Agflation: new words for a new world
Even as we're grappling with the spectre of a recession in the United States, prices are rising paradoxically. But not just plain-old inflation, no! The current economic circumstances have given rise to a whole new language, as if to make us feel better, by rationalising the whole barrage of price increases we're seeing.
For example, you may have come across agflation. Google has about 47,200 listings of the word, including Investopedia's matter-of-factly definition:
In any event, we at Investor Central have come up with our own set of words to describe the current state of affairs:
Transflation - the economic rationalist explanation each time the Public Transport Council raises bus and MRT fares.
Meeflation - the "sticker shock" you get by going to People's Park and being offered Hokkien Mee, not in $2/$3/$4 portions, but $4/$5/$6 sizes.
Proflation - the phenomenon by which landlords are inexplicably bestowed the right to triple rents for long-standing tenants, or other people in the property business predict an endless rise in sale prices.
Cabflation - the mathematical relationship between the increase in taxi fares and the lengthening of queues of taxis waiting for passengers.
These inevitably lead us to the most important of all, and unlike "agflation" this one is a real word. Click on the link to read for yourself:
Afflation – the blowing of hot air by Treasury Secretary Henry Paulson and his Wall Street buddies about giving the Fed more power. Does anyone else sense another Patriot Act coming on, this time stomping on civil liberties and rights to privacy in the banking sector?
What -flations are currently weighing on your finances?
Mark Laudi, who did a double-take when he first saw the word agflation and thought the author had meant "stagflation" (rising prices in a weakening economy). Hmm… stagflation: the increasingly panicked rantings of a groom when presented with the dinner bill for his wedding?
To comment on this blog, go to the Investor Central blog.
Visit the brand new Investor Central website! for free SMS alerts to news about stocks in your watchlist
For example, you may have come across agflation. Google has about 47,200 listings of the word, including Investopedia's matter-of-factly definition:
An increase in the price of food that occurs as a result of increased demand from human consumption and use as an alternative energy resource. While the competitive nature of retail supermarkets allows some of the effects of agflation to be absorbed, the price increases that agflation causes are largely passed on to the end consumer. The term is derived from a combination of the words "agriculture" and "inflation".It's as though agflation is a real word! (Dictionary.com has no record of it). David Shvartsman acknowledged the word in an almost year-old article for Safe Haven, while expertly correcting the media and economists who have bastardised the word "inflation" to make it fit into their own view of the world.
In any event, we at Investor Central have come up with our own set of words to describe the current state of affairs:
Transflation - the economic rationalist explanation each time the Public Transport Council raises bus and MRT fares.
Meeflation - the "sticker shock" you get by going to People's Park and being offered Hokkien Mee, not in $2/$3/$4 portions, but $4/$5/$6 sizes.
Proflation - the phenomenon by which landlords are inexplicably bestowed the right to triple rents for long-standing tenants, or other people in the property business predict an endless rise in sale prices.
Cabflation - the mathematical relationship between the increase in taxi fares and the lengthening of queues of taxis waiting for passengers.
These inevitably lead us to the most important of all, and unlike "agflation" this one is a real word. Click on the link to read for yourself:
Afflation – the blowing of hot air by Treasury Secretary Henry Paulson and his Wall Street buddies about giving the Fed more power. Does anyone else sense another Patriot Act coming on, this time stomping on civil liberties and rights to privacy in the banking sector?
What -flations are currently weighing on your finances?
Mark Laudi, who did a double-take when he first saw the word agflation and thought the author had meant "stagflation" (rising prices in a weakening economy). Hmm… stagflation: the increasingly panicked rantings of a groom when presented with the dinner bill for his wedding?
To comment on this blog, go to the Investor Central blog.
Visit the brand new Investor Central website! for free SMS alerts to news about stocks in your watchlist
Labels: afflation, Agflation, inflation, People's Park, price increases, Public Transport Council
Fare Hike: SMRT Shareholders Penalised Again
The Public Transport Council uses a fairly vague financial ratio to decide not to grant the Singapore MRT an increase in fares. So we decided to do a comparison of a variety of other ratios to see whether this yardstick stands up to scrutiny. Our conclusion is that ROTA is not only not useful. It is unfair to punish SMRT for being an efficient, profitable company.
The PTC said in granting SBS, but not SMRT, the right to increase fares by up to two cents it used the Return On Tangible Assets (ROTA) as a "reality check". This measures how much money the company makes based on the value of its trains, equipment and other sellable, tangible assets. According to Reuters data, SMRT has a ROTA of 11% while MTR Corp's is 6.7%. In terms of gross profit margin, last financial year MTR Corp's was a hefty 81.1%, but outpaced by SMRT's 89.8%. At best, all this means is that SMRT is better managed, not that it is gouging consumers.
On a cashflow basis – always our preferred yardstick – MTR is actually performing significantly better than SMRT: S$0.37 compared to SMRT's S$0.18. But even so, this depends on the number of shares on issue.
Let's check out some other ratios, based on Reuters data and a HKD-SGD exchange rate of 5.148:
Revenue growth (last financial year)
MTR Corp: 4.24%
SMRT: 4.41%
Revenue per share
MTR Corp: S$0.34
SMRT: S$0.51
Net earnings per share (a fairly useless but commonly-accepted accounting standard, but let's use it anyway for now):
MTR Corp: S$0.27
SMRT: S$0.09
Dividend per share (last financial year)
MTR Corp: S$0.08
SMRT: S$0.07
Book value per share
MTR Corp: S$2.70
SMRT: S$0.42
Total revenue per employee (last financial year)
MTR Corp: S$282,454
SMRT: S$132,938
We could go on and pick probably a dozen other ratios, but what does this list tell us?
In short, pretty much nothing.
The reason is that while SMRT and MTR Corp are both light rail operators in city states, that's just about where the similarity ends. MTR Corp is a S$24.8 bln company, almost ten times the size of the SMRT's market capitalisation of S$2.6 bln.
Further, MTR Corp has many more people to serve than Singapore, based on population size alone.
In my view, the much better yardstick would be to look at the inflation rate, to see how much of an impact the fare increase has on the average consumer. Is the fare increase going to hurt people's hip pockets? That should be the ultimate question, not whether a company is so well run that it is efficient and profitable.
Two cents is pittance, really, but the principle counts. They are robbing Peter to pay Paul, by penalising shareholders to appease commuters. If you take this attitude, it would be better for the SMRT to be less-well run. With a lower ROTA, it would be granted fare increases more readily.
Or take SMRT private and run it as a public service, not as a publicly listed company. Ultimately, publicly listed companies have their shareholders to answer to, not their customers.
Mark Laudi
ArchivesThe PTC said in granting SBS, but not SMRT, the right to increase fares by up to two cents it used the Return On Tangible Assets (ROTA) as a "reality check". This measures how much money the company makes based on the value of its trains, equipment and other sellable, tangible assets. According to Reuters data, SMRT has a ROTA of 11% while MTR Corp's is 6.7%. In terms of gross profit margin, last financial year MTR Corp's was a hefty 81.1%, but outpaced by SMRT's 89.8%. At best, all this means is that SMRT is better managed, not that it is gouging consumers.
On a cashflow basis – always our preferred yardstick – MTR is actually performing significantly better than SMRT: S$0.37 compared to SMRT's S$0.18. But even so, this depends on the number of shares on issue.
Let's check out some other ratios, based on Reuters data and a HKD-SGD exchange rate of 5.148:
Revenue growth (last financial year)
MTR Corp: 4.24%
SMRT: 4.41%
Revenue per share
MTR Corp: S$0.34
SMRT: S$0.51
Net earnings per share (a fairly useless but commonly-accepted accounting standard, but let's use it anyway for now):
MTR Corp: S$0.27
SMRT: S$0.09
Dividend per share (last financial year)
MTR Corp: S$0.08
SMRT: S$0.07
Book value per share
MTR Corp: S$2.70
SMRT: S$0.42
Total revenue per employee (last financial year)
MTR Corp: S$282,454
SMRT: S$132,938
We could go on and pick probably a dozen other ratios, but what does this list tell us?
In short, pretty much nothing.
The reason is that while SMRT and MTR Corp are both light rail operators in city states, that's just about where the similarity ends. MTR Corp is a S$24.8 bln company, almost ten times the size of the SMRT's market capitalisation of S$2.6 bln.
Further, MTR Corp has many more people to serve than Singapore, based on population size alone.
In my view, the much better yardstick would be to look at the inflation rate, to see how much of an impact the fare increase has on the average consumer. Is the fare increase going to hurt people's hip pockets? That should be the ultimate question, not whether a company is so well run that it is efficient and profitable.
Two cents is pittance, really, but the principle counts. They are robbing Peter to pay Paul, by penalising shareholders to appease commuters. If you take this attitude, it would be better for the SMRT to be less-well run. With a lower ROTA, it would be granted fare increases more readily.
Or take SMRT private and run it as a public service, not as a publicly listed company. Ultimately, publicly listed companies have their shareholders to answer to, not their customers.
Mark Laudi
Labels: fare hike, MTR Corp, Public Transport Council, SBS, smrt
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