Wednesday, October 08, 2008

Recession is here!

I've never seen the non-oil exports fall so sharply in any previous recession. Leading indicators for the global economy like the BDI fell off the cliff - if you were a shipping company would be seeing plunge from the highest profit margins in history to negative within 3 months! I believe many businesses are looking at the same situation an abrupt decline in demand.

The only thing good about falling so fast is you tend to get to the bottom faster - however, there is no reason to believe we will rebound from the bottom quickly this time. During the Asian Crisis, a large part of the global economy was still healthy - this time most of it is bad. Very bad. The psychological switches have been flicked to recession mood, it will take a lot of time to get the US and European consumers to start spending again. The US bailout may help the credit crunch but the recession is probably unstoppable and has to run its full course.

As for the stock market, there it is really hard to pin point the bottom relative to the recession. There were bear markets that ended at the onset of recession and there are some that recover only when we go past the worst point of the recession and there is some visible improvement. In any case, investing during recessions has ALWAYS been profitable in the long run based on history of the past 50 years. The problem is how much loss you see as the market makes its way to the bottom....and history might not repeat. This one looks nasty - the worst since the depression. I learned in the last crisis, there are all sorts of strange linkages and negative surprises that can keep popping up during such crisis - this time is no different. ..from the crisis appear to have spread from USA to Europe and right into the global economy. It is hard to say if we hit bottom, we might have hit bottom today given the high level of intense fear ....but this fear keep rising....some thought we bottomed in March 08, ...then Jul 08 but the ripples keep getting bigger and bigger. For long term investors, spreading your purchases over time my be the best approach - there is an implicit assumption that the world will eventually get out of this mess within a reasonable time...otherwise cash will be king.

Right now almost all signs point to a deflationary recession rather than stagflation. Oil prices have tumbled to US$86 per barrel and looks set to slide further. Commodities had their biggest fall in decades this week.
SINGAPORE, Oct 8, 2008 (AFP) - Singapore appears headed for its first recession since 2002 as the city-state suffers from a US economy wilting under its worst financial crisis since the Great Depression, economists say. Southeast Asia's wealthiest economy in terms of GDP per capita is heavily dependent on trade, which makes it sensitive to hiccups in developed economies, particularly key export markets the US and Europe. The crisis that began last year in the US subprime, or higher-risk, mortgage sector is now infecting European shores, and Singapore may very likely find itself in an extended downturn, economists said. They expect this Friday's release of preliminary economic data for the third quarter to confirm Singapore is in a technical recession, generally defined as two consecutive quarters of quarter-on-quarter contractions in economic output. "We are pencilling in the worst for Singapore.... We might see two straight years of (economic) contractions (from 2009 to 2010)," said Song Seng Wun, a regional economist with CIMB-GK Research. While the last technical recession came six years ago, the most recent full-scale recession was in 2001 when the economy contracted 2.4 percent during the year. After years of growth, signs of a slowdown emerged with recent disappointing trade data and contractions in the important manufacturing sector, which includes the country's export-dependent electronic and pharmaceutical industries. In August, key non-oil domestic exports fell for the fourth straight month, with electronic shipments continuing a decline begun in February 2007, and manufacturing dropped by 12.2 percent. The August fall in output followed a 21.5 percent decline the previous month. In the second quarter to June, Singapore's economy contracted 6.0 percent on an annualised, quarter-on-quarter basis and the negative trend likely extended into the third quarter, said economists. "Things are bad globally," said Kit Wei Zheng, Citigroup's vice president for regional economics and market analysis. "There are a lot of downside risks and in such a scenario, one cannot hope for a quick recovery," he said in Singapore. Kit is optimistically forecasting a fourth-quarter recovery, with full-year growth at 2.8 percent. Song said his revised 2009 forecast would likely be for negative growth. He said that given the rarity of the global crisis, "the numbers we may be looking at may be once in a century for Singapore." According to economists' calculations, more than two-thirds of the country's economy, valued at 243.17 billion Singapore dollars in 2007 (166.46 billion US), is driven by external demand. The island nation has no significant domestic economic drivers to lean on because its market of almost five million is simply too small, said economists. "If the world is in a recession, there is little that we can boost," said Song. "Our plan B is really to try to make the local population bigger." Economists from Credit Suisse also see Singapore's economy slowing further next year. "Signs that growth will be lower in 2009 than in 2008 are everywhere... lower job and income growth, falling asset prices, and flat to negative export growth," they said in a report. "By sector, the global financial turmoil could hit financial services growth hard, exports are likely to drag down manufacturing, and the biomedical sector is expected to remain under pressure from competition from generic drugs." In early August Singapore's government cut its forecast for economic growth this year to between four and five percent. But Finance Minister Tharman Shanmugaratnam warned this week that the country could be stuck in an economic downturn that may last "several quarters" as the global crisis evolves. "It is now an economic crisis," he was quoted as saying Monday in The Straits Times. "So globally the economy is slowing down. This is a fact that we cannot escape."


Jon said...

The current series of events is shocking in terms of its speed. It's like a patient declared healthy and carted off to the ICU in the space of days.

It is worrying as change at high speeds tend to produce wrecks. All central banks will be trying their best to apply the brakes to the downward plunge.

Perhaps this is a recession that the world has to have. The planet's resources are being stretched. Unbridled capitalism has created stresses within the social compact.

This will probably be a watershed event in the history of mankind. Keep an eye on the events that transpire in the US. The rest of the world, kind of follows the piper.

Anonymous said...

Hi Lucky

I think we have moved from ordinary world wide recession. It is outright fraud and manipulation on a scale that make our PAP look like angels.

We are very close to a crisis that can only be solved by a world war (or the next US president developing a backbone and arresting the financial mafia).

Anonymous said...

Jon, this recession isn't about stretching earth's resources.

Much of our problems is due to over-leveraging. We are spending money that we don't have, speculating in mineral futures that are still in the ground and selling shares that we don't even own.

Money in the past used to be backed by tangible assets like property and gold. Today, money is just an idea; backed only by a promise that the economy will keep running. There isn't enough gold or silver in the world to back up all the money that is circulating enough. There isn't even enough paper to print money. Most money today is just a byte of digital number you see on the computer screen or in your bank account book. There probably isn't enough serial numbers for every dollar.

We over-leverage ourselves into this mess. But I think we will eventually dig our way out.

Anonymous said...

The concerted rates cut by central banks smell so bad of desperation it will spook the markets further.

Like Wild-E-Coyote cartoons that boulder is rolling up the tipping edge, c'mon! Enough already! Let's get it over with a resounding crash.

Anonymous said...

Recession is coming but minister's pay as usual will be up and up. Good time and bad time, gahmen not affected.

Anonymous said...

The PAP is rushing to hike things now so they clear their bottomlines for their salaries before 2009 comes when it dared not hike prices further.

Look forward to more price hikes that range from electricity to telephone in the next few months.

Death to pAp

Anonymous said...

With the amount of $$ being pumped into the system, its only a matter of time before inflation pops its ugly head. Then we will see stagflation!!

The said...

When it affects others, it is a recession. When it affects me, then it is a depression.

Anonymous said...

How to protect my $$$$? How best to preserve its real value?