Saturday, September 29, 2007

PAP/Straits Times answers critics on CPF!

Today the govt responds to critics. Unlike amatuer bloggers who tried to explain the CPF to the blogsphere and end up being called "PAP apologists", today's Straits Times carried a thorough and indepth explanation of why 2.5/3.5% on minimum sum is as good as it gets, why GIC returns is delinked from CPF, why Low Thia Khiang is an opportunistic rebel rouser and why the GIC doesn't need or want your money and why CPF changes are a fair deal.

Articles in the Straits Times 29 Sep 2007:

Forum : Govt Investments de-linked from CPF funds.
Insight Pg S10: CPF Returns : As good can get (1st para talks about Low Thia Khiang)
Insight Pg S11: CPF as Cheap Funds:"Wrong & plainly misleading".
Insight Pg S12: CPF Changes a fair deal so why the hesitation.

Now that is a alot of good explanation from our world class govt. I suggest you read, no study, each of these articles to get a good understanding of our govt thinking on retirement and the wonderful plan the PAP govt has for you for your retirement.

I've identified a number of important points in the articles for discussion.

Point 1 : The rate of 2.5/3.5% is risk free and guaranteed.

Well at first sight nobody can disagree with this statement. But think harder. ....

The govt has mandated that a large portion ($60K) of Singaporeans' CPF funds be set aside to earn a "risk free return of 3.5%". We are required by law to do this an have no choice....we are locked on to this strategy of earning a return on the bulk of our CPF for a period of 40 years how is that for a strategy.

Such a strategy is sure to guarantee one thing for most people - insufficiency. I haven't found a single qualified investment advisor who will go tell a 25 year old to lock his savinsg up at a fixed deposit type of rate of 3.5% for 40 years for the purpose of retirement. In fact all other asset classes real estate, equities have always out performed this 3.5% rate over any 40 year period. Also, within a 40 year period we can expect periods of high inflation, the so-called risk free rate only guarantees that the buying power of the CPF money will be badly eroded.

So the basic strategy of locking up a minimum sum earning a rate similar to treasury bonds for 40 years is a risky one - it is vulnerable to inflation, guaranteed to underperform, guaranteed to be insufficient a result we will see our retirement shifting and the quality of our retirement dropping under this strategy.

Simply google "retirement plan" to see what a plan should look like. or what watch Ben Stein's video on retirement here. Or read about Chile's pension plan for its citizens. ..or Calpers which hires professional managers to handle public servants money and they don't keep the returns for themselves but give it to the pensioners who need it.

Why is hiring a group of top professionals OR outsourcing to selected low cost asset management companies OR allowing investments in index linked ETFs/no load funds so unattainable? Just let the person choose whether he wants 3.5% or have his money managed for higher returns/risk. The fact that money is guaranteed at risk free 3.5% is meaningless because buying power of the money is not guaranteed. The best plan to preserve buying power has been to invest prudently.....why put millions of citizens on a plan that is not the best plan?

Why does the PAP mandate that we follow a plan that will not work properly? I think they want us to work longer and harder so we don't retire and become useless. It is for our own good to lead useful productive lives.

Point 2: GIC deserves its return of 9.8% for making risky investments.

CPF minimum sum is only allowed to have low returns whereas GIC deserves its higher return for making risky investments.

Again think hard.

GIC invest money of the citizens of Singapore, why is it allowed to take the type of risk that CPF holders cannot take for their minimum sum? You mean it is okay for GIC to lose citizens' money and but not okay for citizens lose their own CPF money?

Point 3: GIC can raise more cheaply by issuing treasury bills and govt securities...they don't need your money for "cheap" funds.

Singaporeans have their CPF locked up for about 40 yrs. Gee, I have never seen a 40-yr treasury bill before, I don't think any govt has issued one. Also, the withdrawal age can be changed, so its like a treasury bill with a shifting maturity. So far the Singapore govt has been able to issue small amounts of securities with 10 yr maturity at a lower rate than 2.5% however try borrowing $50B, the borrowing cost will go up. The articles actually suggest that CPF funds are "expensive" for the GIC.

Yes, the GIC does not need the "expensive" funds from CPF it has other cheap sources of funding. But somehow it doesn't tap the cheaper source of funding much preferring use the more "expensive" funding - you don't see the GIC rushing to the securities market for billions. If you're a competent fund manager and have 2 sources of funding one more expensive the other one cheaper - which would you choose?

Point 4 : 83% of CPF members who invested their OA savings in the CPFIS from 2002 to 20006 realised less than the 2.5% returns -the base rate of the OA. Half of all members who invested experienced experienced negative returns.....(forum article "Govt investments de-linked from CPF funds").

I was SHOCKED by this statement by the director from MoF....oh Singaporeans are such INCOMPETENT investors they should not be allowed to invest their own money!!!
Strangely, I was just sitting with a large group of people for lunch on Friday and everyone was talking about how well their investments which the made in the past few years did.

If you look at the STI Index, Global Indice, Regional Indices for Europe/US/Asia.... you cannot find a single day in 2002-2006 that youcan buy a unit trust linked to this hold it until today and not perform better than the 2.5% that CPF OA gives out! For example, look at the STI from 2002 until today: tell me how can one return less than 2.5% when they invest between 2002-2006. If you pull out every single major equity index, they look similiar. You can buy on any one of well diversified unit trusts on any one of the 1500 trading days in 2002-2006 and beat the 2.5% given by the CPF.

So how did Singaporeans become so incompetent. Well, look at that statement again. says "realised less than 2.5% returns", they probably only computed investments that were sold off during that period and does not included then majority of investments which are held on until today! Even for myself I've sold off 1 or 2 loss making investments during that period but those I've bought in 2002-2006 and held until today have double and this is not counted. I'm one of the 83% of incompetent investors. This is a wonderful piece of data mining, we all should be thankful for because it helps us to feel so much better about the 2.5-3.5% we are getting on our CPF.


The 2.5/3.5% is a guarantee...a guarantee of insufficiency. This insufficiency is showing up in withdrawal age being pushed, a diminished quality of retirement ($200 per month) and extended working life. It is also guarantees underperformance compared with other asset diversified classes which outperform risk free assets with 100% certainty. Risk free rate is meaningless because it does not guarantee buying power - it is not peg to the rise in oil prices, rise in bus fares, rise in milk....etc.

It is a challenge the PAP put before us to retire on such a plan that no financial advisor will ever recommend for retirement. We should be thankful for such challenges as it is chance to strengthen our work ethics to the point we don't ever have to retire. Retirement is a awful thing anyway we lose the chance to contribute to Singapore Inc wasting our time instead on walks in the park and looking after our grand children.

The GIC does not need our CPF money for its investments. It is reluctantly using it as a form of service to Singaporeans and giving them this return that is "as good as it gets"....although they get better returns, we should begrudge that it is not returned to the CPF account holders. We do see a small fraction of it just before General Elections to encourage us to make the right decisions and keep the status quo. All this is done for our own good, we have to believe what is good for the PAP govt is also good for the people of Singapore.

Friday, September 28, 2007

Country in a SAD, SAD state....

Run by group of uncaring leaders who reward themselves handsomely while citizens find it hard to make ends meet. The most vocal dissident fighting for democracy thrown in jail. Protests are banned and police arrest protestors whose only demand is freedom. The leaders treat the wealth of the country as if they own it. The media is controlled and spews mostly propaganda. Prices of basic necessities supplied by the govt & govt controlled companies like water, electricity and transport have been increasing so fast people who live on pensions and our savings cannot afford keep up with the price increases...the old have to rummage for food on the streets. The spending on military has been expanding while little is spent on the welfare of the people. In the midst of all this, the people can see that those connected to the leader, his children and spouse live a lavish life. The leaders tried unsuccessfully to censor the internet to prevent negative views about the leadership from being spread.

Myanmar is really in a sad state. They don't have democracy, the people are powerkess against the military junta. The govt controls everything there and the recent riots occured because prices have been raised beyond what most people can afford. I read a story in the New Paper today about a women who stood in front of the barrel of a gun and shouted, "Come on, just kill me! I don't care" because she was dying of hunger. It takes a long time under authoritarian leadership for people to gather enough courage to stand up against the oppressors - the Burmese people suffered for decades before they reached this state in which they are willing to sacrifice their lives for change. I think they regret the missed opportunities for freedom in 1960s when they traded their freedom and democratic rights for so called stability and relative prosperity allowing power to be put in the hands of various juntas...I think they understand now why democracy is important but it is almost too late.

I hope the people in Myanmar stand united against the military junta and get their freedom and rights back. They need to take their country back from the bullies who have been exploiting them. They have to do it with courage, their bare hands, ...and win the freedom back for themselves and their children....

Wednesday, September 26, 2007

CPF. GIC and Annuities!!!!

"To a question by opposition MP Low Thia Khiang (Hougang) on whether the Government of Singapore Investment Corporation (GIC) uses funds from the CPF funds to invest,
Dr Ng said: "The answer is no."

"Later he rose to add: "The relationship is not so simple
Yes, it is not so simple. The MoF takes our CPF money to buy bonds issued by GIC essentially lending our money to GIC at an interest rate of 2.5%. See how complex it is it takes a total of 20 words to explain this relationship.
It is for Singaporean's own good that their CPF money returns a rate of 2.5%. If our beloved PAP did what the Chilean govt did and put our money in the hands of investment professionals, returning 11.8% per annum since its inception 18 years ago, that would undermined Singaporeans' work ethnic tremendously by keeping retirement age at 55. With a return of 2.5% Singaporeans now enjoy longer productive working lives something they can be proud of.
Yes, I heard the honorable minister say this 2.5% is risk free and our GIC bears all the risk that is why it gets a higher return of 9.5%. So the GIC deserves the 9.5% & CPF holders deserve 2.5%. But like our minister said the "relationship is not so simple". If the GIC borrows our CPF money, invests and make does it pay back. It will have to tap its cash reserves to pay us back. But the GIC money belongs to the Singaporeans so when it loses money, it merely passes its losses to Singaporeans whenever it has losses. See Singaporeans bear all the risk of GIC losing money, getting only 2.5% back in return. Now some smart alec would argue if the GIC makes the right bet and gain 20% from its investments, that would mean Singaporeans have earned a higher return via the GIC....but the relationship is not so simple, the govt has not articulated how the GIC money will be returned to Singaporeans...I believe most of will die without getting much from the GIC.
We are all at this wonderful state because CPF was liberalised for housing. If CPF is not allowed used for housing, Singaporeans will typically have one or two hundred thousand S$ in the CPF and they would have a home too because it is the mandate of the HDB to provide affordable housing. Thanks to the liberalisation of CPF for housing, HDB is able to set higher prices and have bigger surpluses...where does the surplus go to?....Our reserves which is managed by the GIC. As we end up with less money in the CPF using it for more expensive housing, the GIC ends up with more money....see the relationship is not so simple......
.....When compulsory annuity is in place, the govt can always argue for the contributions to be increased to help the old...remember the GST increase is to help the poor. This will help to strength our work ethnics as our CPF money shrinks. Some of you would like to believe the money held in the GIC/Temasek belongs to ordinary Singaporeams and is meant to help ordinary citizens in the time of crisis. You may think that your time of crisis is when you reach 85 when you exhausted your savings, too weak to hold down a job as you march slowly towards death - you'll see none of the money from the GIC/Temasek and have to take money from your fellow citizens, those who have died earlier and forced to contribute to this annuity from their CPF. The PAP has prepared a wonderful productive future for you, you should be happy that you have such a considerate govt that provides so much motivation for you to work harder and longer.

Saturday, September 22, 2007

Booming economy, growing poverty....

In the midst of one of the greatest economic booms in Singapore even greater poverty has been manufactured.....

Once in a while you see something so deeply etched in your mind, you will never forget.....

Two weeks ago, I saw a man in his seventies struggling with a plastic bag full of aluminium cans. He had flattened them earlier so that he could put alot of cans into one plastic bag. Although it looked abit heavy for him, he seemed to be quite happy to have collected so many - perhaps he was counting on them to provide for his meals for the next few days or pay for his medical bills. As he was crossing the zebra crossing, the plastic bag broke and the cans spilled onto the crossing. 3 seconds was all it took for the driver of the big BMW (8 series?) to start to push his horns fiercely at old man as he tried to move his cans to the other side of the road. It took me about 20 seconds to get to the crossing to help the old man. That was when the driver stepped out of his car and shouted at us to hurry up or let him go first then deal with the cans later. The sight of the BMW driver in his white long sleeve shirt/tie, the old man in his dirty clothes, the shiny new BMW was all too real for me. You can read about the income gap - Gini index, income distribution, the existence of poor people but these are all 30,000 feet abstraction of a real was on this day, on the zebra crossing, moving all these little cans that were picked from rubbish bins all over Bedok and watching this 'rich' BMW driver who can't wait 5 minutes for an old man.....that moved the understanding of the problem moved from my brain into my heart....

When your fellow citizens have to rumage through garbage to support themselves, it is sad...when you realised that you have grown accustomed to that and just want to get on with your own is even sadder.

Someone in Singapore has been taking photos from around the island and posting it here. Take a close look at them, these are not sights that you don't see. It is what we see everyday except we have become accustomed to it and don't register it anymore...

Crusade against AGEISM in Singapore!

For those who are not familiar with the term - it is prejudice against individuals or groups because of their age. It was hotly debated in parliament because employers were practicing ageism in the hiring of workers.

The PAP MPs spoke with alot of emotion against rogue employers who ill treat our beloved senior citizens by practicing ageism. The MPs showed so much love and care for senior citizens ...for once speaking out against the evil ways of employer practicing ageism. The PAP MPs seem to blame the employers for the plight of older workers...I was impressed until one of them suggested that ageism should be made illegal in Singapore.....then I got scared ....I'll get to that later but lets recap how ageism evolved to become such a big problem in Singapore.

Ageism wasn't a big issue in the past because employers were willing to keep and hire older workers because it was consistent with their profit motive. You see our labour market was generally tight except for the occasional recession ......and when businesses expand their capacity they cannot find young workers and have to hire older workers. They were willing to retain these workers because they invested in training and they know it is not so easy to get younger workers. However, all that changed when the floodgates for foreign talents was opened. In the beginning the PAP reassured its citizens that the foreign talent scheme is meant to attract the best global talents that Singapore does not have. For example high skilled managers who will increase the productivity of Singaporeans making them even more valuable to the global economy. The foreign talent scheme was meant to attract 'special people', the type that Singapore cannot produce....special people who will raise our standards...special people like say Jose Mourinho (the special one) since he is now unemployed perhaps Geylang United can hire him and elevate the standard of local soccer.

Along the way, the PAP found that you can simply import workers to expand GDP- the primary KPI by which they measure their accomplishments. Now the tightness in our labor market disappeared and the demographics of our workforce artificially changed. In order not to alarm the citizens, the PAP used this euphemistic term "structural unemployment" to describe groups of people displaced by their policies. Now they blame employers for their evil ways for causing unemployment among our seniors. Yes, these employers and companies are so evil because they care only about making money unlike the PAP govt that cares about its senior citizens and wants to ensure they can lead a useful life of labor for as long as possible.

I have to confess that I got worried when that MP wanted to criminalise ageism. Why? I don't bother to look at resumes of people over 40s for the simple reason that there is a constant pile of resumes of fully qualified 25-30 year olds from all over the world always there for me to choose. ..why take any risks? Above 40s, the average sick days increases, the agility of the mind declines, the person is emotionally harder to remove as they have families to feed, is easier to tell 20 year olds to leave because you know they will be alright. ...younger workers accept weekend duties more readily because they have no family. Companies will discriminate because it makes no economic sense not to. The coffee shop near my work place replaced the older coffeeshop aunties with younger girls from Shanghai...there is no amount of training and retraining that will help those coffeeshop aunties get back their jobs.

Yes, Singapore is full of evil employers & companies who only think about making profits. Contrast that with the generosity, kindness and care the PAP shows to the old in our society. The PAP is so concerned about their longevity, they will be giving us all a chance to show kindness ... to take care of the old through the compulsory annuity scheme. The govt certainly not guilty they award high paying jobs and generous pension schemes to the elites when they grow old.

Sunday, September 16, 2007

Expats find rental market insane in SIngapore!

The insane couple? The Olivrys are from America, a country that had the worst housing bubble in its 300 yr history. You would think they are used to rising prices given they have been through this 'mammoth' housing bubble in America. But as I have written the worst housing bubble in America is just farce by Singapore standards. You don't see Singaporeans complaining too much surging property prices and rentals - we are coping well, we are hardened to price increases compared with these softie Americans. But to be fair to the Olivrys, their land lord has been a bit 'too Singaporean', he tripled the rent of their 1800 sq ft apartment from $2400 to $7200 in July sending the Olivrys to the streets hunting for a more affordable place.
What expats see as insane, Singaporeans view as a money making opportunity. Even my neighbor send her children to be looked after by her mom so she can rent out part of her apartment to a South Korean couple.
This is all very amazing because our official inflation rate is only up marginally in the 1st half of 2007 as measured by the CPI . However, if you look at our money supply as measured by M3 it as grown by a whopping 23% - M3 growth exceeding GDP growth is inflationary. Inflation likes to show up in things not measured by the CPI like my breakfast toast, mooncakes, expat rentals in private housing estates, taxi fares, movie tickets etc.
All this is happening as the govt hikes GST to help the poor. The retirees who live on their savings and the lowest 30% of our society who saw their incomes falling will be assigned new challenges and the landlords (of whom the govt is the biggest) will be seeing their bank accounts fattened through almost no physical effort on their part. All this happening while we are having the highest income gap in our history is not a big issue. The Olivrys who probably make a high 5 figure monthly income and are having a hard time in Singapore, that is because they are softie Americans....our citizens are tougher they can cope with $1000 monthly paychecks as prices rise to the moon. While our ministers saw the need to hike their million$ pay by 30-40% to avoid a painful sacrifice ahead of price hikes, they are confident that those on public assistance can cope very well on $290 a month as prices escalate . takes alot of courage for our leaders to have such confidence, they should be saluted for their leadership.

Thursday, September 13, 2007

$45 for a box of mooncakes....

Last year I passed by the same shop and it was selling mooncakes for $35. Mooncake sellers expect to make record profits this year. What has the price and profit of mooncake sales to do with anything....?

I've been watching Singapore's M3 growth very closely. M3 is the broadest measure of money and is closely related to inflation. Year-on-year growth for Jul is a whopping 23%. Look at the chart from MAS website : link. is at an all time high!! Our economy is growing at about 7% and our M3 is growing at 23%. If the velocity of money is stable, growth in M3 exceeding GDP growth leads to inflation. By the time I get to 85 year old to collect the $200+ annuity, it is probably enough to buy just one mooncake - I'm now training myself to cut one mooncake into 30 pieces so that it can last for one whole month when I'm 85.

I'm going to my boss tomorrow to demand that my pay be linked to the average price of mooncakes of the the top 5 bestselling brands. That 5% pay hike he gave me earlier this year is actually a pay cut if you adjust for inflation.