to the Census, the median age is around 38 years old. That goes back to the point where the spending behavior changes over time.

So where does thing bring us? The argument where “internet retailing was the cause” can’t really be used in this context from my perspective. You could open 100 Toys R Us in Japan, Germany or the UK (aging countries), and you will barely make any profit due to its demography.


My view on Bank Negara Malaysia Annual Report 2017

So yesterday, BNM released the Annual Report for 2017. There were few interesting points in there, especially their take on the OPR.

Let me start with growth:

“In this positive environment, Malaysia is projected to remain firmly on a steady growth path to grow by 5.5% – 6.0% (2017:5.9%).”

So BNM believes that this year growth will come from consumption and investments. I would agree on that since we saw an extraordinary wage growth since the second half last year. Few major projects such as “transport and utilities segment” is also expected to kick in later this year. Nonetheless, the central bank was quite bullish on exports growth, expecting it will grow at 8.8% this year. I would argue that this number is assuming that trade protectionism is still under control. But if we look specifically at E&E segment, I am not convinced growth in exports won’t be as high like last year. I haven’t seen growth in semiconductor billings on its way up.

On inflation:

“Headline inflation is expected to average between 2.0% – 3.0% in 2018 (2017: 3.7%). While global energy and commodity prices are expected to trend higher in 2018, the higher base in 2017 will result in a smaller contribution to headline inflation. In addition, a stronger ringgit exchange rate compared to 2017 will partially offset the impact of higher global energy and commodity prices.”

My forecast suggests that inflation to be slightly higher compare what to BNM had. At this moment, I am assuming that oil price to be around USD60 to USD65 per barrel. As of today, oil prices had reached around USD68, I do agree with BNM’s point that stronger MYR will be able to outweigh oil price’s impact on inflation.

This graph proves the argument.

On the Ringgit:

To be honest, they didn’t really have their outlook on the Ringgit. But based from their tone, I would say that they would be comfortable at this level. Uncertainty in the financial market and geopolitical risk, in addition to trade protectionism is something the central bank will be paying attention in order to maintain the Ringgit at the current level.

On the OPR:

“The MPC raised the Overnight Policy Rate (OPR) by 25 basis points to 3.25%. This is aligned with the focus of monetary policy for the year, which is to ensure that the monetary policy stance is appropriate for sustainable growth prospects moving forward. The MPC also recognises the need to prevent the build-up of risks that could arise from interest rates being too low for a prolonged period of time, even as the risks of financial imbalances currently remain contained.”

This is very, very, very interesting. Let me take you back to last year in October 2017, during the Governor’s speech in Kota Kinabalu

“Membiarkan kadar faedah terus berada di paras yang sangat rendah untuk jangka masa yang panjang akan mendatangkan pelbagai risiko ketidakseimbangan kewangan.”

The central bank hasn’t used the sentence since that speech. Yesterday was the first this year.

What I am trying to say is, they indeed think about another 25bps in the future. But the timing is up for debate.

Overall, nothing new was really mentioned by the central bank. For the first time, household debt is not their number one concern at this moment. They did mention that the property market is something they are watching out, including affordability in the residential segment, unoccupied spaces in the office/commercial segment, and insufficient supply of affordable house.

There was an interesting article on foreign worker in the report. I will comment that article later.

Abolishing GST?

Let me dive straight to the point. It is possible to abolish GST, but you need to convince me on one thing; How are you going to replace the RM41bn revenue.

As we can see from the chart, 18% of the government revenue comes from GST, behind company income tax with 30% share, and individuals with 14% of share.

Malaysia Government Revenue.png

There are other ways to do this if we really want to abolish GST: Increase income tax rate or/and companies tax rate. But for a country like Malaysia, I don’t see this happening. Increasing income/companies could erode consumption, investments, and increase tax evading behavior.

In my opinion, the implementation of the GST came at the right time for the government as the oil price was collapsing. I still hold on to the view that taxing consumption is the best way to tax everyone (Still hoping country like Indonesia to reform its whole tax system to become more progressive).

Studies suggests that taxing consumption promotes economic growth, encourages individuals and businesses to save in the short run, and encourage spending in the long run.

I do criticize that we are spending too much on operational instead of development (what annoys me is 34% of operational spending went to emoluments, which is kind of too much in my opinion). But yet again, if we do want to abolish GST, convince me on how we are going to replace the RM41bn revenue.

The Gender Wage Gap Debate – Maybe We’ve Been Asking The Wrong Question?

There were two interesting article I found. The first one was about gender wage gap in Denmark, and the second one was among lawyers. Both studies concluded that wages for both gender did increase over the time, but the gap hasn’t narrowed.
Both of these studies have on thing in common: Children was the main reason for the wage gap. (Apparently, the gap takes place after women (but not men) had children.)


So this raises the question; Assuming both gender, before they enter the workforce had obtained the same education and training, why women were still making less than men? (In other word, why women were hurt more than men once they had children?)
In my opinion, we’ve been looking this from the wrong angle.
The problem with this whole context, is we were focusing too much on “what causes pay gap”, instead of “when the pay gap happens”.
In the case of Malaysia
Source: CEIC
In the case of Malaysia, we did see improvement in participation among women throughout the years. Nonetheless, it hasn’t reached to an absolute (or almost) equality.
If we are talking about wage gap among Malaysians, I can say that the wage gap is narrowing over time (since I was able to look at payroll in the private sector).
What I am trying to figure out is this: When is the best time to intervene to make sure female get absolute (or almost) equal wage compare to men. Should we intervene before women had children, or after they had children. This is the only studies I haven’t found yet.

Trade War : It’s funny, until someone is hurt.

Few months ago, when President Donald Trump announced that his administration will be imposing import tariffs on solar panels and washing machines (I still do not know the rationale of imposing import tariffs on washing machines), I really thought that the impact won’t be that big.

But just like what the title says: It’s funny, until someone is hurt.

So few days ago, the administration imposed tariffs on aluminum and steel. What worries me though, is that the Canadian, and the EU had voiced out they are going to retaliate. For example, the EU now wanted to impose import tariffs on whiskey, Levis jeans, and Harley Davidson.

This reminds me of what had happened before the Great Depression in the 1930s: Smoot-Hawlet Tariff Act.

To sum what happened (I am just going to copy paste here from FEE) :

Real national income fell by 36 percent; unemployment increased from 3 percent to over 25 percent; more than 40 percent of all banks were permanently closed; and international investment and trade declined dramatically.

Now, you may ask: How is this going to affect Malaysia?

My answer is: Not much, but we have to start paying attention. Here are few items that we are exporting to Uncle Sam:

2018-03-13 (2)

Source: OEC

Few things first, lets see this from what President Trump would do. Obviously his main objective was to protect his voters. That explains why he imposed tariffs on solar panels (to bring back the coal industry), steel, aluminum, and washing machines (seriously, I don’t know the rationale of imposing tariffs on washing machines).

So you could see, the E&E products, rubber (although I don’t think Uncle Sam is producing rubber) could be next on President Trump’s point of view.

OK. Here’s the scary part: Assuming that this is a repeat of 1930, where US’ exports go down, will exports of Malaysia go down too? Looking at this chart, most likely.

Malaysia Exports vs US Exports

Data Source: CEIC



Pakatan Harapan’s Manifesto : Few good, and few questionable.

Pakatan Harapan published their own manifesto for the coming election.

Before I go further, let’s get this one right first. For you to spend, you need money. For government to spend, they need revenue. This is the only one major point I was dissapointed with the manifesto, since there was no math involved.

Let’s start with the questionable points first.

Menghapuskan GST dan mengurangkan kos sara hidup dengan pelbagai inisiatif peduli rakyat.

OK, who won’t agree that abolishing GST isn’t a great idea. But the problem is, if this tax system is abolished, how the government is going to generate revenue from this channel?

This either, (a) increase income tax, or (b) increase corportae income tax. The problem is, increasing income tax too high might encourage people to evade their taxes, and this will be the same case for companies as well.

Menstabilkan harga minyak dan memperkenalkan semula subsidi petrol secara bersasar.

Let me repeat this again: For government to spend, they need revenue. So the problem goes back the previous point regarding abolishing GST. If RM42bn is wiped out from government’s wallet, how are they going to subsidized petrol?

Sebagai langkah pertama, Kerajaan Pakatan Harapan akan memperkenalkan skim KWSP untuk suri rumah. Caruman akan disumbangkan daripada caruman KWSP para suami yang bekerja pada kadar 2% sebulan yang tidak membebankan.

I agree with this point, until……….

Sebagai tanda penghargaan kepada suri rumah, Kerajaan Pakatan Harapan akan memberi sumbangan  aruman sebanyah RM50 sebulan kepada KWSP para suri rumah. 

For government to spend, they need revenue. I don’t have the exact number of how many housewives we have in Malaysia. The intent is good though, by providing safety net for housewives. But looking at the big picture, it is kinda pointless since women in Malaysia now are more educated, and more women are entering the labour force.

Menyamaratakan gaji minimum seluruh negara dan seterusnya memulakan proses  eningkatkan gaji minimum.

The impact of minimum wage in Malaysia has been very minimal. There was an interesting study on Seattle’s minimum wage published last year, showing that setting the minimum wage too high eroded its economy (although their finding was disputed later). What I am trying to say is, when it comes to minimum wage, there’s a limit on where the floor should be raised.

Nonetheless, there are few good points:

Kerajaan Pakatan Harapan akan memperluaskan skim sewa milik (rent-to-own) di seluruh negara. Kami akan mencari kata sepakat dengan bank-bank komersial agar boleh diwujudkan skim sewa milik dengan pemaju swasta dan juga di pasaran sekunder  secondary market).

To be honest, I can’t really find a concrete evidence whether this scheme does work over time. So let’s see.

Kerajaan Pakatan Harapan akan memperkenalkan insentif perkahwinan seperti yang  iamalkan di oleh pentadbiran kami di Selangor.

This is interesting. The way I see it, is this could motivate people to get married and have babies. Since Malaysia is about to become an aging country sometime in 2030, and our birth rate is below replacement level, this kind of incentive might work. (The reason I say ‘might’ is because I haven’t found any study that giving out incentives will encourage people to get married.) This is worth testing.

Di bandar-bandar besar seluruh negara, kami akan memperkenalkan secara  erperingkat skim pas pengangkutan bulanan dengan kos RM100 sebulan sahaja yang akan membolehkan penggunaan pelbagai jenis pengangkutan awam dengan satu pas.

Another program that I would like to test: Does giving monthly passes will encourage people to take public transportation.




So, no free live Premier League on RTM?