What a bad way to end the year. Just read this article in Forbes website (source : http://www.forbes.com/home/opinions/2007/12/26/croesus-chronicles-recession-oped-cz_rl_1227croesus.html?partner=yahoofp) that suggested signs of recession (that I was also talking about in earlier posts).
Though recession in the US is not certain in 2008, but signs are starting to get clearer. The credit crisis in 2007 tipped the scale. The leading home price index is at a six-year low, financial services are at a 13-year low, while non-financial services are at a 56-month low, according to figures kept by ECRI.
The major drivers indicating recession includes:
(1) Job Figures.
Job creation have softened to under 100,000 new jobs last month. Any two months in a row of negative job growth--meaning there were job losses--is usually the key indicator that a recession is around the corner.
(2) Industrial Manufacturing Figures
Though manufacturing in the States are still positive due to weak US$, signs have shown that output is well below June 07's high.
(3) Housing Downturn
Home prices have plummet and expected to continue. New home prices have fallen (by 43% for new single-family homes), resale has seen lesser demand, more seizure taking place, etc. is down and expected to fall lower. This is further attributed by the inability to borrow vast amounts of money for home purchase.
(4) Other Factors
~ Dropping Interest rates
~ Retail sales have soften
~ Flat Investor expectations
Don't wait for the relevent government agencies tell you that we're in one (recession), because they ordinarily wait until economic activity has fallen for six months. By then, it's too late--the stock market will have sagged.
With large emerging markets such as China and India in the recent years, the citizens of these countries have become more affluence thus buying has been on an increase. This will help support global market from US' recession. Many countries have slowly divert their major trading partners, from the West to Asia. This means a recession in the US may not affect other countries as much as before.
Last but not least, HAPPY NEW YEAR to all and hope your finances sees you with great returns in 2008.
Monday, December 31, 2007
Saturday, December 29, 2007
Safe Investment (What's yours?)
The period of Mid 2006 to Mid 2007 saw many stocks on a bull run and Unit Trust appreciating from anything between 20% to a crazy peak of 80%. Thereafter, from July/August 2007 onwards, we can't say the same anymore. The last 6 months showed so much uncertainty, especially in August, October and December. Prices became very inconsistent, causing much worry each time we read any world news that affected the stock market.
Crude oil prices escalated from a modest US$46.53 in January 2007 (source : http://www.ioga.com/Special/crudeoil_Hist.htm) to a high of near US$100 in November before sliding down to sub-US$90 per barrel till recent assassination of former Pakistan PM Benazir Bhutto (I respect this lady) saw crude oil price going up again.
Here in Singapore, 2007 was also a spectacular year. With the Integrated Resort (and Casino) project underway, and a booming economy, we saw property prices peak beyond affordability (prime locations) of the norm. Though the property market slowed down from October 07 onwards, the prices had hold steady still.
Year 2007 had been a roller-coaster year. How can we find a safe haven for investment? To me, a safe investment should be based on something with an under valued asset, good potential for growth, value adding features on the investment and future demands.
These features will ensure the value of my investment only has one direction, head north. The investment I am doing assured those features (I sleep peacefully). With such attractive assurance, most would expect the returns to be conservative. Yes, conservative indeed, as I felt it could be better than the guaranteed returns.
With average of 15-20% p.a guaranteed returns and comes with capital protection, what's stopping investors from putting their money in it? Septical and conservative investors who believes something that sounds too good to be real, can't be real. Opportunity doesn't come often. Learn to open up doors to opportunity and hear what there is to offer than rely on hearsay.
Crude oil prices escalated from a modest US$46.53 in January 2007 (source : http://www.ioga.com/Special/crudeoil_Hist.htm) to a high of near US$100 in November before sliding down to sub-US$90 per barrel till recent assassination of former Pakistan PM Benazir Bhutto (I respect this lady) saw crude oil price going up again.
Here in Singapore, 2007 was also a spectacular year. With the Integrated Resort (and Casino) project underway, and a booming economy, we saw property prices peak beyond affordability (prime locations) of the norm. Though the property market slowed down from October 07 onwards, the prices had hold steady still.
Year 2007 had been a roller-coaster year. How can we find a safe haven for investment? To me, a safe investment should be based on something with an under valued asset, good potential for growth, value adding features on the investment and future demands.
These features will ensure the value of my investment only has one direction, head north. The investment I am doing assured those features (I sleep peacefully). With such attractive assurance, most would expect the returns to be conservative. Yes, conservative indeed, as I felt it could be better than the guaranteed returns.
With average of 15-20% p.a guaranteed returns and comes with capital protection, what's stopping investors from putting their money in it? Septical and conservative investors who believes something that sounds too good to be real, can't be real. Opportunity doesn't come often. Learn to open up doors to opportunity and hear what there is to offer than rely on hearsay.
Friday, December 28, 2007
Retire A Millionaire
I was reading this article in www.Kiplinger.com which said:
Find out how much you need to save each month to reach $500,000, $1 million of $2 million by age 65. The road to $1 million starts early, but if you're a late bloomer, help is at hand. The information below shows how much you need to save each month to accumulate $500,000, $1 million or $2 million by age 65, along with strategies for achieving that goal. At age 25, you're starting from scratch. At ages 35, 45 and 55, we assume you already have money in savings, on which you're earning 8% annually.
Sadly, this 8% earnings does not apply here in Singapore. With current interest rates on savings account being 0.25% per annum, while inflation stands at 3% (or more), how can our savings reach our desired amount to retire? Besides, with cash in the bank, there is a tendency to spend it than leave it.
The usual advice on cash distribution is:
- keep cash amount equvilant to 6 months of your current spending
- Invest some cash in high liquidity investment (eg shares)
- Invest some in short-term investment
- Invest some in mid-term investment
- Invest some in long-term investment (eg insurance)
Singapore's economy has been robust and booming in the last 2 years (2005 & 2006) and the same applies to 2007 (2007 overall economy results not out yet) and the next few years ahead. Since economy is doing well and job creation is high, it is easier to get a job should one decide to change. As such, I feel cash holdings can be reduce to 3 months.
Among some really good ways to make sure we are able to save in time for retirement is to invest our savings in some reliable source that provides very good returns with very low risk.
Being a Investment Consultant, I have invested some funds in this vehicle that provided me guaranteed returns (avg 15-20% p.a) with capital protection. Being mid-term investment, with capital protection, I won't need to monitor my investment, not exposed to market turbulance, not worried about broker dealings, etc.
Prudent savings and investment will put me on track to saving for my retirement.
Find out how much you need to save each month to reach $500,000, $1 million of $2 million by age 65. The road to $1 million starts early, but if you're a late bloomer, help is at hand. The information below shows how much you need to save each month to accumulate $500,000, $1 million or $2 million by age 65, along with strategies for achieving that goal. At age 25, you're starting from scratch. At ages 35, 45 and 55, we assume you already have money in savings, on which you're earning 8% annually.
Sadly, this 8% earnings does not apply here in Singapore. With current interest rates on savings account being 0.25% per annum, while inflation stands at 3% (or more), how can our savings reach our desired amount to retire? Besides, with cash in the bank, there is a tendency to spend it than leave it.
The usual advice on cash distribution is:
- keep cash amount equvilant to 6 months of your current spending
- Invest some cash in high liquidity investment (eg shares)
- Invest some in short-term investment
- Invest some in mid-term investment
- Invest some in long-term investment (eg insurance)
Singapore's economy has been robust and booming in the last 2 years (2005 & 2006) and the same applies to 2007 (2007 overall economy results not out yet) and the next few years ahead. Since economy is doing well and job creation is high, it is easier to get a job should one decide to change. As such, I feel cash holdings can be reduce to 3 months.
Among some really good ways to make sure we are able to save in time for retirement is to invest our savings in some reliable source that provides very good returns with very low risk.
Being a Investment Consultant, I have invested some funds in this vehicle that provided me guaranteed returns (avg 15-20% p.a) with capital protection. Being mid-term investment, with capital protection, I won't need to monitor my investment, not exposed to market turbulance, not worried about broker dealings, etc.
Prudent savings and investment will put me on track to saving for my retirement.
Saturday, December 22, 2007
Protect Your Funds From Investment Scams
This account may not be prominent here in Singapore but worth a read. Some people entrust their savings with a broker to help them manage and invest their funds.
I have heard of cases where a non-market savvy person entrusted a lump sum of money with a broker to help him invest and grow his money. It worked, initially! His $50,000 grew and after sometime, it swelled to over $80,000. He pump in much more funds now that he saw his savings growing fast and tremendiously.
That was during the bull market. The bear market set in, his earnings evapourated and in no time, his capital was erroded. His joy turns into sorrow as he saw his hard earned money gone up in dust.
Here's a story I read (source : http://www.kiplinger.com)
Ed and Ruthann Wolfe just wanted a safe place for their retirement savings. During his 32 years at the Rubbermaid plant in Wooster, Ohio, Ed had amassed more than $320,000 in his 401(k), all of it invested in low-risk Fidelity mutual funds.
After Newell bought Rubbermaid in 1999, early-retirement offers were made to more than 180 employees at the Wooster plant, including Ed, then 55. At the same time, many of his colleagues began attending investing seminars hosted by a Merrill Lynch broker, who was telling investors they could earn more money if they retired than if they stayed on the job. "There was a buzz going around the shop about how good this could be," recalls Ed. "We thought we couldn't afford not to do it."
The Wolfes turned over their entire $320,000 in retirement savings to the broker, with instructions to keep their money in low-risk investments because they needed to start making withdrawals right away. So they weren't concerned when the stock market tumbled in 2001.
Then they began hearing from friends whose investments had declined in value. Ruthann called the broker and was shocked to find out that they'd have to stop withdrawing money or go broke. Their retirement stash, which the broker had invested in high-risk Internet and tech companies, had plunged to less than $100,000. "I felt it could be the end of the world," says Ed, who went back to work driving trucks for two and a half years.
Stories like that are not always heard but is always happening. Entrusting your money with a broker seems like a good bet as the broker is supposedly more knowledgeable than us regarding investment.
On the other hand, some clients of mine who are also investors told me, "why trust others to manage your funds, pay them a percentage and they get to sleep even if the market is not doing well? Afterall, they are not playing with their own money". Reasonable advise from them. They are also the ones who had made me realised, it is time to relook money and how we could better manage it. Thank you, I am getting mature with money and sharing little such knowledge with others.
I have heard of cases where a non-market savvy person entrusted a lump sum of money with a broker to help him invest and grow his money. It worked, initially! His $50,000 grew and after sometime, it swelled to over $80,000. He pump in much more funds now that he saw his savings growing fast and tremendiously.
That was during the bull market. The bear market set in, his earnings evapourated and in no time, his capital was erroded. His joy turns into sorrow as he saw his hard earned money gone up in dust.
Here's a story I read (source : http://www.kiplinger.com)
Ed and Ruthann Wolfe just wanted a safe place for their retirement savings. During his 32 years at the Rubbermaid plant in Wooster, Ohio, Ed had amassed more than $320,000 in his 401(k), all of it invested in low-risk Fidelity mutual funds.
After Newell bought Rubbermaid in 1999, early-retirement offers were made to more than 180 employees at the Wooster plant, including Ed, then 55. At the same time, many of his colleagues began attending investing seminars hosted by a Merrill Lynch broker, who was telling investors they could earn more money if they retired than if they stayed on the job. "There was a buzz going around the shop about how good this could be," recalls Ed. "We thought we couldn't afford not to do it."
The Wolfes turned over their entire $320,000 in retirement savings to the broker, with instructions to keep their money in low-risk investments because they needed to start making withdrawals right away. So they weren't concerned when the stock market tumbled in 2001.
Then they began hearing from friends whose investments had declined in value. Ruthann called the broker and was shocked to find out that they'd have to stop withdrawing money or go broke. Their retirement stash, which the broker had invested in high-risk Internet and tech companies, had plunged to less than $100,000. "I felt it could be the end of the world," says Ed, who went back to work driving trucks for two and a half years.
Stories like that are not always heard but is always happening. Entrusting your money with a broker seems like a good bet as the broker is supposedly more knowledgeable than us regarding investment.
On the other hand, some clients of mine who are also investors told me, "why trust others to manage your funds, pay them a percentage and they get to sleep even if the market is not doing well? Afterall, they are not playing with their own money". Reasonable advise from them. They are also the ones who had made me realised, it is time to relook money and how we could better manage it. Thank you, I am getting mature with money and sharing little such knowledge with others.
Friday, December 14, 2007
Currency, War, and Civil Pay - We better Care for Ourselves
Read some rather disturbing article lately. An article suggested, when a government administration is inefficient, they hide the truth by inflating their currency (if they could) else go to war. This can camouflage their mismanagement, but it just exposed their citizens to further sufferings.
America
Is the problems in the US just credit crunch or a true mismanagement of many governments leading to the mess it is in today? US had gone through massive financial gusting wars since this current administration. With the wars, a lot of funds are diverted in the name of home security and world peace. Nothing has been proven, no "weapons of mass destruction, no nuclear, no biological warfare", no nothing but a lot of oil and victims. What has been done for the people? Credit problem just surfaced in recent 1 odd year. Economy is near a meltdown (is this a economic nuclear meltdown?) and not enough has been done to save it.
Let me share some extracts from the article:
(1) The first thing politicians do to hide their mismanagement, he said, is inflate the currency; the second thing they do is go to war.
(2) Iran has no nuclear weapons, and its military is designed for defense. It has no offensive capability - no air force, no navy to speak of. Israel, on the other hand, is usually ranked as the fifth most powerful military state on the planet. It has more than 200 nuclear weapons and a superb air force
(3) the lies told to you before Iraq: that Saddam Hussein was pursuing a nuclear weapon; that he had enormous stockpiles of chemical and biological weapons. The only thing he really had was oil. That's why we went to war
(source : http://www.populistamerica.com/inflating_the_currency_and_starting_wars)
Singapore
It was announced this week that "Top public sector staff will have a second round of salary adjustments on January 1 next year. Their annual salaries will rise between 4% and 21%". This means, the entry level ministers and senior permanent secretaries, will see their annual salaries increase by 21% to S$1.94 million. They did not mention the Prime Minister's pay.
It was also mentioned "Prime Minister Lee Hsien Loong had said in April that he will donate his wage increases for the next five years to charity", but it did not mentioned that he will be receiving pension (already pensionable by now) later in 2007. So, if pension is 2/3 of his last drawn pay (which is >$3mil when he is on pension), it amounts to more than $2mil in pension. So, what is $500,000?
(source : http://www.channelnewsasia.com/stories/singaporelocalnews/view/317221/1/.html)
I am not saying they do not deserve such pays. Afterall, we have enjoyed a country to be proud off, many thanks to our founding fathers. The British foresaked us during WWII, came back after the fall of Japan, had enjoyed their colonial days, did nothing wonderful and Singapore was foresaken by the Federation of Malaysia on 9 August 1965. Since the founding fathers of true Singapore done so much for us, till the current government, they deserve what they can justify.
The Singapore Education
Education teaches us, "study hard, get good grades, get a decent job, buy property, buy car, start family, be in debt". Many follows! Wonderful education, thus we have one of the most efficient workforce in the world, and one of the most literate population in the world.
This education system will ensure the majority are living above povety, with slightly average basic luxury of being able to buy themselves a property (doesn't matter if it is public housing or private housing), a car for some, etc.
In fact, we should hold our head much higher than the Americans or British, because, our average property is much more expensive than theirs, our cars are one of the most expensive in the world (mind you, a Toyota Camry cost >S$80k). Yet our pay are not one of the highest, but we are all surviving.
The Summary
From the above two governments I have shared, and this education system, the government has proven themselves. One government is busy firing missiles, trying to prove the existence of weapons of 'mess' destruction, while another government is commanding top notch salary.
Since both senarios has not shown how much the government taught their citizens on proper finanial planning, isn't it time we take care of it ourselves? It's never too early to start planning, it'll only be too late if we don't start now.
America
Is the problems in the US just credit crunch or a true mismanagement of many governments leading to the mess it is in today? US had gone through massive financial gusting wars since this current administration. With the wars, a lot of funds are diverted in the name of home security and world peace. Nothing has been proven, no "weapons of mass destruction, no nuclear, no biological warfare", no nothing but a lot of oil and victims. What has been done for the people? Credit problem just surfaced in recent 1 odd year. Economy is near a meltdown (is this a economic nuclear meltdown?) and not enough has been done to save it.
Let me share some extracts from the article:
(1) The first thing politicians do to hide their mismanagement, he said, is inflate the currency; the second thing they do is go to war.
(2) Iran has no nuclear weapons, and its military is designed for defense. It has no offensive capability - no air force, no navy to speak of. Israel, on the other hand, is usually ranked as the fifth most powerful military state on the planet. It has more than 200 nuclear weapons and a superb air force
(3) the lies told to you before Iraq: that Saddam Hussein was pursuing a nuclear weapon; that he had enormous stockpiles of chemical and biological weapons. The only thing he really had was oil. That's why we went to war
(source : http://www.populistamerica.com/inflating_the_currency_and_starting_wars)
Singapore
It was announced this week that "Top public sector staff will have a second round of salary adjustments on January 1 next year. Their annual salaries will rise between 4% and 21%". This means, the entry level ministers and senior permanent secretaries, will see their annual salaries increase by 21% to S$1.94 million. They did not mention the Prime Minister's pay.
It was also mentioned "Prime Minister Lee Hsien Loong had said in April that he will donate his wage increases for the next five years to charity", but it did not mentioned that he will be receiving pension (already pensionable by now) later in 2007. So, if pension is 2/3 of his last drawn pay (which is >$3mil when he is on pension), it amounts to more than $2mil in pension. So, what is $500,000?
(source : http://www.channelnewsasia.com/stories/singaporelocalnews/view/317221/1/.html)
I am not saying they do not deserve such pays. Afterall, we have enjoyed a country to be proud off, many thanks to our founding fathers. The British foresaked us during WWII, came back after the fall of Japan, had enjoyed their colonial days, did nothing wonderful and Singapore was foresaken by the Federation of Malaysia on 9 August 1965. Since the founding fathers of true Singapore done so much for us, till the current government, they deserve what they can justify.
The Singapore Education
Education teaches us, "study hard, get good grades, get a decent job, buy property, buy car, start family, be in debt". Many follows! Wonderful education, thus we have one of the most efficient workforce in the world, and one of the most literate population in the world.
This education system will ensure the majority are living above povety, with slightly average basic luxury of being able to buy themselves a property (doesn't matter if it is public housing or private housing), a car for some, etc.
In fact, we should hold our head much higher than the Americans or British, because, our average property is much more expensive than theirs, our cars are one of the most expensive in the world (mind you, a Toyota Camry cost >S$80k). Yet our pay are not one of the highest, but we are all surviving.
The Summary
From the above two governments I have shared, and this education system, the government has proven themselves. One government is busy firing missiles, trying to prove the existence of weapons of 'mess' destruction, while another government is commanding top notch salary.
Since both senarios has not shown how much the government taught their citizens on proper finanial planning, isn't it time we take care of it ourselves? It's never too early to start planning, it'll only be too late if we don't start now.
Wednesday, December 12, 2007
Fed Lowers Rates, Wall Street Tumbles
Previous two Fed Reserve rate adjustment saw a scoring Wall Street. The third adjustment this year to prevent economic fallout and recession was not well received immediately after the adjustment.
Investors had braced themselves for a 0.25% cut in interest rate, but was expecting a 0.50% cut instead. Fed Reserve had suggested that the three rate cuts ordered thus far "should help promote moderate growth over time," but many economists and analysts had hoped the Fed rate-making body, the Federal Open Market Committee, would cut the fed funds rate to 4%. And they hoped the Fed would convey a sense of urgency about the condition of the economy. (source : http://articles.moneycentral.msn.com/Investing/Dispatch/071211markets.aspx)
To cut the interest rates too much may expose the US to vulnerably of an outbreak in inflation but small reduction leads to market sliding southwards. What a dilemna. What could have held Fed from cutting further? The fear of inflation or lacking funds?
In contrast, China had adjusted their interest rates upwards several times this year to prevent overheating of their economy. China being one of the largest economy in the world, had seen double digit growth in the last few years. Will China's economy slowdown soon?
China's Central Bank announced on 8 Dec 07, that it will raise the bank reserve ratio requirement by a full percentage point to 14.5 percent on December 25. It said the move is "in order to strengthen the management of liquidity in the banking system and curb the excessive growth of credit,". (source : http://www.channelnewsasia.com/stories/afp_asiapacific_business/view/316297/1/.html)
Let's hope the US problem doesn't turn into a major global downturn. In the mean time, it is still safer to be prudent and be prepared for any shocks.
Investors had braced themselves for a 0.25% cut in interest rate, but was expecting a 0.50% cut instead. Fed Reserve had suggested that the three rate cuts ordered thus far "should help promote moderate growth over time," but many economists and analysts had hoped the Fed rate-making body, the Federal Open Market Committee, would cut the fed funds rate to 4%. And they hoped the Fed would convey a sense of urgency about the condition of the economy. (source : http://articles.moneycentral.msn.com/Investing/Dispatch/071211markets.aspx)
To cut the interest rates too much may expose the US to vulnerably of an outbreak in inflation but small reduction leads to market sliding southwards. What a dilemna. What could have held Fed from cutting further? The fear of inflation or lacking funds?
In contrast, China had adjusted their interest rates upwards several times this year to prevent overheating of their economy. China being one of the largest economy in the world, had seen double digit growth in the last few years. Will China's economy slowdown soon?
China's Central Bank announced on 8 Dec 07, that it will raise the bank reserve ratio requirement by a full percentage point to 14.5 percent on December 25. It said the move is "in order to strengthen the management of liquidity in the banking system and curb the excessive growth of credit,". (source : http://www.channelnewsasia.com/stories/afp_asiapacific_business/view/316297/1/.html)
Let's hope the US problem doesn't turn into a major global downturn. In the mean time, it is still safer to be prudent and be prepared for any shocks.
Thursday, December 6, 2007
Ways to Save (4) - Retire Early
Early retirement is getting more and more difficult. The environment around us are getting more and more upmarket, prices of lifestyle items are getting more expensive, there are more lifestyle norms to adhere to if you want to stay with the time. With these, it is, of course difficult to save and retire early.
Create a Personal Income Statement
This can help you understand your own cashflow. By listing down your income and expenses/liability, it helps us understand where we could have reduce in spending and how to increase our savings at the end of each month.
Clothings and accessories
How often do we stop ourselves from spending on an item just because it looks nice, rather than because we need it? People want to dress well to impress, and that means spending more. We can actually dress well with little budget if we know how to carry ourselve well and know how to seek out bargins.
Car
Rather than changing that current car every three years, we could have driven it longer and not bothered about who is changing to what fancy new car. Else for many, we could switch to public transport.
Stay out of debt
Avoid spending what we couldn't pay off at the end of the month. It is not uncommon to see people who spends future money, eg, people spends large sums just because bonus time is around the corner and they could have paid off the credit card bills when bonus arrives. Staying out of debt also means, cutting short our loans on small ticket items which includes car loan, keeping it to 2-3 years (I know, it's difficult)
The Simple Life
Live modestly and avoid spending on fancy stuff, eat in, avoid expensive meals, get some health insurance policy, invest money in safe vehicles, spend lesser and save more for investing and spend wisely. Make your money work for you.
Downsize
Rather than living in a bigger home and paying part of the mortgage in cash, downsize and avoid cash payments (but using your provident funds). The same applies to car, get a modest car than a big executive car. Not only do smaller capacity car comes cheaper, it is also more friendly to your monthly fuel bills.
Invest Your Retirement Savings
This will help your money beat inflation and growing it.
Create a Personal Income Statement
This can help you understand your own cashflow. By listing down your income and expenses/liability, it helps us understand where we could have reduce in spending and how to increase our savings at the end of each month.
Clothings and accessories
How often do we stop ourselves from spending on an item just because it looks nice, rather than because we need it? People want to dress well to impress, and that means spending more. We can actually dress well with little budget if we know how to carry ourselve well and know how to seek out bargins.
Car
Rather than changing that current car every three years, we could have driven it longer and not bothered about who is changing to what fancy new car. Else for many, we could switch to public transport.
Stay out of debt
Avoid spending what we couldn't pay off at the end of the month. It is not uncommon to see people who spends future money, eg, people spends large sums just because bonus time is around the corner and they could have paid off the credit card bills when bonus arrives. Staying out of debt also means, cutting short our loans on small ticket items which includes car loan, keeping it to 2-3 years (I know, it's difficult)
The Simple Life
Live modestly and avoid spending on fancy stuff, eat in, avoid expensive meals, get some health insurance policy, invest money in safe vehicles, spend lesser and save more for investing and spend wisely. Make your money work for you.
Downsize
Rather than living in a bigger home and paying part of the mortgage in cash, downsize and avoid cash payments (but using your provident funds). The same applies to car, get a modest car than a big executive car. Not only do smaller capacity car comes cheaper, it is also more friendly to your monthly fuel bills.
Invest Your Retirement Savings
This will help your money beat inflation and growing it.
Wednesday, December 5, 2007
The US Credit Problem (Similar Signs Here in Singapore)
Fed Reserve Continuing Bailout
Fed Chief Bernanke Hints Further Rate Reduction May Be Needed to Head Off Economic 'Headwinds'
Mr Bernanke hinted that another cut may be needed to bolster economy. The credit crunch, housing slump and rising energy prices will cause further agony to consumers in the coming months. There were already two rate cuts this year and the coming Fed meeting on 11 Dec 07 may see a third cut. How much more can Fed cut it's short term rate to bail out the economy?
The cuts have helped in some ways, to contain the current housing and credit problem from collapsing, and the economy falling into a recession, but
As he mentioned, "The odds have grown that the country could enter a recession. A sharp cutback in consumer spending could send the economy into a tailspin". The deepened housing slump and consumer confidence has already caused them to reduce spending.
(source : http://biz.yahoo.com/ap/071130/bernanke.html)
The current credit problem are actually created over the years. Banks comes up with attractive loan packages (low interest in initial years) that sucks consumers to be oblivious of the consequence of later years where interest rates hiked hit these consumers hard.
With the sudden constrain, consumers turned to credit facilities to tide over but in fact, sinks further into the credit pit.
Credit Problem in The Brewing?
Coming back to Singapore, this problem was experienced through the Asian Crisis till post SARS (Severe Acute Respiratory Syndrome) period. Back in the late 90s, property prices hit sky high but nosedive through the triple economy impact faced here. Unemployment was high, wages were cutted to save jobs, etc. Bankrupcy was at an all time high.
As the situation worsen till 2003, many property owners are no longer able to hold onto their property thus flood the market though the demand was low. Such situations are hard to avoid when buyers are unrealistic during good times and forgetting that what goes up will come down.
Could we be seeing another such credit problem in Singapore? Turning the attention to cars. Many car buyers are attracted to the low COE (Certificate of Entitlement) and low car price (as compared to the high prices years ago). Some car buyers are actually not in the position to afford a car years ago, but with fallen COE and car prices, they are not able to marginally afford a car.
Such car buyers may turn to 10 years loan, with no down payment. This means, 100% loan over the full 10 years COE lifespan. Isn't this the same as US' sub-prime problem? Houses has the potential of appreciated value, but can the same theory be applied to cars? Unlikely! Yet why does these car buyers choose to delude themselves that they could afford a car with their miserable monthly $2,000 gross income?
With an efficient public transport system here in Singapore, is there really a need for cars? A car is an luxury item that is nice to have, but not need to have. But more often than not, I hear people saying they need a car, when they actually don't.
Remedy
I can only hope that such hard times don't come too soon. If people doesn't start realising the need to be prudent and practical, to know what they could truly afford, I am afraid such folly will be a painful lesson to them.
The education system has to undergo some change to educate people the economics of money.
Fed Chief Bernanke Hints Further Rate Reduction May Be Needed to Head Off Economic 'Headwinds'
Mr Bernanke hinted that another cut may be needed to bolster economy. The credit crunch, housing slump and rising energy prices will cause further agony to consumers in the coming months. There were already two rate cuts this year and the coming Fed meeting on 11 Dec 07 may see a third cut. How much more can Fed cut it's short term rate to bail out the economy?
The cuts have helped in some ways, to contain the current housing and credit problem from collapsing, and the economy falling into a recession, but
As he mentioned, "The odds have grown that the country could enter a recession. A sharp cutback in consumer spending could send the economy into a tailspin". The deepened housing slump and consumer confidence has already caused them to reduce spending.
(source : http://biz.yahoo.com/ap/071130/bernanke.html)
The current credit problem are actually created over the years. Banks comes up with attractive loan packages (low interest in initial years) that sucks consumers to be oblivious of the consequence of later years where interest rates hiked hit these consumers hard.
With the sudden constrain, consumers turned to credit facilities to tide over but in fact, sinks further into the credit pit.
Credit Problem in The Brewing?
Coming back to Singapore, this problem was experienced through the Asian Crisis till post SARS (Severe Acute Respiratory Syndrome) period. Back in the late 90s, property prices hit sky high but nosedive through the triple economy impact faced here. Unemployment was high, wages were cutted to save jobs, etc. Bankrupcy was at an all time high.
As the situation worsen till 2003, many property owners are no longer able to hold onto their property thus flood the market though the demand was low. Such situations are hard to avoid when buyers are unrealistic during good times and forgetting that what goes up will come down.
Could we be seeing another such credit problem in Singapore? Turning the attention to cars. Many car buyers are attracted to the low COE (Certificate of Entitlement) and low car price (as compared to the high prices years ago). Some car buyers are actually not in the position to afford a car years ago, but with fallen COE and car prices, they are not able to marginally afford a car.
Such car buyers may turn to 10 years loan, with no down payment. This means, 100% loan over the full 10 years COE lifespan. Isn't this the same as US' sub-prime problem? Houses has the potential of appreciated value, but can the same theory be applied to cars? Unlikely! Yet why does these car buyers choose to delude themselves that they could afford a car with their miserable monthly $2,000 gross income?
With an efficient public transport system here in Singapore, is there really a need for cars? A car is an luxury item that is nice to have, but not need to have. But more often than not, I hear people saying they need a car, when they actually don't.
Remedy
I can only hope that such hard times don't come too soon. If people doesn't start realising the need to be prudent and practical, to know what they could truly afford, I am afraid such folly will be a painful lesson to them.
The education system has to undergo some change to educate people the economics of money.
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