Friday, July 31, 2009

Research Paper on Singapore's policy responses to ageing, inequality and poverty

Here's a research paper by Mukul G. Asher and Amarendu Nandy from the LKY School of Public Policy, NUS on Singapore's Policy responses:

This link provides a ppt presentation of the paper:
The entire paper (20 pages) can be found here if you have access:

I got the link to this paper from Mathia Lee's site [Link]. She has a copy of the 20 page paper and you can request a copy from her (email :

If you have time, read the ppt presentation yourself and form your own opinion. The conclusion you MUST read....given this fellers come from LKY School of Public Policy, it is surprising what the paper says about our govt's policies. Many of my postings attempt to shed light on what the govt is trying to accomplish with its policy's a paper by academics that discusses the same issues with greater rigor. After reading what they wrote, you'll think our govt and its policies are far worse than what I describe them to be. I've been too kind to the PAP with my postings!

Here is a highlight of the main points on each area, the statements are all taken from the slides:


" CPF system will not be adequate to meet the ageing challenges."
"There are several reasons for this inadequacy. A single‐tier, involving mandatory‐savings, can never provide adequate replacement rate; or address inflation and longevity risks; or provide survivand disability benefits (Asher and Nandy, 2006b)."

"A well designed multi‐tier system is needed, as has recently been recognized in Chile."
"Design and governance issues also act against the adequacy objective; and so does the tendency to use the CPF system as short‐term stabilization instrument."

"Given its multiple focus, the proportion of contributions withdrawn during the pre‐retirement period is very high, averaging 81.8% during 2001‐2005 period (Table 4).
The share of contributions devoted to retirement is therefore low"

On Welfare and Poverty

"Ad‐hoc social welfare schemes of Singapore are also inequitable (Ramesh, 2004)."

"Singapore has no official poverty line".

"Relative poverty is half of the median per capita household income. Approx. 27% households".

"Less than 5% of households in the low income group are beneficiaries of state funded systems; and only 0.07% of the population received public assistance in 2004."

"The amount of assistance is kept deliberately extremely low at around 5‐8% of per capita income."


"It has relied on single tier mandatory savings scheme (CPF) for housing (primarily); for health care (minor importance quantitatively but major ideologically); and retirement".

"It has many schemes, designed to increase social‐political control of the ruling party, with stringent means‐testing".

"The end result of these social policies has been to make individuals and their families bear disproportionate risks of old‐age and low incomes with grossly inadequate social risk pooling which is the hallmark of the OECD countries"

"The CPF system, and the current extensive set of schemes will become even more inadequate, inefficient, and inequitable".

Chee addresses his troops....

Pretty decent speech for someone accused of being a psychopath. Whether you like their politics and cause, you have to accept that joining the SDP does take a lot of courage. All of them are probably put on the watch of the state security agencies and face a high risk of bankruptcy. It is hard for many Singaporeans to see through the negative image the media has painted of Chee but the Internet does help to bring his message to across to more people. In any other developed country, the SDP would have been just another pro-democracy fact some countries are run by such parties. But in Singapore, the authorities/govt treat them like political extremists....yes, standing up for democracy, justice, equality and freedom is dangerous in Singapore although a number of these ideals are in our pledge because the PAP govt will see it as undermining the system they have created....the PAP has diverse interests other than that of ordinary Singaporeans and these interests are put ahead of justice and equality...we see it in the way the minibond fiasco is resolved. That is why the PAP treats the SDP as a threat that needs to be crushed rather than just another political party. The SDP is asking for the democratic rights and freedom of Singaporeans to be restored and that is seen as something very wrong by the PAP.

Thursday, July 30, 2009

Temasek's Confusing Losses.....

In May 2009, Straits Times reported:

" portfolio value dropped $58 billion - from $185 billion to $127 billion - between end March and November last year” (”Temasek made big gains”, ST, May 28).

Er...only in a country like Singapore the newspaper has this type of headlines Temasek made big gains when it lost $58B in 8 months. Those figures were based on what Minister Tharman said in parliament.

Anyway, yesterday Ho Ching said:

In our Temasek Review last year, we reported an annual value-at-risk of almost $40 billion last March. This meant a 16 per cent probability for our portfolio value to drop more than $40 billion by March this year. Indeed, it has turned out to be so, and more.” - Ho Ching's Speech at Institute of Policy Studies.

This statement seems to imply that $40B (or more) was lost from March 08 to March 09. Ho Ching said they knew they were going to lose more $40B with a probability of 16% .Wow that is really can she tell us how much more she will lose in the next 12 months and please give us the exact probability. I have never heard of a fund manager who lost money then turn around to tell his investors that he already knew he would have losses. She is telling us that Temasek had the future all figured out and none of this is unexpected. .....meaning she has not made any mistakes and is completely blameless!

Lets summarise:

Minster Tharman : $58B losses March 08 to Nov 08.
Ho Ching : $40B(or more?) losses March 08 to March 09.

Nov 08 to March 09 : $18B gain?

By disclosing the numbers so ambiguously, it caused the WJS to report that Temasek might have recouped some losses i.e. loss fell from $58B to $40B[Link] from Nov 08 to March 09. Is this possible?

Dow Jones on 28 Nov 08 was 8830, Dow Jones on 28 March 08 was 7609....fell 14%
STI on 28 Nov 08 was 1732, STI on 31 March 2009 was1700...down 2%.

Most market indices around the world were down from Nov 08 to March 09 i.e. stocks generally fell during this period. Commodities also fell sharply during this period. So how can it be possible that Temasek recoup $18B during this period given they are so broadly diversified?

Note that Ho Ching said that Temasek lost "more than $40B". Most people take it to mean $40B-$45B. In this case, I'm not sure...and it is unlikely given what Minister Tharman told us earlier this year.

Why can't they publish quarterly reports like everyone else and save us from all this confusion? Even Leong Sze Hian is confused he thinks the $40B is year-to-date i.e. Temasek lost another $40B from the Jan 09 to March 09 (see Online Citizen "Temasek - Murky figures and unanswered questions"). While that is another plausible interpretation of Ho Ching's statement, I think it is too bleak and too horrible...they couldn't have done that badly (or could they?). If companies as big and diverse as General Electric can provide a quarterly report, why can't Temasek?

Losses is one thing. The lack of transparency is another. The sad truth is Temasek lost money and ordinary Singaporeans don't know how much....

Saturday, July 25, 2009

The TRUTH about Healthcare ....

The US healthcare system is really in bad shape. There is no universal coverage with 47M Americans left uninsured because they can't afford insurance and costs have spiral out of control. In an earlier post, I posted a video that attempts to explain what has gone wrong with their system[Link]. Obama faces a big challenge ahead fixing healthcare[Link] and if he fails to deliver a solution, it will severely undermine his administration as healthcare reform was one of main reasons for the support he received during the elections. What happened to the Americans is a lesson for the rest of the world, if the govt does little and allow the system to evolve driven by market forces, you can end up with a costly system.

In the next few paragraphs, I will point out a number of interesting facts about our healthcare system and you're free to post your opinion and disagree with me....

Okay where do we start....the last major policy initiative was to impose means testing. According to the govt, the rationale behind this is to reduce the subsidy of people who can afford more so that more help can be given to the poor. While this may sound sensible, only the first part has taken place subsidies for the lower middle class and above have been cut, but the subsidy for the poor remains at the same (80% for class "C" and 65% for class "B")[Subsidy Table]. Have a good look at the subsidy table. If you're middleclass and (touch wood) suspect that you have a serious illness, you will choose class "C" to save some money. However your bill is now 75% higher because the subsidy has been reduced from 80% to pay 35% instead of 20% which is 75% more. Many people don't realise this and think the reduction in subsidy is small. I've posted in my blog many times that means testing done at admission without consideration for what the final bill ($1K, $150k?) is puts middleclass families at risk. Without knowing the final bill how do we know if a person has the means to pay for it? That is a critical flaw in means testing and later you will see why this is so. Some people are still happy because they are getting some subsidy..better than other countries?. ...think again!
The chart shows how cost of healthcare is shared between citizens (blue) and govt (red). In UK which makes all treatment free under the NHS, the cost of healthcare to the govt as a % is the highest. Singaporeans needing medical care shoulder the highest (or one of the highest) healthcare cost as a % of total cost among 1st world countries even higher than the Americans whose system is broken. This is because the govt has taken part of the CPF contribution and used it for Medisave since 1984. As the healthcare cost escalates, the rise is cost is passed on to Singaporeans through means testing, Medishield and Medisave. Money paid to Medishield and Medisave is your own money - you can even part-take in private schemes (AIA, Prudential, etc) for Medishield. Private insurers participate only when profits can be made. The chart above was generated before means testing so our govt cost will go down even further and the burden on Singaporeans who get sick will increase. Why is the govt doing this? The main advantage to Singaporeans (who don't get sick) is taxes can be kept low and the govt can allocate the cost savings to other things like defense and upgrading. However, if you look at taxation, it has become more regressive over the years with the govt cutting corporate and high earners' taxes while increasing GST. The benefit of lower taxation goes to those with the highest income earners and corporations. Singaporeans are beginning to question spending on defense[Singapore boosts defense spending][Why are we allocating so much to defense] and other areas while trying to reducing expediture on healthcare - that is an issue that has to be further deliberated but you have to be aware of all the tradeoffs as you will be asked to pay even more healthcare in the future.
You may hear people say, "I went to the hospital and found it affordable", "my mother got warded and the bill was okay" and so on. That is not the way to think about healthcare. In any system in the developed countries the majority of people will get good treatment and be able to pay for it. Even in the US where the system is considered bad, the main problem is 47M of 303M people are uninsured that is about 15% and 85% are covered. Out of the 15%, about 10%-20% will need hospitalisation in the next 5 years. So we are talking about under 5% in the US who will get into serious financial trouble due medical treatment....yet there is a need for reform there. In Taiwan, after studying the best systems in the world and creating their own universal healthcare system, they found that 99.5% of the people covered by the system. What happened to the 0.5%? They found out that the 0.5% were criminals in state prisons where medical treatment is free. For developed countries, where the quality of care is generally good, the main issue is every single person taken care of?...who is left out?..are there people heavily burdened by medical debt....?

(Incredibly, as I finish the last paragraph, my Sunday Times arrives and the headline is "100,000 women lack Medishield". It is Sunday 6:45am right now...lets continue).

There is a little secret about saving cost in a healthcare system without creating many unhappy people. In a hospital, a disproportionate part of the cost is due to a small number of seriously ill patients. The cost distribution resembles a pareto distribution where 80% of the cost is due to 20% of the patients who are seriously ill. Among the 20%, an even smaller number account for most of the cost. So there is a simple trick to cutting govt expediture and it doesn't take a lot of brains to figure it out - make the seriously ill and their family shoulder a large financial burden. A few days ago, there was this heart breaking story of a little girl called Marjorie Soh who struggled with cancer. Her grandmother sold 4 room flat and her father had to borrow from the banks and friends for her treatment(She was worth it all). Her bill was $400,000. The Soh family are not the only people who have to shoulder heavy financial burdens due to the govt zeal to keep its expenditure down - 400 babies are born every year with congenital defects and they are not covered by Medishield. The cost of treatment in ICU, incubators, operation etc easily reach upwards of $100K and $250K is not uncommon among this group that form 1.5% of the newborn. By leaving these babies out and make the parents shoulder the medical bills, the govt keeps its own expenditure and cost of Medishield down[Link]. The other people who were left out when Medishield was implemented were those with pre-existing conditions again to keep costs down.

We, as a society, have to decide how far we want to go to ensure healthcare is truly affordable for everyone. The issue is who we choose to leave out and why.... whether it is right to for the govt to save the cost of taking care of them to implement corporate tax cuts and increase other types of spending. The govt is already making sick Singaporeans (and the families) shoulder the largest % of total cost among developed countries.....with those who get seriously illness and parents of newborns with congenital shouldering extremely high financial burdens.

Friday, July 24, 2009

CPF Life : Annuity without guarantee....

"The annuity provides a kind of retirement-income insurance: you contribute funds to the annuity in exchange for the guaranteed income stream of your choosing later in life."
- Investopedia [Link]
The basic idea of life annuity is it serves as a form of insurance where the uncertainty of an individual's lifespan is transferred from the individual to the insurer, which reduces its own uncertainty by pooling many clients[Link]. What good is an annuity if income stream from it is not guaranteed? If you can't depend on it, you will need something else to insure against the uncertainty!
This week the govt passed amendments to the CPF Act that allows the govt to vary the payout on CPF Life at the Government's discretion. [Link]. The reason given was that they may have to cut down the payout to ensure the solvency of the CPF Life scheme (due to incompetent management?). What is happening is this : in a life annuity risk is transferred from individual to the insurance company. However, with CPF Life, the govt passed the risk right back to the individuals. So ordinary Singaporeans are forced buy an annuity that we can't count on for a guaranteed income stream. Even with a guaranteed income stream, we are already forced to bear the risk of inflation I said in earlier post, the basic scheme may not even provide enough for McDonald's Happy Meals[Link] due to inflation. However, with the guarantee on the income stream removed, the basic scheme may not even be enough for maggIe mee! ...all to protect the govt's own scheme from insolvency....(hmm....protecting itself from its own lack of competence?)
The CPF scheme and its never-ending tweaks that always end up locking up our money longer and longer but never provide any more in the way of financial security for old age and protection against inflation. The whole CPF should be reformed. We should do what other competent govts do instead of locking up the minimum at a low fixed return. Hire the best managers to manage the money properly so that it will be adequate for retirement later on - that is what almost what every other major pension fund in the world does including Malaysia's EPF, Chilean Pension Fund etc etc. Contrary to what the govt tells us, locking money up at a fix rate is completely unsafe and makes us all vulnerable to inflation. The PAP govt endangers us so that the GIC can borrow the money for investments from the CPF. It is very unkind, unjust and ultimately unfair to the ordinary folks who are now asked to work until they are frail and old.

Thursday, July 23, 2009

Hong Kong : Final Minibond Settlement Out!

"The vast majority of them will be able to get back 70 percent or more of their original investments" - Financial Secretary John Tsang. [Link]
A vast majority of Singapore investors got back 30% or less of their investments and many got nothing back. Out of a total of $520M invested in Singapore, the compensation was $107M less than 20% of the total amount[Link]. Singapore investors now have to seek the legal route for redress and that will be a painful journey.
Minister Lim Hng Kiang explains it best why and how we ended up with this outcome:
"The process has not been overly legalistic and is not subject to political pressure. This way we serve the interests of all parties, and also serve the wider public interest of growing Singapore’s reputation as a credible and reliable international financial centre" - Minister Lim Hng Kiang in parliament.
I would like to thank Minister Lim for making it all so clear to everyone what the PAP govt is about. The govt serve the interests of all parties - ordinary Singaporeans being just one of the "parties". I thought they are called People's Action Party ...the word "People" is right in front sometimes makes you think that the common people are a priority above everything else and "Action" seems to tell us they will act primarily for the people. So now we know. That the interest to grow as an international financial centre takes precedence over the need to ensure that justice is served shows the rule of money in our society. They will pursue money be it investments or profits at the cost of expediently pushing aside ideals of justice and equity.

Wednesday, July 22, 2009

Goodyear did not even last 1 year....

With Goodyear going, I wonder if we will be having more bad years. The problem wasn't just money lost in banks and this crisis. Long before this crisis, there was Shin Corp which I wrote about in Oct 2006 - [Posting on Shin Corp] - the purchase was made through a company fronted by a Malaysia based Thai national to get around the Thai laws:

I'm sure the people running Temasek felt strongly that this Mr. KK Lau and Thaksin can be trusted before they invested tax payers' money. When they invested in Merrill, they also had great confidence in John Thain who later became the posterboy of greed and incompetence on Wall Street. Going back even further Ho Ching wrote this piece in support of NKF & Durai when the NKF scandal broke - it says a lot about her judgement and values.

Earlier this year, we were told that Chip Goodyear was hired after a long search. Yet when he resigned, we are told that "the Board and Mr Goodyear concluded and accepted that there were differences regarding certain strategic issues that could not be resolved". Gee, nobody bothered to ask him about what his strategies were and his views on key issues when he was interviewed for the job? Is that how we hire people to manage billions of tax payers' money? ....After a long worldwide search to find someone suitable to run Temasek, they realise now that he is not suitable.

"The hiring of a foreign CEO is a notable change, and we hope it’s a signal that Temasek and Singapore’s leaders understand the need for more transparency in the company’s operations. The world is demanding more openness and accountability from sovereign-wealth funds, and the shareholder-voters of Singapore deserve nothing less.” (Source: WSJ)

Whatever the real story is behind the scenes, it is not meant for ordinary Singaporeans to know. We are only told what they want us to believe. We, the ordinary citizens, only get the facade from Temasek on everything it does and that is the real issue.

Tuesday, July 21, 2009

Breaking News : Ho Ching to remain as Temasek CEO!!!!

"Singapore: Temasek Holdings and Mr Charles (“Chip”) W. Goodyear have mutually agree not to proceed with the CEO appointment that was to have taken effect on 1 October 2009. "
- CNA [Link].

Lim Hng Kiang : Structured Notes Fiasco settled fairly....

Straits Times 21 July 2009 : Fiasco Resolved Fairly
Now I get a better picture of what PAP leaders think fairness is. Sending victims of mis-selling one-by-one back to file complaints with the banks so that the bank get to decide who and what amount to compensate, to them, is a fair process. Although financial institutions have violated guidelines and have been banned from selling these products, most compensated investors received only 10-30% of their money and many have not been compensated. DBS compensated only $7.6M[Link] to investors who lost $103M[Link] from High Notes 5 - this is the govt's idea of fairness and justice ....yes it is only fair that we pay these ministers millions to do so much for ordinary Singaporeans.
We are in a country that just employed 500 officers to catch and fine people for eating sweets on MRT trains because there is a remote possibility that the sweet may fall out of the person's mouth and dirty the train so it is very strange to hear that our financial regulator does not have the capacity to ensure that financial products are fit for sale and make sure that our financial institutions do not mis-sell them and cause ordinary Singaporeans to lose their lifesavings. Sweets are not allowed on the MRT, but crappy financial products that rarely perform as advertised are allowed. We should not ban these FIs from selling these products for 9 months or 12 months, they should be banned forever. These structured products allow banks to make plenty in fees and commissions because the complex structure help to hide these. There is little benefit for investors in these products. We ban sweets on MRT trains and chewing gum but allow our banks to sell structured products......oh this country is so well run and ministers are paid millions to tell us "MAS can't do much"....don't want or can't?

At a time when political leadership is needed to bring about a equitable resolution, they choose to be absent. This crisis taught us that greedy bankers and corporations know the law and regulation well enough not to break them. It takes real leadership to go investigate what has happened, make painful changes and answer to the people who lost their lifesavings through no fault of their own. This single fiasco taught us about what is really important to the PAP leaders and it is not fairness or the well being of ordinary Singaporeans who became victims.....Lim Hng Kiang said it best himself and he said it honestly:

"The process has not been overly legalistic and is not subject to political pressure. This way we serve the interests of all parties, and also serve the wider public interest of growing Singapore’s reputation as a credible and reliable international financial centre" - Minister Lim Hng Kiang...

I was wondering how we "grow our reputation" by giving small investors so little protection.... certainly our reputation in the eyes of investors will be harmed......I thought about for a while I think Minister Lim is saying we grow our reputation among the big global banks that they can come here to do business and for what ever reason they overlook the regulation of our little state and the citizens are hurt because of it, the punishment will not undermine their bottomline too much. I'm sure many banks will be lining up for licenses to provide services sell more structured products and issue more credit cards to ordinary Singaporeans. The govt now serves the interests of "all parties", ordinary Singaporeans being a small part of this "all parties" thingy - look at it this way : Singapore is now Singapore Inc a corporation with many stake holders and like I've said in my previous posts, the interests of the PAP govt is now diversified among the many stake holders, ordinary Singaporeans being one of the many stake holders and are not the only primary interest of the PAP govt ....and the resolution of this minibond fiasco says it all.

Sunday, July 19, 2009

What's with Goldman Sachs?...Part 2.

Part 1 is here.

In early July 2009, I posted interesting observations surrounding this company. Glenn Beck of Fox News recently took a close look at Goldman and found an intriguing web around this company. While you may disagree with his conclusions that there is some kind of conspiracy, the dangers of one company's influence on a govt is very real and not something one can be complacent about. One thing Glenn Beck pointed out is looking at how and where people in govt is recruited from and the subsequent decisions they take can throw up red-flags that requires a closer look and examination.

Saturday, July 18, 2009

No eating on the MRT,,,

A woman was fined $30 for having a piece of sweet in her mouth by an MRT officer. She broke the rule that disallows eating and drinking on the MRT.

But let me ask you why is eating and drinking not permitted on the MRT train? It is disallowed in Hong Kong, Singapore and Taipei but permitted in Japan. The reason for not allowing people to eat and drink on trains is they might drop or spill what ever they are consuming and dirty the train - it is not eating or drinking itself that is the problem but intentional or unintentional littering. The woman in the video has technically violated the no eating rule but the chance of a piece of sweet falling from out of a person's mouth onto the the train is zero. The officer enforced the law rigidly without any regard to the spirit of the law. I wonder if breast feeding is allowed on the MRT or they will go ahead fine the 3 month old baby.

This reminds me of the story about a family that was detained at the Changi Airport for saying word "bomb" twice. They were on their way to Australia for a holiday. The child asked the mom why people were made to take off their shoes at the security checkpoint. The mom explained that they had to check for bombs. The security officers who were trained to detain people using the word "bomb" twice heard that and the family had to miss their holiday in Darwin. [Story in detail here].

What is more important than rules are the reasons behind the rules. We will have better citizens and smarter workers if they are brought up to question the logic behind the rules they are asked to follow.

Friday, July 17, 2009

How to tell if an economic recovery has arrived...

So our export figures has surged. But economists warn that it is largely due to the volatile biomedical sector. Take that sector away, and we see a small decline in export. So is our economy recovering? In the US there was optimism in May and June that the economy was on the rebound...but when the unemployment rate hit 9.4% exceeding the Obama Administration's expectation of a peak of 8%, many became pessimistic about a 2009 recovery. You get mixed signals if you look at other indicators consumer confidence, ISM, housing starts, etc etc. So is the recovery here? Is there something that has been reliable in past recessions that can be used?

In the US, the best leading indicator of an economic recovery has been the initial jobless claims. Instead of looking at 101 indicators and trying to track every piece of news, you can just track this single number.

The latest US initial jobless claims have fallen by over 150,000 since peaking at 674,000 for the week ending March 27, 2009. While new jobless claims of over 500,000 hardly reflects a robust economy, a peaking of jobless claims has generally preceded the official end of a recession by 2-6 months. (click on the chart to see how this works). While the US economy is weak, it is probably recovering.

In Singapore, the quarterly PPI (Property Price Index) is an excellent indicator. In all the past few recessions, the private property market had only one turning point for going into recession and one turning point for recovery.

Recent US jobless claims and Singapore Private Residential PPI both seem to indicate the economy is on the (rocky?) road to recovery. However, we are recovering slowly from a very sharp and long global recession and it will be some time before we get back to the economy of 2007. There is also enhanced risk of inflation due to the quatitative easing (printing money) by major economies[Link]. Inflation can be even more painful than recession for many people.

That is all I have for forecasting the economy. The rest of this posting talks about what is really wrong with the global economy and the real root cause of the problems we are seeing today. The root cause is not the subprime crisis or banking crisis - those precipitated a downturn in a global economy that was not sustainable anyway in the long run.

For the economy to grow long term in a sustainable fashion, something known as the productivity-wage gap has to be closed. Since Reaganomics of 80s which resulted in the decline of workers unions and globalisation, this gap has gone up. Workers became more productive making more products but their wages did not catch up. Wages are the main source of demand for these products. In order to make up for the gap, consumers in Western countries borrowed money - first using credit cards, later remortgaging their homes to consume. Debt ballooned..... Globalisation which allowed companies to move their production to where wages were the lowest resulted in a race to the bottom (remember Singapore workers were told to keep wage increases below productivity). Corporate profits rose to the highest levels as a % of GDP as income inequality rose to record levels along with household debt levels. The relationship between wages and productivity which was stable for previous 200 years, according to Ravi Batra, started to deviate and widen in the 80s . Rising debt in Western societies compensated for stagnant wages and we were on a path of unsustainable growth. The problem is with many countries like China have poor labor laws and hundreds of millions of peasants willing to work in sweatshop conditions for low wages...this gap cannot be closed until the Chinese, Vietnamese etc allow their workers better wages & benefits.

We have been told independent unions are a bad thing. They cause trouble by pushing up wages in certain industries and make our country uncompetitive. We are also told that higher wages will cause inflation (lower wages better?). Unions have caused trouble in the past by going beyond reasonable demands weakening the competitiveness of certain industries (e.g. US auto-makers?). However, the other side of the story, less frequently told is the problems caused by the disappearance of labor unions around the world. We need to get rid of ours to compete with China which under communist leaders don't even respect basic human rights let alone worker's rights. In Paul Krugman's book "Conscience of a Liberal", he looked at the how the disappearance of labor union resulted in the decimation of the middleclass in America[Link].

Thursday, July 16, 2009

Something unusual about this recession Part 2.

Part 1 is here.

A few days ago, I tried to explain why there was a lack of fear in this recession. I was not the only person who noticed it. BNP Paribus wrote that this lack of fear can be due the relative size of our assets compared with our liabilities [Link]. They are basically saying that Singaporeans have more buffer now - if something happens, they can sell their assets to cover their liabilities. There is a bit of a circular argument here because the lack of fear actually prevents asset values from falling so it is not clear which causes which. The other point to note is although assets grew from the period 2000-2008, the distribution was the most unequal compared with the rest our our history. So the asset growth may be concentrated in the top 5% who saw their wealth accelerate at the fast rate during that period.

The bottom 20-30% of our population are in financial distress regardless of the recession. The author could have been more convincing if he showed what was happening to families at the median income level.

One of the comments to my original article says people are not fearful because they are complacent. I think it is possible that people are not fearful because nothing has happened directly to them....... yet. We may see some slow recovery in the coming months as many analysts predict but the risks remain high. The large amounts of money pumped into the economy by various govts in the form of stimulus packages around the world has only resulted in stabilisation and the possibility of slow growth. They cannot keep having one stimulus package after another.... Several central banks have used 'quatitative easing' an euphemistic term for printing money. Never before has the world seen such a massive expansion of money supply....and such expansions in the past have always led to inflation. Bernanke is suppose to explain his exit strategy next week[Link]. If he gets it wrong, the inflation that is going to hit us will be more painful than the recession.

Monday, July 13, 2009

The Truth about Jobs, Jobs, Jobs....

In this posting, I'll tell you why the PAP will never ever establish a minimum wage.

In this recession, the US unemployment rate soared to 9.4%....and Singapore's resident unemployment rate is 4.9%. These unemployment numbers are however not an apples to apples comparison. Before I drill into the numbers lets start with a story.

In the 1980s recession, one of my seniors who was about to ORD took leave to attend an job interview. He was a poly graduate. A few days later he received the job offer but instead of looking happy, he had this frown on his face. "I can't believe it but the pay is $400 a month!", he said. Before the recession, people with his qualifications were paid $750 a month. He took the job anyway because he couldn't get another one. At that time, it was possible for a single person to live on $400 a month. The moral of the story is there is almost always a job available when you are willing to accept any pay. If you're willing to work for free, send me a mail and I'll get you a job and you don't have to be unemployed. It is completely meaningless to talk about employment level alone without talking about wages. When you compare the umemployment rate of a country with minimum wages with one without a minimum wage, you're not comparing apples to apples.

The minimum wage in the US depends on where you live but the average is US$7 per hour. If a person works full time, say 8-6pm every weekday, the month salary is US$1400 or S$2000.

The bottom 10 lowest paying jobs in Singapore are:

Lowest paid jobs*

1. Office cleaner $600
2. Manufacturing labourer and related worker $760
3. Kitchen assistant $991
4. Plastic product machine operator $994
5. Hospital attendant $1,000
6. Travel agency and related clerk $1,016
7. Waiter $1,080
8. Pre-primary education teachers $1,100
9. Lorry attendant $1,102
10. Pest exterminator $1,106
* Based on median starting salary from The New Paper.

See Obama has a more difficult task creating jobs in his economy because of the minimum wage - he has to create jobs that pay better than the minimum wage. All our leaders need to do to get the unemployment rate down is to tell the people not to be 'fussy' about salary. In other words, you can say Singaporeans always have employment as it is just a matter of accepting whatever pay that is offered.

However, what good is a job if you do make enough to feed your family? If our economic system is equitable, a person working full time should be able to raise a family, afford a home have and all the basic necessities. When you have people working full time and not able to make ends meet, you have poverty. To make sure people are paid decent salaries, many developed countries set a minimum wage.

The frequently cited problem with a minimum wage is that it will result in higher unemployment. The above graph illustrates the problem. The way to keep unemployment from becoming higher is to make sure your equilibrium point is close to the minimum wage. Govts can do this by having a robust economy with well paying jobs and making sure the cost of living is contained. With massive imported labor, the Singapore govt has caused the supply curve of labor to shift to the right. This moved our equilibrium point further down from where our minimum wage is. Also, the cost of living increase over the years means our minimum wage has been going up....moving further form the equilibrium point.

The reason why the PAP govt does not set a minimum wage is simple. Unemployment will escalate if they do that. What this means is a large number of Singaporeans are employed at wages way below what they need to live decently. We see this from the stats - 20% of the population make something like $1300 or less.

Being able to establish and enforce a minimum wage says a lot about a govt. If they have created a system in which people who work full time jobs can make a decent salary, setting a minimum will not be problematic. If a govt creates an economy that is dependent on cheap labor and cannot keep the cost of living down because of its other interests, it will never be able to set a minimum wage without creating problems for itself.

Hong Kong aims to introduce a minimum wage by early 2011 [Link]. South Korea already has mimum wage [Link] does Japan[Link] does Taiwan[Link]...and all developed western countries.

But Singapore? The govt has created a system in which we can never establish a minimum wage....because of the sheer number of people working at income levels that are so low relative to cost of living....a natural consequence of our large income gap.

Next time someone tells you things are better in Singapore because unemployment rate (among residents) is low remember that is only half the story.

Why am I 'forced' to apply for every credit card under the Sun?!!! Part 2

Part 1 is here.

I received a few comments that I should view those hefty 'discounts' on credit cards as 'discounts' and people without credit cards are paying a 'normal' price at restaurants and shops. This is hogwash. Businesses have costs to cover and when they give discounts to a group of people, the rest are penalised. Credit card companies such as Visa use monopolistic practices that forces businesses not to charge higher prices when the credit card is used although the card company charges the 3% for each transaction otherwise they will remove the credit card facilities. This forces businesses to raise their prices for customers using cash for purchases. The same practice is used by NETS. Businesses are unable to give discount to those using cash although the cost of transacting in cash is lower. But these tie-ups and business tactics a just the tip of the iceberg. Credit cards uses fees and penalties to exceed returns they get in excess of the 24% rate. Companies can go beyond this 24% to charge something like 28%[Link]....highly predatory.

We don't even have laws to protect consumers from security loopholes and breaches on these cards. For example, the use of credit cards don't require a pin which makes it less secure than, say, the NETS payment system. However, when these security loopholes are exploited, it is the customer that has to pay up under our laws. Take the example of this woman:

The case goes something like this : a woman's wallet was stolen from her hand bag but she didn't realise it. The thieves used the card to charge $17K for purchases and close circuit TV at various shops captured the thieves using the card. Woman discovered the cards missing and made reports to the credit card companies and police....but it was too late. Under our laws the woman is now liable for the $17K. Still want to apply for every credit card under the sun to get those discounts? Use your card online? This is just one example of regulation needed to fix security flaws to protect consumers having a pin number would prevent all these cases of theft. Credit card companies that make hundreds of millions every year in Singapore cannot afford to fix this? There are many things to fix with credit cards and our Consumer Association and authorities are just not proactive.

Many countries have stepped up efforts to reform this industry[Link][Link][Link]. USA being the latest. If you want to get a good understand of the credit card industry and how it can harm consumers and society in a big way here's a Frontline documentary [Link].

Sunday, July 12, 2009

Something unusual in this recession .....

If the US economy did not recover in the last quarter, this will be the longest recession since the Great Depression more than 70 years ago. The current recession started in Dec 2007. The recession for Singapore will be just as long. So this will be the longest recession in my lifetime and yours (unless there are 80 yr olds reading this blog).

Here are the worst past recessions from the US National Bureau of Economic Research:
  • 1929-33: 43 months
  • 1910-12: 24 months
  • 1913-14: 23 months
  • 1920-21: 18 months
  • 1973-75: 16 months
  • 1980-81: 16 months

I'm old enough to remember the 1980s recession and every recession since. Some of you may remember the 70s oil-shock recession....I was around but too young to remember. On paper this is a deep harsh recession, the worse since the Great Depression. You can compare all the post-war American recessions here. The US unemployment hit 9.4% and is almost certain to get to double digits. For Singapore, the numbers from first quarter has been shocking - the decline in Q1 2009 was the worst quarter ever since Singapore became independent. Manufacturing shranked by can read a good summary here. So going by the numbers this is clearly the worse recession since 1933.

Observing people and behavior, I notice, given the severity of this recession, there is something unsual going on. I notice there is a lack of fear among many people compared with other recessions. Among my friends a few were fearful for a few weeks when there was direct and clear risk that they will be retrenched but after that their fear disappeared. I observe that level of fear was far higher in the 80s, 1998 and 2003 recession. Someone observed and posted in the comments section of my blog that people are still spending, shopping centers seems to be as crowded as before and restaurants appear to be doing well etc like nothing bad is happening. Taxi drivers I spoke to tell me that business is off the high but not the 2003 recession quite horrible for the taxi business....people just cut back until taxi drivers were better off giving up driving because they can't overcome the rental. I remember walking around in empty shopping centers, eating in empty restaurants in past recessions. What is going on? I thought about it for sometime and I think I have the answer.

In the 1980s, the way people were employed to do work was completely different. When you join a company, there was a good chance you would stay for a decade or longer. The Japanese companies more or less were still practising lifetime employment and the attitude was to keep workers "come what may". So when companies go bust in the 80s recession, you're laying off people who had been in the company for decades and that was really painful. In the 80s recession, when the company was not doing well workers were really worried because they had been employed for years in the company and looking for another job was something they did not expect to do. Over the next 2 decades, jobs security vanished as companies adopted hire-and-fire policies. IT professionals now are used to 2 or even 1 year contracts. When contract ends, the companies have the option not to renew it to cut costs and retrench people. Many of my friends have had 4-5 jobs over the last 10 years. Looking for another job has become routine for many people so is the experience of losing a job. The only difference between the good times and bad for many younger people is the time it takes to find a job and the income. As there was already 2 recessions before this one in the last 10 years, more people became used to the lack of job security. There is still fear now among people in their 40s in 'unstable' jobs but this fear is existed in the good times anyway so people learn to live with it, hedge against it with backup plans and so on. For the bottom 20%, living in relative poverty, life has been miserable throughout the good years the threshold for pain has probably increased and diminishing expectations of a better life makes this recession just another bad thing that happened to them in a long struggle to stay afloat in Singapore.

Bad things happen often enough people get used to it. It is still just as painful when bad things happen but people are not paralysed by the fear of it happening. This is the 1st time ever that we see prices for HDB flat going straight up to new highs during a recession and COE rising as unemployment goes up. While I've explained that immigration might have something to do with the rising demand but to push prices to record levels during a recession requires a lack of fear. We see the same lack of fear in the private property market - since February 2009, buyers have snapped up as many units each month as in 2007 [Link].

The willingness of Singaporeans to continue to spending will do little to take us out of recession. We are still dependent on western economies for demand and growth. The unemployment rate stands at 4.9% and is still rising, the pain of being unemployed for an extended period is still the same regardless of whether there is fear of it happening or not....

Saturday, July 11, 2009

Why am I 'forced' to apply for every credit card under the Sun?!!!

The other day I was at a restaurant and when I asked for the bill, the waiter asked me if I had a UOB credit card because there was a 20% discount for holders of the card. I didn't and paid 20% above what a person with a UOB credit card would have to pay. 2 weeks ago, I went to Prima Deli to buy a birthday cake and was asked by the cashier if I had a HSBC credit card because Prima Deli has a 10% discount for holders of HSBC cards. I didn't have a HSBC card so I paid 10% more for my cake. Seng Siong now ties up with Diner's Club to give a 5% discount to its members. Carrefour gives a 5% discount to holders of POSB's Everyday Credit Card. There countless other restaurants, hotels, shops big and small with tie-ups that penalises people who don't have a certain credit card. It is okay if there are real choices on where you can shop but sometimes that Prima Deli is the only cake shop within 2 km of your're inconvenienced and penalised unless you apply for all these credit cards. It is so damn ridiculous!

While it does not make sense to stop these tie-ups directly, the reasonfor issuers to tie-up with businesses is the profitability of credit card business without the right regulation and the high profitability motivates issuers expand market share aggressively.

Why did our useless Consumer Association and authorities allow this to happen. Many of you will say it is the same in other countries. Come on we allow these practices simply because other countries allow them?? Our regulators don't have brains to figure out whether it is good for our society and citizens before allowing banks to issue credit cards with the current set of regulation. After all the problems caused by the of credit cards in a number of countries, our govt still don't have the common sense to do things differently - why did we pay them so much to copy bad ideas from other countries.

What has happened is the aggressive promotion of credit cards has caused the rollover credit card debt in Singapore to balloon to $3.6B. This debt that earns 24% interest is highly profitable for the banks but hurts our society. Banks make $864M every year from this - enough to provide every kidney patient with free dialysis + nursing home for the homeless old folks + medical care for every uninsured person in Singapore + free education for every poor student. This is parasitic banking. You may laugh at Malaysia for being backwards in many areas but when the govt detected this problem a few years back, it quickly implemented a cap limiting the credit card interest rate at 13%.
Many countries have realised that the banks need to be rein in before they harm the society further. Less than a month ago, US President Barack Obama signed sweeping credit card reforms into law to shield American credit card holders from predatory fees, among others[Link]. With mounting credit card debts and a tough climate, could now be a good time for Singapore to consider similar reforms. However, as always, it is difficult for our authorities to do the right thing because interests of the PAP govt is now diversified beyond what is good for ordinary Singapore. We need the equivalent of Harvard Professor Elizabeth Warren. She has risen to prominence for her research on the practices of banks and how their lending activities can harm a society if not properly regulated. I read her work a few years ago before the current crisis took place and she has been right on so many things - she is now on several oversight committees looking at new regulation for the banking industry. Here she is talking about reforms needed for the credit card industry - there are many lessons here for our regulators. The same regulators who failed to protect investors from mis-marketing of structured products and has now allowed these credit cards companies to proliferate their bad practices.

I have one credit card and use it mainly for overseas assignments because many hotels don't accept cash payment. Now the banks are allowed through tie-ups to penalise me for not applying for their credit cards and be one of their customers. This to me is so ridiculous.

Friday, July 10, 2009

The Simplest Investment Advice.

If you open up the newspapers, sometimes you see adverts for courses that claim they can teach you to be rich. Many are of dubious value.. Some are harmful because they get you involved in things like options which are highly risky, complex and unpredictable. Some times relatives and friends come to ask me for advice on how to invest. Not wanting to confuse them with complicated concepts like value investing, growth investing, stock picking techniques, balance sheets etc, I give this is simple and has worked for ages:

Invest During Recessions.
Of course there are various details to consider like what to invest in, which part of the recession to start investing and a few caveats. Because the idea is so simple, some people think they can do better if they put in more time, effort and do things in a more sophisticated fashion. I know people who put in a lot of time in their 'investing' like monitoring the stock market all day and end up not doing very well.
But how far can you go with this simple idea? You all know this feller called Li-Ka Shing....aka Superman aka richest man in Hong Kong. Li started out as a manufacturer of plastic flowers ..he was extremely smart, worked really hardworking and extremely competitive but what made him the richest man in Hong Kong is actually no big secret. His modus operandi is always the same during the business cycle. He runs his businesses well but conservatively generating and keeping cash when the economy is booming. When recessions hit and others are hurt by cashflow problems, debt and are forced to shed assets, he becomes a buyer. When the economy recovers he start building up his cash again and when some the assets become overvalued, he sells them off. Of course, he is very shrewd and hires the best people to run his businesses to make the best of the good times and picking the right business to invest is not something that everyone can emulate. However, the basic strategy of investing during recessions requires only discipline to execute.
What to invest in during recessions? Things that will go up when the recession is over. Examples are stocks of blue chip companies, unit trusts etc. Diversification to avoid the bad luck of investing in something that doesn't perform. For newly weds, it is usually better to buy your home during a recession, however, HDB prices did not fall in the current recession so it is unclear what to do this time round - wait or buy?...
Being able to invest during a recession requires some amount preparation. You have to be able to save enough money during the good times - you need enough to buffer against temporary job loss, emergencies, etc. If you expand your financial obligations during the good times taking up a lot of debt, you will be struggling to service the debt during the recession rather than exploiting investment opportunities.
The next question people will ask is which part of the recession should one start investing. It is hard to get the timing perfect but timing is actually not that important as long as you buy after prices have fallen significantly. Some stock investors look for something known as "capitulation"....the point in time when most people think that stocks are a bad investment and just want to get out "surrendering" their stocks at distressed prices. Capitulation is usually associated with widespread fear that things can only get worse so it takes some amount of courage to buy at that point in time. We saw capitulation in Nov 08 & March 09. Capitulation can take prices to a low point but by no means the lowest point during the recession if you had bought at the Nov 08 lows, you would be looking at paper losses in March 09. Stocks might or might not make new lows but that is not that important because when the recovery comes prices usually goes up way above what they were during a recession.
Now a few caveats on this strategy. Although this strategy would have worked in every recession Singapore has gone through, we have to be careful when we use the past to predict the future. There is no "sure-thing" when it comes to investing unless you break the law (insider trading, manipulation). But common sense tells you that you'll be better off buying during recession when prices are lower than during the boomtime when prices are much higher. The only catch is nobody can say for sure when or whether we will be able to recover from this recession - although the global economy has recovered from every recession in the past 100 years. Even if we recover it may take longer than in the past given the severity of the current crisis - nobody can say for sure. The way to hedge this is to split your investments up to invest over a period or to wait for some sign of recovery then hop in. The problem with waiting for clear signs is price of stocks and property can move up significantly before any sign appears. You just cannot eliminate risk when investing ...even if you make the most sensible decisions and apply a strategy that has always worked, you have to accept the possibility of losses.

Thursday, July 09, 2009

Singapore 10th most expensive city in the world!!!!

London is ranked 16th. Paris is ranked 13th. [Link]. We have 20% of our population earning less than $1400 per month. I challenge you to find me one person working full time in London or Paris earning less than $1400 a month - I believe you will have a hard time, yet there are a few hundred thousand Singaporeans living on such low income. Imagine what life is like in the 10th most expensive city in the world when you work full time for less than $1400 a month.

We have the income distribution of a 3rd world country and cost of living that is number 10 among the most expensive cities in the world. So what is quality of life for the bottom one third of the population? You know that article by Vijay Kumar on the "The hidden ugly side of Singapore" [Link] has been circulated in forums and blogs. Many express doubt about the story being true but the important thing is the story CAN be true. When you have people making less than $1400 a month, people who are uninsured (due to existing or congenital illness) because healthcare is not universal and expensive, no minimum wages, no social safety net and the most expensive public housing in the world, you can imagine a large segment of the population living in misery and struggling in the system.
The problem with Singapore is the leadership that got us to this sorry state. We are led by a prime minister whose first moves when he was elected was to increase regressive tax (GST) and cut corporate taxes and those of high income earners. He then increased the pay of his cabinet which was already the highest in the world. He did not understand that the distribution of wealth in a nation is as important as the creation of wealth. His govt focussed on GDP growth and not on quality of life of Singaporeans....hence the opening of floodgates of foreign labor to keep wages down and GDP growing. How to keep this system going? Repress the opposition, limit the rights of the people to gather and speak up, control the media to paint a fairy tale of success and use estate upgrading as an election threat. It is hard these days to believe in the fairy tale, the Internet is slowing breaking the state media's monopoly, and many Singaporeans are beginning to understand that tax payers' money should not be used to threaten the voters during elections.

MInibonds : FIs punished by MAS but.....

MAS has banned 10 institutions from selling structured notes for periods of 6 months to 2 years[Link]. MAS investigation has found that the financial institutions failed to follow guidelines on the sale of structured products, including training financial advisers in the marketing of the notes. The ban may look harsh but the structured products market has already shrunk considerably or disappeared after the minibond saga so the impact to the bottomline is negligible.

MAS findings give investors who are unhappy with the compensation some evidence to initiate a class action lawsuit. FIs compensated between 5 to 30% of the money invested. Brokerage firms offered the least compensation. Class action lawsuits are long tough affairs in Singapore with uncertain outcomes. Take the example of Raffles Town Club members who sued for compensation after they found the club had missold "exclusive" memberships of $28K each to 19,000 people. The class action group which called itself Raffles5000 won their lawsuit was only awarded $3K per member. The club decided to compensate all 19,000 members and obtained the court's approval to make payment through cash and F&B vouchers valued at some $3,000 for each member[Link].

Unless the authorities decide to do something, the only option left is the class action lawsuit. If Hong Kong resolves this with a more favorable outcome for their investors, they will show that their system offers greater protection for investors.

Wednesday, July 08, 2009

Economy : Long hard slog.....

In April this year several forecasts were made by economists. The more optimistic ones forecasted a V-shaped recovery to occur in the 3 quarter of this year. The more pessimistic ones forecasted a U shaped recovery and the doomsayers predicted that we won't see any meaningful recovery until we are well into 2010.

Recently, US vice president said they underestimated the recession - unemployment which was expected to peak at about 8% hit 9.5% last month in the US[Link]. The US economic stimulus which was supposed to have created hundreds of thousands of jobs is coming under criticism. A large part of it was tax cuts demanded by Republicans and American families facing uncertain economic conditions basically saved a large part these tax cuts rather than spend it. The other part which was supposed to be infrastructure spending is stuck in bureaucracy only 10% has been given out for various projects. In the meantime, the US economy appears to be hemorrhaging jobs at a time when housing prices are declining and foreclosures go on unabated. In short, the US economy does not look good. The 'green shoots' touted by the Federal Reserve and President Obama are nowhere in sight. In past recessions, job losses were lagging indicators of the economy (economy recover first ahead of jobs) however this may not be true because between 2003-2007 many of the jobs created were service sector jobs (vs manufacturing), these jobs losses tend lead the economy.

So what is the economic future for Singapore?.....

Earlier this year and late last year there was an assumed demand collapse and a number of my friends were waiting for their pink slips because their companies lowered their production. However, companies ran down their inventories - demand did not drop to zero and production got ramped up in the 2nd quarter. That is our 2nd quarter manufacturing output shows double digit growth[Link]. But this growth is probably temporary because of the low base in the 1st quarter. There is no increase in demand. If we are lucky, we have a slow but steady recovery.

On Tuesday Finance Minister Tharman said this will be a 'hard slog to recovery' and he expects unemployment to remain high for an extended period. There is this very interesting paragraph from the article :

"He urged regional governments to work on microeconomic and social reforms to increase long-term consumption growth, such as developing social security and health insurance policies that would free Asian consumers to spend more and save less."

So what about universal healthcare for Singaporeans? What about taking care of uninsured Singaporeans? What about a social safety net? What about social security that works and provide more than one happy meal a day to retirees?

I completely agree with Minister Tharman that this is a long hard slog. It may take even take years for us to get back to the economy of 2006-2007. In the meantime, some transformation has to take place. Asians who have been underconsuming have to consume more ....but how to you make people consume more? You put in place certain social social and health insurance policies so that people can be sure that getting sick won't bankrupt them and there is a scheme in place to take care of them when they are old so they don't have to set aside so much of their income for healthcare and retirement. I would throw in a safety net so that people will be motivated to be entrepreneurs if they know the downside of failure is limited. Would you try the triple sumersault on the trapeze without a safety net? What about keeping the price of public housing affordable so that families can have more disposable income for consumption.

It is hard to imagine that we are going to sit around and wait for global economy to recover to reactivate our export-dependent economy. Do we want to go along the same economic direction we did for the past 40 years or are we going to see some reform. The past 20 years were a long slog anyway even when the economy was not in recession.......many were struggling and did not enjoy the quality of life of a 1st world country and many Singapore families became worse off in the past decade. This recession is a time to rethink and reinvent ourselves.....we shouldn't rush back to do more of the same.

Does proposed property tax law make sense???

There is a proposed change to income tax laws to tax property sellers when they profit from the sale. The law is targeted at speculators as it allows a person to sell one property without tax in any four year period. So if you sell another property within 4 years of your last sale you can be taxed.

If you read the article carefully, the law is supposed to provide certainty in our tax laws. Under the current law, the tax man can come after you if he decides that you're a property trader. However, the law is ambiguous on what constitutes 'trading'. I've never heard of any individual being taxed for property trading. However, with the amendments - the certainty is the taxman now can come after you if you sell 2 properties within 4 years.

This proposed law caused property stocks to tumble today on the stock exchange.

The proposed law looks like it is aimed a property speculators. However, not everyone who sells 2 properties within 4 years is a speculator. For example, if you sold your property and upgraded to a private property that gets en bloc, you are forced to sell your property. Or you might want to upgrade your home within 4 years because you found a better place. People change the place they work often these days and they might shift to a better location within 4 years.

One way to fix this law is to make it non-applicable to own occupied properties. If I buy a place to stay, and then shift twice in 4 years but each time I own only one property which I occupy, it is unlikely for me to be a trader.

Making the law clearer doesn't make the law better.


When to tax property gains 10 min
By Goh Eng Yeow, Senior Correspondent
A PROPOSED change to income tax laws will make clearer to property sellers when they will be taxed on their profits.
Anyone who sells only one property in any four-year period will not be taxed on his profit, according to a proposed amendment to the Income Tax Act.

But if he sells another property within four years of the first sale, the profit from the second sale may be taxable.
If the proposal becomes law, it will provide certainty for owners who now cannot be sure if the taxman will come calling after they sell.
Under existing rules, an individual does not pay tax on gains made from selling a property unless the taxman decides that he is trader - someone who buys and sells multiple properties within a short time span. And there is no way for the seller to know in advance if he might be deemed a trader.
The new way of taxing property profits is one of many changes listed in a draft Income Tax (Amendment) Bill 2009 put up for public feedback last month by the Finance Ministry. If implemented, the change will take effect from January.
A ministry spokesman told The Straits Times on Tuesday that the proposed change aims to provide certainty of non-taxation to individuals who own property.
Once it takes effect, the individual who sells a property for a profit can be sure that his gains will not be taxed - provided he had not sold any other property in the previous four years.
If he sold other properties within that period, the spokesman said, the Inland Revenue Authority of Singapore (Iras) will decide whether he should be taxed, 'based on the facts and circumstances, no different from the present tax treatment'.
The draft Bill can be read at the Finance Ministry website and the public has up to next Tuesday to give feedback. The Bill is expected to go before Parliament later in the year.
Read the full story in Wednesday's edition of The Straits Times

Tuesday, July 07, 2009

What's going on in Goldman Sachs?

Here is an interest piece of news about a certain Sergey Aleynikov, a Russian working in the US caught for stealing secret computer codes from Goldman Sachs, his employer. [Link].

"At a court appearance July 4 in Manhattan, Assistant U.S. Attorney Joseph Facciponti told a federal judge that Aleynikov’s alleged theft poses a risk to U.S. markets. Aleynikov transferred the code, which is worth millions of dollars, to a computer server in Germany" - Bloomberg [Link]

I wonder what is in the proprietary trading system owned by Goldman Sachs that can cause a danger to the US markets.

Anyone observing the market, will begin to notice how inter-linked they have become. For example, a fall in US$ causes the price of oil to rise and generally cause the emerging market equities and commodities to rise. Not only that intraday fluctuations in today's market is very high much higher than in the past. The US$/Yen rate can actually move by 1% or more in a single day....and nowadays this occurs once every few days. The price of oil collapsed from $140 to $20+ then surge up to $74. It is hard to believe that such movements are due to demand and supply. If you have a good memory, it was a Goldman Sachs analyst who forecast oil reaching $200 when it crossed $100 [Link]. One barrel of oil is actually traded 24 times on the market before it is sold to the final buyer.

Next piece of news here [Link] is about US regulators considering regulation of the oil and gas market to prevent rampant speculation.

Why am I writing all this? In 1998, Dr. Mahathir made a statement about currency speculation being 'evil'. When he said that in 1998, he was ridiculed as the backward leader of a nation who did not understand the markets and was trying to pin his own incompetence running the economy on speculators. As I was watching the Asian crisis unfold, I thought there might be some truth in what Dr. M said although the (western) media was dismissive of his accusations.

I bring your attention to another article in Rolling Stone magazine called The Great Bubble Machine by Matt Taibbi [Link]. His claim which is quite incredible is that Goldman Sachs engineered every major bubble in the markets in the past few decades. You might ask yourself how is this possible? Isn't it too far fetched? Just to get an idea of how influential Goldman Sachs is watch this video:

If you recall in late 2008, when Lehman Bros collapsed, the next day AIG need $85B (the figure was $20B prior to Lehman's collapse but the figure ballooned to overnight $85B due to the Credit Default Swaps(CDS) AIG had sold). Goldman received $13B from AIG [Link] as the largest beneficiary of payouts made by AIG.

I'm not here to promote conspiracy theories and it is not possible for me to prove and show how Goldman Sachs or any investment bank is involved in the markets. But what is very clear is that the level of speculative activities in the markets is so high one wonders it distorts the economy. Driving oil prices to $140 per barrel caused many companies to over-invest in oil rigs and exploration. What about those proprietary trading systems that move billions around? The thing is the regulators don't know what these investment banks do and after what has happened in the past 12 months, isn't it is time to look into limiting their activities?

GDP Growth as Progress in Singapore....

"Do we want to open our country to expats so that they can progress at the expense of our own Malaysians? Do we want to 'progress' to a level that even our children can't buy a house in our own land? Last, I ask myself. Do we Malaysians look at GDP growth as the only measure to choose our government or are we much more matured than that? Achievement at whose expense?" - Vijay Kumar, Malaysian who worked in Singapore [Link]
We saw what 7.5% GDP growth is like in 2007 - cost of housing went up by 23%, transport costs go up, utilities go up, etc. Income rose meaningfully only for a small number of people because of unequal distribution. Most Singaporeans fear the type of GDP growth we see in 2007 but we are also afraid of job losses in a recession. For many Singaporeans, the good times are gone for ever and life is a perpetual struggle to survive. Why?

Take cars as an example. We have a quota system. This means that even if income rises, the number of people who are allowed to have cars is the same. What happens when income rises is the COE price goes up disproportionately compared with the rise in income. You might think that if your income goes up, you can afford more taxi rides, forget it! Taxi fares rise just as fast when demand goes up because the number of taxis is also limited by the COE. Housing? Do HDB flats become more affordable when GDP goes up? No! In 2007, the GDP went up 7.5% but the cost of housing went up by 23%. The paradox in Singapore is as people make higher incomes, the size of homes they can afford shrinks. For a large number of people whose income remain stagnant, these price increases represent a fall in real wages and we see more poverty in Singapore today than we did 20 years ago.

Singapore did what no other country has done to go after GDP growth - importing foreign labor in large numbers. Most other countries do it by moving up the technology ladder, innovation, nurturing home grown industries. In 2008, our population grew by 5.5% to 4.84M[Link] that is an addition of roughly 250,000 people. Does it make sense to add so many people onto a land scarce island like Singapore? We have been told various things over the years including "foreigners create jobs for Singaporeans", "don't be small minded", etc. Most Singaporeans can agree that a certain level of immigration helps to keep our society vibrant but to import people to maximise GDP ignoring the impact on ordinary Singaporeans can be detrimental in the long run.
Malaysian, Vijay Kumar, fears that his govt will copy Singapore's model to maximise GDP growth. He does not like what he saw when he worked in Singapore and asks if Malaysians should just "look at GDP growth as the only measure to choose government" or "are we more matured than that?". Vijay Kumar has asked the right questions, the same questions Singaporeans asked but received no proper answer for the past 15 years. Now we are told to just accept what has been done and told to live with the consequences.

Monday, July 06, 2009

Negative articles about SIngapore in Malaysiakini

The 1st one : "I curse the day I was born a Singaporean" [Link].
The 2nd one : "The hidden ugly side of Singapore" [Link].

The 1st article, I think you have to make up your own mind after reading it. The person who wrote it has not lived life in Malaysia under the NEP so he may not know what it is like. The grass can look greener on the other side and we all have to be careful of this when we form opinions.

The 2nd article from someone who previously worked in KL, moved to Singapore and had a shock when he found out how poorer Singaporeans lived their lives. I don't know if this story is true but I know it CAN be can be true that someone from KL can get a shock when they find out how some Singaporeans lived especially if the person spends most of his life in KL. There are other rural parts of Malaysia where I've been to where you share your food with flies all the time....where small "shopping centers" have big posters to tell you they are air-conditioned.

Two years ago, I received an invitation to attend my cousin's wedding in KL. I was a bit reluctant to go but I had some frequent flyer miles that were expiring soon so I agreed to take my mom to the wedding. The cousin is the daughter of my mother's cousin, my uncle, a chinese educated electrician living in Muar.

When I got the wedding card, I actually had a surprise because the groom had an Indian name. I asked my mom about it and he told me the groom was half-Indian - his mom was Chinese. I was told that my uncle who was a bit of a "traditional chinese" feller was completely charmed by his future son-in-law who not only spoke mandarin and also his dialect, hokkien. For the wedding, I had to stay at the hotel where the wedding was held. Some of the Malaysian guests drove 8 hours to get to hotel and back. The wedding had a friendly atmosphere with many friends of the couple in the 20s and 30s from church and university attending the wedding.
The day after the wedding, I met the wedding couple at the hotel lobby. I told them I had a full day in KL because my flight was at night. My mom was interested in doing some shopping but not sure where to go. The couple offered to show us around KL and their new home somewhere in Klang Valley. I was a bit worried that they would be tired after the wedding but they assured us that they were well rested and would really like to show us around since we "came all the way from Singapore". I had been to KL a number of times but had never visited anyone's home in KL. The couple's new home was a 1800 sq ft condominium unit complete with a swimming pool and LRT station nearby. The couple had been working for 2 years as IT professionals before they got married. They told me that "most young couples these days prefer condominiums to landed property nowadays in KL". They owned a proton-something car too. So I guess life for IT guys in KL is not too it is possible they can get a shock when they come to work in Singapore and see something they cannot imagine from all the wonderful reports about Singapore, the affluent island state and the 1st world nation. They get to see first hand what it is like to be poor in Singapore and that shocks them.

"Have you seen a HDB flat and how it looks like? Bring your whole family for a dinner using public transport and then rush to catch the last bus. Is this what a 10% growth rate a year is about that we want boast? Does this growth figures mean anything in the first place? Do we want to open our country to expats so that they can progress at the expense of our own Malaysians? Do we want to 'progress' to a level that even our children can't buy a house in our own land? Last, I ask myself. Do we Malaysians look at GDP growth as the only measure to choose our government or are we much more matured than that? Achievement at whose expense?"
- Vijay Kumar
Before you get to the article, I want to say in my younger days, I travelled all over Malaysia Penang, Pahang, KL, Johor, Malacca, Terengganu, Sabah etc. A large part of Malaysia consists of kampungs and small towns. The people in these towns are not rich. By Singapore standards, they are dirt poor and probably make less than the lowest 20% of our population (below $1200). The cost of living is extremely low and in many parts of Malaysia, the cost of home is the cost building the house as land is plentiful. There is poverty but it is a different kind of poverty from we are seeing in Singapore.
The hidden ugly side of Singapore
Vijay Kumar Jul 3, 09 6:48pm

In between the glamarous buildings and shoppings complexes of this city state, there is huge suffering that the world has never seen. Something that the Singapore government or media will try to hide from the rest of the world. And this is the lives of 80 percent of 'true' Singaporeans who live in the republic's Housing Development Board (low cost) flats. I, like many young youths, went looking for a better future in this Lion City of opportunity, After four years of working experience in Kuala Lumpur. It was my first experience outside Malaysia and I was very happy to be offered a job in Singapore with a basic salary of S$3,500. Then, with huge hopes, I started looking for a master bedroom to rent being single.
I finally got a master bedroom in Clementi for S$700 a month but only after being rejected by many other landlords for being Indian. The ensuing eight- month ordeal that I spent in this HDB flat really opened my mind to what Singapore is for those who can't earn. It made me ask if this is the type of development that I ever wanted in my country Malaysia. This is the first time that I felt gifted to be born in Malaysia. Anyway, I lived with a family of three (husband, wife with one daughter) who rented out their master bedroom to me while they slept in the common room. It was a three-room flat (but unlike in Malaysia, a three-room flat has only two bedrooms). I did not believe it was the master bedroom that I was staying in until I went into the other room and saw that there is no attached bathroom there. I was given a bed and a mattress and also two fans. Then I noticed that the couple with their daughter sleeping on the floor with a thin mattress in the other room. Not even a fan in that room. Both husband and wife are born Singaporeans and were employed. It was after one month that I realised that the daughter was not going to school regularly and most of the time there would be a quarrel in the early morning between the father and daughter as there was not enough money to pay for the bus to go to school. There were times when the daughter was very sick and father had no money to take her to see a doctor. It was a real pain in the heart to hear a small girl suffering through the thin walls of this HDB flat. It was unbelievable for me to see this happening in this ultra-modern city. It took me another two months to realise that what was happening in this flat was not an isolated case of urban poverty in Singapore. It was every where in those HDB flats. There was a Chinese neighbour (an elderly man) and his son had no money to get a taxi to send his father to the clinic for daily diabetic wound-dressing. I soon understood that poverty in Singapore transcends racial boundaries. The whole family of my landlord got a shock that I own a car in Malaysia. My landlord would keep pestering me every time I come back to Malaysia to bring my car over so that his whole family could go sightseeing in Singapore. In all my life, I never believed people in a developed country like Singapore would ever consider car ownership a privelege.Three months later, one fine day, I came back home and realised that there was no electricity in the house. This time, my landlord did not have the money to pay for the utility bills. I was back in the Stone Age, using candles. This lasted for days until finally he borrowed money from somewhere and settled the bills. My landlord as a person I have known during that period never come back drunk or looked like a gambler. He had to pay for his mother's medical expenses, that much I know.
This was the time in my life when I learned what is was like to live in that poor quality HDB flat, drying clothes in the rooms and listening to what the couple talked about in the next room via the thin walls. It was this time in life that made me to think, 'Is this what I want Malaysia to be? For those who talk great or look up to Singapore's success, have they ever come and lived in Singapore like I how I did? Have you seen a HDB flat and how it looks like? Bring your whole family for a dinner using public transport and then rush to catch the last bus. Is this what a 10% growth rate a year is about that we want boast? Does this growth figures mean anything in the first place? Do we want to open our country to expats so that they can progress at the expense of our own Malaysians? Do we want to 'progress' to a level that even our children can't buy a house in our own land? Last, I ask myself. Do we Malaysians look at GDP growth as the only measure to choose our government or are we much more matured than that? Achievement at whose expense?