Friday, November 28, 2008

The state of the global economy....

More has happened to the global economy in the past 3 months than any other 3 month period in the last 50 years or even longer. I like the following chart because it really shows what has happened:

This is the BDI (Baltic Dry Index) it shows the shipping rates for commodities. This index is non-speculative as these rates are set based on professional assessments made by a panel of international shipbroking companies[Link]. The index fell from about 10,000 to 773 in 3 months. In May 08 shipping a ton of dry bulk from Australia to China cost $45. Today it cost$4. A collapse of more than 90%. Imagine if you were a shipping company, at BDI=10,000 or 7000 you're making healthy profits, borrowing to build new ships and expanding capacity because the margins are so healthy. At 773, shipping companies are seeing losses with every shipment. It is not unusual for shipping rates to fluctuate as we go through economic cycles but this time it did not fluctuate - it collapsed. Within 3 months healthy shipping companies suddenly find themselves in danger of insolvency. What happened in shipping is a microcosm of what is happening in the global economy. In the words of the macro economists in PIMCO, the global economy had a HEART ATTACK.

"The economy has had a heart attack. It needs careful attention." - Mohamed El Erian Pimco CNBC 11/21/08

In July 2008, the economy was like a unhealthy overweight feller with high blood pressure, high cholesterol...clogged arteries and a bad heart. But in mid-Sept 2008, the collapse of Lehman Brothers triggered a heart attack. If you recall, the US govt bravely proclaimed "no more bailouts" prior to the collapse of Lehman. A week after the collapse of Lehman, they asked for $700B to bailout everyone else.... the collapse of Lehman put the overweight feller in ICU. The $700B was like a defibrillator to prevent the economy from sudden death. Now in ICU day to day different problems appear - the heart is weak so the kidneys are failing (GM?) , so is the liver ...and other organs.

"Construction firms face 'collapse risk'"- Straits Times 28 Nov 2008
Today's Straits Times talks about the possibility of close to 2000 (out of 6000) construction companies in Singapore failing as a result of this crisis. In another article, a well established British retailer Woolsworth has collapsed and 30,000 employees there may lose their jobs. In China there has been growing unrest and riots. There was some talk that the Chinese has given the world a "gift" by stimulating their own economy and cutting rates aggressively - they have not acted out of kindness by are driven by the need to survive. Thousands of factories depenedent on export to US has closed its doors and workers are left stranded and desperate in many parts of China. The tension in the Chinese society is increasing as the economy falters. While many analysts talk about the future of the global economy being increasingly dominated by China, China is fraught with numerous problems due to the incompatible mix of an authoritarian govt and capitalism. There is not outlet and process for resolving the problems brought about by capitalism.....problem shows up as riots, they just send in the police to disperse their rioters ...problem solved? The Chinese govt is now extremely concerned about unrest around the country : [Link].
The Americans have spent about a $1 trillion on bailouts and the Fed announced on Tuesday it will throw in another $800B into the consumer loan market to get it going, President Elect Obama is considering a $700B stimulus package to kick start the economy. There is some faith that the Americans can keep spending and spending to get out of this malaise. If the economy does not get better after so much money is thrown at it, I think we have to prepare for really dark days ahead.

We are all helping the PAP.....

Thanks for your comments to my previous posting. A few warnings that criticising the govt can be hazardous to my well being. ...I hope not and for the PAP sake, I hope not. Here is my response to your comments:

Do you know critics & the opposition calling for transparency and accountability now actually helps the PAP? ....Presently, the PAP still have sufficient support of the people. If it makes the positive changes now, it will really help to retain its power - the GIC & Temasek losses while they are large is still not devastating. If nothing is done, losses are hidden and these 2 entities accumulate more losses as the economy sinks, PAP's position will be weakened further. People are not fools, they will know even as these entities try to keep things secret.
It is strange, but true, that many of us are asking for things to be done that will help the PAP retain its support in the long term.I cite you this example...and it is interesting: When Tony Blair wanted to fight the Iraq War, he was strongly opposed by the members of his own party and general population. The Opposition which was the Conservatives supported the war and encouraged him to go to war. A few years later the Conservatives turned around and started condemning Blair for misleading the country to war, mis-managing theIraq Waretc. Blair had to resign for the Iraq War.
If you simply hate the PAP, you should be asking them to keep GIC & Temasek as it is, encourage them to invest in risky assets ...and let them continue to be secretive. Surely, one day the hubris and arrogance withinn these organisations will result in catastrophic losses ...and the PAP is finished.
What many Singaporeans want from the PAP is for them to do the right thing and work for the interests of the people. The PAP is better off listening to its critics....Michael Jordan when he was the best of the best at the height of his game paid millions to consultants to critique his play. The reason why he did that was because he felt that the people were so overwhelmed by his greatness and past success, they are incapable of giving constructive suggestions to improve his play. That was how Jordan reamained great until he retired. Chess great Garry Kasparov looking through analysis and commentary on the games of legendary Bobby Fischer found that many of these were wrong and influenced by Fischer's past success and reputation - mistakes were overlooked and even praised [Link]. For many organisations and people, their past successes led to their downfall - they live on these successes, surround themselves with people who say only good things, they get rid of constructive critics, deny their mistakes and eventual destroy themselves. If you hate the PAP, you should congradulate them and tell them that they are doing a wonderful job ...thank you!

Thursday, November 27, 2008

What is WORRYING about GIC & Temasek Losses!

A few years ago, Singapore Technologies invested in a harddisk company known as Micropolis. I remember that day very well because I met up with a few friends in engineering familiar with the harddisk industry and they were highly critical of the decision - the industry was highly competitive and consolidating and Micropolis, a small player with production problems just can't compete with the bigger players. I told them off saying that our govt must have done its due diligence and looked at the investment carefully ...after all this is tax payers' money and the govt can't be playing dice with it. Micropolis went down pretty fast after $630M in tax payers' money was put into didn't even have a fighting chance. All this was brought up in parliament but it was explained that everything was approved and nobody can be blamed for the massive losses. The citizens should just accept it and move on. ...and Singaporeans learned to move on because the losses got bigger but the people were more silent than ever. Temasek's Shin Corp $5.9B investment is really interesting for those who bother to check it out. Because foreign ownership of a strategic asset is not allowed in Thailand, Temasek found a front - a Thai national based in Malaysian together with Siam Bank were the official owners of Shin Corp[ownership structure, Shin Corp unvestment]....and all this was revealed only because Thaksin was thrown out of power and had to go to court. Citizens of any other country would be horrified at the loss of billions on a risky investment. They would have called investigation and reform. .... but in Singapore, we were able to move on and not fuss over a few billion dollars.

In late 2007 and early 2008, both Temasek and GIC started investing billions in western banks - $36B in all - despite the numerous warnings by analysts and commentators that the situation was extremely risky. But it wasn't just experts who knew that almost everyone could see the risk. Yet there seemed to be no risk too high to take for Temasek and GIC. 9 months later $20B of taxpayers' money is lost in these investments alone. BUT THE WORRYING THING IS NOT THESE LOSSES..........

What is worrying is the lack of reponse to all these events. At which point will the check and balance kick in? At which point will Singaporeans be calling out loudly to reform the GIC and Temasek? There is NOTHING simply NOTHING to stop what is going on in these entities - no independent media, no people's power, no opposition strong enough to demand change. If any one these events had happened in Hong Kong, South Korea, US or Japan, they govt would have been taken to task and safeguards would have been put in place so that bad practices and risky behavior can be stopped. Subsequent massive losses could have stoppped when Micropolis occurred....or when Shin Corp occurred. The PAP govt took out all the check and balance in the system - controlling the media, repressing the opposition and bullying its citizens into silence. The massive losses are a product of a broken undemocratic political system....and you should be worried because many other things can go wrong.

Wednesday, November 26, 2008

Is GIC's Citigroup dividends still there or not?

The US govt bailout of Citigroup allows them to pay only 1% dividends to common shareholders.
If Citigroup still pays out dividends to GIC (7%), Singapore will get its principal back in 14 years. If no dividends is given out, our Citigroup stake is quite worthless because the convertible price is too high.

Published November 25, 2008
US govt rescue dilutes GIC's Citi stake However, GIC's rights and dividends from preferred shares still unclear.
By CONRAD TAN (SINGAPORE) The US government's massive capital injection into Citigroup will dilute the Government of Singapore Investment Corp's earlier investment in the bank, although it was unclear yesterday whether the bailout would trigger any changes in GIC's rights or a cut in the dividend that it receives. When contacted, GIC declined to comment.

Sample of our leaders wisdom....

I hope our leaders are somewhat prepared for what is coming. PM Lee seems wildly optimistic at the beginning of the year compared with other leaders around the world. Just a few weeks ago, he was still urging others to "take a measured approach" to the crisis.

This was posted by someone in the CNA forum :[Link]

Jan 2008 PM Lee urges world leaders at WEF to 'think ASEAN' Mr Lee said that the economy of Vietnam, for example, is taking off. The Philippines has strengthened its public finances while Singapore is enjoying a strong momentum, riding on the regional growth as well as its own economic restructuring. Oil producers like Malaysia and Indonesia are also benefiting from high energy prices. Thailand, Mr Lee added, is enjoying strong exports while forming a new elected government. Laos, too, is benefiting from the strong global demand for commodities. ---

June 08 Vietnam's Troubled Economy,8599,1812810,00.html?imw=Y

June 08 Big trouble for Philippine economy as prices surge - analysts July 08

Trouble brews in two Asian democracies (Thailand and Malaysia)

Aug 08 Crude Palm Oil prices plunge to new 9-month low Everyone else in the

2008 Davos WEF were grim about the world economy in 2008 except for the above mentioned.... Grim determination on the economy,dwp_uuid=01b19234-b4b2-11dc-990a-0000779fd2ac.html?nclick_check=1

Tuesday, November 25, 2008

Towards an Electric Car Economy...

A break from the usual articles on politics.

For those of you who are more than 35 years old, you might remember this person called Sir Clive Sinclair[wiki]. He was an engineer entrepreneur who had a number of interest inventions which made him a lot of money. My first computer was a Sinclair ZX81 not Steve Jobs' Apple II. Sinclair was a visionary and a risk taker. Having made a fortune on electronic gadgets, Clive Sinclair eyed bigger things - he wanted to revolutionalise the auto industry by introducing the electric car in 1985, unfortunately the technology (battery, engine etc) was not matured enough and the electric car developed by his company was a flop - too small, too underpowered, too long to charge.

Today's electric cars are completely different. Watch this video of a sports car by a company called Tesla:

There are many benefits of using electric cars besides environmental friendliness. It will make the world less dependent on oil. Many alternative energy sources can be converted to electricity for use by electric cars. The main problem is charging time. You take only 5 minutes to get petrol into your regular car but 2 hours to charge the electric car. One way is to charge it overnight the other idea to overcome this was developed by an Israeli entrepreneur Shai Agassi and he has persuaded the Israeli govt to develop the world's first electric car network by 2011. How it works is like this : each car has a removable battery that is replaced at one of the many exchange stations in the network when the battery is flat. Drivers pay a fee to the exchange station for the exchange. Given its political situation, Israeli probably more motivated than other countries to get rid of its oil dependency (ask yourself which are the countries producing oil). The idea of electric cars is workable and practical. Unfortunately, under President Bush, a successful pilot of an electric car by GM was ended ....conspiracy theorists think the Bush did it because of pressure from Big Oil. There was an interesting documentary called "Who killed the electric car?". This documentary was made in 2006 and interestingly a few experts in the documentary warned about the potential pain of high oil prices unless we goes electric and also the need for the motor industry in US to switch to this in order to survive. This idea will be revived under President Obama who is committed to clean energy and will probably sign the Kyoto Protocol.

The electric car economy
Electric cars are as good for the economy as the environment and could put $80 billion in consumers’ pockets by 2030, according to a new study from the University of California.
Not surprisingly, the oil industry would take a $175 billion hit under the scenario sketched by UC Berkeley’s Global Venture Lab, while a booming battery business would gain $130 billion as the internal combustion engine sputters out. “There will also be significant changes in the balance of payments among nations as petroleum imports decline,” the authors wrote. “We find the net imports of the U.S. will decline by $20 billion.”
The report makes several assumptions to arrive at its optimistic conclusions: The Cal researchers are counting on 39% of cars on the road to be electric by 2030 and powered by electricity generated from renewable sources like wind and solar.
Electric car owners would save an estimated $7,203 in operating costs, mainly because with no engines to maintain, battery-powered vehicles rarely see the inside of mechanic’s garage.
Left unexplored in the report was the impact of electric cars on the United States auto industry. If General Motors (GM), Ford (F) and Chrysler survive - and that’s a big if these days - they stand to benefit assuming they retool for the electric age and produce cars consumers want to buy before rivals like Toyota (TM), Honda (HMC) and Renault-Nissan beat them to the punch. But their dealer networks are sure to suffer once their lucrative repair and maintenance business evaporates.
Another winner in the electric car economy will be solar and wind companies and utilities, particularly those like PG&E (PCG) and Southern California Edison (EIX) that are making multi billion-dollar investments in renewable energy.
One of the biggest assumption the Cal report makes involves the rise of a U.S. battery industry. “We don’t have a battery industry today,” said Shai Agassi, CEO of electric car infrastructure startup Better Place, on Friday at a panel Green Wombat moderated for the University of California’s Global Technology Leaders Conference. “Either we make them here or they’re going to be made in China.”
Agassi and the mayors of San Francisco, San Jose and Oakland on Friday announced that Better Place would build a $1 billion network of charging stations throughout the Bay Area. Renault-Nissan has agreen to provide Better Place with the hundreds of thousands of electric cars it’ll need to put on the road make its business model profitable.
photo: Better Place
Back to main column

Pushed back 10 years!

In the 1980 US Presidential debates, Ronald Reagan asked the memorable question, " Are you better off than you were four years ago?". His logic was simple, if Americans were not, they should kick the incumbent out and vote for him. He had a resounding victory.

In Singapore, we can paraphrase this question : "Are you better off than you were 10 years ago?". If you're know what to do.

Seah Chiang Nee writes that our nation has been pushed back 10 years by a mis-steps and incompetence.

Pushed back by 10 years
And it’s only the beginning with the government losing more than just money.
Comment. By Seah Chiang Nee.Nov 22, 2008

It never rains, but pours; it wouldn’t have been too bad if I were just talking about the weather.
I’m referring to the growing pain that the global financial meltdown is wreaking on this small affluent state.
It has made us – the government and the people – a lot less rich, and pushed the poorer class into deeper dire straits. It has eroded national cohesiveness and widened the economic gap.
The country has been pushed back by at least a decade, possibly more. Leaders have warned that the pre-crisis living may not come back for some years.
The government, which had been sweeping general elections, is evidently worried about an upsurge in discontent that could erode its power base.
“The crisis has dealt a blow to public trust in the younger leaders’ ability to help people manage the crisis,” said an activist.
Take weekends at the Speakers Corner.
Hundreds of victims of the US financial woes have been gathering almost every Saturday to vent their anger at what they see as government failure to protect their interests.
This by itself is a national phenomenon, considering that public protests had been forbidden until a few months ago.
The protesters are among 10,000 Singaporeans who have lost S$500mil (RM1.2bil) of their life savings on “toxic” Lehman Brothers products sold here by DBS, a government-controlled bank.
When Lehman went bankrupt, these structured notes, which were extremely complicated products offering a high 5% interest, became worthless.
Many claim the local banks had portrayed them as a safe product, instead of telling them that if one of the six underwriting banks goes bust, the principal amount would be loss.
DBS has denied this, and the Monetary Authority of Singapore (MAS) is investigating specific charges. Meanwhile, a small number of old and ill-educated investors have been refunded.
The irate protesters are not your usual breed of street protesters, but hail from Singapore’s most conservative, pro-government citizenry.
Some are retirees and housewives, careful investors, who speak no English. Women have openly wept while the men, with controlled anger, lashed out at what they consider the government’s unsympathetic response.
Before tempers cool, another public outcry has erupted with serious repercussions for the government, and undermined its standing in Singapore’s heartland.
Eight of the 14 PAP-managed town councils, which altogether have S$2bil in “sinking funds” reserves, have invested and lost S$16mil in the failed structured products.
The money was collected from every household and meant for use in the estate’s upkeep.
They refer only to the toxic products and do not include investments in other markets, which have declined significantly in value. There has been no town council disclosure of total losses.
Questions about the town councils’ total investments – let alone losses – are unknown. So really, how much money has been lost?
Residents are worried that the market decline will mean higher conservancy charges.
“My questions are: Why were these estate funds – with PAP members of Parliament in charge – allowed to be used to buy risky papers?” asked a web writer.
In the first place, why were they collecting so much excess funds instead of using it to develop the estates?
Criticism has been widespread because it affects more than a million people – although very marginally.
Some Singaporeans fear that more skeletons will emerge within the government machinery as the crisis deepens.
Many statutory boards, educational institutions, trade unions and armed forces may have saved up and invested billions.
Those who did are continuing to see the flow of red ink.
The conventional wisdom is that the current storm will blow over and the lost value will be restored – but that is many years away.
Amidst the “sinking funds” losses, it was announced that four Statutory Boards had incurred 14% market losses this year, none of which were Lehman’s toxic products.
They were the Civil Service College, Singapore Land Authority, Infocomm Development Authority and the Professional Engineers’ Board.
However, the losses represented only 0.05% of their total investment portfolios.
The market rewards were rich during the good times, but the punishment is just as hefty when times are bad. So why does Singapore invest so mightily?
The reason lies in its small size and lack of natural resources, which has forced it to rely on two things – human skill and capital.
During the past 20 years, its investments overseas have been leaping.
Individually they’re getting bigger. Previous totals of tens – or at most a few hundred – millions of dollars, have been eclipsed by new shareholdings today which are often measured in the billions.
It is not known whether – or to what extent – the post-crisis government will review its investment policies. At the moment, Temasek and GIC appear to be adopting a more cautious approach.
Some 10 years ago – even before the current big investment push, Singapore was seen as a prime global candidate for excess saving and investment.
The Federal Reserve Bank of San Francisco wrote in 1997: “Singapore’s saving and investment rates are the highest in the world, and much of this saving and investment is mandated by the government.
“This is in sharp contrast to Western industrialised countries ... we cannot rule out the possibility that Singapore invests too much.”
As industries worldwide reduce their operations, Singapore, too, is cutting back on its ambition.
But it will likely continue to develop its external wings – by significantly investing abroad – perhaps on a much more cautious mode.
(This was first published in The Star, on Nov 22, 2008)

Elitism 401 : Elitism and the war for talent.

Elitism 301 is found here.

One day an outstanding resume landed on my desk from a graduate student from MIT. I called his HP number immediately to arrange for an interview. The student said he had already found another job but had not signed his employment contract yet. I told him my company paid competitive wages and may be able to match or better what he was offered provided we selected him after an interview. He told me that it was unlikely that an engineering firm would be able to pay what he was offered. I curiously asked him how much he was getting and my jaw dropped when he told me his offer. He was getting paid what engineers in my firm were getting after working for 8 way I can possibly match that. Defeated in the battle for this talent, I wished him all the best and asked him if he mind saying which company was going to.....his reply : LEHMAN BROTHERS.

" have to pay the market rate or the man will up stakes and join Morgan Stanley, Lehman Brothers or Goldman Sachs and you would have an incompetent man and you would have lost money by the billions....." - MM Lee April 2007

There was certainly no lack of talent at Lehman Brothers but it collapsed. The economic problems of the world today are caused largely by investment banks who were known to hire to best people who were paid the highest salaries. It turned out the high salaries didn't buy didn't even buy competence and a basic sense of responsibility. It was this collection of "talents" with a lot hubris that brought so much economic pain the world. Lehman failed because they believed they were so good they could do no wrong. When the bank collapsed the former CEO Dick Fuld went to Washington and denied any wrongdoing, put the blame on everyone except himself and kept his millions in salary. A few days later a woman punched him in the face at a gym : [Link] - I guess she was just disgusted. See that is hubris, when the ordinary people can see that something is wrong but they refused to fix it thinking they have the monopoly on wisdom.

Look around you - do you see any other group of men that are just as arrogant...believing they are the only talents in our society that can do what they do? You better becareful because they too will bring you pain. They too will deny their mistakes and blame you for all that has gone wrong. They too will pay themselves obscene amounts of money and do a bad job. They will hide their mistakes from down to you...take away the check and balance, risk our past successes on bad ideas because they don't listen and lead us down the path of destruction - the same path that Lehman Brothers took....after that they are so arrogant they might blame you for not being good enough to support their broken system....afterall they are the "best" men for the job so it has to be others that let them down.

Someone left an interesting article on the war on talent [Link]. It is a paper entitled "FIGHTING THE WAR FOR TALENT IS HAZARDOUS TO YOUR ORGANIZATION’S HEALTH". We all want the best talents for our organisations to do what we do better but we have to be careful not to foster a culture of arrogance that can breed hubris. There is one thing I observe in people - passion, honesty and hardwork can overcome the lack of talent. If we as a society believe that results can be bought with money, just pay money to solve our problems with human resource- we are guaranteed to end up like Lehman.
What happens in a war for talent?

There is:

• An invariable emphasis on individual performance (rewarding the individual stars), thereby diminishing teamwork, creating destructive internal competition, and retarding learning and the spread of bestpractices inside the company;
• A tendency to glorify the talents of those outside the company and downplay the skills and abilities of insiders, leading to a loss ofmotivation on the part of those inside the firm and to their turnover(thereby ensuring that the recruiting challenge will be even greater asthe company tries to replace those that has inadvertently sent packingelsewhere);
• The creation of a self-fulfilling prophecy where those labeled as lessable become less able because they are asked to do less, given fewerresources, training, and mentoring, and become discouraged, in theprocess ensuring that the organization has way too many people whoare in the process of dropping out of the competitive fray;
• A deemphasis on fixing the systemic, cultural, and business process issues that are invariably much more important for enhancingperformance, as the company seeks success solely through getting the right people in the door;
• And finally, the development of an elitist, arrogant attitude—once you have successfully competed in the war for talent, you have the best people—an attitude that makes building a wise organization almost impossible; in wise organizations, people know that they know and they know what they don’t know. Companies that think they are winning thewar for talent think they are so full of smart people that they know everything!"

Monday, November 24, 2008

Breaking News : Civil Service pay cuts!!!

Just out 15 minutes ago.

Lets see some leadership!
I hope this is a leadership move and not driven by losses in some American bank.
Civil service to cut pay
*Civil servants to get lower year-end payment in 2008 *Up to 19% drop in senior civil servants' pay in 2009 *Ministers' pay and MPs' allowance to be slashed too

Civil servants will still receive the 13th month payment, or Annual Wage Supplement of 1 month. -- ST PHOTO: FRANCIS ONG
THE Civil Service will cut pay of ministers and senior officials by up to 19 per cent next year, and the year-end payment for 2008 by one month in view of the slowdown in the global economy and in Singapore, the Public Service Division announced on Monday.
The year-end Annual Variable Component (AVC) will be reduced to 0.5 month, from one month last year. There will be no special Growth Bonus this year, unlike in 2007 when a special Growth Bonus of 0.5 month was paid.
Civil servants will still receive the 13th month payment, or Annual Wage Supplement of 1 month.
As such, the total AVC and 13th month payment for civil servants in 2008 is two months plus $100 to $3001. This is 1 month less than the total paid out in 2007 which was three months plus $220, including Growth Bonus.
The Government has decided to defer the third phase of the salary adjustments for Administrative Officers, Political, Judicial and Statutory Appointment Holders which was due in January, said the PSD.
This group of officers will have their pay cut by up to 19 per cent in 2009 because of salary components which are linked to Singapore's economic growth.
The January salary adjustment would have been the third of three salary adjustments, following two earlier rounds in April 2007 and January this year.
'In view of the clouded economic outlook and the likelihood that salaries will be lower next year, the Government has decided to defer the January 2009 salary adjustment,' said the PSD statement..
Bonus paid for the exceptional economic performance will fall in 2009 because a significant percentage of the pay for this group of civil servants (close to 25 per cent of their annual pay) comprises variable payments linked to the GDP growth of Singapore.
With a weak economy, these components will automatically fall. This group will see a drop of between 11-19 per cent in their annual salaries, bringing their salaries below the levels in April 2007.
Specifically, in 2009, there will be a 19 per cent fall in the annual salary of the President (to $3.14 million) and the Prime Minister (to $3.04 million). The Ministerial Grade (MR4) salary will fall by 18 per cent to $1.57 million, and salaries at the entry Superscale grade (SR9) will fall by 12 per cent to $353,000.
The allowance for Members of Parliament will fall by 16 per cent to $190,000.
Commenting on the salary drop, Mr Teo Chee Hean, Minister for Defence and Minister in charge of the Civil Service said: 'Public sector salaries follow the market up and down.
'The mechanism we introduced last year to link a significant proportion of the salary of senior civil servants to the performance of the economy is working as intended. This mechanism allows salaries to respond more rapidly to market conditions.'

Breaking News : US Govt rescues Citigroup!

UPDATE: Someone posted in the comments section from a newswire repot : "In return for the bailout, Citigroup's dividend will be essentially wiped out. The bank cannot pay out more than 1 cent per share per quarter over the next three years without government consent. The quarterly dividend is now 16 cents.". The only value in GIC's convertible securities is the 7% that Citigroup payout as dividends. Did the Singapore govt just lose $10B in the past 8 hours???....They could have used that money to make medical care free for the underprivileged for the next 20 years, use it to help those who lost their jobs and the students who cannot afford to pay their tertiary eduction and increase the special assistance so that recepients can afford decent meals. It is a real shame. Name one other govt in the world that lost $10B investing in a single investment....tell me...see the PAP is worldclass...worldclass losers.

The US govt injected US$20B for a stake in Citibank. Given Citigroup's capitalisation of $20B, the US govt probably took a stake of 50% or higher in the company. The problems do not just end there Citigroup has $300B in deteriorating assets and these will now be guaranteed by the FDIC.

Hmmm....where does that leave GIC?
Government unveils plan to rescue Citigroup
Monday November 24, 12:15 am ET
By Jeannine Aversa, AP Economics Writer
Government unveils plan to rescue Citigroup, including taking $20 billion stake in the firm
WASHINGTON (AP) -- The government unveiled a bold plan Sunday to rescue troubled Citigroup, including taking a $20 billion stake in the firm as well as guaranteeing hundreds of billions of dollars in risky assets.

The action, announced jointly by the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp., is aimed at shoring up a huge financial institution whose collapse would wreak havoc on the already crippled financial system and the U.S. economy.
The sweeping plan is geared to stemming a crisis of confidence in the company, whose stocks has been hammered in the past week on worries about its financial health.
"With these transactions, the U.S. government is taking the actions necessary to strengthen the financial system and protect U.S. taxpayers and the U.S. economy," the three agencies said in a statement issued Sunday night. "We will continue to use all of our resources to preserve the strength of our banking institutions, and promote the process of repair and recovery and to manage risks," they said.
The $20 billion cash injection by the Treasury Department will come from the $700 billion financial bailout package. The capital infusion follows an earlier one -- of $25 billion -- in Citigroup in which the government received an ownership stake.
In addition, Treasury and the FDIC will guarantee against the "possibility of unusually large losses" on up to $306 billion of risky loans and securities backed by commercial and residential mortgages.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below.

WASHINGTON (AP) -- The government unveiled a bold plan Sunday to rescue troubled Citigroup, including taking a $20 billion stake in the firm as well as guaranteeing hundreds of billions of dollars in risky assets.
The action, announced jointly by the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp., is aimed at shoring up a huge financial institution whose collapse would wreak havoc on the already crippled financial system and the U.S. economy.
The sweeping plan is geared to stemming a crisis of confidence in the company, whose stocks has been hammered in the past week on worries about its financial health.
"With these transactions, the U.S. government is taking the actions necessary to strengthen the financial system and protect U.S. taxpayers and the U.S. economy," the three agencies said in a statement issued Sunday night. "We will continue to use all of our resources to preserve the strength of our banking institutions, and promote the process of repair and recovery and to manage risks," they said.
The $20 billion cash injection by the Treasury Department will come from the $700 billion financial bailout package. The capital infusion follows an earlier one -- of $25 billion -- in Citigroup in which the government received an ownership stake.

In addition, Treasury and the FDIC will guarantee against the "possibility of unusually large losses" on up to $306 billion of risky loans and securities backed by commercial and residential mortgages.

Sunday, November 23, 2008

Red Alert : Tan Kin LIan for President!!!

Remember this person called Andrew Kuan. He was a unknown Singaporean until the day he decided to run for president. Within a few days, his former employers had plenty of things to say about him. His former company JTC (which is linked to the government) even gave a press conference to give an account of his performance or rather lack of performance....nevermind staff confidentiality, national interests come first. It was all very humiliating for Andrew and he didn't even get to run because the selection committee concluded that his work experience did not meet the criteria required to run for president.

In an interview im today's Sunday Times, Tan Kin Lian's said he will run for presidency if there is enough support from the gound i.e. if the people want him to, he will do it. This must have triggered many alarm bells in the regime. The PAP govt would really love to keep President Nathan in the post for another 10 years. Unfortunately, President Nathan is already 84 years old. For the PAP, President Nathan's performance is excellent compared with the previous President Ong Teng Cheong. Unlike Nathan, Ong Teng Cheong took his job too seriously. He tried to do the impossible - check the govt's accounts with a staff of two people. His former PAP associates tried their best to help him to enjoy his job by not burdening him with too much information....a president's job is to smile, carry babies and host parties at the Istana. President Nathan does his job well. That is why the PAP is looking for another Nathan....not another Ong Teng Cheong.

Given his behavior in the minibonds saga, I'm afraid that Tan Kin Lian will be worse than Ong Teng Cheong. He looks like one person who will treat the issues of justice, accountability and transparency very seriously. If he does that how will he find time to carry babies and go for morning exercise like President Nathan at the East Coast Park. If he asks the PAP govt for more accountability and transparency, the PAP govt will want to get paid even more. They will hike their pay again saying their jobs are now more challenging because they have to be accountable. The other major problem with Tan Kin Lian is he stands up for the ordinary people of Singapore and he listens to them. For the PAP, a good president is one that listens to the PAP so that a consistent picture is painted for Singaporeans. See, if everyone consistently tell those who lost in money the Lehman Minibonds saga, they would have accepted it and suffered in pain quietly....all the PAP leaders kept quiet, it would have worked if not for Tan Kin Lian. Now the banks have to spend money to compensate at least the old and uneducated, this is not ideal for the PAP govt ...PAP is a caring govt who cares about the profits of our banks.

I expect the PAP to now start mining for information on Mr. Tan. Does he smoke? I heard he takes the MRT, maybe someone saw him not giving a seat to the old....? Did he make any careless mistakes in one of his 2000 transport claims in NTUC? Gee....the guy is not perfect.....there has to be something. Don't worry knowing the PAP there are people assigned to the task already. The PAP is thinking about Singaporeans, they want the Presidential elections to be a national holiiday for Singaporeans - if there is only one candidate, we can all spend the whole day shopping and give this sick economy a boost.

Ho Ching takes a pay cut!!!

Now that is one piece of news that is going drive Singaporeans to a panic!!!!
Voluntary pay cuts by our elites....OMG what would ever bring about such a painful sacrifice.

For those who are worried about Ho Ching - you really shouldn't worry too much because you don't know how much she is paid in the first place so you don't even know she will be getting after a 20% paycut - if this is suppose to be some kind of painful sacrifice it is completely meaningless. ...20% of what? This is like a seller giving you a 20% discount but doesn't tell you the selling price is. Are you supposed to be impressed? But some people are in a panic ....what is the reason behind this pay cut...

Saturday, November 22, 2008

PAP : Change we ALSO can ...Part 1.

"CHANGE must come to Singapore - but within the ruling People's Action Party rather than in the form of having a two-party system "

Wow after 40 years, we finally hear this thing about CHANGE. But this change must come from within the PAP - one-party system is good for Singapore. For our own good, PAP will manage this change. The last change they made was the electric tariffs - they raise it to help us to conserve energy. They also allowed the SMRT to change its fares, then change the trains by taking out the seats. They change the healthcare system by introducing means testing. They also changed their own salaries and the GST. The PAP is certainly very good at change....but Singaporeans are asking if they have been shortchanged!!!!

Does the PAP looks like a govt that will change. With a 85 yr old Minister Mentor to mentor all his ministers and a Senior Minister to drill in the same ideas, the only change we are going to get is CHANGE ALONG THE SAME DIRECTION. The same changes we have been seeing in the past few decades....every leadership transition is a transition in the same direction. The PAP cannot break out of the box it created - this box is now ironcast and reinforced by the grand ideas of the MM. Everything has to align to his thinking otherwise it won't move....he is there to mentor the ministers and civil servants. The minibond debacle which saw the loss of lifesavings of 10,000 Singaporeans ....MM Lee said the people went in with their eyes open, they deserve those losses because they were going after high returns, legally "case closed"....So which civil servant/minister/PAP MP dares to propose better regulation, audit the banks' process and revamp the approval criteria of these products for sale to retailers.

Why should the PAP change? They have developed a system which is highly favorable to their own interests - the PAP men move from civil service/SAF to govt to GLCs the entire system is aligned the interests of these entities and creates an imbalance in policy making. The minister in parliament talks not about how he intends to lower energy costs, bus fares, medical costs to Singaporeans but about why they have to be higher. ...where the lines are clearly drawn in the minibonds saga - they defend themselves and the banks while ordinary Singaporeans have to find their own road to justice. There is no check and balance in the system and no transparency - the PAP only tells us what they want us to hear.

It takes a crisis for cracks in the system to show up. It is the collapse of Lehman Bros showed up which side our leaders stand on issues of social justice. The Town Councils losses tells us the importance of transparency and the enormous reserves they accumulated show us how willing they are to burden the people unnecessarily. We find a govt unwilling to share our burdens - the many policy tradeoffs they make are never openly and vigorously debated. Singaporeans tend to find out only when they wake up one day and realise they got the short end of the stick - seats in MRT removed after fares are increased, electricity tariffs hiked after oil prices plunged, billion dollar losses at GIC. etc etc.

The PAP claims that there is so little talent in Singapore that only one party can be formed. Any talent would have been found and recruited by the PAP. If the "talents" we see in the PAP govt are the best available....I would be very worried for the future of Singapore. They look so similar in their logic and thinking...I really wonder why we need so many of them. Let me ask you a simple question ...other than schemes and policies that forces Singaporeans to pay more money to the govt, give me one good groundbreaking idea that came from the PAP in the past 10 years. Ground breaking bad ideas plenty - 2 child policy, graduate parent scheme, etc. Please post a few good ones as comments....remember must not result in Singaporeans paying more money to the govt. There are plenty of highly paid admin officers in the public service who are suppose to research and formulate policies. As elected officials, our MPs/Ministers role is to make sure that the interests of the people are best served. Obama as an elected president does not need to have a PhD in economics what he need is basic intelligence to appreciate the advice of his experts to know what will work and plenty of leadership skills to get ordinary Americans to support his ideas and help make them work. The PAP saying that there is limited talent in Singapore and all of them are in the PAP is so unimaginably arrogant, elitist and not to mention delusional ......I can't imagine any other govt today ever saying that except for the one to the north of S. Korea. The PAP can't change itself if it believes it is already the best.... "emperor's new clothes" is turning into a coffeshop joke.

If ever Singaporeans want real change, they have to do something about it. We, the rest of the world, are thankful for the millions of young Americans who in the words of Obama "refused to accept the myth of the generation's apathy" and brought forth a promise of change in America. The PAP is a product of Singaporeans' apathy and complacency. If we want real change, we cannot sit around and mind our own business - we have to learn to care for those around us...only when we open our hearts and our eyes to see, only when we are willing to act on our convictions, change will come.

Friday, November 21, 2008

Will Shareholders of Citigroup get wiped out?

UPDATE: The DOW rallied almost 500pts today but Citigroup fell by another 20% to $4. The reason being an rescue is needed this weekend. Citigroup has put itself up for sale, however, there is a good chance the solution will involve the US govt. In every US govt rescue, the shareholders got almost nothing...AIG stock has fellen to $1 since the govt rescue. It is not clear what GIC bought exactly - its website reported that it is a "preferred convertible" that pays 7%. It is unlikely that they will ever get to convert and if they get 7% a year - they will have to wait 15 years just to get their capital back. In a few cases, the preferred share holders were wiped out. CNBC reported that Citibank has $200B in "questionable" assets. The spiral of its stock price downwards might cause a ratings downgrade and that will be a total disaster. This makes it necessary for the Citigroup problem to be solved by this weekend. The GIC losses will be clearer by this weekend. ....Temasek made an announcement that its "top executives" will take a pay cut of 20%.,... why bother to tell us this meaningless news.......cut from what level? The PAP talks about change and clearly one of the areas it is most needed is in GIC & Temasek. I'll write about this in my next post.

I owned "a little" Citigroup stock bought many months ago but I recognised the situation was highly risky and was prepared to lose that small sum. Along the way, I sold it for a loss. But what happened to Citigroup in the past few days indicates the bank is not in good shape. Citigroup is too big to fail but if it takes US govt money, shareholders will get wiped out.

There is reason to believe Citigroup has negative book value and under a prolonged recession scenario the company cannot make it.

1. Citigroup took in US$80B from SIVs into its balance sheet. SIVs assets composed of stuff that is the same as the underlying securities of Pinnacle Notes/Lehman Minibonds.

2. In the recent meeting, the CEO said that it expects the loan losses to increase by $1B in the next quarter. This is the next shoe to drop rising defaults from consumer debt.

A few days ago I wrote that the stock has dangerously fallen below US$10. It is now $4.90. The company is trying now to raise money by auctioning off itself or in parts. It is not clear how much GIC will get back for its convertible preferred securities ($10B worth!!!) . However, if there is a govt bailout perferential shareholders are wiped out ....Citigroup does not have much time, it is a matter of days before the US govt steps in and they will do it before the ratings agencies downgrade Citigroup to prevent the contagion damage.


Citigroup sliding under debt cloud
Fri, 21 Nov 2008 02:18:11 GMT

Support from Citigroup's largest individual investor fails to ease worries over the group losing more than one-quarter of its market value. The main concern is whether Citigroup will have enough capital to survive billions of dollars of possible losses as well as being able to handle billions of dollars in potential credit losses and write-downs in 2009 as the world economy sinks into recession. The groups largest individual investor, Saudi Prince, Alwaleed bin Talal and a nephew of King Abdullah said that he planned to increase his stake in Citigroup, the No. 2 US bank by assets, to 5 percent from less than 4 percent, calling its shares 'dramatically undervalued,' wrote. The announcement did not halt Citigroup's slide. The shares slumped 17 percent to $5.30 as of 10:10 a.m. in New York trading, extending this week's drop to 45 percent on concern banks will post further losses next year as the economy falters. Sandler O'Neill managing director Jeffrey Harte told Fast Money that he thought that Citigroup was too big to fail. "The government learned from Lehman Brothers that you can't stick it to the credit markets or the system will collapse." He went on to warn investors that, "If it become necessary for the government to save Citigroup common shareholders will likely get wiped out." Harte continued, "Citigroup is among a handful of companies in great need of capital."

The Saudi Prince, Alwaleed bin Talal Alwaleed owns the Riyadh-based Kingdom Holding Co. and his companies are buying Citigroup shares because the prince believes they are 'dramatically undervalued,' Kingdom Holding said in a news release. The combined stake stands at less than 4 percent after recent Citigroup share sales diluted the holding, said. Kingdom Holding Co continued, "Prince Alwaleed is fully confident that Citigroup's universal banking model and global franchise will make it a long- term winner in the financial services industry." SM/HAR

Thursday, November 20, 2008

Tough Times ahead.....Life and debt

In the interesting article below, it talks about the US Federal Reserve cutting its interest rate to zero to prevent deflation from threatening the US economy. I have written a few articles in my blog about this recession being deflationary....and perhaps deep.

The Japanese economy suffered from deflation in the 90s. They called it the "Lost Decade". It was a bleak period during deflation cause prices to fall for 10 years. Imagine what that does to anyone investing in Japan during that period - you buy a house with a bank loan, one year later that same house is worth less....and even less 2 years later. While not exactly the same there are a number of similarities between what is happening in the US now vs Japan in the 90s:

1. Prior to the 90s, the Japanese had a huge property bubble during which the land around the Imperial Palace was valued to be higher than all the land in California. The current US problems is also caused by a housing bubble.

2. Japanese banks lost a lot of money when the property bubble collapsed. US banks lost a lot of money due to mortgage lending and all the toxic paper associated with housing loans.

3. Housing prices in Japan fell and dragged the entire economy down ....same thing in US.

Of course there are many differences. The US consumer is in debt while the Japanese were enthusiastic savers. The Japanese had a strong manufacturing base while the US manufactures almost nothing. If fact there was more hope for the Japanese to get out of it than the Americans to get out of it now.

A deflationary recession is going to make life miserable for people with debt. It makes debt harder and harder to pay off as everything falls including your income. If you bought property you have to service the debt while the value of the property is falling. Unfortunately, people react to it by holding back purchases which makes the situation worse i.e. deflationary spiral. Hopefully Bernanke can do something - cutting interest rates to zero was what the Japanese did to no avail. He has to use some other tricks to get the banks lending.....but with consumers swimming in debt, they are so maxed out they might not borrow. Regardless of how he is and will be viewed, I think Bernanke generally did make all the right moves just that he was handed a problem so tough ....and perhaps intractable.
All the anecdotal evidence I've seen ...speaking to friends in many industries, our economy has fallen off a cliff. ....this one is going to be big and nasty. They can't make a recession painless - with all the measures interest rates, and stimulus packages, they can only cushion its effects and lessen the depth. Unfortunately for Singapore our domestic economy is small - any stimulus package usually has a limited impact and much of it is in focussed on the construction sector - better than nothing but don't expect too much.

Several problems are urgent:

1. Personal unsecured debt. [Link][Link]This has been rising in recent years because people who can't make ends meet resorted to borrowing. This was a no-brainer you either borrow or you run out before the month ends. During the good times, borrowers hope that rising income and bonuses can help to pay off these debts. However, once bad times hit, these spiral out of control. I noticed the govt has already picked up this problem. During good times, these people would go for CCS (Credit Councelling Service) to restructure the personal debt into a repayment plan. However, banks call the shots whether to accept the plan. Last week a new scheme called the DRC was introduced to make the banks accept a repayment plan by a case administrator. While this is a good scheme it is a fix for a problem that should have been mitigated, there were many things the govt could have done to prevent this current - the Malaysia govt noticed this trend of rising personal debt and prevent such predatory loans by banks by forcing the credit card interest rate to 13%. This forces the bank to lend only to those who can pay back and perform better screening of the person's credit history. Many studies have shown that at 24% the banks can become irresponsible in their lending because they can tolerate a high default rate. The problem of predatory loans and its negative effects could have been prevented if the PAP govt could break out of its ideological shackles to offer more protection for the individuals such is protection of his home from seizure due to unsecured loans ...that will make the banks more careful in their lending- but we know in Singapore, the banks cannot lose...its is the PAP religion....but look at what is happening now....this has grown into a huge problem because the PAP govt did nothing. For those who are interested in this problem and want to look at it more in depth - look up the work of Elizabeth Warren she is a Harvard professor who studied this problem for a number of years. In their eagerness to grow the banking sector, the PAP did not only allow those toxic Minibonds to enter Singapore, they also allowed the lending habits of American banks to infect ours (hmmm they love to hire American bankers as CEOs) - we in effect imported the consumer debt problem in US. and now our society has to pay the price because the PAP wanted the banks to grow (...make more money!).

2. Housing Debt Default. The shocking 8% default rate for HDB loans are just one part of the problem. Those who borrowed from the banks do not "enjoy" the generosity of the HDB. They get foreclosed when they stop paying. Their homes are auctioned off and if it doesn't cover the remaining debt, they remain liable for it. We can expect the number to go up as the economy worsens and unemployment goes up. In the US, there is some protection for 1st time home owners, they in many states they can return the key and bank cannot go after them for the money. In the past, no systematic help was available and people were left to the mercy of the banks. Imagine you lose your job, you can't pay your mortgage, you lose your home, you lose your dignity if you're lucky you can go back to your parents and they have some room for your family otherwise it gets really painful. Given the crisis in US, they have a number of schemes that can help - including helpline such as 1-888-995-HOPE and various loan workout plans. Many things can be done but it requires the participation of govt [Link] to reduce perventible foreclosures. The PAP can take its usual hands off approach : "you went in with your eyes open now you're in trouble don't expect the govt to help you"....but I really hope they can do better this time.

Bernanke May Find Deflation `Back on the Table' as Fed Concern
By Steve Matthews

Nov. 20 (Bloomberg) -- Five years after Federal Reserve Chairman Ben S. Bernanke helped stamp out the risk of deflation, the threat is returning as the financial crisis and a worsening economic slump pull inflation lower.
Fed policy makers now predict the U.S. economy will contract until the middle of next year, according to minutes of their Oct. 28-29 meeting released yesterday in Washington. Government figures showed that consumer prices excluding food and fuel costs fell for the first time since 1982 last month.
The minutes, along with a slide in financial stocks to the lowest level in 13 years, increased the odds that the Fed will cut its benchmark interest rate next month. Bernanke may also need to revisit the unorthodox policy options, such as purchases of U.S. government debt, that he outlined as a board member in 2003, Fed watchers said.
``The Federal Reserve put deflation back on the table as a significant policy concern,'' said Vincent Reinhart, former director of the Fed's Division of Monetary Affairs, who is now a visiting scholar at the American Enterprise Institute in Washington. ``There does not appear to be any barrier to lowering'' main rate below the current 1 percent level, he said.
Deflation, or prolonged declines in prices, hurt the economy by making debts harder to pay off and lenders more reluctant to extend credit. Japan is the only major economy to have suffered the phenomenon in modern times.
`Lesson' for Kohn
``A lesson I take from the Japanese experience is not to let that get ahead of us, to be aggressive,'' Bernanke's deputy, Vice Chairman Donald Kohn, said in answering questions after a speech yesterday in Washington. ``Whatever I thought that risk was four or five months ago, I think it is bigger now even if it is still small.''
Kohn and Bernanke were both at the Fed in 2003, when the central bank's preferred consumer-price gauge reached a low of 1.3 percent, spurring then-Chairman Alan Greenspan to cut the key rate to 1 percent.
Some policy makers saw a risk last month that the inflation rate will fall below their mandated goal of ``price stability.'' ``Aggressive easing should reduce the odds of a deflationary outcome,'' they said, while noting that the low federal funds rate target ``would pose important policy challenges'' in that case.
The Fed's actions so far, including unprecedented injections of liquidity, haven't been enough to spur lending. Banks may make it even harder to get loans as their share prices plummet. Citigroup Inc. closed at a level unseen since 1995. The Standard & Poor's 500 Financials Index fell 12 percent to 139.84.
Hedge-Fund Risk
Fed officials expressed concern at last month's meeting at the risk for ``financial strains to intensify if some investors, such as hedge funds, found it necessary to sell assets and as lending institutions built reserves against losses.''
``Credit availability certainly hasn't increased,'' said Lyle Gramley, a former Fed governor. ``That has to be a major concern for the Fed because historically the way we get out of recessions is having the Fed push down hard on the accelerator. If that is not working very well, we have to look somewhere else for salvation.''
Future action by the central bank might include ``aggressively buying long-term Treasury issues,'' Gramley, now a Washington-based senior economic adviser for Stanford Group Co., said in a Bloomberg Television interview.
Fannie, Freddie
Michael Feroli, a JPMorgan Chase & Co. economist who used to work at the Fed, said the central bank could also purchase the debt of Fannie Mae and Freddie Mac, the mortgage-finance companies seized by the government in September.
``Before ramping up'' such programs, the Fed might ``first communicate to the markets that the nature of the current economic woes should keep rates low for an extended period,'' Feroli wrote in a note yesterday.
The Fed's balance sheet has already doubled to almost $2 trillion as officials introduced programs to inject liquidity into the economy.
``Several'' participants at last month's Federal Open Market Committee meeting judged the extraordinary programs will need to be ``unwound appropriately as the financial situation normalized,'' the minutes said.
Bernanke, a scholar of the Great Depression and former Princeton University professor, detailed possible assets the Fed could buy to fight deflation in a November 2002 speech when he was a governor. ``Sustained deflation can be highly destructive'' and ``should be strongly resisted,'' he said.
Ready to Act
Fed officials at last month's meeting ``agreed to take whatever steps were necessary to support the recovery.''
Policy makers projected the Fed's preferred gauge of inflation at 1.5 percent to 2 percent next year, with a further slowdown in the next two years, reaching 1.3 percent to 1.7 percent in 2011, yesterday's report showed.
Some officials ``suggested that additional policy easing could well be appropriate at future meetings,'' the minutes said.
``The door is wide open for a rate cut of half-a-point at the December 16 meeting,'' said Allen Sinai, chief economist at Decision Economics in New York. He predicts the central bank will pare the main interest rate to 0.25 percent in January.
To contact the reporters on this story: Steve Matthews in Atlanta at Last Updated: November 20, 2008 00:07 EST

Wednesday, November 19, 2008

$2 COE - Sign of the times....

UPDATE : MOTOR trade associations representing hundreds of car dealers are doing the unthinkable: petitioning the Government to cut certificate of entitlement (COE) supply in the wake of plunging prices. The Singapore Vehicle Traders Association and the Automotive Importers and Exporters Association said nosediving COE prices - which culminated in a crash yesterday - will drive down the cost of new cars, killing the market for second-hand vehicles. Mr Neo Nam Heng, president of both trade associations, said the sector is heavily reliant on used car sales and reducing the number of COEs is necessary to 'save the industry from collapse' MY RESPONSE: Sorry guys but COE is used to control congestion not your profits. Having said that we have 2 things in Singapore with prices that wildly when boom turns to bust causing much pain sometimes estasy depending on your luck - COE and property. It is hard to ask the govt to bailout businessmen such as 2nd hand car dealers but they do have my sympathy as they operate in a somewhat "crazy" market.

The small car COE fell to $2. The other categories saw falls of around 50%.

Today I went to the hawker centre to my usual nasi lemak stall - the stall started selling $2 nasi lemak to compete against another nearby which has been doing it for 1 yr ..before this his average price was about $2.50 depending on what you ordered. A few months ago, I wrote in this blog that we will see a deflationary recession and inflation will be history at least for the next few months. Petrol prices are now at the lowest in 20 months. Rice has fallen has the price of sugar and other commodities. The only people still raising prices are our state owned monopolies. With 33,000 HDB flats in default, I wonder if housing price is the next shoe to drop. With the economy slowing and foreign workers who can't find jobs returning home, we may see a drop in rental.

My friends in the banking sector are extremely fearful after the 900 job cuts at DBS and the Citigroups announcement to layoff 50,000 people worldwide. Will the govt ever come clean and tell us the number of unemployed Singaporeans - instead of lumping it with other residents so we don't know how many are unemployed. With 8% of HDB flats with outstanding loans in default...wouldn't that point to an unemployment higher than the official of 2,3% for "residents".
A few of my friends in the semiconductor industry told me they will not be getting their 13th month - while they are not retrenching, things have slowed to a crawl.

Anecdotal evidence point to the economy falling off a cliff. It is in a state of shock and many in dire straits have not surfaced yet - imagine we have 8% people defaulting on HDB loans in past 3 months when the economy just started weakening many people will default in the next 12 months as the economy worsens. At some point, sufferers will start popping up en mass (at Hong Lim?). The govt appears to slow again and falling back on its mantra - retraining, job creation etc. What is needed is direct and immediate help - no more dithering. As a Singaporean, I really shudder to think what will happen if we go into next year with the lack of leadership we have seen in the past few months. Maybe the PAP Ivory Tower is now so tall they don't know what is happening at the ground.

It is a case of "can't believe until you see it". Until today, nobody believed the COE can drop to $2....nobody can believe there will be large number of people in affluent Singapore in dire straits. It is going to come....I'm very sure and I hate to see people suffering because we have leadership perpetually in denial. When they see jobless people, they say jobs are plentiful just don't be fussy. When people can't afford electricity, they tell these people they are using too much electricity and install a meter to force them to cut down. When people say flats are too expensive, they reply that people are buying flats that are too big ...please choose smaller ones. When people say they can't afford medical care, they reply that people would take better care of their health if medical care is more expensive....they say people will neglect their health just to use subsidised health care if it is not expensive enough. This type of logic worries me as we enter the worse recession in decades. Just look at govt behavior during the minibonds saga. This is a leadership that looks ready to abandon the people in their hour of need - they will deny, they will blame the people for their plight.

Tuesday, November 18, 2008

33,000 default on HDB Loan....

UPDATE: There is indeed some manifestation of the socialist heart as I watched "Today in Parliament". A minister explained that those who can't pay are not immediately evicted. They are allowed to stay until all avenues are exhausted. Unfortunately, in recent years many HDB owners were encouraged by low interest rates to take up bank loans for the HDB. How will the banks handle default for HDB flats? Also, those who restructured their loans in recent years reverse the priority of the banks and CPF for repayment - if they foreclosure your home, banks get paid first. We know the banks are quite brutal for private property - your property going under the hammer once you default. If you have negative equity, you end up still owing the bank after losing your home.
In the US, in many states, the 1st time home buyer can just return his keys if he cannot service his loan. The bank is required by law to forgive his entire housing debt. This pushes some responsibility back to the bank to prevent overlending during housing bubbles. Unfortunate, they did overlend and they(banks) now swallowed this poison pill. In many states (in US), there is a homestead law which prevent the banks from foreclosing and seizing your assets for default on unsecured debt. This form of protection is not available in Singapore. In Singapore, banks are kings. .....not just in the minibond saga...all our laws favor the banks. It is great to be a bank in Singapore. If I find time, I'll write about the other problem caused again by MAS deregulation - unsecured debt. This will be a big problem in the coming months as the recession worsens.
33, 000 households have missed their HDB mortgage payment for 3 months. 420,000 households have outstanding HDB loans.This means the default rate is aboutt 8% If HDB flats are affordable, why are so many people defaulting on their mortgages. Do we need an American style rescue package for these home owners - forgive part of their loans, lower interest rates and easier repayment terms.
In the US housing crisis, 5 million American home owners are affected out of a population of 300M people. We have about 3.5M people (residents), the 33K people who cannot afford to pay for their HDB + unknown number who cannot pay for private housing means we have a problem that has the same scale as the subprime crisis in terms of people not being able to service their mortgages.

The last time we compare the actions/performance of the PAP vs HK govt on minibonds - we find the situation quite embarassing for the PAP. Given the actions of the American govt to help households with their mortgage payments, if we start to compare...again it is "do-nothingness" vs proactive govt. 10,000 people losing their lifesavings can be treated like it is no big issue....33,000 households not able to pay HDB probably isn't a big issue for the PAP govt.
33,000 flat owners owed HDB arrears of three months or more
Long term measures to help HDB mortgage defaulters is best solution By Cheryl Lim Mei Ling, Channel NewsAsia SINGAPORE : The Housing and Development Board (HDB) will continue to keep tabs on flat owners who default on their HDB mortgage payments. It stressed that long term measures to help these owners manage their mortgage payment is the best solution, and that compulsory acquisition of the flat is a last resort. As of October 2008, some 33,000 flat owners owed HDB arrears of three months or more. They make up less than 8 per cent of the 420,000 households with outstanding HDB loans. Giving this update in Parliament on Tuesday, Parliamentary Secretary for National Development Mohamad Maliki Osman said home owners should buy within their means. But he recognised that there are some who are affected by the economic downturn and one option for them is to downgrade to a smaller unit. More 2 and 3-room HDB flats will be coming on stream next year to cope with the growing demand for smaller flats. Dr Maliki also said heavily subsidised rental flats should be given to those who are in dire need. - CNA /ls

Town council lost $12M ??? ...Who cares!

"In Hougang, let us keep Mr Low Thia Khiang on his toes. He is responsible for running the Hougang Town council. ........... I suggest you study the annual accounts of the town council to ensure that the funds are properly used. Check whether the arrears for S & C charges are piling up, and eating into their reserves. Make sure that enough money is put aside for cyclical maintenance. In your walkabouts, check on the estate maintenance. If Mr Low has done a good job, give him credit for it. If there are deficiencies, point them out to the residents. In short, play the role of an effective opposition in Hougang. " - SM Goh Jul 2008 HOUGANG COMMUNITY CLUB

$12M in structured products? Who cares? I would be more concerned if they refused to tell us the actual amount and leave us guessing. I'm just a bit surprised that $12M = 0.6% of the total investible reserves. Only 40% of their reserve can be invested. On the back of envelop calculation tells us they accumulated $5B in reserves for estate maintenance. This is crazy! To build a reserve of this size, they have unnecessarily burdened Singaporeans with conservancy charges which could have been lowered. This explains why I did see any rats and roaches in Hougang although MP Low has not increased conservancy fees for decades. Anyway $12M lost is nothing in the scheme of things....why?

In October alone, Temasek lost S$16.4B counting only stocks it owns on the SGX which are mostly Singapore blue chips. We have also heard the unfortunate news of ABC Learning in which Temasek lost US$400M to a CEO who was a former milkman turned CEO turned party animal. ...he sure didn't forget how to milk his shareholders. ABC Learning is now insolvent - I hope Temasek did some learning in this sorry episode. The full tally of Temasek's losses perhaps will never be know to the citizens of Singapore. But if you have been reading my blog these salient questions remain:

1. According to the PAP govt, one of the reasons for holding so much reserves is to safeguard Singapore during the period of crisis. Why then does Temasek Holdings invest in so many risky assets whose value will fall during crisis?

2. Why still no transparency? If transparency is hard during the better times, it is harder during the bad times when there are losses. Citizens to which the reserves belong don't know what is going on. Have you ever own something you don't understand? ...Minibonds? Troubling isn't it.

3. How much is enough? Don't forget the these reserves are the sweat and blood of the people. It is the people who paid for the service rendered by the state own monopolies etc that allowed the reserves to be built up. It cannot be "the more the merrier" because it translates to hardship for the people. Big reserves are not a happy situation when the people are struggling. Singapore has enormous reserves without a corresponding social safety net for the people.

My personal belief is that it is almost never wrong to return money to the people. If you look at USA what got them into trouble is irresponsible banks and defense spending. It is not welfare spending that got them into trouble. What is not spent on the people ends up being wasted anyway by the govt. With a lot of money lying around and people well paid to think of what to do with it, you can only end up with either investment losses or waste. It is the nature of things that the only way govts can handle large amounts of money well is to have complete transparency. ...otherwise you have competent people doing stupid things simply because they are hired to do something with the money which sometimes is best left idle in govt bonds and gold. Just look at the town council....a lot of money lying around + smart alec = losses in minibonds. All of which could have been prevented if there was total transparency.......
If the town councils are bad, what do you think happens in our secretive GIC and Temasek Holdings....

SINGAPORE, Nov 4 — Last month's market upheaval swept away S$16.4 billion (RM40 billion) in market value from Temasek Holdings’ portfolio of major investments in Singapore-listed companies alone. Calculations, based on the shrunken market capitalisation of 12 companies Temasek has a significant stake in, show that the value of its investments fell 25.7 per cent between Sept 30 and Oct 31. Compared to the beginning of the year, the drop is 45.7 per cent, or S$40 billion. Singapore’s stock market capitalisation plunged S$123.5 billion in the month of October. Temasek saw a huge chunk of market value destroyed — on paper — from its 55 per cent stake in SingTel, which translated into S$7.1 billion getting sliced off its portfolio's value in the month of October. The value of its SingTel stake fell S$13.7 billion from Dec 31, 2007. Its 29 per cent core interest in DBS Group meant that the bank contributed the second largest cut in value to Temasek's Singapore portfolio — S$2.4 billion over the course of last month. DBS had borne the brunt of the sell-off among the three local banking stocks in October, losing 34 per cent of its market cap. Temasek's 54 per cent share in Singapore Airlines' market cap dipped S$2 billion in the month of October, and S$4 billion this year so far. Its other transportation and logistics investments saw market value shrink too. Temasek's stake in SMRT Corporation meant a loss in market value of S$360 million, while the value of its interest in Neptune Orient Lines fell by S$563 million. Market cap fell for the three infrastructure, industrial and engineering stocks with Temasek interest too. Temasek's share of ST Engineering, Sembcorp Industries and Keppel Corporation's market value losses last month came to S$584 million, S$726 million and S$1.1 billion respectively. Technology stocks Chartered Semiconductor Manufacturing and STATS ChipPAC meant value cuts for Temasek of S$232 million and S$776 million respectively in October too. Its comparatively smaller 15 per cent stake in Fraser and Neave still led to a loss in value of S$171 million last month. CapitaLand was not hit as badly in October, so Temasek's 40 per cent interest in it led to a loss of S$237 million, though for the year so far, the property developer has taken S$3.8 billion off Temasek's portfolio. Geographically, Singapore accounts for about a third of Temasek's net portfolio value. It maintains a 12 per cent portfolio exposure to Asean countries, 22 per cent to North Asia, 23 per cent to the OECD economies, and a 7 per cent exposure to emerging South Asian economies such as India and Pakistan

GM Bailout - Go or no go?

This really makes for an interesting case study. The largest US automaker GM has only enough money to last until Dec 2008. Banks don't want to lend money and the commercial paper market has dried up making it impossible for GM to raise money from the market.

Here are some of the facts:

1. GM employs 266,000 people. Together with its subcontractors employ close to 500,000.
2. For each car GM sells it loses about US$600 (vs Toyota which makes $700).
3. Because of unions, the hourly pay for GM workers is US$78 per hour. The US autoworker is paid in 2 days the monthly salary of a Thai worker on the Toyota assembly line in Thailand.
4. If GM goes bust, the estimated cost to govt in terms of lost taxes, unemployment benefit payouts etc is $200B. GM needs a bailout of $20B to remain a going concern.

The best thing to do according to George Bush is let it go bust - GM is has an uncompetitive business and it should be allowed to fail. Rescuing GM using tax payer's money will be a moral hazard - other uncompetitive businesses will want govt bailouts. It is not fair for the govt to use tax payers money to help some people (like overpaid autoworkers) and not others. The Democrats argue that it does not make sense to let GM fail because it will cost the economy 500,000 jobs and tax payers more money. Many analysts suggest the best and most practical way forward is to bailout GM and squeeze its unions and management for pay cuts and concessions...force a restructuring of the company to make it competitive again. Letting it go bust is just too horrendous to consider for the US economy which ia already falling off the cliff. However, if GM remains uncompetitive, it will need more infusions in the future. IMHO, whether to bailout a business depends on whether it will eventually become competitive. A positive example is Chrysler's bailout of US$1B in 1979. Under the leadership of Lee Iacocca the company turned itself around and repaid the govt ahead of schedule. For a negative example we don't have too look too far. Chartered Semiconductor received billions through Temasek but can't get to the level of competitiveness of its Taiwanese rivals and after years of red ink and cash infusions, Temasek is looking for someone to buy this company....and the losses to Singapore taxpayers all part and parcel of Temasek's investment process which ordinary Singaporeans are told not to be too concerned about.

Sunday, November 16, 2008

Sir how high is your Ivory Tower...

"But we will make sure that nobody falls below the poverty line....." - MM Lee, Speech at the Duxton, 10 Nov 2008.
"Sir, you must have drawn that poverty line on the floor...that is why nobody can fall below it! There was already a lot poverty during the 'Golden Period'. This will only get worse..." - Lucky Tan
MM Lee gave his speech about the recession and poverty at the Duxton, the tallest most expensive HDB flats ever built. From the top of Duxton, he could have seen the little grass patch at Hong Lim since it is not too far away but any protests there would have attenuated to a whisper by the time it reached the top of Duxton. While the HDB built the Duxton, the queue for HDB rental flats has been increasing. Why waste the piece of land on rental flats when you can build luxury HDB flats like the Duxton that can fetch $600K a piece. Looking down from the Duxton at the people below, the PAP can believe it done such an extraordinary job and created such an extraordinary economy, people have to be poor by choice or their lack of ability. That is why rental flat dwellers are asked to submit documentation of their income regularly so that rental can be adjusted upwards if they made more money - they deserve no little luxuries, no movies for the children, no trips to the zoo, no eating out, no savings. This is a govt that scrutinises the poor, but lets the banks get away will gross mis-selling that caused more than 10,000 to lose their lifesavings.
Here we are in the beginning of the worse recession in the past 2 decades and MM Lee assures us that "nobody" will fall below the poverty line. Some cynics interpret this to mean that if you're a nobody, the govt won't give a damn if you fall below the poverty line. I really wonder what his mandarins have told him about the existence of poverty in Singapore. From his speech he seemed to be saying that the govt will be tackling poverty if it arises as the economy weakens. This is really strange given that poverty has risen year after year in the past 10 years as the economy was booming. The PAP govt did little to arrest the rising income gap and rising cost of living when the economy was doing well. Some would even say the PAP govt's policies such as regressive taxation and relentless import of foreign workers caused the income gap to worsen...and the non-stop hikes in electricity, transport and housing caused the cost of living to rise. The govt expressing a desire to 'help the poor' during recession rings hollow as it has been saying this for more than 10 years during which the problem worsened.
If 10,000 people losing their lifesavings can only evoke harsh words such as "that's life", "went in with their eyes open", "case closed", and so know the pain of Singaporeans attenuates to nothing by the time it reaches the top of the ivory tower. Up there our leaders only spend to appreciate their grand achievements every failure is blamed on Singaporeans not being good enough for their leadership. To our leaders, the people lost their money because they did not read the fine print that was not given to them - nothing to do with the PAP's pursuit of deregulation that allowed these products to enter Singapore. The poor who cannot afford electricity despite working full time jobs are at fault because of their lack of ability - the govt that increased our electricity bill to the 2nd highest in the world cannot be faulted. That is why the PAP sees the problem of unpaid electricity bills being caused by poor people using too much electricity - they now install pre-payment cash card machines to force the poor to use less electricity....there is no need to try to lower electricity tariffs because there is nothing wrong with Singapore Power or electricity generators a billion in profits. In the eyes of our leaders, Singaporeans are just too much trouble - they are not talented enough so thousands of foreign talents have to be imported, they can't make enough money to pay for the services of this govt so the govt can't raise prices as fast as it wants for HDB etc, they complain often because they fail to appreciate the greatness of their leaders. With this view, it is no surprise that our leaders see the victims of mis-selling as cheats wrongfully seeking compensation from the banks for their loss.

An Exceptionally Simple Theory of Everything....?

Besides keeping up with the great thoughts and grand visions of our leaders, I actually spend a lot of time reading about what is going on in the world of Physics. Recently, the Europeans turned on the LHC (Large Hadron Collider), its a large machine that will that accelerates beams of particles in opposite directions to get them to collide close to the speed of light. For the older folks who did physics long time ago, matter is made up of atoms if you recall are made up electrons, protons and neutrons....if you did A' level phsics 20 years ago, it stopped here. However, physicist found that there are sub-particles within each is these "elementary" particles if you smash them up. These sub-particles are known as quarks, leptons etc. Over the years scientists have developed a model known as the Standard Model - particle physics has been empirically determined through experiments over the past fifty years. Currently the Standard Model predicts that there is one more particle to be discovered, the Higgs boson. One of the reasons for building the LHC is that the increase in energy is expected to make the Higgs observable. If they can't find this article, the last 50 years of work on the Standard Model will go into the dustbin....but they are likely to succeed. The problem with the Standard Model is it is an empirical one derived via experiments and tweaking various constants to fit the experimental observation. It does not explain why these particles exists. To do that is the Holy Grail of Physics that will explain the particles and unify Quantum Theory and Relativity - in simple English, a Theory of Everything. Right now there are 2 major competing theories Quantum Loop Theory and String Theory. Many of the renowned physicists of our day have invested their entire lives and careers into String Theory, a mathematically complex theory....and a smaller number believe that Quatum Loop Theory is the way to go.

Who is correct is an article of faith. But both theories are complex and no experiment today can prove either correct. If you stake your entire career on either it is quite depressing if you find yourself on the wrong side of the experimental evidence. In science there is this idea known as the Occam's Razor ....the best solutions or explanation to a phenomena is the simplest one that can explain all observations - the simplest theory is likely to be the one that is correct.

"Surfer dude stuns physicists with the Theory of Everything" - Daily Telegraph

In Nov 2007, a little known physicist Antony Garrett Lisi put out a pre-preprint of a paper entitled "An Exceptionally Simple Theory of Everything". The paper initially received accolades and plenty of criticism....but became largely ignored by most physicists. There are thousands of papers written on String Theory and these would be invalidated if Lisi's simple theory turns out to be true. We will find out in a few months as the LHC generates more results. Lisi's theory predicts 22 new particles. The String Theory proponents believe that some results from the LHC showing the disappearance of energy into another dimension can help to support their theory.