If It’s Raining in Brazil, Buy Starbucks

Before we go on, Christmas is few days ahead and I would like to wish all my readers..

As a reader, I have this impulsive mentality towards buying books. Over time, my bookshelf started to fill up with books and space is running low — a common problem for book lovers.

I made a promise to stop buying books. According to Amazon records, my last order with them was on 6 April 2016. That led me to clear my backlog of unread books.

Today, I am going to touch on If It’s Raining in Brazil, Buy Starbucks.

The book touches on how the stock market and bond market move react according to different news such as business cycle indicators.

Some examples are:

• Gross domestic product
• Retail Sales
• Personal Income and Expenditures
• Consumer Confidence
• Consumer Credit
• New building permits
• The average workweek
• ….. and more!

Personally, a key measurement would be “is the knowledge practical and am I able to apply it immediately?” The answer I gave myself was I do not foresee myself spending a lot of time to analyse and understand all the indicators. At some points, it gets too complicated. While I have studied economics and understand how various concepts interact with each other such as fiscal / monetary policies, I find it more fruitful to analyse companies instead of the economy. In short, I am a bottom-up investor. 

Under Chapter 16 “The Archangel of Productivity”, I’ve learned that productivity allows our gross domestic product to expand at a much faster rate without fear of inflation. So to speak, if there is no extra output produced and our wages increase, it might spark off inflationary effects that are undesirable. Let’s think about it carefully. If all of us want to see a boost in our paychecks, by right, we should produce more during every given hour.

If our wages do increase faster than our productivity, this means businesses will suffer from higher labour costs and this leads to declining profit margins and in some cases, closure of businesses. This will impact our international competitiveness.

(compiled by The Straits Times)

If there is more productivity, companies are able to pay more as a result of increased profits and this puts more money into the pockets of the employees. As a virtuous cycle, this encourages more spending and it leads back to more products being produced, and increase profits… perhaps, subsequently, a higher stock price.

Another analogy is…. for stock prices to rise sustainably, it must be backed by growth of fundamentals and improvement in business model. Or else, how is it justifiable?

Professor Edward Denison at the Brookings Institution concluded that the bulk of economic growth in the United States is attributed to technological change follow by more machines then a well-educated workforce.

In Singapore case, to grow our GDP, we brought in more foreign workers and invited more foreign companies to set their base here. This provided us the short-term growth yet we know that there is a “foreign workers limit” in Singapore before our locals start to feel uneasy.

You may check out the growth of our foreign workers via this link.

This means that moving forward, we need to shift our gears and focus on productivity-driven growth. This is precisely the reason why Deputy Prime Minister Tharman is so concerned about our Singapore’s productivity is… it affects our wages. How else can we expect our pay to increase if we are not productive or our economy is not expanding at all?

It is no wonder that our Singapore Govt is focused on getting our students ready for the jobs of the future and getting our firms up to speed with the latest innovations including platform businesses and resource sharing. If we cannot get the productivity up, we may suffer from a low growth period because we exhausted our manpower limit.

Recently, Vivien Shiao wrote an article entitled The Curious Case of the Singapore Worker.

It got me to think a bit on how we can improve our productivity as well!

PS: I just found out that Tabasco is produced by 148 years old McIlhenny Company!