Financial Planning & Outlook

HDB resale prices could drop 10%

2012-02-10T10:08:00.002+08:00

It was writen in PropertyGuru.com.sg website that HDB resale prices could drop 10%.
(source : http://www.propertyguru.com.sg/property-management-news/2012/2/32295/hdb-resale-prices-could-drop-10-say-experts)

In the article, property experts shared their view on the HDB flat (public housing) prices in the current Eurozone debt crisis.

There was 'coffeeshop' talk that property prices will dip by 30% this year. Would you believe the rather baseless blind leading the blind talk, or the experts from the property market (as cited in the report above)?

New HDB Flats
The many BTO projects will help first timers, which, a lot are not
able to pay the high Cash Over Valuation (COV) and valuation in the first place. So the HDB's release of more BTO projects will provide first timers with the chance to own their flat, to provide to the demand.

Resale Flats
On the resale market, what may happen when the economy soften further? Valuation won't drop too much. HDB flat valuation is government controlled, not independent to market movement like private properties. So, if valuation comes down, new flat prices will also come down. That is not what the government wants.

However, COV will come down. COV is what buyers are willing to pay on top of valuation. If cashflow is limited, people will not splash so much cash. Sellers may expect, but if the market is not paying, they can't fetch. It will come down slowly but surely. It may even dip below valuation like what happened in the mid 2000s.

30% Dip
If such a big adjustment happens, all properties will be affected, banks will be affected,
economy will slide further. So I don't think this is gg to take place so easily right now. Yes it can, but not so easy.

Post Eurozone Debt Crisis
Propnex CEO said, “Public housing resale prices have gone up by over 80 percent in the last five years".What happened after US Sub-Prime dust settled? In 2006-2007, private property prices shot up drastically. It soften and came down in 2008 and started climbing again after CNY 2009 (with the launch of Alexxis).

Will we see a repeat of big spenders coming into the picture after Eurozone problem is settled and economy recovers? Singapore needs more sound policies to curb foreign speculation.

European Crisis! Will It Affect Singapore? Property Policies - The Other Side Of The Coin

2012-01-16T14:24:00.005+08:00

It has been nearly 2 years since my last blog post. Economy was rosy for awhile. Now that European Crisis is too real to divert, it has become a worry, a big topic of concern.

(1) European Crisis
The question of late is,
- Will it affect Singapore?
- When will it hit our shores?
- Is the government capable to steer us out

A simple broad based issues to consider:
- Singapore is an export based economy.
- We are not self-sufficient.
- We are a very small economy, like a small boat in the ocean.

Just based on these 3 points, we are always affected by international turbulances. The only thing the government can do is, foresee some of these turbulances and try to implement
policies that can soften the wave.

(2) When Will It Hit Shore
There are many street talk that it will hit us after Chinese New Year (funny, it is 1 week away from today... that spells doom in about 2 weeks???). Street talk is baseless! Fear mongers are just shooting away.

The few concerns includes Job Security and Economy Data. Some small scale retrenchment started taking place since Q4 2011. Companies big and small already felt the decline in business perhaps since Q4 2011.

So, to say it will hit shore after Chinese New Year is really shallow. First few ripples have arrived since months ago. The rollers and waves are approaching. It will start showing more signs if more policies and countries in Europe failed.

Economy data would be more accurate indicator of a recession.

(3) Government Policy Making
The government already noticed the European financial situation since years back. Good thing this time they "have yet" to act smart and let the two loose financial canons fire their rounds into failing European banks. We hope they didn't, but we can't trust them either, they did too many bad investments even a novice thought was stupid.

Property Control Policies were implemented since August 2010, with the change in Minimum Occupation Period, Seller Stamp Duty, etc.

More policies were implemented in early 2011, where Foreigner investors will have to pay 10% Buyer Stamp Duty.

On the surface, this is to curb runaway inflation. However, is it really that innocent, to help Singaporeans own homes? Take a look at it from the other side

(3.1) A lot of property price spike were lead by private properties
A lot of the spike were influenced by foreigners who had divert their funds to Singapore property, leading to a spike, and their ROI being huge (as in, purchase and sales price differences).

A lot of these foreigners doesn't even live here. So it doesn't matter if properties are are expensive. They just want to park their money

China took property control measures after seeing their property market inflate tremendiously. So these rich Chinese National has to park in another save haven, Singapore.

Now, given the above, it is very dangerous situation we faced. If these investors were to suddenly pulled funds out, the property market will collapse and a lot of people will go under. So having policies to deter further foreign investment is to reduce the risk of having more foreign cash (hot cash) in our property market and causing a potential crash.

(3.2) Cash Strap Investors Pulls Out - Stamp Duty
If a rich investor faces uncertainty, they will dump their property here and pull cash back to their home country. Now, looking at the Seller stamp duty, where stamp duty applies for property sales within 4yrs, and the foreigner stamp duty (10%?) on purchase, it is also a measure to
stop too much inflow of cash, and prevent investors pulling out overnight.

The 10% Buyer stamp duty will reduce more foreigners from investing into Singapore properties as the price is now inflated 10% above market valuation. A smart investor will not start with a negative (n -10%).

The seller stamp duty :
- 16% within First Year
- 12% within Second Year
- 8% within Third Year
- 4% within Fourth Year
This is a good deterrant to dump property and cash out as they will exit with a negative valuation (as in, sales price less x% seller stamp duty).

This can be a deterrant to these foreigners, making them look elsewhere for cash if the need arise.

Further measure the government could take may include, restriction in foreigners bringing out cash from the sale of property. So even if investors wants to sell their property and incur Stamp Duty, they are not able to bring their funds out, trapping their monies here. However this will be unpopular as investors will be too cautious to invest here in Singapore again.

The European Crisis may take years for the dust to settle. Thus the 4 years tiered Stamp Duty is possibly a good measure yet doesn't over penalize foreign property investors.

Quota for Permenant Residents Buying Resale HDB

2010-02-28T13:22:00.002+08:00

The government announced in late January 2o10 that they are considering imposing a quota on Permenant Residents (PR) buying resale HDB flats. This is taken from two angles. Firstly, they claimed this is to prevent congregating of groups of nationalities. Next, this is in light of their intention to cool the HDB prices.

In recent times, there are blames on PRs driving up property prices. Are the PRs really guilty of causing property prices to escalate in recent years?

(1) En-bloc
In the years 2005 to 2007, there were many en-bloc in mature private condominium estates. This made residents cash rich. While waiting for their new condo, some opt to purchase a HDB flat as their temporory housing.

With loads of cash on hand, they could easily dish out high Cash Over Valuation (COV). At one stage, a 5-room HDB flat was asking for $100,000 COV. So who drove up COV?

(2) PRs and CPF
Many PRs wouldn't have much CPF funds within the first 5 years of obtaining their PR status. Cash on hand is also limited for many. A simple senario:
- Valuation : $500,000
- Cash Over Valuation : $50,000
- CPF Available Funds : $30,000
- Downpayment : $100,000 (20% valuation) + $50,000 (COV)
- Total Cash Outlay : $120,000 ($150k - $30k CPF). This amt excludes Stamp Fees, etc.

Do PRs have that much money to pay high COV? Not forgetting, the amount above is just a simple illustration on purchasing a HDB flat, and not taking into consideration, renovation, purchase of applicances, etc.

(3) PR Quota
If there is a consistent amount of PRs buying HDB flats and a consistent supply of sellers of HDB flats prior to the quota, with the new quota (limiting PRs to HDB flats), wouldn't that drive up prices?

Demand is now narrowed to limited supply. When Demand exceeds Supply, prices goes up.

(4) Effect on Resale Flats that Can't Be Sold to PRs
If the neighbhour sold his flat at $550,000, would the next seller with similar condition sold his flat at $500,000?

So, how does the policy affect HDB prices?

Time To Spend?

2010-01-11T10:11:00.002+08:00

It was reported on the news, Certificate of Entitlement (COE) for vehicles have gone up in recent times, but car dealers have slashed prices for new cars to lure in buyers as the Lunar New Year approaches.

Quote Chin Chee Min, Senior Manager C&C Kia, "We will sacrisfice a lot of our profit margin. But if we don't do it now, we won't get in tune with the buying sentiments with the customers."

What is causing the buying sentiments? The economy looks set to recover, the global recession appears over, consumer confidence have strengthen. But are we not walking into the same path as in year 2007, where buyer confidence were at sky high and people were spending like they are set to get a windfall?

When the economy is recovering, it is unwise to spend lavishingly. That is as good as spending what we do not have yet.

Spending should be based on what we have. In recovery stage, it is wise to save up and invest as the market will recover first thus the returns on investment will be higher.

It's never too late to spend but it is always too late to save.

What Is The Interest Rate Prediction in 2010?

2010-01-08T16:01:00.005+08:00

With the global recession easing off in the last quarter 2009, nations Central Banks are looking at adjusting interest rates.

America's Federal Reserve Chairman have hinted that interest rates may need to be adjusted upwards soon to help recovery. Many other countries' Central Banks, including America, have held onto interest rates for the Q1 2010.

For the first time in 5 months, China's Central Bank have adjusted interest rates upwards, by 0.04%, from 1.328% to 1.3684%. The increase is to cool the supercharged economy and control inflation.

With recovering economy, like in year 2004 and 2005, interest rates are destined to head north. In year 2004, interest rates for home loans were as low as 0.5% but by late 2005, it reach 4.0%. Will this pattern occur again in 2010?

A quick look at SIBOR Rates may give us an idea how SIBOR rates will move this year.

Months : Jan 10 - July 09 - Jan 09 - July 08 - Jan 08

3mths : 0.6833% - 0.6867% - 0.9680% - 1.1870% - 2.3750%

12mths : 0.9192% - 0.9242% - 1.2390% - 1.8750% - 2.6250%

Two years ago, in January 2008, it was the meltdown of the US Sub Prime, which lead to the start of recession. SIBOR rates starts to tumble rapidly for the whole year. In the last one year, since February 2009 till January 2010, interest rates stablized with little variation.

Chances of SIBOR going up in 2010 is high. Plan your finances carefully. If you are servicing high monthly mortgage, involving cash, becareful. Chances are, you will be paying more in the coming months.

An Essential Guide To Buying Your First Property

2009-11-21T11:29:00.002+08:00

As the global economy creeps out of the financial meltdown which started in 2007 (Sub Prime), people will soon forget the painful lesson learnt. It will be a matter of 1-2 years that people will start spurging and go on years of spending without too much reflection of the painful recession.

This year, since second quarter (2009), as the recession dust starts to settle, the property bubble starts forming right till September. Property sales seems to have started slowing down in October and November. This can be a sign that the property market has overheated and is now cooling off.

This is time where the average buyers are looking at buying their first property.

Property purchase is usually the biggest ticket item in our life. As such, there are things that buyers need to take into consideration.

What is the best way for an individual to gauge if they can afford to buy a property?
It is important to do financial planning. The banks use a bench mark of 40% to 50% Debt Servicing Ratio (DSR). This means, there should not be more than 40% - 50% of the combined income, being commited to financial outlays.

For example, if the combined gross income is $5,000, the maximum financial commitment should not be more than $2,500 per month. Financial commitment includes home loan, car loan, credit card debt, etc.

Financial planning includes being conservative in the outlook. Would be property buyers should not take potential future income in their calculation as this will cause a large proble when income falls.

What are some important factors in securing a bank loan?
Largely, a lender are concern of the ability of a borrower to repay the loan. As such, good financial rating and being free from litigation helps ease banks concern.

Few common reasons why loan application are rejected, is usually due to bad credit history or outstanding litigation which could affect a person's financial standing. Other reasons could be due to inconsistency of income (frequent change of job).

What is the consideration on loan tenure?
Many people believes that they should pay off their loans within the shortest time. That is not totally wrong but not suitable for all senarios.

Shorter loan tenure means lesser interest paid. Loans repayment usually takes principle divided by duration. A simple calculation as follows (taking a small loan size for calculation).
- Loan Principle : $300,000
- Loan Tenure : 20 years
- Monthly principle repayment : $1,250/mth (being, $300k / 20yrs / 12mths)
- Monthly interest assuming at 2.5% : $625/mth (being, $300k x 2.5% /12mths)
- Total monthly repayment : $1,875/mth
- Principle / Interest Ratio : 66.67% / 33.33%

If the tenure is stretched to 30 years:
- Monthly principle repayment : $833.33 (being, $300k / 30yrs / 12mths)
- Monthly interest assuming at 2.5% : $625/mth
- Total monthly repayment : $1,458.33
- Principle / Interest ratio : 57.14% / 42.86%

It is not advisible to reduce the loan tenure for everyone. It is important to work back on to the DSR as well as, checking how much is available from CPF funds to be used towards repaying the monthly installment.

For those intending to reduce tenure using cash every month, there is a need to reconsider if these money can be put to better use, investment and getting better returns. A conservative investment can give a returns of 4-7%pa while home loan interest rates are currently hovering around 2-3%.

CPF Maximum Withdrawal Limit
This is another factor wew must pay close attention to. For those who bought their property on 1 Jan 2008 onwards, they are only able to use up to 120% Valuation Limit. This means, if the valuation is $500,000, the maximum withdrawal limit will be $600,000.

The maximum withdrawal limit includes, downpayment, legal and stamp fee, monthly installment (principle and interest), till it reaches 120%.

For a 30 years loan tenure, the borrower will reach the limit sometime on the 23 year. The remaining 7 odd years will involve full cash.

Take an average young couple for illustration. Assuming, the couple have their first child 2 years after marriage (and owning their property) and second child another 2 years later. If the maximum withdrawal limit is reached on the 23th year, the first child would be about 21 years old while second child is about 19 years old.

At 21 years old, the child may be receiving his/her tetiary education while the second child is reaching tetiary education soon. Cash would be very important then.

Types of Loan Package
Loan packages works around five main loan types as follows:
- Fixed Rate package
- Variable Rate package
- Combo package
- Current Link Account
- SIBOR Rate package

A mortgage bank officer or mortgage consultant will be able to advise further on that.

It is important to look at the economy direction, financial planning, property holding, etc, before deciding on what is a suitable package. The decision will eventually be for the borrower to make.

Other important information for borrowers
1. Mortgage Insurance and Fire Insurance

Mortgage insurance protects the co-borrower in the event one borrower is rendered invalid (death or permenant disability). The insurance will take care of the outstanding loan that they are insured for.

Fire insurance provided by the banks are insufficient. It convers mainly, structure and fittings, with minimal coverage. It is important to also take care of 3rd party liability, which an additional fire insurance can take care of. Such insurance policy cost as little as $150 per year.

2. Refinance
Refinancing upon the lapse of a Lock-in period helps keep the loan interest rate current. Refering back to the Principle/Interest calculation, a lower interest means more repayment towards Principle.

Lastly
It is important to seek the help of a Mortgage Consultant or Financial Planner to help you assess where you stand, how much loan you can secure, before proceeding on your purchase.

Property Prices Rose by 15.9% in Q3 of 2009

2009-10-02T13:18:00.004+08:00

The Urban Redevelopment Authority (URA)'s latest news release (1 Oct 09) doesn't surprise many, 3rd Quarter 2009 property prices gone up by about 15.9% from 2nd Quarter (decline 4.7% in 2nd Quarter).

The increase breakdown as follows:
- 16.2% Core Central Region
- 19.1% Rest of Central Region
- 15.4% Outside Central Region

Property prices have started to rise since May 2009 since the market hit a bull run. What is the supporting factor of the property price escalation? Apart from the stock market, the economy has not recovered as significantly and fundamental is not strong.

IMF may have released news saying global economy is expected to recover in year 2010 and have adjusted global growth forecast to 3.5% (China being 9% growth next year). The expected grow does not justify a 15.9% increase in local property prices, at least for now.

If surge is not supported, it is hanging in thin air. There is a danger of a property bubble that may just break without much warning. This happened in year 2008, but of course situation were different back then. Back in 2008, the global economy were ruin by the US Financial Crisis.

Where will the property market lead to in the coming one to two years?

Further Financial Crisis 'Inevitable'

2009-09-12T17:35:00.002+08:00

Former Federal Reserve chief Alan Greenspan said human nature made another global financial crisis inevitable.

"They (financial crises) are all different, but they have one fundamental source, that is, the unquenchable capability of human beings when confronted with long periods of prosperity to presume that it will continue."

The believe that markets would continue to rise led people to take speculative excesses with the consequences that have dotted history.

"No two crises have anything in common except human nature."

The current crisis was triggered by the trade in US sub-prime mortgages, any factor could have been the catalyst. If it were not the problem of these toxic debts caused by people's failure to repay the loans that were granted to homebuyers with bad credit histories, something sooner or later would have emerged.

It's human nature, unless somebody can find a way to change human nature, we will have more crises and none of them will look like this because no two crises have anything in common, except human nature.

To avoid a repeat of the situation, financiers and governments should look to clamp down on fraud and force banks to hold more capital to cushion themselves against financial shocks.

---
Humans are forgetful. When we go through a crisis, many people suffered and some will remind themselves not to make the same mistakes again. Others who have not suffered tremendiously, but just by the economy, would not realise the actual difficulties during the crisis.

When the crisis is over, economy will face boom and prosperity. People will start to forget what happened after a short while, and starts to spend and over-commit themselves. Before they realise it, the next crisis arrived sooner than thought, leaving these lot of people suffering.

In 2007 and early 2008, Asia was facing a boom. Many people were too ready, too soon, to change luxury items. Some luxury items cost an arm and a leg, but people forgotten the crisis S-E Asia underwent, namely Asian Financial Crisis (1998), 911 (2001) and SARS (2003). The economy stablized in 2004 and only starts showing promising signs of recovery in 2005.

As Singapore's economy crawls out of the 8 years on-and-off recession, people starts spending. US Sub-prime started showing it's fiery in August 2007 but many believes the storm won't reach our shores.

Now that the economy is showing signs of recovery, there will be some who will start spending.

Will people ever learn to take precaution? Unlikely! There will be the same patterns soon.

Developers Are Dumping

2009-08-02T23:35:00.000+08:00

Refering to Saturday (1 Aug 09) newspaper (The Straits Times), there were many new property developments for sale (by developers). I could easily spot more 5 such advertisements, some taking more than one full page.

Over the couple of months, there were a lot of talks about properties being snapped up by buyers. Some new developments were even sold out in one day, some even sold out before the actual launch.

Buyers goes out viewing new developments with cheques in hand, more than ready to issue the 1% deposit. I even learned of a buyer who had to pay 5% deposit to developer.

Buy Low, Sell High!

This doesn't seems to apply now. Buyers are buying high, thinking property prices will not come down. This was the same mindset in the 1990s, that Singapore is land scarse and with huge population for this island country with only 687 square kilometers of land.

During the Asian Financial Crisis, 911 terrorist attack in 2001 and SARS in 2003, our economy almost collapse to its knees, and property prices dropped down to 60% value of their all time high. People have forgotten the lesson.

Developers knows the economy better than commoners do. Developers are in the business of making money. If they can sell their properties at a much higher price, why would they rush to dump their developments all at once?

When developers dump properties , it is time to be wary. When developers even demanded 5% deposit, the signs are even more worrying.

Is a property market correction on it's way?

Obama And His Magic Wand

2009-05-25T09:33:00.002+08:00

Since US President Barack Obama came into office in January 2009, he had extingished a lot of Bush fire that went out of control by his predecessor.

Credit reform had taken place. Cost cutting on military operations, strengthening of bilateral ties with many countries. Taking a strict rule on money handouts by government to rescue institutions in this Financial Crisis. Improving consumer confidence, etc.

The latest sweep came in the form of Credit Card Reform, aiming to shield consumers from predatory fees and shock rate hikes. Even though over protecting consumers can lead to another case of overspending, but a timely reform can help debtors handle their existing debts better.

The new bill includes:
- forbids rate increases on existing balances unless consumers are at least 60 days late paying their bill or the initial rate was a promotional rate that has expired,

- requires 45 days' notice to raise rates.

- bans fees for payment processing -- such as surcharges for paying by telephone

- imposes steep restrictions on issuing cards to people under 21 years of age

- requires that promotional interest rates on new cards stay valid for six months

When a person faces financial difficulties, they will start delaying repayment, default on payments, further extending their financial woes with credit card, etc, before they go bust.

At a time where economy is still not on a recovery route, such credit reforms are good to help debtors manage their existing debt, allowing them to start repaying. On the other hand, it will help those who are not in debt, to start spending with more confidence.

More financial reforms must be done in America, including housing loan reform as the current financial crsis originated from the Sub-Prime problem.

Let's hope the global economy will start seeing the storm clear up by year's end. Signs are already there, that depressing economies are starting to see smaller GDP decline.

Global Recession Pushing Millions Into Poverty

2009-04-01T09:43:00.002+08:00

The World Bank forecast record declines in 2009 global output and trade as the economic crisis bites, and warned a slowdown in the developing world is pushing millions into poverty.

The global economy is expected to shrink by 1.7 percent in 2009, "the first decline in world output since World War II,". The sharp contraction marks a dramatic 2.6 point downward revision from the 0.9 percent growth in 2009 forecast only last November.

The update "reflects the rapid deterioration in financial and economic conditions -- and the increasingly negative interaction between weakening economies and fragile financial systems -- that have come to the fore since late 2008 for virtually every country in the world," the 185-nation development lender said.

World Bank president Robert Zoellick said the recession was expected to trap 53 million more people in poverty this year, defined as subsistence living on less than 1.25 dollars a day.

"This comes after soaring food and fuel prices of recent years, which pushed 130 to 155 million people into extreme poverty, many of whom have still not recovered," Zoellick said in a speech in London.

Poor people in developing countries have little buffer to protect them against the effects of the crisis. "In London, Washington, and Paris people talk of bonuses or no bonuses. In parts of Africa, South Asia, and Latin America, the struggle is for food or no food," he said.

According to the latest GDP projections, high-income economies would shrink 2.9 percent this year, a notch more than the prior estimate of 2.8 percent.

The Washington-based bank projected trade volumes would drop a record 6.1 percent from 2008, led by a steep decline in manufactured goods trade.

A "modest" recovery in 2010 was possible but highly uncertain, the bank said."Continued banking problems or even new waves of tension in financial markets could lead to stagnation in global GDP or even to another year of decline in 2010."

-----

Reasons why most reports refers to this Global Crisis as being the worst since World War II, has much to do with, the last Great Depression started in 1929 and lasted into World War II. After WWII, economies went into a boom.

This global crisis may not develop into a Great Depression as communication and advance economical relationships of the world market have evolved in recent history, thus global efforts can help prevent the global economy from slipping into despair.

US Economy Recovery On The Way

2009-03-16T08:38:00.002+08:00

US Federal Reserve Chairman Ben Bernanke predicted that America's worst recession in decades will likely end this year and recover would gather steam next year.

As Bernanke said the "green shoots" of economic revival were already evident. He further said that no more big banks will fail. The US banking system needs to be stabilised in order for an end of the recession, which he predict to be by end of this year while recovery should begain next year.

Tough regulatory reform is needed on the financial system and to avoid the risk of an institution becoming too big to fail. The banks now are being subjected to a "stress test" by Treasury Secretary Timothy Geithner and his team to ensure they have enough money put aside to ward off new crises, the Fed chairman noted.

The world's biggest economy may have cited they are out of the woods soon, but we have yet to hear much of the Worlds No 2 economy, Japan, and upcoming star, South Korea. We can only hope no bad news are dished out by both countries.

The US$787 Billion Stimulus Plan

2009-02-23T21:29:00.002+08:00

The Stimulus Plan has been approved and US President Obama had signed the bill on 17 Feb 09.

How will the new stimulus bill of U$787 billion help turn the crisis around? By large, it is targeting to stimulate the economy by helping business restart their engines, banks to start lending, job creation and empower consumers with spending power.

A quick look at where the budget aims to help tackle the economical cancer tumor below.

1. Taxes
The recovery package has tax breaks for families that send a child to college, purchase a new car, buy a first home or make the ones they own more energy efficient.

By reducing taxes, people will have more disposable income, to slowly returning cashflow back to the economy.

2. Health insurance
Many workers who lose their health insurance when they lose their jobs will find it cheaper to keep that coverage while they look for work.

Such insurance are costly, often over $1,000 a month. The government will pick up 65% of the total cost of the premium for the first nine months.

3. Infrastructure
Highways repaved for the first time in decades. Century-old waterlines dug up and replaced with new pipes. Aging bridges, stressed under the weight of today's SUVs, reinforced with fresh steel and concrete.

These will help with job creation, which in turn stimulate the economy.

4. Energy
Homeowners looking to save energy, makers of solar panels and wind turbines and companies hoping to bring the electric grid into the computer age all stand to reap major benefits.

5. Schools
A main goal of education spending in the stimulus bill is to help keep teachers on the job.

6. National debt:
One thing about the president's $790 billion stimulus package is certain: It will jack up the federal debt. Whether or not it succeeds in producing jobs and taming the recession, tomorrow's taxpayers will end up footing the bill. The expected deficit will be $1.6 trillion (including $800 billion by the ex-president).

The US national debt — the sum of all annual budget deficits — stands at $10.7 trillion. Or about $36,000 for every man, woman and child in the U.S.

7. Environment
The package includes $9.2 billion for environmental projects at the Interior Department and the Environmental Protection Agency. The money would be used to shutter abandoned mines on public lands, to help local governments protect drinking water supplies, and to erect energy-efficient visitor centers at wildlife refuges and national parks.
The Interior Department estimates that its portion of the work would generate about 100,000 jobs over the next two years.

8. Police
The compromise bill doles out more than $3.7 billion for police programs, much of which is set aside for hiring new officers. There will also be budget to fund drug task forces, prisoner rehabilitation and after-school programs among others.

9. Higher Education
The maximum Pell Grant, which helps the lowest-income students attend college, would increase from $4,731 currently to $5,350 starting July 1 and $5,550 in 2010-2011. That would cover three-quarters of the average cost of a four-year college. An extra 800,000 students, or about 7 million, would now get Pell funding.

Other target areas in Education includes school building projects, tuition fees, computer expenses, research facilities, etc.

10. The Poor
More than 37 million Americans live in poverty, and the vast majority of them are in line for extra help under the giant stimulus package. Millions more could be kept from slipping into poverty by the economic lifeline.

Taken together, the various credits are expected to keep more than 2 million Americans from falling into poverty, including more than 800,000 children, according to the private Center on Budget and Policy Priorities.

(source : http://news.yahoo.com/s/ap/stimulus_stakes_who_gets_what)

A Good President Solves Problem. A Lousy President Creates Problems (goes to war and cause runaway inflation).

Singapore Growth (GDP) Forecast

2009-02-23T19:12:00.002+08:00

When the Ministry of Trade and Industry announced (on 21 Jan 09) the growth forecast for 2009 to be between -2% to -5%, I joked that "Wah, such a wide range of percentage, sure hit one. Anyone can also project that, it's idiot proof". With all those Elites working on their analysis, they come out with such vast ranging figures? It was indeed a big joke.

Now I'm wondering if I have to eat my words because the Prime Minister just dealt us with another knee jerking announcement.

"Our GDP growth is forecast to be between -2 and -5 percent. It could be worse if the global economy worsens, even lower than -5 percent is possible," Lee was quoted as saying at a government function on Sunday.

(source : http://sg.news.yahoo.com/rtrs/20090223/tap-singapore-economy-c3bb44c.html)

I also have a lot of doubts of the government's foresight these days. Where's the wisdom they used to brag? The economical problem the world is facing, was foreseeable. People were too complacent, too oblivious of the signs.

World's Priciest Cities To Own A Home

2009-02-15T19:24:00.002+08:00

It was reported recently, in Globalpropertyguide.com the top 10 cities to own a home. The report is based on apartments in the city-centre, with about 120sqm built-in area. This list was compute out of a total of 110 cities around the world.

Most Costly Cities
1. Monte Carlo, Monaco - average prices of $4,420 psf
2. Moscow, Russia - average prices of $1,937 psf (rental yield 4.61%)
3. London, UK - average prices of $1,928 psf (rental yield 4.12%)
4. Toyko, Japan - average prices of $1,672 psf (rental yield 4.86%)
5. Hong Kong - average prices of $1,498 psf (rental yield 3.73%)
6. New York, USA - average prices of $1,384 psf (rental yield 4.37%)
7. Paris, France - average prices of $1,126 psf (rental yield 4.26%)
8. Singapore - average prices of $901 psf (rental yield 3.97%)
9. Rome, Italy - average prices of $851 psf (rental yield 3.62%)
10. Mumbai, India - average prices of $851 psf (rental yield 4.21%)

High property price is usually associated to shortage of space.

On the opposite, the least expensive cities (it's so cheap I've to use 2 decimal points) based on the same property type above as follows:

Lease Costly Cities
1. Cairo, Egypt - average prices of $53.33 psf
2. Bangalore, India - average prices of $61.04 psf
3. Concepción, Chile - average prices of $62.15 psf

4. Quito, Ecuador - average prices of $76.18 psf
5. Chengdu, China - average prices of $92.81 psf
6. Managua, Nicaragua - average prices of $100.33 psf
7. Jakarta, Indonesia - average prices of $102.34 psf
8. Amman, Jordan - average prices of $106.84 psf
9. Lima, Peru - average prices of $107.21 psf
10. Santiago, Chile - average prices of $113.43 psf

However, high property price must be supported by high gross rental yields. Rental yield below 5% suggest that the property is overvalued. The historical average rental yield is between 5.5% to 8.0%.

Singapore is one the few countries in Asia with low rental yield. The list of top rental yields are (against property price/position) :

Highest Rental Yield
1. Chisinau, Moldova - 14.17% (100 placed, $122.26 psf)
2. Cairo, Egypt - 12.0% (112 placed, $53.33 psf)

3. Jakarta, Indonesia - 11.27% (106 placed, $102.34 psf)
4. Manila, Philippines - 10.99% (87 placed, $177.81 psf)
5. Skopje, Macedonia - 10.11% (101 placed, $121.05 psf)
6. Lima, Peru - 10.09% (104 placed, $107.21 psf)
7. Panama City, Panama - 9.98% (92 placed, $161.65 psf)
8. Amman, Jordan - 9.73% (105 placed, $106.84 psf)
9. Kuala Lumpur, Malaysia - 9.22% (99 placed, $125.14 psf)
10. Bogota, Colombia - 9.19% (98 placed, $130.25 psf)

Rental yield reflects the Returns On Investment for the landlord. Rental yield reflects if the property is over-valued or under-valued. Thus if the rental yield is low, it suggest that the property could likely be over-valued.

Before anyone jumps to conclusion that since rental yield is low for any selected country, it reflects that the property is over-valued and not worth buying, let is also look at mortgage rates.

How does Mortgage Interest Rate affect ROI? Interest is part of ownership cost. If interest rates are high, it will errode Rental Yield. Example
- Jarkata, Indonesia - Rental Yield 11.27%, Mortgage Interest Rate above 10% (heard up to 15%)
- Singapore - Rental Yield 3.97%, Mortgage Interest Rate 2.5% (SIBOR package)

Thus if the Mortgage Interest is higher than rental yield, there is barely any returns if we require loans to finance the property. All the rental yield will go towards interest payment.

The consolation is, with the recession, property price will continue to weaken. Property prices in Singapore has saw weakening since late 2008 and has continue erroding. At this rate, property price will soon be reasonably valued (not over-valued nor under-valued).

Note : All prices in US Dollars. PSF refers to Per Square Feet. SIBOR refers to Singapore Interbank Offered Rate (or Central Bank Rate).

The Worst Is Yet To Be

2009-01-30T15:44:00.002+08:00

Bad news after bad news and it appears, there are still skeletons in the closet. This week saw among the most bad news reported since the Sub-Prime and Financial Crisis started 1.5 years ago (just after mid 2007).

The International Monetary Fund (IMF) reported in its economic growth forecasts Wednesday, predicting the severe financial crisis would brake global growth to the slowest pace in six decades, and "World growth is projected to fall to 0.5 percent in 2009, its lowest rate since World War II".

It further reported, "A sustained economic recovery will not be possible until the financial sector's functionality is restored and credit markets are unclogged" and that some light at the end of the suffering, saying said it saw a gradual recovery in the global economy in 2010 to growth of 3.0 percent, spurred by "continued efforts to ease credit strains as well as expansionary fiscal and monetary policies."
(source : http://sg.news.yahoo.com/afp/20090129/tts-imf-economy-growth-forecast-c1b2fc3.html)

The Singapore's Finance Minister said the Global economic crisis will take more than a year to unravel. Mr Tharman said "The foreign banks are still in the mode of contraction. I think every large global bank is still looking at building up its capital, much more than it’s looking at extending new loans. So we are still at that phase of the crisis where recapitalisation is still the priority and estimates of the extent of bad assets on their books are still on the upswing. So, we haven’t seen the worst yet."

He further add that is why it is a good move for governments in the West to help these banks recapitalise and incentivise lending.
(Source : http://sg.news.yahoo.com/cna/20090129/tap-698-global-economic-crisis-take-year-231650b.html)

While many countries' government struggled to contain the recessoin, there are disturbing news appearing. Large companies in the US that took government funding are happily pampering and rewarding themselves with more than a total of US$18 billion in bonus.

The top executives of the Wall Street financial companies that the US president targeted, includes shameless heads of such well-known manufacturing and technology giants as IBM, Motorola, Xerox and Corning are still paid handsomely.

Citigroup even planned to take delivery of a new corporate jet with billions of dollars of support from the government. That bank, Citigroup, just canceled the deal earlier this week. Big companies and their top Executives are totally irresponsible, insensitive and only cares for themselves and their lavish spending while the majority of people are suffering.

However, the Obama administration is considering an idea for the creation of a "bad bank" that could take over soured debt, like defaulting mortgages, that have corroded the balance sheets of banks and helped choke off lending. If this plan goes through, it will help ease up banks' bad mortgage and allow them to recapitalise, which in turn, helps them to start lending again in the foreseable future.
(Source : http://sg.news.yahoo.com/ap/20090130/twl-obama-bonuses-1be00ca.html)

The signs of global economic distress multiplied, with more companies worldwide cutting profits and jobs, and protesters swarming the streets of France in anger at the worsening crisis.

Economic fears gripping the middle classes amid waves of cut-backs and stagnant wages spilled over in France, while elsewhere the daily treadmill of layoff announcements and plunging profits rolled on.
(Source : http://sg.news.yahoo.com/afp/20090129/tts-finance-economy-world-c1b2fc3.html)

In the mean time, we can only hope the situation will start improving. So far President Obama appears much more capable than his predecessor, the warmonger Bush.

Alternate Investment

2009-01-08T18:54:00.005+08:00

Despite the bad news all over, I was in a brief conversation with a couple of friends and we discussed a few investment alternatives. I have not done my homework nor am I versed in these areas, but am just thinking out loud.

Forget about big ticket investments like properties or long term investments like land or Unit Trust and Funds. Look towards short term investments, that can even be prolonged or juggled with at our comfort and will.

These investments I like to think aloud, requires lower commitment, and has a short term exit when necessary. One could invest for a period as short as one month, or for years, with little restriction.

GOLD
As the greenback weaken from 2007 t0 2008, price of gold climbed. Gold is the closest alternative to currency thus during uncertain times, gold price tends to head north.

In recent times, as US dollar strengthen, gold price came down, to nearly US$800 per ounce (from above US$1,000 per ounce in 2008). In the second half of 2008, gold price dropped to just above US$700 per ounce before recovering. Recent Israel conflict (started about a week ago) has driven gold price up to nearly US$850 now.
(source : gold http://www.kitco.com/charts/popup/au1825nyb_.html )

Crude oil price hover around US$150 per barrel in June 2008 before heading south till it went below US$40 per barrel in December 2008. Crude oil price started climbing with the Israel conflict too.
(source : Crude Oil http://www.californiagasprices.com/crude_chart.aspx )

Would Gold be a good investment for the short to mid-term? It appears promising but risky. Some organisation/companies offers gold investment with a promised return of between 1.5% to 2% per month. This allows investors to invest in Gold for short terms, thus reducing risk.

Currency
Currency investment (forex) has always been around, be it good or bad times. In times when a country's currency is strengthening, it is worthy of investment. Apart from higher interest earned for Time Deposit with the banks, the appreciation of the currency gives more returns than what interest you could earn.

Before considering which currency to place your funds into, do your home work on what is the driving factor for the currency to appreciate or depreciate, before putting your money where your heart is.

Example. US Dollar was as low as about S$1.25 vs US$1.00 but had climbed in recent times. Australian dollar had plunge to A$0.944 against S$1 today.

Knowing the driving factor can help investor spot the upward or downward trend and avoid unforeseen losses.

Most work hard for their money. Why not make money work hard for you?

Are We Heading Towards A Great Depression?

2009-01-08T18:20:00.002+08:00

US Sub-prime, Financial Meltdown, Global Financial Crisis, Recession, Retrenchment, Huge MNC Collapse, Bailouts, Trade Deficit, what not?

Those are familar words in the last few months, all thanks to inefficient governance of the US Giant. No point talking about blame, we all know it by now.

President Elect Obama's first challenge should have to do with an budget deficit of $1.2 trillion for fiscal year 2009, just as he steps into office. He have to thank the years of poor administration. How he can reduce the deficit and create job, create consumer confidence, etc, to recover the World's No 1 economy remains a challenge.
(source : http://www.marketwatch.com/News/Story/Story.aspx?guid=%7B53217752%2D6CF9%2D4AEB%2D89D5%2D99EA412DA5FF%7D )

More and more large MNCs are coming out to admit the skeleton in the closet. I believe we have not seen all yet, suspecting there will be more decomposing corpse to be exposed in the coming few months.

Retrenchments have increased. London's Marks & Spenser, China's Lenovo, Japan's TDK, etc, have all announced retrenchment news. With more jobless, spending power will decline even further, thus resulting in more hits on retails, food & beverage industry, tourism, etc. This will result in even more joblessness in the coming months.

Even the porno industry is asking for US$5 billion bailout, claiming people are too depressed with the financial situation that they lost interest in sex. So what is the big deal and why does the government even want to rescue an industry where these people are paid to have wild sex? Afterall, when the economy is so uncertain for an uncertain extended period as well, who has the money to have childrens? This joke came as an awakening that some organisation are making use of the situation to rob the people.
(source : http://news.aol.com/political-machine/2009/01/07/porn-industry-to-request-bailout/ )

Stock market had taken a huge beating in the last half a year. Most indexes have plunge to all time low, crude oil were largely inflated and had plunged. Crude oil peaked at above $150 per barrel, while Gold peaked at above US$1,000 per ounce, before falling deeply. Oil and Gold price climbed recently due to the Israel's conflict with Hamas (Gaza) and new attack by Hezbollah militants (Lebanon) today.

With so much bad news, would it mean, we are heading towards the Great Depression, or is it going to be unavoidable? Too much coincidence. The last Great Depression was in 1929, and lasted for about 10 years.

During the Great Depression (btw, that Depression also originated from the United States), stock market crashed globally, joblessness was at all time high, etc. The last Depression reached its end when the World War II started in 1938.

With so much coincidence, we better be wary.

Singapore sees biggest-ever quarterly GDP fall: govt

2009-01-02T22:51:00.003+08:00

Year 2009 didn't start off well and not expected to produce much positive news from the economy.

It was reported by AFP today, that Singapore's economy could contract by as much as 2% this year (based on deepening recession).

Real gross domestic product (GDP) fell by 12.5% in the 4th Quarter 2008. The 4th quarter figures are advance estimates based largely on October and November figures. Global economy crisis worsened since November 2008 with sharp decline in global demand, trade and investment.

2009 growth forecast, which now ranges between a contraction of 2.0 percent and expansion of 1.0 percent.

Singapore's economy rely on the movement of goods and services in the region, thus weaker global demand has affected Singapore's electronics and precision engineering industries, pulling the entire manufacturing sector down by an estimated 9.0 percent in the fourth quarter compared to the same time last year, the trade ministry said.

With such bad news, those who had been prudent in 2007 and early 2008, could benefit from their savings than those who had spludge excessively during boom times. For those looking at investing would be able to get good bargains in the near future. Be prudent, be cautious, and do sufficient homework.

Is Property A Good Investment

2008-12-18T19:22:00.007+08:00

In old times, people invest in gold. As the nation develops, people starts to become savvy and started investing in many other vehicles. Many are investing in entry level investments that doesn't tie their finances down too much.

In the last couple of years, I have been considering the option of investing in properties. This mode of investment can be easy, but can be among the toughest for a few reasons (not limiting):
- Large amount involved (20% downpayment, partially in cash or fully in cash)
- Low liquidity
- Monthly maintenance
- Being on top of the curve of a product life cycle (lowest being raw land, highest point being homes itself), the curve fluctuates from there

With so much downside, why would property be worthy of consideration? A few simple reasons:
- Long term or even retirement plan
- Property price crashing
- Lower risk as compared to stocks, Unit Trust, or even savings (look at banks that collapse recently)
- Rental income to take care of monthly installment

Property Prices
Property price peaked during 1996. Thereafter, a spite of economical and social setbacks caused prices to erode. They include:
- Asian Crisis in 1998
- Terrorist Attack - 11 Sept 2001
- Sever Acute Respitory Syndrom (SARS) - Year 2003
- Tsunami - Boxing day, 2004 (this has minimal effect on us)

The economy only started to recover in 2005. Property price peak around the last quarter of 2007. Many said prices in 2007 reached the peak of 1996. Over the period of 1996 till 2007 (a period of 11 years), property price had not grown at all! It only reach the last peak (1996).

With the current global economical downturn, which is expected to last till 2010 (i hope), the next possible peak could be between 2012-2015, assuming the global crisis ease off by late 2009 and nothing else happens. But be wary, if the global financial crisis stablised and starts to clear by late 2009, the next possible recession can happen between 2012-2015. Read one of my post on Baby Boomers.

Assuming property price climbs to a healthy level by 2012, where is the growth since 1996? Even if prices reaches 1996 price in 2012, there is still room for growth (16 years growth).

The Right Price
Property (private) prices started to loose ground. Demand had fallen in recent times. Owners started to panic when the October 2008 market correction happened, wiping out many investors' savings. Some had to resort to selling their properties. This caused property price to plummer by about 20%.

Another group of owners will also resort to panic selling in coming months or a year. Some of these investors had over committed and bought more than they could chew. They are unable to secure a loan given their Debt Service Ratio.

As such, this group will end up dumping their property investment. Having paid 20% cash downpayment when they bought the property and property market softening drastically, in addition to their inability to secure a loan, they will be forced to sell their property at whatever price, which includes having to top up cash to sell.

For potential investors, there is no real right time. A savvy investor will be able to sniff out good deals. Some market research will be required to understand the price trend.

When people are buying, don't buy. When people are coughing, look out for the right gems, not germs.

Long Term Plan
Assuming, if one buys a second property as an investment, and assuming he owns it throughout his life, here is a few benefits that the investor can/may enjoy:
- Retirement plan (assuming, rental income being about current money value of $2,000 per month)
- No need to rely on childrens to give them allowance when they retire
- Fully paid by the time they retired
- Mortgage better be insured. In the event of a Total and Permenant Disability (TPD), insurance will pay off the balance mortgage
- During occurance of TPD, and having the property fully paid, the rental income will help the invalid to sustain his expenses.
- Inheritance for their childrens

The Mortgage and Rental Income
Assuming it is a 2 room condo. Here is some calculation:
- Purchase Price : $600,000
- Downpayment : $120,000
- Loan : $480,000
- Tenure : 30 years
- Interest : approximately 2% or lesser (current 3mths SIBOR = 0.92%, 12mths SIBOR = 1.243%)
- Monthly Installment : $1,774 per month (approx)
- Monthly Maintenance : $200 per month (approx)
- Rental : $2,000-$3,000 per month

With this, the monthly rental will take care of the monthly financial requirement (installment and maintenance).

The Downside
With the current economy, consumer confidence is extremely low, job security is at stake, income is uncertain. Property price may not recover in the next 3 years. 100% rental may not be available thus there may be months without rent.

The downside has to be addressed before deciding on any major investment. With most downside being addressed, the investment is one with "Calculated Risk".

Bare in mind, even in a bull market, there will still be people loosing money and make that person, Not Be YOU!

Are Singapore's Banks Safe

2008-12-15T21:58:00.002+08:00

Top banks admit huge losses in Wall Street 'pyramid' fraud

LONDON (AFP) - - Top world financial groups on Monday revealed massive potential losses from an alleged scam run by Wall Street trader Bernard Madoff, admitting they were fooled by a classic pyramid investment fraud.

British, French, Japanese and Spanish banks and funds said investments totalling billions of dollars (euros) could be wiped off their balance sheets by a scandal that is set to affect some of the richest people in the world.

For the rest of the news, please refer to
http://sg.news.yahoo.com/afp/20081215/tts-us-finance-fraud-world-972e412.html

This is the problem with an overly free market where government gives a free hand to the institutions to run the show, with minimal government policy and controls. There is insufficient checks and balances in place, even tho America produces among the world largest audit firms.

All these talk and financial bailout promised by the Bush Administration sounds like, a tall tale. I have little faith in their government's 'intervention'. I keep my fingers cross and hope this is among the final few skeletons in the closet. If a lot more skeletons have yet to be revealed, I worry the global financial powerhouse may not be able to sustain the collapse and that US Economy will really go into bankrupcy.

The US financial system is a financial Titanic that is a make believe and since disaster of this magnitute has struck, the ship is sinking fast and smaller rescue boats (money) from all over the world are trying to save as many lives (financial system) as possible... an up-mountain task

Back in Singapore, prior to the Asian Crisis back in 1998, banks are not run as tightly as it is today. Should the Asian Crisis not happened 10 years ago, our economy and banking system, including some of financial companies may be in deep trouble, to the extend, some banks may even collapse given this magnitute of global financial crisis.

The Asian Crisis taught the banks a dear lesson. Huge price was paid back then and not mentioned to the public. Banks take had to write off huge debts and many people went bankrupt (banks were unable to recover debts). New governing policy were put in place, by the institutions and MAS alike.

Here's an example. Before Asian Crisis, bank branch Managers were able to approve loans up to a certain amount (let's say, $2mil). There were no proper checks. Managers approve loans are their discretion, even if it means, the borrower actually couldn't afford to pay it.

Post Asian Crisis (not sure which year), the Credit Bureau were set up by the banks. Credit Bureau will list down any individuals who has loans, credit cards, OD, etc, with any member bank. With that, banks are able to better assess if the borrower are over exposed. Tho there is limitation to the system, it still acts as a first screen.

In conclusion, local banks are definitely safer than most other banks globally, due to the changes and checks in place. MAS also makes it mandatory for financial institutions (including banks, insurance co, etc) to have fixed assets of a certain percentage to their liability.

Bailouts Bailouts and Skeletons Out of US' Closets

2008-12-12T12:21:00.004+08:00

In recent months, Bailout is the biggest word of the year (surveyed). What is wrong? What else will go wrong?

The US$800 billion rescue package is not going to be easy on the plate. It is the current US Administration's quick escape till the Obama Administration takes over and clear the shit done by his predecessors.

The latest bailout facing problem is the rescue of Automakers. The current Administration is only interested to bailout GM till March 2009 and said that it's up to Obama's ability to rescue the economy. Creating a mess and letting others clear it is so common from the giant.

What is wrong with the American economy and how more wrong can they get? Their economy is near bankrupcy. Their world debt is in excess of a TRILLION dollars. If they can't get out of this mess, their economy will go into bankrupcy and their Developed Nation status will be thrown out and becomes a Undeveloped Nation. More squatters will roam the streets, more in food ration queues, more tent homes, lesser cars on the road, lesser jobs available, etc.

The US may be the World's No 1 economy currently, but not for long. With a broke economy, come 2010, the retiring Baby Boomers will not be able to get their retirement pension, 401K. That will attribute to more problem for the scrapegoat President Obama. He is taking over a sinking ship. If he fails to salvage, he gets more blames, if he salvaged it, he will go down history as one of the best President ever (no prize for guessing who is the worst).

If Middle-East and China doesn't come rescue US, brace up for a rough ride all thanks to Uncle Sam.

Year 2009 will be worst than 2008. How 2009 performs can affect if the global economy will drop further into recession or even a onset of the next Great Depression. If another Great Depression occurs, it will be many times worst than that of 1929.

Next Downturn or Prolong of Current Downturn

2008-12-04T08:53:00.000+08:00

There is something to note where the 'next downturn' could be foreseen. The Baby Boomers!
Baby Boomer generation started in 1946, after WWII.

Each year, more than 4 million babies (now oldies) were borned in America alone. That did not take into account, Japan, Europe, UK, etc. By year 2010, these boomers will start hitting 65 years old, the 'official' retirement age.

With more than 4 million retiring each year, in America alone, we will see 20 million retirees by 2015. Rather often, these older folks are the ones with money power as compared to young aspiring new entrance to the working society.

The younger generations are unlike able to sustain the vacuum left by the older folks, that pulled out of the stock market, sells off their expensive apartments or condos in the cities, etc.
With the current economy downturn, some of these older folks may be forced into retirements (retrenchment) and with the weak economy data and stock market, things can get worst than it is today.

It may take a lot more to ride out of this economy downturn than the governments of many countries had tried to paint to us.

Category A COE at $2 (All time low) - To Buy Or Not To Buy

2008-11-23T12:00:00.003+08:00

The 2nd Certification of Entitlement (COE) bidding for November 2008 had fallen to historic low of S$2 per cert.

With the current financial crisis, banks have tighten lending rate thus many potential car buyers were denied loans. The sudden shortfall of loan approval means these potential buyers are unable to buy their choice car, leading to the massive drop of COE price.

With COE at S$2, it lead to a 10 fold increase in potential car buyers flooding the car showroom, with the intention to change their older car to new car, or to buy a new car. As per last COE bidding, some of these potential buyers will not qualify for loans, thus even if they make attempt to purchase a car, they are unable to do so due to loan rejection.

Car is a liability and a good handful of people doesn't understand the true cost of car ownership. Those who has never own a car before perceive that a car is affordable to them, just by taking loan and a little other ownership cost into mind.

Car loan defaulters have increased tremendiously in recent months. These defaulters are usually those who can barely afford a car many years ago. The plunging COE from an average of $30,000 years ago, to about $10,000-$15,000 in recent years helped these car owners afford a car. They may be earning no more than $2,500 a month, which means their take home pay is no more than $2,000. True car ownership cost is anything ranging from $800-$1,400 a month.

Those on 100% loan over a 10 years loan tenure are most likely the ones who will fall victim to the current recession. Watch out, a lot more loan defaults will surface in the coming months.

Conclusion, it is unwise to buy a liability unless one could truly afford it.

World Leaders Scramble To Save Financial Market

2008-10-23T09:35:00.002+08:00

Bad news after bad news, nothing seems stopping the global financial system from sliding further. World leaders are scrambling to prevent their country's financial system from a total collapse due to the US Financial Crisis.

The global market has not seen anything this bad since the last Great Depression in 1929. With the advancement of technology and global unity, a Great Depression may be avoided with a unison effort. Governments are pouring out huge amounts of money to secure their banking system so that it will not collapse.

The problem started from the US Financial Crisis (and sub-prime) which was a huge failure of the administration who has neglected their financial system right from the start. Should they be attentive of the on-goings (instead of war), the situation wouldn't have arise today. However, this gives test to how best problems can be overcome when all are united to fight it.

If the crisis is not overcome soon, it may result in a potential Great Depression. The signs today are similar to that of 1929, i.e Global recession and collapse of stock, etc.

http://www.channelnewsasia.com/stories/afp_world_business/view/384720/1/.html

Do Your Homework - Check Your Credit Standing

2008-10-20T12:30:00.002+08:00

Before buying any property, buyers are advised to understand where their credit rating is. During downturn, banks are usually stricter with loan approval thus some may not be able to get a loan.

Banks usually looks at a few factors to approve loans. They can include (not limiting), Credit Bureau Rating, any litigation, income, fixed expenses (eg loans), source of income, etc. Even if the applicant has good rating and no on-going litigation, sound income, etc, they may still not secure a loan.

Potential property buyer need to ensure they are able to secure a loan before they place a deposit for a new property, or face a risk of loosing their deposit.

Advise, please seek an in-principle approval before acting on a purchase.

The Coming Property Correction/Crash

2008-10-20T11:25:00.003+08:00

When everyone is buying, don't buy! When people are selling, it's time to go shopping!

That statement I told myself is proving itself loud and clear. In the 2nd half of 2007, property prices sky-rocketed and many investors rushed in and some made a tidy profit. The unsavvy investors (followers) joined the fun, hoping to make a tidy profit as well. They bite more than they could chew.

The property market experienced a boom, from July to December 2007, was partly caused by the prolonged recession and economy setback between 1998 to 2004. During this period, property prices plunge. Post 2004, the economy started to recover and investors started their buying spree, causing the property market to recover and saw an exponental growth.

Some novice investors tried their hands and purchased more than their finances could afford. They could have experienced one promising return, and bought a lot more than they can truly afford. For example, their financial ratings may allow them to buy (with loan) one property, but some of these investors bought 3 or more units.

They purchase properties on Deferred Payment Scheme, where they placed a 20% deposit and hoping to sell the property before the Temporary Occupation Permit (TOP) is issued. With the sudden turn of stock market (bear market), which coincide with the TOP period, many of these investors are stuck with their property. Facing a TOP, they will be forced to sell their property or face potential bankrupcy, as they are unable to funish the balance 80% of the property price.

These investors will be forced to sell/dump their purchase, loosing their initial 20% downpayment or more. With more sellers and little buyers, property owners will end up having to sell at a very low price.

Time to look out. The worst is not over.

Break Through in US Government US$700 Billion Bailout

2008-09-29T07:58:00.002+08:00

The US Government key lawmakers gave the greenlight to the huge financial bailout to the current credit crisis, where many large banks and institutions face collapse or take over.

While many countries corperatized financial institutions, America is nationalizing their banks by pumping in money via warrants or takeovers, to prevent a major recession or even leading the global economy into a Great Depression.

The question in mind is, "What if the bailout fails?". What other contigency plans does the US Government have in mind?

At the same time with the worst financial clot in the US, melamine was found in many milk products in China. Melamine cause kidney stones and have lead to many deaths in infants. Most countries have recalled milk products after milk products off the shelves.

The scare will affect almost all milk based products from China. At the same time, consumers have also avoided other food products from China. This will lead to lost of export to China's producers. The lost of export market leads to job lost and closure of companies.

Would this create another set of problem for the world? Afterall, China being the most populous nation in the world and having one of the largest GDP, this scare can lead to a new set of problem.

The US$700 Billion Bailout, or Quick Fix

2008-09-22T10:01:00.002+08:00

The Bush Administration has pledge US$700 billion rescue plan to prevent a economical collapse from failing financial institutions. Where is the money coming from?

The US is heavily in debt, they spent tens of billions a year in the Iraq war. Over the years, the US Reserve has plunge deeper into debts. They will need Tresury Bills to be issued and having other countries to buy into the Tresury Bills. The future generations of America will be caught paying for this rescue plan.

It is obvious Tax Payers will bear the blunt of the bill from the mistakes of the leaders (be it government or economy). This quick fix can leave a slightly positive legacy for George Bush as he departs the White House in a few months. But the next President will be the one introducing higher tax.

Rather than making the people pay for the mistake created by others, the government could have opt to make the 'creator' pay for it. The Inland Revenue Service (IRS) could look at the top income earners of these 'creators' and have them pay the repair bills. If the IRS targets the top 10,000 earners (of the 'creators'), taxing each one of them a range of $1 million to $50 million (top earners of the 'creators' were making $100 million a year then). If the average amount works out to $20 million each, that would raise $200 billion. Work up the ladder to raise more money.

Afterall, since the 'creators' reaped from the spoils, and created ruins in the economy it is in now, they should be liable to pay for their mistakes. Even if half of these 'creators' goes bankrupt, it saves 20 million people in America, and countless millions globally and the global economy.

Slowdown in Singapore Economy

2008-09-16T08:28:00.003+08:00

The US Financial Crisis and it's effect on global economy caused market slowdown and turmoil. Joblessness has risen to 2.3 percent in the second quarter ending June 08. Jobless rate grew two quarters in a row.

Some 77,800 residents were jobless in June. The seasonally adjusted figure was 60,900, up 12 per cent from 54,300 in March. But MOM said it was comparable to the 59,700 in June a year ago.

But the labour market remained strong. A record 144,600 jobs were added in the first six months, compared with 113,800 in the same period last year. But the growth of 71,400 jobs was slightly lower than the first quarter's 73,200. Still, it was higher than a year ago (64,400).

Driven by robust building activities, employment in construction rose by a record 22,400 in the second quarter. But growth in the other sectors has moderated from the previous quarter.
(source : http://www.straitstimes.com/Breaking+News/Singapore/Story/STIStory_278742.html)

The growth are largely seen in construction industry, which is largely occupied by foreigners. This does not truly reflect jobs for Singaporeans. Foreigners who became jobless, will be send back or leave Singapore. Thus, the unemployment rate are mainly Singaporeans as a whole.

Further to the uncertain economic situation, private home sales in Singapore slumped 81 percent in August from a year ago, to the lowest level since March as a combination of global financial turmoil and a traditionally unlucky month spooked buyers.

Sales of new residential projects, comprising both houses and apartments, fell to 320 units from 1,723 units sold in August last year, and sales were also down 64 percent from the 901 units taken up in July 2008, government data showed on Monday.

Singapore's financial services and export-dependent manufacturing sectors could be hit by global financial turmoil, with U.S. investment bank Lehman Brothers filing for bankruptcy protection on Monday .

Worries over Singapore's economic outlook have ended a four-year housing boom in the city-state, as price growth for private homes slowed sharply in the April-June period, rising just 0.2 percent in the quarter.

Concerns about the health of Singapore's property sector has prompted analysts to slash share price targets for developers such as CapitaLand, Keppel Land and City Developments.

(Source : http://sg.news.yahoo.com/rtrs/20080915/tap-singapore-property-c3bb44c.html)

From the economic uncertainty and weaken consumer confidence, chances are, property prices will drop in the coming months.

US in 'once-in-a-century' financial crisis

2008-09-16T07:57:00.003+08:00

It appears the worst of the US Credit Crisis is unvealing more turmoil. The US government have done a bailout for Freddie Mac and Fannie Mae, while Lehman Brothers have filed for bankrupcy.

Bank of America has agreed to buy Merrill Lynch for US$50 billion. Singapore's Temasek Holdings owns about 13 to 14 percent in the US investment bank, with a total investment of US$8.3 billion.

There is high possibility that more major financial institutions will fall. What is still unknown?

Former Federal Reserve chief Alan Greenspan said on Sunday, "The United States is mired in a once-in-a century financial crisis which is now more than likely to spark a recession. He further add that there is more than 50% chance of a recession.

He said that the crisis was the worst he had seen in his career and still had a long way to go, and continue affecting home prices. The problem has not been resolved and "will continue to be a corrosive force until the price of homes in the US stabilizes".

The US financial crisis will definitely have an impact on the global economy as the US is the biggest economy and if consumers looses the ability to spend, US imports will fall thus manufacturing/exporting economies will suffer, leading to a domino effect.

This crisis IS the worst since the Great Depression. Is there a possiblity that the Great Depression is coming?

(source : http://sg.news.yahoo.com/afp/20080915/tts-us-economy-greenspan-972e412.html)

Large US Bank Collapse Ahead

2008-08-21T07:07:00.003+08:00

Just as the dust settled over the recent months, hoping there's no more economical and financial setbacks, the truth is yet to be known. Largely, weak governance has resulted into a global financial crisis.

SINGAPORE, Aug 19 - The worst of the global financial crisis is yet to come and a large U.S. bank will fail in the next few months as the world's biggest economy hits further troubles, former IMF chief economist Kenneth Rogoff said on Tuesday.

"The U.S. is not out of the woods. I think the financial crisis is at the halfway point, perhaps. I would even go further to say 'the worst is to come'," he told a financial conference.

"We're not just going to see mid-sized banks go under in the next few months, we're going to see a whopper, we're going to see a big one, one of the big investment banks or big banks," said Rogoff, who is an economics professor at Harvard University and was the International Monetary Fund's chief economist from 2001 to 2004.

"We have to see more consolidation in the financial sector before this is over," he said, when asked for early signs of an end to the crisis.

"Probably Fannie Mae and Freddie Mac -- despite what U.S. Treasury Secretary Hank Paulson said -- these giant mortgage guarantee agencies are not going to exist in their present form in a few years."

Rogoff's comments come as investors dumped shares of the largest U.S. home funding companies Fannie Mae and Freddie Mac on Monday after a newspaper report said government officials may have no choice but to effectively nationalise the U.S. housing finance titans.

A government move to recapitalise the two companies by injecting funds could wipe out existing common stock holders, the weekend Barron's story said. Preferred shareholders and even holders of the two government-sponsored entities' $19 billion of subordinated debt would also suffer losses. [ID:nN18494933]

Rogoff said multi-billion dollar investments by sovereign wealth funds from Asia and the Middle East in western financial firms may not necessarily result in large profits because they had not taken into account the broader market conditions that the industry faces.

"There was this view early on in the crisis that sovereign wealth funds could save everybody. Investment banks did something stupid, they lost money in the sub-prime, they're great buys, sovereign wealth funds come in and make a lot of money by buying them.

"That view neglects the point that the financial system has become very bloated in size and needed to shrink," Rogoff told the conference in Singapore, whose wealth funds GIC and Temasek [TEM.UL] have invested billions in Merrill Lynch and Citigroup .

In response to the sharp U.S. housing retrenchment and turmoil in credit markets, the U.S. Federal Reserve has reduced interest rates by a cumulative 3.25 percentage points to 2 percent since mid-September.

Rogoff said the U.S. Federal Reserve was wrong to cut interest rates as "dramatically" as it did.

"Cutting interest rates is going to lead to a lot of inflation in the next few years in the United States."

(Source : http://sg.news.yahoo.com/rtrs/20080819/tbs-usa-banks-crisis-7318940.html)

Singapore's economy shrinks in Q2, exports seen down

2008-08-11T19:43:00.003+08:00

There was talk that the weaken US economy months ago, are not likely to affect Singapore's economy too much. The US economy has been facing a slow down since late 2007 and has not shown signs of improvement.

Reuters - Monday, August 11
Singapore's economy contracted in the second quarter and the government forecasts exports to fall this year for the first time since 2001, a sign that sagging growth is becoming a bigger worry for Asia than inflation.

The government on Monday forecast non-oil domestic exports would fall 2-4 percent in 2008, against an earlier estimate of 2-4 percent growth, and predicted the economy would grow at a lower end of a weaker 4-5 percent forecast.

In the second quarter, the economy contracted at a annualised rate of 6 percent after seasonal adjustments, its worst performance in five years and in line with market expectations. Year-on-year the economy grew 2.1 percent.

(For a graphic of GDP data, click on: https://customers.reuters.com/d/graphics/SG_GDPQ0808.gif)

Singapore's heavy dependence on trade makes the $160 billion economy a good gauge of how the global slowdown is affecting Asia. Non-oil domestic exports to the United States fell 21 percent in the second quarter, while shipments to European Union dropped by 12 percent.

The Singapore dollar, the central bank's main policy tool, slumped to a near six-month low around S$1.41 to the U.S. dollar.

"The balance of risk is shifting away from inflation toward growth as seen from the correction of the Singapore dollar last week," said Kit Wei Zheng, an economist at Citigroup.

NO RECESSION
Like many Asian countries, Singapore has been grappling with inflation even as economic growth slows. But officials suggested on Monday that inflation may have peaked and said -- while not expecting at technical recession -- that there will be no quick turnaround in global growth.

"The macroeconomic dynamics will remain fluid over the next 12 to 18 months. It is too early to tell what 2009 will bring," Ravi Menon, a permanent secretary at the trade ministry, told reporters.

"Current indications are that global economic growth will not see a quick turnaround."
Construction grew 17.4 percent year-on-year and the financial sector grew 10.2 percent in the second quarter, but manufacturing shrank 5.2 percent.

Manufacturing, which accounts for about a quarter of economic activity, is expected to slow, reflecting weak U.S. and European demand.

Given that, economists said it was unlikely that the central bank will further tighten monetary policy at its next meeting in October, barring a spike in oil prices.

"We believe our policy remains appropriate," said Ong Chong Tee, managing director of central bank the Monetary Authority of Singapore.

The central bank steers monetary policy by managing the Singapore dollar's nominal effective exchange rate -- its relative value compared with a basket of currencies of trading partners -- rather than by adjusting interest rates. The trading band and the currencies in the basket are kept secret.

The bank moved the centre of the band up in April, its most aggressive policy change since the 2003 SARS epidemic, to tame inflation that reached a 26-year high in June. (Additional reporting by Saeed Azhar and Charmian Kok, editing by Neil Chatterjee and Tomasz Janowski)

Ways to Save (5) - $5 a time

2008-07-23T16:20:00.002+08:00

Here's a simple yet efficient way to save. It takes a lot of discipline but you'll surely be able to see more money in a short period. Here's what I read

A sum like $12,000 doesn't usually make the news, but one Boston Globe reporter has managed to trick herself into saving that amount by adopting a creative way to save.

With two daughters in college and a mortgage to pay, Marie Franklin and her husband didn't have any extra money to put into savings. While perusing online, she came across a saving trick that suggested saving every five she acquired and depositing them into a separate savings account.

Once she's collected ten fives in her wallet, Marie deposits the $50 into her designated savings account, and once that account has $2,000 she purchases a CD to earn higher interest. After three years of saving all of her fives, she has accumulated $12,000 in savings. Marie acknowledges that this method of saving requires discipline, but her unconventional habit has obviously worked for her.

(source : http://www.savvysugar.com/1802540)

If we just start somewhere, with discipline, won't we be able to see a savings soon? I have tried emptying my pocket of loose change at the end of each day, and manage to accumulate tens every month. It's a method that doesn't take too much effort, yet the returns are measurable.

For me, I don't take conscious effort to save now. I don't spend as I wish, thus I don't get tempted to spend just because I have some extra cash. In turn, I accumulate enough money and invest it each time.

Singapore's non-oil domestic exports fall 10.5% in June

2008-07-17T16:52:00.002+08:00

Recent spate of unimpressive financial news will leave people more worried. The last few days were ladden with more bad news on US financial crisis, which lead to a frenzy in the stock market and oil prices.

Coming back to Singapore, this is not the first bad news on Exports. The turmoil affected our exports, which were made worst with all time high inflation rates. The fear is, if the US goes into a deep recession, and many other economies being affected, will it lead to a deeper and more prolong global downturn?

SINGAPORE: Singapore's key non-oil domestic exports (NODX) fell an annual 10.5 per cent in June, pulled down by weaker shipments to the US market as well as to China and Europe, the government said Thursday.

The drop, compared with the same month a year earlier, was steeper than the 1.8 per cent fall tipped in a poll of economists by Dow Jones Newswires.

June's figure was unchanged from the 10.5 per cent decline seen in May, the trade promotion agency International Enterprise Singapore (IE Singapore) said in its monthly report.

"The largest contributors to the NODX contraction were the US, EU 27 and China," it said.

On a month-on-month seasonally adjusted basis, the key exports grew 4.2 per cent last month after a 9.8 per cent fall in May, the agency said.

Total trade in June grew 14.4 per cent to S$82.3 billion, while NODX was worth S$12.79 billion, the trade agency said.

IE Singapore said poorer shipments of both electronics and non-electronics goods were behind last month's export decline.

Electronics exports, which have been dropping since February last year, contracted 14.6 per cent to S$4.8 billion in June while non-electronic shipments eased 7.9 per cent to S$7.95 billion, IE Singapore said.

NODX to the US in June recorded the largest decline of 24.3 per cent, to S$1.5 billion, a deterioration from the 22.3 per cent decline posted the previous month, it said.

To the European Union economies, NODX fell 16.1 per cent to S$2 billion, while shipments to China fell 11.7 per cent to S$1.3 billion, IE Singapore said.

Exports to Singapore's other top markets also contracted, with the exception of Malaysia, South Korea and Hong Kong, it said.

The monthly figures are a closely watched barometer of Singapore's export-led economy in which gross domestic product was valued at S$243.17 billion last year.

As of 2007, US was our No 2 export partner at 10.2%, while the decline of export to US is 24.3%. With decline in exports to a few other countries, Singapore's economy seems to be facing a worst situation than expected.

US automakers face tough road as June sales plummet

2008-07-02T10:40:00.002+08:00

Was reading this article that stated:

"Automakers hit more bumps in the road in June as US sales fell precipitously, and manufacturers failed to adapt to a shift in demand to more fuel-efficient cars, company reports showed Tuesday.

Overall sales were down 13 percent year-to-year, according to market research firm Autodata.

"The four-dollar (per gallon) gasoline, the recession in housing and a collapse in consumer confidence has kept people sitting on their hands," said David Healy, analyst at Burnham Securities."

With the current Credit Crunch, credit approval is stricter, people's spending power has decline, inflation is at all time high, cost of pump is all time high, etc. With the same amount of money, we can now get lesser. This will in turn, affect the overall economy.

With the onset of potential global economy slowdown, most countries and their economy are facing the same situation as the U.S. Credit is getting tighter, inflation is high, spending power is lower, cost of living is tougher.

This will create a domino effect and may cause the economy to depress further.

Singapore Inflation rises 7.5% on—year in May on higher food, transport costs

2008-06-23T18:52:00.002+08:00

As reported in Channel News Asia.

Singapore's annual inflation rate stayed at 7.5 percent in May, boosted by rising food, transport and housing costs, the government said.

The monthly consumer price index (CPI) was the same as the 7.5 percent recorded for April -- which was a 26-year high -- but lower than the 7.7 percent forecast by economists polled by Dow Jones Newswires.

Food prices rose by 9.0 percent year-on-year in May, more than the 8.5 percent in April, while housing costs jumped by 12.4 percent, against April's 11.8 percent, data from the statistics department showed.

Transport and communications costs rose by 6.0 percent last month, slower than the 7.0 percent rise for April, figures showed.

From April to May, the CPI rose by 0.2 percent, the statistics department said.

In the first five months of the year, the CPI was 7.0 percent higher compared with the same period last year, it said.

Singapore, Southeast Asia's most advanced economy, imports most of its needs because it lacks the natural resources and agricultural base of its bigger neighbours.

The trade ministry is forecasting inflation of five to six percent for the year.

Governments around the region are grappling with rising prices, particularly as the global cost of oil hovers near record levels.

(source : http://www.channelnewsasia.com/stories/singaporelocalnews/view/355799/1/.html)

With inflation at all time high, and uncertainty in the global ecnomy and high oil prices, it escalate the fear of a massive onslaugh of global slowdown.

Inflation reduced spending power as people are buying lesser with the same amount of goods. This will in turn cause people to cut back on spending. With that, it may lead to further slowdown in the economy. Should major economies goes into recession, this recession are likely going to be a rather nasty one.

U.S Is Already In Recession

2008-06-16T18:05:00.002+08:00

This article was taken from Reuters about 2 weeks ago.

Mr Warren Buffett had cited that the United States is already in a recession and it will be longer as well as deeper than many people expect.

He said the United States was "already in recession" and added: "Perhaps not in the sense that economists would define it" with two consecutive quarters of negative growth.

He further said that even though the United States are in recession, he will still be investing in companies. He however doesn't believe in investing in a company just to tear it apart due to investor's financial bet, "It's not right that hundreds of thousands of jobs are being eliminated, that entire industrial sectors in the real economy are being wiped out by financial bets even though the sectors are actually in good health."

Thus, in good times, as well as bad times, there will still be good companies and industries to invest in. Keep a look out.

Governments are usually the last to announce that the country’s economy is in recession as that will cause a panic among people. With such high inflation this year, announcing a recession will cause the economy to dip further.

Lessons From the U.S Credit Crisis

2008-06-02T08:01:00.007+08:00

In the last few months, focus have shifted to rising oil price, inflation and global food shortages. The U.S Sub-prime issue is soon to be forgotten as U.S starts showing signs of bottoming out of their crisis that plague their economy since August 2007.

As per Asian Financial Crisis, 911 and SARS, lessons learnt were soon forgotten. People were indulging in big spending once again when economy is booming. Many forgotten the painful lessons and are recreating a new wave of problem for themselves.

Before we start getting all too optimistic and complacent, people needs to consider what we've learned in the past several months on how major global economies can affect us. We saw the U.S housing bubble, sub-prime, credit crisis, declining job rates, decline in spending, etc. But how did it happen? Why was its bursting so painful? Without answers, we can't hope to reduce chances of a repeat.

The bubble form due to many factors, including lenders, buyers, investors and lack of government control.

Financial Institutions
Lenders had deem property loan as safer than other underlying loans (which is true) thus they gave out aggressive loans of even up to 100%. During periods of growth, property prices will appreciate, thus 100% loan will soon appears like 90% or 80%, but soon after, when prices reaches the top of the property curve, it'll start going down (coupled with economy downturn). These loans will soon appears bigger than the value of property.

Consumers
Property buyers here in Singapore are paying between 6 to 8 times their annual household income while out in the West, people are only paying 3 to 6 times their annual household inncome. Illustration, an example average household with income of $80,000 p.a ends up buying a property surpassing the half million dollars mark (eg condo).

When jobs are in abundance, where job security are strong, people are able to stay employed and continue earning these income, but when economy weakens, where job is at stake, mortgage delinquency showed up and home owners default on payment, while home prices starts falling. They lack financial strength to hold on to their mortgage, causing a further depression of property prices as they starts to dump their property.

Speculators/Investors
Investors are there for a quick profit. Some tends to buy and sell within the shortest time, with a quick profit. Some buys to hold and rent out. Where there is a profit, there will be investors. This leads to false price inflation and when these investors pulls out, the average buyers are unable to sustain the higher price. This happened in Singapore, became prominent between July to November 2007.

Government
Government being the regulators of the modern capitalist system allows them to act as a watchdog and provide guardrails to keep markets from driving the economy off a cliff. The regulators failed terribly. Was it complacent or poor foresight to blame? Intervention by regulating bodies are often too late. It is like, till death do they realise. Suicidal systems without watchful eyes to plug the plunge often results in crippling economy.

Regulators should be there to protect unsophisticated consumers by restricting their purchases with policies. The current property purchase policy in Singapore is great, where buyers are required to pay 20% downpayment, being 5% Cash, 15% CPF (Provident funds). Financial institutions are reluctant to provide 90% Loan to Valuation.

As I have mentioned several times in different post, Singapore's 'sup-prime' are in the making with the lack of control and poor policy in the automobil sector. Car value dips the moment the car is secured by buyers yet loans are provided for up to 100% of the car value, (quite often, MORE than the value of car value with the cash rebates).

Yes, car loans appears negligible to individuals. What is a $50,000 loan to the average car owner earning $40,000 p.a? This works out to only $520 per month on a Gross salary of $3,330. What about running cost, that takes up another $600-700 per month? What about the borrower's other financial commitments? A balloning problem I say.

If the regulators in Singapore doesn't do something about this loophole soon, I would think it may lead to our credit bubble in time to come.

Collaterals should only be a backstop, where value of collaterals are higher than the mortgage, and where economy appears sound. Regulators shouldn't neglect the potential pitfall where collaterals are lesser than the loan.

On the property regulation, has the government forced property buyers to the grave of a credit constrain? I would think so. Income ceiling has made it hard for some families to purchase public housing. (refer to http://askhdb.hdb.gov.sg/Home/hybrid/Themes/HDB/Answers_internal_check.asp?MesId=2388609&isCFP=&FolderID=27928&ProjectId=7597756&reAskpage=answer%2Easp&SelectedCategory=&RecordQuestion=)

Last word of advise as usual, we better take care of ourselves than rely on 'parental help'.

Buffett Blames Banks for Credit Crisis

2008-05-25T22:42:00.002+08:00

I Read this article on Reuters and wonders if it was really just the banks at fault for the current U.S. credit crisis or should the relevent monetary authority be responsible?

U.S. billionaire investor Warren Buffett told newspaper El Pais that the banks should be for the sub-prime crisis as the banks took too many risks in mortgage lending

Mr Buffett further shared, "The banks exposed themselves too much, they took on too much risk .... It's their fault. There's no need to blame anyone else,". He believed the situation in financial markets would not deteriorate further.

"I don't think the situation will get worse in financial markets. General conditions in the business world will get worse, but it will only last a while," he said, adding he had no idea when an upturn would come.

I would like to pour some views on why I presume the relevent Monetary Authority should also be responsible. As a Monetary Authority, or the Central bank, the authority should observe the credit crisis brewing and taken earlier actions to avoid a meltdown turning a blind eye to the situation, expecting that the financial institutions in a mature financial market should be able to judge themselves what risk level to take.

Coming back to Singapore financial market. The Monetary Authority of Singapore relaxed car financing rules in year 2003. Previously, car buyers needs to have a deposit of up to 30% and are only able to take a maximum of 7 years loan. The relaxation of rule now permits banks to allow up to 100% financing, for up to 10 years duration.

Car ownership here in Singapore is based on a 10 year Certificate of Entitlement (COE). Thus, a new car will only have a road life of 10 years before they need to undergo a renewal of COE.

If a car buyer were to take a maximum of 100% loan over 10 years and decides to change car (or get rid of car) just before 5 years is up, he will loose more than 50% of the car's value, but still have more than 50% of the car loan outstanding.

If the car owner decides to change car, he may need to top up an amount above $10,000. If he were to buy a new car, banks are giving loans with Cash Rebates. Car buyer then takes the Cash Rebate to roll over the outstanding loan on the previous car. He ends up ballooning his debt while the banks are providing a loan larger than the value of the property. Isn't this sub-prime or credit-crisis in the brewing?

Let's look at the car population in Singapore. There are about 500,000 cars in Singapore. If each car has an average outstanding debt of $20,000 each, the total car debt market is S$10 billion.

Since the Monetary Authority controls the credit market, who would be blame should the mini sub-prime brews over here in Singapore? The Authority or the Banks?

Turn $451 a Month Into a Million Bucks

2008-05-14T18:08:00.006+08:00

Here's something interesting I read awhile back.

If you're 30 years old, you need to set aside $448 per month for next 35 years to become a millionaire -- if you earn a reasonable 8% annualized return in a retirement account. Many people may say they don't have $448 to spare. Think again, maybe you do and don't realize it.

Save on Taxes
Maximise any tax exemption. This is hard here in Singapore but not totally impossible. Nothing against the law either. Example, for married couples who are planning their 2nd child, do it before the wife turns 30 (or whatever the age) and the couple will be granted a certain amount of tax exemption.

Another way, don't spend unnecessarily on goods and save on Goods & Services Tax (7%).

Save $100 Per Month on Food
Here’s How: Bring your own breakfast or lunch to work. Rather than having hawker food for breakfast, one could opt for bread with spread. A loaf of bread cost about $1.60 and can serve 6 (total of 12 slices). Another healthy and good alternative, oats. Beverages can be made in the office than buying from the drink stall.

Save $80 Per Month on Entertainment
Fewer dinner-and-a-movie night every month. That assumes you and your significant other pay the average $33 per person for a restaurant meal and that you spend $10 per ticket, the average price at the movies.

Save on Health Care
Manage our health. Watch our diet, drink more water and exercise. Also, rest more. These helps strengthen the body's immune system.

Plan Your Route (for those who drive)
Avoid unnecessary driving and avoid jams. This will ensure you save on fuel. Petrol prices have past S$2 per litre, which works out to $0.17 per kilometer travelled (assuming each litre gives 12km). Be gentle on your foot and take more to highway, these helps on fuel efficiency.

Maintained Your Car Well
Keep your car’s engine tuned and tires inflated to the proper air pressure. Those minor improvements can save you up to $100 on gas each year.

Go for House Brand

When doing grocery shopping, opt more for house brands than manufacturer's brand. House brands usually cost 10-20% cheaper.

How Much Saved in Total?
If we do those sums, we should be able to save a couple of hundreds a month. Translate the savings to proper investment that earns an average of 8% return per year, over the next 35 years, and you'll have a tidy sum for retirement. That wasn't too hard, right? It just takes some discipline and getting use to.

(source : Kiplinger.com [Turn-451-A-Month-Into-A-Million-Bucks[)

Worst of Financial Crisis is Past

2008-05-07T17:02:00.003+08:00

This is the best piece of financial/economic news in awhile. But do hold your spending. The worst may appear to be over (as shared by US Secretary Treasury Henry Paulson), but there will still be some bumps ahead. Here's the article:

The credit crisis that has scorched international financial markets is on the wane but more shocks are ahead, US Secretary Treasury Henry Paulson told the Wall Street Journal in an interview published on Wednesday.

"The worst is likely to be behind us," Paulson told the paper, in one of the most optomistic comments by a top US finance official since sub-prime mortgage losses set a domino effect in motion in mid 2007.

Paulson said it would take "some months longer" for the situation to stabilize and cautioned there would likely be further "bumps along the road."

But, he said, "there's no doubt that things feel better today, by a lot, than they did in March."
Paulson said the decision by the US Federal Reserve to rescue US investment giant Stearns and to inject liquidity into other investment banks proved to be a turning or "inflection point" in the crisis.

He expressed confidence that Congress would soon approve two measures he sees as key to stabilizing markets, to improve regulation of government-sponsored mortgage firms Fannie Mae and Freddie Mac and the Federal Housing Agency, which insures private housing loans.

(source : http://sg.news.yahoo.com/afp/20080507/tts-us-economy-paulson-972e412.html)

Even if the worst is over, it will take months for the dust to settle. The financial turmoil affected many countries thus the ripple effect will still be seen. Even if it's over in the US, it doesn't mean there won't be any yet to be seen effect in other countries.

We can only hope there's no new setbacks while the dust settles.

MediShield Premiums to Go Up on 1 December 2008

2008-04-29T10:10:00.003+08:00

This post serve to notify you, that you better be prepared to take care of yourself than rely on your government to care for you in your older years. Thus, please put in efforts to ensure you are sufficiently covered. Please take your money seriously, invest and make sure your funds are sufficient when you retire. Here's the can of worms fellow Singaporeans:

1. Report on 27 Apr 2008
(source : http://www.channelnewsasia.com/stories/singaporelocalnews/view/343983/1/.html).
SINGAPORE: MediShield premiums will go up between a few dollars and S$40 a month from December 1, depending on age.

The Health Ministry (MOH) is raising the premiums so that it can increase the MediShield payouts to reduce the financial burden on Singaporeans with large Class B2 and Class C hospital bills.

The deductible stays the same for those under 80 – S$1,500 for Class B2 and S$1,000 for Class C. But it will be raised to S$3,000 for Class B2 and S$2,000 for Class C for those aged 81 to 85.

MOH will also raise the annual Medisave withdrawal limit to S$1,150 for policyholders aged above 80. For the rest, it stays at S$800.

2. Life Expectancy of Singaporeans
Refer to another source https://www.cia.gov/library/publications/the-world-factbook/geos/sn.html

Life expectancy at birth:
total population: 81.89 years
male: 79.29 years
female: 84.68 years (2008 est.)

Refer to the first Para, increase in MediShield claims/payouts are for those above 80 years old. This applies only to B2 and below class wards.

The life expectancy refers to those born in this current few years, not applying to those who are already born years ago and working. Our life expectancy is not those stated above, but shorter.

3. Current MediShield Premium
http://mycpf.cpf.gov.sg/CPF/Templates/SubPage_Template.aspx?NRMODE=Published&NRORIGINALURL=%2fMembers%2fGen-Info%2fFAQ%2fHealthCare%2fMSH%2ehtm&NRNODEGUID=%7b19A871A3-E1A4-4C7C-AD0E-42686AE7E9A5%7d&NRCACHEHINT=Guest#SEC4Q17

Table F:
Annual Premium Table Age Next Birthday Yearly Premium
30 and under - $30
31 - 40 - $40
41 - 50 - $80
51 - 60 - $160
61 - 65 - $225
66 - 70 - $265
71 - 73 - $335
74 - 75 - $375
# 76 - 78 - $420
# 79 - 80 - $510
# 81 - 83 - $600
# 84 - 85 - $705

4. The Cruel Fact, The Percentage of Increase
Let's look at figures. If premium is increased by $40/month, or $480/year for those above 80 years old, what is the percentage of increase?
a. Age 81 - 83 = $600/year. Increase by $480/year works out to 80% increase
b. Age 84 - 85 = $705/year. Increase by $480/year works out to 68% increase.
c. Age 86 onwards. Sorry, not covered.

As stated in CIA Fact Book, the median age is 38.4yrs old. Let's assume, the MediShield premium increase is $3/mth for this group. That works out to $36/year. The premium for this age group is $40/year. The increase is, 90%.

Reports are not being transparent by publishing the bigger picture, by percentage of increase. By saying, a few dollars a month, it sounds palatable.

5. What Next
With so much increase, first Goods & Services Tax, follow by Transportational Cost, now MediShield Premiums, what next?

We must make sure we do our own dues, to be sufficiently prepared for our older years.

Global Slowdown Not The Worst Yet

2008-04-25T10:08:00.003+08:00

The current global growth slowdown, and potential recession, may be the worst in the last 30 years. The current situation started with the US Sub-prime, leading to financial crisis which spread globally.

This may not be the worst that is yet to come.

Last October (2007), I wrote about the "Anticipation of Next Recession" (http://globalcookie.blogspot.com/2007/10/anticipation-of-next-recession-or-great.html), which I was making a guess that it will happen some time around year 2014. In recent period, there were news coming from global financial leaders about the US Recession which is the worst since the last Great Depression (1929).

Many countries and funds have scrambled to bail out financial institutions trapped in the US Crisis that threatened to cause some to wind up. Billions of dollars have been pumped into US financial institutions over recent months. Singapore alone had contributed at least US$40 billion through the Government Investment Corp (GIC) and Temasek Holdings.

Is this the worst?

Going back to my posting in October 2007, the anticipation of the next Great Depression was based on my assumption that the Baby Boomers' retirement will create a vaccum, etc. That was just talking about retirement of Baby Boomers. I like to shine more light into that post.

China had seen double digit growth over the last 20 years, since opening up of their economy. China economy have evolved and the Chinese spending power have grown so much, they become the biggest consumers now.

However, a worrying trend have evolved together with their growth. Chinese (no statistics) are spending beyond their means. Their car population have outgrown anywhere else in the world. Are these car owners really affluent enough to afford cars as part of their lifestyle?

Should a melt down happen in China years from now, coupled with global greying population (not just US), it may create a major problem for economies around the world. Emerging countries currently do not have the financial and consumption ability to sustain the consumer power of the Developed Nations and China.

Will this lead to a real Great Depression years from now? The worst may yet to have been seen.

Strengthening of Sing Dollar

2008-04-25T09:21:00.002+08:00

Singapore's Year on Year inflation as at January 2008 was 6.6%, up from 4.4% in December 2007. (Source : http://www.mas.gov.sg/eco_research/eco_dev_ana/Inflation_Monthly.html)

While the world frets about a possible U.S. recession, global inflation has quietly climbed to historic levels, confronting policy makers with tough choices that could end up hurting the euro and lifting Asian currencies.

At a time when global growth is slowing and prices are rising, a strengthening currency can help protect consumers by increasing their buying power.
(Source : http://banderasnews.com/0802/nw-globalinflation.htm)

In recent reports, Monetary Authority of Singapore is set to strengthen Singapore Currency further and may meet exchange rate of $1.32 against US$ by year end (2008). Stronger Singapore Dollar can help lower inflation as it will cost lesser to import from other countries.

However, adjusting the currency is a double edge sword. With stronger Singapore Dollar, our exports becomes less attractive. Singapore's export are already facing competition from developing nations, where labour cost are much lower, which helped lower cost of exports.

As such, the Monetary Authority will be watchful on how far the currency appreciates in value so that we do not end up edging ourselves out of global competition.

Global Financial Crisis (US & G7 seeks Financial Reforms)

2008-04-12T12:28:00.006+08:00

Here's the joke. Had the US financial system be tighter in boom years, the global economy will not be weary today. Is it a lack of governance or the ruins of democratic financial system, in the US that created such a huge mess today?

The Denial
To think that the current financial turmoil started from their mishandling, they are still out holding their might to teach the global financial heads how to better manage global financial controls. Their leaders are not admiting to the problem and in denial claiming IMF is "Unduly pessimistic" about the US Economy. They are more focus on war in Iraq it appears, or the outgoing Administration are worry of a bad legacy.

Financial System & Controls
When banks starts getting overly aggressive and optimistic, we have to get cautious. The other joke about banks is, "they'll lend you and umbrella during sunny days, and take it back during rainy days".

In Singapore, banks tends to be conservative. Larger loans are usually subjected to strong collateral, such as properties. However, banks are stringent in lending beyond 80% Loan To Valuation as this expose them to greater risk that if the borrower defaults on payment, they may not be able to recover their loan.

With such controls, the financial institutions are limiting their risk.

Borrowers Personal Responsibility
Borrowers should learn to understand more about the economy and interest rate patterns to avoid over commiting into a loan they will have problem servicing later. This may be hard as some are overly naive and created false expectation of themselves and their potentials.

Let us not forget the lesson learnt since the Asian Financial Crisis to the most current Global Financial Crisis. We have to embrace these valuable lessons to avoid being trapped. The governments have too much to be concern about than to be responsible for our financial education.

US will work with partners to avert future crisis: Paulson
WASHINGTON (AFP) - - US Treasury Secretary Henry Paulson warned Friday that the struggling US economy may face rougher times ahead but insisted its fundamental prospects are in good shape.

The Treasury chief also said Washington would work with its global partners to take steps aimed at averting future financial crises.

"The financial market turmoil and its impact on global growth underscore the need for all countries to remain open to trade and investment," Paulson said after a meeting here of finance ministers and officials from the Group of Seven major industrialized countries.

"We have worked, and will continue to work, closely to address global challenges and take concrete actions," Paulson said.

G7 officials endorsed a plan earlier Friday aimed at preventing a repetition of the recent financial market turmoil which has caused tens of billions of dollars of losses for major banks and securities firms.

"There may be more bumps in the road" for the US economy, Paulson cautioned.
The current slowdown in the world's biggest economy has been called a recession by the International Monetary Fund, an assessment dismissed by President George W. Bush's administration as "unduly pessimistic."

But it is clear that a persistent US housing slump and a related credit crunch have slowed US economic growth dramatically in recent months.

"I am confident in the long-term economic prospects of the United States," Paulson said. "However, the housing correction, together with high energy prices and financial market turmoil are weighing on US economic growth."

Paulson, a former chief executive of Goldman Sachs, said the US economy would likely get out of a first-quarter rut by later this year and possibly as early as the second quarter.
"The first quarter was a tough quarter," he told journalists at a press briefing.

A growing number of economists believe America's economy has already slipped into a recession.

Bush administration officials say a flurry of Federal Reserve interest-rate cuts and a giant 168-billion-dollar economic stimulus package should revive growth in coming months.

Paulson said the economy could benefit from "positive results" as early as the second quarter as it continues to weather stressed housing and credit markets.

He said some media headlines on the economy appeared to be overly bleak and stressed that America's economy is broad-based and dynamic.

Addressing reporters' questions about the foreign exchange markets and the weakened dollar, Paulson said G7 officials always debate currencies.

"I reiterated in very strong terms our commitment to a strong dollar," he said of his participation in the G7 finance meeting, adding that ministers also discussed other global currencies and their values.

The US dollar has weakened markedly on foreign exchange markets in recent months, partly due to aggressive Fed rate cuts.

Paulson also reiterated calls for Beijing to increase the flexibility of its yuan currency.

"As someone who has just got back from China, I believe that China understands ... it's in their interests, as they're are dealing with some of the issues they have ... to have a currency that's more reflective of underlying economic fundamentals," he said.

Some US economic commentators accuse China of keeping its currency artificially undervalued to support China's ballooning trade surplus with the United States.
(Source : http://sg.news.yahoo.com/afp/20080412/tts-g7-imf-worldbank-economy-statement-u-972e412.html)

When problem brews, the weak blames others.

G7 finance chiefs back financial reforms amid crisis
WASHINGTON (AFP) - - The Group of Seven warned Friday the global economy is sputtering and vigorously backed measures to prevent a recurrence of what is being called the worst financial crisis in seven decades.

Finance ministers and central bank governors of the G7 major industrialized countries said banks should adopt steps to "fully and promptly" reveal their risk exposure due to the current financial market turmoil within 100 days.

The world economy "continues to face a difficult period ... (and) near-term economic prospects have weakened," the G7 officials said in a statement after their meeting here.

The finance chiefs from Britain, Canada, France, Germany, Italy, Japan and the United States stared into the abyss of a complex crisis that began in the US subprime home-loan market in August and has spread into a global credit squeeze draining world growth.

"The turmoil in global financial markets remains challenging and more protracted than we had anticipated," they said ahead of the weekend meetings here of the board of governors of the International Monetary Fund and World Bank.

"While economic conditions differ in our countries, downside risks to the outlook persist in view of the ongoing weakness in US residential housing markets, stressed global financial market conditions, the international impact of high oil and commodity prices, and consequent inflation pressures."

The G7 finance chiefs also noted that since their last meeting in February, there have been "sharp fluctuations" in major currencies and members "continue to monitor exchange markets closely and cooperate as appropriate."

Major central banks have coordinated multi-billion dollar cash injections into stressed financial markets in recent months and the dollar has plunged to record lows.

In response to the spreading crisis, they said they approved a Financial Stability Forum (FSF) report on ways to prevent a repetition and had identified several recommendations for implementation "within the next 100 days."

"Rapid implementation of the FSF report will not only enhance the resilience of the global financial system for the longer term but should help to support confidence and improve the functioning of the markets," they said.

Ranked first, "firms should fully and promptly disclose their risk exposures, write-downs, and fair value estimates for complex and illiquid instruments.

"We strongly encourage financial institutions to make robust risk disclosures in their upcoming mid-year reporting consistent with leading disclosure practices as set out in the FSF's report."

Among other measures for early implementation, the G7 said the International Accounting Standards Board (IASB) and standard-setters should "initiate urgent action to improve the accounting and disclosure standards for off-balance sheet entities."

It should also enhance its guidance on fair value accounting, particularly on valuing financial instruments in periods of stress.

Off-balance sheet entities have been blamed for concealing the true extent of the banks' exposure to the US high-risk subprime mortgage crisis and the risks involved in assets that could not be fairly valued in times of distress.

In its report, the FSF said watchdogs around the world should improve their "responsiveness to risks," and "robust arrangements" should be put in place to deal with stress in the global financial system.

"To restore confidence in the soundness of markets and instutitions, it is essential that steps are taken now to enhance the resilience of the global system," the FSF urged.

The G7 ministers reaffirmed "our strong commitment to continue working closely together to restore sustained growth, maintain price stability, and ensure the smooth and orderly functioning of our financial systems."

US Treasury Secretary Henry Paulson, his country at the epicenter of the crisis, said: "We have worked, and will continue to work, closely to address global challenges and take concrete actions".
(source : http://sg.news.yahoo.com/afp/20080412/tts-g7-imf-worldbank-economy-c1b2fc3.html)

Global Recession Forecasted

2008-04-10T17:41:00.004+08:00

In International Monetary Fund (IMF) semi-annual World Economic Report released on 9 Apr 08, they warn that there is now a 0ne-in-four chance of a global recession. IMF also declare that the United States faces a recession this year.

The report said : "The financial market crisis that erupted in August 2007 has developed into the largest financial shock since the Great Depression, inflicting heavy damage on markets and institutions at the core of the financial system."

It also predict that global growth would slow to just 3.7 per cent this year while US economy will expand by just 0.5%. "The US is projected to tip into a mild recession in 2008 despite aggressive rate cuts by the Federal Reserve and timely implementation of a fiscal stimulus package." This would be the worst performance for the US economy for well over a decade.

Unless the global financial crisis worsens, Asia is set for slower yet still robust economic growth of about 4.0%, especially in newly industrialised economies of South Korea, Taiwan, Hong Kong and Singapore.

The IMF estimated that the worldwide losses stemming from the US sub-prime mortgage crisis could hit US$945 billion.

In a seperate report, ex-Federal Reserve chairman, Alan Greenspan, says US is already in recession.

The big cut in its most important interest rate capped the most aggressive Fed intervention in 25 years could help avoid a deep recession. The Fed has been urgently moving to prevent the trio of economic woes - housing, credit and financial - from plunging the country into a deep recession.

However, with the scoring energy prices and high food cost,, worry is that inflation could potentially become unhinged. If people, investors and businesses expect prices to rise sharply, they will act in ways that will make inflation worse.

Double Whammy For Low-Income

2008-04-08T10:10:00.000+08:00

I read on newspaper, Today (8 Apr 08 issue), on the above subject and wonders if the writer has shone appropriate light onto the matter.

He wrote,
1. Increasing rate of inflation must be discussed together with declining interest rates

2. Real interest rates (nominal rates less inflation) have steadily declined in the recent past because of increase in inflation

3. Double whammy for low-income households - Purchasing power has fallen because of higher inflation while their ability to grow their savings has declined

4. Higher income households benefit from the higher inflation rate by being able to invest in alternative options that offer better returns than savings accounts, such as gold, exchange-traded funds and commodities that have boomed in recent past.

5. Lower-income households are unable to take advantage of such financial instruments because of lack of awareness and capital required for participation

6. Current situation seems hopeless for them.

He failed to share, with High Inflation and Low Interest, it errodes the value of money. This means, the funds we hold are erroded fast.

By sharing point 4 above, he may send the wrong signal to non-savvy investor-wannabe to invest in commodities like gold and equity based funds that had grown tremendiously over the recent period.

It is indeed true that lower-income families have lesser savings and may not even have any disposable funds. With that, they are unlikely to be able to open themselves to opportunities that others would have. The lower-income families are more concern of making ends meet with rising living cost.

As I read last year, people were spending more on luxury goods. As shared with several friends, if we could, conserve funds during good times and vest it into good returns investments while others spend away their hard earned monies.

During economic slowdown or downturn, our funds are magnified to allow us to take on more than what we would be able to afford during good economy.

Asian Firms Freezing Pay and Headcount

2008-04-08T09:25:00.002+08:00

A survey by global management consultancy Hay Group released last Friday (4 Apr 08), shows Asian employers are starting to brace themselves for the economic downturn. it found that 81% of Asian companies polled are planning to freeze or decrease headcount in 2008.

About 33% of the 140 Asian companies polled are also currently freezing or looking to freeze their employees' base salaries. In comparison, only 15% of the 863 non-Asian companies polled are preparing to do the same.

A total of 1,003 companies comprising mostly of multi-natoinal corporations across sectors such as energy, retail, healthcare, and finance and banking, were from 80 countries worldwide. Of these, 770 are from non-Asian countries. There are no figures of Singapore companies polled.

Although Singapore doesn't look as gloom as compared to the region, we would need to brace ourselves for cyclical downturns. Besides, the inflation has escalated in the last 1 year. Cost of basic necessities have climbed vigorously during this period, causing some extend of panic buying of basic necessities (eg, Rice) by consumers.

I had a recent look at my financial aspiration. If I could vest some funds separately, into various investment that matures every 3 to 5 years, it could result in having mature investment every 2 to 3 years interval. With that, I will not be at the mercy of economical upheaval wouldn't I?

6 More Months of Uncertainty

2008-04-04T09:30:00.003+08:00

As published on local newspaper (My Paper Friday 4 Apr 08), property tycoon Mr Kwek Leng Beng (Singapore's 5th richest - 23 Aug 07 [http://www.forbes.com/2007/08/23/biz-cz_07singapore_Singapores-40-Richest_land.html]) shared, "the uncertainty surrounding the local property market will last at least another six months and stake holders must stay nimble to deal with the changing tides".

He mentioned that the standstill in the local property market would end only after the United States sub-prime crisis clears. Any restoration of confidence in the property market will also hinge on private and public stakeholders remaining nimble and reviewingtheir strategies to meet changing market conditions swiftly.

In another report, Property Fever Here Starting to Cool, it was reported that bids for land has dropped in numbers of bidders and price offered. In recent land tender, the residential site bordering Choa Chu Kang Road and Woodlands Road attracted just two bids. The highest offer being $61 million, which works out to just $162 psf per plot ratio.

The low point came last month when just $78 psf was offered for land in Westwood Avenue, which was rejected by the Urban Redevelopment Authority.

The property market boom between August to November 2007 lead to a massive inflation of property prices. Property prices raised by percentages not seen before within such short span of time. The property market started to cooled off in December 2007 and January 2008 onwards saw a complete slow down in property deals.

My take would be, hold onto buying till after mid 2008. At that point, the dust would have settled a little more, but not clear yet.

Going the Opposite

2008-03-29T23:07:00.002+08:00

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?

2008-03-18T13:16:00.003+08:00

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

2008-03-11T14:17:00.002+08:00

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

2008-03-10T09:04:00.002+08:00

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

2008-03-01T13:55:00.002+08:00

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.

Love Your Money. It Will Love You Back.

2008-02-18T18:32:00.004+08:00

While America is reeling in the possibility of a recession, here in Asia, we are facing a boom. Singapore's GDP last year grown by 7.5%. Many people started spending on luxury goods even though they are not in a need to spend extravagantly to replace a still new item.

I have heard quite a handful of people asking if they should change their 3 years old car, for a new car. Exploring what a car salesman would say to his potential car buyer.
1) No Warranty
Sales talk : Your car is 3 years old, warranty has run out.
Truth : A 3 years old car is still rather new and even if you do not have a warranty, it is still cheaper to drive on than change car.

2) Lower Installment
Sales talk : You may save by changing to a new car (lesser monthly installment, but prolong 10yrs loan)
Truth : You have paid 3 years installment, how many more years do you have left? It will be cheaper to continue with this installment.

3) Why Pay Government
Sales talk : Your current COE (Certificate of Entitlement) cost $30,000 while it is $14,000 now. Why pay government the extra when you can save with lower COE.
Truth : Import tax is about 170%. How much more will you pay for a new car as compared with the savings on COE?

I read an interesting article and shall share, with the inclusion of your savings that could otherwise be wasted on something unnecessary.

If you long for a more fulfilling relationship with your money (stretch your dollar), remember this simple truth: When your money doesn't feel appreciated (waste away), it won't appreciate for you in return (you end up having lesser).

1. Don't squander its potential
Put your cash some place that can earn more money for you. Don't demean it by locking it up in a pitiful savings account. Let's take a look at what your $20,000, say, over 20 years, could do for you.
1.1 On average, traditional bank savings accounts pay 0.3% (currently) on deposits. Your $20,000 after 20 years will be $21,236 (only grew by $1,236).

1.2 If you had invested this money in a money-market mutual fund, giving you 3-4% yield, you will have $36,415 to $44,451 after 20 years (grew by $16,415 to $24,451)

1.3 If you had invested this money in a high return investment, giving a 15% yield, your $20,000 will be worth $394,390 in 20 years (grew by $374,390)

See how a sum of $20,000 can grow with the right investment?

2. Show your sensitive side
Abusing your money, spending unwisely and being oblivious to bad habits are surefire ways to doom your financial relationship. If you cut back your wasteful spending (eg traffic fines, credit card interest, daily lifestyle, etc).

A monthly savings (in-turn, invested) of $300 over 20 years would give you a total savings of $72,000

2.1 If it's left in the bank with 0.3% interest, the $72,000 is only worth $74,194 after 20 years.

2.2 If it had been wisely invested with a yield of 10%, this $72,000 will now be worth $227,810.

3. Plan for a future together
No doubt you dream about your future, and no doubt that future involves growing old together with your money. That means you need to invest for the long haul.

When you're in your twenties and thirties, you would have more years to invest your money to make even more long term growth.

For example, if a 20-year-old saved just $100 a month in a fund earning 10% annually, he'd have nearly $1.05 million by the time he turned 65. And if he increased his contributions as his paychecks increased, his money could grow to $1.5 million or $2 million.

(source : http://www.kiplinger.com/columns/starting/archive/2008/st0213.htm)

Your Wallet Speaks Volumes

2008-02-15T21:36:00.003+08:00

The way you handle your day-to-day cash speaks volumes about your money personality, according to personal finance experts. Here's the article I read.

Money's there ... somewhere --
You have money in your wallet, but you never have any idea how much. But who cares, if you can't find it or can't find enough, just whip out one of your many credit cards or debit cards.
People who don't know how much money they have in their wallets may also be unaware of what's in their bank accounts or even their pension funds.

These people may be afraid to see what the reality of their financial situations is. They may be tempted to overspend or even pull out a credit card if they aren't aware of how much they have available.

Keep a written tally of how much money you have (and how much you owe) to get comfortable with your financial situation.

Running on empty --
Your wallet is usually empty because you can't seem to keep cash in it for long. No matter how many times you go to the ATM, you'll find yourself staring into an empty wallet again very soon and wonder where the money went.

Similar to the person above, this is the person who is making money but they have no idea where it's going. However, unlike the above personality type, this person likely wants to know where the money is going and may be frustrated by an inability to stop spending.

The key to changing is to start paying attention to the things you do, your spending. Monitor your spending patterns and keep a notebook if necessary. Set a target timeline to know your spending and how to reduce it.

Chaotic cash --
The bills in your wallet are all crumpled up and in no particular order. There's change in the bottom of your pocketbook or even in the floor of your car.

Someone who treats money cavalierly often does not respect money or may not even care about finances. One who leaves money around are suggesting it's not important enough to put it in a safe and protected place.
The key to changing this behavior is recognizing the buying power of the money you've been discarding. Try adding up all of the miscellaneous bills and coins on a regular basis. You might amass enough money to start giving your "spare change" a little respect.

Unruly receipts --
Your wallet is stuffed with receipts, but there's no sense of order to them and you never really do anything with them. This is the person who is trying to keep tabs on their money but can’t take the next step to get them organized and do something about it.

You are like the person that buys all the latest exercise equipment but doesn't get around to using it. In order to change this behavior, you've got to get organized. Take a day to come up with a filing system for your receipts so you know what to do with them at the end of the day. If you're never going to use the receipts to track your spending, what's the point of keeping them in the first place?

File-folder funds --
All of the bills in your wallet are lined up from largest denomination to smallest (or vice versa). You have an idea of how much money you have at all times and you know what's available to spend.

These are the people who have a firm grasp on how much they are spending and how much they are saving. Such people probably have good financial habits. Be sure to also allocate some money for enjoyment/fun.

Identifying what your behavior is telling you about your beliefs about money is only the first step. Continuing to monitor your financial habits is key. Make note of the changes you make to your behavior as well as the times you fall short. One of the biggest mistakes people make is they think, “now I have this new wisdom about my money life and therefore my problems are solved”. Change takes time, but the moment you have a new awareness about what was driving your money behavior, your thinking begins to shift.

(source : http://finance.yahoo.com/banking-budgeting/article/104431/What?)

Longevity Insurance

2008-02-13T10:08:00.007+08:00

As reported on the news, the government has accepted recommendation for a Longevity Insurance scheme which targets to hold onto our Central Provident Fund (CPF) and investing it onto an Annuity plan that pays out to the insured from a certain age onwards till mortality.
(source : http://www.channelnewsasia.com/stories/singaporelocalnews/view/328324/1/.html)

With this insurance plan, it means we will not be able to withdraw most of our CPF funds upon retirement (I shall not dwell or discuss on the objection of such a scheme). The scheme is compulsory and auto-inclusion for all CPF members (with exceptions including low CPF funds and health reasons).

People’s Worry
Since the first mention about such a scheme, many are unhappy about such a scheme. People worry that they won’t lived long enough to receive sufficient payouts, near that of their money’s worth.

They also do not want their hard earned money to be forfeited should they depart, but to be paid to their family.

Government's View
Life expectancy have increased over the years. As such, upon retirement till mortality, the retiree may out-live their retirement funds. The scheme is targeted to ensure people do not run out of funds in their retirement years.

The CPF Longevity Insurance Scheme
The minimum sum (raised gradually to $120,000 by 1 Jul 2013, of which, half can come from the pledge of their property) will be split into two parts –a larger part that remains in the Retirement Account (RA), and a smaller part, the Refundable Premium (RP).

Upon reaching 55 years old, members will decide when they want the lifelong income payouts to begin.

Does This Provide Enough for Retirement?
Based on government’s computation, the average payout would be about $650 a month if the member has a minimum sum of $67,000 and starts payout at 65 years old.

Singaporean’s median age as at 2007 is 37.8 years old (source : CIA Fact Book). This group of people are 27.2 years away from turning 65 years old. With government’s calculation of 5% inflation per year, $650 in 27 years is only equivalent to today’s $277 per month. Is this sufficient?

What Can We Do To Increase Our Funds?
With 27 years, if we were to save $300 a month, we will be able to accumulate $110,363 (Principle + Interest [1%]) by the end of 27 years. Given that we spread this sum over 15 years (till 80 years old), it is an equivalent of $613 per month.

The add up of the personal savings and CPF LI scheme would be $1,263 per month. That is equivalent of today’s $537 per month.

Interest paid by banks is usually below inflation. We also need to take into account our money is eroded further by GST (currently at 7%). Why let our funds depreciate?

To better our savings, we could look into investing our funds into a highly secured (low risk) investment vehicle that provides us returns above inflation.

Should we invest the same savings illustrated above ($300/mth) into a low risk vehicle, the illustrated savings will grow as follows:

Monthly Savings : $300/mth over 27yrs
Approx Returns and Accumulative Total :
~ 1%/yr = $111,627
~ 10%/yr = $497,825
~ 15%/yr = $1,335,880

Lump Sum Savings : $20,000 over 27yrs
Approx Returns and Accumulative Total :
~ 1%/yr = $26,196
~ 10%/yr = $294,283
~ 15%/yr = $1,119,490

What do you want your retirement to be like in 27 years from now? How much spending money do you want to have per month by then? You decide.

Interest Rates and How It Affects Borrowers

2008-02-02T19:53:00.000+08:00

In recent months, interest rates have been falling. If the country's economy is doing well, interest rates are likely to go up.

Singapore's Loans and Interest
Lending rates saw an all time low in year 2004 for Singapore. Some banks are even lending at 0.5% for the First Year of the housing loan.

Interest rates starts climbing towards late 2004 and saw a massive climb in 2005 and 2006 before easing off in 2007. At the peak in recent years, lending rates were at 4% 3 years Fixed Rate. A lot of borrowers were caught with their existing Lock-in or Claw-back where they will be penalized for re-financing (including redemption) their loan with another bank.

Some borrowers even saw interest rate escalate to 5.75%. In Singapore, interest rates are one of the lowest among developed nations.

Property Boom (Singapore)
Since middle of 2006, property in Singapore started appreciating in value with the steepest climb seen during the period of May - August 2007. New developments that were asking for $600 psf in early 2006, were asking for as much as $1,500 psf in August 2007 (psf refers to Per Square Feet). Some condominium projects (in town) that were launch around middle of 2007 were even asking for around $3,000 psf.

Prices for subsidized housing (two-thirds of total housing in Singapore) had climbed high as well. A 5-room flat (5-room flats are just a classification of the flat type) in some areas were selling at valuation in early 2006 but were asking for $100,000 above valuation by 4th Quarter of 2007. Typical prices for such flat type are currently selling at about $400,000 to $500,000 per unit (usually 1,300-1,450 sqft).

Falling Interest Rates and Refinancing
Interest rates have fallen since middle of 2007 as banks compete to secure more loans during this period of property boom. Interest rates are affected by SIBOR (Singapore Interbank Overnight Rate) rates. Instead of increasing rates due to economy boom in recent years, the SIBOR rates have fallen to about 1.74% (3 months average).

Borrowers who had taken loan in recent years are now facing higher interest rate. Should they refinance or continue paying high rates? What are the trends of the interest rate movement in the coming months?

In order to refinance, banks looks at the borrower's credit rating. A borrower with bad rating are usually not granted a loan with the banks. As such, this category of borrower will find it hard to refinance.

What is the possible trend in the coming months? Interest rates will not continue falling. But at which point will rates start going up? The uncertainty could be influenced by many factors including micro and macro economy, liquidity in the economy, etc.

With the current economical situation in America, with the potential of going into a recession (negative signs since months ago), global economy will be affected. However, interest rates have already fallen so much since September 2007 (was 5.25% till 17 Sept 07), is there room for more reduction?

From the looks, interest rates (in Singapore) are likely to go up in the coming months. Before deciding on the types of packages to take, borrowers should consider which type of packages are suitable for them. Rather than going to the bank, a Mortgage Consultant would be in the best position to present to borrowers the many banks' packages and helping borrowers narrow down on what is suitable for them.

America's Loan Interest
In America, with the sub-prime and credit crunch issue, it leaves many borrowers in dire straits of not being able to pay off their loan and the banks coming after them. The latest Fed Reserve rate adjustment downwards by 0.5% comes as a relieve to many. Is it time to refinance?

Many borrowers are in desperate situation of needing to lower their interest rate in order to be able to afford and continue servicing their loan. However, with many borrowers having defaulted payments in the last year, this leaves many unable to refinance. For this group, if they are able to make large attempts to make prompt payment in the next 6-12 months, it may help them to get approval.

Those who have been able to continue paying promptly may wonder, is it time to refinance with the current rates? Fed Reserve have hinted that they will continue cutting rates if economy continue showing signs of decline (source : http://money.cnn.com/2008/01/30/news/economy/fed_rate_decision/index.htm?eref=rss_topstories)

Borrowers who have made prompt payment and able to refinance should consider if they can afford to continue paying the current rate. If they are struggling to keep up, it is time to act and cut rates. If they are comfortable with the current high rates, it is their call if they want to wait awhile longer for another cut (which is unpredictable).

Effects of Rate Cuts
Rate cuts had be inevitable as the economy faces a meltdown. The economical situation had been worrying, with businesses and consumers facing the squeeze. Weaknesses are seen in housing and job market, manufacturing and job creation faced a decline as well.

Rate cuts are aimed to help promote moderate growth over time and to mitigate the risks to economic activity and downside risks to growth remain, Fed Reserve statement said.

The other big concern of rate cuts, Inflation. Much remains to be seen.

7 Good Friends

2008-02-01T10:19:00.000+08:00

Was chatting with a client previously and he asked me if I could name 7 good friends that can enrich my life. It puzzled me what he means by "enrich your life". He went on to explain, one tends to be a reflection of their choice of friends as they'll influence us in many ways.

He named, among his good friends includes Warren Buffet, Steve Jobs, etc. He further mentioned, not to be mistaken that your choice of good friends are people that you know and they know you, and you go out with. They can be anyone that you can know (yet they may not know you) and learn from.

If we mixed with party going friends all the time, we'll constantly be out partying and spending. If we mixed with investment savvy or prudent friends, we'll learn to manage funds better. Of course we need friends from all walks. But if we spend all we earn and have nothing left to invest, we will still (financially) be where we are today, years down the road.

I have not zoom down on my 7 good friends, but I have learnt from a good friend, attitude plays a big part of life. This friend had been played out by his friend many years ago and almost gotten him bankrupt, leaving him a huge debt. I still recall, when I bumped into him at a coffee shop, he was munching pathetically (looks lonely) on a steam bun and coffee (he was just taking a short tea-break actually).

I approached him and had a very brief chat about what he was doing. Weeks later, we met again when we were doing our reservist (national service). We chat indept and I learnt that his problem is approaching the tail end. It will be over in a matter of months.

What made me so interested in him, and to embraced him as a role model is, his positive attitude. While going through a rough patch, he was always smiling and joking. His reply was, "be it that I'm grumpy or cheerful, I'll still have to clear the debt. I might as well choose to be happy and positive, it helps lessen the burden and I'll get through it faster". Wise words! He cleared his debts and is now doing well in life.

I recalled working with him, he was my superior, after the reservist. He is always (still is) so up and going, so energitic. Amazing attitude. In our chinese dialect, we both shared this motto, 'Cheong Ah' (can mean, persevere, puting ur best foot forward, dash for it).

Do not fall and sit there or find a hole to hide. Instead, get up and 'Cheong' for it!

World Stock Market Plunge as Global Recession Fears Grow

2008-01-23T07:38:00.000+08:00

Stock markets across the world plummet on Monday, 21 Jan 08, on worries of a global recession. It is the biggest single day decline since the Sept 11 attack.

A credit squeeze prompted by a crisis in the US subprime, or high-risk, mortgage sector has given way to a wider malaise in the world's biggest economy, with unemployment rising and the dollar falling.

All over the world, especially the developed nations, are suffering from the slowdown in the US. As said by Chairman of Eurogroup Finance Ministers, Jean-Claude Juncker, "The situation is continuing to deteriorate in the United States. In recent months, we have always ruled out a recession in the United States, but we cannot totally rule it out today".

US President announced on Friday, 18 Jan 08, of a US$140 billion stimulus plan, but this is seen as a little too little, a little too late. Najeeb Jarhom, head of research for retail clients at Fraser Securities in Singapore shared, "It looks like the US is heading for a recession or may be already in recession, looking at the data".
(source : http://news.yahoo.com/s/afp/20080121/bs_afp/stocksworld_080121214357)

The U.S. has suffered recessions only twice in the past quarter century, and both were short and mild. But there are good reasons to fear that the looming recession, if it arrives, could be worse.
The combination of heavy debt loads, still-high energy and food prices and a weakening job market has households tightening their belts.
That sets the stage for something more severe than the 2001 recession, which spanned just eight months. The eight-month recession that ended in early 1991, when a housing downturn and credit problems sapped the economy, is a better guide

University of Maryland economist Carmen Reinhart and Harvard University economist Kenneth Rogoff agree. They say the current crisis appears on track to be at least as bad as the five most catastrophic financial crises to hit industrialized countries since World War II.
(source : http://online.wsj.com/article/SB120086867005203883.html?mod=hpp_us_whats_news)

Every major banks in America has suffered major losses from bad loans. Any consumer loans made out are subjected to exceptional risk of default. This range from housing mortgage, auto mobile loan, credit cards, renovation loan, unsecured loan, you name it, you have it.

Living in denial and oblivious to the on-going just makes matters worst. Early signs of trouble dated as far back as in 2006 but had slipped the eyes of most people including economist.

Somehow, this is like SARS (Severe Acute Respiratory Syndrome). Warning signs of a new strain of flu bug that are immune to then current drugs were there but people ignored it, till it struck and killed many.

As a matter of fact, signs of the US recession had been prominent since months ago. I had mentioned of some recession or even a potential depression, in my post couple of months ago. I won’t even be surprise to know that the US is already in recession.

Since the Sub-prime meltdown followed by credit crunch, signs had point the US economy towards a recession. Interest rate slashes started in September 07, job creation started to decline since November 07, manufacturing dipped since December 07, and the list goes on.

Government can’t announce a recession as it happen, they have to keep it contained for awhile till they can’t wrap it anymore. Once a recession is announced, consumer confidence plunge, and will worsen the current situation.

On a positive note, the likely US recession will not likely hit most economies as badly as it would have been if this had happened 10 years ago. In the last few years, many countries have lesser dependence on the US. With booming economies in China and Asia, countries have spread its trading partners to many countries.

In the US itself, many other industries (apart from housing and credit) are still performing. This may help reduce the potential fallout.

Survey Shows Asia Can Expect Highest Salary Increase This Year

2008-01-18T19:11:00.000+08:00

Survey company ECA International's (world's largest membership organisation for human resources) Salary Trends Survey 2007-2008 found out that workers in Asia can expect the highest salary increases this year.

The results have indicated that Singapore workers could expect salary increases of 5 percent (considered high for a developed economy). ECA International's General Manager Mr Lee Quane said the current fears of a recession in the US would not dampen salary increase projections here.

Due to high staff turnover, companies may have to pay higher than the average increase (5%) to retain key staff.

(source : http://www.channelnewsasia.com/stories/singaporelocalnews/view/323172/1/.html)

As mentioned by Robert Kiosaki in his book, as people earn more, they becomes poorer. With higher pay, people ends up spending more, changing car, changing house, changing lifestyle, etc. This results in larger liability instead of increasing the asset column.

Rather than indulging in better lifestyle and increasing liability, one could ask himself how to they could increase their asset column instead. By investing extra income, we could have grown our asset column and have more to spend later. It pays to delay gratification.

The World Economy

2008-01-14T11:23:00.000+08:00

China
It was reported that China's global trade surplus had surged 48% in 2007. This is China's fastest growth in a decade.

The growth is at risk of a slowdown as world's economy weaken and U.S nearing recession. China's exports are now playing a bigger role in China's traditionally investment-driven economy, and thus the country has more to lose than it once would have from a global economic slowdown.
(source : http://online.wsj.com/article/SB120003317754883551.html?mod=todays_asia_nonsub_economy_and_politics)

United States
On the other continent, the U.S consumer confidence fell to an all-time low as worries about jobs, energy bills and home foreclosures darkened people's feelings about the country's economic health and their own financial well-being.

Consumer confidence is now at a low of 56.3 against this time last year, at 95.3, out of a scale of 100.

Confidence are affected by the following (not limiting):

1) Job openings had declined since November. Unemployment rate is currently standing at about 5 percent.
2) The meltdown in the housing market has dragged down home values and made people feel less wealthy.
3) Harder-to-get credit has made it difficult for some to make big-ticket purchases.
4) High energy prices are squeezing wallets and pocketbooks.
5) There has been much hand-wringing on Wall Street and Main Street as to whether all these problems will plunge the country into recession.

The White House (U.S) is exploring rescue plans including tax cut while Fed Reserve Chairman Ben Bernanke pledged last week to continue lowering interest rates.

(source : http://www.kiplinger.com/apnews/XmlStoryResult.php?storyid=526835)

Let’s hope the sufficient actions will be taken to reduce the fallout.

Singapore Economy Growth

2008-01-03T14:00:00.000+08:00

What a sombre way to greet 2008.

Singapore's Economy
According to economic reports, Singapore's economy grew by 6% (pulled down by falling manufacturing output) in the fourth quarter of 2007 instead of Economist projection of 7.0-8.5%. Overall GDP for 2007 grew by 7.5% in 2007 while growth for 2006 was 7.9%. Growth for 2008 is also projected lower at 4.5 - 6.5% for this year. (Source : http://news.sg.msn.com/article.aspx?cp-documentid=1170943)

United States' Economy
The US manufacturing has also contracted in December after 10 continous months of growth, sinking to its lowest point in 5 years. The decline suggested that the overall (US) economy may be weakening faster than most economist predicted.

Refering to my previous post, the few signs of looming recession includes:
- falling job rate
- falling manufacturing output
- housing downturn
- falling interest rates, etc.

Slowdown in manufacturing can translate to job cut, in turn, lesser consumer spending, causing more slowdown in the economy.

Nomura chief economist David Resler said December results can sometimes be skewed by seasonal variation in orders, so January will be very closely watched to see whether the sector will keep falling.

"I think the troubling thing is not just that it was so low, and it is at a level that is typically breached only in recession, but that it's continuing in a downward trend," Resler said, noting that the index has been dropping since June.

(Source : http://biz.yahoo.com/ap/080102/economy_manufacturing.html)

Let's hope US economy doesn't face another month of slowdown.

China's Economy
China's economy on the other hand faces double digit growth sine 1978. China has overtaken the US in global GDP growth. This can be a cause for concern. The biggest worry is that the economy is overheating and inflation surging out of control.

The Chinese Government had to freeze government controlled prices such as oil, electricity and water, to curb inflation a little.

(source : http://www.economist.com/finance/displaystory.cfm?story_id=9861591)

What Next
Even though US is no longer the largest contributor to global GDP, it is still the No 1 economy in the world. Any setback in US will have some impact to global economy. Afterall, US is still the No 2 trading partner to Singapore (Export - 10.2%. Import - 12.7%).
(source : https://www.cia.gov/library/publications/the-world-factbook/geos/sn.html#Econ)

Any sneeze in the US economy will have some direct impact to us. Signs have shown since more than half a year ago, that the US economy is heading for trouble (credit crunch) but yet, people here are spending unnecessarily on unrealistic commodity (eg. changing car every 3 years or lesser). Isn't it more sensible to plough our funds to proper investment that can survive time and upsets, yet giving us more to spend in the future?

(US) Recession Ahead?

2007-12-31T12:11:00.001+08:00

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.

Safe Investment (What's yours?)

2007-12-29T13:43:00.000+08:00

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.

Retire A Millionaire

2007-12-28T18:06:00.000+08:00

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.

Protect Your Funds From Investment Scams

2007-12-22T13:06:00.000+08:00

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.

Currency, War, and Civil Pay - We better Care for Ourselves

2007-12-14T22:04:00.000+08:00

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.

Fed Lowers Rates, Wall Street Tumbles

2007-12-12T12:02:00.000+08:00

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.

Ways to Save (4) - Retire Early

2007-12-06T07:32:00.000+08:00

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.

The US Credit Problem (Similar Signs Here in Singapore)

2007-12-05T10:42:00.000+08:00

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.

Singapore's Property and Construction Sector

2007-11-30T16:15:00.001+08:00

Had an interesting discussion with an investor last night and learn some different views which I would like to share. An investor's view are always valuable as they usually have a better feel of the economy than an ordinary folk.

From recent news, the Singapore Government had halt some construction projects worth some S$2billion in the fiscal year (or next couple of years). Reasons for the postpone are due to:
- Lack of construction force as most companies have their hands full of projects for the next few years.
- High construction cost due to lack of construction materials.
- Competing with other on-going or upcoming development projects could be bad

In recent year or so, a lot of new projects have arisen. With two Integrated Resort (IR) projects, development companies are badly stretched with manpower, high development budget, deadline, etc. Other residential development projects are moving slowly too.

A lot of en-bloc exercise was seen in the last two years, ranging from East Coast to Central/Prime Districts. Many condominiums that underwent en-bloc had been vacant, but have yet to be torn down and these will be in the developers' pipeline for years to come.

A lot of home owners had to seek new homes after their properties had been acquired. The new found wealth of these owners caused an upswing in property prices as they are now armed with large funds.

As homes were acquired and no newly completed properties available, it leaves Singapore with lesser homes in the last one year. To make matter worst, Singapore faces an average of 100,000 migrants a year. These migrants needs to be housed too.

Some properties that underwent redevelopment, will start to fill the market in the coming two years. Does this ensure an adequate supply of homes? Singapore has an estimate of 1.2million homes (being more than 800,000 public housing, more than 300,000 private housing) occupied by the current 4.55million population. With influx of 100,000 migrants per year, we will need at least 10,000 new properties (assuming, half of these are construction workers housed in dormitories).

With the IR scheduled to open in Year 2009, rental demands will increase. Some redevelopment projects will be completed next year (2008) but this may not be able to fill the new demands.

With this, shouldn't the demand and supply cause property prices to continue growing? However, property prices has soften recently due to turbulence in global economy (especially US) and market talk had it that, next year (2008) will see a slight downward pressure on property prices due to the worrying signs of global economy.

Property prices had climbed fast in the last one year, but demand had started to slow down in the last three months. Based on current property prices, it leaves many average being unable to afford to purchase a home.

The government stepped in this week, announcing new public housing projects in the pipeline, plus two Executive Condominium projects also in the pipeline. This can help provide new housing for the average and public housing owners to upgrade.

What will really happen in the next two years? How will the economy be like? Property? Will the US' credit crunch affect Singapore drastically? Let's hope US is able to prevent their recession (I shall provide more info from Mr Ben Bernanke's comments in another post).

Singapore's Property and Loan Market (not sub-prime prone)

2007-11-29T15:53:00.000+08:00

As mentioned many times in the news, the America's sub-prime are caused by falling property value and increasing loan defaulters.

A recap of sub-prime
During better times (not long ago):
- Banks were providing high loan (up to 100% Loan to Value) against properties to home buyers
- Interest rates during the initial years was low
- Economy was doing well

The Meltdown (largely, in late Year 2006 onwards)
- Property value reach the peak and starts falling
- Loan to Valuation exits property value (loan being more than 100% of property value now)
- High interest sets in
- Borrowers starts to have problem paying
- Borrowers turns to other credit facilities, eg, credit cards
- All else fails, borrowers default on loan
- Value of property falls further (low demand, high supply)
- Other financial business faced the crunch together with home loans

Singapore's Property Loan
How Singapore deviate from such a loophole, has much to thank to the Monetary Authority. Property loan regulation disallow high loans such as 100% Loan to Valuation (LTV). Up to Year 2005, banks are only willing to provide 80% LTV and starts to relax towards 90% LTV in early 2006.

During the late 1990s, property prices was at an all time high (eg, $2,000psf in prime districts). During the triple economy downturn (Asian Currency Crisis, 911 and SARS) in Asia, especially Singapore, the same property's value fell to a low of around $1,200psf). Demand for property in 2003 and 2004 was at an all time low, with almost very little buyers against many sellers (who couldn't hold on any further).

The economy started recovering in Yr 2004, with Gross Domestic Product growth over Yr 2003 being 12.8% (source : http://www.singstat.gov.sg/pubn/reference/yos/statsT-income.pdf). Demand for property started recovering in Yr 2005 with value stablizing in Yr 2004.

Property value saw a steep climb since late 2006 with many en-bloc exercises spreading from East Coast. En-bloc exercises reached prime District areas (such as Orchard Road, Newton, etc) in Year 2006 till August 2007. Some property's value climbed 150%, e.g, The Sail was launch at about $700psf region and peaked at about $1,800psf, The Icon was launch at about $600psf and reached beyond $1,500psf.

The government scrapped the Deferred Payment Scheme for new developments recently (early November). This can work to stop the runaway by average speculators who are keen to jump into the bandwagon. Ever since, property's value and transaction has stablized.

Had Singapore's banking sector not had strong and sounding regulation, with strict lending policies, our tiny economy may face the same downfall of Sub-prime.

Credit Assessment
In order to obtain property loan, banks usually look at the borrower's Debt Servicing Ratio (DSR). As a general rule of thumb, the DSR shouldn't be more than 50% of the combined Gross Income. The 50% takes into account, all loans including property and car mortgage.

Banks also looks at the individual's past credit report. Any bad credit rating could mean that the individual may face a rejection in his application. Banks also are concern of any litigation the individual may have.

These are just some indicators before banks gives an approval for loan application.

As individuals, we should learn to be financially stable. Good financial sense may not make everyone richer, but it can help us be less poor. Good financial sense includes knowing how to stretch our dollar, setting aside a part of our income to investment, not be drawn to spend unnecessary, planning our finances, etc.

Online Shoppers/Spenders Out In Force

2007-11-27T09:05:00.000+08:00

It was reported that there was a surge for online shopping over the weekend. This could imply that shoppers are choosing to bypass heavy advertising, logistical and rental cost of retailers that is pass onto customers.

Online shopping may appear cheaper than buying from shops but shipping cost may equal that or reduce the savings. As spenders starts tilting towards online shopping, it may be a good sign, that these shoppers are getting savvy with their money, to avoid paying unnecessary higher cost.

However, there are two things negative thoughts that crossed my mind. Would this mean retailers will start to suffer the blunt of lesser business, thereby less job creation? Also, as people shop online, they are spending on credit. This may attribute further to the credit woes of some. Credit card users often overspend due to the transparent credit spending till month end.

The US economy comprises of about 25% of the total world activity, with consumers being responsible for about 70% of US economy activity. Any pull back in spending could lower global growth, especially in countries relying heavily on exports to US. The impact of the US economy is a concern to many parts of the world.

Let's hope unemployment does not rise sharply as it will aggravate the economy further, and closer to a possible recession. "As to whether a US recession would spill over to the rest of the world, opinions are split,'' says Marco Annunziata, chief economist at UniCredit Markets. "Some strongly believe in decoupling and look forward to watching the giant collapse, while the rest of the world powers on, while others believe we would all be hurt.'' (source : http://news.yahoo.com/s/ft/20071124/bs_ft/fto112320072258005142;_ylt=ApxCE3zxyXbboav1Oi3mQryyBhIF)

Mortgage & Foreclosure

2007-11-20T12:32:00.000+08:00

Mortgage Payment Problems
From online news, it is stated that the three most affected states (in U.S) reveal the two main causes of mortgage payment problems: economic weakness, as exemplified by Ohio, and speculative excess that led to high home prices and unaffordable mortgages, as represented by California and Florida.

Slowing Economy
All signs have indicated that the US economy is worrying. This range from sub-prime (and credit) to slowing economy (job losses). Some companies and plants have closed, job losses have risen, and both have hit some states' economy real hard.

Subprime Mortgages and Potential Defaulters
Statistics have show that there are about 7.2 million households with subprime mortgages, and more than 14 percent of those are in default. It projects that one of every five of those loans issued in 2005 and 2006 will end in foreclosure, with 2.2 million families losing their homes

Back Home - Singapore
Coming back to Singapore, the government recently intervent into the property boom, with runaway prices. To speculators/investors, this may not be a good sign, but for the overall economy, we have to agree that it will avoid our tiny city state from a property meltdown years down the road.

The problem is, a lot of people (ignorant speculators) bite more than what they can chew, forgetting that what they chew will bite them back when they have difficulties. Why live in self-deception that our salary will increase by the years (this is old school of the 90s) thus we can afford to live on the line and things will improve next year? These people are the ones hardest hit when there is a turn in the economy (for the worst).

Tips to Avoid Foreclosure Or Lender's Legal Suit
1. Don't Ignore The Problem
Identify the problem and deal with it sooner. The longer you drag, the more likely you'll get into trouble with your lender.

2. Contact the Lender
Lenders are not out to make a borrower a bankrupt or to seize your property. Negotiate with them a solution/package.

3. Open and Response to Mails from Lenders
Warnings/Reminders will be given by lenders before they take action. Act before they do.

4. Know your Option
Should a borrower be haul to Court, know what your options are. Bankrupcy is the last option and should be avoided.

5. Consult People With Better Insights
When one is in trouble, their mind is usually clouded. Consult someone or a professional who has a clear mind and more knowledgeable.

6. Reduce Liabilities While You Can
Why wait till you have lost ground before acting? Rid your financial burden (eg, car) to give yourself more financial ability to deal with the forecoming problem.

7. Prioritize or Restructure Your Spending
Refer to my other post, "Ways To Save" to see how you can reduce expenses/spending. The spare funds will go a long way.

8. Forget About Pride and Ego
Many falls into this trap and not seek or listen to sound advise. I've come across such individuals till situation gotten so bad. There's no big deal in loosing it all today, as you can gain it all back one day if you buck up and learn how to better manage your finances.

Year End Bonus

2007-11-20T08:54:00.001+08:00

As we approach December, many are looking forward to their year end bonus. With a better economy over the last 2 years, some are looking at more than 1 month's bonus.

An unplanned windfall will likely be squandered away unknowingly. Some plans a year end holiday, some shopping, buying some stuff they've been waiting for (money from bonus), save, etc.

While we should reward ourselves after a year's hard work, we should also plan to leave some money aside to reward ourselves later. With money set aside and invested, we will have more to reward ourselves while others are waiting for another year's bonus.

Time to relook at how we could best stretch our dollar and make a new year's resolution to be more savvy financially.

Taxation Helps Rich Get Richer

2007-11-15T10:39:00.000+08:00

Governments generates their revenue from taxation. There are two main category of tax, Corporate Tax and Individual tax. For Individual tax, it includes direct income tax and consumption tax. Income tax is calculated based on the amount earned during the year while consumption tax (e.g. Goods & Services Tax) is based on what you consume.

The Singapore GST originated on 1 April 1994, at 3%, but later increased to 4% on 1 Jan 2003 and 5% on 1 January 2004. it was raised again to 7% on 1 July 2007.

Looking at the timing of GST, during early 2003, Singapore was slowly and painfully climbing out of the economy scars of the terrorist act on 11 Sept 2001, where unemployment was high. On 1 Jan 2004, the country was just recovering from Sever Acute Respiratory Syndrome, SARS.

History evidenced that taxation was punishing the average. During election time, the government usually promises reducing tax or not increasing tax and many will be silly to be taken in. The rich on the other hand doesn’t really care as they does not suffer from the blunt of taxation. They could jolly well afford it anyway.

Reading from news, Nov. 14 (Bloomberg) -- Warren Buffett called on Congress to maintain the estate tax, saying that plans to repeal the levy would benefit a handful of the richest American families and widen U.S. income disparity. Buffett said that in the last 20 years, tax laws have allowed the ``super-rich'' to get richer.

I’ve brought up tax in my post not as a voice of disconsent towards the government but asking many, you work so hard to make that little money just to be taxed and be left with little. Why not look at ways to make your money work hard for you so that tax is no longer painful?

Remember, your savings in the bank depreciates by 3% (inflation) each year while it depreciates a further 7% when you spend it (GST). Why not find avenue to invest and grow this money into something double or triple of what you many loose, so that at the end of the day, you gain more than you lost?

Many choose to remain stubbornly 'ignorant' by refusing opportunities. The choice is yours. I've choosen mine. Each day we procrastinate, is our own lost.

Splurging on Luxury Items Up - The Forgotten Lesson

2007-11-14T17:57:00.000+08:00

Was reading The Business Times today (14 Nov 07) and an article caught my eye. The article "Splurging on luxury items up 29% in Q2" (source http://www.businesstimes.com.sg/sub/news/story/0,4574,256422,00.html) goes to reflect consumer's confidence in the economy. I ponder over that confidence. Still water runs deep, and peace before the storm, rings in my head.

The Business Times article stated
1) "Sales of luxury timepieces, jewellery and designer fashion items, as well as takings at fine dining establishments, were 29 per cent higher in the second quarter of 2007". Does luxury timepieces, jewellery and designer fashion appreciate in value that one can pawn away for money during bad times?

2) Apart from tourist spending on luxury items, the locals accounted for 64 per cent of luxury watch sales, 71 per cent of high-end jewellery sales, 72 per cent of designer fashion sales and 74 per cent of fine dining billings

In the last 1-2 years, we have seen a lot more luxury cars (e.g. Lamborghini, Ferrari, high end Merc, 7-series BMW, etc) on the road. While businessmen are making more money, the average are taking extra month(s) of bonus. With the little extras the average gotten, their spending increased tremendously. Spending has gone up, cost of goods have gone up too (due to recent inflation). That largely means, as they make more, they spend even more and save even lesser.

I am not suggesting that, the economy will collapse or turn into a recession in the next few months or a year. I just wonder, has people not learnt from the Asian Crisis and two other impact that brought our economy near its knees.

I recall reading in Robert Kiyosaki's book, Cashflow Quadrant, that suggested people will quickly forget painful lessons learnt when times are good and start spending again. This seems to be a childhood story of the hardworking ants and lazy grasshopper.

While some are happily spending and pampering themselves now, I shall look closely at growing my money and spending it later. Another thing came to mind, spending later, when the economy isn't doing as well, means, I won't have to pay the premium like everybody is paying now (Demand and Supply).

Ways to Save (3) – Reduce Spending

2007-11-13T08:44:00.001+08:00

A lot of times, people doesn't stop in their track and ponder where they could save but more often than not, people complaints about not having enough to spend or save. I shall share some pointers here.

Your Home Spending
1. Spend Lesser on Home Improvement
We flip the newspaper and everyday throughout the year, we see advertisements with sales after sales. Most of us here in Singapore would love to have a huge (43”) LCD TV in our hall or room, new audio system, new computer, new furniture, etc.

Do we really need a new and better (LCD) TV when we already have a 29” conventional TV? Is the computer giving us problem or are we finding excuses to get a faster PC? Do we need to change to new furniture when the current set is only 3 years old?

Cut back on home improvement spending and you see several thousands of dollars in your bank account.

2. Cut Back on Lightings and Electricity Bills
With raising oil prices, electricity cost would have gone up as well. Two years ago, an average household may be incurring $100 utility bills a month but will be paying $130-140 a month now.

Sometimes we have too much lights switched on, and not turned off when we are done. Singapore is among the most well led country in the world (that we can hardly see stars in the sky, partly due to our cloudy sky, but also attributed to the brightly lid roads). Do we need so much lights on if we are not doing any reading?

Use the fan if it is not warm and turn on the air-conditional just before you sleep instead of turning on immediately when you enter the bedroom. Raise the air-conditional’s temperature to 25 Degree Celsius and it will still be comfortable.

3. Cut Back on Grocery Shopping or Buy House Brands
Reduce spending on tibits and snacks. It not only keeps you in shape, but also your wallet too. Buy house brands instead of imported goods (import duties), get cheaper brands, etc.

Avoid over-stocking as there is a tendency to try consuming everything faster, or some will end up in the thrash. We should be buying what we need and not always what we want. This measure could save us approximately $50 per household.

I recall there was a Governor in US living on a mere allowance for a week or month (in 2006). He had to forgo chips, his favourate coffee, no premium food stuff, no beer, etc, and found it miserable living on that little money. After the period was up, he realized that there are indeed many ways to cut down on grocery shopping and food. Kudos to him, he had to reduce his allowance to less than 20% his usual spending and still made it.

Lifestyle Spending
1. Get rid of Extra Cell Phones or Change Package
Interestingly, we are the most (or 2nd most) connected people in the world. Our population as at July 2007 stands at 4.55 million but we have 4.789 million (2006) mobile lines. (source : CIA Factbook)

Some are carrying more than 1 line to keep their bills down. In actual fact, it is cheaper to use only one line than multiple lines. Look at your 3 months bills (all phone lines) and average the total outgoing minutes per month. This will allow you to find a suitable package suiting your needs.

2. Cut down on Premium Coffee
Why spend $5 on a cup of coffee (not to mention any pastry) in a café when you can get local coffee at the coffee shop at $0.80 a cup? Instead of two trips a week to the café, reduce it to once a week, or fortnightly, this will save us a few dollars.

3. Cigarettes
Everyone knows that smoking has no benefits yet many smokes habitually. Instead of one large pack ($11.40 a pack?) a day, reduce to one pack in 3 days or even further. This will save more than $220 a month.

4. Alcohol and Clubbing/Pubbing
How often do you go partying? At least $50 goes down the drain each time one goes out partying. Why not use time wisely, find a income source, do some reading and self-improvement, etc.

Your drinking buddies are usually not the ones who stands by you when you are in trouble (except rowdy behaviours when partying). When you are down and out, your so-called buddies will shun you faster than lightning.

5. Meals
Cut down on fast-food and restaurant dining. Each fast-food meal will set you back by $6 while a meal at the local food centre will cost you $3. besides being more costly at fast-food, it has been proven that fast-food are usually less healthy (often associated to obesity).

6. Credit Cards
The convenience of Credit Cards is also a convenient way for the bank to make more money out of you. For individuals with little spending discipline, get rid of your credit card before it gets rid of you. Do not roll over any amount, pay what you spent at the end of the month. Countless of people goes bankrupt each month from credit card debt.

7. Unnecessary Memberships
Do you have any under-utilized memberships? Club membership, night spot membership, gym, car grooming, etc. All these membership cost you money with almost no privilege but additional income for such organization. Membership is a thing of the past.

8. Personal Grooming Treatments
It is important to be well-groomed. How often do you pamper yourself with Manicures, Spas, Facial, Expensive Hair Styling, etc. How much does it cost you each time you go for such packages? There’s something called, Do-it-Yourself, the DIY way.

9. Car Washes
Instead of spending $5 per wash, twice a week, why not do your own washing. It is good exercise and saves you $40 a month. We need to exercise at least 3 times a week, at an interval of 10mins each time. Car wash will take you 30 minutes each time doesn’t it?

10. Spending on Lottery
Let’s face it, how often do you strike it lucky? In contrast, how much do you spend on lottery a week? If you spend $200 a month on lottery, you could save $2,400 a year. Stop buying habitually and it is as good as a sure win of $2,400 a year.

Singaporeans are one of the most ‘committed’ gamblers in the world. We have 22 out of 30 days in November 2007 with some form of lottery. The lottery days are, TOTO on Mondays and Thursdays, 4D lottery on Wednesdays, Saturdays and Sundays, Big Sweep once a month (not to mention, horse race on Fridays, Saturdays and Sundays). How about soccer bettings?

Did I show you how you could have save more than $200 a month? Why not invest this money? You will be a lot richer, or at least not poorer.

Ways To Save (2) - Your Vehicle

2007-11-12T14:02:00.000+08:00

Here in Singapore, it is too common to see car owners changing for a new car every 3 years. Take a blink and the next car you see passing you by is no older than 3 years. Is new car really cheaper than your existing 3 years old car? Here's what my views are.

Car Sales Exec's Take

1) "Oh, COE price has fallen. Your car's COE is $25,000 while the current COE price is only $15,000. Why pay the extra $1,000 each year to the government"? What they hide from you is, 'yes another con job, you change car and i'll be $1-2k richer. What $1k savings than paying the government? You will end up paying import tax (abt 170%), shipping charges, company's profits, etc'. You think they really care if you pay more? If it makes more sense to change new car, is your SE changing car every 1 year?

2) Your car is 3 years old, you need to export your car before the export value drops. There is no resale value for used cars. (Who says you need to export or sell your used car? You can drive it on).

3) You will save on your monthly installment. You are currently paying $700. If you buy this new car, you end up paying $500 a month. What they failed to share with you is, you have paid 3 years of installment, with 4 years to go (total $33,600) while a new car will mean you are into a new 7yrs debt ($42,000).

Reasons to Change Car

It's human to justify their reasons and here's 2 common ones that I like:

1) My car is old. What they failed to say is, my friends are changing cars, I want to be seen with a new car too. Why not spend a little to do up the car to give it a new feel, eg New coat of paint $1.5k), sun-roof ($1.5k), leather seat ($800)? Do some modifications to the engine to give you better performance and fuel consumption, eg, changing to lighten belt pulley, lighten flywheel, etc.

2) My car is giving problems. New car comes with 3 years warranty. Is replacing old/worn out parts more costly than the 'warranty'? Set aside $2-3k to replace worn out parts and the car will serve you well for the next few years again.

Potential Loss

If you drive on your existing 3yrs old car (current paper value $30k. 10yrs paper value $8k), you will only need to suffer a depreciation of $3143/yr for the next 7yrs. If you change to a new car (new car price, $52k while 10yrs paper value $8k) now, you will suffer a depreciation of $4,400/yr for the next 10yrs. That's more than $100/mth for 10yrs.

If the new car is scrapped/exported after 3yrs, assuming the paper value at $30k, you will have lost $22,000 over this period of 3yrs (or $7,333/yr). This is almost $350/mth for the next 3 years.

If the potential losses are so much more than the savings, why not stick to the same car?

Trade down vehicle
Alternatively, you could have opt for a older car. Cars are built to last at least 20 years (conservative figure) under normal usage. My first car was 26yrs old when i bought it. Older cars can be reliable too.

Besides lower depreciation (usually less than $3,000/year for a 1.6l car), you also save on insurance, lower installment (or even, fully paid up car), etc.

Conclusion

I still cannot understand the need to change car with the simple excuse of old car. If one is well off, it doesn't matter how often he changes car as he can jolly well afford it. However, >80% of the car owners doesn't fall into this category.

With the lower COE value (pre 2000 COE price was as high as $60k, while COE in 2003 was >$30k), a lot of car owners are tempted to change car and forgotten to calculate true mathematics, but choose to calculate the new car's depreciation.

Think twice, think three times. If you are stuck whether to change car or not, you are definitely better off with your current ride. I suggest you consider keeping the car and invest your money wisely.

Warning of 'Serious' US Economic Correction

2007-11-09T09:13:00.000+08:00

George Soros Forecast
NEW YORK (Reuters) - Billionaire investor George Soros forecast on Monday (2 Nov 07) that the U.S. economy is "on the verge of a very serious economic correction" after decades of overspending. "We have borrowed an awful lot of money and now the bill is coming to us," he said during a lecture at the New York University, also adding that the war on terror "has thrown America out of the rails." Asked whether a recession was inevitable, Soros said: "I think we are definitely in for a slowdown that I think will be a bigger slowdown than (Fed Chairman Ben) Bernanke is seeing."Soros said that, for now, China is the "absolute winner" in economic terms, and will continue to see its economy soaring during the next few years. "Now it is going through this fantastic transformation but in 10 years time I think you may well have a financial crisis in China," he said.

(Soros was famous for his speculative attack on the Bank of England that made him >US$1billion, and his organization was linked to speculation on Asian currencies during Asian Crisis in 1997)
(http://biz.yahoo.com/rb/071105/soros_economy_slowdown.html?.v=1&.pf=banking-budgeting)

2 Million Empty Homes in America
NEW YORK (CNNMoney.com) -- The number of vacant homes for sale rose in the third quarter, according to the latest government reading that casts new harsh light on the weakness of the housing market. The Census Bureau report puts the number of vacant homes for sale at 2.07 million in the period, up about 2 percent from the second quarter, and 7 percent above year ago levels.

"It's really striking how high that is compared to historic levels," said Dean Baker, co-founder of the Center for Economic and Policy Research. "It's a lot of homes sitting there vacant. It's very hard to see how we're near a bottom, when you have that much excess supply."

There are estimates that about 2.8 million homeowners could see the payments on their subprime mortgages reset higher in the next two years. If they can't afford the new payments or be able to refinance due to the significantly tighter mortgage market, that could cause an additional flood of empty homes onto the market.

"It's very hard to see how this doesn't get worse," Baker said. "It's certainly possible we could see 3 million, maybe 4 million (vacant homes on the market.)"
(http://money.cnn.com/2007/10/26/news/economy/vacant_homes/index.htm)

The Business Times (Singapore)
It is said the current US credit problem will take "a long time to work its way out. You don't cure a (credit market) bubble in five or six months, it takes five or six years", quoted by Mr Jim Rogers, of co-founder of Quantum Fund with Mr Soros. (7 Nov 07)

Further comment by Mr Sakakibara, former Japan's vice-minister for finance and international affairs, now professor at Tokyo's Waseda University, warned that global financial markets are likely to face further bouts of volatility. "what we have seen thus far "is only the tip of the iceberg" and the problem will probably linger for 6-18mths. The world economy is highly integrated now, and is highly possible that the US will slow down sharply or even go into recession. In such an event, Asia cannot be unaffected. (2 Nov 07)

Economic Correction, Sub-prime and Credit Woes
With data shared in my recent post, there are reasons to be cautious in our investments. Are we installed for a huge correction that may last for a long time? If the reports above are true, wouldn't that lead the way into 2010 when the first baby boomers retires? I should avoid being overly pessimistic over the economy, but facts are keeping me worried. Signs will show hints of a correction, but it takes observation and careful actions (plus conservative thinking) to avoid falling into it.

Next Credit Woes in the Brewing?

2007-11-06T20:43:00.000+08:00

Sub-Prime
Sub-prime (about US$900 billion) was largely attributed from America’s high Loan to Valuation (LTV), high interest rates and falling property valuation. Loan package was so attractive during the first year of loan (possibly 0%) and escalate on the 2nd year onwards (potentially 7-8%), that caused borrowers to default on payment.

Fed Reserve’s Rate Adjustment
With US Federal Reserve’s interventing action on 18 Sept 07, to reduce subsidized lending rate from 5.25% to 4.75%, it helped cushioned a the fallout and near recession. The more recent adjustment on 31 Oct 07 saw interest rates going down to 4.5% now. But with the latest adjustment, it has not done good as another problem has surfaced.

Credit Problem
The new problem was expected even before Sub-prime was an issue. A lot of people are living on borrowings or future earnings. This sign is even prominent here in Singapore and we have to be wary of a potential late 1990s financial problem (not just Asian Crisis). This new problem is related to their credit cards debt (about US$915 billion)

Payment Defaulters
What will happen next? Before borrowers became mortgage delinquents, some had relied on their credit cards facility to help them pay for their installments. Now that they had exhausted their credit lines and looming mortgage, the problem in America’s financial market can be worst than August 07 (Sub-prime). We are seeing a domino effect.

Those securities (homes) would decline in value as consumers defaulted, leading to bank losses as well as portfolio losses in the hedge funds, institutions, and pensions that own the securities. If the damage is widespread enough, it could wreak havoc on the economy much as the subprime crisis has done.

Credit card debt is different from subprime debt. Unlike mortgages, credit card debt is unsecured, so a default means a total loss.
(source http://finance.yahoo.com/banking-budgeting/article/103811/The-915B-Bomb-in-Consumers'-Wallets)

America’s Economy
How do I relate America’s economy woes to the world? America is the World’s No 1 Economy, with California being World’s 10th largest Economy. With these figures, wouldn’t we be worried about the health of their economy? (Source : CIA’s World Factbook, 2005 estimates).

Household Income
The 80% of American household income (pre-tax) are no more than US$65,000 per annum. This means they have less than US$4,800 per month per household (after 12% average income tax). How much disposable income would the household have (not forgetting, mortgage payment, car loan, credit card, daily expenses, etc).

Annual income parking ramp
Income level (percentile) --> Median income (rounded)
Level VI (90 to 100) --> $170,000
Level V (80 to 89.9) --> $99,000
Level IV (60 to 79.9) --> $65,000
Level III (40 to 59.9) --> $40,000
Level II (20 to 39.9) --> $24,000
Level I (less than 20) --> $10,000
(Source: Before-Tax Family Income, 2001 Federal Reserve Board Survey)

Ways to Save (1) - The Right Loan, or Refinance

2007-11-01T08:34:00.000+08:00

There are more than 100 loan packages out there in the market. Which is the most suitable package for the property buyer/owner? Many a times, property buyers are ignorant of their options or overly rely on a property agent that claims to know the best bank. The hidden agenda, best bank can also means best referral fees they may get. If a Property Agent claims to know which is the best loans, Mortgage Consultants will know properties as well as these agents.

True or Lies? If those claims are true, we won't need lawyers or doctors anymore as we are just as good as they are isn't it?

The Right Package
There are more to packages than lowest rates. Lowest rates may not necessarily means best package. There are a few considerations before a Mortgaage Consultant recommends a series of packages that suits the borrower. A bank may have the lowest interest rates for one type of package, but does not means they have the lowest rates for another type of package. Most suitable package is dependant on the borrower's needs more than just rates.

There are 4 categories of packages. They are:
- Fixed Rates
- Variable Rates
- Combo Package
- Curent Link Account

Each category has it's own set of purpose and each property owners needs are different from another. It is very important to understand the borrower's needs before recommending suitable packages.

New Loan
The government has recently scrapped "Deferred Payment Scheme" for new developments (Building Uncomplete). This leaves property buyers with only "Progressive Payment Scheme", unless they are rich enough to pay in full (but why pay in full when there are a lot more your money could work for you).

For new property buyers, they could check on their financial eligibility before deciding on their purchase. This will take into account their current financial commitments and their income. Be careful not to over stretch.

Refinance Existing Loan
Some property owners perceive that their existing lender offers them the best package. Misconception! Most of the time, promotion packages (usually much more attractive) are offered only to new customers. Existing customers does not qualify for promotional packages. Lenders are more keen in new customers, thus existing customers may end up paying for their 'loyalty'.

Valuation Limit
When one buys a property, they should not based their decision on 5 years plan (I hear this often) to sell the property for a profit and move to a larger property. What if the plan doesn't materialize?

If the property buyer is using funds from their CPF Funds (Ordinary Account) towards the purchase (downpayment) and installments, they need to be aware that the Withdrawal Limit is based on 120% of their purchase price or valuation, whichever is lower (at the time of purchase).

By the time the property owner utilized this 120% limit, remaining installments will need to be paid in cash.

Illustration
- Purchase Price : $500,000
- Loan Amount : $400,000 (80% of PP)
- Interest Rates : 4%

- Loan Tenure : 30 years
- Monthly Installment : $1,910
- Principle & Interest distribution : 30.18% and 69.82%

- Lower Loan Tenure : 20 years
- Monthly Installment : $2,424
- Principle & Interest distribution : 44.99% and 55.01%

Conclusion
The illustration shows how much we are actually paying towards interest (Month 1 of loan) for a longer loan tenure.

A properly sourced package will save you substantial money and problem, while wrong package means you end up paying for it.

Relying on property agent for your loan can have undesirable consequence. Do not be a victim of their claims, and pay heavily later.

Anticipation of the Next Recession or Great Depression

2007-10-26T23:13:00.000+08:00

It is said that there are definite signs of Recession or Great Depression. Man on the street will say that each Economic Cycle last 10 years and the next Recession can be anything from now to 2010. Where’s the facts and figures?

I would like to analyse some facts and figures and make my assumption and guess timing of the next potential Recession, or possibly, the Great Depression (which is scarier than recession).

Baby Boomer Generation
The Baby Boomer Generation refers to babies born from the period 1945 to 1965. During these period, there were more than 4 million babies born in America yearly. Huge childbirth were also experience in United Kingdom, Australia, Soviet Union, Canada.

There were 76 million American children born during the Baby Boomer period and that comprised of 28% of the adult US population while 80% of the wealth in UK are from Baby Boomers.

(extract from http://en.wikipedia.org/wiki/Baby_boomer#Size_and_economic_impact)

The Great Depression
The Great Depression is caused by the Worldwide economic decline, that started in 1929 and lasted till early 1940s. The Great Depression was a decade of unemployment, low profits, low prices, high poverty and stagnant trade that affected the entire world in the 1930s. The stock market crash of 1929 triggered the Great Depression in the United States, which then spread across the world's economies. (A depression cycle is said to be every 50 years).

The long term sufferings and memory made the American resolve that such a financial disaster would not be allowed to happen again, and that the nation would have "Freedom from Fear. Would you believe what they claim?

The stock market crash in 1929 didn’t last long. In the first half of 1930, the US stock market recovered to pre-market crash level. However, consumers cut back on spending and borrowings, and eventually brought down sales and prices began to decline across the board

The decline in the American economy was the motor that pulled down most other countries at first, then internal weaknesses or strengths in each country made conditions worse or better. By late in 1930, a steady decline set in which reached bottom by March 1933. This produced the greatest long-term market declines by any measure and erased billions in assets.

In the 1920s, widespread use of the home mortgage and credit purchases of automobiles and furniture in the U.S. boosted spending, but created consumer debt. People who were deeply in debt when a price deflation occurred were in serious trouble — even if they kept their jobs — and risked default. They drastically cut current spending to keep payments on time, thus lowering demand for new products. Furthermore, the debts grew when prices and incomes fell 20-50%, but the debts remained at the same dollar amount. With future profits looking poor, capital investment slowed drastically. In the face of bad loans and worsening future prospects, banks became more conservative in lending money.

The Singapore / South-east Asia Recession
In 1997, the Indonesia Rupiah devalued, follow by few other countries including Malaysia and Thailand. Singapore dollar had lost ground but comparing to our neighbours, the devaluation of Sing Dollars is mild. This can be explained by our strong reserves that the government had unlocked to prevent the fallout.

Few countries in SEA went into Recession during the periods of 1997 to 1999 and started to bottom out in 2000. However, 9/11 occurred in 11 Sept 2001. 9/11 was the incident whereby terrorist had attacked the United States. This caused another downward swing in many parts of the world, and tourism sector suffered badly (tourism is one key income and employment for Singapore).

As the economy started to recover in 2002, SEA were hard hit by SARS in 2003. The triple impact lasted till late 2004 and started to finally bottom out in early 2005, with banks starting to adjust interest rates upwards and economy started to show promising growth in 2006.

This period lasted almost 10 years, which I would relate to, a domestic Great Depression of Singapore. There is no economist value in my statement though. The happenings during this period is akin to the Great Depression in 1929 to 1939, where unemployment rates were high, spending were low, value of assets fell and lack demand, etc.

The Next Sign
The first batch of Baby Boomers will turn 65 in year 2010. From 2010 onwards, there will be more than 4 million people retiring from the workforce. With the biggest spending power and retiring, their lifestyle needs will diminish, they may start moving out of the cities into sub-urb areas. With retirement, they may even withdraw their investments in the stock market, and start selling away their properties to move out of city.

On the other hand, the current sub-prime issue may have bottom out currently, but it does not mean things will improve. Property loan default have increase from the current sub-prime. Seizure and lower property demand has caused a decline in property valuation and worrying ripple effects in the stock market has been experienced despite the downward Fed Rate adjustment (0.5%) on 18 Sept 07.

By year 2010, even if the property and stock market starts recovering, the retiring 4 million baby boomers per year may cause prolong lower demand.

Lastly, heard on CNN.com (Concerns over U.S economy) 25/10/07. Mark Konyn, CEO of RCM, had shared his knowledge. The concern is whether US economy slowdown may spill over to the world. Auto mobile sale (loan) has fallen, credit card debts had maintain (mount). There are signs of recession including tax coming down, sub-prime spill over, inflation, slow sales, etc.

This analysis may not hold much water since it has not taken into many economic consideration, but it has caused me to stop and wonder, if the signs are showing, shouldn’t I take a precautionary stand on my investment?

Life Expectancy and Retirement Funds

2007-10-22T08:40:00.000+08:00

Heard on radio news this morning (22 Oct 07), some information on the government's plan on Annuity for Singaporeans. The annuity withdrawal age is proposed by SM Goh, to be 80 years old. Some facts and figures on Life Expectancy of Singaporeans:
- Male : 79.21 years
- Female : 84.59 years
- Average life expectancy being 81.8 years
- Median Age : 37.8 years
(info accurate as at Year 2007's statistics. Extract from https://www.cia.gov/library/publications/the-world-factbook/print/sn.html)

What gotten me wondering is, why does the government initially propose the withdrawal age at 85 years old, and now SM Goh counter-proposed it at 80 years old, when most males will be dead by then, and not many females will be living past 85 years old? This seems too funny, or rather, unfair to ordinary citizens like us. Is it really for the benefit of the general public, or will insurers benefit more from this? Shouldn't it be based on individual's preference, to opt-in if they like? Alternatively, the government could propose Endowment Funds provided by CPF where we get monthly payout from certain age for certain years, and remaining cash to be paid to next of kin should the member pass on prematurely.

Back to facts and figures. If the average life expectancy is 81.8 years old while the current retirement age is 62 years old, that means we will have almost 20 years to live on our savings. Will you have the finances to retire and live life as before retirement?

Let's take our expenditure after retirement as half that of an active working adult. If your current expenditure is $1,000 per month, you will need $500 per month after retirement. Take into account, this year's (2007) inflation is 2.9% (average inflation is about 3-5%). This means, the $500 should be inflated to (median age till retirement being about 24 years) $987 by year 2031.

With 20 years to live from retirement till motality, we need to have $987/mth for first year, and $1,727 on 20th year, thus average monthly expenses will be $1,357 per month upon retirement in year 2031. This means, we need at least $325,680 for retirement. If we were to save $500 per month, with interest (average savings interest being 0.29% pa), upon retirement, we will have less than half the amount we need to retire. Scary facts!

Let's look at how we can build funds for retirement. If we are able to invest $500 per month, at an average growth of 5% per year, we are only able to retire and have an average life, minus car, minus holidays. But is the average working adult able to save $500 per month?

Forget about your CPF. Our CPF Ordinary Account's funds are largely drained into housing installments. We still need to pay in cash, for the upkeep of the household. An average Singaporean's monthly income range from $2,000-$3,000 (guess-estimate). If the average income is $2,500 per month, $500 goes to CPF, which leaves us with $2,000 take home pay. If the individual owns a car, they are expected to spend $1,000 - $1,200 per month on car. What does that leave you with? Sadly, no more than $1,000 per month. How do you expect yourself to save $500 per month for retirement?

It is either, we start making more money, or make our money start working. Else, continue slogging till death do we part.

Delay Gratification

2007-10-20T21:17:00.000+08:00

I came across people who find excuses to change car, excuses to spend, excuses to pamper themselves. Some will say, "I only lived once", "I'm young only once", "I can earned back what I spent", etc.

I've learnt that since I lived only once, I should make the most out of it. Since I am young only once, I have to make sure I do not look back later and say to myself that I shouldn't have spent like that. I had my share of desiring a better car, only to look back and told myself "I would have been $30,000 richer if I had not changed car those few times".

What we have spent, cannot be earned back. We only get to earn new income, but not what we spent. It is easier to spend than to save and grow these funds, so that we have more in future and are more able to afford things.

Rather than spending $500 on a new watch, or many thousands to change to a new car, we could have set aside this money and invest it so that it multiplies so that we have more to spend in future. Changing car, getting new and more fashionable clothings, new gaugets such as handphones, pda, computer, etc, are not a necessity but many finds it necessary to change.

Take car for example, if we were to change to a brand new entry level car (eg, those that cost less than $50k), we may loose $25,000 (depreciation) over 3 years. Calculation as follows:
- Purchase Price : $48,000
- 3 years paper value : $20,000
- Body value : $3,000

If existing car has another 7 years left, why not drive it on? Rather than wasting more money, save up this unnecessary funds and invest. With the earnings some years later, you could afford a new car and still have left overs to spend or invest again. Think again.

Start Investing with Nothing

2007-10-19T15:36:00.000+08:00

That sounds like a joke. How do I start investing when I have no money? Many people perceived that they have no money and avoid the topic altogether. Let me share some insight.

I had done a little reading this year. I hate books, I'll doze off upon the first paragraph and exams are a torture. I had a few great men to thank. Three of my clients had told me "you must read this book 'Rich Dad Poor Dad'. It will change your mindset about money". How could three guys who have seen more than me, better fortune than me be so wrong about it? They told me, "the $10+ dollars investing in this book will pay off and it'll give you an idea why a lot of people are still stuck in their rat race".

It took me months, till repeat recommendation rang in my ears, gotten me curious about this 'great book'. Now, I thank these men, and the author Robert Kiyosaki for changing my mind.

Some who had read this book commented that there is nothing to gain from it. I learnt from what the author wanted me to understand, "reduce your liability and expenses, increase your assets and income". This will not make me rich, but it will help me avoid being any poorer than what I am now. It helped, I started asking myself, since I couldn't increase my asset (for now), I could have at least, reduce my liability and expenses. Good financial planning must be embraced early (it's never too late).

Coming back to my agenda of this blog post - How to Start Investing With Nothing? If you think you do not have the funds to invest, have you consider where you could raise funds? I have chanced upon one advice from one of the three men. Invest with others' money! If the cost of funds is 8%, and I can show you a potential returns of 10% per year (NETT), would that sound workable? If you think it's a joke, maybe you can stop reading.

Some people think they do not need money, or they are happy as they are now, being happy with little, maybe they want to start looking at being happier with more. Money is Not Everything, but Everything is Money. You are spending even as you sleep. Don't forget utility bills, other running cost of a home, etc.

It is time to change the way we think, take action and stop procrastinating. Money don't come to you, you have to find ways to make it yours. Stop self consolation that you can earned it back. Once money slips out of your hands, it's gone forever and you will have to earn again.

The big question now, How to Invest with Nothing! As taught by Robert Kiyosaki, reduce your expenses (and that will increase your disposable income). If a person has no savings to begin with, I will show you one opportunity where to find money for investment.

This sounds stupid to some, but idea to others (go on, laugh at my stupid idea). Invest using other people's money and pay interest on the funds you utilize. I can show you, making more than $1,000 a year, with nothing to begin with. Since you begin with nothing, $1,000 is a lot of money in return.

Let's take Line of Credit for example. If you borrow with prime interest rate of 7-8% pa, that is the cost of funds. If I can provide you guaranteed returns of 15-20% pa, don't you get a lot of money with nothing to begin with? If you think this is a scam, maybe you will stop reading.

Remember Robert Kiyosaki's words, reduce expenses. If you borrow $10,000 with interest of 8% pa for 2 years, your liablity is now $11,600 (based on compounded interest). If you pay back this borrowing over 24 installments, the monthly repayment is no more than $483/mth. Reduce your expenses, say, by $200 per month, you could be paying off these liability faster than you know.

At the end of the investment period (2-3yrs), you will get a return of between $14,470 to $15,960. The installment is your forced savings. You could either benefit from a returns of $2,870 (2yrs) from nothing, or see a savings and returns of $12,870. Did I showed you something practical and achievable?

It is time to start thinking and take action? Welcome to the world of money. I hope my idea benefit you.

Ignorance to Investment

2007-10-19T15:03:00.001+08:00

A lot of times, when it comes to investing, people faced restriction from several reasons including:
- Conservative
- Had setbacks
- Procrastinate
- Misunderstood, wrong perception
- Excuses

Some people I've met had excuses such as:
- I've no money to invest
- I don't believe in investments
- If it's too good, there must be something I don't know
- I'm not ready
- I will get to that later
- I lack financial know-how
- I've been burnt before
- The risk is too high, etc.

I used to have such negative mindset after being burnt from mistakes during the Asian Crisis (1997) and Bursting Internet Bubble (2000). I was in denial when the market started falling during the months after April 2000 and refused to exit the market as I had no knowledge what was going on and gave myself excuses to leave my funds there only to see my funds plummeted by more than 50%, some losing more than 70%.

That was painful and I dare not touch investment again for the years to come till I started to relook at what went wrong and re-strategised my funds with some consolidation and taking painful cuts. The result from such an exercise with some brief knowledge saw my fortune recovering, though not back at the entry but at least I reduced my losses.

Recently, I looked at the market once again and asked myself if there is any potential market correction in the making. Since early this year (2007), there were 2 corrections, one in Feb/Mar and the second in August (U.S Sub-prime). Looking at the second correction, it shouldn't have affected the stock market but it did. I started reading into news reports to at least understand what the situation is and pondered what will happen in the coming months.

U.S Sub-prime was caused partly (i could be wrong though) by borrowers / home owners who took huge loans on their property mortgage (up to 100%) and the banks permitted it because of appreciating property prices in recent years. The first year of loan was faced with very low interest rates but rates will increase drastically on the second year or later and a good handful of borrowers couldn't afford the big jump in their regular mortgage installments.

With financial constrains, some borrowers default on mortage payment, some had to dump their investments and cash out to pay for mortgage, etc, thus ripple effects happened to the stock market. Of course, there are also other reasons that I have not analyse or not presented (too much info). Property sizeure happened, property market slowed down and prices started to depreciate, causing further problems.

U.S Fed Reserve had to take action to prevent a fallout on financial markets. Reading into potential action, they would likely reduced lending rates from 5.25%, bringing it down by 0.25% to 0.5%. The next Fed Reserve announcement would be on 18 Sept 07 and I took a calculated risk that interest rates will go down, thus stood by my beliefs and hung on.

I was guessing that the reduction will be by 0.25% but hoping that it would be a huge reduction of 0.5% instead. News were announced on 18 Sept 07 and interest came down by a whooping 0.5%. With that, I scheduled my exit from Unit Trust and happily took my money into another investment that gives a guaranteed return (15-20% pa).

I am learning and I hope to share my little knowledge or perception as I gain along the way.

Investing your Funds

2007-10-18T13:37:00.000+08:00

Where do you park your spare funds? Keeping all funds in one basket is unwise, leaving it all in the bank depreciates your money, uninformed investment exposed you to loosing it all. There are just so many investment vehicles out there.

We could be doing a proper diversification on our investments into:
- Short term, high liquidity investments
- Mid-term and sound investments
- Mid-long term investments to lock away funds

Investments with high returns (10% or more) are usually exposed to high risk as well. This could be in the form of stock market investment, Unit Trust, etc. Average investments (average of 2-5%) includes Insurance based products, bonds, blue chips, etc. Low returns investments are the 'safest' but gives you pathetic returns and they includes savings (current savings interest being 0.29% pa).

Remember, economic analyst projected an inflation of about 2.9% for this year, 2007. If you keep your funds in investments that pays lesser than inflation, your money has depreciated. You loose almost 3% just keeping it in the bank. You loose even more, eg 7%, if you spent it (7% GST).

Give this a thought, a mid-term investment that gives you an average of 15-20% Guaranteed Returns, plus Capital Protection. Sounds too good to be true? That's because you've not been exposed to such opportunity or info.