According to the Economist Intelligence Unit, Singapore will see it's economy shrink by 2% next year, making it one of the top 10 slowest growing economy in 2009.
Much of it, I believe is due to our reliance on exports to the US and Europe which will be facing even greater recessionary pressures next year.
Iceland's banking problems started surfacing as early as January this year and the Central bank of Iceland had commissioned a report in April this year to investigate the policy options available. This report remained out of public domain but since the spectacular collapse of the island banking model in October, it is now no longer deemed 'confidential'.
Having read the report I cannot help draw comparisions to Singapore:
1/ A small country with its own currency
2/ Internationally active and exposed financial sector larger than its GDP (Singapore banks have combined liabilities of approx 300 USD bn compared to our GDP of approx USD 150bn)
In Iceland case, even when their banks are fundamentally solvent (in the sense that its assets, if held to maturity, would be sufficient to cover its obligations), such a small country - small currency configuration makes it highly unlikely that the central bank can act as an effective foreign currency lender of last resort/market maker of last resort.
In Singapore's case, our USD 400 bn warchest effectively acts as a backstop in the event the state takes over the banks, to replace bank debt with soverign debt. (This is indeed the nuclear option; otherwise, we will have to borrow from the IMF or World Bank.)
Viewed in another perspective, the constraint for any of our local banks to grow regionally or internationally is that the size of our warchest have to be increased in proportion to the size of the banks' liabilities.
Another financial structured product(Equity Accumulators) rears its ugly side for Asian investors.
Lesson to take away - nothing is for free...
Obama's message of change had won over the hearts of the Americans. As previously posted in this blog, Americans have shown that change in the current administration is needed. Let's hope Obama and the American people can deliver the change he has promised.
From my little studio flat in Rue de Longchamp, Paris, as I take stock of the financial markets and what is to come:
The de-leveraging of excessive debt and credit in the financial markets is far from over.
Faced with a likelihood of recession, central banks around the world are cutting interest rates aggressively, very likely to spark inflationary pressures for raw materials.
Assets like properties, equities will suffer severe deflation of prices as consumers and corporates shore up battered balance sheets and try to recapitalize.
A new world awaits.
Image courtesy of NYT
I am having trouble reconciling the numbers here:
Goldman Sachs 2007 bonus pool: 18.8bn USD
Warren Buffet to invest 5bn USD in Goldman Sachs with option to invest another 5bn USD more, apparently to give the company a 'vote of confidence'.
Goldman Sachs to receive part of 250bn USD capital injections from the US government.
I wonder what GS bonus pool for 2008 would be? Why didn't these GS folks save more for a rainy day - these guys were supposed to have foreseen the subprime meltdown!
When the trio of RBS, Fortis and Santander won the US70 billion breakup of ABN Amro last year (during a period where almost every bank was getting pissed drunk on leverage), few would have envisioned the state they have ended up in now.
RBS suffered an almost 65% drop in its share price since the announcement of their take over of ABN investment banking services, on fears that the bank would have to find it increasingly difficult to boost its capital reserve ratio.
Fortis, a European banking and insurance giant had to be bailed out by the governments of the Netherlands, Belgium and Luxembourg. And worst still, as part of the plan, Fortis would have to sell off their stake in ABN Amro, most likely at a third of the price they had originally paid.
Only Santander remained in the clear, having sold part of their stake in ABN at a profit of USD 1 billion and keeping the South American operations. Currently, they are buying up assets on the cheap in UK - Abbey, A&L and B&B.
Indeed, a victorious bid in an auction may be great for the ego, but winners beware, the curse can be deadly.
Pictured above is DBS credit ratings.
I am trying to put myself into the shoes of the Bank's relationship managers who sold the MiniBonds or the DBS Notes. What would I have said back in 2007 given the market conditions?
Back in 2007, Lehman's Long term credit rating by Fitch is AA- (DBS is now AA-). So the rating agencies are assigning an equal probability of default to DBS and Lehman back in 2007. To put it simply, placing a fixed deposit with DBS would be just as risky as selling protection on Lehman (if we discount the Deposit Insurance Act in Singapore).
So what does an AA- rating by Fitch mean? On their website, it says:
Very high credit quality. 'AA' ratings denote expectations of very low credit risk. They indicate very strong capacity for payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events.
So to a lay person (no access to credit market data), given the information available in 2007, it is not impossible for one to judge that Lehman was indeed a 'safe' counterparty and the risk undertaken then was miniscle.
The turn of events over the last month was truely astounding. To this date, Lehman's credit rating by S&P is still A, four notches above junk status.
The current debacle concerning retail investors due to the Lehman's bankruptcy brings to my mind a conversation I overhead in August last year.
Was on the trading floor of a Scandinavian bank back in August 2007 when the credit crisis first reared it's ugly head. Global equities suffered a 15% drop, credit markets froze, the bank's corporate clients started getting jittery and began calling in, presumably taken a larger than expected hit.
Head Trader: What are we gonna do with this xxx (client's name). They have been calling us non-stop.
Chief Trader: What do they expect us to do? Hand hold 'em? They are big boys and markets can go down. They should know the risks they are taking.
Do retail investors need hand-holding or in some cases, a bailout by citing ignorance? Are retail investors really that gullible? If someone gives more money for deposits, shouldn't one ask where the 'catch' is? If something is too good to be true, shouldn't one ask why it is so?
There will always be risks involved when dealing with money. Bonds issued by the Singapore government is good only if the government does not go bankrupt. Fixed deposits placed with a bank is only as good as long as the bank does not go bankrupt. There is always a probability that things will not go the way we expect, which is why we have to be prepared for the worst scenario.
I was onsite at a bank today and the IT Operations was slightly more busy than usual due to the demise of Lehman. So what happens when a bank's counterparty fails? Heres' a brief insight from the IT perspective:
a. They stop all payments sent out to Lehman - via their payment systems, SWIFT, CLS, etc.
b. They start filtering out Lehman trades in their P&L reports or meddle with the reports to reflect restructuring fees
There was relatively calm across the department as they appeared ready for this eventuality and were reporting back to work day before yesterday. Not exactly sure what's happening in their trading desks or the risk departments, must be quite a scene ;-)
Was just reading Temasek Holdings annual report for year ending March 2008. A couple of notable insights into the workings of this investment vehicle whose sole shareholder is the MOF (Ministry of Finance):
a. It's becoming harder and harder to make money - first time in five years where Temasek had a negative wealth added figure (Wealth added is a benchmark which measures the return against cost of capital) Bearing in mind that as the portfolio value increases, the absolute cost of capital increases as well, so Temasek has to make even more money in order to beat this benchmark.
b. Divestment out of 'emerging' Asia into 'stable' Europe. Guess the Asian economies are looking a tad forthy?
c. MOF does not inject capital regularly but instead on an ad-hoc basis. I wonder if Temasek allows any withdrawal of funds by MOF? From the report, it seems that MOF has never drawn-down any funds from Temasek so it could imply that the capital injections by MOF are excess funds after paying down CPF, pensions, dividends?
d. Would Temasek be better off paying a bigger dividend (to Singaporeans) if there are no worth-while investments, rather than chasing investments which on hindsight look a bit too expensive at the current climate?
The investment report is definitely worth a read - especially if you want some insight on Temasek's investment strategies, based upon value investing principles.
Yeap that's me across the finishing line. Thanks darling!Gallant efforts by British Airways to dispel the negativity surrounding Terminal 5. Interesting to note that this effort is piloted by BA and not BAA Heathrow.
Over the last couple of days, the sterling pound dropped like a sinking anchor due to some really negative remarks by the Bank of England in the latest inflation report. The UK's GDP main contributors are financial services and construction, both are in a deep funk right now and is looking to get even worse. With the weakening pound, imports will get even more expensive, exacerbating the rate of inflation.
When wife and I came over, the GBPSGD exchange rate was 3.10 - Now, it has dropped over 20% to 2.63. Ouch!
Have been taking advantage of the two week free passes to the Singapore Straits Times online website to do some reading up. Unfortunately the whole experience was quite a let-down.
Having been fed high quality content websites like the NY times or the bbc online, I found it difficult to appreciate the online version of the Straits Times.
Some comments about the Straits Times online edition:
a. I cannot fathom why they wanted a print version of the SS. Hardly anyone would want to zoom in/zoom out of a 15inch computer screen to see a print version normally printed in broadsheet size. I found the whole experience tedious and was put-off by all the print-ads. My guess is that this is more likely for advertisers - SPH is using this as another avenue to entice potential advertisers.
b. Un-customisable front page. Start working on allowing users to customise what they want to see on the front page! Well, at the very least, allow a change of colours?!!!
c. Content, Content, Content. Organising the available content into a user-friendly user-platable online platform requires much thought and design. Here the online SS fails miserably - both in terms of the quality and the delivery. Quality-wise, well we can acknowledge that our writers appeal only to a relatively small market so it is acceptable. But delivery-wise, surely we can take a leaf out of the other websites? Why can't they embed streaming video together with the news article instead of directing me to another website?
d. Integration, Integration, Integration. The online SS content is distributed across various 'hip' sounding platforms like RazorTV, Stomp, Urban, DigitalLife, etc. To me at least, it is all very confusing. I want to read articles relating to lifestyle and I find content distributed across RazorTV, Stomp and Urban. They should be integrated into a single access point for the online user.
A poor effort indeed. Try harder Straits Times. Take a leaf out from BBC and NY Times.
Diving into the details of the latest Merrill Lynch cash call, it is definitely a 'sweet' deal for Temasek. Temasek has learnt its lesson well since their Barclays intervention.
However, couple of things to note:
a. The 'reset' clause will no longer allow going forward; ie if there are further cash calls, Temasek will no longer be able to exercise the right to purchase more stocks at the new issued price
b. There may be more cash calls for ML going forward, looking at their current risky debt holdings
Hopefully, this will buy more time for ML to unload their risky debt at a better price.
Here's a not-so-flattering take by the ft on the investment decisions undertaken by some of the Singapore companies.
Ouch...
With the credit crunch in full swing, many US and UK based finance professionals are heading to Singapore's shores.
This mass exodus of 'talented' foreigners into sunny Singapore to escape or as a result of the mass culling in New York and London looks set to continue at least for the next few months.
With this exponential arrival of skilled migrants, there will be new opportunites to be uncovered but yet stiffer competition to be faced.
Local Singaporeans will once again, as usual, have to prove their worth in this rising tide of skilled foreign talents. Hopefully, the quality of our people will be enhanced through even tougher competition.
It is immensely exciting to witness the near capitulation of Fannie and Freddie for it bears the following implication:
a. The US brand of capitalism is not insulated from disaster - the US will no longer be able to stand on a economic ethos high ground and preach the 'goodness' of their brand of capitalism
b. Much of the failings can be attributed to greed and human nature. The US financial systems have their internal checks and balances, but human greed cannot be easily checked nor balanced. How can we prevent financial institutions from leveraging to the tills, when everyone is doing the same?
The current de-leveraging process will take years to unwind, and the excesses built up over the last decade will take as much, if not more time to work off.
Expect the worst and hope for the best.
It is interesting to note that in the latest cash call by Barclays, Temasek only contributed a measly 200 million pounds. I think This has more to do with a diluation issue than having a real interest in buying the share at a 9% discount to the stock price as of Tuesday.
So, if we apply Buffet's definition of a good stock (of buying more when the price drops), then indeed Temasek's action may have the following implications:
a. That they may have paid too much last summer
b. That there may be more write-downs for Barclays and a further cash call
Ouch!
On my many overseas trips, the journey from the airport to the city/hotel usually provides a fertile opportunity to strike up a conversation with the taxi driver.
These conversations provide a great insight into the people and the country - it is amazing just how people open up when 'boxed' up in a vehicle.
Description of Journey: From OR Tambo International to Jo'berg CBD (South Africa)
Journey Time: 40mins
Cost of journey: 350 Rand (approx 65 SGD)
Date: Sometime in mid May when the xenophobia violence broke out in Johannesburg townships
Taxi driver: 'Prince' - we called him the 'Fresh Prince of Joberg'
Background: Prince is a native South African and speaks English pretty well albeit with a strong Africana accent. Taxis in Johannesburg are usually unmarked and run privately, so it is important to find a driver whom one can trust, especially if it is the first trip there. Due to this reason, people like Prince are doing a roaring trade chauffeuring foreigners around.
Prince owns four Mercedes Benz, including a Mercedes 4x4 and a 300 series. Probed further, he revealed that Mercedes evokes the imagery of a dependable, reliable and classy ride. Beemers are a 'no-no', since they are usually targets for carjackers.
There is no available public transport to bring travellers from the airport to the city - the only option is via the taxis or minibuses. The airport is currently undergoing massive renovations in preparation for the World Cup 2010.
Interesting observations: En-route to the city, we came across several Nike ads which depicts athletes in various pledges of using their bodies as a 'weapon' to 'fight' the odds. This was how Nike South Africa defined their campaign: Every day is a struggle in South Africa, albeit a struggle for respect and dignity, or a fight for food or against crime, Nike feels it has a powerful message to share – that through sport, anyone can overcome anything."
Goes to show how violence is so ingrained in the South Afican psyhic/culture.
Conversations: Inquired about the xenophobic violence in the townships. Prince was particularly against foreigners from other parts of Africa who are taking away their jobs. Sounds familiar to what's happening back home in Singapore, I added. Folks back home in Singer are complaining about highly-skilled jobs taken over by foreign talents. Adding to the pain, even lower-skilled jobs are becoming scarce, due to influx of cheaper labour from parts of Asia.
Here, immigrants from Zimbabwe, Somalia having attracted by South Africa's brighter lights and better opportunites have poured into the country since the past decade. The outbreak of violence was the culmination of anger and frustration at the loss of jobs to immigrants, fuelled by the rising cost of living which have escalated at least threefold since the beginning of the year.
Funny Incident: Not just our designated driver, Prince has many other clients to attend to. So, on one occasion, he was not available and sent a 'stand-in' driver to pick us up. Our stand-in driver turned out to be a scholar and have little or no experience driving in Jo'berg. The car stalled twice as he tried to start the car in 2nd gear and we ended up 'cruising' in Jo'berg at a lesiurely 40km/h.
Loss of jobs to foreigners seems to be the common grouse these days, but this seems inevitable as the world gets progessively flatter. Especially for a open and small nation like Singapore without any natural resources, the effect will be even more pronounced for native Singaporeans when our government strive to attract the best into our city.
It's funny how wife and I never had the opportunity to vote in Singapore but are now presented with a chance to do so tomorrow.
The face-off is between Ken Livingstone, the Labour incumbent versus the Conservative Party (read opposition) candidate Boris Johnson. We had polling cards, a leaflet explaining the policies which each candidate is proposing and what each of them stands for, sent to our flat.
The incumbent is riding on his past credentials and the fact that he had presided through the 'golden years' of the revival of London as a global financial center, a consequence of the policies his party has implemented. However, there is always a tradeoff for achieving such goals. Public transport is expensive, population growth has seen an exponential spike due to the attractiveness of working in London and the rising cost of living.
The voting will take place on the 1st May, which is not a public holiday unlike the rest of the world.
I can't help recalling my younger days in Singapore where my parents were voting ...
Wife and I were at Leicester Square, London on the 6th April to witness the Olympics touch relay.
The day started with a huge snowfall, pretty unexpected as this was 'supposed' to be Spring. The decision to go to Leicester Square was made due to the desire for a 'warm bowl of noodle soup' rather than for the Olympics touch. We were unaware of the huge fiasco surrounding the touch relay beforehand. It was only after lunch did we realised that protesters were trying all kinds of ways to extinguish and put out the Olympics flame.
The atmosphere at Leicester was supportive and we could hear shouts of 'Long live Beijing', 'Long live Olympics'. For a while, I felt proud to be a Chinese and felt no different from the Chinese supporters beside us from HongKong or China.
The Olympics flame, when it arrived, was heavily guarded with at least three rings of guards surrounding the touch bearer. It was hard to see the torch bearer or the flame - on hindsight, it was not difficult to see why there was so much security.
In retrospect, the protestors do have the freedom to voice their displeasure about their views on China's policy on Tibet and human rights but I question the method through which they raise their protests. It was heart-wrenching to see protestors trying to snatch or extinguish the Olympics flame - I am not sure what they are trying to achieve in carrying out those acts. Perhaps a more meaning action such as running alongside the relay team with their flags would bring across a stronger message which will gather more supporters to their cause.
This is a huge PR lesson for China indeed, it is not lost on me that translation between the Chinese language to English may not be perfect and subtle meanings may not have been conveyed by the English media. In addition, China's hardline approach towards the protestors is likely to fuel more anger and anguish. Perhaps a more reconcilatory tone from China may be the better way forward.
Looking at the crumbling asset prices in the US and around most parts of the world, it inevitably reinforces the virtue of being financially prudent, rather than financially savvy.
The past 5 years have seen unprecedented creation of credit and the world economy was awash with 'cheap' money. As a consequence, property prices have also risen to unprecedented levels and there was a time when investors were 'educated' on the benefits of investing in properties - the huge potential financial gains that could be made simply by placing a 5% downpayment on any property developments. Every 1% upside in the property valuation would result in a gain which is 20 times multiplication of the investor's initial outlay. Such is the lure of leverage.
However, the reverse of the situation is also true. A 1% decline would also imply a loss 20 times the initial outlay.
The sticklyness of property prices - marked by sellers' reluctance to sell in a weak market and aided by cheap refinancing options means that the current downturn would take more than just a couple of months to clear. In the meantime, there will be many false dawns but until the speculative element in housing prices is replaced by realistic pricing, it is still wiser to remain at the sidelines and hang on to pure cold hard cash.
It is estimated here that total losses from the credit crisis will reach 400bn USD. The tally so far is about 160bn, so there is still more pain to come.
Recent reports were debating about the seemingly wide mismatch between the gloom in the credit markets and the sunny outlook in the equities universe. There is a bit of a spillover delay effect at work there and I guess today, with the Dow falling almost 200points, the markets are gradually converging.
There is definitely a slow down heading our way - tighten your seat belts and enjoy the ride!!
After spending almost 30bn USD to bail out financial institutions in the US, the Singapore sovereign funds still do not have much support from the US public.
In the survey done by Public Strategies Inc, the American public favours the Australias and the Norwegian sovereign funds but have strong negative sentiments for the funds from Asia and the Middle East.
Transparency and timely disclosure of the funds allocation may most likely be a reason for the Americans perception. I guess having good public relations with the international media help as well.
In almost all operations and back office teams in financial institutions, these departments are considered primarily as cost centers and play a supporting role to the front office traders, the rock stars or money makers for the banks.
Having spent six years in the company supporting clients in the back office domain of processing and financial control, I have seen my share of gross wage and hours worked disparity between the rock stars and the backroom operators. This was the rule of the jungle - the traders rake in the big bucks with an army of support staff at their disposal, to ensure that the trades have been confirmed, the payments settled, their P&L verified.
In a dramatic turn of events, Jerome Kerviel decided that he had enough of the jungle rules and wanted to prove that he was also able to rack in huge profits despite his humble beginnings in the back office. He busted a 3.6bn pd hole in SocGen's balance sheet with his 50bn pd positions on European equity futures.
How he managed to deceive his managers and the risk departments will be thoroughly analysed, I can bet that his fraud will be pored over with just the same intensity as his banks' famous quants poring over their 5-factor pricing models.
In many ways, the back office is the last bastion of control for any banks. Any mismatched confirmations, unfixed trades or unsettled payments should have raised alarm bells. But as the rule of the jungle goes, the back office operators are too insignificant in the whole food chain - traders usually have the right of way and can easily brush off any mismatches with scant excuses or simply just by throwing a fit. It is perhaps the time now that the balance of power starts shifting more towards the back office.
When the company puts me up in a hotel without a gym during overseas missions, there is only one available option to get a good workout - get out for a jog. It's good for the body and a great way to get to know the city. Well, things are slightly different at this time of the year - any runs outdoors have to be carried out at near freezing temperature.
So I did all the preparatory touch ups - lip balm smeared all over my lips, two layers of gloves, a dry-fit skull cap, long running tights and drapping a windbreaker over my dry-fit singlet. Short of doing shuttle-runs in my hotel room, I felt prepared and ready to face the chill wintery night of Stockholm, Sweden. The temperature check was 1 degrees with a cool 4mph southeasternly wind. A short text message sent to my lovely wife to let her know that her hubby is undertaking something new, and for her to share in my excitement. I think on hindsight the text message for my sweetie was more of a safeguard - in case I did not make it back :-)
40 mins and a bucket-full of tears and phelm later, I made it back to the hotel. I did not exactly go according to the planned route, but I guess I met the objective - which was to make my way to the client's place.
Mission accomplished. I am really to tuck into some swedish meatballs.
The global stock market has gone into a free-fall. Some notable statistics:
It's interesting to see how the winter retail sales are played out in London and Paris. For one, the Paris sales are mandated by law that retail stores are only allowed to have 2 sales per year and there is a pre-determined date when the sale starts and ends. In London, the retail stores began slashing prices as earlier as christmas last year, in an effort to draw in the crowds and there is not really an end to the sale period - the sale ends offically when all the products on sale are sold out!
In Paris, the stores are pretty discreet about how the sale is being advertised. In most stores, there is hardly any signs to publicize about the discounts. In addition, the price cuts are still pretty subdued by many standards - usually a price discount of 20% is considered generous. I sense that there is a stigma attached to be seen buying discounted stuff in Paris, or it could be that most parisians have already made their way cross the Atlantic to partake in the London sale. Given the strength of the euro in the recent weeks, it is no surprise that the French have choosen to visit London during this sale period, to maximise their purchasing power.
Here's a pretty cool Paris sale site - there's even a recommendation on the different possible shopping circuits in Paris.
The strength of the American people lies in their resiliance and their ability to get back on their feet when the chips are down to make a change. In Obama, I hope that the Americans have found the leader who will be able bring the U.S back to its standings as a nation united.
I loved the speech Obama made in his Iowa victory.
