That wonderful CPF scheme....

What the British left us, the PAP govt improved tremedously. CPF was created in 1955 when Singapore was a British colony. It was a simple idea - save part of you income so that you will be able to retire comfortably. The British also introduced the idea of pension schemes that was implemented in the civil service and many Singapore companies. What the British did, the PAP improved. Pension schemes have been eliminated for ordinary citizens but is still in place for Ministers & Admin service officers...although our elites make more in one year than what ordinary Singaporeans make in a lifetime, they need a pension scheme to reduce their painful sacrifice. Allowing ordinary Singaporeans to have a pension scheme would have undermined their work ethics and make them think of retiring before their seventies.

The simple CPF scheme the British left us has been transformed into a complicated masterpiece that serve many purposes. When the Singapore economy went into recession in 1987 and 1998, the CPF was cut to get keep companies profitable. When HDB wanted to raise prices and had keep housing affordable, the CPF was liberalised for housing. When the govt wanted to kick start the fund management industry, CPF was liberalised for investments in unit trusts - only recently did the govt realised it needs to rein in the high management cost these funds were charging CPF investors. It was also liberalised for buying stocks so that Singaporeans so that the govt can privatise its state owned enterprises successfully. CPF is also used for to pay for your medical bills which have been escalating for the past 10 years. As the govt increased tuition fees in tertiary institutions, it allowed CPF to be used to pay for children's education.

The British created the CPF for the single purpose of making sure Singaporeans can retire comfortably. It is the genius of the PAP that made CPF what it is today - the PAP realised that the CPF is not just about retirement...Singaporeans can always be convinced to work harder and longer - retirement is not a problem because many Singaporeans will die working and never retire....so there is this problem of excess CPF funds for which the PAP have found creative uses. Singaporeans are indeed lucky to be able to lead long productive working lives unlike citizens of other countries who waste away their time looking after their grandchildren or strolling in the park.

Wonderful brilliant scheme to help the extremely old....

Now I know what keeps the PAP govt awake at night. ...not the billions the lost in Thailand, not the millions the lost in joint ventures with UNSW or John Hopkins...not the rising cost of defense ($10.6B) as govts around the region reduce defense spending. What keeps our govt awake at night is the increasing number of old folks....more specifically the number of old people living beyond 85years old. Even with the extremely successful campaign to promote and enhance our work ethics, our govt has realised that working beyond 85 years old is probably not an option for most Singaporeans. Although McDonalds does not seem to have an official age limit for hiring, I've not seen any 70 year olds working there. There are a number of self employed 70 year old folks collecting aluminium cans from dustbins, unless we increase our intake of Coke, there are only so many cans to go around.

Now our beloved govt has figured out a solution to all this - remember unlike other govt who simply give out aid our govt has to work out a solution within important constraints - welfare is a dirty word so cannot give out welfare...also they have to rule out any solution that will cost the govt more money. While every Singaporean is technically rich as Singapore's reserves of $120B belongs to all of us, we cannot tap that because it will undermine job opportunities for our super elites who are hired to use the money for all sorts of investments around the world. I guess we won't see a single cent of the reserves even if we live beyond age 85. .....but everytime they tell us that Ho Ching has made yet another successful investment, we should celebrate in our hearts.

The solution to this almost intractable problem is an annuity scheme paid for by Singaporeans themselves. Only 20% of Singaporean will live beyond 85 years old, so 80% of Singaporeans will be contributing to this scheme and getting nothing in return. Some of my friends see themselves as losers because nobody in their family ever made it to 80 yrs old, I tell them to look at it as charity. Where does this money come from? CPF of course....since the CPF is already liberalised for housing, medical expenses, education, investments, insurance, etc it is no big deal to add annuities to the list.

Work longer and harder..and you will help to solve the problem of ageing Singaporeans without burdening the PAP govt. They need to set aside large sum to make those wonderful announcements that coincidentally appear just before general elections "$2B to upgrade facilities at XYZ estate..." some of you may wonder how the govt can always find money to upgrade estates before elections but don't seem to have enough to help 85 yr olds. I think money is not the issue, the PAP govt just wants to give Singaporeans a chance to help each other.

American Economists are a bunch of whiners!

After watching videos of tearful Americans getting foreclosed in YouTube, I was beginning fell sorry for those poor Americans. American economists are complaining about home prices being too high in USA during their speculative bubble in 2005 and Americans are too much in debt due to property. However, when I found out what the average home cost in USA, I think we can make a comparison:

1. At the height of the US housing bubble in 2005, an average American home cost S$375K (freehold, 3 bedrooms, 2350 sq feet)....vs S$410K for a 5-Rm HDB in Tampines on the resale market. Yes, private housing in USA is cheaper than public housing in Singapore....and cost less than half price per square feet.

2. At the worst point the average household debt of Americans is 100% of GDP vs 174% of GDP for Singaporean households.

3. The per capita GDP is US$44K for USA vs US$31K for S'pore.

Americans are soft people who can't even shoulder 60% of the debt burden of a Singaporean household. ...their economists like that bearded feller called Paul Krugman are a bunch of alarmists who go on TV to warn people about the impending doom and gloom because the US property bubble has burst. Oh come on, you call that a bubble?....That is one heck of a pathetic little bubble compared with the one we had in 1996 & 2007. They really have alot to learn from the PAP when it comes to asset enhancements.....don't their govt have a PR govt that ensure their media doesn't use the wrong alarmist terms like bubbles & crash?...replace it with wonderful words like asset enhancement when prices go up & increasing affordability when prices fall. In Singapore, go up good, go down also good. ...either directions the PAP has done a spendid job.

I think the solution for this subprime mess is the CPF! If the Americans are able to copy this wonderful system of ours in which retirement funds can be tapped for housing, their property prices will double in no time. ,

Busy watching the turmoil in the markets.....

Sorry I haven't updated my blog. I've been watching the convulsions in the financial markets. It is very interesting and terrifying at the same time. The "tiny" subprime mortgage problem has spread to something called the Yen carry trade.

You see the Japanese has been having super low interest rates for many years and some people found out you can make money by borrowing Yen, then converting it to US$ ...then you lend the US$ at a higher interest rate, say, for example to subprime borrowers. You profit from the interest rate differential. Some hedge funds also borrowed billions in Yen to invest.

Many analysts have predicted that the unwinding of the carry trade will result in a huge disruption of our economic system and currencies. ...that will trigger a failure that will result in the establishment of a new system.

For those who want to know more about this....here's an article from 2006 on the Yen carry trade.

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Collapse of the `Carry Trade'Will Blow Out the System

Feb. 26, 2006 (EIRNS)—The following release was issued today by the Lyndon LaRouche Political Action Committee.
On Friday, Feb. 24, the Daily Telegraph published a blunt admission that the entire global financial system is on the verge of disintegration, as the result of the imminent collapse of the yen carry trade. Ambrose Evans-Pritchard penned the Telegraph story, "Global Credit Ocean Dries Up," and quoted from a number of leading financial analysts, who warned that the entire system is jeopardized if Japan goes ahead and raises interest rates, thus shutting down the yen carry trade, which has fueled global hyperinflation and speculative bubbles for the past several years.

As the Telegraph defined it, "The 'carry trade'—as it is known—is a near limitless cash machine for banks and hedge funds. They can borrow at near zero interest rates in Japan, or 1 pc in Switzerland, to relend anywhere in the world that offers higher yields, whether Argentine notes or US mortgage securities." Last week a crisis was triggered when the Fitch rating agency downgraded Iceland's sovereign debt. Interest rates in Iceland are 10.75 pc. The Bank of Japan has announced plans to abandon the zero interest rate policy, as early as next month. This has triggered the panic, cited by Evans-Pritchard.

Evans-Pritchard quoted a number of analysts. David Bloom of HSBC warned, "The carry trade has pervaded every single instrument imaginable, credit spreads, bond spreads; everything is poisoned. It's going to come to an end later this year and it's going to be ugly, even if we haven't reached the shake-out just yet. People have a Panglossian belief in the march of global capitalism but that will change as soon as attention switches back to US financial imbalances."
Stephen Lewis of Monument Securities was quoted: "There are several hundred billion dollars of positions in the carry trade that will be unwound as soon as they become unprofitable. When the Bank of Japan starts tightening we may see some spectacular effects. The world has never been through this before, so there is a high risk of mistakes."

Stephen Roach, chief economist at Morgan Stanley, was even more blunt: "The lure of the carry trade is so compelling, it creates artificial demand for 'carryable' assets that has the potential to turn normal asset price appreciation into bubble-like proportions. History tells us that carry trades end when central bank tightening cycle begins."
LaRouche Says: Let It Happen

Political economist Lyndon LaRouche was far more plain-spoken and blunt. "The yen carry trade is in big trouble. The mere fact that such questions as those reported in the Daily Telegraph are being raised means that the carry trade is about to bite the dust. Iceland and other countries are going to go bankrupt. But the multiplier effect of the blowout of the carry trade is going to mean that the crisis hits with a magnitude far beyond any individual nation or currency. This will bring down the whole post-Bretton Woods floating exchange rate system."
But LaRouche added, "Let it happen. The system is doomed under any circumstances, and we know what must be done to create a new, stable financial system, based on the principles of Franklin Roosevelt's original Bretton Woods System. I am ready with a recipe for precisely how to solve this crisis.

US Housing Meltdown.

"But what they perceive as newly abundant liquidity can readily disappear. Any onset of increased investor caution elevates risk premiums and, as a consequence, lowers asset values and promotes the liquidation of the debt that supported higher asset prices. This is the reason that history has not dealt kindly with the aftermath of protracted periods of low risk premiums" - Alan Greenspan, 2005.

4-7 million Americans will lose their homes in the coming months.

Given the fervour we are seeing in our housing market, I think the American situation offers many lessons. It has taken me a long time and plenty of reading to get a handle what is going on in the US. It is a tragedy for many Americans and can potentially turn into something ugly for all of us if Bernanke is not skillful at handling this situation. It reminded me of my cousin and her husband who bought a $750,000 condo on a household income of $5000 in 1996 at the height of our own property bubble. They had to endure alot of pain when the construction sector where they were employed slowed they saw their incomes falling.......banks hike interest rates to a whopping 8% during the Asian crisis they struggled to keep their home. They pulled through and are in better financial shape today but buying that condo burned a hole in their pocket that took about a decade to overcome.

The best video I've seen on the current US housing meltdown is an interview with Pulitzer-prize winning business reporter Gretchen Morgenson. For those who want to understand the current situation and its implications, this video is highly recommended:

Busy with : Buy, Sell or Hold.....

I thought someone told us the Golden Period is coming......

I have been busy since last week trying to answer this multiple choice question:

1. Buy
2. Sell
3. Hold

The answer to which I'm sure will have enormous repercussions to my financial health in the next 6 months. It has been a long time (1.3 years) since I bought stocks, I made the awful mistake of thinking they were too high early this year and bought puts to protect my portforlio, the puts expired end of Jan 2007 just before a correction in Feb 2007...otherwise it would protected me against that down turn....ah..timing is everything.

Everything looked good until 2 weeks ago. Then suddenly this thing about subprime loans started to spook the market. New words and phrases such as "subprime", CDOs, "credit crunch" has been added to my vocabulary in the past week. I spoke to my broker and a few people who would know something, they told me to "sell first, think later". I took sometime to study the subprime loan problems - basically American lenders took some bad loans mixed it up with good ones and sold it to the financial markets. ...now no one can figure out how much this stuff is worth and the uncertainty has escalated into a panic. To understand the economic implications of subprime loans is beyond me, my guess it as bad as anyone can imagine. Some call it a contagion similar to the Asian Crisis, many say it will get worse as liquidity dries up, others say it will eventually lead to a severe recession. There seems to be NO SILVER LINING in this saga.

All my life investing a I abide by several rules when buying stocks:

1. Buy when they are inexpensive relative to earnings & interest rates.

2. Buy when there is panic and when there is consensus things will get worse.

3. Buy when there is an enormous amount of fear and uncertainty.

4. Buy when everyone is selling and nobody dares to buy.

Applying these 4 simple (almost simplistic) rules, on Friday I purchased a whole basket of stocks about 15 - this time chinese companies listed on the SGX as the Chinese economy is insulated from the subprime problems. I believe there are also good Singapore stocks worth buying given the selldown but didn't have time to look through them.

It is strange that jsut 3-4 weeks ago, everyone wanted to enter the market when stocks are far more expensive and nobody wants to buy them now when they are cheap....perhaps they are so smart to figure out that stocks will plunge lower and prove me totally wrong....lets see. The subprime problems have resulted in central banks flooding the market with liquidity and rate cuts will come in the coming months.

"A speculator's job is to demand the supply and supply the demand", ALBERT PACELLI, The Speculator's Edge

What I did on National Day....

For many the fireworks, parades and festivals....for me a walk down memory lane.

The National Museum had an open house on National Day. It has been a long time (10 years) since I visited the National Museum and I was surprised by how much the place has changed and improved. They have this audio aid that provided much a good information as you walk through the exhibits. From Sing Nila Utama, Stamford Raffles to modern Singapore the museum gives a very comprehensive account of our history. There are interesting snippets like Sir Stamford Raffles had a rival called Colonel William Farquhar who contended to be recognised as the founder of Singapore. He was sacked by Sir Raffles for allowing gambling and slave trading in Singapore.

Just before you exit from the history section there is an old black and white video showing an energetic young man giving a speech and it goes something like this (this is off my head, I can't remember it verbatim):

...you know in Egypt they make television sets, 50 thousand sets a year enough for the local population...with RCA of America. Our people are just as industrious as the Egyptians why can't we make our own television sets, aircon...why must we buy and sell goods that are made by others. This boy (points at a boy in the crowd) he is 8-10 years old, he will need a job 10 years from now...you don't want him to grow up to be a taxi driver, we will be a bankrupt nation..you have to think 3 steps ahead 10 years...

Although some might consider this to be a party-political film, I guess it has been approved by Ministry of Information to be displayed in the National Museum .....That young man was LKY. Imagine that, 40 years ago our role model was Egypt...making television sets and aircons was a big deal, the goal was to have children grow up to be something other than taxi drivers. Long after we have stopped making televisions, I still haven't met a taxi driver who is not a Singaporean.

In the fashion section, they featured music from The Quest, Siglap 5, Naomi and the Boys...yes we used to many famous bands in our music scene...bands and songs that every schoolboy would know....

The trip to the museum brought back many memories, memories that make us Singaporeans in our hearts, the shared experience that we have gone through as a people...is what makes us want to stay together in the future.

Why does this always happen?

I have always wondered why it happens so often - not Singaporeans getting lower priority when they are served, but people complaining about such incidents. Just the other day a colleague complained that the person sitting next to her (with golden hair) on a flight had received more attention from the stewardess who explained in great detail what the lunch menu was ...the stewardess turned to her and simply asked "chicken or fish". I told her that when the stewardess was explaining the menu to the other passenger she could also hear so there was no point for repetition.

I hope Singaporeans don't become overly sensitive to such incidents. Many of these incidents can be logically explained and have nothing to do with race or skin color. The woman who happens to be Caucasian might have been a regular customer at the supermarket and hence given higher priority.
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By now, I think most people have understood the concept of a genetic eve that humans are more similar to each other than any other mammals. If you take two chimps, the genetic diversity is far larger than two human beings. Skin color is the simplest of mutations and although it gives the impression that someone is different from you it is only psychological. Human beings who have lived in Singapore for 40 years are more similar to you in behavior than someone of the same skin color from another country. Being Singaporean, we have more in common in terms of behavior than being Chinese, Indian, Caucasian or Malays.