Sunday, August 28, 2011

Dr. Tony Tan wins the PE....

But the real surprise is how well Dr. Tan Cheng Bock did losing by a mere 0.34% of the votes. Dr Tony Tan secured 744,397 or 35.19 per cent of total valid votes, while Dr Tan Cheng Bock received 737,128 or 34.85 per cent of the valid votes.The difference is a mere 7300 votes.

This year the role of the president was the hot topic of the PE. You noticed that Low Thia Kiang had firmly and shrewdly kept the WP out of the PE...while NSP's Nicole Seah and Steve Chia were running around campaigning for Tan Jee Say along side members of the SDP. The WP is very clear about the role of parliament in policy making and do not want a pro-active president to undermine the power and authority of parliament. In fact when the PE was first proposed, JBJ who was heading the WP specifically warned about an elected president taking away some of the parliament's power.

Watch this video and you will realise the wisdom in JBJ's argument.






A elected president selected by the people will have a mandate, power and moral authority that will give our govt additional challenges if he doesn't stick to the 'limited role' as laid out in the constitution. For this reason the WP opposed having an EP. What is the use anyway? If it is to prevent a rogue govt, then the factors that led to people voting a 'rogue' govt will also lead to support for the same type of president.

The presidential election naturally becomes an extension for the segment of people who find themselves under-represented after the results of the GE. 40% voted against the PAP are represented by a small number of MPs due to the GRC system. It becomes hard to the PAP to keep the President to the limited scope unless their endorsed candidates win all future elections.

The best safeguard for our reserves is a people with the correct set of values...and Singaporeans have that. Foremost on the minds of Singaporeans is not how to raid and squarder the reserves but how to prevent catastrophic losses like what we have seen in recent years and greater transparency. Dr. Tony Tan the PAP endorsed candidate only garnered 35% of the votes and 65% of the people voted against him. You can argue that if the votes were not split and if Tan Jee Say had not run, Tan Cheng Bock would have won and if Tan Cheng Bock did not run, Tan Jee Say might have won. People generally see little purpose in having a PAP endorsed candidate check on a PAP govt. If a non-PAP endorsed candidate wins, they are looking at him to play some other role as 'uniter', 'voice of the people' and 'agent of change' - all of which can be played by MPs.

What do you make of the PE now? Things have become a lot more fluid....and somewhat unnecessarily complex. The under-representation problems caused by the GRC will now spill into presidential elections to drive demand for bigger role for the president. We would have a simpler system if we eliminate GRCs, the PE and put all the political power in parliament with the check and balance coming from opposition MPs and an independent media that keeps the people informed.

You go back to the video that is 19 years old and you see a very young Lee Hsien Loong arguing for an elected president. 19 years later, he and his govt is vigorously reminding the public that the intended role of the president is very narrow and small.....and many just don't see it that way. Why should they when the whole country goes out to vote for one man to occupy the office of president? That was what JBJ tried to warn the young Lee Hsien Loong about...and that is why the WP stayed out of the fray to keep iself focussed on winning parliamentary seats.

Surprise! Tan Cheng Bock in close fight as counting progresses....

....heard this from the counting centers.The remaining vots is from the West which should favor him.

The only people who handed me something related to the PE last week were TCB supporters. I was at an MRT station and they give me a few stickers. Friends reported they received a viral SMS urging them to consider voting for TCB and his campaign brochure was sent to most households. Still, I did not think he could garner enough votes to take the lead given it has been a long time since his term as MP and PAP supporters are likely to vote for Tony Tan and opposition supporters will choose among the 3 non PAP endorsed candidates.

TCB's close fight with Dr. Tony Tan could be due to his extensive campaign and reaching out to ground. Many of his former constituents and patients came out to support his campaign.

His campaign slogan  "Think Singaporeans First" has perhaps rung a bell for the many Singaporeans who today are feeling they have been moved to 2nd place.

Saturday, August 27, 2011

First Time S'poreans get to vote twice in the same year....

This is a landmark year for democracy in Singapore.

Many Singaporeans who have never voted in their lives got to vote twice this year. Until a few years ago, the word 'apathetic' was often used to describe Singaporeans - they didn't care much about politics, nobody thought much about govt policies and many didn't know or care about problems faced by their fellow Singaporeans. Things have changed quickly in the past 2 years . There is rising political vibracy, greater interest in govt policies and concern for the future of this country. The transformation has not been disruptive as other countries but sufficiently effective to start the process of change in this country.

The Internet has been instrumental in this change and has forced the mainstream media to become more objective in its reporting to stay relevent. The PE saw extensive coverage of each candidates  and the MSM reported their views and agenda in a manner not seen in other elections. No more one sided reporting that would have driven readers to seek  the truth on the Internet. The Internet also allowed candidates to directly address voters and brought the campaigning messages into every home so that every voter can informed decision. Elected leaders today have to reach out and connect with their constituents using Facebook, Blogs and YouTube. I believe in the coming years this need to reach out to voters will actaally influence the policy making process and will shape the future of this country in the coming years.

There is this constant fear among some Singaporeans that as we move away from the authoritarian style of govt, oir leaders will begin to steer this country towards populist policies harmful to the long term servival and growth of Singapore. Actually if you look at PAP policies many of the more unpopular ones were the cause of long term problems for the country - "the stop st 2" policy,  FT policies, housing policies etc. There are very few policies, perhaps no policy, that achieve long term good that cannot be explained with clarity to people to earn their majority support. At the end of the day, it is the people with the right value system and ethics that will secure a good future for the country - no amount of leadership can force people to walk the path of success if they inherently don't have what it takes. The great divide between the leadership and the people has to be closed by aligning the interests of the leadership with those of people. The more informed ..the more interested the people are the greater the opportunity for the leadership to set and realise long term goals that will change this country for the better. We cannot muddle along without a clear vision of the future.

Whoever become our president has gone through the process of winning votes and getting the support of the electorate. The person who wins this PE cannot  perform a Nathan-style presidency but has to continue to connect with the people when he is in office.

Where the votes go in the presidential election will tell us a lot about the ground. Many expect Tony Tan to win because he is a well known figure still respected by many of the older voters who are also typically PAP supporters. If anyone else wins, it will be a surprise and surprises will tell us a lot more about how the ground has shifted and how wide the divide between the PAP and the people is. There is no estate upgrading carrot in the PE and many view the president as someone needed to check on the PAP.....and how far the votes swing against the PAP-endorsed candidate is a meaure of how much trust is lost. I don't think we will get a big surprise ....but you never know until the votes are counted.

Stock market valuation in perspective...

A few days ago, I went to the brokerage firm to collect some data, I met a man about 20 years oldrt than myself with a folder full of documents. I overheard him telling the receptionist that he was there to open an online account and had brought documents to show his financial status so that he can get a good limit to buy stocks. He turned to me and asked me if I had an account with the brokerage and whether their system was any good. Having failed to get into the system a few times during the busiest times in the past few weeks of market panic, I told him that he might want to another account somewhere else in case that happens.  He then told me that he was going to buy stocks because he thought they had fallen far enough and was very cheap. I told him I was not too sure because the situation in Europe might get really nasty and cheap stuff can become cheaper. He wasn't worried...that the investors was worried about a recession but for him recession was nothing to be afraid of....his strategy of investing in dividend paying defensive stocks in large companies does have some merit. However, what was not clear to me was whether a recession is discounted already by the market falls.

I've seen analysts saying probability of a global recession is anything from 20 to 80% - my take is we are probably more likely than not to go into recession but how deep it is depends on what happens in Europe - is the situation is contained we may have slow growth or a mild recession....that is roughly the same. But has the stock market priced that in? ....


The graph above shows the price of stock relative to book value. Book value rough speaking is the amount of money that a holder of a common share would get if a company were to get liquidated i.e. stop its business and sell off all assets. If ever the stock price falls below the book value, value investors would consider it a real bargain and stocks are absolutely cheap because you can technically liquidate the company and get all your money back plus profits. Stocks have fallen below book value only twice in the last 25 years both times during a crisis - the Asian Crisis and Financial Crisis. During a garden variety recession stocks do fall but stay above the book value.

Using book value as a reference, the recent stock market fall has taken us roughly to valuation levels just after the 911 attacks in Sep 2001 - remember the post-dot com bubble recession? It was a slow drop for stocks that took about a year as stocks slowly but steadily drop as the economy slowed towards a recession - then the 911 attack suddenly came people were already expecting a recession. There was a post-911 bounce when the US Fed cut interest rate aggressively but SARS cam and took further below the post-911 low.

The stock market right now discounts a mild recession and definitely discounts a slowdown in the global economy. However, it does not discount some kind of crisis like SARS or a financial crisis.

The big question now is whether the European debt situation can be contained and stabilised....and put into some kind of graceful degradation to spread the pain over time. Speculators attacking the stocks of  European banks attempt to precipitate a crisis and we know from past crisis that they can succeed  bringing down the European banking system and put the European economy into a deeper recession than necessary. In an earlier article, I explained that large amount of Greek and Italian debt held by German and French banks links the sovereign debt crisis to the European banking system . I'm not optimistic that the worst case will not happen especially after seeing the disunity among European leaders. Having said that the ESFS[Link] is probably sufficient to buy some more time provided the govts step in to aid the banks (read Why European Banks are Stressed out? and Faith in European Banks Fraying). They might not because it is politically unpopular[Investors Fret at costs if rescues are needed] and Ireland got itself into a mess because the govt's rescue of the banking system sank the country into deeper debt. If they want to do something about the banks, they will have to do it soon otherwise it will become too expensive and too intractable. Something like Buffett's US$5B injection into Bank of America [Buffett Pockets $1B in BoA 'rescue']can do wonders to restore confidence.  If nothing is done soon, this crisis will run its full course....and you may get the chance to buy stocks below book value just like during the Asian Crisis and the Fincnial Crisis. [Here is an excellent paper explaining in full the situation in Europe and possible outcomes :  Europe on the Brink]

Friday, August 26, 2011

Ivy Singh Lim : I've never seen my country so divided so unhappy so sad....



Ivy  Singh Lim spoke at Tan Kin Lian's rally yesterday. If you missed the news a few months ago, Ivy kissed the floor of outside the Supreme Court when her brother was acquited by the court.

If you find what she did somewhat amusing, you should consider the fact that her brother spend more than a $1m and 10 years to clear his name. Ivy promised to kissed the floor if ever her brother succeeds in his decade long pursuit of justice. Ivy's deep sense of justice and equality was strongly expressed in her speech.

Unlike that General Elections campaign which focuses voters' attention on various policy issues, the PE is focused on the character and morality of the candidates. Each candidate in the PE is far more scrutinised  than those running for seats in the parliament. Rightfully so because the president who is voted into the office by the entire population of eligible voters becomes the voice of the people - he represents the collective sense of justice...of what is right and wrong in our society.

In Sept 2008. tragedy struck thousands of Singaporeans who saw their life savings wiped out by the collapse of Lehman Brothers. They were sold complex financial products by banks that marketed them out as safe investments then covered themselves legally by getting the buyers to sign various forms.to declare they understand the risks and so on. I watched this saga closely as I wanted to see how our leaders and the authorities would respond - were they able to see that justice is not determined by rules but by outcomes? Which minister, which MP, which leader would step forward to help these Singaporeans? The minute MM Lee said that these Singaporeans "went in with their eyes open" and had no legal case, no PAP MP or minister dared to lend these people a hand. It was in those dark days than Mr. Tan Kin Lian stepped forward to speak up for these people - many of whom were illiterate, old and poor.

You see, Tan Kin Lian understood that justice does not come simply by applying the laws rigidly. The people who lost their savings trusted our big banks and never for one moment think that had to deciper the legal jargon of forms they sign. For ordinary folks, justice comes when you deal with people can trust - they are not educated as lawyers ...what good is the law anyway if it allows injustice? It was Tan Kin Lian who stepped forward, it was Tan Kin Lian who lend his hand to organise petitions and put pressure on the authorities. He didn't worry about offending the powerful banks, he didn't care if the authorities would come after him, all he cared about was justice...justice for the common people.

Whoever wins this election, Singaporeans have already won. Thanks to the candidates who stepped forward and offered much more, the Singapore presidency will never be the same again and the expectations for how the president can connect, represent and help the people will mean who ever wins this election will have to do the work of the people. The campaign process also brought out the prominent people like Ivy Singh Lim and Petrina Kow (hosted Tan Jee Say's rally) who came out to support the non-PAP endorsed candidates. They echo the same sentiment as those who feel that change is badly needed here and this country has "never been so divided, unhappy and sad".  This feeling also drive Singaporeans to vote for a president who possess a strong moral purpose and values sorely missing in the leadership of this country for so many years.

When Singaporeans stand in front of the ballot box tomorrow, they are not to be bothered with what the govt experts say about the limited role and power of the president and that he should remain silent on policies that affect Singaporeans. Just like in those dark days following the Lehman Brothers collapse, if ever the people need a voice to speak up for them, they cannot  afford to have a president who is silent or will say what the govt wants him to say. They will need someone who embodies the values, morality and courage to be able to stand up for them as an elected leader and representative of the people.

Monday, August 22, 2011

The return of poverty........

On my way to work, I pass by this condominium called The Marq On Patterson[Link]. The Marq is the most expensive property in Singapore priced upwards of $6000 psf.

"The Marq offers the design features of a good class bungalow; space as a basic tenet of luxury, the airiness of double-volume ceilings and a 15-metre private lap pool cantilevered over the city skyline for each unit within The Signature Tower, luxuries elevated by every amenity expected of an ultra-luxurious condominium from the spectacular panoramas of the city skyline to the attentive service of the Concierge and management team." 

The Marq represents the pinnacle of luxury and opulence in Singapore. While the Marq was constructed, the queue and demand for rented flats also rose. A rising number of Singaporeans cannot afford to own property because prices of public flats have outstripped income growth which has either remained stagnant or fell among the lower income families. The extreme difference in the quality of housing located on an island roughly 700 square kilometers represents the startling economic inequality that has arisen in the past 2 decades. For a short period in the late 80s and early 90s, the HDB was able to stop building rental flats because the demand was too low as even the lower paid workers' real wages for those holding full time jobs was sufficient to own a flat and raise a family. 2 decades later, after so much expansion in our GDP, we find the demand for rental flats growing again. Poverty is back and rising - Singapore workers today are not less skilled than they were in the 1990s, they work longer hours than ever before and have to compete harder than they ever did with the foreign influx. Yet what they got out of their working cheaper, better and faster is rising poverty.

I don't know if you caught this interview of Goh Chok Tong by a reporter during the GE2011 campaign. Goh Chok Tong was asked about the Swiss sstandard of living he set off to achieve as PM. He said people who accused him of failing to achieve the target of Swiss standard of living didn't know what they were talking about - his goal was for Singapore's per capita GDP to  reach the targeted Swiss GDP of 1984 in 1999 (adjusted for inflation). This goal was actually achieved in 1994 ahead of schedule when Singapore's per capita GDP reached US$20.4K  roughly the same as Swiss GDP in 1984 adjusted for inflation to 1994 US dollars. Anyone who has been to and lived in Switzerland for a while will not hesitate to tell you that the quality of life in Singapore is no where near the Swiss standard of living in 1984. Using GDP as a yard stick misses too many things - GDP doesn't say how hard a person have to work to earn his income, it doesn't say if he has access to good health care, public transport and housing,etc. But the most important thing is per capita GDP does not say anything about how wealth is distributed. It could well be that the privileged few are enjoying Donald Trump's opulent lifestyle while many others are struggling as if they are living in a developing country.  In recent years, the PAP govt has tried to attract the rich in the region to take up citizenship here - their wealth and income will be counted in our national statistics and we will show in instant jump in GDP. One striking example of this approach was seen when the govt released figures to show a rapid rise in the income of Indian families. A closer look reveals that the large jump is due purely to the import of Indian professionals who earned higher incomes. How does that benefit local Singapore Indians who saw no significant jump in income?  This numbers game is an illusion and distract us from real viable approaches to improve the lives of Singaporeans.

At the same time the income gap is rising, the govt exacerbates the effects of the inequality by passing as much burden of retirement, health care and education to individuals and their families as possible to keep taxes for the richer segments of society and corporations low.  This approach has resulted in a widening division of our society. Those at the top who are rewarded to the tune of millions and at same time have people who work all day and still cannot afford basic necessities because there is no minimum wage. The playing field its tilted so much in favor of those who are rich, we are probably in a vicious cycle in which the rich get richer faster and the poor get left further behind. Unless the govt intervene meaningfully we, as a society, cannot get out of this cycle. The PAP govt, however is extremely resistant to ideas that can bring about greater equality due to its ideology. Take CPF Life as an example. The govt goes out its way to create a complex scheme to force Singaporeans to shoulder the burden of "ultra-longevity" - people living beyond 80 yrs old . The scheme stretches the already insufficient CPF further resulting a poorer quality of life for those who are poor. They could have funded this tail-end retirement  through progressive taxation - a small increase in the taxes of our top 5-10% would have been sufficient. Lower income Singaporeans are already struggling to with the burden of retirement - through forced savings to the CPF - for them to shoulder the burden of their own retirement means a big cut in their quality of life ...yet the PAP pushes this further because they want to protect the wealth of the rich by keeping their taxes as low as possible and the burden on the sick, poor and disabled as high as possible.

Today we need a balanced approach to break this vicious cycle of rising poverty in our society. While the PAP refuses to stop allocating advantages to the rich and burdening the poor, Singaporeans in general do not share this philosophy of protecting the rich. We are tired of labor policies that gives big corporations unfettered access to cheap foreign labor so they can make higher profits while depressing the wages of ordinary Singaporeans. We are tired of the system that PAP put in place that does not result in a shared prosperity. It is now 3rd world living stardard for the underclass vs living in the Marq for the richest in our society.

Dr. Lim Hock Siew challenges Tony Tan



If you look at the video in the previous posting, the young lady from human rights group, MARUAH was asking the presidential candidates a very specific question - whether they think the arrest of alleged Marxist Conspirators in 1987 was justified. Tony Tan went on to answer her question by explaining the dangers of terrorism as if the ISA has been primarily used against terrorists. Lim Hock Siew speaking at a memorial for Tan Jin Quee challenges Tony Tan to prove that he was a terrorit and those arrested in Operation Coldstore and Operation Spectrum were terrorists. He also challenge the govt to form a board of inquiry to look into the past arrests and human rights abuses of the ISA.

We don't expect the PAP to take up any of Lim Hock Siew's challenges because the outcomes will likely not be i favorable to them. We don't expect the PAP to apologise to these detainees for ill treatment as it will amount to an admission that they have violated their human rights. The PAP govt can do itself a favor by reviewing the ISA and replacing it with an anti-terrorism act that is more suited for the threats of today, Retaining the ISA shows that they are unable to break free from an authoritarian past that younger Singaporeans find hard to accept.

Sunday, August 21, 2011

Tan Jee Say and Tony Tan Exchange on ISA...

At a forum organised by The Online Citizen, a participant asked the presidential candidates about the ISA. Here is the exchange:

TJS : “I don’t even know whether it was justified in the first place, because the ISA has been used on political opponents and those on the other political side of the law…”

Before Tan Jee Say could complete his sentence, Tony Tan interrupted him.

TT: “When one says this is used against political opponents, I think this is a very serious charge. You must be able to back it up"


Tony Tan spoke about the neccessity of the ISA because terrorism is a threat in modern Singapore. There has been calls to abolish the ISA to replace it with an anti-terrorism act so that it is more effective against terrorism rather than having it as a blunt instrument that can be misused.

Tan Jee Say then said that the ISA was used on "political opponents" and Tony Tan interjected to demand proof to back up this assertion. Actually, TJS did not say the ISA was used on people "because" they were opponents of the PAP. He said the people arrested were political opponents of the PAP.  This assertion is factual because most of the people arrested and detained under the ISA were indeed opponents of the PAP - many, if not most, were opposition members e.g. members of Barisan Socialis, Workers' Party etc. The question is whether these people were arrested because they opponents of the PAP or they were violent communists, anarchists or terrorists....and just happened to be members of the opposition. Singaporeans have been waiting for proof of the later for more than 20 years. Many of the detainees released have stepped forward to say in public that they were not violent communists but socialists or just supporters of the opposition. Not a single weapon, plan of violence, hint or evidence of any sort terrorist intent has been shown to the public for those detained under Operation Spectrum and Operation Coldstore. If there is anyone who has to back up their assertion, it is the PAP govt that detained some of these people for decades. Detainees reported that they were interrogated, tortured, traumatised and were forced to sign "confessions" - if there were acts of violence, it was not committed by the detainees.

Tony Tan said that he was part of the cabinet during the Marxist Conspiracy and cannot reveal more because of the OSA. Lets put it this way, the govt had so little evidence at that time, they had to put the detainees on TV to "confess" their "crimes". These people were re-arrested when they revoked those confessions which they said were made under great duress.

Teo Soh Lung and Vincent Cheng both joined the SDP and went public to describe in detail what they did and what happened to them in speeches leading the last elections.

If you want a president who stands for justice and fairness, you really have to really have to ask yourself whether you can find it in someone who supports and justifies the draconian ISA. No other developed county has it or need such a legislation to ensure peace and security for its people. It was Tony Tan's opportunity to show his independence and he blew it.

It is a mistake for the PAP govt to retain the ISA and ISD as it is a constant reminder of what they have done and how it was used it in the past. By keeping it, they make themselves less acceptable to newer generations of Singaporeans who find such draconian laws unnecessary and ineffective in  a modern society. The older generation of Singaporeans who had gone through the tumultuous years of colonialism, world war and developing world poverty saw a society in rapid transition towards modernisation and prosperity were perhaps more amenable to the ways of the PAP and Lee Kuan Yew. As a society, we have to move on from here and away from authoritarian past towards a more democratic future. The ISA is like a chain that tie us down with fear and a reminder of the unjustified acts committed our fellow Singaporeans.

Saturday, August 20, 2011

Reasons for Growing Interest in the PE...

Many years ago when the 1st PE was held in 1993, there was hardly any interest in what president duties and powers were and what role he played. Most voters only knew that he was there to "safeguard" the reserves. Many knew one of the 2 candidates, Ong Teng Cheong, and few will remember the other candidate who garnered 40+% of the votes simply because people did not want someone linked to the PAP win the PE. It turned out that President Ong was more independent than expected and today many people respect him for the work he did.

Today, we see that interest in the PE has grown tremendously. The idea of "safeguarding the reserves" is no long an abstract notion after the huge losses of our sovereign wealth fund during the financial crisis and increased concerns among voters about how Temasek Holdings and GIC are managed. Singaporeans now wants an independent president who will carry on where President Ong left off to perform the checks and balance on the govt. While it has been explained in the pro-govt media that the constitution limits the powers of the president, the elected president will have the moral authority and support of the people to carry out an agenda that he has campaigned on.

There has been a political awakening of Singaporeans during the 2011 General Elections. Voters start to question not just PAP policies but whether the govt's interests are aligned with their own. Even the Straits Times wrote about a "lost of trust" in the PAP govt.  For this reason, voters look for candidates that are truly independent and will proactively seek to address the concerns of Singaporeans surrounding the management of our reserves. I see little point of voting for a PAP endorsed candidate who will do what the govt recommends and limits his own role  - people don't want another President Nathan at this point in time.

As I speak to ordinary Singaporeans, the issues that concern have gone beyond crowded buses, unaffordable housing and the foreign influx. The socio-political system we live in does not seem to be able to generate a good quality of life and desirable outcomes that people seek. The challenges are overbearing for many and inequality is built into the system. For Singaporean men, the system requires them to serve NS and reservist duties while education and employment opportunities are sometimes given to non-citizens. That is why the issue of how one of the candidate's son manage to defer his NS for 12 years became a sore point among Singaporeans - many talented individuals delay their tertiary education to serve NS and even scholars have to return regardless of 'great' opportunities in graduate studies in renowned universities. Singaporeans really want a president who stands for equality, justice and fairness in our society....they want a president who pursues these with conviction.

I see the interest in the PE as a healthy development in Singapore politics. The PAP often laments the lack of leadership talent in Singapore and difficulty in finding people willing to run for public office. Today, we have 4 Tans all highly qualified who have stepped forward for to run for the PE. The problem with Singapore politics has not been a lack of 'talent' but rather a lack of competition on a level playing field. With the Internet, socio media and rising awareness among Singaporeans, the challenge now for the PAP is not a lack of political talent but talent that emerges from a more centrist ideology on the political spectrum to compete with the PAP.  While the PAP ideology is not naturally appealing to the populace, it rides on goodwill and achievements of the past and authoritarian control over the state media and grassroots organisations. With its grip on power sliding, it needs to reposition itself to stay relevant and softening the edges of its policies is not sufficient to deliver a better quality of life to Singaporeans in the future. Until the PAP is able to do that, the electorate will continue to look for alternatives and we will see this desire express in the votes for the president.

Tuesday, August 16, 2011

National Day Rally : A few tweaks but where is the vision?

The Natinal Day Rally this year after the 2011 General Elections is an opportunity for the PM to address the deep unhappiness among Singaporeans seen during the election campaign that ultimately resulted in a big swing in % of votes against the PAP. His speech outline changes to housing, foreign influx, education and healthcare - raise income ceiling for HDB purchase, increase university intake of Singaporeans, tighten the criteria for employment passes  and lowering the age for subsided Primary Care Partnership Scheme (PCPS) from 65 to 40. While these are changes in the right direction, they are changes that are long overdue for problems that have frustrated Singaporeans for many years.

The income ceiling for HDB should have been raise years ago - this celing was kept as the prices of HDB flats rose and it wasn't even adjusted for inflation. The increase intake of Singaporeans in universities partially address the aspirations of Singaporeans who are capable of getting degrees but have been squeezed out of local universities - they end paying to get an overseas degree. Does it make sense to give scholarships and places to foreigners when our own citizens capable of getting degrees have to go overseas to get one? This shouldn't have happened in the first place. As for the tweaking of criteria for employment passes, after they do this, Singapore's foreign influx will remain high. This large influx on a per capita basis exceeds those of all countries we compete against and is the highest by a big margin compared with all other developed nations. The economic fundamentals that has led to such a big dependence on foreign workers remains - our low productivity and large number of industries dependent on cheap labor.

In recent days, instead of outlining a economic plan to reduce our dependence on foreign labor, the govt has fallen back to tell us not to be "negative" about foreigners and embrace them. It just shows how economically entrenched we are - the PAP took a short cut to keep the GDP growing by simply expanding the workforce with a high foreign influx, now they can't turn back and the dependency just grows with time. Worse still, they try to get us to accept this policy using disingenous reasons like our low birth rate in an attempt to push the blame on ordinary Singaporeans - the fact is the foreign influx is many times higher than what is needed to make up for the shortfall due to low fertility.We need a plan to grow this economy without depending on the foreign influx;. GDP growth achieved in recent years has been like empty calories from soft drinks, the side effects exceed the benefits causing a rising tide of dissatisfaction among Singaporeans.

We need bold leadership and a grand vision to reshape our future. We need a truly universal healthcare system in place not one that leaves out thousands of Singaporeans who do not have insurance or whose insurance coverage has been outstripped by rising medical costs. We need an education system that will level everyone starting from a high quality pre-school education to overcome the large inequality we have in our society. We need a truly world class public transport system that will elevate the quality of life of millions of Singaporeans not one that has to compromise quality with the need for high profits.

With a few tweaks, the PAP govt hopes to move this system along. 4 years from now the demand for change will be even greater. Merely softening the edges of policies and not making fundamental change will not get us very far. Perhaps, the people will be slightly less unhappy in the short term but they will remain unhappy nonetheless. 4 years from now they will feel that little has been done and by then those who had given the PAP a chance in the last GE may run out of patience waiting for real change.

Monday, August 15, 2011

Stick Market Turmoil - fear as opportunity?...Part 3...

I'll talk about "opportunities" a little later ......Seah Chiang Nee has an interesting perspective on the recent market plunge[Link] in his weekend article. He wrote about how materialistic Singapore has become and how happiness is linked to wealth and money.. Because of this materialistic nature of our society, losses from the stock the market plunge affects Singaporeans more painfully than say people in Malaysia. After reading the article, I told myself, the real misery for most people come not when the stock market plunges but when the property prices falls from the peak as so many Singaporeans have their wealth tied to property. While poverty brings absolute misery, due to lack of basic needs,  if you go above that, money is not really a factor - the person making $10K a month is not necessarily happier than a person making $5K a month. But in Singapore why do people believe wealth is linked to happiness? Why do so many graduates believe that they should "go for the money" above everything else? There are more students today trying to become "wealth managers" than those who trying to be engineers to create something that will improve the world or becoming teachers and so on. 30 years ago, teaching was seen as a noble profession - it still is but young people are not attracted to it because they think teachers today have a tough life.

The reason for this new materialism in our society is linked to the degraded quality of life for the middle class. Today we see struggling teachers, struggling engineers, struggling chemists. If you go right down to delivery man, technicians and kindergarten teachers, it is about not making the ends meet. Many of my friends with engineering PHDs (those who got in in the past 2 years) still take the bus/MRT because they are financially prudent and the mathematics of those large home loans mean that they will take some time to escape the risk associated with those large debts. The top earner among NTU students this year starts off with a salary of about $10,000 because he found a job at an investment bank - so the inequality begins right upon graduation! Warren Buffett's partner Charlie Munger once wrote about the dangers of financializing an economy in which large income gap starts to draw talents out of jobs that will bring great benefits to society to a sector to one that merely moves money around without creating any tangible value to society. Of course, some of you may be clever enough to point out that Charlie and his more famous partner, Buffett, are the greatest speculators (value investors?) the world has ever known. At least they are donating their vast wealth to charity to benefit the rest of society ...also when they choose their careers as money managers the world was a very different place and the were very few young men going into this business. They, better than anyone else, know that a little greed helps to grease the wheels of capitalism but too much greed and you can burn the house down.

Now back to the markets. Roll back to Jan 2011 when everything was hunky-dory. Then came the Japanese Tsunami, re-emergence of the Greek Crisis,  followed by fears of a European contagion spreading to Italy and Germany + French banks....to make matters worse, US debt was downgraded to AA....and now there is talk of another recession coming our way. So if you talk about fear,  the is plenty to go around.  The question is whether opportunities exist. I would like to bring your attention to this little piece of news that you could have missed if you have been too busy [ Warren Buffett explains why fear overshadows greed] :

"Be fearful when others are greedy, and be greedy when others are fearful." - Warren Buffett.


Warren Buffett has been buying stocks in the past few weeks. His timing is a bit off as he was buying before the sharp selloff following the US debt downgrade by S&;P. The lower prices makes it even more attractive for a value investor like himself to accumulate stocks. However, I caution you not to follow Buffett blindly as hims time horizon might be 2-3 years vs your own time horizon. The fact that he is buying means that stock valuation has reached a value threshold with sufficient safety margin to be considered great buys for value investors. Some of you may ask - isn't a recession coming? What if there is another crisis? Won't stocks go lower?  If there is a catastrophic collapse of financial system stocks would definitely go lower. My take is Buffett probably has taken into account slowing growth or perhaps a mild recession in his valuation. According to an interview done last week, Buffett said that he sees the economy slowing but not sliding into recession. If you look at the latest corporate results, US companies performed very well in the already slowing economy - due in part to the weak US$, extensive cost cutting and rising productivity in US companies.  If the US economy just splutters along without sinking into a deep recession, US stocks are not a bad place to put your money. But the assumption that the economy "splutters along", is a risky one so I would advice you keep some dry powder "just in case".

In the shorter term, I believe the picture is clearer. Investors dump their stocks in a panic driving prices down causing even more panic. All it takes for a short term rebound in stock is for investors  to calm down from their "chicken licken sky is falling" state....courageous value investors will find it hard not to return to the market given valuations have reach near compelling levels. In the longer term, I'm not as optimistic as Buffett who thinks the great American system can eventually overcome the difficulties it is facing - I believe the system has to be drastically changed and this change must come for the system to move on and progress.

Sunday, August 14, 2011

Tribute to Tan Jing Quee by Francis Khoo

I found this tribute in Teo Soh Lung's Facebook [Link]. Tan Jing Quee was a socialist who was arrested and detain without trial in the 1960s and 70s.  Francis Khoo's wife, Dr. Ang Swee Chai, a prominent surgeon in 70s was arrested and interrogated. According to her, they tried to coerce her to sign false accusations against her husband[Link].

I own a collection of the Fajar which was the organ of the USC (University Socialist Club). The ideas and thoughts of the young men and women who were members of the USC, cuts through the decades to speak to another generation of Singaporeans who are now struggling to find answers to problems we face today. Their idealistic pursuit for social justice, equality and freedom did not die under a repressive govt - the high social inequality, rising poverty and moral bankruptcy make their ideas more relevant today than they have ever been.
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Tan Jing Quee a tribute by Francis Khoo

by Teo Soh Lung on Wednesday, June 22, 2011 at 9:49am

Jing Quee was one of the nicest, most generous persons I have ever known.  His self- deprecatory sense of humour – he was always laughing at his own foibles – was devoid of vanity and was just typical of that generation who committed their lives to building a just and equal society.  I found this trait not confined to our people in Malaysia and Singapore.  South African and Palestinian friends engaged in the struggle for liberation had the same child-like approach to life and, like Jing Quee, never betrayed bitterness.

Jing Quee was my senior at University by several years, but despite my very active involvement in student politics in the late sixties, I had not heard of him.  I was not in Jing Quee’s Socialist Club and was a naive liberal believing in the rule of law but lacking any in-depth understanding of why there was inequality and injustice in society. It was only in 1972, when I had just begun law practise, that I first met Jing Quee and A Mahadeva.  We were on the editorial board of the graduate monthly magazine, “Commentary”.  Something about the two of them drew me to them instantly.  In the course of the months ahead, I viewed them as my mentors in understanding how the world worked.  It was only much later that I learnt they had been involved in our movement for independence.  I am forever grateful I met them then.  Maha died a few years ago; with Jing Quee now gone, our loss is inconsolable.

There is a dwindling band of friends who still perform the vital role he played.  Jing Quee was the ‘bridge’ in three vital ways.  Because the history of our people has only been written by the ‘other side’, the lapse of time and the separation of geography and community meant that our peoples’ story would soon be erased from our collective memory.  He sought to redress that.

He was firstly, the ‘bridge’ between the generations.  I was a beneficiary of that.  It was mainly through him that I had the privilege of meeting many of the patriots in the independence struggle.  He also sought out the younger generation to learn from them and to share his experiences with them.  His efforts meant that our idealistic youth could now have an alternative view of our history.

He was, secondly, the ‘bridge’ between the territories.  I was also a beneficiary of that.  Jing Quee consciously kept alive the links between the people on both sides of the Causeway.  He believed in the unity of the Malayan people and that Singapore was an integral part of that people. 

He was, thirdly, the ‘bridge’ between the communities.  I was also a beneficiary of that.
He was committed to a non-racial society with Malay as the national language.  He was fluent in English, Mandarin and Malay and kept close links with the three societies throughout his life. 

A fitting tribute to his life’s work would be the ‘People’s History’ project in KL.  Jing Quee was one of its architects and would serve as a repository of the collective works and memory of our people’s struggle for justice and liberation. 

Throughout our thirty-four years in exile, Swee Chai, my wife, and I  kept in close touch with Jing Quee and his wife, Rose, and his friends. 

There was one episode that particularly touched me.  I visited Malaysia some years back and he knew my health was failing me.  With Rose, he met me in Johore Bahru and brought me on a week-long odessey swing around the peninsular, starting eastwards through Kuantan in Pahang.  We spent time in the east coast states of Trengganu and Kelantan, crossed the east-west highway, spent a night in the national park,  met some orang asli and saw my first Rafflesia flower in the rain forest.  We entered Perak and then finally to Kuala Lumpur.  It was an experience I will never forget and it had been years since I had the chance to travel in that fashion.

I last saw him at the 2009 KL launch of ‘Our thoughts are Free’, a collection of poems of our political prisoners over five decades.  Jing Quee edited the poems, along with Teo Soh Lung and Koh Kay Yew,  both former political prisoners as well.   I had several of my poems and songs in it.

In one of them, I raised the question: 

what is a rebel, what is a revolutionary?

“ a rebel hates, a revolutionary loves
   a rebel hates injustice, a revolutionary loves justice

   a rebel attacks the singer and is deaf to the song
   a revolutionary retrains the singer and rewrites the song

   a rebel sees red, all vision blinkered by the burning grass
   a revolutionary see the wondrous colours that is the rainbow

   a rebel asks ‘why’, a revolutionary, ‘why not’?
   a rebel sees the impossibility of today, a revolutionary the possibility of tomorrow

  tomorrow shall come when the rebel matures into a revolutionary”

Tan Jing Quee was a socialist student leader, ran under the socialist party ticket in the 1963 general election and nearly defeated a government stalwart, was arrested for three years that year and then again in 1977 under the draconian detention without trial law.
Was he then, a rebel?  In my thinking, he was much more than that – he was a true revolutionary, a great human being, friend, husband and father.

Francis Khoo *
June 2011

*Francis Khoo, Lawyer, now lives in London. He was wanted by the ISD in 1977 and escaped to London when his friends, G Raman, Tan Jing Quee, R Joethy, A Mahadeva, Ong Bock Chuan and many others were arrested and imprisoned by the ISD. His wife, Dr Ang Swee Chai who did not expect arrest and who did not leave with him was  subsequently arrested and imprisoned in 1977.  After her release, she joined him in London.

Dr Ang is a prominent surgeon.  She volunteered her expertise in Gaza and witnessed the massacre in Sabra and Shatilla. She wrote about the massacre in her book From Beirut to Jerusalem.  Francis and Swee Chai are exiles from Singapore. We have lost two loyal and talented Singaporeans because of the misuse of the Internal Security Act by the PAP government.
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Unhappiness runs deep.....around the world....

Riots in Britain suddenly erupted and many parts of London was set ablaze by protesters. What is going on in Britain and the rest of the world?


Some sociologists attributed the rioting in London to social exclusion, poverty. income gap between the rich and the poor, Earlier this year we witness the Jasmine revolution that saw the toppling of govts in the middle east. The income gap in those countries was on of the major contributing factors. In the Jasmine Revolution, people wanted change to democracy. In England, Greece and Spain, the people already have democracy and are rioting because of the economic conditions in their country. Even in Australia where there is little unemployment  it was reported that people of the "lucky country" are extremely dissatisfied.[Link].

Some one posted a comment on my blog with links to reports of massive protests involving more than 200,000 people  in Israel Tel Aviv


"Protesters appeared to have a more sweeping agenda on their minds. Traveling by car, bus, train and foot, some 230,000 Israelis, according to police estimates, descended on Tel Aviv to mount the largest social protest in the country's history. Young, old and middle-aged, they beat drums and waved flags, some chanting, "Social justice for the people" and "Revolution."
Some held signs reading "People before profits," "Rent is not a luxury," and "Working class heroes." In Jerusalem, more than 30,000 protesters gathered outside Netanyahu's residence after streaming past some of the most expensive real estate in the city. Other protests took place in further flung cities in Israel's north and south, drawing about 10,000 people." - Huffington Post Report[Link]

Israel is one of the most democratic states in the world so they are not protesting for more freedom or democracy. They are unhappy about the rising cost of living, income gap and struggles of the middle class and below. This is the biggest social protest in Israel's history. Many of the young people there are unhappy about the rising home prices - if I'm not wrong, they have a housing bubble of comparable magnitude to the one in Singapore. The majority Jews in Israel, one of the few places in the world where people serve longer NS than Singapore, are perhaps the most resilient group of people in the world given the wars they have fought and tumultuous history - even they find the current situation intolerable.

Because there are no protests in Singapore, people wrongly conclude that things are not so bad in Singapore. The fact is law abiding Singaporeans don't protest no matter how bad things get. Singapore suffers from all the problems people are protesting about around the world - our income gap is higher than that of Israel, our cost of living has risen even faster than many countries where protests have occurred, the same pressures on our middle class and rising poverty among lower income groups. In Britain, the PM said yesterday that the problems runs deep and the growing underclass has led to gang activity and poor communities that feel excluded  from society. Remember a few months ago we saw frequent acts of  gang violence - such activities  are usually the tip of the ice berg that shows up when you have a growing underclass in society. In addition to the problems seen elsewhere, Singapore also has a large foreign influx that has caused overcrowding and intense competition for jobs. There are reasons to believe the unhappiness here is no less than anywhere else in the world.

While strong signals have been sent during the GE, as Singaporeans sit back and wait for change quietly, these issues can easily fall into the background as businesses and economic pressures push govt to pursue policies that will worsen the situation. While part of the root cause is globalisation, we see govts around the world voted out one by one because they failed to address these issues.  If globalisation is the cause of the income gap and poverty in Singapore as the PAP MPs and ministers have claimed to be the case, we can argue that the plight of Singaporeans is caused by our open economy and the PAP govt embraces globalization. We can also argue that there is a limit to how much individuals can do to help themselves as the income gap and poverty is build into the system. Rather than calling upon the people to be more resilient and solve their own problems, govt will have to play a bigger role. While the external global economic system is out of the PAP govt hands, our local transport system, medical system, CPF. foreign labor influx, public housing system and taxation are under the govt's control and they have to steer these to lessen the negative effects of globalization.  At the end of the day, people everywhere in the world as a simple question - are they better off today then they were yesterday...do they believe things will improve tomorrow. People just won't support a system that won't produce better outcomes when they have already done their part.

In recent days, improving our transport system to deliver high quality of service at a cost that is affordable threw up some very interesting debate. In response to Workers' Party proposal, Minister Liu said it is not right to use tax payers' money on the public transport system because it is not fair - not all tax payers use the public transport so it is unfair to do so. Gerald Giam pointed out that this argument is technically flawed as the govt us tax dollars to construct rails and roads used by public transport. The argument put forth by Minister Liu is ideological in nature - why should the rich who pay more tax subsidize the poor using the public transport. I would argue that it is okay and pragmatic to do so because the rich as never been richer and the poor has not been poorer in the past 2 decades. Public transport is just an example of how the PAP govt can hit its ideological constraints in its search for solutions. If you can spend an extra $300M a year to achieve greater comfort on trains and buses, you elevate the quality of life of millions of Singaporeans  - the PAP would stop itself because it sees subsidizing the operating cost which they feel has to be passed on to commuters ideologically incorrect...but spending $10B on defense is okay. Given the choice to raise GST or increase progressive income tax, the PAP chose in 2006 to raise GST. Given the choice to deliver affordable healthcare to Singaporeans vs turning Singapore into a for-profit medical hub for the rich in the region - the PAP chooses "profits over people"....it is just not right for them to stop specialists and surgeons from becoming multi-millioinaires but it is okay for the sick to pay more. For Singapore, our hard working citizens have created large resources for the govt to solve problems that Singaporeans face today - the question is whether the govt can overcome its ideological baggage to do it.

Saturday, August 13, 2011

Govt terrified of the people?.....

It has been 3 months since the elections. Signals have been sent. The PAP at some point sense the enormous unhappiness on the ground.

"My greatest fear now is that the Government is terrified of the people.. You cannot have a system where the people are pampered" - Philip Yeo.

Can someone cite one demand from the electorate that amounts to pampering? The people, if you hear them conscientiously and sincerely are asking for the deterioration to stop. Housing prices climbing at a rate much faster than income growth, worries over decent jobs and ability to retire, rising income gap and poverty....and so on. The PAP never needs to pamper the people if it does its job well. In fact most of us are tired of the use of tax payers' dollars being spend on estate enhancements that are linked to votes - this spending is wasteful and undermines the motivation for govt to do its job to bring about a better quality of life for Singaporeans because it thinks it can get votes by promising major estate upgrading.

Democracy does not always lead to good results as we see in various western countries. But we also see the failures of strongmen authoritarian rule in the middle east. Whether a system works or not depends a lot on the value system of a people. Most Singaporeans today are the children or grandchildren of coolies, fishermen and laborers. We have one of the most competitive education system in the world, the men serve national service, our workers work the most hours per week according to the ILO. We live in a country where the cars are the most expensive in the world, the income gap is the highest among developing countries and where labor laws are stacked heavily against workers. Just to summarize, we don't have it easy in Singapore so using the word "pampered" is so far removed from reality that it is strange that Philip Yeo even mentions it. In a democratic system, it is important for people to be sufficiently well educated to be able to appreciate the choices put before them.  The perpetual worry among the elites that a democracy will compel a govt to go for populist policies that will lead us down the slippery slope of deterioration fails to take into account the widespread belief among Singaporeans in self-reliance and frugality. The calls for social safety net is not motivated by the demand for segments of our society for a welfare state but in response to a widening income gap that makes it too difficult for a large segment of the populace to earn enough for basic living. The best way to address this demand is for govt to keep the income gap narrow and economic system fair so that it generates widely acceptable outcomes.  Allowing the income inequality to reach the levels we see today, makes it hard for the govt to resist calls for safety nets. The govt had to give out workfare to take care of those at the tail end of the low income bracket just to keep their heads above water. To have a society with the highest number of millionaires and a large segment of its workforce earning less than $1200 a month  leads to a division that will split and polarize our society in a way that makes it hard for policies to achieve "net happiness". What the govt should fear is not the electorate but this growing gap that results in widespread unhappiness.

The public transport fares has been raise again. Raising fares to cover increased costs without corresponding improvement to quality of service is not a popular one. Also, the income gap makes it hard for policy makers to get the right policy formula for public transport. The poorer members of our society finds the fares too high and the middle income folks find the quality of service too poor. The privatized public transport companies that have to make profits for shareholders cannot resolve this divergence of interests of our unequal polarized society. The result is long term "net unhappiness" and it has gone on and on...whether it is under the purview of Raymond Lim or Liu Tuck Yew. They either live with this growing unhappiness and risk another election backlash or find ways to narrow the income gap or subsidize the operations of the public transport system.

The govt should be terrified, not of the people, but what the inequality has done to our society that makes their job so much more difficult. I'm still waiting for a strong response from the govt on how they intend to address this. 

Friday, August 12, 2011

4 Tans in Presidential Elections.

There are 4 of them and only one who is endorsed by the establishment. The outcome is not so uncertain as the highly qualified candidates in the other camp will share the  rest of the votes. What is encouraging is the number of people stepping forward to contest and expressing their views on what the elected president should do. For the first time in many years Singaporeans will get to vote for their president.

The most important issue linked to the presidency has been the management and transparency of our reserves. Ironically, the PAP govt that created the elected presidency to "protect" and "safeguard" our reserves came out explain that the presidents' role is limited by the constitution and so on. When the EP post was created in 1991, it was generally explained the "2-key" system would prevent a profligate "freak" govt from getting into power and spending away our reserves pandering to the demands of a lazy electorate demanding free education, housing, medical care....free everything. I will expalin a little later how and why we can become less fearful of this even without an EP. The biggest fear on the minds of Singaporeans with regard to the reserves is not that a govt get into power and give us freebies (some of the less motivated among you might root for this) for 1 or 2 decades and make us lazy but the loss of our reserved due lack of transparency, mismanagement and losses in high risk investments.

How a reserve that belongs to the people should be spent is an ideological issue - there is no logic in saving for the sake of saving and never touching it...you have to be saving for something  emergencies, education, your children's future, donation to charity. Because the purpose of our reserves has never been articulated, it becomes hard to argue how it should be build up and managed. Many countries have laid out what the clearly what the purpose of their reserves are. For example in Finland, the reserves is partially used for a pension scheme for old so they have to get to a size to make sure they can fund such a scheme for a sustainable period. The idea of using reserves for making the lives of old folks who contributed to it better is something that the PAP will never do and consider it profligate spending. It is ideologically unattractive and unacceptable for the PAP. So what does PAP see is acceptable use of the reserves? Taking some of it during the Great Recession of 2009 to give out as wage subsidies to still profitable companies is okay.and they did it...but giving it to Singaporeans who suddenly fall on hard times is a no go.

See the whole idea of the EP (from the PAP govt) was to actually protect our reserves from a non-PAP govt that would use our reserves for reasons the PAP does not see as ideologically correct. So when a PAP endorsed candidate, formerly from the PAP govt, becomes president, there is ideological similarity - hence, few checks and no pressure  on the govt. The public understands this and will vote for an alternative to the PAP endorsed candidate. We saw this in the first PE during which a relatively unknown candidate with rather "unenthusiastic" campaigning garnered nearly half the votes against the better known Ong Teng Cheong.

Today, our concerns about our reserves goes beyond how it is spent by govt. There are concerns about transparency, investment losses and management performance. These concerns have heightened since the last financial crisis wiped off a large amount of our reserves and the public observing high profile risky moves to invest in failing western banks. Having a  president that sits between govt and reserves to prevent wasteful spending is does not address this concern. When govt spend, it is in the full view of the public - we know exactly how much and if we find it wasteful, we can simply vote the profligate govt out. The people themselves are the check and balance - if they have a good value system and are wary of populist govt trying to spend the reserves in an unsustainbale wasteful manner.If they are a people easily tricked and fooled by false promises and tempted by undeserved entitlements, they will vote for a govt that will splurge away the reserves and vote for a president that won't stand in the way of that govt. In that sense, the best guard against wasteful spending of the reserves is the people themselves - if they are educated and have a good value system, they will vote for a govt that will do the right thing.

What really concerns Singaporeans is what they cannot see and do not know about the reserves - it is not spending which has to be made known. We want the books opened and independentlyverified, we want the good performance measures and we want the best practices in place to mitigate the risk level.. If such transparency is not possible, we want to have someone respected and elected to office to do this. While the govt today has the power to deny a president access to the information, it is advantageous for the govt to work with the President if they want to win back the trust they lost.

Tuesday, August 09, 2011

Stick Market Turmoil - fear as opportunity? ....Part 2.

UPDATE: Well the national day parade was interesting, but the turmoil in the stock markets worse a roller coaster ride with 360 degree loops.  On Tuesday night, after the US Fed released its statement just less than 2 hours before the close of the trading session the DOW Jones Index plummeted then rebounded to close up 400+points. Well you have to take that as the rebound...like it or not. However, these violent moves I believe is a preview to problems ahead in the actual global economy. I believe we might see some calm in the financial markets after the wild ride of the past few days - but it is a market waiting to react to evidence confirming the problems it suspects. ..and there are many brewing. Besides the US economic slowdown which now looks more like a coming recession, the European debt crisis and the inability of central banks and leaders to convincingly address the widening debt crisis....we also see problems popping up else where - China's inflation hit the highest level in recent years as food prices soar and Hong Kong's property bubble looks like it is bursting judging from the results of the recent land auction which saw land plots going for 30%  lower than previous auctions. It is hard to be optimistic given the current state of the global economy. 

When they start using word "violent" on stock market moves, you know you're looking at market swings that are extreme. We saw just that yesterday when the Dow Jones Index fell by 600 points. After getting external shocks from the European crisis. US debt ceiling debacle and S&P downgrade of US sovereign debt, the market is generating its own shock. With markets convulsing, confidence is falling fast and that creates a self-fulfilling prophesy of double dip recession that caused the initial falls in the stock market. If the markets keeps falling, the negative wealth effect will cause a recession the fear of which was causing markets to fall.  It is something like a sick person getting worse because he gets overly stressed about his poor health.  A recession like I explained 2 postings ago will make all the debts countries and individuals piled up over recent years harder to pay for and we will almost be in it for the long haul.

Yesterday's fall of US stock market is quite stunning. Analysts attributed it to S&P's downgrade of US sovereign debt. Ironically, when fear grips investors they flee to US treasuries - instead of falling after the downgrade, they actually rose and interest on treasuries fell.

With govts unable to spend money, it is left to central bankers to print money and flood the system with liquidity to calm the markets. Like I explained in my earlier posting, such moves can buy some time and hope but are likely to fail.  Over the weekend, the ECB announced it will start buying Italian and Portuguese debt by printing money. In the earlier round of money printing, the ECB would sterilise the money printed to prevent almost certain inflation [Link]. This time they won't bother. They will do what US Fed do and just print their way out of trouble.

With the markets in turmoil threatening to sink the global economy faster than it would if things take a more normal course, it is very likely for the US Fed to announce or hint of QE3 tonight. There is really no more choice left. ...and no more time left. This however will be the last round of QE possible. The earlier round kept financial markets calm but resulted in commodity and oil prices going up rapidly. When QE2 ended, these markets fell...along with the stock market. QE causes inflation but is one of the few remaining tools left to buy some time and hope for a recovery. One led by either recovery in US housing market or emerging market growth is possible - but unlikely. After QE3 we are likely to have inflation and therefore unlikely to have QE4. They will have to let the system go if it does not recover by then, We will probably spend years to sort out the excesses of the last 2 decades of rising debt, rising inequality and unfulfilled promises of globalisation.

So will there be a short term rebound? ....Hmm...lets put it this way - there better be one soon or the market turmoil will put us into recession faster than the European debt crisis can. Right now the best move is for central bankers and govts to do all they can to calm markets and restore confidence. Otherwise, they advance the day of reckoning....we probably don't have to wait until 2012 if they don't do anything soon.

Monday, August 08, 2011

Stick Market Turmoil - fear as opportunity?

As I write this, the STI index has fallen more than 100 points on each of the past 2 trading sessions. The Dow Jones industrial has fallen on 9 out of 10 days (??) including one disastrous plunge of more than 500 points  As we look forward to the next trading session tonight, the futures show that the DOW will be opening more than 200 points lower.  The S&P downgraded USA sovereign debt from AAA to AA+. The global economy sits on the verge of another recession and the European crisis threatens to spread and engulf the rest of the world. If you ask me, nothing looks good for stocks in this environment - nothing is going right for the stock market......and nobody dares to buy stocks given the head winds ....however.....

I think stocks will head up - at least in the short term.  I may be completely wrong and I'm not a profesisional financial advisor so take what I say with a pinch of salt....and please don't act on this blog posting.

Very often stocks plunge for good reasons, some times they fall because of irrational fears and rebound quickly. This time it is worries about the crisis in Europe and the global slowdown that has caused stocks to fall very sharply - at least this is what we have been told. It is a little strange because the slowdown has signs 2-3 months ago and investors did not seem too worried about it - many thought the slowdown was temporary and the economy will pick up in the 2nd half. Now we in the 2nd half, investors suddenly realise the temporary soft patch seem to be not so temporary. They suddenly started selling stocks and have been selling non-stop for the last 10 days. They are fearful of the US slow down, the US debt ceiling mess, the European crisis and now the fret over the US debt downgrade. If you're looking for reasons to sell stocks, there are plenty....so why do I think stocks will go up in the short term?

If you look at company earnings in the US, they are very good. Stock market valuation is also very cheap measure using value metrics such as price to book, free cash flow and P/E ratios. This is rather surprising given the economic slowdown. The good corporate earnings is due mainly to the weak US$ that allowed US corporations with overseas markets to do very well. Cheap stock valuation however is not the reason why I think stocks will soon rebound in the short term. Just that the rebound is not held back by poor corporate results. These cheap valuations can be a value trap as Robert Shiller explained that US corporate earnings right now is the highest ever as a % of GDP and he believes cannot be sustained over a long period.

The reason why I think stocks will rebound soon is the crowd psychology. The market recently has been bombarded by "headlines news" such as news about the US debt ceiling debts, news about S&P downgrade of US debt, news about the trouble with Italy and Spain - Greece is yesterday's basket case and somewhat neutralised. I can't think of a period other than 2008 when there has been such a concentration of "shocking" bad news. While the European crisis and global slowdown are serious problems, they can't keep generating shocking news from these - the Europeans have another plan to kick Italy's problem further down the road and the global slowdown is just that a deceleration of the global economy - it may be a impactful and shocking if it occurs suddenly but this has been dragging on for months.. The latest "shock" is the downgrade of US sovereign debt - with every shocking news investors dump their stocks ....day after day for the past 2 weeks. The fear level among investors measured by what is known as the VIX index is at its highest in the past 12 months.

The VIX roughly measures the price investors are willing to pay to hedge their stocks against further falls. When the VIX is high investors are very fearful - you can see the VIX has risen to the highest level in 12 months exceeding the high achieved when investors became paranoid about the nuclear crisis in Japan. It took a sequence of shocks to get the fear level among investors to this extreme levels.

The basic notion of investing in stocks to take small ownership of  a business to collect your share of profits in the business is completely lost and overrun by investor fears. At some point, CNBC will run out of shocking news to play up and investors' fears will reach a level that cannot be exceeded. The shocking downgrade of US sovereign debt is perhaps that moment.

The rebound comes when some of the fear subside and investors remember that companies reported great earnings for the last quarter and dividend yield are historically high relative to the interest rates ....Tonight the Dow Jones index look set to open sharply lower....lets see how it goes from here. So are we going to get a bounce soon? I think so....

Saturday, August 06, 2011

Recession Looms ...

Singapore appears to be on the verge of a "techincal" recession[Link]. I can't recall a time when analyst said we were on the verge of recession and did not enter one. The global recovery has been a fragile one fraught with numerous uncertainties and recurring "mini-crisis" as the economic problems in US and Europe surfaced, subsided and resurfaced.

In the 2008-2009 recession, we fell sharply then rebounded quickly. The pain was short and sharp as govts around the world worked to counter The Great Recession to by spending trillions to prevent what many fear could be a depression. The real problems with the global economy did not go away - high debt levels, high income inequality and trade imbalance. Aggregate demand was maintained by rising debt levels in western countries as manufacturing jobs shift to china to exploit the cheap labor there - this formula for global growth is unsustainable and we are seeing it unravelling fast. If and when the recession comes, with few options left for govts to stimulate the economy, we may not be able to get out of this one so easily.

In Singapore, rising costs and the strong S$ has already hurt our manufacturing sector which slumped badly in the last quarter. The corporations doing well are banks, property developers and construction companies that are riding high on the property bubble. Most if the lending in our banks is mortgage lending and the other profitable segment is unsecured debt which has grown spectacularly in the past 2 years (Read Personal Debt Tim Bomb). See the resemblance to the US in 2005 when the economic boom was led by housing and acrivities associated with housing? The high price of housing has caused great unhappiness among Singaporeans but that is only one side of the story. When property prices begin to fall from the high levels today, the negative wealth effect and impact to our economy will be widely felt.The strategy of always trying to grow our GDP fast  - by financialising our economy through deregulation, importing cheap labor, casinos, housing bubbles etc - has made us more vulnerable in the coming downturn.  The growth itself did not bring about an improved quality of life for many Singaporeans as wealth has been very unequally distributed.

About a year ago, I wrote about the dire warnings of ecnomist, Warburton who wrote the book "Debt in Delusion"[my earlier article here] in 2000 about the growing problem of govt debt and the illusion of wealth created by the debt. The book has been prophetic and foresaw the "end game" of govt trying to solve the debt problem by printing money leading ultimately ti catastrophic economic consequences.

Today we are seeing a slowdown in the global economy and appear to be on the verge of new recession. The slowdown comes after trillions of dollars was spent by govts trying to stimulate the economy which added to the debt of many govts. The trillions spent should have produced quick and strong recovery but sometime towards the end of 2010 the recovery lost momentum and we started seeing a slowdown. There are serious structural issues and imbalances that have not been addressed.

Unlike the recession in 2008-2009, the western govts no longer have the financial resources to fire up the economy. They are laden with debt and had to cut down on spending . The "end game" of printing money was played by the US Fed and the European ECB. Half of Europe is now in recession and economist estimate that the US has a 50% chance of going into recession. There is a high level of debt around the world - not just govt debt but companies and household debt - the highest since The Great Depression, A recession will lead to a cascade of problems because these debts become harder to pay down in recession - we may see a vicious cycle taking hold if a recession comes. ....it will be a long one and we may see some fundamental changes to the global economy.

More than 10 years ago, Warburton wrote that printing money will be a last resort to avoid a quick collapse of the fiancial system. Warburton also wrote that it can only postpone the inevitable by kicking the can further down the road. At some pointed, the quantitative easing will result in inflation and they will have to stop. The falling US$ means that  wage earners, pensioners and the poor have to contend with higher prices at a time when the economy is weak... exacerbating the effects of the imcome gap which is at the highest in 70 years. While Bernanke's QE1 and QE2 have been very unpopular, the alternative of letting the markets and economy sink back into recession is even less attractive. There are no good optoons left and time is running out. The ECB has been printing money to repurchase the debt of Greece, Ireland and Spain[Link] to prevent a collapse. They buy some time[Link] - hoping, perhaps, emerging countries in Asia and Latin America that are growing at 6% can offset the slow down in US and Europe....it is best not to be too optimstic that things will fall into place rather than fall apart as we go into 2012.