Going the Opposite

Economics teaches about Demand and Supply. When Demand is higher than Supply, price of goods goes up. When Demand is Lower than Supply, prices goes down.

Singapore went through years of economy downturn, starting with the Asian Financial Crisis to SARS. The economy recovered and experienced economical growth since 2006. The property price upheaval during the period of June to October/November 2007 saw huge profits for property investors. Investors became more affluent during this period.

With 2 years of high growth, people began to splurge on big ticket items, such as changing to better cars with higher engine capacity, etc. While many spent on such luxuries, I choose to go the opposite.

Going the opposite to me is, when the demand is high, when everybody else is spending on big ticket items, don't buy, don't spend. During good times, demand for goods, especially high ticket items, goes up. The increased demand will force prices of goods to go upwards and the main stream people tends to spend during this period.

During this time, I choose to invest my funds into some good vehicle that gives good yield. Years later, my original amount would have grown/multiply.

During bad times, demand naturally falls. The drop in demand will force price downwards. People runs out of funds, digs into savings, starts selling their high ticket items. This contribute to further price erossion. I will be spoilt for choice. With lesser money, I can buy the same item that people used to pay much more for.

When the economy faces a recession next time, I hope my investments now will give me enough funds to plough into bargin investments that will give even better yield later on.

Go the opposite.

Global Financial Crisis Worsening?

The stunning collapse of US investment bank Bear Stearns is just one example. It shows the global financial crisis is more serious and more widespread than policy makers realised even a few weeks ago, the head of the International Monetary Fund (Dominique Strauss-Kahn) said.

He further add, "The risks and dangers are very high. The economic environment is still worsening." He said that US woes will impact other economies and will require a "global answer".

Not admiting, US President says "the United States is on top of the situation." while acknowledging that the economy is going through "challenging times".
(source : The New Paper, 18 Mar 08)


Even Chinese Premier, Wen Jiabao, is concern about the US economy, as quoted "I am paying great attention to the world economy, I am especially worried about the US economy," Wen said at a press conference at the end of China's parliament.

"What I'm worried about is that the US dollar continues to depreciate, when will we see it hit the bottom? What kind of monetary policy will the US take and what direction will its economy take?"

With the global economy increasingly linked, fluctuations on the world market were bound to influence China's economic growth, Wen said.

The US subprime loan crisis was not only driving down the dollar, but also interest rates and stock markets around the world, Wen said, all the while pushing up the price of oil to over 100 dollars a barrel price.
(Source : http://sg.news.yahoo.com/afp/20080318/tbs-china-economy-inflation-us-wen-ec2362a.html)

Savings Eroded By Record Inflation Rates

Cash rich Singaporeans averse to risky alternatives are in an unhappy spot of having their savings eroded by inflation, said The Business Times.

Not only is inflation clearly on the rise - it hit a 26-years high of 6.6% in January - banks are further cutting their already miserable deposit rates.

I still recall, in year 2006, 12-months Fixed Deposit rates were as high as 3% (or more) but has fallen to 1.2% currently (Mar 2008). With inflation estimation at 5% per year, how does our savings in the bank ever match inflation. This goes to say, the same amount of money kept in the bank, with interest, will only see you getting poorer and poorer. Let me re-highlight some assumption,
- Current value of savings : $10,000
- Value after 1yr (5% Inflation) : $9,500
- Value after 7% GST (Upon spending) : $8,835

Does it still make any sense to stay conservative and leave money in the bank, or to be a high risk taker in equity investment? Please note, there are investments out there that provides Capital Protection and Guaranteed Returns. Look at what gives you more than what will be taken from you (abv illustration).

PM Lee says important to focus on long-term investments

Reading in the news, Prime Minister Mr Lee said Singapore is a country that has gotten to where it is because it has been frugal, with Singaporeans working hard and living within their means.

His statement came in the wake of people's expectation of more relief and giveouts from last year's economy surplus. The expectation came from the high inflation and cost of living.

He further added, "If you change your mindset - we used to save, now that we have money, we don't need to save anymore, then the growth will stop. Singapore will go down and we will all be in serious trouble. We must maintain our basic philosophy - work together to grow the economy, to grow the pie so that everybody gets a lager slice instead of just redistributing a smaller pie
(source : http://www.channelnewsasia.com/stories/singaporelocalnews/view/333849/1/.html)

The public's expectation of government give out was a natural expectation since the government started giving some incentives since the early days of our Goods & Services Tax (GST). Last year, GST was raised from 5% to 7% (40% increase). Apart from GST, other government linked revenue (eg ERP) had increased over the same period.

Rather than advising people on not to expect huge give outs, people would be better if taught how to stretch their dollar, to improve money handling and learn how to grow their funds.

Signs of Economy Slowdown

A sign that property market in Singapore has cooled since the peak in late 2007 was reflected in slower sales and take up rate. At it's peak, new property launch could be completely sold out within days (with one development in Thomson being sold out before actual launch).

It was also reported in "weekend Today" newspaper dated 1 March 2008, "Small development tax increase sign of property slowdown". In the article, the writer cited that the Ministry of National Development yesterday announced minimal changes in development charges for residential sites. Other extracts from the article as follows:

"It is encouraging to know that the Government has made minimal changes to the development charges for residential use, a reflection that it is mindful of the current market sentiment and the uncertainties ahead," said Mr Li Hiaw Ho, executive director of CBRE Research.

Mr Donald Han (MD of Cushman and Wakefield) attributed the vitually flat rates to the lacklustre market for private homes, as well as of residential sites, in recent months. He noted that the property market started deteriorating in December as sentiment turned cautious amid uncertainty over the extent of the fallout from the sub-prime crisis in the United States and stock market volatility.

Statistics from the Urban Redevelopment Authority showed that the number of new private homes sold in December shrunk by half from the month earlier, while January numbers were flat.

Many signs have suggested that the US economy is at the brink of recession, from falling propery prices to decline in job market. Despite that, the fallout may be coming to an end. The credit crunch had many banks and financial institutions reporting billions of dollars in losses from the crisis. All these have been taken into account, the economy has absorbed the downturn. So long as these insitutions had been truthful in their reports and not hid any other bad news, the credit crisis may have settled down a lot.

A lot of funds from other countries have been pumped into the financial institutions in US and Europe to help them overcome their shortages of funds and to contain the fallout. Singapore alone has pumped in nearly tens of billions into various financial institutions and many Middle East countries and their investors have also injected funds into the troubled institutions.

Not deniably, these investments may see good returns in the coming years but they are also concern of the impact from the fallout, in their (investors) domestic economy. Singapore has a lot of major projects being planned and developed currently, that a US recession will not do us any good. Some of the major investments includes, Formula 1, Integrated Resort, hosting of Youth Olympic, etc.

From the looks, the current dust is settling and may take up to another year or two to start coming up again.