Saturday, February 28, 2009
I was watching this video of Roubini [Link] and there is this thing he said that is quite surprising. Citibank & Bank of America's stock has fallen so much that if both these components of the DOW are completely wiped out by nationalisation, it will only take 50points off the DOW - that is less than 0.8%. One thing they can do is remove these from the index and replace them with other stocks.
Nationalisation is actually becoming no big deal except for the overly optimistic shareholders who keep clinging on to these stocks as they fall. But these stocks are simply going to just fall until there is no choice but for the US govt to takeover clean them up and release them to the market. Even if they don't do that, the US govt has to inject cash and dilute existing shareholders. There are many problems with Citi and BoA, just yesterday the BoA released an SEC statement to say that its loan portforlio is overvalued by US$44B[Link] (i.e. it is worth $44B less than carried in the books) - the capitalisation of BoA is only US$19B!
GIC should get out of these stocks. They are too risky for Singaporeans' hardearned money and the risk of a complete wipeout is not insignificant. It would have been simpler if they had simply admitted that it was a mistake investing in these bad banks and proceeded to correct those mistakes. Instead they insisted that they had made no mistakes and these are long term investments that are to be kept for 20 or 30 years. If these banks go down, they will lose credibility....why should we ever trust them with our money?!
It is reported that the GIC has converted its preferred notes at a price of $3.25 per share. Citigroup stock closed at $1.50 per share yesterday. This means GIC has now realised more than half its losses. It now has an 11% stake in Citigroup. Dividends for Citigroup shares is limited to 1 cent per share as Citigroup has taken plenty of TARP money from the US govt.
"It now means GIC are in the real danger zone. Equity holders are the first to absorb any losses. Or if the Treasury decides to inject more capital, they will get diluted," said an analyst at an investment bank, who declined to be indentified (see Reuters report above).
I have explained several months ago that Citigroup probably had negative book value. However, with the worsening US economy and continued falls in home prices, Citigroup will be deeper and deeper in the hole in the coming months. It will need more US govt money and that will further dilute its stock. Meredith Whitney who called the bluff on Citigroup more than a year ago said on CNBC that the stock is just not worth much because Citigroup is insolvent due to losses and maintain a sell on the stock. Citigroup will need cash infusion quarter after quarter until this economy well on its way to recovery. She suggests the US govt put money in the regional banks that are not caught up in this crisis instead so that credit can flow again...giving money to Citigroup and BoA is like putting money in a hole.
The good thing is Citigroup didn't get nationalised at least not yet. Nationalisation would have instantly wiped out existing shareholders. Also, the US govt is now a common shareholder which means it is less likely to wipeout other common shareholders because it will have to wipe itself out in the process. However, massive dilution is likely.
Here's an article that explains the problem with US banks. The problem is not just mortages but commercial property, business loans, student loans, credit cards etc etc.
"The scale of potential losses in consumer and business loans swamps what's left from the securities debacle by a factor of three or four to one. And the next wave, the looming defaults on commercial real estate loans financing the likes of half-leased retail malls, will soon cause a fresh round of pain. "We've now moved from the securities phase to the lending phase of the banking crisis," says Tanya Azarchs, a managing director in S&P's financial services ratings group. "For 2009 we expect that loan losses will be much worse than for 2008 and that securities write-downs will be much less."
Those looming losses make it inevitable that the government will shower the banks with more bailout billions - and get big ownership stakes in return. But that will fall far short of what most people think of as nationalization.
Now let's examine the second, far more dangerous menace lurking in the loan portfolios. The big four hold $3.6 trillion in credit card, home-equity, mortgage, commercial real estate, and other consumer and business loans. Those loans are deteriorating with shocking speed: Default rates will soon surpass the worst of any recession in decades. Since mid-2007, for example, the charge-off rate for credit card loans has jumped from 3.8% to 7%. Overall, the four big banks suffered charge-offs of around 1% of their portfolios through the middle of 2007. For the fourth quarter of 2008 the figure jumped to 2.6%. And things are getting worse - delinquencies in all categories are rising. Star analyst Meredith Whitney predicts that credit card losses will climb above 10%, far higher than in any recent recession.
How high will the losses mount? FBR predicts the banks will eventually write off about 9% of their loan portfolios, with the vast bulk of losses coming in the next three years. That would hit the big four with around $300 billion - or $100 billion a year - in credit losses, more than three times the projected damage from their toxic securities.Based on this article 2 of the 4 banks will definitely survive if we don't go into a depression - Wells Fargo & JP Morgan. Bank of America is on the borderline and need some help.
But this is what the article says about Citigroup:
The true basket case among the biggest banks is Citigroup. Citigroup's core businesses in areas like credit cards, branch banking, and international corporate lending are so weak that it cannot generate enough revenue to compensate for the deluge of losses. That means its puny equity capital is destined to keep shrinking or disappear entirely. Citi executives are already asking Washington for additional aid in exchange for as much as 40% of Citi's common stock. And after the stress test, it will probably need more cash, making it all but certain that the government will end up with a majority stake.
A prudent move would be to start unloading some Citigroup stock on the market ahead of any possible US govt cash infusion that will result in further dilution.
This article is optimistic citing total losses of $100B each year by the big 4 banks per year over the next 3 years. This amount is manageable. If it is true, all the US Treasury need is $300B more to rescue the banking system. However, things may not be so sanguine. According to Nouriel Roubini aka Dr. Doom the figure is required is trillions.
The Geithner plan's stress tests to ascertain the amount required to aid these banks will provide a much clearer picture soon in April 2009. There is actually enough time to take stock before taking action given none of the banks need immediate cash. There is however one problem the market participants in particular shortsellers are getting impatient and have started to sell these stocks. ..they can precipitate a ratings downgrade as ratings agencies use stock price as one of the inputs for their ratings....this can force the US govt into early action.
Citigroup Beats WorldCom, Sets Stock Trading Record (Update3)
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By Edgar Ortega
Feb. 27 (Bloomberg) -- Citigroup Inc. set a record for the most shares traded in a single day in the U.S., beating the mark set by WorldCom Inc. in 2002, according to the New York Stock Exchange.
More than 1.77 billion Citigroup shares traded as of 4 p.m. in New York after the U.S. government agreed to a third rescue attempt that would cut existing shareholders’ stake in the New York-based bank by 74 percent. Citigroup shares fell 39 percent to $1.50, the lowest closing price since November 1990.
The Treasury Department said it would convert as much as $25 billion of preferred shares into common stock provided private holders agree to the same terms, the government said in a statement today. The conversion would give the U.S. a 36 percent stake in the New York-based company.
Increased government involvement complicates Chief Executive Officer Vikram Pandit’s attempt to restore confidence in the company. The government is supporting Citigroup because of concern its failure might roil weak global markets. The U.S. doesn’t immediately intend to inject additional money after channeling $45 billion to Citigroup last year. The following is the New York Stock Exchange’s tally of the
five busiest sessions for a U.S. stock:
Company Date Shares Traded
Citigroup Feb. 27, 2009 1.77 billion *
WorldCom July 1, 2002 1.51 billion
AIG Sept. 16, 2008 1.23 billion
Citigroup Nov. 21, 2008 1.029 billion
WorldCom July 3, 2002 1.026 billion
*Volume as of 4 p.m. in New York.
To contact the reporter on this story: Edgar Ortega in New York at firstname.lastname@example.org. Last Updated: February 27, 2009 16:14 EST
Wednesday, February 25, 2009
MAS has now lowered the income requirement for unsecured loan to S$20K. Now instead of the govt giving workfare to the people whose income is not sufficient for their basic needs, they can send these people to borrow from the banks. The same day this revision was announced there was a report to say that an increasing number of people are struggling with their personal debt:
SINGAPORE: From next month, the minimum income requirement to apply for unsecured credit facilities will be lowered from S$30,000 to S$20,000. This will essentially allow more individuals to obtain such facilities subject to a cap of twice their monthly income. The Monetary Authority of Singapore (MAS) said the revision will allow access to unsecured credit to more individuals who may have occasional genuine borrowing needs but not if they have a spotty record with Credit Bureau Singapore. That's because MAS has made it a requirement for financial institutions to conduct comprehensive checks with the bureau before granting each new credit card, charge card or unsecured credit facility. Under the revised rules, financial institutions will also be barred from making unsolicited offers of unsecured credit facilities to customers unless customers write in for them. This follows similar restrictions on unsolicited offers of credit cards already in place.
For confidence building and mobilising a nation to face its greatest challenges, this speech is as good as it gets. It is really hard to believe he has been in office for just one month given the number of plans (stimulus, foreclosure, healthcare etc) his govt pushed through.
I did picked up this part:
"You see the flow of credit is the lifeblood of our economy. The ability to get a loan is how you finance the purchase of everything from a home to a car to a college education; how stores stock their shelves, farms buy equipment, and businesses make payroll"
There is little doubt what he said is correct and true. They have to get credit flowing again for the economy to lift itself out of this gloom - there is simply no other choice unless Americans are willing to let everything fall apart and rebuild from economic ground zero. However, if you think about it, isn't the high debt level of American households one of the causes of this crisis? Unfortunately, the only way out of this crisis is for Americans to spend borrowed money again....get into debt to buy cars, their education...and business have to borrow to "make payroll". Looks like a society that is caught in a debt spiral. There is a lesson for all of us here from America. We should be wary when govt hike prices and then provide loans so that they can tell us things are affordable because we can service the loan instalments. It started with housing, then they hiked universities fees providing student loans so that people start repaying them when they work. A friend of mine couldn't afford to pay his mother's hospital bill at a govt clinic and was put on an instalment plan. Singaporeans who have arrears on their utilities bill are now put on instalment plans. Slowly but surely we will end up as slaves to our debts just like what the many Americans are today. There was a time when housing loans can be repaid in 5-10 years and cars were purchased with cash...and no-one needed to borrow to fund their education. Not all ideas from America is good. Just look at the problems that debt brought to America - we have to guard our society against this. The Americans are stuck and can't get out of this cycle.
The last part of his speech was pure inspiration:
"if we come together and lift this nation from the depths of this crisis; if we put our people back to work and restart the engine of our prosperity; if we confront without fear the challenges of our time and summon that enduring spirit of an America that does not quit, then someday years from now our children can tell their children that this was the time when we performed, in the words that are carved into this very chamber, 'something worthy to be remembered.' "
Many analysts believe that Citigroup is insolvent and will need more cash infusions from the US govt that will further dilute existing shareholders and may lead to nationalisation. What the US govt is trying to do is trying to get private money into the rescue so that it doesn't end up with a majority stake. To do this they have to guarantee the value of the bad assets (see the Jim Jubak article on the Geithner plan I posted earlier) instead of going back to Congress for more money.
Whatever it is, it is unlikely Citibank stocks will every climb back up to the price our GIC purchased. The stock is now a playground for the day traders - the gamblers who like the volatility and risk as the stock gyrates on the uncertainty of the company's future. Citigroup's capitalisation is now below DBS! It is a global giant with a big hole in its balance sheet that needs to be filled and this hole is getting bigger and bigger as the recession deepens.
(SINGAPORE) The Government of Singapore Investment Corp (GIC) will say no to converting its preferred Citi shares into common stock now, a news report said yesterday. The Wall Street Journal (WSJ) reported that GIC wants to keep its US$6.88 billion investment in the US bank, but could face a dilemma if Citi reaches an agreement with US officials that includes a greater government role. This came as Citigroup is in talks with the US government to convert the latter's preferred shares into common stock as a means of shoring up investor confidence. 'We are open to considering a request to do so,' a US Treasury spokesman said. On Monday, the Federal Reserve and US Treasury issued a joint statement, pledging their 'determination to preserve the viability of systemically important financial institutions so that they are able to meet their commitments'. The statement said the US Treasury would begin applying its new 'stress test' to major banks today and that banks found lacking in capital would be encouraged to seek private investors. If those banks cannot attract investments from the private sector, the government would step in with a 'temporary capital buffer'. The statement said that any government capital will be in the form of mandatory convertible preferred shares, 'which would be converted into common equity shares only as needed over time to keep banks in a well-capitalised position'. Citi is said to be persuading some investors holding preferred shares to convert some of those stakes into common stock. These investors include GIC, Abu Dhabi Investment Authority and Kuwait Investment Authority. When contacted, a GIC spokeswoman declined to comment. However, the rationale for GIC's refusal to convert is clear - it could suffer losses of as much as 93 per cent. Called 'perpetual convertibles', GIC's preferred shares represent a beneficial stake of 5.3 per cent if converted, and it also offers an annual coupon of 7 per cent. But a conversion into common equity will cut off that income stream. Based on the terms of the initial purchase, GIC must convert at a 20 per cent premium above a reference price, which was set based on the average Citi share price in the days following the initial announcement on Jan 15, 2008. Between Jan 16 and Jan 30, 2008, Citi's share price hovered between US$24 and US$27, giving an average of about US$26. Assuming a face value of US$6.88 billion and a reference price of US$26, a conversion will yield a shareholding of about 220.5 million shares (for which GIC must pay just over US$31 a share). At Citi's US$2.14 closing price on Monday, the stake is worth US$471.9 million. 'If GIC is to convert into common stock, the deal must be sweetened quite a lot. They want to make sure that their return will be equal or above the coupon,' WSJ quoted a source as saying. According to analysts, Citi's reason for persuading some investors to convert to common stock is to stop the US government from gaining a majority stake in the bank. But matters are not that simple. Speaking to BT, CIMB economist Song Seng Wun said that if GIC converts its preferred shares into common stock, alongside the US government, this will lead to an enormous dilution of the sovereign fund's stake. 'On the other hand, this may be the only option. If GIC does not convert, and the situation worsens, even the 7 per cent annual coupon may vanish as well,' Mr Song said. Plus, there is also the spectre of a possible nationalisation of the US bank. Given that GIC's preferred shares may be classified under equity, a full nationalisation of Citi could see its entire stake wiped out. The US authorities and Citi have their own issues to deal with. According to reports, the new stress test is likely to measure tangible common equity (TCE) ratios - what shareholders would get back if the company were to be wound up. And Citi is likely to fail the test as its 1.5 per cent TCE ratio is already below the 3 per cent seen as safe. Meanwhile, the Financial Times quoted Jason Goldberg, a Barclays Capital analyst, as saying that the US government would have to convert US$15 billion of the US$45 billion in Citi preferred shares it holds to keep its stake at about 40 per cent. 'However, if, as Citi is pushing for, other holders of preferred shares such as sovereign wealth funds and institutional investors were also to convert their US$30 billion worth of securities, the government could convert more than US$30 billion without gaining a majority stake.'
Tuesday, February 24, 2009
The more you examine this crisis, the more you realise the scale is much larger than you imagined. Yesterday, CNBC reported that AIG lost US$60B in a single quarter and needs more govt aid.
This mess is not going to end so easily.
When I asked them what they were doing back in Singapore, they told me some stories about Dubai. The economy grounded to a halt suddenly, expatriates simply left - without jobs some of them left without paying their rents, left their cars (with outstanding loans) at the airport and flew home. Dubai is now full of unoccupied condos, 3000 abandoned cars at the airport and an economy in crisis. Its richer neighbor Abu Dhabi had to bail it out by buying its bonds as the govt faced a liquidity crisis.
It was not too long ago when the images of lavish buildings in Dubai were flashed on the TV and this city state was the envy of the world. Its success was somewhat of an illusion built on credit.
Dubai's $10 billion bailout
United Arab Emirates steps in and buys half of the country's $20 billion long-term bond offering.
DUBAI, United Arab Emirates (CNN) --
The United Arab Emirates pledged $10 billion to prop up Dubai, one of its most ambitious members, Dubai's government said.
Dubai launched a $20 billion long-term bond program Sunday in an effort to cover loans that financed its aggressive development strategy.
The Central Bank of the UAE bought up the first tranche of the bond issue, $10 billion, Dubai said. The five-year bonds pay 4% per year.
"This is a clear step from the central government to back up Dubai," said Khald Masri, a partner in Rasmala Investment, a very active investment bank in the region. "The central government's step will help ease the tense situation in the local economy and markets."
Dubai admitted that it needed the Central Bank money to stay afloat as credit has dried up, though it couched the statement in financial jargon.
"This issuance will provide the Dubai Government with the necessary liquidity to substitute the liquidity that has dried up globally in the last 12 months and accordingly meet all upcoming financial obligations," it said. "This program will secure the necessary funding for Dubai to meet its financial obligations and continue its development program."
The bond is an unsecured fixed rate paper, Dubai said.
"The fixed rate at 4% per year is excellent," investment banker Masri said. "Dubai got the best deal in that, taking into account the conditions in the international markets."
But he warned there was "no way" Dubai could get as good a deal from international markets as it did from the UAE when it issues the second $10 billion in bonds.
The Dubai stock market rallied Monday, rising by 7.91%, with big bounces for stocks for semi-governmental companies, especially in the banking and real estate sectors.
Dubai, one of seven Gulf emirates that together make up the UAE, launched ambitious plans in the past decade to become a global hub for service industries such as information technology and finance as well as a tourist destination.
It lacks the oil reserves of other members such as Abu Dhabi, the capital of the UAE and its wealthiest member.
Dubai took out huge loans to finance its plans.
Moody's Investors Service warned in October that Dubai may need help from Abu Dhabi to pay for its debt. The emirate may have to refinance $15 billion this year in maturing loans and bonds, Moody's said.
Abu Dhabi, for its part, has invested around the world, buying a 75% stake in New York's iconic Chrysler Building last summer when oil prices were at their peak and helping to bail out the financial giant Citigroup with $7.5 billion at the end of 2007.
Abu Dhabi Investment Authority (ADIA) is the world's largest sovereign wealth fund, with an estimated $875 billion in assets, according to brokerage Morgan Stanley.
First Published: February 23, 2009: 12:47 PM ET
Monday, February 23, 2009
I once saw George Soros in person at a hotel lobby in Budapest, 13 years ago. I wasn't sure if it was him at first so I asked one of the local guys and they told me he was in Budapest to visit the Open Society Institute (OSI) which he funded and give out scholarships to students. An open society is a non-authoritarian society in which all are trusted with the knowledge of all [wiki]. The state keeps no secret and the political mechanism is fully transparent. Political freedoms and human rights are the foundation of an open society.
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By Walid el-Gabry
Feb. 21 (Bloomberg) -- Billionaire investor George Soros said the current economic crisis has its roots in the financial deregulation of the 1980s and marks the end of a free-market model that has since dominated capitalist countries.
Liberalization of the financial industry begun by the Reagan administration has led to a series of breakdowns forcing government intervention, Soros told economists and bankers last night at a private dinner at Columbia University in New York. The global recession, triggered by the collapse of the U.S. housing market, has “damaged the financial system itself,” he said.
Regulators are in part to blame because they “abrogated” their responsibilities, Soros, 78, said. The philosophy of “market-fundamentalism” was now under question as financial markets have proved to be inefficient and affected by biases rather than driven by all the available information, he said.
“We’re in a crisis I think that’s really the most serious since the 1930s and is different from all the other crises we have experienced in our lifetime,” Soros said.
Soros, founder of New York-based hedge-fund firm Soros Fund Management LLC, said last month at the World Economic Forum in Davos, Switzerland, that the Obama administration’s plan to buy toxic assets from U.S. banks won’t be enough to get financial institutions to start lending again.
A more effective approach for restarting the economy would be to inject capital directly into the banks and cut minimum capital requirements, Soros, whose firm oversees $21 billion, has said.
Soros’s Quantum Endowment Fund returned 8 percent last year. That compared with an average loss of 18 percent by hedge funds, according to data compiled by Hedge Fund Research Inc. of Chicago.
To contact the reporter on this story: Walid el-Gabry in New York at email@example.com
Sunday, February 22, 2009
When you post a message to a forum or blog, one or more IP packets are created and transmitted to carry your message. Within each IP packet is an IP address assigned to you by your ISP - Starhub or SingTel. This packet goes back to what you call routers in your ISP and they can log your IP address there. When your message reaches the server hosting the forum or blog, they will also log your IP address. Given we don't have many laws to protect privacy and our govt history of watching over the citizens closely, one cannot expect real anonymity on the Internet unless you make an extra effort(to use anonymisers, proxies etc). I would like to thank Vivian Balakrishnan for reminding us what we already know. Just to clarify, for many bloggers, our anonymity is to keep our friends, parents and relatives from worrying and not for any other purpose.
You see if we were the citizens of any other developed country, we would be happy to put our real names to our messages. But Singapore is not any other country, and there is this constant fear among a large segment of the population especially the older folks that the police/ISD will knock on our doors in the middle of the night when we say something unapproved. We all know that the chances of this happening is small given the govt is kept busy by the Chee siblings and various pesky members of the opposition who rank higher on their list of priorities. However, the older folks don't understand this and they will have sleepless nights worrying about the knock on the door and all it takes is one busybody tech savvy relative to tell them and they will nag you everyday to take the blog down. The disproportionate large number of highly articulate anonymous blogs is unique to Singapore because the fear has not disappeared....and not everyone is convinced that our govt is open to opposing views - it is not that bloggers don't want the govt to know, they don't want to keep their friends and families awake at night worrying about them. Those who are truly fearful will not even blog - they will just keep silent.
All this fear is not completely irrational. When Goh Chok Tong was PM, he spoke of a govt that will be consultative and open to new ideas. I remember that assurance he gave when Chee Soon Juan decided to embark on a career in opposition politics - he said that nothing will happen to Chee. For many it was a real sign that the govt had decided to change for the better. However, we soon discovered that what "nothing" meant. Chee was sacked, bankrupted, humiliated and jailed. ...he ended up with "nothing" and "nothing" did happen to him. Our govt's constant talk about regulating the Internet and its beliefs that human rights and democracy are flawed ideas and inferior to the PAP system of govt result in a fear that the PAP will simply go back to its old ways to preserved their system when the need arises.
For many other countries, handling the new media has been a piece of cake. President Obama embraced it...other govts live with it simply as an extension preserving the freedom of expression that already existed in their society before the Internet. The reason why the PAP has so much problems with the Internet is the need to perpetuated a dominant viewpoint - the PAP debates internally and simply tells us that what they are doing is the best for us i.e. for our own good. People now know that the PAP does not have a monopoly on wisdom (which they use to justify their high salaries) and they don't always make good decisions (on investment and other matters). There is limited debate parliament because the opposition has been weakened. So what do people do? Those who find it hard to remain silent go to the Internet to express their views at a great risk to themselves because their activities can be monitored and anonymity is an illusion. Wouldn't it be better for themselves if they simply remained silent and spend their weekend at Harvey Norman? Why take this great risk on the Internet to express their views? Many just want to get their views across quickly and to many people. If they go through the govt feedback channels or the MSM forums, their views would be managed away explained away and disappear along the channel. For many whose well being have been traded away in various policies and find they can no longer remain silent, they found a new media to express themselves and many are willing to take this risk of being monitored because they truly believe they are right and that change must come to Singapore for us to progress in the coming decades. Singapore was more democratic in the 1970s compared with S. Korea and Taiwan which were under military rule. Today, the S. Koreans & Taiwanese have no problems with the Internet and the PAP govt is still trying to find a way to cope with it. The best way to deal with the Internet is to make political progress and turn the Internet into a non-issue.
Govt says policies on new media will evolve as new challenges crop up
By Satish Cheney, Channel NewsAsia Posted: 21 February 2009 2044 hrs SINGAPORE :
The Singapore government has been embracing and even adopting new media for its work. And while it is still some way from fully tapping the potential, the government said it will gradually evolve its policies with a light touch, as the Web2.0 revolution constantly throws up new challenges. Singapore is the most wired city in the world. And according to a survey, young Singaporeans aged 15 to 24 spend an average of eight-and-a-half hours a day being connected. And the government has been using new media outlets such as Facebook, YouTube and forums to hook up with citizens. Another new media outlet is the OnePeople Portal. The online resource on racial harmony was launched by the Community Development, Youth and Sports Minister Vivian Balakrishnan on Saturday. While the government is gradually liberalising its approach towards online engagement with its citizens, the minister added that one has to be responsible and careful when posting their thoughts online." Dr Balakrishnan said: "Anonymity in cyberspace is an illusion. You will remember in 2007, we prosecuted three persons under the Sedition Act because of the blogs they put up which denigrated the religion of one of our communities in Singapore. "The reason we did that was to send the message that your words have an impact; if need be, we can identify you, and if we have to, we will be prepared to prosecute you." But there are some challenges in the government's use of new media to get public feedback. Dr Milagros Rivera, member, Advisory Council on the Impact of New Media on Society (AIMS), said: "We expected people to give feedback. Nobody did. I think seven people posted comments on the AIMS website, and then the blogosphere went crazy with all kinds of comments and discussions about New Media. "You can have a very nice welcoming website for the government to give feedback. If people are not comfortable they will just stay in their little forums and in their blogs and they will do their thing." And there is no doubt more challenges will crop up as cyberspace continues to evolve and change the way people communicate with one another. - CNA/ms
Friday, February 20, 2009
The DOW has been plunging since Geithner explained the plan in a somewhat sketchy manner. The DOW Futures shows that the US stock indices will plunge once the US markets opens tonight. I have this hunch that they might recover later tonight.....the Obama team did put in place 3 parts of a plan that will help the US economy - foreclosure mitigation, economic stimulus & the Geithner plan. All this was done within one month of being in office - so the administration is no slouch....think about it they have performed quite well given the circumstances. The reason why I think it will rebound tonight is the way these markets have been selling off throughout this crisis since Oct 2007 - the market will ease slowly in the onset of a wave of selling and then climax with big selloff followed by short covering and a relief rally. The global indices have fallen non-stop for 9 days and the selling has accelerated in recent days - this selling looks like it is going to climax soon - perhaps tonight.
Yesterday Citigroup and Bank of America stocks fell further - both stocks fell 14% in one day. The window for selling these stocks is fast closing. The US Treasury announced "stress tests" that will be conducted on banks to apply "the appropriate therapy"[Link]. For banks such as Bank of America and Citigroup which are insolvent zombies, shareholders will wiped out in all solutions now being considered by the US Treasury.
Singapore not only made bad decisions investing in these banks when most of the investment community knew that they were in trouble and extremely risky, they continuously denied that mistakes were made and insisted that they are long term investments (link, link). They missed all the chances of mitigating their losses and they will probably miss last chance to exit from these bad investments. There is little doubt that a lot of credibility will be lost when these investments get wiped out.
There is a need for greater transparency (if not complete transparency) and reform in Temasek/GIC. If they had done it earlier when billions were lost in Shin Corp, we might have prevented the devastating losses in those banks. If they don't do it now, we will be seeing unnecessary loss of taxpayers' money in the future.
Thursday, February 19, 2009
Because the govt overstated its case when it said that the JCS scheme will save jobs, there are people who actually think that we should wait and see before more is done. We have to jump ahead of the problems instead of waiting otherwise we will risk putting many families under distress. ComCare Hotline is : 1800-222-0000. I hope the govt take up Wee Siew Kim's (yes the father of...) suggestion:
There is talk about no-frills housing for those who cannot afford regular HDB flats. Implementations of additional criteria to 'eliminate' the people who don't need rental housing from the HDB rental queue which has a waiting time of 4 years . After the new criteria is implemented they hope to shorten the queue to 1 year. How do people who need housing but they can't afford it wait for 1 year? If you're destitute and end up at the void deck ...they will probably allow you to jump queue?...But the rest of the needy people? Where do they go? Beg their siblings, relatives for a place?...and if you're sick but have no money?
Instead of many confusing helping hands, there should be one big helping hand starting with the ComCare Helpline. In these times of crisis, help should really be a phone call away.
BTW, did anyone try calling them?
7.2m more Asians to be jobless in 2009
Finance minister quits at bad time for Japan’s economy
Gold hits record on fears of ‘Zimbabwe-isation’ of global economy
Offers lure Singaporean shoppers out
Malaysians last to be retrenched down south
3.5pc growth no longer realistic, Najib admits
Singapore’s exports continue freefall
‘Spectacularly bad’ in Singapore, worse to come
SINGAPORE, Feb 18 – The global recession dealt Singapore a hammer blow in January with exports recording their worst performance in the nation’s history.
Shipments crashed 34.8 per cent – a “spectacularly bad” number, said one economist – and the largest fall since the Government began collating year-on-year figures in 1977.
That meant it even exceeds the previous worst of 30.7 per cent set in September 2001, the month of the terrorist attacks in New York and Washington.
“As with other countries around the region, Singapore is setting the wrong sort of records at present,” said HSBC economist Robert Prior-Wandesforde.
OCBC economist Selena Ling added: “The numbers are spectacularly bad. There is a broadbased weakness and it continues the global export collapse story.”
While the figures from International Enterprise (IE) Singapore confirmed the forecasts of the experts, they have also ratcheted up the fear among workers’ groups, businesses and others at the sharp end of the faltering economy.
“I’ve been working in electronics for almost 30 years, and this is the worst I have ever seen it,” said Francis Lim, president of United Workers of Electronics and Electrical Industries Union and assistant engineer at Hitachi Cable.
“Orders are not coming in. Some of my counterparts are getting 30 to 40 per cent of the jobs they used to get compared to the last two years.
“We are very worried about the next few months, and are not sure what lies ahead of us.”
Renny Yeo, president of the Singapore Manufacturers’ Federation, told The Straits Times: “Business has fallen so fast. We are working hard to prepare for what we think is still the worst to come... Exports have not hit the bottom yet.”
A spokesman for German chip-maker Infineon Technologies, which has a manufacturing plant here, said: “We’re definitely feeling the pain.”
He said that while no layoffs have been made, Infineon has shut down its plant here on two occasions for three to five days over the festive periods to reduce working hours and save costs.
Chartered Semiconductor, a major exporter, has cut 540 jobs here and is predicting its largest-ever quarterly loss.
Yesterday’s numbers were merely the latest instalment in what is becoming an all-too-familiar tale.
Exports have now fallen for nine months straight and economists see the dismal run continuing.
United Overseas Bank analysts believe the decline could continue until November with falls of 20 to 30 per cent possible over the next two or three quarters.
Economists agree that the January figures were distorted a little by Chinese New Year falling in January but Barclays Capital’s Leong Wai Ho calculated that even adjusting for fewer working days last month, exports fell 27 per cent.
This is still much worse than December’s 20.8 per cent contraction.
No sector, no market has escaped the carnage.
As expected, shipments to all the top 10 markets suffered double-digit contractions. But shipments to emerging markets in Latin America and South Asia, which had been growing until December, also fell by similar amounts.
The sore spots were the United States, where shipments plummeted 50 per cent, and China, down 51.6 per cent.
Tech exports continued to lead the decline, falling 38.4 per cent – a slump that has now endured for two years – while petrochemicals also fell 59.7 per cent.
The overall export numbers could have been even worse if not for pharmaceuticals faring better, recording only a 4.5 per cent contraction compared to December’s 51.1 per cent decline.
Figures from other corners of the economy confirm the sorry tale.
Shipments through Singapore ports fell 1.5 per cent in November – the first decline since 2001 – and then dived almost 14 per cent in December.
Freight volumes through Changi Airport have also slowed considerably, contracting 14.2 per cent in November and 21.4 per cent in December.
SIA Cargo plans to ground at least one aircraft and has asked pilots to consider no-pay leave for up to 30 months.
The pain is being shared as well. Taiwan and South Korea have both recorded historic falls in exports in the last month. – Straits Times
Wednesday, February 18, 2009
UPDATE: Citigroup & Bank Of America stocks keep sinking. Although our govt tells us they are "long term investments", these banks are known by the market now as "zombie banks" [Read Report :The Top 12 U.S. Banks: From Zombies to Hidden Gems]. Leaving taxpayers' money in zombie banks whose value will be wiped out is an irresponsible act. US mutual fund managers and pension funds exited these investments once they got below $5[link]. Not only did they risk our money in bad investments, they now refuse to take it out telling us they are long term investments when all the facts show otherwise. If they leave our money in these banks and the money gets wiped out, it is not an honest mistake....
Revelations in the past few days indicate that there is a good chance that major banks in US will be nationalised. Based on a number of reports the idea to split the banks into good and bad - a solution that will retain some value for stock holders - is probably dead because it cost the tax payers too much and when Obama pushed the stimulus plan he was unable to get a bipartisan deal ....without Republican support a solution that involves trillions will never be passed. It seems that Geithner went public with the half-baked plan a few days ago because his team realised that the "good bank bad bank" idea was a no-go. He replaced it with an idea that involve private sector investors but couldn't get all the details sorted out - like how to get private money on board[Read the story here]. Both solutions the Geithner plan and nationalisation will wipe out or badly dilute existing shareholders including preference shareholders.
The PAP govt insists that our investment in banks are long term investments and despite the heavy losses we will recover our money in 10, 20, 30 years. Putting money in those banks was extremely unwise....and not taking the money out after making a loss may turn out to be a bigger mistake. They have hundreds of people in GIC and Temasek whom they claim are worth their salt .....but if none of them dare to stand up and ask their bosses to cut the losses and save our taxpayers' money...I don't think they are worth anything. To lose billions more because they don't want to admit that those earlier investments were mistakes is unforgiveable. If they don't save what is left of those investments with the facts emerging that it may all be lost, we should never trust these people again with our blood and sweat money.
By Edward Luce and Krishna Guha Published: February 17 2009 19:44 Last updated: February 18 2009 01:07
Long regarded in the US as a folly of Europeans, nationalisation is gaining rapid acceptance among Washington opinion-formers – and not just with Alan Greenspan, former Federal Reserve chairman. Perhaps stranger still, many of those talking about nationalising banks are Republicans. Lindsey Graham, the Republican senator for South Carolina, says that many of his colleagues, including John McCain, the defeated presidential candidate, agree with his view that nationalisation of some banks should be “on the table”. EDITOR’S CHOICE In depth: Obama’s first 100 days - Jan-28Obama acts to cut risk of foreclosures - Feb-17US homebuilder confidence remains near low - Feb-17Californian dream turns into nightmare - Feb-17Mr Graham says that people across the US accept his argument that it is untenable to keep throwing good money after bad into institutions such as Citigroup and Bank of America, which now have a lower net value than the amount of public funds they have received. “You should not get caught up on a word [nationalisation],” he told the Financial Times in an interview. “I would argue that we cannot be ideologically a little bit pregnant. It doesn’t matter what you call it, but we can’t keep on funding these zombie banks [without gaining public control]. That’s what the Japanese did.” Barack Obama, the president, who has tried to avoid panicking lawmakers and markets by entertaining the idea, has moved more towards what he calls the “Swedish model” – an approach backed strongly by Mr Graham. In the early 1990s Sweden nationalised its banking sector then auctioned banks having cleaned up balance sheets. “In limited circumstances the Swedish model makes sense for the US,” says Mr Graham. Mr Obama last weekend made clear he was leaning more towards the Swedish model than to the piecemeal approach taken in Japan, which many would argue is the direction US public policy appears to be heading. “They [the Japanese] sort of papered things over,” Mr Obama said. “They never really bit the bullet . . . and so you never got credit flowing the way it should have, and the bad assets in their system just corroded the economy for a long period of time.” Administration officials acknowledge that the rescue plan unveiled by Tim Geithner, Treasury secretary, last week could result in the temporary nationalisation of some weak banks. The plan sets out a framework for revealing the extent of the likely credit losses facing banks. Most private sector analysts believe the exercise will reveal that some banks have large capital shortfalls. Policymakers acknowledge that if this is indeed the case, it will be difficult for those with the largest shortfalls to raise the required equity from the markets, in which case the government would probably have to take temporary control. Moreover, while nationalisation remains taboo in some political circles it is increasingly openly discussed among past and present economic policymakers of all leanings. “In this country nationalisation of some banks – not the whole banking sector – should be a last resort, but it should definitely now be on the table,” said David Walker, head of the pro-free market Peterson Institute and a former senior official in the George W. Bush administration. The time for biting the bullet may also be fast approaching. In early April, big institutions will publish their first-quarter results. If the intervening Treasury stress tests have not by then revealed the true state of their balance sheets, then their first-quarter results may do so. “The first week in April – that’s when the children’s party is over,” says Chris Whalen, co-founder of Institutional Risk Analytics. “That is when the obvious will become apparent.” The Obama administration remains opposed to federal control. Mr Geithner last week said: “Governments are terrible managers of bad assets.” Others say he may eventually face no choice. “The danger we face is a Freddie Mac/Fannie Mae scenario where government gives the banking sector guarantees and then socialises the losses,” says Adam Posen, an economist. “That’s the worst thing we could do.”
Blogger Singaporean Skeptic has some ideas why the hero wasn't Singaporean. Why were the Singaporeans only interested in taking photos(of the hero in his undies) instead of helping the woman? I was thinking maybe they were just Singaporeans who can't swim and had cameras with them at that time.
But the Singaporean Skeptic is really cynical about the whole episode....
Mr Lou should know that this is Singapore and that no good deed goes unpunished. We should forgive his selflessness as his common sense hasn't been affected/perverted by staying on this Island for a very long time. He wasn't taught this important lesson of just caring only for one's self.If only he experienced our National Service (or education system), he would have instinctively learnt to stand by the side and watch; like all those Singaporeans who took pictures of the incident to send to Stomp. If he did that, he wouldn't have lost his $90.Well this is Singapore and we are more forgiving towards foreigners (as opposed to locals who should know better). Most probably he will get his refund after enough people make enough noise.This post is dedicated to the Singaporean(or PR) behind the counter who was only doing her job and nothing more.
Straits Times Feb 17 2009
DUTCH Australian IT executive Filip Lou, 34, was in Singapore for a conference, but ended up saving a life.
He was with his friends and colleagues in front of the Esplanade on Sunday night when 'a European woman attempting suicide leapt off the railing in front of the Merlion' he said.
'I grabbed the life buoy and threw it in after her but she did not make any attempt to hold on. Not wanting to watch her drown, I passed my mobile and wallet to my friends, took off my clothes and jumped into the dark waters after her,' he told The Straits Times on Tuesday.
Mr Lou, who works for with ILOG, an IBM company in Sydney, said the woman was neither on drugs nor drunk.
'I think she said her name was Annika and that her boyfriend had just broken off their relationship. She said she had nothing else to live for. I tried to counsel her while floating in the cold dark waters until the rescue team arrived,' he said.
While trying to climb the steps onto the Esplanade, Mr Lou cut his feet and hands on the sharp stones. 'I was not aware that my feet were bleeding and leaving red footprints on the sidewalk. I was more concerned with people photographing me in my underwear,' he said, laughing.
Mr Lou and the woman he saved were both taken to the emergency room at the Singapore General Hospital (SGH).
'My wounds were cleaned, treated and bandaged; and I was given a tetanus injection. When I went to the front desk, I was told I had to pay $90,' he said. 'I understand that it was late and the woman behind the counter was doing her job. It was not up to her to waive the fees but I had just risked my life to save a stranger. Is this really standard policy? I was quite disappointed,' he added.
Despite having to pay the $90, Mr Lou said he would do it again if a life was at risk.
When approached, a spokesman for the hospital said it is unable to waive fees for medical treatment rendered. 'But if a patient has problems making payment, he can arrange for deferred payment,' she added, but declined to comment on the victim, citing patient confidentiality.
Tuesday, February 17, 2009
If you look at the exports to our major trading partners US & China, we are seeing falls of more than 50%. This is why I think JCS (Jobs Credit Scheme) will have very limited impact....the demand collapse is just too severe to overcome. At some point, the govt will have to have to implement off-budget measures because the fallout will simply be terrible. Where are the safety nets? Where are the safety nets? If you take it out too late, the bodies are going to hit the ground (not necessarily just figuratively speaking).
Singapore January non-oil exports fall record 35% on-year
By Ng Baoying, Channel NewsAsia Posted: 17 February 2009 1322 hrs
Singapore's January non-oil domestic exports suffered their largest year-on-year fall since records began in 1977, tumbling a worse-than-expected 35 per cent. January was also the ninth consecutive month of shrinking exports here. This comes on the back of falling demand from all of Singapore's top 10 markets amid a global economic slowdown. Compared to the previous year, exports to China fell by 52 per cent in January, while those to the US decreased by 50 per cent. Electronic products led the overall drop, falling by 38 per cent on-year after shrinking by 25 per cent in December. Non-electronic product exports fell by 32 per cent. Compared to December, non-oil domestic exports shrank 21 per cent. On a month-on-month, seasonally adjusted basis, exports fell by 3.2 per cent in January. This compares to December's 11 per cent slide. Analysts note that this decline is worse than that of September 2001, following the terrorist attacks in the US, when exports dropped 30.7 per cent. Across the region, Asian exports have been on the decline as the global economic downturn depressed demand for goods. Other badly hit countries include Japan, South Korea and Taiwan. - CNA/yb
Monday, February 16, 2009
"Sometimes we feel that we move at the speed of thought....funding in London, negotiations in Bangalore...nobody knows where the next deal will be....." - Temasek Recruitment Video.
Temasek Holdings hires 320 people and has offices around the world "seeking out opportunities", "taking concentrated positions". I always wonder why do they need to hire so many people to cut so many little deals all over the world - is it practical to do this? Shouldn't they just keep their equities investments simple by just investing in the best blue chips in each country instead of high risk positions such as ABC Learning, Global Crossing, startups in Silicon Valley? .... Can the resultant return/risk characteristics of their entire portfolio can be achieved by broad allocations in various asset classes?
Hiring 320 people to lose $58B just seems so downright inefficient to me.
If you allow them to be exploited, you will soon find your own low skilled workers either jobless or also exploited because the employers get used to unprotected workers whom they can treat anyway they want.
Now that the boom time is over and we no longer need them, we send them back....hey they are just one of the factors of production. But human beings are not machines, you can't just turn them off or turn them away when you no longer need them. They too have hopes, dreams and expectations of a better life. They too will be shattered when send them home with debts unpaid.
It may seem that we have no choice but to release them to safeguard some of the Singaporean jobs - but I hope we do this with a heavy heart and at least know the pain we caused to these migrant workers. In the long run, we have to ask ourselves if Singapore's way of achieving GDP growth at the expense of our own lesser skilled and older workers by bringing in hundreds of thousands of migrant workers whom we don't properly protect is beneficial to our society as a whole.
SINGAPORE, Feb 16 (Reuters) - Some 50 unemployed Bangladeshi migrant workers gathered in front of Singapore's Ministry of Manpower on Monday, urging the government to give them work and help retrieve overdue pay from previous employers. The shipyard workers said they were promised new jobs by ministry officials when they were moved out of their employers' dormitories after their firms went bankrupt and could not pay them. "No job, no money, only eating and sleeping," said Tutul Abdul Manan, a 31-year-old who said he gave up his temporary job with the government in the Bangladeshi capital of Dhaka and paid some S$9,000 ($5,964) for a brokerage fee to work in Singapore. Singapore's construction, shipyard and manufacturing industries were once red hot, hiring almost 800,000 migrants in 2007. But as the economy slid into recession last year, demand for labour dived and major projects were cancelled or delayed. Human rights groups say many of the world's estimated 100 million migrant workers are in dire predicaments as economic woes in the Gulf, Singapore and Taiwan lead to mass layoffs of labourers from across Asia. Protests in tightly-controlled Singapore were only made legal last year in a designated zone, "Speakers' Corner", modelled after the one in London's Hyde Park. Elsewhere public gatherings of five or more people are illegal without a police permit. The Bangladeshi migrants were allowed to meet officials after an hour of waiting. "We are trying to help them negotiate with their employer discreetly. But they have become more and more savvy by inviting the media here," one government official said at the gathering. Singapore defends the need for tough protest laws, citing concerns over public safety and order. But several international human right groups such as Amnesty International have said Singapore uses these laws to stifle dissent. ($1=1.509 Singapore dollar) (Reporting by Nopporn Wong-Anan) Keywords: SINGAPORE MIGRANTS/ (firstname.lastname@example.org, +65 6403 5665) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved.
Sunday, February 15, 2009
Billions invested “ are they safe?
Saturday, February 14, 2009
Here is an excellent article in the Asian WSJ journal that asks the questions that this blog has been asking and that every Singaporeans should be asking ....my comments in red.
Temasek and Transparency
Will a new CEO bring change amid tough markets?
Remember Ho Ching was suppose to bring change to Temasek? At that time, they said she will take 10 years to do it....looks like she is ahead of schedule leaving after 6 years.
Singapore's state-owned investment fund Temasek announced a change in leadership last week to a non-Singaporean CEO. We hope his appointment heralds a new era of openness. AP Charles "Chip" Goodyear. Temasek manages public monies, yet much of what it does is hidden from the public it aims to serve. Its stated mission is "to create and maximise long-term shareholder value as an active investor and shareholder of successful enterprises." But to what end? To support Singaporeans in times of recession, like now?
The excuse they used to give not to show Singaporeans was that there was sensitive information. Now that an American is hired as CEO what is there that cannot be shown to Singaporeans? To what end? Supporting Singaporeans? SM Goh said specifically it is not. Unlike the Norwegian reserves which is set aside for pensions, SM Goh said the reserves are used for economic crisis. Why then is so much of it invested asset classes that will be hit during crisis?
My opinion is the reserves are set up and managed in a way that will be beneficial to the elites who hold jobs in Temasek. The large size of the reserves can be used to justify high compensation and the secrecy means they can do so without accountability to the ordinary citizens.
Government officials in the past said they are accumulating reserves for an unspecified "rainy day." In a speech this month, Senior Minister Goh Chok Tong said reserves should be used only "under dire circumstances when one-off extraordinary measures are required to ward off catastrophe or prevent irreparable damage to the economy." A spokesman tells us that, "Temasek's charter is to manage these investments independent of the Singapore government on a purely commercial basis in order to generate sustainable returns for the benefit of future generations." But who decides when to use the reserves, and under what metrics? Temasek's murky goals are part and parcel of Singapore Inc., where the line between public and private firms is often blurred.
Future generations?....Its like "the tomorrow that never comes". They will tell the next generation it is for the next next generation...and the next next generation it is for the next next next generation and so on.
I suggest you read SM Goh's speech on the reserves very carefully [link]. Even a former PM with 30 years in govt can't articulate clearly what it is for. Managing $200B of taxpayer's money with murky goals is dangerous business. SM Goh said the reserves are for "rainy day" e.g. crisis yet according to Temasek mission statement it is "maximise shareholder value". These are 2 fundamentally different goals - where do you put your money that is meant for "rainy days" definitely not in equities!
It cannot be good govt to have this large pool of taxpayers money managed without transparency without clear goals and matrics. Singaporeans have been asking these questions for more than a decade long before the Shin Corp, Citigroup, ML, ABC Learning debacles. It is shameful they were ignored and it took such an unmitigated disaster for them to wake up (I'm not sure if they have?!!!). If this is the way our country is run, they will run it to the ground before they agree to beneficial changes that ordinary Singaporeans have been yearning for.
This corporatist approach worked for Singapore in its early years -- though of course we'll never know whether the market might have done a better job. Temasek was set up in 1974 as a holding company to manage state-owned firms and has nurtured successful, world-class companies such as Singapore Airlines and DBS Group, a major bank. The current CEO, Ho Ching, is the wife of Prime Minister Lee Hsien Loong. Today, however, Singapore needs to develop a more vibrant private sector that encourages entrepreneurship and innovation. The city-state is in the throes of the worst recession in its modern history, with GDP forecast to contract as much as 5% this year. Expatriates are fleeing and the government, for the first time, is going to tap its reserves to the tune of S$4.9 billion ($3.3 billion) to help fund a stimulus package. But if this is the "rainy day" Temasek is there for, why not give back the fund's piles of cash to taxpayers and let Singaporeans invest their own money? As of March 31 -- its last public annual statement -- Temasek's portfolio totaled S$185 billion. During the course of a parliamentary debate Tuesday, the government announced a 31% drop in the company's net portfolio value between March 31 and November 30 last year. The decline was not unexpected, given the world financial crisis and some poorly timed investments, including $5.8 billion in Merrill Lynch and Â£975 million ($2 billion) in Barclays. Temasek says it oversees its portfolio prudently. But it has never provided historical financials to back up its claim of an 18% compounded annual "total shareholder return" by "market value," nor has it released detailed results showing how money flows among its subsidiaries, the holding company and its government shareholder. Temasek outlines its compensation arrangements but doesn't say how much it pays its top executives. (it pays them very well lah!) Temasek is 100% government-owned and isn't required to release publicly audited financial statements. The President of Singapore must sign off on the "appointment or removal" of the CEO and board members, according to Temasek's annual report. It cannot "draw on or diminish our past reserves without the President's concurrence." So even while it is a "commercially disciplined investment firm," as the company says, Temasek still answers to the Singapore executive. This system would be more effective if Singapore boasted a more vibrant democracy with better checks and balances. All of which makes last week's change at the top of Temasek all the more intriguing, and an opportunity. Replacing Ms. Ho in October will be American Charles "Chip" Goodyear, who will be Temasek's first foreign CEO in its 35-year history. Mr. Goodyear is a Wall Street veteran -- not always a compliment these days -- and the former head of BHP Billiton, the world's largest mining firm. He has run firms accountable to their shareholders, and run them well. 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.
Singaporeans remember this : You get what you vote for.
Friday, February 13, 2009
The large part of reserve money invested in banks and lost is probably gone forever. In every suggested solution from the one by US Treasury Secretary Giethner[Link] to the more drastic one suggested by Professor Roubini[Link] shareholders including preference shareholders will be badly diluted or wiped out completely. Any solution the US govt put in place, it will aim to recover its own money first before bond holders and shareholders are the last to get anything. We'll probably not get our money back not in 100 years. One can understand that money is invested can be lost...although Singapore lost far more money than any other SWF, the issue goes beyond these losses.
SM Goh told us recently that the reserves are meant "to ward off catastrophe or prevent irreparable damage to the economy." i.e. it is meant to save us during crisis[Link]. Why then are reserves invested in such risky assets that are so badly hit in a crisis? ...even before we dipped into the reserves for $4.9B to handle this crisis $58B was already wiped out before the crisis hit the real economy and affected the citizens badly. If you're living in a hurricane area and want to prepare for the occasional disaster, you would store your reserve food supply in a safe area, you shouldn't be putting it where it is exposed to the hurricane.
Temasek Holdings should be reformed and the way we building reserves relooked into. What is the correct size of reserves? ...What is the correct risk level they should take? So far they have build these reserves in a "more the merrier" manner. Remember the reserves are the build up from the blood and sweat of Singaporeans...more reserves doesn't mean better because it comes from Singaporeans. Other funds are managed by smaller teams and are fully transparent e.g. Calpers and Norwegian pension funds. It should be managed by experienced professionals not people whose expertise are in other areas (how many funds did Ho Ching manage before joining Temasek, how many funds did the former CDF Ng Yat Chong manage before joining Temasek?). Yes, these are brilliant elites whose brain power lesser mortals cannot begin to appreciate but shouldn't Temasek be hiring experienced fund managers with track records? We continued to be told incomplete truths about our reserves such as revelation that Temasek Holdings performed better than benchmark stock indices (31% vs 44%). The fact is not all of Temasek's Holdings are in the form of equities e.g real estate and other assets which are not traded on the markets and accounted by book value so the benchmark wasn't an apples to apples comparison.....this fact was not missed by netizens[Link] [Link]
MM Lee explains Singapore's long-term investment horizon
By Valarie Tan, Channel NewsAsia Posted: 06 February 2009 2325 hrsSINGAPORE : Singapore's Minister Mentor Lee Kuan Yew has said the country has over S$100 billion in reserves today, unlike the 1960s when the country first gained independence.But the Republic has not relied on borrowing to fund its investments.Mr Lee said: "Within three to four years, the economy must recover."The minister mentor gave his forecast on the economy to 1,500 of his Tanjong Pagar constituents at a Lunar New Year dinner on Friday.He said that the Singapore government turned many of its stocks and shares into cash early last year before prices went down. That was why the country was able to invest in the American banks.Mr Lee explained: "When we invest, we are investing for 10, 15, 20 years. You may look as if you are making a big loss today, but you have not borrowed money to invest. You will ride the storm, the company recovers, your shares go up."But he said that Singapore is not a master of its own economy.He said: "Of all the economies in the world, we have the highest percentage of external trade - three and a quarter times our GDP. No other country has got that size of external trade. So when the external trade shrinks, remember it is going to hurt us."Still, Mr Lee is confident Singapore will recover from the current downturn, due to various reasons like good labour relations and pro-investment climate in the country. But he said that giving handouts will not help boost spending and the economy."So those MPs who say, 'Give S$300 to every citizen and we will boost the retailers', they just do not understand the bigger picture. You give S$300 like that and it is gone in a shot, and all the things that they will buy, three-quarters of it are imported," he said.Mr Lee added that, with luck, America's economy may recover by the end of this year or early 2010. He said the outcome of President Barack Obama's economic plans is expected in nine months. And by then, the Singapore government may have to update its record S$20.6 billion national budget. - CNA/ms