Learning from a Superstar
By TAN Kee Wee
(MediaCorp 938LIVE’s Money Talks, Thursday, 13
September 2007, 7.45 am and 7.20 pm)
In 1955, Luciano Pavarotti was 19 years old and
training to become a school teacher. But after he and his
village choir won first prize at the Welsh International Music
Festival, he decided to become a professional opera
Within ten years, Pavarotti had become an opera star.
But no one then, not even his own father, could have forecast
that he would one day become a singing superstar.
The turning point came in 1990 when, together with
Placido Domingo and Jose Carreras, Pavarotti took opera out of
the concert hall into the global stadium at the Soccer World
Now, with Pavarotti gone, recording companies are
looking for his replacement. Many opera stars can be
identified. But to identify a superstar, someone who has the
sun in his voice like Pavarotti, this is something not many can
It’s the same in economics. It is always easy to
project a current trend. But to spot the turning point in a
market trend, ah, not many economists can do that.
For instance, last Friday, the latest US jobs report
showed that the economy lost 4,000 jobs in August, making it
the first jobs decline since year 2003. The negative report
surprised investors who were earlier told to expect an increase
of 100,000 jobs.
Like many forward-looking reports, the latest US jobs
report does not always give an accurate picture. Like spotting
the next singing superstar, it can be a bit of a gamble
This is because the job numbers are subject to large
revisions, especially at major turning points in the economy.
The US jobs report is based on surveys of households and large
Sometimes, such surveys can be completely wrong. For
instance, in the September 2005 jobs report, it was first
indicated that 35,000 jobs were lost. This was later revised to
an increase of 105,000 jobs. You can’t be more wrong than
This is not to say that we should ignore the latest US
jobs report. There are other indicators which suggest a
weakening US economy. That is why many expect the US Fed to cut
its key interest rate next Tuesday.
Unfortunately, even if the Fed cut rates, it might not
help much. Lower interest rates will lead to higher prices of
many distressed bonds. But if your sub-prime bond is now worth
half as much, even a few hundred basis points cut in rates will
not make good your capital loss.
Lower interest rates are also not going to help those
who are stuck with over-priced houses. Even if their sub-prime
monthly payments are reduced, most owners can’t service their
loans in the first place.
Lower interest rates are also not going to spur
financial institutions to lend each other freely again. It will
not bring down the interbank interest rates much, as long as
financial institutions have little confidence in each other’s
assets and loans.
Since the current crisis is basically one of confidence, Ben
Bernanke’s job is now not just to cut rates. He must also say
and do something to inspire confidence back into the
Anyone can sing the aria “Nessun dorma” by Puccini.
But only Pavarotti’s version can inspire and move us. It would
be wonderful if, next Tuesday, Ben Bernanke does something to
instill confidence in the markets the way Pavarotti
In the final line of “Nessun dorma”, Pavarotti summons
from the depths of this world his confidence, with the
victorious cry “All’alba Vincero!” This means “At dawn, I shall