Tuesday, March 31, 2009

What's more popular than Obama's Inauguration speech on Youtube?

So you think that Obama's inauguration speech seen by millions around the world would have the one of the highest number of hits on YouTube....well no. I was looking through YouTube trying to figure out what people like to watch and found this series of video by a girl called Natalie from Sidney, Australia. This video of hers has triple the number of views of Obama's inauguration speech:

I really don't get it.... some of you do?!...please explain. Maybe it was slightly more entertaining that a channel 8 Mediacorp series. But 12,000,000 hits? Really goes to show how hard it is to predict what people will like.

Sunday, March 29, 2009

All about BONUS!

UPDATE : This posting was only half written when first put up. I put a note to saying that I'll complete it but it didn't appear. Today's Straits Times carried an interesting article about a certain Pastor Prince of New Creations Church being paid $500K in salary. It is all well justified according to the church's honorary secretary, "Above all, through Pastor Prince's ministry, many people have experienced the grace and love of our Lord Jesus for themselves and seen how their lives have been transformed and marriages restored". In other words, the Pastor Prince's contribution to society and God is invaluable so one can justify a salary of $500K.....but don't be too quick to judge because Pastor Prince does live by the Bible according to the article - he had twice requested to go on a "no-pay scheme" (but was rejected) and has donated $563K to the church's $1B lifestyle hub developed in partnership with CapLand in Buona Vista. I do have to applaud the post-Durai Commissioner of Charities - all charities now have to submit annual reports through which we can know of how much compensation is given out to members of staff.

10 years ago, I received a call from a ex-classmate who told me that he was going to backpack around the world for 6 months. The reason being he received 12 months bonus for the previous year from his company which was in the semi-con business but the cyclical business had turned down and he decided to quit before the company retrenched him. The company had record profits and everyone was rewarded with huge bonuses. He did work hard but the bonus was on top of the OT pay he received for that year. I was happy for my friend but wondered what he did right other than to join the right company at the right time - not that he had extraordinary foresight that the sector/company would have such a blockbuster year -it was all a total surprise to him.

Recently there has been a lot of talk about the bonus received by certain people. AIG which blew up and took more than US$100B of taxpayers' money to stay alive caused an outrage when it was revealed that it was paying executives including those in its derivatives dept US$100+M in bonuses. Ordinary Americans found it hard to accept. Its CEO Libby who was employed after the govt rescue to fix the company explained that the bonuses had to be given out because they were based on employment contracts signed more than a year ago before the financial mess started and these employees can sue the company for double the payment if AIG did not meet its legal obligations. That explanation wasn't enough...contract or no contract, Americans just simply couldn't accept what was seen as unfair compensation. AIG had to increase the security for its staff and advised them not to wear their employee pass in public. The outrage subsided a little when AIG executives volunteered to about half of bonus. In Britain, the home of former RBS CEO Goodwin was vandalised[Link]. Goodwin has become a hated figure seen as a symbol of greed that caused the current crisis. He refused to give up his hefty pension and that enraged many Britons.

Visit msnbc.com for Breaking News, World News, and News about the Economy

"We are angry that rich people are paying themselves huge amounts of money while ordinary people r unemployed, destitute & homeless."
- Group calling themselves BankBossesAreCriminals (BBAC)
In Singapore we have had 2 cases that raise some eyebrows - CDC staff who were paid 8 months bonus(anyone knows what happened to JohnLaw2012?) and the CapLand CEO who received $20M in bonus. It was explained that the CDC staff performed very well at the job and CapLand CEO deserved his bonus because the company had profits of $2B in 2007.....however it can also be argued that the profits were more the result of a property bubble than his leadership. CapLand did have a cash call in the form of a rights issue a few weeks ago at $1.30....which is dilutive, why didn't they do it when the stock was higher - they would have collected the same amount of cash for the same dilution. The point is it is hard to ascertain what his bonus should be
you can put in arguments for amounts from $1M to $40M, it is subjective and he gets what the board of directors agree to give.
"Cost is not the same as worth" - Movie Shopaholic
In the AIG case it was explained that the incentives were not aligned with the interests and survival of company. The traders in AIG were rewarded for the amount of CDS (Credit Default Swap) they sold and their contracts did not take into account the risks they were exposing the company to. The end result was the collapse of AIG and the company was required to pay bonsus to the people who caused the collapse. During the ministers pay hike debate, MP Low Thia Kiang challenged the PAP ministers to compensated themselves based on a multiple of the median income of Singaporeans or the income of the bottom 30% of Singaporeans. The PAP govt rejected that idea preferring to link their pay with the top earners of various professions - so what does this link incentivise?
Warren Buffett said that CEO pay was rarely more than 50 times the lowest paid employee in the company in the 1960s and 70s. It rose from 50 times to 100 times to 500 times ....the CapLand CEO is getting a bonus which is 1500 times the income of his office cleaner. Is the CEO of today 10 times or 100 times better than the CEO of 60s and 70s? In 2007, according the Paul Krugman, the highest paid hedge fund manager was paid more than all the school teachers in New York combined. I think he was trying to say that compensation has become decorrelated with the contribution to society. However, it turned out compensation in some cases has become negatively correlated with contribution to society as we have seen in Lehman, AIG, Merrill and RBS.

How did compensation spiral to the stratosphere? A large part of it has to do with the level of profits as a % of GDP and all this is closely related to income inequality & debt. If you look back in history, there was only one period with the same income disparity, debt and level of profits as we are seeing today - the swinging 20s before the Great Depression. What history tells us is this type of income disparity is not sustainable and the high level of profits possible only by keeping wages of ordinary workers low. To maintain the aggregate demand, consumers have to borrow since they don't earn enough wages to buy all the goods produced - that leads to an rise in profits as a % of GDP. These profits have been used to justify CEO+management compensation...but is actually the result of an unsustainable economic system rather than the genius of a few men in the company. Take the CapLand case again, in 2007 we had a property bubble, people borrowed against the future income to buy over-priced property and that led to huge profits for CapLand. The prices cannot be sustained by the income of the buyers and prices sink when they can't pay their debts ....but the CEO of CapLand gets his $20M bonus anyway.
"...you have to pay the market rate or the man will up stakes and join Morgan Stanley or Lehman Brothers or Goldman Sachs" - ,MM Lee April 2007
What we need is leadership that will believes in creating an equitable system not people who will blindly follow an unjust system for their own benefit - that is not what leadership is about. How can we progress and change for the better if we are merely applying the same old formulas without questioning their correctness and validity?
"(PAP already has) ...'to scour the whole country to find the quality we now have' - MM Lee
Perhaps the issue is not the shortage of talent or quality but of values. Good people with integrity will not step forward to embrace a system they do not subscribe to. No amount of money can make righteous people uphold a system that does not believe in democracy, human rights, justice and equality....and no amount of threat and fear can stop some people when they fighting for what is right....

Wednesday, March 25, 2009

Still a climate of fear......

WayangParty is up....so is this blog.

It is not clear what happened to a certain "JohnLaw2012" in the CNA forum - he stopped posting abruptly a while after he gave information about the bonus received by CDC staff. For all you know, "JohnLaw2012" could be on holiday at a remote resort in Maldives where there is no Internet. But it is what CAN happen to him that makes Singaporeans fearful. Our anti-whistleblower laws in the form of the Official Secret Act (OSA) makes anyone who leaks information on wrong doing by the authorities a criminal. Unlike other countries which offer rewards and protection for whistleblowers, anyone who blows the whistle on this govt breaks the law and is a criminal - why would a govt that pride itself as one having extraordinary integrity resort to such laws....

Official Secrets Act - A person found guilty of communicating classified information, obscene photos under Section 292 of the Penal Code would be liable to imprisonment of up to 3 months or a fine or both.
JohnLaw2012 violated the OSA when he leaked what appeared to many as excessive remuneration for civil servants in the worst recession Singapore has ever faced.
WayangParty interviewed PoThePanda who claimed that he was taken into custody by the police and asked to confess to 'crimes against the state' that he said he did not commit. It is not possible to verify his story even if it is true but people generally don't and won't find his claims incredulous. Singapore is a country which holds the world record for the longest detention without trial [Link] and no regret has ever been expressed for committing this act.
Sedition Act - A person found guilty of using seditious remarks to promote feelings of ill will and hostility between different races or classes of the population of Singapore shall be liable to a term of prison not exceeding 3 years or a fine not exceeding $5000 or both.
The Chinese tried to impose a similar law in Hong Kong and the people took to the streets to protest. Why? The Sedition Act is a 'catch all'. Someone criticising a govt policy can be accused easily of 'promoting feelings of ill will' between classes e.g someone says GST hurts the poor can be accused of seditious remarks...simple as that.
Internal Security Act - Section 20 of the ISA ...anyone who issues or circulate a publication or document which is calculated or likely to lead to a breach of peace or to promote feelings of hostility between races or classes of the population shall be liable upon conviction to a fine of up to $2000 or imprisonment for a term of up to 3 years or both.
The PAP govt claims that these laws are necessary for national security but many countries bigger, smaller and more diverse are just as peaceful without them. The truth is these laws help to promote a climate of fear and prevent the necessary reform to their system of govt that will benefit ordinary Singaporeans. This is the only system in the world where the leaders can get such high salaries and still maintain their power and control over the people.
I took down my blog yesterday when a few of my friends got really worried and called me when the WayangParty became inaccessible. All socio political bloggers in Singapore face enormous risks from a govt that have laws in place send them to jail - all it takes is for the PAP to feel insecure and they will do it to preserve the system which gives them enormous benefits. Perhaps yesterday was not the day...maybe tomorrow...or next month or next year. Who knows when that day will be...just like Operation Spectrum when a group of Singaporeans had their lives disrupted. After all these years, Singaporeans still live in a country where can't speak your mind freely without fear....

Sunday, March 22, 2009

Its the economic performance that counts!

During the minister pay debate, the main argument to justify the extraordinary pay packets of the PAP leaders was performance. However, when performance is no good, it is time for an explanation. Be it Mas Selamat's escape, having the worst performing economy in Asia or losing billions in bad investments, the explanation can be made that blame lies else where and not with the extraordinary leaders who are in charge of Singapore. Singapore will put in the worst economic performance in Asia and the explanation is that Singapore is an export dependent economy and when our trading partners slow down we are hit badly. If you swallow this explanation wholesale - it is basically saying that there is nothing we can do about it we are forever at the mercy of external demand. But why are we doing so badly? The rest of Asia is also dependent on external demand and Hong Kong is about the same size as us. Don't forget the govt plays a big role in our economy - they pick the industries Singapore chooses to go into casinos, biotech, etc, they strategically plan our economy and the level of domestic demand....they make all the moves on the economic chessboard and this is where they got us.
"MM Lee took issue with criticisms of Singapore's economic model, such as that from a recent Wall Street Journal editorial which said the Republic needed to refocus on the domestic consumption of goods that are now produced for export. 'Four million people to sustain industries supplying top-end goods to the world? That's rubbish.' Singapore has no choice but to export, he stressed. " - Straits Times [Link]
I don't think anyone in the right mind is asking Singapore to stop exporting or become solely dependent on domestic demand - that would be rubbish indeed. However, more can be done to strengthen our domestic demand so that our economic performance does not fluctuate so wildly on external demand - it is only one piece of the puzzle of restructuring this economy for more sustainable growth. The PAP govt had focussed primarily on GDP growth rather than sustainability of the growth - during the 'boom time' aka Golden Period, they would drive the export engine at the expense of almost everything else to chalk up high GDP growth figures - now we are seeing the downside of this strategy. You shouldn't buy the argument that 'there is no choice' because other economies with similar population sizes such as Israel, Finland and Hong Kong have a higher domestic economy component in their GDP.
This recession is not painful just because of its length and depth. It is especially painful for Singaporeans because they are entering this recession with many problems the PAP govt did not solve when times were good. We are entering this recession with the highest household debt in Asia and the worst income inequality among developed Asian countries. At the onset of this recession 8% of the people have already defaulted on their HDB loans and many couldn't afford even afford electricity even before the recession. The govt ran an economy that swung wildly - this being the 3rd recession in 10 years but did not put in place safety nets that would serve as stabilisers for our society.
The PAP claims that it can bring about positive changes on its own and that there is no need for a 2-party system. The 1st step towards change is to admit that things can be done better. They are not even able to take the 1st step....

Saturday, March 21, 2009

BBC Interviews PM Lee

"Life would be much easier for me if the Minister Mentor were not my father and Ho Ching were not my wife. But they are there. This is the way Singapore has worked. I think Singaporeans have understood that this is how the system works and they will render judgment when elections come." - PM Lee, BBC Interview.
I completely agree with with what PM Lee said. I feel so sorry for PM Lee for his predicament of having the best 2 of the fund managers in the country/world being part of his family. This has made his life so difficult. But still he is so modest because the same family also had the best telco executive in the country/world in the form of his brother who was SingTel CEO and himself, the best person to lead Singapore. I really wonder where we will be without his family. The British must be so impressed when they heard his interview.
" I am not comparing myself and I don’t look at these rankings.We go on a system which is open, honest, transparent – what is the job worth, what is the quality of the person whom you want. We need the best people for the job and these are jobs where you make decisions which are worth billions of dollars. And you cannot do that if you are pretending and you just say, ‘Well, we are all in it for the love of King and Country’. We want it to be honest, we want people not to come in for the money. But at the same time the sacrifice cannot be too great. And at times like these, you want the best possible government you can have.” - PM Lee on his high salary.
Yes, the leaders of other countries are all pretenders accepting lower pay and professing their love for their country. The PAP govt pays the highest salaries in the world so that they don't attract people who come for money - now I know why my leaders are extraordinary ....they operate on logic that few can understand. I guess AIG was also paying out high bonus because they don't want people who come for the money but cannot allow their employees to make sacrifices that are too great. Please those people who want to sacrifice a lot don't have to join the PAP anyway - they are not suitable because as PAP members, their sacrifice cannot be too great. You see the PAP govt already generated enough sacrifice in this country from those opposition members who are arrested, jailed, bankrupted and thrown out of their jobs. While the PAP members cannot be allowed to sacrifice too much, there is no amount of sacrifice that is too much for the opposition and their supporters. So we are led by PAP leaders who cannot sacrifice too much, don't profess the love for the country and have to be paid the highest salaries in the world but they are not in it for the money. Our PM concludes that these are the best leaders in times of crisis. I'm sure your respect for the PAP leaders will increase several fold after reading the full interview here. Singaporeans are so lucky to have such good leaders ....I'm sure all of you know what to do when the elections come.

Monday, March 16, 2009

F1 to F9......where are we headed?!

This video interview of Leong Sze Hian highlights a number of problems with healthcare, housing and transport faced by ordinary Singaporeans. If you have been reading my blog for the past few years, these problems have been highlighted here many times with the hope that the PAP govt will do something to improve the lives of ordinary Singaporeans. However, little has been done and it is not where we have gone but where we continue to head that worries me most. Why isn't the PAP govt motivated to solves these problems? Why is it so hard for the PAP govt to solve these problems? It is not possible for the PAP govt to be unaware of these problems ...then why have things been allowed to deteriorated so badly in the past 10 years...? Lets go through the root cause of each of these problems and I will show you a consistent pattern behavior and thought of on the part of this govt.

Housing. HDB continues to insist that housing is affordable even as more people default on their HDB loans. Among the solutions being explored to make housing "more affordable" is to put Singaporeans in no-frills housing or downgrade to smaller flats. If HDB flats are truly affordable, how did we get here? Rightfully, the rise of HDB prices has to be kept in line with the household income and the sustainability of this income but this is hardly the case as the rise in HDB flat prices have outstripped the rise of median income. HDB claims that it merely priced its new flats relative to the resale market. But how did the price of flats escalate to such levels? Is market price simply the reflection of demand and supply? There were 2 things that resulted in the escalation of housing prices - the 1st is the liberalisation of CPF for housing[research paper : Link] which caused a large jump in housing prices sometimes termed euphemistically by the PAP govt as 'asset enhancement'. The 2nd is the lengthening loan tenure and expansion of household debt to keep the property price rising - HDB flats used to be paid up in 7-8 years now they take 30 years to pay up. The end result is insufficient funds for retirement and a high household debts that make Singaporean households vulnerable during recession. But who are the prime beneficiaries of high housing prices? Housing loans are wildly profitable for banks, our govt land sales to HDB rake in billions which go into Temasek Holdings for investments and big developers. Our housing market is hardly healthy due to the high levels of debt incurred by Singaporeans for a roof over their heads. During the boom times, people who need a home have to take on huge debts as prices go up and when recession comes, defaults mount and a large number of people get into trouble with the bank.....and Singaporeans have to go through these gyrations 3 times in the past 10 years.

Healthcare. If you're asked to design a healthcare system for Singapore, would you learn from the number 1 healthcare system or the number 20 healthcare system in the world? Before I answer that question lets take a look at the rising cost of healthcare in Singapore. We have been told that cost of healthcare will rise and keep on rising fast so we have to purchase insurance to cover ourselves and set aside sufficient funds should we get sick. Have you asked why healthcare costs have gone from highly affordable to barely affordable -read about the case of the cancer patient needing to raise hundreds of thousands[link] because her insurance only covers $30K of her $400K treatment. Some people who have not had relatives or close ones who got sick still thinks that serious illness can be treated for around $50K- that is just not the case. You sometimes wonder what happens to people who cannot afford to pay up - the hospital will hire debt collectors to chase after these people for payment - some have to take up bank loans or sell their homes to pay for treatment.

Singapore aims to be a medical hub and the goal is to attract 1 million medical tourists by 2012 [link][Link]. This ambition to be a medical hub for rich arabs and millionaire Indonesians have strained our resource tremendously because it caused private hospitals to expand to serve these medical tourists and the pay packets of specialists and surgeons to escalate. There is a case being fought today involving healthcare provider Parkway and one its ex-employees whose job was to market medical services in middle-east and Europe [Link to be provided] - he is suing for $2.2M in commissions for bring patients to Singapore. When it comes to medical services, Singaporeans now have to compete with pocket books of millionaires from around the world. The govt remedy to all this is to make us buy insurance. However, if you listened to Leong Sze Hian's interview carefully, an insurance based approach leaves out hundreds thousands of Singaporeans who cannot be covered or cannot afford the insurance. To find out where we will be in a few years we just have to look at the US which has a similar system. Such a system is prone to cost spirals in which medical costs go up causing insurance premiums to go up. Such a system has also left millions Americans uninsured and the cost of healthcare per American has escalated to be among the highest in the world as the profits for insurance companies and hospitals went up. What we are beginning to adopt is a healthcare system that promises to generate higher and higher profits for various businesses and passes the cost to Singaporeans who become sick.

Now to the question...why did the PAP copy the healthcare system from a country that is ranked 20th (USA) instead of the country that is ranked No. 1 (France)? ....The answer is simple - the French system results in a healthcare cost that is among the lowest per person in the society in developed countries but generate little or no profits for insurance companies, hospitals (which are mostly govt owned).....the choice is obvious for the PAP....

Public Transport. Our main public transport companies (SMRT, SBS) are public listed companies with shareholders who have invested in these companies for profits. If I'm a SMRT shareholder, I would be concerned if the trains are not packed like sardines every morning and the human beings in the train actually have space to swing their arms. I will demand SMRT lower its costs by reducing its frequency so that the utilisation per train goes up and profit goes up. If I were an SMRT shareholder, for the past 5 years I would be smiling because SMRT pays out good dividends and its profits increases year after year[Link]. Last quarter they reported rising profits apparently the recession that is hurting Singaporeans does not hurt SMRT's profits.

Singapore being an island state means that there is no place to run to when cost of living escalates. Yes, our concerned govt encourages us to put our old parents in Johor so save money and they are considering the use of Medisave for overseas medical treatment because many cannot afford to be treated locally anymore. However, what the PAP will not do is change the system to lessen the financial burden on Singaporeans because our debts translate to profits for many business entities and our govt with its complex interests in GLCs and its pro-business ideology simply cannot work solely for the benefit ordinary Singaporeans. So their message to Singaporeans is work harder, work longer and never retire.

Sunday, March 15, 2009

Malaysian EPF is such a flunky!

See what you get when you don't have competent people managing your citizens' pension funds. A crummy 4.5% return for 2008. The Malaysian unionists are furious.

"It is a lame excuse to state that the global economic slowdown has reduced the profits of the fund” Solomon, Malaysian National Union of Bank Employees (NUBE) Secretary-General
Yeah man what kind of lame excuse is that blaming low returns on the global economic slowdown. The unionists want investment advisers to be changed for performing so poorly. It is unconscionable the EPF took part in all sorts of bailouts that resulted in lower than normal returns for EPF stakeholders who are workers who need the return to be able retire when they are old. If EPF investments does not perform better that this pathetic 4.5%, Malaysian workers may have to work an extra 6 months from their current retirement age of 55.
EPF Returns [Link]
1983 to 1987 -8.5%
1988 to 1994 -8.0%
1995 - 7.5%
1996 -7.7%
1997 to 1998 - 6.7%
1999 - 6.84%
2000 - 6.00%
2001 - 5.00%
2002 - 4.25%
2003 - 4.50%
2004 - 4.75%
2005 - 5.00%
2006 - 5.15%
2007 - 5.80%

If I were a Malaysian, I too would be outraged. 4.5% is indeed low relative to their historic performance. Malaysia should learn from Singapore on how our CPF is managed - you don't hear our union leaders complaining about the returns CPF gives out. In fact our union leader encourages more Singaporeans to transfer and lock their money in the CPF Special Account so they won't be able to touch it for decades. Given the problems with the low returns on EPF, it looks like Malaysians have plenty to learn from our leaders.
Unions see no reason for low EPF dividends
Maria J.Dass and Humayun Kabir

PETALING JAYA (March 15, 2009): The unusally low dividend of 4.5% expected to be declared by the Employees Provident Fund (EPF) has incurred the wrath of worker unions in the country.
"EPF is a cash rich entity. There is something wrong if there are no reasonable and acceptable dividends being paid out to workers," said National Union of Bank Employees (Nube) secretary-general J.Solomon.
"This has been going on for years.... where money from EPF have been used to fund government projects and to bail out ailing companies which later rake in huge profits with CEO and managements enjoying fat bonuses of between 20 to 30 months," he said.
Solomon"But what about the poor workers in the private sector whose money were used for these bailouts, what are they getting?" he asked, adding that their civil service counterparts are getting a better deal with Cost of Living Allowances (COLA) and other perks.
"We have also, time and agains, questioned EPF's investment decisions in certain companies. The scrutiny of the EPF board of directors is questionable as the majority of its members are government officers and there are only a few workers' representatives."
A.SivananthanMalaysian Trade Union Congress (MTUC) executive council member A.Sivananthan said the economic downturn "is not a good enough excuse for paying low dividends because the global downturn only struck in late 2008".
Sivananthan felt a dividend of no less than 5% would be a fair, while Solomon said a dividend of about 8% to 10% would be payable to workers "if all the leakages are plugged."
In IPOH, Deputy Finance Minister Datuk Kong Cho Ha said the public should not speculate on the EPF dividend for 2008 but wait for the official announcement.
"EPF's dividend rate is always higher than the bank rates. The dividend rate may fluctuate due to the domestic market as EPF has invested in a lot of government treasury bills." he told reporters after officiating at a Perak MCA Wanita's presentation of a talk titled "Your fate is written on your face" at the state MCA headquarters here.

Wednesday, March 11, 2009

Charlie Rose interviews Tim Geithner...

A sequence of events looks set to kick off a small stock market rally starting from yesterday - we had Citigroup CEO Vikam Pandit saying Citibank is 'operationally profitable' best 2 months in more than a year and Barney Frank (House Financial Services Chairman) said yesterday that they might reinstate the uptick rule[Link], a rule that disadvantage short sellers especially abusive shortsellers that drive down stock prices. That was enough to cause a massive 300+ points rally on the DOW. But that is not all - yesterday night Tim Geithner gave a pretty confident interview on the Charlie Rose show and described a workable plan to bailout the banks. Tomorrow (Thursday) there will be hearings to consider suspension of MTM (mark to market) accounting rules that force banks to recognise losses on assets based on market prices even when the market for the asset is illiquid and distorted. US stocks have been pounded down almost everyday for 2 months and short positions have build up over this period. However, given the economy is still in bad shape such rallies may not be sustainable. There were 4-5 of these relief rallies in the last recession and the market made new lows after each of these rallies. However, the lows or bottoms were not too far each other and the final bottom for the previous recession - the recession we are seeing is a lot more serious so past patterns may not hold . The real rally that came in the previous recession looked very much like the sucker's rally before it so it is always hard to guess where these rallies will take us.

Tim Geithner has improved tremendously since his disastrous public appearance a few weeks ago that caused the stock market to tank badly.

The other parts can be found here. I generally agree with Geithner's strategy to do as much as possible as soon as possible and not worry about doing too much. The lessons from past crisis such as the Great Depression and Japan in the 90s tells us that taking a measured approach will result in poor outcomes. But the 'doing a lot' strategy has a downside which is the US govt has to cope with a big debt from all the bailout and stimulus packages later. The worse case scenario is failure to get the economy going and getting saddled with huge debts as the GDP shrinks. That is why the European govts refuse to take the risk preferring to take the pain of a recession and hope the US stimulus will also bail them out. Whatever it is nobody can blame the Obama Administration for doing too little, in this 2 months he has been in office, they have done more than what previous administrations did in their first 2 years.

Singapore 10th most expensive city in the world!

Hooray we made it. 10th most expensive city in the world[Link]. Nobody can call us cheap anymore. We pay top dollar for everything - housing, ministers, cars, utilities, etc. Yes, our electricity is better than the electricity in Hong Kong.

Here is the ranking from Economist Intelligence Unit Cost of Living Survey 2009.
1 Tokyo, Japan
2 Osaka. Kobe Japan
3 Paris, France
4 Copenhagen, Denmark
5 Olso, Norway
6 Zurich, Switzerland
7 Frankfurt, Germany
7 Helsinki, Finland
9 Geneva, Switzerland
10 Singapore, Singapore

What is important to note is Singapore is the only city-state in the top 10 list. If you're Japanese and find that living in Tokyo or Osaka is expensive, you can choose to live in one of the many perfectures that are much cheaper. But if you find Singapore expensive, you don't have much of a choice. Also, we rank 22 in terms of per capita GDP [Wiki Link]and we have an income distribution similar to that of developing countries. We are not only expensive, many Singaporeans don't make enough to live in Singapore. They make enough to struggle in Singapore but ...live?...We frequently score low on "happiness" surveys and need those courtesy campaigns to remind us to smile....it is hard to smile when you're struggling.

Monday, March 09, 2009

Listen to what this woman said....

Courtesy of WayangParty

It was a news clip about how a number of hawkers slashed prices to keep its customers. But when the lady owner of the stall was interviewed she told the story of a regular customer who ate at her stall who was so poor he could only buy $1 worth of food for lunch everyday. The poor customer stopped patronising her stall because he was so poor he couldn't afford food and fell to his death.
For many people, poverty in Singapore is an abstraction. It is some number in our economic statistics that they don't get to see 1st hand because they live away from it. Those numbers represent real people - who are suffering real pain and not getting the help they deserve. As a Singaporean, I refuse to accept this. We are so affluent we can spend billions to bailout western banks and give out so many scholarships to foreign students they mistake us for Santa Claus. Yet we have Singaporeans who cannot afford food, electricity and a decent home.

Sunday, March 08, 2009

Elections are imminent Part 2.

Part 1 is here : [Link]

The Elections Dept has completed the revision of the registers of electors. They released this little bocklet which I picked up at the CC yesterday.

It is a booklet with information for overseas voters published on 3 March 2009. The Elections Department is now starting to register overseas voters. That is a lot of work to do for nothing if we are not heading for an election soon.

Guess what else I picked up at the CC. Interesting leaflets explaining the virtues of govt of various govt policies. Like this one:

Yes, ERP is beneficial to those who don't drive and don't pay ERP like myself. But I wonder what people who have no choice but to drive through it every morning think about it. Great isn't it? ERP benefit the hundreds of thousands of Singaporeans who have to squeeze into those sardine can MRT trains that are not affected by road congestion.

I guess there is no better time than an election to explain why the rising cost of living is a world wide phenomena that has nothing to do with the PAP govt. Yes, the govt is there to help us with the rising cost of living - although cutting GST is not one of measures to help Singaporeans, we should be thankful for great ideas from the PAP govt to help us cut down the cost of living like sending our lonely old folks to Johor Baru nursing homes to save money and precious land that can be used for golf.

Saturday, March 07, 2009

Not by wages alone...

A few weeks ago there was this letter[Link] to the Straits Times Forum by former perm sec Ngiam Tong Dow arguing that a CPF cut would be a better strategic move than the Jobs Credit Scheme (JCS). He argued that a direct wage cut would be better than a wage subsidy because "subsidies cannot be sustained for long if our workers are no longer as productive as their peers in other, perhaps hungrier, countries, particularly in a knowledge-based global economy". He argued workers should bite the bullet like they did in 1984 take all the pain and sacrifice to get Singapore out of its current mess. I'm not sure what is so strategic or long term about CPF cuts - the CPF is suppose to be a provident fund for our retirement not an economic tool to bail the economy out everytime there is a recession. Why didn't he propose that landlords slash rents by 40% to help make the economy more competitive? That was what many retailers wanted[link]Why didn't he propose that other costs such as utilities, govt fees, etc be slashed to make Singapore more competitive? Why is it wages ...wages and always wages? A CPF cut is 'undoable' for several reasons - the HDB default is 8% going into this recession and a CPF cut will push many Singaporeans to the 'brink'...we are not talking about just taking 'pain' it will be agony. We are also going into this recession with the highest income gap in our history and the govt is already giving workfare which is a form of wage subsidy out of necessity. There are also many flexi-wage components in our wages today that can be cut by the employers if they choose to do so. Also, if wages are the issue and the businesses need those cuts to retain people, the employer can just initiate wages cut himself. Politically if the PAP is going for elections such a move is completely unwise because many Singaporeans are still waiting for the 'temporary' CPF cuts of 1984 to be restored...and this will be bad political strategy. For a while, I was quite amazed that Ngiam Tong Dow, a former top civil servant, can actually come up with such a suggestion. But the PAP govt itself did not miss this idea because when Minister Lim Swee Say debated MP Low in parliament he tried to counter Low by asking "CPF cut or JCS?"...which would Low prefer? MP Low said neither. Many saw this whole episode as Minister Lim trying to trick MP Low and MP Low not falling for it. I believe Minister Lim was more honest than that. I believe the PAP govt confronted with the current slump saw only 2 options which are 2 ways to do the same thing - cut wage bills of companies. There appears to be a box that the govt is thinking within...I will attempt to identify this box.

Think hard. Where are we today actually? This is our 3rd recession in 10 years! This is Australia's 1st recession in 25 years (hmmm....do we blame people for wanting to migrate there?). When Ngiam wrote that we should cut CPF to be more competitive, what is this economic contest ordinary Singaporeans have signed up for? Is this a slimming contest with a buffet voucher for winners?...Or is it a slimming contest that allows you join another slimming contest if you survive the 1st one? 3 recessions within a decade.... I think Singaporeans will begin to ask fundamental questions about our economy and the old bureaurcat's solution to apply the same old formula to cut CPF and to fight the pain with more pain only serve to remind us how far down the tunnel we have gone applying old formula to grow our economy. Keep wages low relative to productivity, get foreign direct investments and export....and they kept applying this formula as income gaps ballooned and the ordinary Singaporean households become strain due to the rising cost of living. Wages were the only thing they kept low as housing, transport, etc were continuously raised. When wages were not low enough, the PAP govt open the floodgates to foreign workers who came by the hundreds of thousands. We ended up with an income distribution that is only found in 3rd world countries, an economy that was so reliant on export it became the 1st one in Asia to go into recession and right now is the fastest deteriorating economy in the region. Think about it ....if we keep applying this old tired formula, where will we be 2 decades from now? What would life be like for you and your children?! Lets take a step back...and see what is going on.

Lets start with the Foreign Talent Policy. It was originally sold to us as a policy to attract the best talents from around the world for skills Singaporeans do not have. I think most Singaporeans supported this idea because it made sense - Singapore can only be better off if we brought in the best people. However, the Foreign Talent Policy became a cheap labor policy opening the floodgates to foreign workers to lower labor cost. Our govt policy to bring in foreign labor is not one of moderation - no other country has become so dependent on foreign labor than Singapore except for the oil rich states in the Middle East. The presence of such a large low cost foreign labor force allowed Singapore to grow its GDP - retaining industries that shouldn't be retained and growing industries that shouldn't be expanding if not for cheap foreign labor. These industries compete for scarce resources such as industrial space, transport services, etc causing the other costs of doing business to escalate. Enterprises that are build on the strength of Singaporean labor now have to face rising costs (rental etc) and have no choice but to keep wages low to stay profitable. Allowing the labor force to be so elastic when the other factors of production create distortions in the economy. In 2007, the rentals of industrial and office space escalated to record levels as the economy and there was no corresponding increase in wages. It was also painful for Singaporeans who needed to rent or buy homes when property market shot up to the stratosphere when wages remain flat. It is a no brainer that expanding labor the force by importing labor causes the GDP to shoot up the question is whether this is beneficial to Singaporeans in the long run. We just need to look at what happened in Dubai last month to figure out the downside of such a policy[Link]. What good is GDP growth if it is not sustainable or healthy? We have the type of economy in which things are bad for many Singaporeans when our GDP was growing and things are worse when the growth falters.

Being able to import foreign labor in large numbers and implementing wage based solutions to every economic challenge we face is actually a moral hazard as it takes away the determination to find more sustainable solutions that requires restructuring of our economy. Entrepreneurship and innovation that creates new industries that don't depend on cheap labor remains lacking as we have made little political progress to create the environment that foster these and risk taking associated with entrepreneurship can only happen in a big way when you have certain social safety nets in place. We also need to be less reliant on exports and keep our domestic economy growing. When the Hong Kong population was our size, they had a far more vibrant domestic economy and Finland whose population size is comparable to Singapore has a far bigger domestic economy. Our domestic economy remains small as the disposal income of Singaporeans relative to GDP is small compared with many other countries. We have one of the largest household debt as a % of GDP in the world to service and that takes a toll on spending. It is as if we worked hard to earn the money only to hand it over to HDB for housing - HDB accumulates this to give it to GIC/Temasek to buy risk assets overseas. If we spend more of that money, it will go round in our economy creating jobs and improving the quality of life for Singaporeans. If you spend an extra $10 for a better haircut, your hairstylist may be able to eat better as he uses this to buy better food from the hawker and the hawker has an extra $10 to take his kid for an outing and so on. There is hardly any multiplier effect when we hand this $10 over to HDB to service our debts which than hands it to GIC/Temasek.

"For every one manufacturing worker hired in Singapore, a company can hire three in Malaysia, eight in Thailand, 13 in China and 18 in India" - Goh Chok Tong, 2003.[Link]

Very often when something goes wrong with the economy, our leaders blame Singaporeans for not being productive enough, for earning too much pay compared to their counterparts in Malaysia, India and China. But how does a Singaporean worker competes when he has to incur the cost of paying for the most expensive public housing in the world, utilities rate that is among the highest in the world and ministers along with a civil service that is paid the highest salaries in the world. But think even harder...what has wages got to do with being competitive? Finland has among the highest wages in the world and is the 2nd most competitive economy in the world. What wages have to do with being competitive depends on how successful we are at other aspects of boosting competitiveness. The fact that we have again resorted to cutting wage costs to keep this export dependent economy from sinking shows that we have not been successful anything else...

Friday, March 06, 2009

Andy Xie explains....

Here's one outstanding foreign talent we lost - Andy Xie. Anyone remembers why he left ?:-)

I make a point to search for his articles every few days to get his view on the global economy. This recent one is very good.

A Decade to Lose
03-04 11:26 Caijing

If governments don't understand and simply try to bring back the "good times" of an asset-based economy, it could result in a decade of stagnation.
By Andy Xie, Caijing guest economist and board member of Rosetta Stone Advisors LimitedFrom Caijing Magazine
Policymakers around the world have not shown an understanding of the current crisis. It is the end of a two-decade long bubble. It is the end of the asset-based economy. It is the end of productivity dividends from IT revolution and globalization. Perhaps one tenth of the income in the global economy was from bubble activities and is permanently lost. The income will shift elsewhere. The resulting demand is different. The supply side has to change to meet a different mix of demand in the post bubble economy. If governments don’t understand, the world may suffer a lost decade ahead. No, it is not Japan in the 1990s. It is Japan of the 1990s plus inflation, i.e. stagflation.
Stock markets around the world have fallen close to or below the lows of November 2008. Concerns over bank bailout uncertainty and deepening recession drove the decline that reversed the 20 percent bounce from the lows of November 2008. The delays in releasing details by the U.S. Treasury on its bank bailout plan led to suspicions that it didn’t know what to do yet. The exposure of European banks to Eastern Europe caused concerns over their solvency. If big global banks remain mired in bad assets, credit system won’t function normally, and the global recession has no hope to end soon.
On the economic front, the news is grim: Japan’s GDP contracted by 3.3 percent, the euro zone by 1.5 percent, and the U.S. by 1 percent in the last quarter of 2008. The U.S. fared better because it piled up inventories, which could lead to a worse situation later. The global economy probably contracted by 2 percent in the last quarter of 2008 from the previous quarter, the worst decline since the World War II. The first quarter of 2009 won’t be better. January trade data for East Asian economies already casts a dark shadow over the quarter. All the data are portraying a global economy burgeoning on collapse.
Three forces are behind this. First, the collapse of Lehman Brothers triggered a sharp increase in credit cost. Its impact was similar to increasing interest rate by 3 to 5 percent by all the central banks together. To cope with high cost of capital every business has been running down inventory, which is the cheapest way to raise funds. In commodity industries, inventory unwinding has been dramatic. Most commodity users kept inventories high for fear of price increase and speculation. When commodity prices reversed, they were stuck with a depreciating asset and had to run it down as quickly as possible. I suspect that this force accounts for half of the economic contraction at present.
Second, faced with rising credit cost and declining demand, businesses around the world have cut their capital expenditure (capex) sharply. This force is most visible in the IT sector. Japan, Korea, and Taiwan are most exposed to it. Their exports have declined dramatically, much more than China’s, which has a broader mix. The tech heavy NASDAQ lost half of its value from its recent high in 2007, despite its terrible beating during the tech burst in 2000 to ’03 that saw the index down by 80 percent from the 2000 peak. Semiconductor makers were hit particularly hard. The Philadelphia Semiconductor Index is down 60 percent from its 2007 high. Many semiconductor companies on NASDAQ are trading at market capitalization below 10 percent of their sales revenue. I suspect that the suspension of capex is responsible for one fourth of the current economic contraction.
Lastly and the most obvious, the negative wealth effect from the evaporation of US$ 50 trillion paper wealth is cutting into consumption. The rule of thumb suggests that the negative wealth effect is about 5 percent. As two thirds of the global economy is consumption, ceteris paribus, the global economy can contract by 3 percent just due to this effect. Its impact is not all felt yet. Most consumers will adjust slowly.

The inventory cycle and reduced capex are temporary factors pulling down the global economy. At some point, inventories are sold, and capex is too low to cut. I suspect that inventory destocking will be completed in the first quarter of 2009, and that capex stabilizes in the third quarter. The global economy will probably show stability then. As fiscal stimulus kicks in around the world, we may see a significant bounce in the global economy in the second half of 2009. But stability or a stimulus-inspired bounce won’t lead to a sustainable recovery. Consumption weakness will haunt the global economy for a long time. The over-leveraged western consumer needs to pay down debt for years to come. Rising unemployment will make the problem worse. The western consumer – the driving force behind the global economy for the past decade – is down and out for good.
Governments must understand the lasting nature of the current downturn. The bursting of the credit bubble triggered the fall. The mismatch between income and demand could delay a sustainable recovery for years. During the bubble era income distribution became more and more skewered towards asset-based activities. For example, the profit share of financial activities among U.S.-listed companies quadrupled. Similar trends happened in many countries. The income for the workers in finance increased in a similar fashion. The bulging income from the financial sector was quite concentrated among a small group that spent money in luxuries and financial investment. This is the most important factor for rising concentration of income distribution around the world in the past decade.
The bursting of the bubble will destroy most income in financial activities. The amount lost could be one tenth of GDP. From limo drivers to luxury homebuilders, the compounding effect from the financial meltdown will leave unemployment across many industries and countries. The recovery becomes sustainable only when supply side is restructured to cater to a different demand mix. This process could take a long time to complete. But governments might prolong the downturn by making the wrong decisions. For example, governments around the world are engaging in fiscal stimulus. To some extent they are choosing winners, but if the ventures they back are way off what market would support, the stimulus would delay recovery. Stimulus is necessary in a severe downturn like now. It just needs to match the structural changes to come.
Let us think through the problem facing an unemployed banker and his ex-driver. The banker could splurge and hire a driver since he was making 20 times his driver’s wage. Of course, in addition, he was paying for his florist, tailor, maid, masseur, etc. On average, he spent 70 percent of his income on the equivalent of 15 people like his driver full time serving him and put 30 percent back in financial investment like in a hedge fund. Now, the ex-banker moves to Kansas City and becomes a high school teacher. His current income is the same as his ex-driver’s. He drives to work, cleans his own house, and forgoes massage. The economic problem is what happens next to the fifteen people who were serving him.
The banker’s income before came from asset market activities, essentially redistributing income to himself by manipulating asset prices. As he stops doing that, the cost for economic activities goes down by the amount equal to his income. But the people serving him have lost their income. The net result is that the economy contracts by the same amount as the banker’s income plus 15 unemployed people. In addition, the 15 unemployed people can’t spend. The multiplier effect magnifies the banker’s income contraction, possibly by a factor of two. The world looks worse off with a smaller economy and more unemployed.
When the government steps in to stimulate, it is essentially borrowing the equivalent of banker’s ex-income to spend. The purpose is to keep the 15 people employed. However, the government won’t spend on drivers, nannies or florists. The mismatch means the government can’t get the economy back with stimulus. It shouldn’t. The driver must find new customers. The banker is gone for good. What the government should try to do is stop the multiplier effect from the 15 people that the banker no longer hires. If these 15 people get unemployment, it could go a long way to mitigate the multiplier effect. The economy can come back when it is restructured so that the 15 people find new employment.
The world will eventually be better off. The banker was just redistributing income to himself. The money would lead to more productivity if it could be directed to more productive people. It’s just that the process of adjustment could be long. The world has experienced an asset-based economy for two decades. It has led to extreme income distribution. In the last few years, large manufacturing companies like GE and GM came to depend on financial activities for profits. Their industrial activities were really used as a fund raising platform. In China manufacturing companies depended on property development or stock market speculation for profits. The profit margins from their main businesses kept dwindling. Reversing the trend of the past two decades would take a long time. If governments don’t understand and try to bring back the ‘good times’ of the past, it will prolong the adjustment, and the world may suffer a lost decade.
Japan suffered a lost decade characterized by stagnation, rising fiscal deficit, deflation, and strong yen. These characteristics were supported by Japan’s high savings rate and export competitiveness. The world as a whole could not replicate Japan’s experience. The U.S., for example, must borrow from foreigners to fund its budget deficit. Its currency is likely to be weak for years to come. As dollar is the currency for trade, capital flows and foreign exchange reserves, its weakness will lead to worldwide monetary expansion. The loose monetary condition will sooner or later lead to commodity speculation. The resulting inflation would lead to wage demand by organized labor, which opens up a channel between money supply and inflation. When I look at the government policies around the world, I fear for prolonged stagflation ahead.
While we need to worry about the long-term effectiveness of stimulus spending, the short-term effectiveness is not yet secure. With global banks still mired in toxic assets, they won’t be able to lend normally. If stimulus pushes up economic activities, businesses that want to invest to meet new demand may not get loans. In an upward virtuous cycle, rising demand leads to investment that leads to more jobs and more demand. Without a functioning banking system, this virtuous cycle is not possible. Instead, stimulus just perks up the economy temporarily.
The immediate task is to repair the banking system, especially in the U.S. The U.S. Treasury is promising overwhelming force now and details later. This may be a stalling tactic. The prices of big bank stocks and toxic assets already assume nationalization. The U.S. government is right to be concerned of the permanent damage to its financial system from nationalization. But to avoid it, the government has to grossly overvalue toxic assets. The U.S. taxpayers wouldn’t agree to throw taxpayers money at failed banks. If the U.S. doesn’t fix its banking system, the US$ 780 billion fiscal stimulus will be wasted.
The right approach is to nationalize these banks, separate the toxic assets into a different entity, and relist the healthy halves. The proceeds from selling down the healthy banks could be used to pay for absorbing the losses from disposing toxic assets. This is what China did to repair its banking system. It may be the only way out for the U.S.
Second, the West must contain the cost of its entitlement programs, beginning with healthcare in the U.S. If the U.S. doesn’t institute radical reforms to contain its healthcare cost, it will go bankrupt, possibly within a decade. If Europe doesn’t reform its pension and unemployment benefits, it will have to raise taxes or run bigger budget deficits permanently, and its economy would stagnate.
The biggest economic challenge among developed economies is aging, which leads to escalating pension cost and exponentially rising healthcare cost. While the wrong policies allowed the credit bubble to happen, the desire to defend an old lifestyle while social overhead grows higher was a major contributing factor. It allowed the western economies to delay the hard choices. The current system was set when aging was not a big challenge. The only viable course forward is to increase the retirement age and ration healthcare access.
Third, emerging economies must decrease export dependency. Export-led development usually reflects weaknesses in the political economy – the inability to efficiently turn savings into investment. The causes are usually lack of the rule of law and income and wealth concentration. Export orientation is to import the global system. From Japan a century ago to the Asian Tiger economies fifty years ago and China thirty years ago, the model has made fast development possible.
The problem with the model today is that it is crowded. Developing economies are already 30 percent of the global economy at current price and nearly half on a purchasing power basis. The export model cannot thrive for shortage of customers. Developing countries have to trade more with each other and develop domestic demand. But this would require painful reforms to their political economies. The key is property rights and income distribution. The two must go hand in hand. Lack of domestic demand tends to result from income concentration, which is due to uneven playing field in opportunities. Many developing countries, like South American and Southeast Asian countries, have stagnated in the past decade due to their inability to reform their political economies.
Bursting of the credit bubble is triggering the biggest recession since the World War II. Repairing the global economy requires complex and difficult reforms. Simple stimulus can’t bring back prosperity. While stock markets may improve in the second and third quarter, it is merely a bear market rally. When inflation concerns hit the market towards the end of 2009, stock markets could fall sharply again. Indeed, the ultimate bottom in the current cycle could happen in 2010.
Full Article in Chinese: http://magazine.caijing.com.cn/templates/inc/chargecontent2.jsp?

Citigroup now a $1.02 stock...

Woke up this morning and found out that Citigroup (C) has fallen to $1.02. Anyone reading this blog shouldn't be surprised at this. The stock is now the playground of day traders and gamblers who buy and sell the stock throughout the day. If you check the Yahoo! message boards even those who buy this stock know the company is insolvent, they are hoping that short-sellers who have made enough (or are tired of sitting on so much profits) cover their positions and cause a temporary rally in the stock. Citigroup's market value is now smaller than Malaysia's Bumiputra Commerce Holding Bhd. If you check Bank of America (BAC) , the stock has fallen another 12%. BoA is where Citigroup was 3 months ago and JP Morgan is where BoA was 3 months ago. The train wreck continues. But all this does not surprise me given the information that is available. .

What surprises me was MM Lee saying that the GIC and Temasek invested in those banks "too early" [Link]. They invested in those banks more than a year ago. But what is the difference if they had gone in 6 months ago, 3 months ago or even 2 months? They would have lost most of their money anyway given these banks are insolvent. Citigroup stocks have fallen about 50% in the last 5 days. They had many months to discover their mistake and unwind their investments and save taxpayers' money. But they are unable to admit to making a mistake even today so we have Singaporeans' money stuck in these banks whose stocks are heading south everyday. It is highly dangerous to leave taxpayers' money in entities that are not completely transparent and it is even more dangerous when the people running them cannot admit their mistakes, learn their lessons and allow small blunders to turn into catastrophic losses. Even Warren Buffett, the world's greatest investor, openly admitted making "dumb mistakes". Why is it so hard for our elites to do the same? They could have gotten out of those bad investments and used to money to help needy Singaporeans who are suffering the worse recession ever but they rather deny their mistakes and leave the money in those banks to rot. What have Singaporeans done to deserve this? Did we not pay them enough to act responsibly?

Wednesday, March 04, 2009

Understanding your political leanings...

Here's a simple quiz to check it out:

Here's my score:

LIBERALS usually embrace freedom of choice in personal
matters, but tend to support significant government control of the
economy. They generally support a government-funded "safety net"to help the disadvantaged, and advocate strict regulation
of business. Liberals tend to favor environmental regulations,
defend civil liberties and free expression, support government action
to promote equality, and tolerate diverse lifestyles.


I would say the output of quiz is quite accurate except for the part that says I 'support significant govt control of the economy'. I support sufficient regulation of the economy to avoid problems down the road that will be costly for our society - like regulation to avoid the crisis we are seeing right now.

After you logically eliminatie ideas and arguments that are clearly bad, you're left with things that are workable. What you choose is a judgement call that depends on your political leanings. Sometimes I find it difficult to understand something articulated by someone who is conservative. I try very hard to see something from his angle and I understand that the person probably has an equally hard time trying to see from mine. Roughly 50% of the people are on the left and the other 50% are on the right. It explains why Obama for all his popularity only garnered 51% of the votes and the US electorate oscillate between the Democrats and Republicans - the deciding votes come from the people in the center who can be swayed either way.

In Singapore, the PAP is conservative. The problem is half the population is on the left - in the past, they were helped by great apathy among the people who didn't care about politics. The problem is as more people become interested and think about politics, half the people have tendency not to support them.

3 warning letters to termination...

I have a friend who once got into some financial difficulties because his business failed. He had many things on his mind and sank into depression. His life fell apart as he tried to fix one problem after another. One day he got home at night and tried to turn on the lights....but there was no electricity. Singapore Power cut his electricity off because he wasn't able to pay for his electricity bill. That was the day he sank so low he wanted to jump out of the window to end his life. Tears rolled down his cheeks..... he spent the entire night thinking if life was still worth living. The next morning, all the fishes in his fish tank were dead and food in the refrigerator was turning bad. He called Singapore Power to ask why they had disconnected his power to cause him so much distress. They told him that they had sent him 3 warning letters..... 3 warning letters, that to him was a cruel joke. He was in financial trouble and had more than a hundred letters on his desk - demanding payment, warning letters, threatening letters from lawyers, red letters from creditors, etc many of which he didn't dare to open because they contain threats of legal action or demanded payment which he couldn't make. My friend narrowly escaped bankruptcy but it took him 8 years to put his life back together. Looking back the lowest point of his life the night Singapore Power terminated his electricity - he tells people now that he was once so broke he couldn't afford electricity.

I was reading about the NTU stabbing and suicide case and this part caught my attention:

"NTU engineering student received three warning letters.........Two weeks ago, his scholarship was terminated." - Straits Times 04 March 2009.

They didn't even bother to talk to him or counsel him when they terminated his scholarship. They don't even how troubled the student was when they did this to him. The Straits Times article put it as if the university 'went all out' to help the student by sending the 3 warnings letters. I can't imagine how insensitive and bureaucratic Singapore has become. Can't they call him up to talk to him and see if he needs help. It did not occur to our bureaucrats that terminating his scholarship can be emotionally shocking.

This is Singapore. When you are poor or financially distressed, the govt does not send a social worker to talk to you. The govt makes its presence felt in your time of trouble by cutting off your electricity. ....they have every right to do that because they sent you 3 warning letters.
NTU student was warned 3 times The school had asked him to seek help for his studies but he didn't.
Wed, Mar 04, 2009The Straits Times

NANYANG Technological University student David Hartanto Widjaja was warned not once, but three times, that he had to buck up or lose his scholarship. NTU engineering student received three warning letters, copies of which were sent to his parents in Jakarta, The New Paper reported on Wednesday. But Widjaja's grades did not improve.Two weeks ago, his scholarship was terminated.
In the past year, the 21-year-old NTU engineering student received three warning letters, copies of which were sent to his parents in Jakarta, The New Paper reported on Wednesday. But Widjaja's grades did not improve.Two weeks ago, his scholarship was terminated. On Monday, Widjaja, and Indonesian, stabbed Associate Professor Chan Kap Luk, 45, in the back in his office during a discussion on the student's final year project , then slit his own wrists before fleeing and falling four floors to his death.

Tuesday, March 03, 2009

Why I think an election is imminent....

There are a few things the govt did recently updating the registry of voters [link]and publishing the boundaries of polling districts[link] that makes an early election this year possible. If you think hard about it, an election is not just possible it is highly probable:

1. This recession will last until next year according to most economists. Any recovery will be weak and we will hardly be in a Golden Period in 2011 when an election is due.

2. At the rate this economy is plunging, the recession will be very deep and painful by the 3rd quarter. The small window is between now and the middle of the year. If this window is missed, they will have to do it in 2010 when things can get very bad and the populace disillusioned by the neverending crisis - GIC & Temasek losses, jobless, falling property & stocks prices. Like it or not our economy depends more on what Uncle Sam can do than what our own govt can do.

3. There is growing resentment and restlessness among a growing segment of the population. The growing influence of the new media and lost of control over information.

I believe an election will be held before the middle of this year. It is likely to be a snap election to catch the opposition off guard and not give them sufficient time to bond with the masses. If the opposition wants to gain any ground, they have to start doing work now.

Are we in a 2nd spiral downwards?.... ......

If you read Buffett's letter over the weekend, he said the economy will be in 'shambles' for the rest of 2009. Buffett was among the first to say the US economy was in recession early last year. Economists have upgraded this recession to "deep" recession and I heard one guy on CNBC calling this the Great Recession. I'm quite sure the economy is in very bad shape. However, what is worrying is we have not just entered a recession from a period of crisis - that would have been things just slowing down and deterioration. There are signs that we will enter another crisis period - which some are saying will as bad the one in Sep 2008.

There is so much debt in the US and global economy, the recession would result in many problems associated with companies and individuals unable to service the debt. In Eastern Europe, the former communist states were like the Asian Tigers borrowing heavily from English and Swiss banks to fund their growth. There is now the equivalent of a currency crisis there as the currency of these countries have collapsed (by 50%) and their debts in Swiss francs/ British pounds has doubled within a few months. EU refused to fund a rescue package - the Germans objected strongly wanting to keep their deficits down. This alone might erupt into a full blown crisis of the same magnitude as the Asian Crisis. But this is not the only time bomb ticking. The next few shoes to fall in US are the other types of debts outside of housing - student loans, commerical property, credit cards, etc. The reason why many analysts think BoA and Citigroup are insolvent is the deterioration of commercial property loans on their books. Some people believe these are even bigger than the housing loans. Much of the effect is not felt yet because the properties are still under construction or are leased out to existing tenants. With the recession, shops become empty, rents will fall and it becomes hard to service these loans. As the unemployment rate soars, credit cards defaults will increase and people will default on their car loans ...and so on. The main problem is not the recession but the amount of debt the global economy has piled up.

"I know people say, why didn’t you help households more directly, but the right way to help people now, to us anyway, is not to give them vouchers or coupons or hongbaos to spend but to help them keep their jobs.” - PM Lee, 1 March 2009 [Link]
The time for saving jobs is over. Anyone still thinks Jobs Credit Scheme is working? Oh goodness, helping the jobless is not about giving them hongbaos! For the JCS, the govt gave $4.9B to companies for an almost negligible impact. It is now time for plan B - helping the people. Where is the balance in our policy making? $4.9B would have been a critical lifeline that will save tens of thousands of Singapore families in this crisis. Right now people can't even get rental flats - the queue is 4 years long, walk around and you noticed more families are put on PAYU - use electricity only when you have money not when you need it, proper nutrition is a problem for many Singaporeans and many do not seek medical treatment when they are sick because they can no longer afford it. To help these thousands of Singaporeans does not even require half the amount they gave out in the JCS scheme. Some people might have supported the JCS because they thought it is a plausible scheme that may work, but MP Low & NMP Siew are right. The collapse in demand is so sharp, companies simply kept the money rather than expand or retain staff. ...PM Lee said he did it the "right way"...no he didn't, what this govt did was ineffective. Not giving people aid directly is an ideological decision not one based on pragmatism. These are the toughest economic conditions we have ever faced, the govt has to do what is necessary not what they think is ideologically right.

Monday, March 02, 2009

Prophetic video on US economy I saw 1.5 years ago!

I saw this series of video 1.5 years ago. I just re-watched them and things have unfolded almost exactly as they have predicted. Unfortunately, if these guys are right all the way, things will get a lot worse. These guys are from McAlvany Weekly Commentary [Link]

Next part is here

Rental Flats : Obstacles to getting help....

Recently, there was this issue about rental flats being abused by people who don't need it. Here is a summary of the facts:
  • There are Singaporeans who have fallen on hard times and genuinely need a rental flat.
  • The waiting time for a rental flat is now 4 years.
  • According to Minister Mah, many applicants do not actually need this rental flat, they have sufficient savings, have children with private property who can support them etc.
  • Rules were introduced to weed out the people abusing the system and shorten the queue to about 1-2 years so that the genuine cases don't have to wait so long.

I was wondering how those people who are "genuinely in need" can actually wait 4 years in the first place but lets put this aside first. If the govt is too generous, many people will abuse these subsidized flats. If the govt is too strict, people who need help will not get it. If the govt expand the number of rental flats just to meet the demand, the govt is just throwing resources at the problem and that might lead to waste. No simple answers to this problem. What is the best tradeoff? Instead of queuing, we send people out to look for destitute...because as long as they are not destitute we can conclude they are not desperate?...Very optimal from a resource point of view, but not very humane, some people might have to go on their knees to beg a sibling they can't get along with for a room, or they might have to cut down on proper nutrition to rent a room from someone. ..and so on. Really no easy answers. Before I go deeper into the rental flats issue, lets take a step back and look at the bigger picture.

Ideally, we should aim for a society in which we educate people sufficiently well, make sure they are financially literate, have good morals and put them in an economy that will provide jobs that pay people well enough to afford their own homes. We want a healthy housing market with a good mix private and public housing - that serves the needs of everyone as long as they are willing to take up full time jobs, they should be able to afford a comfortable home for their family. If we are able to get to this ideal state, then the genuine demand for rental housing will be marginal. Some of you are tempted to call this a pipe dream but we came close in the mid-90s and late 80s(?) when the demand for rental flats actually fell as affluence rose among the general population.

Times are bad and demand for rental flats started rising again. The demand is fuelled in part by the ballooning income gap which makes it hard for the lower income group to own a flat even when they take up full time jobs. There is a growing class of temporary workers whose income is not stable. The HDB prefers not to build these rental flats because the opportunity cost is high - they prefer to sell $500K flats if they can. Now due to downgrading by those in financial difficulties the queue has grown to 4 years. What does the HDB do? HDB claims that there are many people in the queue who don't really need a rental flat so they introduce a new set of criteria to disqualify people from the queue - for example those who previously owned private property, or whose children own private property, will now be excluded under the new rules. Also, an application will be rejected if the applicant has a child who owns an HDB flat with a spare room.

So think about it ...crisis hits business man loses everything sells his private house in desperation to pay his and goes to the HDB to apply for a rental flat. What do you think happens? Instead of not giving a rental flat to a person who don't needs it, it kicks a person who needs it out of the queue. You may think there is actually discretion on the part of the people who administer these rules...you will be surprised. These rules are applied mechanically and robotically leaving the person desperate ...take the case of this caller to 938Live.

hdb_rental.mp3 -
Fearing that people will abuse the help, they implement rules that turn out to be obstacles for people who really need help. There is no equal fear of people needing help not getting it. These are not isolated examples the numbers who are hindered by these rules not insignificant. You have to ask yourself if a rule that prevents someone who has sold a private property from getting a rental property actually makes sense. Why would someone wants to sell his property at these distress prices ...? HDB thinks these people are doing it to cheat the govt of help in the form of rental flats....rather than selling because their businesses have failed or they have lost their jobs and cannot service their hefty loans. Another example is the help given at the CDC is for a limited period of a few months- the idea is to prevent people from being too reliant on CDC help. However, for people who face difficulties going beyond that period, the rules apply and they are turned away. In one case reported in the papers, the needy Singaporean became desperate and turned abusive shouting at the people at the CDC. A good samaritan saw what happened and followed her home dropping $100 into her mailbox to help her to get through the month.

Given the rate that things are deteriorating, the govt has to quickly figure out how to give help to those who need it directly. There is little merit in taking a 'wait and see' reactive approach because it is quite clear where there economy is headed. The govt like it or not will eventually have to give help to a large number of Singaporeans. But if they approach the issue of helping Singaporeans the same way they did with rental flats, fearing abuse instead of being worried about those in need not getting the help and refusing to allocate more resources to solve this problem, it can only result in more pain for Singaporeans. But what is the point of delaying the help when they have to dish it out later anyway? They can't be trying to save a few million at the risk of putting more families in jeopardy....it doesn't make sense even for the PAP.

Our exports have fallen off the cliff and I don't even have to tell you people how bad things are across almost every sector of the economy. The time for saving jobs is now over, it is now time to save people and families. You get an idea of how well the Jobs Credit Scheme has done by reading at the Straits Times - they ought to be about to find positive examples of jobs saved by this scheme to build confidence - I don't see many such stories....all I hear of is the deluge of retrenchments, and thousands of people turning up for a handful job openings at job fairs. If plan A was to save jobs, plan B has to be about saving people. The PAP govt spent $4.5B on the JCS giving money to all companies even the companies that don't need it...to make sure that all those companies that need it also get some help. When we need to do plan B, I hope they also remember this - when you want to help as many people who need help as possible, you really have to take away all the unnecessary obstacles to this help.

Sunday, March 01, 2009

Warren Buffett's latest Newsletter.....

“......the credit crisis, coupled with tumbling home and stock prices, had produced a paralyzing fear that engulfed the country. ....A freefall in business activity ensued, accelerating at a pace that I have never before witnessed. The U.S. - and much of the world - became trapped in a vicious negative-feedback cycle. Fear led to business contraction, and that in turn led to even greater fear.” - Warren Buffett, 27 Feb 2009.

Newsletter is found here: [Link]

Warren Buffett once said 'be fearful when others are greedy and greedy when others are fearful'. But in yesterday's newsletter, he expressed the same fears that have spooked investors in 2008. 2008 was a year in which being greedy when others were fearful produced catastrophic results. Buffett admitted to many mistakes he made in 2008 including buying ConocoPhillips when oil prices were near the peak and selling puts on Nikkei, FTSE, S&P. Buffett broke his own rule selling those derivatives and liabilities on those have grown to US$9B - the maximum loss possible if every market index collapses to 0 in 2019 is US$37B....if everything goes wrong he can lose close to that (I'll explain this a little later). Well, at least he didn't call his mistakes "long term investments" unlike some other people in the same business. Net earnings of Berkshire fell by 96% after taking into account these losses but book value is down only 9.6%. Berkshire's stock which is subject to market sentiment was down 44% for 2008. This is they worse year for Buffett since 1965 when he took over Berkshire. However, even with such a bad year, if you have invested with Buffett since 1965, $1 would have grown to $3600.

Buffett uses a value investing strategy in which he figures out the intrinsic value of a company and buys them at a deep discount to this. If you look at Buffett's investment record, there was only one time
he exited big time from the market - that was during the go-go years of the 1960s when stocks became grossly overvalued. He re-entered the market sometime in the mid-70s when stocks fell to the bargain basement levels he was waiting for. Since then, he has remained mostly invested....he was out for a short period(?) prior to the 1987 collapse but was back in because the 1987 fall brought stocks prices back in line within one day. Given Buffett's success, value investing has gained a large following - it is just common sense buy something when it is cheap relative to its real (intrinsic) value and sell it when it becomes expensive. Sometime in 2008 while this crisis was unfolding, I got interested in how and when value investing will fail. Not that it will fail - we don't know yet....Buffett can well chalk up large gains 3 years from now. Before Buffett, there was this guy called Graham who is known as the father of value investing. He wrote 2 seminal books on value investing - Securities Analysis and The Intelligent Investor. Graham did very well in the early 1920s but lost his money during the Great Depression. Many value oriented investors entered the market after the market dropped 60% during the Great Depression thinking stocks were cheap. The market had a brief rebound and fell 75% from where they entered. According to a number of economists, the odds of a depression has grown to 20%[Link]. Think about it - why would anyone buy puts from Warren Buffett....taking a bet against the world's greatest investor. The only reason has to be they have information that gives them conviction that a long lasting economic slump is in the works. These puts can only make money if the market ends up lower in 2019 then they were in the middle to end of last year. When Buffett puts in such a bad performance, one has to wake up and re-examine the underlying assumptions of value investing one of which is that the economy is only sick and can recover....