UPDATE 26 March 2012: I went through the comments for this posting and a number of commenters are of the opinion that it is unfair to compare Singapore as a city with USA the country - Singapore should be compared with New York instead in terms of property prices and fertility rate. I think Singapore, as a nation, should be compared with USA as a nation rather than cities. Americans have the option of living in cheaper less crowded places and that helps to balance the overall social dynamics and fertility rate. Because Singaporeans do not have this flexibility, it is necessary for public housing to help create more stable families and averted the negative effects of profit driven private housing market. New York can afford to have a small and weak public housing programme but Singapore cannot . Only a good public housing programme can overcome stresses of city living from which Singaporeans cannot escape. When the PAP prioritized reserve building over the social goals of public housing, that is when our problems started...and it will end only when the HDB get its priorities right!
My last 2 posting on the economy were in Dec 2011 during a time of much pessimism and fear [Eurozone Crisis :Stability or Spiral into chaos?][China's Economy : Many problems, many bullets....]. I tried to explain that there were a few silver linings in the European crisis and the "backdoor" easing by ECB head Draghi will buy a lot of time for European countries by kicking the can down the road and relieve the financial system of intense stress. The stock market has risen non-stop week after week since I posted those articles until last week when investors and speculators wonder again if the stock market has run too far up ahead of the economy and started taking some money off the table. The stock market is always falls ahead of potential problems and very often falls first on the hypothesis then falls further as more data to confirm the hypothesis - the stock market is as often right as it is wrong often when the hypothesis fall to pan out, it recovers. The main fears are again China and Europe - data shows both slowing faster than expected. Data from the US shows the opposite - growth is stronger than expected.
China has numerous problems that have been widely discussed. Other Asian economies have a few real structural problems - tight labour market, rising inflation and rising deficit especially in India. The star performer in the past 3 months is the US economy, the epi-center of the crisis in 2008. This is reflected in its stock market performance, US markets are near a 4 year high - but there is little speculative excess in the US market. Even star performer, Apple (AAPL) shares which briefly crossed the $600 is not particularly overvalued[There may still be bite in Apple - The Business Times, Teh Hooi Ling] and it will rise or fall based on its ability to grow its earnings, beat its competitors but you don't have to worry that you're buying into speculative excess. I wouldn't buy it although it may rise further because Apple is well analysed. While the stock is valuation is reasonable or slightly under valued, it is not compelling and the current product line faces competition from Samsung and Microsoft...but there are potentially still many secret projects leading to innovative products Steve Jobs left in Apple's pipeline and those can provide the upside for the stock.
The overall US economic outlook, I think is less uncertain that the bulls and bears on Wall Street make it out to be. With European crisis converted to a long term issue (less destabilising in nature) and assuming the Chinese can soft land their economy (haven't seen any evidence, contrary to this), the US economy has a lot of potential to "catch fire" and surprise on the upside. The reason is this:
The chart shows the Ceridian Index. It shows the real time economic activity measured by the transportation. There is a big gap which shows the potential and extra capacity in the US economy. The US economy is not yet firing on all cylinders - the main reason being the collapse of the housing market has led to slowdown of activity linked to housing and excess housing inventory that takes time to clear off. There is also a high level of unemployment (8.2%). As the employment situation improve and we has seen from data over the past few months[Link], and the housing market measured in term of home sales improve:
The volume of sales is picking out so are the prices. The improving employment situation and recovery of the US housing market can form a virtuous cycle to drive the US economy forward. The restructuring and reform in China will soft land the Chinese economy keeping inflation at bay while the US pickup the slack. This gives also gives us some time to fix our own problems to get productivity up and lower our dependence on foreign labor.
Looking at the housing data, I can't help but side track a little. The average US single family home is US$230K and the (S$290K) average size of such a home is 2500 sq feet[Link] - a landed home of the same size in Singapore costs more than $2M and something half the size in the form of an apartment costs $800K-$1M. We are often told that our fertility rate is falling because we are a developed country so people especially women pursue qualification and careers rather than get married and have children. If this is true, why does USA which is also a developed country with higher unemployment rate of 8.2% having a birth rate almost double that of Singapore's? It is not because we are asians that we have low birth rates, we used to have a birth rate of 6 as asians - so cultural difference is out. They now tell us that unless we have higher fertility, there is no choice but to import people.
"Partly, because it takes them longer to establish themselves (in a
job)....people are staying in school longer nowadays. In the past, after their O
-- Level and A -- Level, people start getting economically active, get a job,
start a family and buy a flat. (Now) it is taking longer for young people to get
to that stage because they feel they need better qualifications to get better
jobs.....Elsewhere it has been shown that the demand of the job has increased and
people need higher skills to enter the labour force and get a job before they
start a family." - Lee Kuan Yew [Link]
When a person starts a family, the one thing he needs is housing otherwise he has to squeeze his family into his parents' place and you don't expect him squeeze himself, his wife and children with his parents. The key to higher fertility is affordable housing and the size of housing. The PAP govt has wasted time and money on other incentives that have done nothing but failed - they claim they are trying very hard to bump up the fertility rate as it falls to the lowest in the world. HDB even said they build smaller flat these days because Singapore families are getting smaller[Link] - they are actually putting us in a vicious cycle. I think Singaporeans are really tired and fed up of the PAP creating the problems then blaming it on Singaporeans ...then waste time and money on schemes that will not work. The next time some one from the tries to explain our low fertility and talk about solutions ....remember unless they home prices are at truly affordable levels, it is yet another waste of time and our country is further endangered by importing more people which causes population density and housing prices to go up.
The root cause of our problem has been PAP policies - first the "Stop At 2" policy and housing policies. The PAP has been using revenues from our public housing programme to fill up govt coffers [HDB paying less for land is raid on reserves: Mah] from the CPF and savings of ordinary Singaporeans. No other govt does this with public housing - linking it to the market and creating reserves - the primary purpose is to provide cheap and achieve positive social outcomes. This is not what happened in Singapore and the PAP housing policy has led to whole array of problems e.g. inability to accumulate enough to retire, low fertility, indebtedness and social inequality. Now the problems have grown to endanger ordinary Singaporeans - we have stopped procreating, we are being replaced by foreigners and we do not have children to pass our values and culture to. Time is running out for the PAP govt to fix this and from what we have seen from them - they are not serious about it and Singaporeans are running out of patience.