Thursday, March 06, 2008

US$ - are the doomsayers right.?

Today the 1 US$ = S$1.389

Did you go to the NATAS travel fair last week? Tours to US are becoming popular - at $1.389 some Singaporeans plan to go there for a shopping spree. I hope Singaporean tourists don't go round saying, "Cheap, cheap, cheap" like they do when they go to Johor. Otherwise, we will be called "birds" by the Americans.

The US dollar is sinking...fast. If you remember your history, the decline of the Roman Empire started when the Romans debased their currency. It wasn't defeat at war that brought about its demise but a deterioration of its economy. The Romans after amassing large amounts of resources from conquered lands decided to enjoy life. But when the money ran out, they decided to just make more of it.

While America doesn't go about building an empire by conquering foreign lands, it has been consuming far more than it produces resulting in a huge deficit. Foreign govts would return the US$ by buying US treasuries turning US into the biggest debtor nation in the world. This sort of kept the US$ from plummeting. However, foreign govts are now wary of keeping too much US$ assets as the US economy weakens and the US$ falls. Are we seeing a vicious cycle here?

There was even a presidential candidate Congressman Ron Paul whose platform was to strengthen the US dollar and dismantle the Federal Reserve. Several years ago he sounded more like a conspiracy theorist then a senator but the recent fall in the dollar and array of problems facing the US economy did lend some credibility to his "theories". Will we see the day when the US$1 goes for S$1?....I don't think it is too far fetched.

16 comments:

Anonymous said...

WOW! Which means that our citibank shares suffers a double whammy of declining share price and declining currency rate. Mr Lucky, do you think MM Lee's prediction have come true - we are now suffering a 'bad dose' of bad government now? Should we start kicking out the opposition parties in parliament so that PM Lee do not need to continue trying to 'fix' the opposition, and focus instead on fixing the electorate - higher GST to help the 'poor' - keeping our monies in CPF so that dad and wife can shop for more citibank shares etc etc...

LuckySingaporean said...

anon,

There is nothing that cannot be explained by saying it is a "long term investment". Shin Corp is for long term, global crossing is for long term...so is citibank & UBS...all for the long term..

Anonymous said...

::: S$12 billion loss by GIC and Temasek since mid 2007:::
===================================

"SINGAPORE (Reuters) Mar 5, 2008 - Investment guru Jim Rogers believes that U.S. bank stocks could fall further and predicts that Singapore's state investors will lose money on their multi-billion dollar investments in Citigroup and Merrill Lynch...."
LINK

I am afraid the tense used in the aforesaid Reuters' article "will lose" is not apt.

GIC and Temasek in fact have already lost USD8.6 or S$12 billion of taxpayers' money and CPF savings !

Here's the references:

:: GIC invested USD11.9 billion in UBS (Dec 2007)

Share drops from USD48 to USD30.
Loss of 38% or USD4.5 billion by GIC.

~~~~~~~~~~~~

:: GIC invested USD6.9 billion in Citigroup in (Jan 2008).

Share drops from USD28 to USD22.
Loss of 22% or USD1.5 billion by GIC

~~~~~~~~~~~~

:: Temasek invested 6.2 billion in Merill Lynch (Dec 2007)

Share drops from USD58 to USD49.
Loss 16% or USD1 billion by Temasek.

~~~~~~~~~~~~

:: Temasek invested USD4.6 billion in Barclays (late July 2007 & subsequently when Barclays ABN Amro merged)

Share drops from USD700 to USD450.
Loss of 36% or USD1.6 billion by Temasek.

~~~~~~~~~~~~

Lets add up the aforesaid loss figures in USD 4.5 + 1.5 + 1 + 1.6 = USD8.6 or S$12 billion.

Only S$12 billion loss. Not much because higher losses to come.

Welcome to Singapore run by the wise old man of the East!

Anonymous said...

The US is not as bad as the doomsayers in the US are making it out to be. They are even telling people to get rid of their US dollars and buy gold instead.

The very wealthy ones are also adding to the chorus of negative talk. They;re saying "We are selling the dollar and buying other currencies. The US is doomed."

I am not an American but Singaporean. This much I will say to these doomsayers: "Are you traitors of your nation? Have you forgotten that you are Americans?"

I ask Americans not to be sold on this kind of message. If there is any message they should reject, it is Bush's militaristic message and the message of the money masters who are nothing else but profit in their minds.

These doomsayers should know that the US stock market and hence its economy is dependent on the psychology of the masses. Instead of uplifting the American people and try to find real solutions to the subprime crisis, these seeming leaders are doing the opposite.

This is wrong. And it shows how bad lacking good leaders are when it comes to the crunch.

According to one analyst and I agree with him, the current subprime crisis is a crisis of confidence among the financial institutions, their mistrust of the failing banks, not lending money to them. This why the Sovereign Wealth Funds of other countries are getting involved.LINK

Aside from this the American mass media is also playing up the tune that the US is sinking economically. Some observers have as a result come to think that it is all orchestrated by greedy money masters out to reap profits when things go sour. I do not have to name them. They are famous people and you have probably come across their comments in the press.

My feeling is that there wont be a crash of the American economy. But it can really happen if too many people begin to believe in the doomsday message. Don't!

Americans please stand up to all this kind of negative talk.

Of course, this is not a critique of Lucky. I believe he is just throwing some views for discussion and this is helpful really. Thanks.

Anonymous said...

and what say you about the country with supposedly the best security facitilies allowing a terrorist in detainment to escape scot-free?

Anonymous said...

Making profit is amoral, the market may be influence by sentiment but the dollar reflect its value as such due to monetary policy, no amount of patriotism can save it, it is naive to think so.

About the universal collapse of dollar, FT's John Authers in short view has some good charts and insight. Do check it out.

Hey Lucky, maybe you can do more of these market coffeeshop talk, I find the comments you and others gave rather interesting, the analogy with horror film is very good :D

Anonymous said...

'The US is not as bad as the doomsayers in the US are making it out to be'. For now nobody knows how this will play out, but with retail down, manufacturing down, the US$ down, the sub-prime mortgage story still unfolding and oil prices reaching for the sky, who can tell. Finding solutions to all these problems is easier said than done primarily because the US is now so massively in debt and continually chalking up deficits year after year, something has got to give. When the US$ falls further, there is no telling what other countries will do with their massive US$ holdings which is turning into something of a depreciating reserve.

Anonymous said...

There is such a thing called self-fulfilling prophecy. It is another way of saying that if one keeps thinking negatively, then nothing is positive and one will just help the negative expectations get fulfilled.

Of course the bad economic figures are there but that's not the point. The point is that when you are sick and suffering, you want to think positive, to have faith that you will find a cure. This is not a time to say "Die, die lah".

It is silly under such circumstances to keep telling oneself there is no hope and that's precisely what the influencers are doing now.

The Great Depression was very much the result of widespread loss of confidence in the markets. Do the US and other countries - the latter knowing that their economies are inextricably tied to the US - want to help such situation come about?

Think it's fun? Ask stock market investors how bad the last 6 months have been.

Anonymous said...

>> Making profit is amoral

Who is saying making profit is necessarily immoral?

What is immoral is when profit-making overrides other legitimate and larger concerns like whether society will not be greatly harmed by one's action.

Anonymous said...

Believe in destiny? Believe in cycles?

The US is going down. For how long, only god knows ....

Argue with the Creator at your own risk and financial loss.

Of course, cycles mean there would be ups. Question is, how long do you live?

Anonymous said...

Some doomsayers are already shouting the end is near, nothing can be done to save the US, dump your lousy dollars, hoard gold and escape to the countryside. The US will be invaded and the rapture is just around the corner. In other words, belief in god but grab what you can now.

Ling said...

To Anon 12:02PM

The word used was "amoral", not "immoral". "Amoral" simply means that there is no moral value attached, i.e. neither good nor bad.

Anonymous said...

I understand what amoral means. Therefore I pointed out that this is not true.

Profit-making at the expense of harming others is immoral. I hope this is clear.

Anonymous said...

At one time the Euro was worth less than a US$, now it is worth 1.5 times the US$. Who would have thought of that. Those of us born just after the war probably still remember the US$ going for S$3+ and the British Pound at S$7+.

Anonymous said...

It arguably true that making profit is amoral because that is the objective of a successful corporation, it is the sole driver of its growth.

Corporation function within the rules and regulation, confine of the laws of the land. It does not have to serve any obligation for a greater good of mankind.

When you say "profit-making harms at the expense of harming others", do look at the causality, ask why is it allow to do? The answer is simple, because it can.

Manners of bounding these negative externalities cause by market activity are available, from various disincentive like taxation, hefty fine, new regulations.....

Anonymous said...

>> Corporation function within the rules and regulation, confine of the laws of the land. It does not have to serve any obligation for a greater good of mankind.

You just affirm the very argument you seek to deny.

This is because when you said corporation function "does not have to serve any obligation for a greater good of mankind" you are in fact saying that it is capable of harming the greater good of mankind. It is so simple and yet you have a problem with it.

Your problem is that you fail to distinguish between legality and morality.

To work within rules and regulations is about legality. However legal activities by themselves do not ensure that they are ethical.

Now just to give an example. Suppose a hedge fund had made hundred of $billion if not $trillion over the decades from the US where it is based.

However now at the signs of deep trouble, it is shipping out by offloading its huge holding of the greenback. What more, it is telling the market its home country's economy is a goner and that others investors and countrymen should also dump that currency.

Obviously such a message would further contribute greatly to the depreciation of the greenback.

Such a business policy might be completely legal but is it ethical?

Where is the allegiance, the reciprocation to one's home country when it comes to the crunch?

I suppose the prevailing notion is that MNCs have no allegiance to any country but only to profit.

There however comes a time when such an overarching profit-making objective will do tremendous damage to that country's economic interests and by contagion the interests of the economies of the whole world.

This is also why when IMF wanted to vet the Sovereign Wealth Funds, the latter counter that it is hypocritical for IMF to do that. This because while the IMF had done nothing to control the big banks and hedge funds that have caused the current subprime crisis affecting the whole world, why is it trying now to set standards for SWFs?

This is not the first time the activities of these big boys in financial world had caused huge problems for the world. The Asian Crisis should have taught the IMF and other international agencies to step up their control over these institutions. Now it is happening again.

The subprime was their 'good' work, these big boys of the financial world were raking in huge profits from subprime mortgages and their derivatives.

The smarter ones got out fast enough and now they want to do more harm in the name of smart business strategy or what have you.

Make profit, ship out, sit back, fold their arms, mock and watch the showdown of one's home country. Clever business strategy of course. But ethical?