Wednesday, September 17, 2008

Financial SHOCK....and more SHOCKs...

I've been watching this crisis unfolding before us for months. But yesterday it became very real for some Singaporeans when AIG headed to the edge of bankruptcy. Hundreds of Singaporeans panicked and had their insurance policies with AIA cancelled. There was a long queue at AIA Tower but I think the fears of these people may not be justified - the insurance industry in Singapore is highly regulated and the contributions we make to AIA cannot be used to cover the losses of AIG.

In March 08, I wrote that the crisis was only at its mid-point and that worst is ahead. The template for disaster in outline in 12 steps by Professor Roubini who has been ahead of the curve in this crisis. Looking through the 12 steps, we are roughly at step 8. In the next few steps, the crisis will start spreading to everyone as we enter a severe recession. There is reason to believe this will be a deflationary recession rather than stagflation. Before the end of this year, economies will start slowing and inflation will be history. Central banks will start cutting rates in anticipation of the recession.

There is an easy way to recognise a recession 1) Slowdown in demand 2) Fall in production 3) Job losses. A recession is a bit of a vicious cycle because step 3 will lead back to step 1. I now believe that a recession is nearly impossible to avoid. The reason why the US economy has kept growing is due to the stimulus package they implemented earlier this year. That only postponed recession to the end of this year.

This recession is going to last for sometime as the financial architecture of the global economy has sustained some amount of damage. Banks cannot lend unless they are well capitalised and that will take months if not years to fix. Right now credit is shrinking as deleveraging takes place - you can tell by the sharp falls in everything from stock prices to commodities. With the economy slowing down, the losses at the banks will cascade as people who lost their jobs default on various loans with the bank.

I know all of you are worried but we have great leaders to guide us through this crisis. Starting with MM Lee who said that we are in a "Golden Period" in 2007. PM Lee really believed we were heading for a "Golden Period" and should no problems paying more GST (to help the poor). Our elites in Temasek and GIC bought huge chunks of Merrill, Citibank and UBS. You can tell they have foresight because they can see beyond the problems that most of us fear. To train the people to be more resilient when the hard times come, they hiked everything from electricity to HDB flat prices in the past few months. Thanks to this training, when the hard times come, we will be ready to eat less and use less electricity. With great leadership, we should be able to navigate through troubled times. Don't expect our leaders to take any soft options such as subsidies and welfare for the people. No matter how bad things get, they will be there to explain all the sacrifices you have to make to get the economy back on its feet - CPF cuts, retraining, working longer hours, less benefits etc. Once the US economy recovers and things get better, they will explain how their great leadership has taken the country out of difficult times once again. Your sacrifices like CPF cuts and loss of benefits will be made permanent so that you can make a permanent contribution to Singapore Inc's bottomline.

23 comments:

Anonymous said...

I wonder if Temasek had seriously considered buying into Lehman Bro. After all, aren't we living in the "Golden Period" as the elites imagine it to be.

Onlooker said...

If people mati now or car crash Still insured Right?

Remind me of Life annuity.

Anonymous said...

aia custy still insured just dunno when will actually get the cash.

btw, I believe TED spread already quite wide, interbank around 10%. despite massive injections by central banks. many hedge funds already dead. sadly. 3 major investment banks down. AIG is more or less gone unless u believe their business model can survive a 11% (or so) borrowing cost.

I like to believe we are closer to step 11. The problem is i think step 12 could be very long one if Mccain wins. we could be looking at great depression part 2. :-S

So how?
hide cash under mattress?

I am paralysed by fear.
Need advice.
Please help.

NoName

Anonymous said...

Dow currently down 330.
SEC needs to re-implement the uptick rule.
But probably too late already.

The americans need to launch a fund similar to HK during the last asian crisis.

NoName

Anonymous said...

Hey NoName...

The bears make money, the bulls make money, only pigs looses.

Anonymous said...

Dear Anon at 3:23 AM

You should watch what u are saying.
Pig with lipstick could be the most powerful person in the world come Dec.

And since u are too stoopid to understand ... if a depression really occurs, the money in ur bank will become worthless. In fact ur bank may not even be around.

PS:
I have been calling a bear market since last year.

NoName

Anonymous said...

looks like there r good stock pickings around....only if they stay around.

Anonymous said...

A recession and depression is almost a certainty. But Republicans refuse to acknowledge it. Heard over BBC radio in a forum held in LA, an academic (a Republican) insisted that the US is not in a recession, to loud incredulous laughter from the audience. Instead the academic insists "there are good jobs around, what is needed is retraining of American workers to fill those jobs". Doesn't this sound chillingly similar to the mantra of the PAP govt?

Anonymous said...

The Golden Period is only is you are a MM or Cabinet or related 'work'. The rest just bear with it, accept more foreigners who have just lost their jobs back home here. They are more experienced. You have to compete globally.. Just watch this space.

Anonymous said...

When our govt benchmark to set their own salaries, they look at all the top earners in private sectors. Look at the risks of top jobs in private sectors. With a meltdown like this, many top executives simply lose their jobs overnight. But our ministers will continue to collect their millions regardless what happens. Is this fair?

Ghost said...

More problems are on the horizon but a depression is still a long way away. I think Temasek made a bad call not getting out of Merrill earlier but too late to bitch about that now. Let see what price BoA is offering for the shares

Anonymous said...

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Anonymous said...

This year, MM has received the biggest birthday present he can ever wished for.

All his favourite angmoh banks are going to be HISTORY soon.

Even Morgan Stanley is not spared.

I think he going to get another atriul flutter soon.

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Anonymous said...

well, most people here probably don't agree, but mccain will be a better person to help america deal with this crisis.

yamizi said...

Lucky,

Do you have a contact email that I can get in touch with you from there?

=)

Anonymous said...

"well, most people here probably don't agree, but mccain will be a better person to help america deal with this crisis."

Even if Mccain is better(he is not), he will be a lame duck. If he wins Palin will be president.

US and UK are putting curbs on abusive short selling. Maybe a temp rebound. But does not change the fundamentals. (I hope I am wrong)

Our fates are in the hands of rednecks and morons much more stoopid than 66.6.

Ignorance is bliss. :-S

Anonymous said...

I love the way Lucky phrases it "Financial SHOCK..and more SHOCKs" because he intelligently links the financial turmoil with how the poor gets treated in Singapore during this tough period is just SHOCKING!

Lets be honest, Singapore is 2nd richest country in Asia after Japan, Singapore's GDP is on par with Spain and Italy. No other rich nations in this world treats their middle and lower class with such indignity.

I still remember the poster for GST at my void deck; a Seesaw. On one end of the seesaw the lump sum GST rebates and the other end sits a group of people smiling away happily because the seesaw was balanced!

Please hor! Singaporeans are NOT STUPID lah.

What Singaporeans paid in GST is MORE than what we got from the rebates!

You want proof? How much was the budget surplus before including property tax? $6,000,000,000. Yup that's right $6 billion bloody dollars. And the PAP thought they are going to make a $0.5 billion loss. Singapore elites went to world renowned universities to make this kind of mistakes?

You go check in dictionary what elite means lah ok before using it on yourself. Elites my ass lah! Self declared elites and real life elites are totally different you know.

Singapore Elites went to Oxford, Cambridge, MIT using tax payers money some more...what a disgrace, might just as well go to NUS or NTU lah ok, SIM also can.

Cheers,
Pay And Played.

PS - a smart/intelligent MP wants to interview those Singaporeans leaving for good, to know the reasons leaving this paradise behind. Is this the joke of the year or what!!! HAHAHA

Ghost said...

Sry but u are right, I don't agree. Mccain say that America economy is strong on the same day the Dow drop 500 points. He may have more xp but he seems clueless on the economic front

Anonymous said...

It's because when it comes to the economy, McCain has no credibility - say one thing, then change his tune again and again. No use talking up the economy and might as well save his breath.

Anonymous said...

"I wonder if Temasek had seriously considered buying into Lehman Bro."
Singaporeans are really a naive lot !
To even ask this question show how gullible Singaporean is.

Brother,
You don't have to explicitly invest in Lehman Bro to lose money. You just need to lose it implicitly.
Ask this question,
did citibank, merill lynch, Barclays, and other investment institutions that Temasek has stakes in Lehman Bro, directly and indirectly, and you get the answer.
For example, what Lehman Bro invest greatly that other institutions have invest in. So think wider perspective.

Do not naively believe the words of MSM because it doesn't want you to know about such relationship.
All birds of same feathers flock together, don't they ?

Brother, keep this a secret, haha...

Anonymous said...

What if the bro who "wondered about temasek buying into Lehman" actually meant it in jest. I'm sure nowadays, many singaporean, aren't as naive as many would think they are.

Anonymous said...

I am not sure on how much did the idoit investment banks or financial instititions (that play with dangerous structure products) provide normal trade financing for the companies. I think their contributions to normal trade is very little.

I see the whole crisis as a fine example of Adam Smith's "Bad money drives out Good money". There are still plenty of liguidity around (if not you will not see mega Billion $ bailouts by govts or buyouts by investors). But, the problem is that you don't know who to trust when lending out your good money for those banks with cash.