Brain Exercises Can Delay Mental Decline, But Then Watch Out

By Jeanna Bryner, LiveScience Managing Editor

Brain exercises may keep cognitive decline at bay longer, but once dementia hits it mysteriously seems to progress faster than if it hadn't been postponed, according to an ongoing study that began in 1993. 

"Our results suggest that the benefit of delaying the initial signs of cognitive decline may come at the cost of more rapid dementia progression later on, but the question is: Why does this happen?" said study researcher Robert S. Wilson, of the Rush University Medical Center in Chicago. 

Mentally stimulating activities, such as crossword puzzles and reading, seem to keep the brain functioning relatively normally for a while despite the buildup of the plaques and tangles in the brain that are linked with dementia. However, there seems to be a threshold, after which a person's brainy lifestyle can't hold off the outward signs of dementia, the researchers say. 

How often do you read?

 

For their study, Wilson and his colleagues enlisted 1,157 people, all at least 65 years old and with no signs of dementia, and then evaluated their mental activities over the years. 

At the study's start, participants indicated on a 5-point scale how often they participated in seven  activities: viewing television, listening to radio; reading newspapers; reading magazines; reading books; playing games like cards or doing puzzles; and going to museums. (A rating of 5 meant a person did some of these activities about every day; 3 meant several times a month; 1 meant once a year or less.) 

About every three years, clinical evaluations were used to determine signs of dementia, mild cognitive impairment and Alzheimer's disease. (Dementia is a decline in mental capabilities, especially memory, which is primarily caused by Alzheimer's disease but also can be the result of Parkinson's disease, stroke, or infections in the brain.) 

During the first six years of the study, the researchers determined the number of individuals who had developed mild cognitive impairment, Alzheimer's, or no cognitive impairment. Then, they followed them for another six years and found that the rate of inevitable decline in those people still without cognitive impairment was reduced by 52 percent each subsequent year for each point they scored on the cognitive activity scale. 

But, perhaps surprisingly, for people who had developed Alzheimer's disease at the first six-year point (which accounted for about 90 percent of the dementia diagnoses), the average rate of decline per year actually increased by 42 percent for each point they scored on the cognitive activity scale. 

"Actually, the person with a cognitively active lifestyle has more severe disease than it appears when dementia is first diagnosed, and they decline more rapidly thereafter," Wilson said. 

 

Why reading delays brain decline

 

"There's been a long debate as to why people with a cognitively active lifestyle are less likely to experience cognitive decline," Wilson told LiveScience. One idea is that keeping the brain active protects against the decline, while another school of thought proposes that people who are less cognitively active are really showing early signs of the disease (and so decreasing cognitive activity is just a consequence of cognitive decline). In fact, past research has suggested people who have healthier brains are more likely to read and practice other mind-enhancing activities. 

The longitudinal study — meaning one in which participants are followed over time — is part of the Chicago Health and Aging Project, focusing on risk factors for Alzheimer's disease in four Chicago neighborhoods. 

The latest findings suggest the protective effect may be at work. Essentially, the plaques and tangles are still forming on the brain, but people who stay cognitively active don't show signs of those brain plaques until later.

The researchers aren't sure what's going on in the brain to keep decline at bay for cognitively active people. But past brain-imaging studies offer clues. 

One study over a three-year period of German medical students cramming for a sort of final exams found that their brains' hippocampus and neocortex had grown, Wilson said. Another study, focusing on jugglers, revealed corresponding changes in the parts of the brain devoted to juggling. 

The size increase in various brain regions means that some people will have an extra buffer for the cognitive decline that inevitably comes with age. Or as Wilson puts it, the beefed-up brain regions give you "a little more mileage out of what you have." 

Keeping your mind sharp

 

It's not too late for those who are creeping into old age to ward off the onset of mental deterioration, Wilson said. [Play brain-training games.] 

Wilson wouldn't recommend just mindless crossword puzzling; clues from neuro-imaging studies suggest the activities that make a difference in brain-boosting are the ones practiced regularly and intensively. 

"They need to be challenging activities and also intriguing or fun to the individual," Wilson said. He added:  "Any activity that involves reading is a good place to start." 

The study, supported by the National Institute on Aging and the National Institute of Environmental Health Sciences, was published online Sept. 1 in the journal Neurology.

• 7 Ways the Mind and Body Change With Age
• 10 Ways to Keep Your Mind Sharp
• Top 10 Mysteries of the Mind 

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Bank Loan Price War, Banks to try to prevent speculation on property prices, Possible mortgage cap on property not a concern

There may be a price war to give out cheaper bank loans

By TEE LIN SAY
linsay@thestar.com.my

KUALA LUMPUR: There may be a new round of price war among banks for consumer loans, with the new mortgage rate going down to as low as base lending rate (BLR) -2.3%. The current BLR rate is 6.3%.
Some analysts said this comes as a surprise to the market after a mutual understanding was reached earlier to set a minimum rate of BLR-1.9%.

The new mortgage rate is now down to BLR-2.2% since end-July and some banks have started offering BLR-2.3%.

A home loan officer from CIMB Bank Bhd told StarBiz that housing loans have been revised downwards.

Which one shall I take? So many choices! Can't believe it.

 

“Previously we were offering BLR-1.9%. Now, we are revising the rate to BLR-2.1%. We had been losing some market share to foreign banks and decided to join in the price war,” he said.

The BLR is a minimum interest rate calculated by banking institutions based on a formula which takes into account the institutions’ cost of funds and other administrative costs. The BLR is measured against the overnight policy rate (OPR). This year, Bank Negara has raised the OPR by 75 basis points in three rounds of rate hikes points to 2.75%.

This means that the BLR also goes up by 75 basis points to 6.3% currently. The BLR is one of the major components used by banks to determine the pricing of home loans.

StarBiz called up the customer service departments of some of the major banks for verification. While rates change depending on the mortgage taken, some banks have become very aggressive in their rates.

It appears that CIMB’s rate is now BLR-2.1%, Hong Leong Bank Bhd is BLR-2.3%, OCBC Bank (M) Bhd is BLR-2.3% and UOB Bank is BLR-2.3%.

While the website of Malayan Banking Bhd shows that it is offering BLR-1.8%, one of its home loans officers contacted said it could offer up to BLR-2.2% depending on the loan taken.

“The price war has also spilled over to credit cards, with offers to absorb the government annual service tax. This was previously borne by card holders,” said an analyst from UOB KayHian.

The analyst added that the start of government infrastructure projects and robust property launches would drive business loan demand in the second half, in time to mitigate the impact from slower external trade.
Business loan is now 44.7% of total loans as at end of July 2010.

Property brokers agree that the outlook for the property sector has been improving.
Zerin Properties CEO Previndran Singh has a “neutral to positive” outlook on the property sector in Malaysia.

“Prices are not moving up as fast, but interest is returning. Yes, there are issues of products being mismatched, but they are not big issues,” he said.

A real estate agent from Reapfield Properties Sdn Bhd said interest in Malaysian property was moderate. People were adopting the “wait and see” attitude because of the rising interest-rate environment.

However, she said there was “lots of interest in our properties below RM2mil”. There was less movement among the higher end homes.

She added that her client list included foreigners from Singapore who were keen to invest in Malaysia due to its affordability.

The UOB analyst said banks’ net interest margin was expected to trend up again after Bank Negara made another 25 basis points hike to the overnight policy rate on July 8. Average lending rate inched up to 5.19% in July from 5.05% in June.

This impact might be offset by the new round of price war among banks for consumer loans.

Loan growth fell from 12.5% in June to 11.9% in July due to higher repayment by the real estate and finance sectors. Consumer loans remained the driver on resilient demand for big-ticket items.

The banking system’s capitalisation remained strong with risk-weighted capital ratio and core capital ratio sustained at 15.1% and 13.2% respectively.

The level of non-performing loans including impaired loans remained stable, accounting for 2.1% of net loans. Loan loss coverage was stable at above 90%.

Banks to try and prevent speculation on property prices

By ANGIE NG and SHARIDAN M. ALI
starbiz@thestar.com.my

PETALING JAYA: Bank Negara is engaging with banks on possible measures to curb excessive speculation on property prices while developers caution that it should not be imposed across the board to avoid dampening the property market.

Responding to queries on whether the central bank will be imposing a 80% loan-to-value ratio (LVR) for mortgages to avert the risk of a potential property bubble, the central bank said: “Bank Negara regularly engages with industry players as part of its surveillance and supervisory activity. The engagements cover a broad range of issues and areas that relate to developments on the ground, safety and soundness of the institutions and the overall system.”

Datuk Michael Yam ... 

‘Bank Negara should not impose a mandatory LVR cap on loans.’

 

It added that to ensure prudent management of credit risk in the banks’ balance sheets, the central bank regularly engages with the industry on developments in the underwriting and selling practices of financial institutions.

The share of housing loans to total loans is about 26%, according to the central bank.

When contacted, banking industry players said it was likely that any measures to be introduced would be pre-emptive measures to target certain quarters of purchasers and would not be across the board.

The measures are believed to be targeted at the high-end and non-owner occupied house purchasers.
Currently Bank Negara does not impose any standard policy on mortgage loans but leave it to the banks to manage.

But following a rise of between 10% and 30% in the prices of landed houses in some parts of the Klang Valley (including Kuala Lumpur) and Penang in the past one year, banking sources said Bank Negara might be looking at discontinuing the 5:95 and 10:90 housing loan packages, and preferred banks to impose higher downpayment for property purchasers.

Tan Sri Leong Hoy Kum ... ‘We hope that any implementation of the 80% loan to value ratio will take into proper consideration the industry’s feedback and current market conditions.'

The bank sources concurred that over the longer term, there must be the flexibility to allow more relaxed loan quantum if the market needs it, especially if there is a recession.

OCBC Bank (Malaysia) Bhd head of secured lending Thoo Mee Ling said part of the rationale for the 80% LVR for mortgages could be to curb speculative property prices in the market currently.

“If it is implemented, home buyers will have to self-finance a higher amount than they do now. In the short term, coupled with entry costs such as legal, stamp and valuation fees, the property market will take a dive and it will subsequently dampen the mortgage business.

“In the long term, the measure would curb speculative property buying and promote a healthier property market. Therefore, both the banks and property market will become more resilient to any potential crisis,” she said.

Datuk Michael Yam, the president of Real Estate and Housing Developers’ Association Malaysia (Rehda), said Bank Negara should not impose a mandatory LVR cap on mortgage loans at this juncture as it would dampen buying sentiment with spillover effects on other related industries such as construction and building materials suppliers.

“The local banking industry is well regulated and banks are very prudent and stringent in their credit assessment of borrowers. Banks have, on their own initiative, cut down loan margins to borrowers and only those who are credible and can afford to repay their loans will be offered a higher loan margin.
“Banks also are very selective of what projects they extend loans to.”

Caution and prudence should be exercised when considering any measure for mortgage loans, said Yam, adding that it should not be across the board.

“It is better to leave it to market forces to decide as the banks’ stringent lending criteria is enough to ensure the quality of loans in the market,” he added.

Yam said that up to 90% of the country’s population are living in affordable houses priced below RM250,000, and the current low downpayment for property purchases has promoted home ownership among the lower to middle income group.

Mah Sing Group Bhd group managing director cum chief executive Tan Sri Leong Hoy Kum said a conducive financing environment was important to support the property industry, which was a significant engine of growth for the economy.

“We hope that any implementation of the 80% loan to value ratio will take into proper consideration the industry’s feedback and current market conditions.”

Leong said there was no property bubble at this juncture “as property price increases have not been across the board.”

“The properties which have been enjoying price appreciation are those with good concepts by branded developers, and sited in good locations.

“One must also take into account the construction cost, and also increasing price of good land in considering the prices of properties, which have gone up by 10% to 25% in the past 1½ years,” Leong added.

Possible mortgage cap on property not a concern

By TEE LIN SAY
linsay@thestar.com.my

Buoyant consumer sentiment, demand for good locations seen supporting property purchases, say analysts

KUALA LUMPUR: Preemptive measures to curb purchases in certain property segments may yield temporary results as buoyant consumer sentiment and demand for good locations are expected to sustain.

Property analysts said there could be a short-term knee-jerk reaction to Bank Negara’s possible imposition of an 80% loan-to-value ratio (LVR) for mortgages to avert the risk of a potential property bubble.

CIMB research head Terence Wong is not overly concerned over such moves, pointing out that the previous imposition of a 5% real property gains tax last October had only resulted in a short-term cooling of demand.

“This will be effective in cooling down the market for a few months. People will step back and pay more attention to the launches and product offerings instead of simply jumping onto the bandwagon,” he said.

Wong, however, feels that the measure should not be imposed across the board. It should be applied to landed homes rather than condominiums, as it is mainly the prices of landed properties that have gone up extremely fast.

On the other hand, price increases for high-rise condominiums and apartments have been relatively subdued due to an oversupply situation.

“We know there is a finite supply of land in the Klang Valley. Everybody wants his own plot of garden. So logically, that is why prices of landed properties are going up. In that sense, this potential move (to curb certain property loans) is not a serious concern,” said Wong.

Analysts are not surprised by the possibility of a cap on the LVR as the prices of selected properties in prime locations in the Klang Valley have shot up in recent months due to a combination of factors including pent-up demand and speculation.

Bank Negara is currently exploring this measure to reduce excessive speculation and prevent the housing market from overheating as the economy recovers amidst a low interest rate environment.

Developers have enjoyed record sales this year and in some instances, sales have been so strong that some developers have the luxury of slowing down their launches.

NewAsia Capital associate director Sherilyn Foong agreed that the possible measures would, to an extent, cool down speculation in the property sector.

In Foong’s view, these potential measures could affect the take-up rates, especially among the higher value primary transactions which have benefited from innovative financing schemes.

“Pending more details, if the cap is only imposed on higher value transactions of say, RM1mil and above, the lower-middle range should, technically, not be affected.

“This is unless the entire sector turns bearish against the sentiment induced by sector-specific measures such as impositions of capital gains tax,” she said.

Credit Suisse research head Tan Ting Min, in her report on Tuesday, said capping the LVR at 80% would put a dent on the Malaysia property sector and dampen sentiment in the near term.

“The cap on LVR will indirectly reduce affordability and may cool demand in the mass market and mid- to high-end segments.

“We may also see some downtrading as affordability will be determined by the higher 20% equity upfront requirement.”

In the longer term, Tan views the preemptive role taken by Bank Negara as positive.

“It is critical in ensuring the sustainability of the Malaysia property market and reducing the risk of a major ‘shock’ to the sector should the economy slow or interest rates rise,” she said.

In the region, similar moves have been made to cool the property market over the past 12 months.

Singapore announced another round of cooling measures on Monday, including lowering the LVR to 70% for buyers with one or more outstanding loans, from 80% previously.

Broadband pricing in US and Europe falls

Broadband pricing in Europe and the US fell €5 a month, on average, as broadband speeds went up by an average of 20 per cent during the last year, says researcher Analysys Mason. This is after a relatively flat period during the past recession, when prices held up.

Now the average price paid for a fixed broadband service bundle, which includes any single service or double and triple play bundles, has come down to €40.7 a month. Analysys Mason says that it tracks over 1000 fixed broadband-based bundles in Europe and the USA to track this pricing. Our guess is that this tracking is done on web sites and that these are published prices. In the US, cablecos are well known for using call centers to match rival pricing, going below published prices, so the real number may be far lower.

Martin Scott, Senior Analyst at Analysys Mason said, “Almost 20% of the tariffs we tracked during the second quarter of 2010 offered down- stream bandwidths of 30Mbps or greater although the proportion of subscribers that actually take these ultra-fast services is likely to be much lower than 20%. Consequently, the average price per Mbps per month has declined from €7.5 in the fourth quarter of 2009 to just €5.8 in the second quarter.” Competition from mobile broadband services contributed to the downward pressure on fixed broadband tariffs, the company said.

But it also warns that the premium which cellular providers charge for mobile broadband services is also eroding. Prepaid mobile broad- band services with usage caps of 3GB or more now undercut entry- level fixed broadband propositions.

Over a six-month period the median price of fixed broadband services, excluding voice and TV services – fell €25.9 a month. When all service bundles are included, it was €40.7, down from €45.8 six months ago.


Copyright © 2010, Faultline
Faultline is published by Rethink Research, a London-based publishing and consulting firm. This weekly newsletter is an assessment of the impact of the week's events in the world of digital media. Faultline is where media meets technology.

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Mathematicians Create Objective Quality of Life Index

The US comes second in a new quality of life index designed to be mathematically objective

 

Here's a thorny problem: to develop an objective way to rank countries according to the quality of life they offer their citizens.

There are various ways of approaching this problem. For example, the Economist Intelligence Unit compiles its quality of life index using surveys, a useful technique but one that is hard to show is objective. Another widely quoted index, the Life Quality Index is based on life expectancy at birth and the gross domestic product per person but is only able to rank countries by applying a correction factor for each country that some critics say is open to bias.

Is there another way? Andrei Zinovyev at the Institut Curie in Paris and Alexander Gorban at the University of Leicester in the UK think so, using a mathematical technique developed in the mid-90s that can cut through this kind of problem .

They chose several widely-measured and well-studied indices on which to base their index: GDP per capita, life expectancy at birth, infant mortality rate and the incidence of tuberculosis. This data from 2005 is available for 162 countries.

Zinovyev and Gorban then plot this data in four-dimensional space. To create a ranking, the important question is whether there is a linear function that reduces this four-dimensional dataset to a one-dimensional set. Unsurprisingly, the answer turns out to be no. "Any linear mapping will inevitably give strong distortions in one or other region of data space," they say. That's what makes this problem tricky.

However, in the mid-90s a group of mathematicians devised a technique for reducing the dimensionality of complex data sets. This technique is essentially equivalent to connecting various data points together with springs and allowing the system to relax; hence it's name: elastic mapping. The trick is to find an arrangement of springs that "flattens" the data set, or in other words, reduces its dimensionality.

And that's basically what Zinovyev and Gorban have done, creating what they call the Nonlinear Quality of Life Index in the process.

Here are the top and bottom 5 from 2005:
1. Luxembourg
2. USA
3. Norway
4. Ireland
5. Iceland
.
.
.
158. Zambia
159. Mozambique
160. Zimbabwe
161. Kenya
162. Swaziland

No real surprises there, although there are some interesting features of the list. For example Equatorial Guinea is ranked at 140 although its GDP per capita is more than Saudi Arabia's ranked at 37. That's because of Equatorial Guinea's appalling health statistics: 123 infant mortalities per 10,000 inhabitants, for example, compared to 21 in Saudi Arabia.

For similar reasons, Russia is ranked 71st despite having a GDP per capita that is significantly higher than other countries with a similar ranking.

Every list throws ups anomalies like this. The important point about this one is that it is done objectively and transparently.

That's important because these kinds of indices are widely used by economists and politicians as a measure of economic and social development and so used to determine spending polices and legislation.
Objectivity is hard to come by when making these kinds of decisions. If the people who matter would agree to use it, this index could help.

Ref: arxiv.org/abs/1008.4063: Nonlinear Quality of Life Index


Source: Technology Review
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Threat of a double-dip deflation

What’s happening in the US, euro zone and Japan points to a hard slog ahead.

MORE than a year ago (on May 9) I wrote in this column – “Deflation is not an option”, worried as the world was then of the possible coming to pass of the worse-case scenario, and that “the brutal truth is, less-worse is not recovery. The world is not out of the woods yet …”

But by late September, things had begun to brighten up. The Pittsburgh G-20 Summit pronounced triumphantly that the vast global stimuli “had worked” – indeed, it rescued the world from the knife’s edge of the most severe recession since the Great “D”.

What a difference a year makes. In May this year, I wrote “PIIGS can’t fly: the Greek tragedy”, brought about by Greece’s insolvency spreading ripple effects all over the euro zone. Overall, the Greece debacle casts a long shadow over market sentiment which has since become dormant, as of now. But many risks still remain.

Double-dip talk amidst unusual uncertainty

It is amazing how fast things do change. My column in mid-June –“In for a bumpy ride: perhaps even a double-dip?” reflected the fragility of the evolving situation. In the face of a weakening economy, premature tightening raises the risk of a relapse into recession.

Markets have since moved with greater volatility, essentially nervous about fiscal deterioration in US and many euro zone nations, and a darkening growth outlook outside Germany. Any upheaval there raises further the risk of a double-dip.

Indeed, Wall Street has since become increasingly convinced fiscal tightening by UK and euro zone nations and recent lack of confidence in US have dramatically shifted global macroeconomics for the worse. I hear many leading fund managers are already acting to re-position their funds for a double-dip recession – just in case. Some have even started to aggressively de-risk their portfolios.

How real is the risk of a double-dip? For sure, recovery has lost momentum. Second quarter (Q2) GDP growth in the US is lacklustre at 2.4% annual pace, down from 3.7% in Q1, and below expectations. Key components exports and consumption contributed less to growth than in Q1.

In the 12 months since the onset of recession, the economy grew just 2.3%. In contrast, during the equivalent period after the ’81-’82 recession, output rose 5.6%. It is clear the initial boost to demand from inventory build-up has faded.

The housing bust still casts a long shadow. US home sales fell 27.2% in July to a 15-year low. Households are saving more to work off debts. Worse, firms fearful of the future are preferring to squeeze yet more output from existing employees.

So, unemployment is stuck at 9.5%, even though US corporates are flush with cash. Yet, bank credit is scarce. Bankers have turned risk-adverse. All these stand in the way of a wholesome recovery. Little wonder businesses are reluctant to hire with such “unusual uncertainty” as Fed chairman Bernanke puts it.

No doubt, the risk of double-dip has since increased. So much so the Fed recently made a U-turn to counter a weakening US recovery by resuming quantitative easing (dubbed QE2) through re-investing cash from nearly US$1.3 trillion of maturing mortgage-linked debt.

By buying new debt, the Fed pushes bond prices up and long-term interest rates down (since bond yields move inversely to prices). This way, it increases money supply and stimulates growth as credit eases. The message to the market is clear - the Fed will do everything and anything to put a back-stop on the risk of a double-dip!

But, as Professor N. Roubini aptly describes it, “whatever letter of the alphabet the US economic performance ultimately resembles, what is coming will feel like a recession.”

According to Prof M. Boskin of Stanford, double-dip downturns are technically more the rule than the exception. The US ’01 recession was one brief, mild double-dip. Within the current recession, there is already a “double-dip”: a dip at the start of ’08, some growth, another long deep dip, then renewed growth.
Another dip is still possible – it will represent a triple-dip. But not yet an outright second recession which is what most are concerned. In Europe, in the early ‘80s, UK, Japan, Germany and Italy all had double-dips.

History suggests economies seldom grow out of recessions continuously, without occasional subsequent falls. Dips – double, triple and even quadruple – have been part of the US recessionary experience since WWII. So, it should not be surprising to see another decline in growth before sustained stronger growth emerges.

I note the Fed has become concerned over the long time it will take the US to achieve full recovery (and restore the eight million odd jobs lost since the onset of recession) as economic growth turned more sluggish. In addition, the downside risk of a double-dip recession and a deflationary spiral has since increased. Fears of deflation on the back of a still faltering inflation and worries about the return of recession is now flavour of the month.

Deflation is poorly understood

What is deflation? Why worry about it? Deflation refers to persistent and sustained falls in prices. It is usually associated with the Great Depression and its cause – a sharp drop in demand. With it, incomes, consumer prices and asset prices fall. Interest rates move towards zero.

But the cost to borrowers in servicing doesn’t fall, sucking live out of the economy and pushing prices further down. This bad situation gets worse. In 1932, US consumer prices fell 10%; between ’29 and ’33, they fell 27%.

The most recent experience is in Japan but it pales in comparison. Rather than being deep, destructive and concentrated in a few years, Japanese deflation is a mild, drawn-out affair. Consumer prices faltered for 15 years, but never by more than 2% a year. It has been a morass but not a destructive downward spiral.

Why? Economics don’t have a way to rationalise steady multi-year flat deflation. Japan remains a puzzle because its problems persisted for so long. Some turn to the psychology of households and businesses for the answer – if people believe prices will fall, they act to create the environment that becomes self-fulfilling.
Government plays a role through intervention to keep the economy from going through the floor. Other explanations include consumers who are aging and thus, more inclined to save for old age instead of spend.

But deflation is not all bad. For some, falling prices are good because incomes and assets can buy more. Such “good deflation” occurred in US in 1870-95 in the face of strong economic growth, during a period of rising productivity and technological innovation.

Falling electronic goods prices are a modern-day example of good deflation. However, deflation has its bad side – falling prices are associated with falling wages, rising unemployment and falling asset prices. In the US in the ‘30s and more recently in Japan, deflation reflected economic collapse and rising unemployment made worse by high debt and falling asset prices. This delays spending and weakens economic activity.

In today’s environment of high household and public debt, deflation raises the real value of debt in the face of falling asset prices and declining incomes and public revenues. To the extent households and government attempt to reduce their debt burden by cutting spending and selling assets, a “debt deflation” spiral can set in, and so will a double-dip recession.

With “core” inflation (i.e. excluding fuel and food) now below 1% in the US, euro zone and Japan and headline inflation falling again, it is little wonder deflation worries have re-surfaced. The key to inflation outlook lies in capacity utilisation.

Historically, inflation falls or remains weak when business capacity utilisation is well below normal (as in ’08-09 recession). The bottomline is simple: as long as recovery in the US, euro zone and Japan remains anaemic and excess capacity in industry and labour markets remains high, inflation will likely fall further.

If major developed nations return to recession, the risk of deflation will rise. As a general rule, deflation favours cash and government bonds over equities, property and corporate bonds, as well as defensive shares like utility stocks. It’s now clear more aggressive QE2 and sticky service prices are being relied upon to break the back of possible sustained deflation. But with oodles of global spare capacity, I see risks favouring deflation rather than a return bout of inflation.

Concern but not panic

Make no mistake, the threat of deflation is taken seriously on Wall Street. Bond fund heavyweights like El-Erien (who manages US$1 trillion plus in assets) bet US has a 25% chance of falling into deflation. Put it this way: if I told you that my kid has chicken pox and there is a 1 in 4 chance of passing it on, would you allow your kid to come over and play?

To many, the US faces a serious risk of falling into deflation. As slowdown takes hold, consumer prices fell 0.1% in June after falling 0.2% the month before. Growing increasingly wary of deflation (which eats into corporate profits and raises real borrowing costs), many fund managers are prompted to hedge against stock falls, while buying interest-bearing assets.Indeed, it has altered behaviour by encouraging firms to accumulate cash, unthinkable a year ago. Investors pile onto public bonds where fixed interest payments provide good returns when prices and stocks are falling. Investors are positioned well ahead of the Fed.

This surge in bonds has pushed yields to multi-year lows. Ten-year US Treasuries yield dropped to a 20-month low of 2.418% in late August, while its 2-year yield marked an all time low of 0.498%. I think there is still room down; yields are still too high. After all, the yield on 10-year Treasuries is still 1.7 percentage points higher than the Japanese. In euro zone (considered to be more prone to deflation than the US) the gap is still 1.5 percentage points. As I see it, bond investors are slow to catch on, as Japanese were when deflation began. Since late 1992, average Japanese inflation was negative 0.1%, but it took six years for yields on 10-year bonds to move from 5% to less than 2%. Today, it’s 0.9%. The question remains: are US bonds selling at too high a price? Only time will tell.

Biflation

The risk of deflation varies between regions. Japan is already in deflation. The risk is highest in the euro zone because recent fiscal tightening and hard-line approach to monetary easing imply rising risk of a faltering economy. In contrast big nations in Asia (notably China and India) have had strong growth with less spare capacity, and hence higher inflation; the risk of deflation is much less.

That’s the real world where biflation exists, i.e. where deflation and inflation co-exist in different parts of the world. It even exists in different parts of the same economy: rising prices for globally traded commodities and falling prices for homes and autos bought with credit domestically.

As I see it, the anxiety about a double-dip deflation is well founded. The Fed has sent the right signal – one of concern but not panic. It is unclear more stimulus will create more jobs, suggesting unemployment may have deeper roots. What’s happening in the US, euro zone and Japan point to a hard slog ahead. Asia seems able to hold itself. But clearly, its ability to decouple from the developed world has still to be fully tested. Much interdependency remains.

Yet, not so long ago, the US was confidently moving forward and the euro zone the laggard. The dollar was riding high as investors fled from Euro’s debt crisis. Within months, the roles were reversed, with Asia still squeezed in the middle – but confident and kicking. This underlines the critical point for public policy: the economic fortunes of the US, Europe and Asia are as tightly bound as ever.

B the Former banker, Dr Lin is a Harvard educated economist and a British Chartered Scientist who now spends time writing, teaching & promoting the public interest. Feedback is most welcome; email:
starbizweek@thestar.com.my.

The power of Randall

Review by ABBY WONG

The Zeroes: My misadventures in the decade Wall Street went insane
Author: Randall Lane
Publisher: Portfolio

“WE WANT YOUR MONEY!” shouted a pair of crass property developers on stage at a party in London’s trendy Penthouse Club which was jam-packed with opulent and sleek-looking hedge funds managers spawned by the recent financial bubble.

While these financial wizards, with or without the necessary Midas touch, were making billions managing “Other People’s Money”, lots of other people outside Wall Street were salivating and trying to get even a small clump of their wealth.

During the swelling years before the financial markets cratered, hedge funds managers were the new rock stars everyone wanted to meet or aspired to be mainly because they were abysmally rich. And they still are.

Strange enough, the role of facilitator at this definitive crossroad of morphing hedgies into celebrities and making their gluttonous ways of life de rigueur landed on Lane Randall, a former editor who founded one of Wall Street’s most popular magazines, the now defunct Trader Monthly, yet unceasingly purported to be skint.

Whether he was genuinely poor or simply was not an entrepreneur crafty enough to gain from a great number of billionaires with whom he rubbed shoulders with, Randall, by writing this book, has opened our eyes to the financial bacchanalia, a decade-long gold rush in which Wall Street and its constituents were in their quixotic pursuits of wealth.

Randall aptly calls this period The Zeroes.

While recounting his experience at Trader Monthly, as well as a handful of other luxury magazines he founded, Randall discloses the wanton earnings, spending and squandering of some of the mega traders his magazines featured in or he collaborated with as a magazine publisher.

The wealth of these arrivistes was as unbelievable as their ways of living.
“No longer were the best financial industry players content with a payday. Instead, sometime around 2002 or 2003, compensation hit a new stratosphere mimicking the GNP of small countries.”

But with so much money made or to be made, there simply wasn’t enough stuff of real value to buy.
Hence, money went to buy watches, real estate, cars, private jets, paintings, wine or even burgers at ridiculously insane prices.

The swindling of money, unfettered and slowly becoming the spirit of the time, was shocking and could easily make one foam at the mouth.

If a US$175 Kobe beef burger was not a good enough lunch, then most possibly neither was a US$1,000 lobster-and-caviar pizza.

If you marvel at the materialistic euphoria at the time, cringe you will at the ways these nouveau-rich made their money.

Some – if not all – hedge fund managers might have made their winning bets by sheer luck and then extorted their members a 20% share of the profit.

Others, private equity speculators, swelled their bank accounts with money made by swapping companies that were bloated with overpriced assets and wasteful costs.

Likewise, if you are agape while reading this book, another reader may hurl it across the room, feeling aghast by the notoriety of denizens of financial markets, Wall Street in particular.

Though Randall writes not to condemn the rich traders whose appearance in his magazines had helped bring in lucrative advertising revenues, he does damn a host of business partners with whom he unpleasantly got involved.

But what Randall never admits is that he seemed like a lousy businessman who made the same mistakes over and over. Quite possibly, as readers can easily surmise, he, too, had fallen prey to the mind warp prevalent at the time – the breathless and reckless pursuit of more zeroes.

As the market careened towards disaster in 2008, so did Randall’s media empire.
His company eventually filed for bankruptcy and he personally lost half a million dollars.

“Maybe, in that example,” he concludes, “there was a lesson for Wall Street.” But no.
While the epic mess is being dealt with, the game played on, timeless and unabated.

Randall has been ejected but the trading community continues to toast for yet another record bonus payout in 2009.

Hopefully, the sales of this book will help Randall recover some losses.
After all, it is a highly readable and entertaining book.

The power of Randall lies in his depiction of the decadence of Wall Street during the Zeroes as well as the cupidity of some of the hucksters who forcefully joined the revelry.

I highly recommend this book to businessmen, traders, bankers, deal makers, funds managers, finaglers, charlatans, or rogues as a useful lesson for their respective endeavours to enrich themselves in fanaticism of the 21st century.

MBA can still go far in the local job market; Harvard Business School Drives Yale and MIT's Edifice Complex

MBA can still go far in the local job market

 By FINTAN NG
fintan@thestar.com.my

 

Kelvin Ma/Bloomberg NewsMIT Sloan School of Business Management's newest building, E62, in Cambridge, Mass. Elite business schools are locked in an "arms race" of building bigger and more elaborate business campuses.

THE MBA (Master of Business Administration) is still a qualification that is much sought after by Malaysian employers for the skill-sets and knowledge-base that comes with it.

Many point out that getting the MBA from a reputable business school is important, but there are those like Boston Consulting Group Malaysia (BCG) managing director and partner Vincent Chin who believe that MBAs are not really necessary in certain cases.

“For those working in large and well-run companies such as the Fortune 500 ones, the vigorous training provided by them is as good as a reputable MBA,” he tells StarBizWeek.

However, Chin says that when companies including BCG hire MBA holders, they are looking for those with a combination of talent and faith.

He adds that if people are prepared to invest up to US$200,000 for their MBAs, it shows that they are bright enough to enter a good school and ambitious enough to invest in themselves.

Since Harvard Business School of Harvard University pioneered the programme, US-based MBA programmes are highly sought after. However, admissions for such courses to the better business schools are highly selective and prohibitively expensive.

According to the US News & World Report, which surveyed 426 MBA programmes for 2010, Harvard and Stamford tied for first place.

But US MBA programmes are not the only good ones out there. London Business School, Instituto de Empresa, Said Business School of Oxford University and Judge Business School of Cambridge University are just as reputable.

In Asia, according to the Financial Times global MBA rankings, Hong Kong University of Science & Technology’s MBA programme ranked the highest at 14 among the top 100.

This is followed by the Indian School of Business at 16, China Europe International Business School at 22, Nanyang Business School at 27 and Chinese University of Hong Kong at 28.

How much of an impact does it have on salaries? That will really depend on which school a person attends, with those from reputable schools having the most increase.

According to the same global rankings, most MBA holders will see their salary increase anything from 80% or more to over 120% based on average salary across industries in the current year compared to one or two years before they attend business schools.

However, there is a catch. Most employers expect those armed with MBAs to have at least five to eight years of working experience.

This can be judged from the vigorous admissions standards of reputable MBA programmes, where those applying must have some working experience, preferably with several years in management-level positions.
Kelly Services (M) Sdn Bhd managing director Melissa Norman says pursuing post-graduate qualifications are recommended for talents aged 30 and above.

She says these are people who are looking to improve their skills and knowledge as part of their career growth as some organisations require such qualifications for selected senior management positions.

Melissa says that because MBA and other post-graduate qualifications command higher salary, this qualification is not ideal for entry- or junior-level positions.

“Most organisations, especially multinational corporations prefer a basic degree for management trainee positions,” she points out.
She adds that employers seek and value MBA qualifications in job candidates or employees based on the jobscope, nature of work and the type of industry.

“Since mid- to senior-level talent predominantly are armed with an MBA qualification, employers value their skills set, knowledge, maturity of mindset and work experience in order to build a sustainable talent pipeline and leadership bench strength to meet the ever-growing expectations from their clients and other stakeholders,” she says.

Melissa singles out communication skills as an area where MBA programmes should beef up on. She says that out of 1,340 senior decision-makers in a survey carried out by Kelly Services, 90% identified communication as most important and also one of the top five skills in short supply.

Besides communucation, the other critical skills MBA programmes should focus on are problem-solving, decision-making, people management and strategic thinking.

Harvard Business School Drives Yale and MIT's Edifice Complex

By Oliver Staley -

A 15-ton sculpture of a linked chain by Chinese artist Cai Guo-Qiang, carved from a single piece of stone, sits outside the MIT Sloan School of Business Management's newest building. Photographer: Kelvin Ma/Bloomberg 

The Chicago Booth Charles M. Harper Center. Source: The University of Chicago via Bloomberg 

A view from the interior common area and promenade of the planned new structure of the Yale School of Management is shown in this artist rendering. Source: Fosters + Partners via Bloomberg 

A facade street view of the planned new structure of the Yale School of Management is shown in this artist rendering. Source: Fosters + Partners via Bloomberg 

Furniture sits in a lounge on the first level of the faculty offices at the MIT Sloan School of Business Management's new building in Cambridge, Massachusetts. Photographer: Kelvin Ma/Bloomberg 

The main mezzanine is designed to be lit almost exclusively by daylight from the south-facing windows at the MIT Sloan School of Business Management's new building in Cambridge, Massachusetts. Photographer: Kelvin Ma/Bloomberg 

Yale University’s School of Management, which aspires to be among the world’s best business schools, crams its students and faculty into 19th-century homes and former astronomy buildings linked by a rabbit-warren of basements. That’s a far cry from Harvard Business School’s 33- building riverfront campus, which boasts a chapel, health club and its own art collection.

To help catch up, Yale is planning a glittering $180 million structure designed by Lord Norman Foster, who built London’s “Gherkin” tower. The new building, scheduled to open in 2013, will help the school keep pace with its rivals, said Dean Sharon Oster.

“You can’t be in a dump if everyone else is in a spectacular building,” Oster said.

Elite business schools are locked in an “arms race” of building bigger and more elaborate business campuses to recruit the best students and faculty and climb magazine rankings, said Yale finance professor Matthew Spiegel. New buildings mean more office space for faculty and more classrooms for profitable executive education programs. Larger schools can also enroll more students, who pay as much as $80,000 per year in tuition, room and board and other expenses.

Business schools are now splurging on high-profile architects to create imposing glass-and-steel structures, with everything from meeting rooms for student teams to cafeterias with organic cuisine and health clubs.
Good Feelings

“The better the experience people have, the better they feel about the place, the more likely it will be that they would support it at some point,” said Robert Dolan, dean of the University of Michigan’s Ross School of Business, in Ann Arbor, which opened a 270,000-square feet (25,084 square meter), $145 million building in 2009.

Since the Wharton School of the University of Pennsylvania opened its 324,000-square foot, $140 million Jon M. Huntsman Hall in 2002, rival business schools have scrambled to keep up.

The University of Chicago opened its $125 million Harper Center in 2004, while Michigan’s building debuted last year. Massachusetts Institute of Technology’s Sloan School of Business, in Cambridge, Massachusetts, will open new facilities this year, and Stanford Graduate School of Business, near Palo Alto, California, will follow in 2011.

Along with Yale, Columbia Business School in New York and Northwestern University’s Kellogg School of Management, in Evanston, Illinois, are also planning new buildings.

Koi Pond
Harvard’s buildings, the first of which were built in 1927, sit on a 40-acre (16-hectare) bend in the Charles River across from the rest of the university. More recent additions include a glass-and-concrete chapel with a koi pond, housing for 400 visiting executives, a health club with three basketball courts and a student union designed by Robert A.M. Stern.

The University of Chicago’s new business school building, designed by Rafael Vinoly who was inspired by Frank Lloyd Wright’s 1910 Robie House across the street, is oriented around a six-story, glass-and-steel atrium that acts as the school’s “living room.”

The social space has helped change the view that the business school is a haven for math geeks and social misfits, said Stacey Kole, a deputy dean.

“We’re working hard to break that perception,” Kole said. “When you come to campus, you see more activity. It’s a much more positive place to be.”

Rising Applications
Applications jumped 30 percent the first year Chicago used the new building in its marketing, although improved rankings helped drive the increase as well, she said.

While a business school’s physical condition isn’t the most important consideration, “you do consider the facility, you do consider what school will allow you to access the latest technology,” said Ashil Ann, 26, a prospective applicant from Los Angeles to Columbia, New York University’s Stern School of Business and McDonough School of Business at Georgetown University in Washington.

The high cost of attendance contributes to students’ rising expectations -- and the growing size and complexity of the new facilities, said Jonathan Levav, an associate professor at Columbia. Two years at Columbia Business School costs an estimated $168,307 for tuition, room and board and other expenses.
While universities across the U.S. have cut back on construction because of falling endowments, business schools are immune from the reductions because of their ability to raise money, said Ronald Ehrenberg, an economics professor at Cornell University, in Ithaca, New York, who studies higher education.
‘Wealthiest Alumni’

“Graduates of business and law schools are often the wealthiest alumni,” Ehrenberg said. “It is easy to raise the funds to build buildings from donors to those schools.”

For its new complex of buildings, Stanford’s business school secured $105 million, the largest gift in its history, from Phil Knight, the alumnus who founded Nike Inc., in Beaverton, Oregon. The business campus, which will cost about $350 million, will be named the Knight Management Center in his honor.

At Columbia, faculty offices are in Uris Hall, a 12-story gray slab considered so ugly it was picketed by architecture students when it was dedicated, according to a New York Times article from 1962. Classes are split between Uris and Warren Hall, which opened in 1999 and is shared with the Columbia Law School. The school’s Ph.D. students work in windowless cubicles, the cafeteria overflows with students at lunch time and a former basement storage area serves as a laboratory.

“Our students get an excellent education here, and it’s despite the facilities,” Levav said.

Executive Education

New buildings can also provide more room for executive education, the profitable, non-degree programs for business employees paid for by their corporations.

MIT Sloan’s new building has a wing dedicated to executive education, with more elaborate lighting and furniture than the rest of the school, and its own dining room. Currently, many Sloan executive education classes are held off campus.

“It is on campus, it is clearly part of the Sloan school complex and it makes it easier to say ‘yes,’” said Rochelle Weichman, the associate dean for executive education.

MIT’s building consolidates offices for 107 professors who were spread across five structures, and the four floors of offices are designed to encourage interaction between professors of different departments to help spur innovative thinking, said Lucinda Hill, director of capital projects at Sloan.

Halfway There
Yale has raised about half of the $180 million needed for its building, and will seek another $25 million from donors and borrow the remainder, Oster said in an interview conducted in a full-scale mockup of Yale’s future classrooms, erected in a warehouse off-campus. Naming rights for the building will cost a benefactor $100 million, she said.

Founded in 1974, the Yale School of Management is the youngest business school in the Ivy League, a group of eight U.S. colleges in the Northeast.

“We want to build a great business school,” Yale President Richard Levin said in interview. Levin said he wants the business school to be on par with Yale’s law and medical schools and “be thought of among the best” in the world.

Yale business faculty now work in buildings that date back to 1836, in offices designed as bedrooms and dining rooms with fireplaces and plaster moldings. Many classrooms and staff offices are in a sunken building constructed in 1961, which first housed Yale’s computer and later its astronomy department.

Hurt Recruitment
“The current facility doesn’t look and feel like a business school,” Levin said. “I think it does hurt us in attracting students.”

Having more students will allow Yale to assure its programs are fully enrolled and to justify the size of its faculty, Oster said.

“You don’t want to be in a position where you have three students in each category because you’ll never get enough recruiters and you won’t get classroom excitement if the electives have too few people in them,” Oster said. “We don’t have enough students to go around.”