Thursday, March 01, 2007

Is our economy still good?

DISCLAIMER: I am not an economist. Neither am I an economic analyst. I'm just a humble engineer trying to understand how things work as it's in my nature to do so.

Last week, the government was trumpeting the skyrocketing KLCI as an indicator that the Malaysian economy is doing strongly. When they said what they did, alarm bells went off in my head. It reminded me exactly of the kind of things said by various people about a decade ago. A decade is also incidentally the period between the various economic crises that Malaysia had faced in the past. So, I was fairly wary about it.

This was also after my blog about the state of the Malaysian economy. A very wise old man once told me that the best economic indicator is crime rate. When people are desperate, crime rates go up. Period. It's the kind of clean, objective, rational and logical explanation that I like. Crime rate in Malaysia has been steadily growing. That is the best economic indicator.

Some political people have harped that the government was trying to drum up the index, in order to create a 'feel good factor'. They had said that this would preceed the government calling for a general election soon. Well, I don't think that was the real reason behind it. I believe that they were just trying to build much needed positive publicity. Hence, the positive spin.

As to the comments by our Second Finance Minister today, about how our economy is still strong, just doesn't quite sit well with me. He said that there is nothing to worry about despite the heavy selling on the KLSE. When RM 70 billion of personal wealth is wiped out in 2 days, I'd certainly worry about it.

Some people felt that the PM didn't help matters by announcing that the KLCI will rise to 1350 points. Like the eternal question, the fool or the people who follow the fool, I don't think that the PM should shoulder all the blame for the massive wipeout. The investors that believed in him essentially got what they deserved.

But calling it a 'correction' is right. When a market is inflated by nothing but hot air, a correction is what the economists call a hot air balloon developing a tear. I personally feel that the KLCI will correct down to 1100 but I'm just pulling this number out of my ass. I do hope that things become stable soon though.

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