Trade Deficit

Bernstein (The Atlantic):

"...it’s not inherently a problem for a country to have a trade deficit. For example, a fast-growing economy pulls in more imports as it expands, which pushes a country’s international trade account toward deficit. In that context a trade deficit is good for the economy, allowing the country to consume and invest more than if it maintained balanced trade. This was the story in 2000 when, after four years of strong growth, the American economy had an unemployment rate of 4 percent and a trade deficit that amounted to 3.7 percent of GDP.

[...] 

What effect does all this have on American workers? Trade deficits, even in times of strong growth, have negative, concentrated impacts on the quantity and quality of jobs in parts of the country where manufacturing employment diminishes. [...] There is, for example, a lot of research confirming that de-industrialization in the Rust Belt is partly a result of the fact that America meets its domestic demand for manufactured goods by importing more than it exports. [...] And trade imbalances have repercussions far beyond the labor market. They can produce significant macroeconomic distortions, and those who view deficits as benign frequently overlook this. Most importantly, as Ben Bernanke noted over a decade ago, a trade deficit can have a role in producing financial-market bubbles and the devastation that’s caused when those bubbles burst. The problem arises when other countries suppress spending and investment, thereby boosting their savings rates and their trade surpluses. By the rules of basic accounting, those surpluses have to flow somewhere, and many flow into America. This further strengthens the demand for and value of the dollar, making American exports less competitive—and thus exacerbating the trade deficit. In the 2000s, these trade patterns helped provide cheap capital that, in tandem with inattentive regulators, inflated the housing bubble. Almost a decade later, the country is still recovering.

[...]

The goal of trade policy should thus be to push back on U.S. trade deficits without distorting current trade flows. Large tariffs like the ones Trump has proposed won’t work, nor will preventing offshoring one company at a time, as he did with some of the jobs that the air-conditioning company Carrier was going to shift to Mexico. There are better ways to improve the U.S.’s trade balance—most importantly, the government could take steps to prevent America’s trading partners from manipulating their currencies to make their exports to the U.S. cheaper and the U.S.’s exports to them more expensive. "

Lessons on Online Fashion Retailing

I attended a semi-public talk hosted by the CEO of a major regional online fashion retailer.  Some of the key takeaways below:

1. Operating costs online is not necessarily lower than offline retailers.  Rather, online, it is skewed towards more variable cost.  Shipping, returns, acquisition cost, system maintenance are major cost drivers.  Offline is more fixed costs.  This is why major online retailers hardly make any profits. 
2. Generally it's very difficult for general retailer to enter into fashion. There's the prestige factor: if you're a consumer, you dont want to buy your dress shirts on Amazon.  Similarly if you're a fashion brand, you don't want to sell on marketplaces.  Premium brands avoid marketplaces, because these stores are not incentivized to crack down on counterfeit/grey market products.  
3. Consignment margins are large in % terms but small in absolute dollar terms. 
4. Acquisition/onboarding of brands are not easy even for leading online stores.  Major brands want to stay exclusive, or want to stay offline.  Again, the prestige factor. 
5. Refunds rate for fashion is very high, it can go up to 50%.  Things tend to "look a lot better in pictures" or "doesn't fit well".
6. On desktop computers, revenue on weekdays is much higher than weekends.  On mobile/smartphones, it's more spread out.  Nevertheless, on weekends people don't really shop online, they'd rather go to malls.  Nowadays 80 % of purchase made on mobile. 
7. In Indonesia, online retailing accounts for under 1% of total market for retailing.  In China it's already close to 10%.  Still lots of room for growth.  Indonesia has yet to figure out, for example, simplified cost-efficient online payments.

Why risk minimization mind-set is hindering progress

Why risk minimization mind-set is hindering progress
Lin Che Wei, President Director
Jakarta Post: [2007]

Let's say that one day you are standing at a railway junction where a runaway train is about to pass and go all the way to a tunnel where forty men are working. At that point, it is within your power to pull the lever to divert the train to another tunnel where 'only' five men are working.

You need to make a swift decision between doing nothing and letting forty people die -- but you will not be faulted for it -- or pulling the lever and killing five men instead. So, will you kill or let die? (Baggini, 2006)

Most people in Indonesia would choose to do nothing -- even though this is suboptimal -- for fear of being blamed or worse, penalized. Why? Because our society tends to adhere to asymmetric profiles of risk and reward.

Losses suffered as a result of taking risk are severely punished; while on the other hand gains received from risk-taking activities are not adequately rewarded.

Hence, we often seek to minimize risk instead of maximizing risk-adjusted return.

The act of minimizing risk is prevalent among bureaucrats and commercial bankers. The Indonesian economy is a commercial bank-dominated economy. In a bureaucratic system, the decision-making process is often laborious and time consuming, and therefore people often choose to only consider low-risk projects despite the relatively lower anticipated returns.

The same mentality also reigns in commercial banks, which operate in the so-called "belt and suspender mode". These banks will only disburse loans if there collateral is offered as a guarantee, and if the project can provide a steady stream of revenue and predictable cash flow.

That is why, micro, small, and medium enterprises face serious difficulties in securing loans from the commercial banks.

Excessive risk aversion leads to suboptimal economic development for three reasons.

First, it limits the universe of possible investment projects. The risk minimization mind-set prevents financial providers and decision-makers from considering projects outside their risk comfort zone.

Consequently, so many frontiers are left unexplored. The failure to venture into uncharted waters means limited possibilities of promoting creativity and fostering innovation. In the end, the finance industry and the economy as a whole become static.

The second reason is a concentration of liquidity in only traditional commercial banks, even though these commercial banks only cater to a limited range of clients.

As shown by the chart, there is substantial demand for financing among industries outside the scope and coverage of the commercial banks, which are constrained by their "belt and suspender mode".

With limited collateral, these riskier sectors are deprived of the financing necessary to develop their business. In the end, the nation's economic growth is hampered as fledgling industries are unable to fully develop to their full potential.

The final reason is that the risk minimization mentality stunts the development of advanced risk management techniques in financial institutions. Lenders that never bother to consider risky projects will not invest time and energy in quantifying and mitigating risks.

Within the government, the current excessive anticorruption drive and political witch-hunts exacerbate the risk-aversion problem. As a result, decision-makers often choose the easy way out. They pick the "safe" decisions instead of committing to "risky" decisions that could end up losing money.

In order to reform the mind-set and remedy the situation, there are three things that need to be done.

First, there needs to be a distinction between business risk and fraud. Losses suffered as a result of fraud should be penalized heavily as these losses originate from the dishonest intention to take advantage of the company or country for individual gain.

By contrast, however, losses arising from business risks should be addressed appropriately without excessive penalties or unnecessary scrutiny that could scare people from making necessary business decisions.

Second, there must be clear legal and operational frameworks so that private companies, SOEs and the different branches of the government understand the appropriate risk appetite for their business and the desired risk-adjusted return.

Third, there needs to be a sustained and far-reaching public information campaign on this issue. Without public education, it will be almost impossible to achieve satisfactory results.

If we take these three steps, the banks will expand their lending and jumpstart the real sector; SOEs will partake in profitable ventures based on management's best business judgment so as to optimize shareholder value; and eventually the country will benefit from faster economic growth.

The fear of taking risks is part of human nature. However, Ambrose Redmoon is correct in saying that courage is not the absence of fear but rather the judgment that something else is more important than fear. In this case, it is our nation's development.

-----

What The Professor Means (part II)

(Needs proper credit, I just found it on Twitter)

Part I here.

Wearing and Maintaining Mechanical Watches

Oris Divers Sixty-Five 40mm

Setting your watch

1. Don’t wind or set the time on your wrist, as it may put lateral strain on the stem.  Take the watch off your wrist, then set the time.
2. Don’t overwind.  Consult your manual for the optimal number of turns (modern Seiko watches recommend 20 full rotations).
3. Don’t set the date between 9pm and 2am, as you may break the date-change mechanism.  When setting the date, change the time first to somewhere outside of this range. 
4. Don’t set the time backwards.
5. Avoid watch winders, as they continuously strain the watch’s winding mechanism. Let the watch stop when you're not wearing it, and set the time when you're wearing it. That said, it's probably a good idea to have a quartz watch handy, for when you need to grab-and-go. 

What to Avoid: Water and the Elements

1. Avoid water if your watch is not water-resistant.  Pay attention to specific instructions by your manufacturer about how much water pressure your watch handle, even if your watch is water-resistant.  If you wear a watch in the pool, while the water may not harm your watch, chlorine can still be damaging.
2. DO NOT pull on the crown of the watch while underwater, even if your watch is a diver watch or water-resistant. This will cause water to flood the inside of your watch. 
3. Avoid showering with your watch. Shampoo and soap can be harmful for the gears. 
4. Seals to resist water can also crack over time, so just be careful and remember to schedule your regular maintenance, including pressure tests and (if necessary) gasket replacements.
5. Mechanical parts may shift with shocks and hard impact. Don’t split wood, work power tools, play physical impact sports, while wearing mechanical watches.
6. Don’t place your mechanical watch in close proximity to strong magnets like those found in speakers, TV, or your iPad. Most modern watches are magnetic resistance, but still be wary of strong magnets
7. DO NOT start the chronograph underwater. Timing underwater should be done with a uni-directional bezel rather than the chronograph pushers. Pressing the pushers underwater can compromise the seal, allowing water into the movement, causing rust that can damage the dial or internal gears.

Maintenance

Like any car, mechanical watches need regular cleanings and oil changes to continue running effectively.  Maintenance costs vary depending on brand and complications, but most watchmakers recommend regular maintenance every 5-7 years.

Cross-threading the Crown

• A very common way to damage the crown, other than pulling it at the wrong angle, is when you are threading it back in. Not all watches have a screw down crown but if yours does, be cautious when closing it. The crown can become jammed and cause permanent damage.  Modern Rolex watches have intricate stems specifically designed to avoid cross-threading.
• A crown that is slightly out of alignment can allow water to get into the movement and dial, causing further damage. To avoid cross-threading and jamming the crown, take your time while screwing it back in, avoiding force. Crowns typically rotate 1.5 full turns and could be up to three. Be careful of screwing the crown too tightly, it could also become impossible to unscrew! 
• I usually turn the crown backward first to make sure it will enter the thread smoothly when I push and turn clockwise to screw it down. If in the middle of screwing down there's a resistance, that means the thread was not entered into the thread smoothly from the beginning. Move backward again to release the crown and start it all over again from the beginning, otherwise the thread will be stripped.
• If the crown doesn't screw in all the way and doesn't lock and seal properly, the crown is cross-threaded and need replacement. Water resistance is also affected so don't take it in water. 

LOLZERP

SAP = Setan aja pening
ORACLE = Ora Kelar Kelar

Mass Shooting

Liberals: we need gun control
Conservatives: it's because of terrorism and immigration
Trump: Thank you, I'm awesome

(credits to everybody on my Twitter feed).

Foreign Policy

I spent an hour going through Trump's NYT interview on foreign policy.

My takeaways:
1. America is like the poorest country in the world but it should totally built up the military so the rest of the world can rent America's protection. Presumably at $12/hour.
2. Iran is a disaster but they are rich and they should totally buy Boeings.
3. China and Mexico are also super rich.  Xi Jinping totally disrespects Obama, but Trump likes Chinese people because they buy Trump's apartments or something.
4. His uncle from MIT said America stinks at nuclear and cyber warfare.

Democracy!

People in Iran cast their votes in record numbers last month because they believe the leaders they choose will shape the country's future.

People in America vote for Trump because "he tells it like it is" and "he was great with the Apprentice".

"Shi'as are not Muslims"

I've heard people mention this many times, even among relative moderates here in Indonesia.  Sometimes it's not about Shi'a, sometimes it's Salafis, Sufis, Wahabis, or others I may never even heard of.  Well my degree is in IT but I've been to a Shi'a prayer once so I'm an authority on this topic (/end sarcasm).  There are differences in practices and traditions between Shi'a and mainstream Sunni, even the shahada (declaration of faith), the first pillar of Islam, is slightly different between the two.

Regardless of the ideological differences, we need to really think about how sectarianism has been the strongest driving force behind the chaos in the Arab world.  When somebody proclaims religious legitimacy, 'my Islam is more Islamic than yours', it creates animosity, and inevitably fuels conflicts.  Islam teaches its adherents to study everything on Earth and in the heavens, and it's up to individual decisions to choose what he/she believes in, but I've never seen scripture giving you, any student of Islam, the right to declare other Muslims as heathens or apostates.

If you're feeling nostalgic, remember how Islam reached its golden age by embracing rich cultural heterogeneity and pursuit of scientific endeavors.  Ibn Sina, the father of modern medicine, al-Khawarizmi, who wrote the foundations of algebra -- they may not be household names but they really should be.  At least they should be household names for Muslim families from Nigeria to Indonesia

What the (Muslim) world needs is more unity in diversity, nation building, and economic, social and scientific pursuits -- and less bickering over tribalism and minor differences in the way we look, speak, and pray.

On Sectarianism

If you ever wonder about how the heck the Muslim world gets divided by sectarian lines, Israel vs Palestine, Shia vs Sunni, Kurdish vs everyone else, check out a recent op-ed by former Alaska governor Sarah Palin on President Obama's foreign policy.

"...The whole world weeps waiting for American leadership in these troubled times as Islamic savages commit genocide against the Christians of the Middle East and terrorize innocent people in cities across the globe..."

There are obvious errors and misperceptions: ISIS has primarily killed Shi'as, Yazidis, Kurds, Sunnis that don't pledge allegiance to ISIS, their own people, and so on; they're not committing genocide against Christians because, well, Christians had mostly fled and there's not that many of them left in the battleground.   However the implication of her (somewhat bizarre) rant is clear.  She has tranformed a civil war pitting local tribes and factions within Iraq and Syria, into a total war between Muslim and Christian civilizations.  The entire world is forced to choose sides. That's how sectarianism becomes the defining factor for the world we live in.

We are better than that. Don't fall for this nonsense.