Boston Brahmin

2009-02-28T22:46:00.006+08:00

More above 50 marrying

By Zhen Ming

WHEN my wife and I tied the knot in 1984, you could say that as newly-weds, we were truly Mr & Mrs Average.

I was 28 and she was 25.

Back then, the typical Singapore groom was 28.3 years old and his bride 25.2 years old - that is, an age spread of 3.1 years.

Roughly a quarter of a century later, most couples in Singapore are getting hitched at later ages. The median age was 30.9 years for the groom and 26.7 years for the bride in 2007 - that is, an age spread of 4.2 years.

This widening age spread for newly-weds makes Singapore unlike most developed countries. In the US and Europe, for instance, the age spread is about two years.

In the less developed, more traditional societies, on the other hand, men can be as much as 5-15 years older than their women partners.

In Singapore, the widening age spread is linked to a growing trend among many people in their 50s and 60s (or even older) choosing to re-marry or even get married for the first time.

The number of middle-aged grooms here grew by an astounding 91 per cent over a recent five-year period, to 1,196 in 2007 from 626 in 2002.

Over the same period, however, the number of silver-haired brides grew at a somewhat slower pace of 54 per cent - to 281 in 2007 from 182 in 2002.

Back in 2002, the ratio of all middle-aged grooms to all silver-haired brides was 3.4 to 1.

By 2007, this ratio had climbed to 4.3 to1.

Among men, non-Muslims (80.5 per cent) were more likely to marry (either for the first time or again) at 50 or older.

But among women, Muslims (30.6 per cent) were more likely to do so.

Among men who marry at 50 or older, an overwhelming 84 per cent of those married under the Women's Charter in 2007 chose women partners under 50.

Love is blind?

While financial stability may seem to be the primary reason why a young woman would want to marry an older man, there are some women who fall in love with older men without any pre-planning. (Love is blind, as they say.)

In this regard, 160 women under 30 chose to marry men 50 or older here in 2007.

Among women 50 or older, an overwhelming 79 per cent picked men in the same age bracket.

Put differently, 21 per cent of these middle-aged women selected men partners under 50.

Some of these men may have been much younger than themselves, but in 2007, none of them had a groom under 30.

Source: The New Paper, Fri 27 Feb 2009

2009-02-28T22:33:00.006+08:00

UK KIDS' FUNNY TAKE ON ECONOMIC TERMS
'Credit crunch? It's a kind of cereal'

By Zhen Ming

KIDS Say the Darndest Things was an American television series my wife and I once followed faithfully when our two daughters were growing up.

This popular show was hosted by comedian Bill Cosby and co-hosted by Canadian TV personality Art Linkletter. (This show first aired in the US from 1998 to 2000.)

My family used to howl at the humour spouted by the kids being 'interviewed'.

The premise of the show is that the host would pose a question to a child (around the age of 3-8) who would then respond in a cute (and even outrageous) way.

Out of the mouths of babes oft times come gems (of truth), or something like that.

So, with even the most informed economists everywhere still struggling to understand today's recession, what do children make of it all?

The UK's Daily Mail last week posed a few questions about the current downturn to pupils at Knowle Park Primary School (in Bristol) and St Michael's C of E Primary (in East Sussex).

Here are some hilarious highlights:

What's toxic debt and how do you deal with it?

I would deal with toxic debt by getting my dad's gun and shooting it. He shot a rat that was eating the white bit on my gym shoes.
Billy, 6

I had some sweets called Toxics so I guess it is something like that. You put them in your mouth and they all fizz up. They could well have been poisonous.
Kai, 6

What is the credit crunch?

It's a cereal, a bit like Rice Krispies.
Joe, 6

The credit crunch is if you don't have much money. Last year my dad said Father Christmas didn't have much money to buy presents.
Millie, 6

It's definitely a bad thing, because you can lose your money and everything. I've heard grown-ups say they don't like it at all.
Millie-May, 7

Where's the best place to keep your money?

I wouldn't put my money in a bank. I'd put it under my bed. But my little sister looks under there when I'm at school and there are always things missing. Then I look under her bed and find them there.
Millie, 6

Banks are a good place to put your money, but you could put it in your wardrobe in your bedroom. If you left it downstairs near a window then a robber might see it and crash through the window and take it.
Kai, 6

You shouldn't keep your money in a bank because someone could break in and steal it, like in the movies.
Katie, 7

Do you know what a banker is?

Bankers are bad people, because they could steal your money. So don't trust a banker. I heard people on TV say they think that. They were grown-ups in suits. It's best to hide your money away - I keep mine in a glass bottle on my shelf. I even hide it from my parents.
Tia, 7

I think bankers are baddies because baddies are people who try to steal money. If you work in a bank there is a lot of chance to steal money. In the bank near us there are only two people who work there. Sometimes there is only one. So it would be easy.
Henry, 7

A banker is someone who owns a bank. He's a good person because he doesn't steal stuff.
Solomon, 6

What's a hedge fund?

It's where a hedgehog lives.
May, 6

I think you might find a hedge fund in a shop. It's definitely a better thing than a credit crunch.
Millie-May, 7

This article was first published in The New Paper.

Grown-up version of the downturn

A CREDIT crunch happens when banks hoard cash. If the supply of loans evaporates, the economic outlook quickly becomes bleak (which is happening everywhere right now).

Here're five key aspects about the current crisis that you should be mindful of:

Subprime Sinks

Problems with the repayment of subprime mortgages in the US sparked a California bank run and triggered a tidal wave of concern about lending around the world in August 2007. This was the beginning of the credit crunch.

Prices Surge

While this subprime meltdown was going on, consumers felt a tight price squeeze: Commodity prices rose rapidly in 2007 and the first six months of 2008, driven by demand from then-booming China and India.

This made petrol, food and other basic costs more expensive in Singapore and elsewhere globally. This surging inflation, in turn, hindered central banks from cutting interest rates to help ease the effects of the credit crunch.

Titans Totter

Fears intensified after the collapse of Bear Stearns in January last year. But the financial crisis proper began in September with the collapse of Lehman Brothers. Now many big banks and hedge funds worldwide are in trouble.

Frauds Galore

Last week, shocking allegations were leveled against Sir Allen Stanford's Houston-based financial group. The charges are centred primarily on the uncovering of multi-billion-dollar fraud at his Antigua-based bank.

The allegations - coming so soon after the arrests of Ponzi-master Bernard Madoff and Satyam's Enron-style scammer Ramalinga Raju - suggest this will be a fraud-infested downturn.

2009 Outlook

The prospects for 2009 are undoubtedly grim.

On the horizon (but still beneath the financial-contagion radar for now): Eastern Europe is on the verge of a trillion-dollar (Asian-style) currency and banking crisis.

Last year, Minister Mentor Lee Kuan Yew said this recession could last three to five years. Even UK Prime Minister Gordon Brown now admits that it could last two years.

Source: The New Paper, Mon 23 Feb 2009

2009-02-21T23:01:00.004+08:00

Recession or no, MRT demand will rise
Lower ridership last month temporary as public readjusts to crunch time

By Zhen Ming

AT the still tender age of 22 this year, Singapore's Mass Rapid Transit (MRT) network has come of age. And, akin to the prime of human life, it is also growing more attractive.

Many of us (my own family included), in fact, now take its convenience and its comforting presence (near our home) very much for granted.

On an average weekday, one in three of us will, without fail, hop on the country's 110km MRT network to go to work, school or play.

All in all, Singapore commuters took more than 554 million rides on the MRT in 2007 - up 66.1 per cent compared to the 334m rides taken a decade earlier.

When compared to ridership in 2006, the number of MRT passengers in 2007 jumped a 8.5per cent over 12 months, marking its largest yearly increase since 2004.

Lately, however, partly because of the economic downturn, there has been a noticeable slowdown in the pace of growth in MRT (as well as bus) ridership.

A preliminary estimate by the Transport Ministry shows that ridership last month for both the MRT and public buses actually fell by 3.1 per cent compared to the same period last year, probably due to cutbacks in discretionary trips.

But MRT ridership will get a special boost when the new Circle Line Stage3 (spanning five stations from Marymount to Bartley) opens on 30 May.

So MRT ridership may hit yet another record high for this year as a whole, recession or no recession.

Expect also many more Singaporeans to temporarily (and readily) give up their cars and taxis in favour of the MRT - what with the promise of lower train fares in the pipeline.

By 2020, if a 6.5-million population is still on target, expect ground (and underground) travel demand in Singapore to rise to about 14.3 million journeys a day.

Given the land constraint of our small island state, expect MRT ridership (and other modes of public transport) to be strongly promoted.

Expect therefore this projected increase in travel demand in 2020 to be met in part by the MRT as it is the most space- and time-efficient means of moving large numbers of people.

To this end, to encourage even greater MRT ridership and, at the same time, to facilitate affordable public transport transfers, a distance-based through-fare structure has been adopted.

This through-fare structure will ensure that most commuters will only be charged a fare based on the total distance travelled in a journey - without incurring too heavy a transfer penalty when they switch between buses or between the bus and MRT.

By 2020, Singapore's MRT system would be a 33-year-old, taken-for-granted public transport service.

By then, the MRTnetwork would also be more extensive and definitely run at a much higher frequency.

But one thing will surely remain the same: Expect the MRT in the future to still remain just as crowded - with around four peak-hour passengers per square metre - as it now is today.

Source: The New Paper, Sat 14 Feb 2009

2009-02-21T22:43:00.005+08:00

It'll be a long, bumpy ride
S'pore stocks unlikely to see pickup anytime soon

By Zhen Ming

YESTERDAY the Straits Times Index (STI) dipped for a third disappointing time this week, for a total drop of 4.47 per cent since the start of the week.

Almost 11 per cent has been slashed from the STI's value since the start of the year - with nearly 40 per cent of the losses occurring over the past four days.

So, is the STI in serious danger of slipping even further for the rest of 2009? My answer in just a while, but first, a quick look-back at what happened (and why).

Relatively speaking, the STI's volatile performance this week is not surprising as it actually mirrors those of most other major stock market indices across the globe.

Faced with dismal trade figures and other grim signs of the economic meltdown everywhere, investors worldwide sold down stocks this week (especially on Tuesday), dragging the broad market indices down near their lows reached last November.

Prolonged recession

The Dow Jones Industrial Average closed down 297.81 points at 7,552.60 on Tuesday - barely above its post-meltdown low of 7,552.29 on 20 Nov 2008.

Dragging the Dow and other stock market indices down is a near-universal consensus that this recession is indeed going to be much longer and deeper than originally expected.

Last week, investment firm Credit Suisse lowered the projected operating earnings for S&P 500 companies in 2008 to only US$58 ($89) a share. (It originally expected US$70.)

Credit Suisse now expects overall operating earnings for the S&P 500 to drop yet again - by another 34 per cent - in 2009.

In lowering its estimate, Credit Suisse analysts added this grim note of caution: 'We worry that while financial earnings have already seen considerable weakness, non-financial earnings have further to fall.'

Investor sentiment was also shaken by news that Japan's economy shrank at an annualised rate of 12.7 per cent in the last quarter.

The worse-than-expected GDP numbers were a sobering reminder of the toll the worst downturn in decades is having on Asia's export-driven economies (including Singapore's).

Increasingly, investors across the globe are unconvinced world governments are acting fast enough. They were particularly disappointed after finance chiefs from the Group of Seven developed countries ended their meeting in Rome with pledges to work together - but (again) stopped short of concrete steps.

Ironically, the market actually sank the sharpest on Tuesday, when US President Barack Obama signed the US$787 billion stimulus into law and said there could be yet another stimulus package if needed.

On Wednesday, the US Federal Reserve cut its economic outlook for 2009 and warned that the US economy would face an 'unusually gradual and prolonged' period of recovery.

Expect therefore the-still-won't-go-away worries about ailing banks, struggling carmakers, tumbling home prices and cash-strapped consumers to push US (and global) stocks down to levels not seen since the late 1990s.

With the stock market usually regarded as a forward-looking mechanism, such sharp pull-backs can only mean investors are still questioning whether the STI and other indices will breach their lows of last November, when investor fears ran high.

Rebound?

The fundamental question here is whether global growth can realistically rebound when the US and Japan (the world's two largest economies) are just entering a period of dismal growth.

So here's my answer (and prediction) on the fate of the STI in 2009:

Expect the effect of the current global slowdown to impact Singapore significantly for at least the next couple of years.

Expect the STI, in turn, to remain basically bed-ridden for the rest of this year.

Source: The New Paper, Fri 20 Feb 2009

2009-02-21T22:04:00.007+08:00

Sobering up to new economic reality?
Despite our rising numbers, we're drinking less

By Zhen Ming

TIGER Beer may have been first popularised in the Lion City. But a nation of loud-mouthed, bare-chested, beer-bellied drinkers, we certainly are not.

And the numbers on beer-drinking here are literally sobering - never mind those bold claims of some party revellers about binge drinking (and bottoms-baring).

Yes, the amount of beer (including ale, stout and porter) consumed throughout Singapore each year may have been creeping up year after year.

But, in reality, especially of late (perhaps because of the economic downturn), this yearly increase has not caught up with the growth in our population.

So while the Singapore population as a whole may have drunk the equivalent of 281 million cans of beer in 2008 (up nearly 3 per cent from the preceding year), the average person 'sipped' only 58.1 cans last year (compared to 59.5 cans in 2007).

I dare say 'sipped' (instead of 'gulped') because the 58.1 cans of beer per capita in 2008 actually works out to no more than 1.1 can a week (or less than 0.2 can a day)!

Could we, therefore, be sobering up to the new economic reality?

Recent cutback

More likely, in reality, the fewer beers in Singapore are probably the result of our recent cutback in discretionary spending, compounded by the already steep duties serving as an effective deterrent to the drinking of beers (and other liquors) here.

Speaking of facts and myths, did you know that the beer belly is a myth?

There is no such thing as a 'beer belly', say researchers from both Britain and the Czech Republic who, in late 2003, jointly surveyed almost 2,000 Czechs, who are generally regarded as the world's biggest beer drinkers.

Writing in the European Journal of Clinical Nutrition, the scientists said claims that people are obese because they drink too much beer are wrong.

Meticulously measuring the weight as well as the waist to hip ratio and body mass index of all those randomly surveyed, they found no link between the amount of beer Czechs drink and the size of their stomachs.

In other words, the so-called 'beer belly' is more likely to be caused by eating too much food. No beer or other alcohol beverage is necessary.

Meanwhile, a separate study (also published in 2003) suggests that some people are genetically predisposed to develop beer bellies.

Italian researchers said men with a certain gene variation have a tendency to get a flabby stomach.

Five myths about beer-drinking and alcohol

Myth: Alcohol destroys brain cells.

Fact: The moderate consumption of alcohol does not destroy brain cells. In fact, it is often associated with improved cognitive (mental) functioning.

Myth: Switching between beer, wine and spirits will lead to intoxication more quickly than sticking to one type of alcohol beverage.

Fact: The level of blood alcohol content is what determines sobriety or intoxication. Remember that a standard drink — whether beer, wine, or spirits — contains an equivalent amount of alcohol. Alcohol is alcohol and a drink is a drink.

Myth: Men and women of the same height and weight can drink the same.

Fact: Women are affected more rapidly because they tend to have a slightly higher proportion of fat to lean muscle tissue, thus concentrating alcohol a little more easily in their lower percentage of body water. Women also have less of an enzyme (dehydrogenase) that metabolizes or breaks down alcohol, and hormonal changes during their menstrual cycle might also affect alcohol absorption to some degree.

Myth: People who abstain from alcohol are "alcohol-free".

Fact: Every person produces alcohol normally in the body 24 hours each and every day from birth until death. Therefore, we always have alcohol in our bodies.

Myth: People who can "hold their liquor" are to be envied.

Fact: People who can drink heavily without becoming intoxicated have probably developed a high tolerance for alcohol, which can indicate the onset of dependency.

Source: The New Paper, Sun 15 Feb 2009

2009-02-14T21:33:00.006+08:00

Are more puffing away?
Figures show a yearly increase in smoking

By Zhen Ming

WHEN I was just a lad of 12, I secretly lit my first (and only) cigarette at a quiet corner just outside the family home.

I was then with my two younger brothers and we did what most young boys our age would try to do - find out for ourselves what it felt like 'to puff like a man'.

Fortunately, for me, I clumsily choked (and hacked painfully) on my first puff.

And because of this failed first attempt, I haven't lit another cigarette since.

In a survey conducted in the 1990s, almost a third (32 per cent) of all Singapore men smoked while only a minuscule proportion (3 per cent) of our women did.

Back then (in 1990 itself), the average person in Singapore smoked a total of 1,649 sticks of manufactured cigarettes in a year. This, however, paled when compared with 4,831 for Cyprus; 3,554 for Greece; 3,177 for Hungary; 3,081 for Japan; 2,895 for South Korea; 2,703 for Australia; and 2,605 for the US.

By 2006, however, this average per capita consumption of cigarettes here had dropped to only 699 sticks - mainly because of an aggressive anti-smoking campaign.

But, of late, there seems to a creeping resurgence in cigarette smoking, what with the average person here lighting up 706 sticks in 2007 and 731 last year. (See graphics, top.)

This, despite a per-stick tax (which took effect from 1 Jul 2003) imposing (higher) excise duty on each stick of cigarette based on its net tobacco content.

And this despite government measures to gradually ban smoking from buses, taxis, lifts, theatres, cinemas and government offices to air-conditioned restaurants, shopping centres, bus shelters, interchanges, public pools, toilets, community clubs and open-air stadiums. (This ban has now been extended to pubs, discos, hawker centres and coffee shops.)

Foreigners contributing?

With smoking no longer welcome in virtually all public places, one assumption for this recent upsurge in tobacco consumption is the higher number of foreigners here - 1.2 million in mid-2008 as compared to less than 900,000 in mid-2006.

Over the past two years, Singapore's population (foreigners included) rose by nearly 10 per cent whereas, over the same period, the total number of cigarettes smoked grew by almost 15 per cent. This is at a pace 50 per cent much faster than the population's overall increase.

In 2007 alone, Singapore's population grew by 4.25 per cent while the number of cigarettes smoked grew by 5.24 per cent over the same period. That's a 'surplus' cigarette growth of around 0.99 per cent was generated.

This 'surplus' growth - equivalent to some 30.5 million additional cigarettes - cannot be fully accounted for by population growth alone.

Assuming this 'surplus' was perhaps brought about by all the 130,000 additional new arrivals in our midst in 2007, then each additional newcomer in that year supposedly smoked an average of around 235 extra cigarettes (vis-a-vis what the average person in the population as a whole smoked).

Then in 2008, when Singapore's population grew by 5.47 per cent, the number of cigarettes smoked grew by 9.13 per cent - that is, a 'surplus' cigarette growth of around 3.66 per cent was generated.

Population growth not the reason

Here again, this 'surplus' growth - equivalent to some 119 million additional cigarettes - cannot be the result of population growth alone.

This time, assuming this 'surplus' was again contributed at the same rate by all the 191,200 additional new foreigners in 2008 (that is, assuming each newcomer last year also smoked an average of 235 extra cigarettes, just as in 2007), then the additional newcomers could, at best, account for 45 million additional cigarettes.

That leaves 74 million additional cigarettes in 2008 that, I conclude, must have come about only because we, on average, are starting to smoke more again.

The idea that last year's big increase in smoking was wholly contributed by foreigners is therefore an urban legend - that is, pure bunkum.

Source: The New Paper, Thu 12 Feb 2009

2009-02-09T11:52:00.006+08:00

6 of top 10 blamed for economic crisis were elected officials
Road to ruin paved with politicians

By Zhen Ming

DESPITE renewed efforts by many governments across the globe, the world faces the grim prospect of a 'bank-made' recession.

Who should we blame for leading us down the road to ruin?

You might have thought we should blame it mostly on bankers on Wall Street, right?

But, no, most of the blame should rest squarely on politicians in the US and the UK.

So says the findings of a poll conducted in late January by The Guardian newspaper in the UK.

The Top 10 'most guilty' comprised the predictable as well as a few surprise finalists:

1) Alan Greenspan
Chairman of US Federal Reserve 1987-2006

FORMER US Federal Reserve chairman Alan Greenspan, 82, was criticised for keeping interest levels low for too long and for his concurrent praise of sub-prime lending vehicles.

The long-serving chairman is also blamed for urging US homebuyers to swap fixed-rate mortgages for variable rate deals, which left many American borrowers unable to pay when interest rates rose.
Blame vote garnered: 31.9%

2) George W Bush
Former US president

MR George W Bush, 62, served as the 43rd President of the US, from 2001 to 2009.

He is blamed for doing little, while in office, to put the brakes on the vast amount of mortgage cash being lent to 'Ninja' (No income, no job applicants) borrowers who could not afford them.

Blame vote garnered: 16.7%

3) Gordon Brown
UK prime minister

MR Gordon Brown, 57, has been prime minister since June 2007. Before this, he was the UK's Chancellor of the Exchequer for 10 years.

He allegedly put City (banking) interests ahead of other parts of the economy (such as manufacturers).

Mr Brown is blamed for backing a low-tax regime for the thousands of non-domiciled foreign bankers working in London.

Blame vote garnered: 14.1%

4) The US public

YES, whether you call him John Q Public, Joe Six-pack or even Joe the Plumber, he should be blamed, too.

Said guardian.co.uk: 'There's no escaping the fact - politicians might have teed up the financial system and failed to police it properly and Wall Street's greedy bankers might have got carried away with the riches they could generate, but if millions of Americans had just realised they were borrowing more than they could repay then we would not be in this mess.'

Blame vote garnered: 11.1%

5) Geir Haarde
Former prime minister of Iceland

THE coalition government of Mr Geir Haarde, 57, resigned earlier this month after widespread (and violent) protests following an economic collapse in October 2008.

Last October Iceland's three biggest commercial banks collapsed under billions of dollars of debts.
Blame vote garnered: 7.4%

6) Bill Clinton
Former US president

MR Clinton, 62, served as the 42nd President of the US from 1993 to 2001. In 1999 he repealed the Glass-Steagall Act, which ensured a complete separation between commercial banks, which accept deposits, and investment banks, which invest and take risks.

The move led to the era of the 'superbank' and primed the sub-prime pump.

Blame vote garnered: 4.7%

7) Phil Gramm
US Senator

MR Phil Gramm, 66, is a former US senator from Texas.

A free market advocate, his work allowed the explosive growth of derivatives (including the much-dreaded credit-default swaps).

Blame vote garnered: 3.0%

8) Christopher Dodd
Chairman, Senate banking committee

MR Chris Dodd, 64, is the senior US Senator from Connecticut.He consistently resisted efforts to tighten regulation on the mortgage finance firms Fannie Mae and Freddie Mac.

Blame vote garnered: 2.3%

9) Sir Fred Goodwin
Former RBS boss

THE 50-year-old former chief executive of the Royal Bank of Scotland (RBS) presided over its rapid rise to global prominence, and its equally rapid fall.

Blame vote garnered: 1.4%

10)Dick Fuld
Lehman Brothers chief executive

MR Fuld, 62, was the last Chairman and CEO of Lehman Brothers. It's collapse in September was to have a catastrophic impact on confidence.

When asked if it was fair that he earned US$500 million ($751m) over eight years, he he insisted the figure was closer to US$300 million.

Blame vote garnered: 1.2%

Source: The New Paper, Sun 08 Feb 2009

2009-02-03T01:03:00.007+08:00

Is STI a 'lost cause' in 2009?
Past performance is no guarantee of future returns

By Zhen Ming

ACCORDING to conventional wisdom accepted by many stock market traders and investors in Singapore and elsewhere, 'as goes January, so goes the year'.

How reliable is this conventional wisdom - that January is a reliable weather vane for the performance of Singapore's Straits Times Index (STI) for the rest of the year?

Is this adage merely another piece of financial urban legend?

Although this January saying has been trotted out at the start of virtually every year since it cropped up on Wall Street in the 1970s, it has a special resonance for Singaporeans in this current Ox Year (given the STI's steep drop last year).

January rally effect

Singaporeans can still recall that last year's 49.1 per cent plunge was presaged by a 13.9 per cent drop in the STI last January.

There are two components to this January proverb:

(1) The January rally effect, which is supposedly evidenced by a general increase in stock prices during the month of January; and

(2) The January barometer effect, whereby whatever happens in January becomes a harbinger of what's in store for the stock market for the rest of the year.

According to the January rally effect, a stock market rally in January can generally be attributed to an increase in buying, which follows the drop in price that typically happens in December when investors (especially those in the US), seeking to create tax losses to offset capital gains, prompt a sell-off.

This historical trend, however, has been less pronounced in recent years because stock markets worldwide have already adjusted for it.

For the STI since 1988, the January rally effect is true for 14 out of the 22 years observed (that is, about two-thirds of the time).

The January barometer effect seems even more reliable.

Academics and market specialists say they can now confirm the existence of the effect on Wall Street. (But they are still stumped as to why it exists.)

Abnormal

In 60 of the last 80 years, the performance of the US' Standard and Poor's 500 index in January has accurately predicted whether stocks would end higher or lower for the full year, according to index analyst Howard Silverblatt.

'Any statistician would tell you it's abnormal,' said Mr Silverblatt. 'I would not attempt to justify it. Each year is separate and different.'

This statistical anomaly also shows up for the Singapore stock market.

For the STI since 1988, the January barometer effect is, on the surface, true only for 13 out of the 21 years observed.

However, for six of the eight years when the effect supposedly failed, there were extenuating reasons why it did not work when it was supposed to.

So, with January just behind us, and with the STI down 4.5 per cent thus far this year, is the rest of the 2009 destined to be a 'lost cause' for our local bourse?

Here's a clue

For a clue, let's take a cue from the US: Wall Street started 2009 with a big rally on 2 Jan, which sent the Dow Jones industrials up more than 250 points to their first close above 9,000 in two months.

But Wall Street subsequently ended the last trading day of January down 11.4 per cent - equivalent to an annualised loss of around 137 per cent!

So, there's my answer for you.

On a separate but related note, it turns out that it is often 'better to be late than early' to a new bull - this, according to a Merrill Lynch analysis of US stock performance in the six months before and after 10 market troughs over the last 50 years.

The study found that, on average, investors posted better returns if they invested in stocks six months after the bottom was in as opposed to six months before.

'Patience is a virtue,' says Mr Richard Bernstein, Merrill's chief investment strategist.

In the end, any talk of market patterns should be accompanied by this familiar warning: Past performance is no guarantee of future returns.

Source: The New Paper, Sun 01 Feb 2009

2009-01-25T11:28:00.006+08:00

Many will cut back on luxuries this year
And we're not just talking about low-income S'poreans

By Zhen Ming

SO it's now official: 2008 wasn't too bad a year, after all - that is, when we look at things from the point of view of ouraverage monthly household income from work.

Significantly, the income gap in Singapore last year narrowed for the first time in 10 years, as families in all income groups enjoyed higher earnings. (See table, above.)

Presumably, a key reason for this rise in income in 2008 was the buoyant labour market, which saw more Singaporeans with jobs and drawing higher salaries.

Fortunately, even the higher consumer price inflation in 2008 did not eat into our pay cheque.

Real income up

Real income for the average Singapore family, in fact, went up by 5.7 per cent.

According to figures released on Tuesday by the Statistics Department, the narrowing of Singapore's income gap is shown in the decline in its so-called Gini coefficient (or Gini), which measures the degree of income inequality.

Gini is theoretically equal to zero in the case of total income equality and, at the worst, equal to one in the case of total inequality.

Singapore's Gini - somewhere in the middle of 0and 1 - fell to 0.481 last year from 0.489 in 2007.
But if last year's 'surplus sharing' help from our Government is taken into account, this figure drops even further - to 0.462, from 0.479.

But this year will probably see a reversal of last year's Gini trend, warns economics professor Tan Khee Giap of the Nanyang Technological University.

Poor suffer

This year, expect the income of the lowest-income earners to possibly deteriorate because of the worsening economy - 'unless the Government takes drastic measures like vastly improving Workfare by giving more payouts in the scheme', said Prof Tan.

Budget 2009 announced on Thursday introduced measures to help our lower-income and middle-class families.

Cutbacks

Meanwhile, as global economic conditions worsen in the days ahead, expect more Singaporeans to swing effortlessly from being spendthrift to being frugal.

Expect most of us to cut back on almost all fronts, regardless of how much we earn.

In fact, 'scrimp and save' and 'scrape up some cash' are not concepts alien to us.

Anecdotally, we're already cutting back on travel for the holidays, eating out at restaurants, and entertainment (such as going to the movies).

Even the relatively wealthy among us are already trimming back on unnecessary spending. After all, many of them led simpler lives not too long ago.

Back in 1998 (just 10 years ago), as many as 18per cent of the wealthiest families in Singapore (in terms of per capita household income) did not even think it necessary forthem to install any air-conditioner in their homes.

Fewer toys

Back then, 31per cent of themalso did not own an audio/visual CD player or a handphone while 29per cent could actually make do without any personal computer.

Expect more high-income Singaporeans to become stingier, if need be, as they've watched the value of their stock investments plummet.

Expect them to also cut back, if they must, on eating out at restaurants, picking up takeout, buying home furnishings and even drinking specialty coffees.

That may not seem like much, compared to those who can't even afford to pay for the fare to ride a bus or the MRT to work.

But, emotionally and financially (like it or not), the wealthy in Singapore are definitely feeling the hard pinch of this global recession, too.

Source: The New Paper, Sat 24 Jan 2009

2009-01-18T10:34:00.008+08:00

SINGAPORE BUDGET 2009
Hongbao how big?

By Zhen Ming

EXPECT a soon-to-be-announced revised growth forecast to tell us the obvious — that our GDP will probably shrink by more than 2 per cent this year or, at best, stay flat.

So what relief can the middle class wish for in Mr Tharman’s Budget Speech on Thursday to help them soothe the pain of an Ox Year burdened by wage freeze and cuts?

Also, will Budget 2009 feature a bold stimulus plan that deftly combines the right amount of increased Government spending with an appropriate tax cut?

That is, will Budget 2009 emulate the audacious US$825 billion (S$1.23 trillion) "American Recovery and Reinvestment Bill of 2009" unveiled by US lawmakers last Thursday?

On a year-on-year basis, the Singapore economy expanded by 1.5 per cent last year (no great shakes, when you compare it to the 7.7 per cent growth achieved in 2007).

What’s disturbing, however, is the speed of the economy's deterioration, as it actually contracted at an annualized pace of 12.5 per cent during the last quarter.

To figure out how Singapore can remedy this situation, let’s check out what US lawmakers will vote on in late January (when we’re still celebrating the Chinese New Year).

Firstly, the new US$825 billion fiscal recovery package — equivalent to US$2,700 for every American (now that’s a big hongbao!) — will feature roughly US$550 billion in spending increases and US$275 billion in tax cuts.

But that’s not all.

This huge deficit spending — possible only because America is the only country still privileged enough to print all the paper money it requires — will be supplemented by another US$350 billion still available to help bail out US banks.

All in all, it’ll be an unparalleled US$1.175 trillion in extra government spending to allow President-elect Barack Obama to shore up the tottering US economy.

Expect Mr Obama (who will enter the White House on Tuesday) to immediately start work by pumping in billions to boost US healthcare.

Expect him to pour in additional billions to support US schools and colleges.

Expect him to invest billions in infrastructure spending (including highway construction and repair).

And expect him to also spend billions to encourage energy production from renewable sources.

For Singapore, this public spending aspect of Budget 2009 is a no-brainer.

Expect Finance Minister Tharman to announce measures to expand or improve our infrastructure (to prepare for better times) — not by printing money out of thin air though, but by dipping into our vast pool of hard-earned reserves built up over the years.

And then there’s that across-the-board income tax cut promised by Mr Obama.

Under his just-unveiled stimulus plan, each American worker will now receive up to US$500 (and each family up to US$1,000) through a cut in payroll taxes.

For Singapore, this aspect of Budget 2009 is tougher to call.

Expect Mr Tharman to offer Singaporeans some sort of a hongbao tax break — perhaps an anti-recession dividend or even another GST offset package.

The US stimulus package also includes billions for extended jobless benefits and retraining as well as billions to help the jobless keep their health coverage.

And for the poorest Americans, it includes additional billions for a temporary increase in food stamps (government vouchers to buy staples at US grocery stores).

This safety-net aspect of Budget 2009 — how best to help and retrain the down and out (without eroding their work ethic) — is probably the most touchy.

But, as in past recessions, expect tweaks in the way we dole out assistance to the jobless and the destitute.

In the end, Mr Tharman’s biggest challenge is to devise a Budget that can help keep the Good Ship Singapore afloat in the midst of a global economic tsunami.

Hopefully, a fat stimulus hongbao in Budget 2009 can help convince Singapore consumers and businesses that worst will soon be over, thus paving the way to a speedier recovery.

Expect one of three global economic scenarios (totally beyond Singapore’s control) — a prolonged depression (unlikely), a quick recovery (wishful thinking), or an extended period of anemic growth (most probably 3-5 years).

Come what may, however, expect Budget 2009 (and subsequent budgets) to definitely help ease the pain.

Source: The New Paper, Sun 18 Jan 2009

2009-01-17T11:41:00.007+08:00

Raju & Madoff - Tale of Two Scams

While Satyam founder flounders in Indian jail, Wall Street fraudster stays in penthouse home

By Zhen Ming

IT was only last week that Mr Ramalinga Raju - the 54-year-old founder of giant Indian software company Satyam - was enjoying a lifestyle befitting his US$1.3 billion ($1.9billion) fortune.

Over the weekend, however, Mr Raju got thrown into jail in the Indian city of Hyderabad - after admitting that he had orchestrated the country's biggest corporate fraud.

It was a swindle worth at least US$1b, and Mr Raju admitted that he had wildly inflated Satyam's profitability and assets for years.

Halfway around the world, Bernard Madoff, a 70-year-old Wall Street money manager turned self-confessed Ponzi-style swindler, has been allowed bail while awaiting trial.

Mr Madoff has already admitted to stealing as much as US$50b. If so, that would make him the biggest fraudster in global financial history.

Yet, on Monday, a US district judge ruled that Mr Madoff could still remain under house arrest in his penthouse apartment on the Upper East Side of Manhattan.

Today, while Mr Raju languishes in an overcrowded Indian jail, Mr Madoff is probably lounging in his living room watching news about himself on his flat-screen TV.

This, despite Mr Madoff having sent 16 watches (including diamond-encrusted timepieces from Tiffany and Cartier), four diamond brooches and an emerald ring to family and friends.

This, despite him having some 100 signed checks worth US$173 million lying around in his desk ready to be given to others.

To be sure, any American without Mr Madoff's bank account (or influence) would surely be locked up in jail by now.

'What a crock,' said an irate ABC News user in a website posting. 'If I went downtown and shoplifted a loaf of bread, I'd be in jail quicker than you can think... And Bernie goes off smirking at the American people.'

Double standards

Welcome, critics say, to America's supposedly two-tiered justice system - one for the very rich, the other for ordinary Joe six-packs.

In the US, wealthy white-collar crooks like Martha Stewart and Bernard Ebbers have found clever ways of staying out of prison until trial (typically by posting huge bonds).

Astonishingly, despite his own self-admission, Mr Madoff hasn't been charged yet.

What's more, his own sons have remained mum about how they could have worked at their father's firm for decades without noticing that the money he supposedly managed did not exist.

In India, when the Satyam fraud was unveiled last Wednesday, the country's benchmark Sensex index fell by 7.25 per cent in one session - a steeper drop than that which followed the Mumbai terror attacks in Nov.

Aghast institutional investors are seeking compensation in India and in the US, where several class-action suits have been filed.

As of Friday, Satyam was valued at only US$330m as compared to its market worth of more than US$7b six months ago. In other words, Satyam investors will probably recover less than five cents for each dollar invested.

But for Madoff investors, the prospect of getting back their US$50 billion is much bleaker - at the last count, what's left is only two cents for each dollar invested.

Source: The New Paper, Fri 16 Jan 2009

2009-01-11T14:59:00.011+08:00

SIGN OF TROUBLED TIMES
Typical US home now cheaper than HDB flat

By Zhen Ming

SO, how bad are things over there, really?

Hungry for first-hand news from the US “economic warfront”, I posed this delicate question about the US economy to Sok (a visiting sister-in-law back from Los Angeles for her year-end break).

It’s truly bad, she lamented, with an atypical grimace on her usually-beaming face.

When we last met in LA around Christmas in 2007, they were happier times.

Back then, our families shopped and dined at The Grove — a boutique outdoor shopping mall located across the street from the world-famous LA Farmer's Market — where, on a good day, you might just stumble upon a Hollywood celebrity (or two).

Meltdown woes

“But today The Grove is much, much quieter,” Sok reported. “You can feel it in the frigid air. And it’s all no thanks to the meltdown on Wall Street.”

To be sure, both Sok and her husband Murali hold relatively stable jobs. She works at an LA library while he teaches at the University of Southern California.

But, not unlike many other Asian expatriates living in America, they, too, worry about whether home prices in the US will ever stop dropping — what with the median home over there now costing only US$180,800 (S$268,500).

Yes, the median American home is now cheaper than most HDB flats in Singapore.

More importantly, my “Chindian” in-laws also worry whether some of their friends, especially those working in California’s Silicon Valley, could soon lose their jobs.

Latest figures

All in all, US employers shed a total of 2.6 million jobs in 2008 — the worst-ever year since 1945.

This latest job loss figure point to a US jobs market that’s still in a free fall.

Many US companies across all sectors of the economy have, in fact, resumed mass layoffs (after a brief respite over the year-end holidays).

Last week alone, insurance provider Cigna Corp, aluminum producer Alcoa Inc, data-storage company EMC Corp and computer products maker Logitech International have announced large job cuts.

"The toughest six months will be the just-completed fourth quarter and the first quarter of this year," said Mr Robert Barbera, chief economist at the Investment Technology Group, a research and trading firm.

Hope and recovery

But Mr Barbera also noted that a widely-anticipated trillion-dollar stimulus package should begin to revive the US economy in the second half of 2009.

Meanwhile, US President-elect Barack Obama has said that the alarming job figures showed that Washington should act quickly and decisively to enact his stimulus plan.

Behind the numbers were "real lives, real suffering, real fears", said Mr Obama.

Overall, US unemployment rate jumped to 7.2 per cent in December — the highest since January 1993.

But that’s just the tip of the US job-loss iceberg.

"Factoring in discouraged workers, unemployment is closer to 9.4 per cent," said Mr Peter Morici, an economist at the University of Maryland. "Add workers in part-time positions that cannot find full-time employment and the hidden unemployment rate is 14.5 per cent."

Nevertheless, the official total of more than 11 million jobless Americans — about 2.3 times the entire population of Singapore — is already quite staggering.

I read, with personal concern, the report that US aerospace giant Boeing expects its 68,000-person workforce will shed 4,500 jobs in the coming 12 months.

The big majority of Boeing’s layoffs will occur in the Puget Sound area of Washington state. That’s where a cousin and her American husband (a Boeing engineer) live.

Back home

Back in Singapore, the local labour market is also showing signs of softening.

The jobless rate among locals (seasonally adjusted) actually rose to 3.3 per cent in September — up from 3.1 per cent in June.

Expect retrenchments in Singapore to pick up pace in 2009.

In the third quarter of last year, a total of 2,346 workers were retrenched — up from 1,798 in the previous quarter.

So, it’s the same everywhere during this global recession.

Expect the “things over here” (in Singapore) — just like the “things over there” (in the US) — to get worse first (before they can get better later on).

The current global economic flu, after all, must be allowed to run its full course.

Source: The New Paper, Sun 11 Jan 2009

2009-01-10T20:41:00.006+08:00

Here's how to drink with colleagues in Asia

By Zhen Ming

IN VINO veritas.

It's a well-known Latin phrase which means 'in wine, truth'.

It applies to people who become uninhibited when they drink too much alcohol and start to say what they really think.

The Chinese and Japanese also believe that drinking will enable a person to tell all.

But beyond drunkenness, drinking in Asia (just as in the West) also serves another important purpose - to size up the character of a foreign business partner.

Imagine this all-too-familiar scenario:

It's 2am. You're an expatriate sitting in a dark karaoke club somewhere in China.

Your colleague is making a tired but brave attempt at singing 'My Way'.

Your local partner (the host for the evening) has just fallen asleep again while a hostess pours you another glass of wine and enquires whether you're happy.

And your head is screaming out: I have a wife and two children back home. Must I be doing this?

Yes, you must. But there's a cleverer way to handle nocturnal activities in Asia.

So advise Professor Chow-Hou Wee and Mr Fred Combe in their 408-page book entitled Business Journey to the East: An East-West Perspective on Global-is-Asian.

It's perhaps the best (what they never taught me at Harvard) idiot's guide I've come across so far 'to understand better how Asians strategise and practise business'.

In this highly-readable book (published by McGraw-Hill Education), the authors blend the practical, cultural, and historical realities of doing business in Asia with many down-to-earth anecdotes and refreshing insights.

Throughout the book, our dynamic duo of cross-border consulting explore why Asians and Westerners think and operate differently, examine how the West needs to urgently reappraise its role in Asia and propose that the West adopt a new business approach that combines Asian and Western strategies.

According to Messrs Wee and Combe, the typical office executive in Asia puts on a mask in the office. So do his bosses, customers and other business associates.

However, after several rounds of drinks, the real feelings begin to spill out.

'For example, some people, under the influence of alcohol, start to crack colourful jokes, talk nonsense, or engage in harmless small talk... Worse still, they may even leak corporate secrets,' they wrote.

The whole purpose here is to shed inhibitions with business partners, colleagues, and friends.

And other activities

The authors also offer a useful tip on whether it's okay to turn down 'other extracurricular activities' (beyond drinking or karaoke).

'Unlike the pressures of drinking or singing, this situation is very different. It is very much discretionary, and they will respect your decision,' they wrote.

But the authors also offer this cautionary advice: Do NOT gloat about what happened the night before.

'In the West, it is common to find people talking and discussing about the good fun they had the night before.. Now this is something that you must never do in Asia.'

This 'as if nothing happened the night before' stance is a cardinal rule that is to be respected and strictly adhered to.

'Indeed, this is one of those very rare incidents where many Asians make a clear demarcation between what can or cannot be divulged about their social activities, especially those that occur at night... Any betrayal of this implicit trust and prohibition will not be easily forgotten or forgiven. It is a taboo not to be broken,' they wrote.

Source: The New Paper, Thu 08 Jan 2009

2009-01-07T13:20:00.005+08:00

Prices taken from Singapore Department of Statistics in its latest press release on the Retail Sales Index and Catering Trade Index and from the recent issues of the Monthly Digest of Statistics Singapore.

9 prices to track in 2009
These 9 items have cost more in the last year

By Zhen Ming

WHAT you see above is my personal list of nine grocery items whose prices have shot through the roof as of October last year.

There are of course some items whose prices have declined.

With the Chinese New Year buying binge coming up, prices of my nine items have to be watched.

Then, there's the eating-out.

For me, eating out with the extended family is a pleasurable weekend experience.

These days, however, this social-gastronomic experience can be quite a budget-buster for the middle class.

Take the price of an average meal at a typical fast food outlet in October (barely three months ago, when there was financial mayhem in global stock markets).

For each meal then, you had to fork out an astonishing 17.8 per cent more than a year ago (based on the latest-available price comparisons).

Put differently, for the same amount of money spent on seven trips to a typical fast food outlet a year ago, you could afford to make, at best, six.

And the well-to-do are also not spared in this industry-wide price hike.

For those who prefer fine dining, their average up-market meal at a typical restaurant now costs 11.8per cent more.

Those who eat at hawker centres and food courts, however, can take comfort that prices there rose by only 9.1 per cent in the 12 months ending October.

The good news for everyone on a tight budget for 2009:

Eating in can now be just as pleasurable as eating out - more so, ever since the price of food and beverages, on the whole, dropped by a surprising 6.3 per cent over the same 12-month period.

Source: The New Paper, Sun 04 Jan 2009

2009-01-02T18:13:00.006+08:00

Sleep well, S'pore

By Zhen Ming

THIS year has been one filled with sob stories - from everyday investors who have seen their life savings shrink to some others losing their jobs.

(I know of an over-leveraged friend who could soon lose his home.)

But in every downturn, there'll also be winners and what has happened in 2008 is no exception.

So here's my take on how Singapore, as a people, has weathered 2008's financial firestorm:

Our resilient economy

As of last year, Singapore was the world's 44th or 45th largest economy, depending on whether you wish to rely on comparative data provided by the International Monetary Fund (IMF), the World Bank or the US' Central Intelligence Agency (CIA).

Singapore then went on to tote up a nominal Gross Domestic Product of S$255.5 billion in the 12 months ended September 2008 (in the month the US credit crunch first turned into a full-blown global financial crisis).

In terms of our nominal GDP per capita, as of 2007, we're now anywhere among the world's 19th - 24th richest people.

On a purchasing power basis, our economic achievement is incredibly impressive.

Depending on which international monitoring agency you choose to rely on, we're now either the world's 3rd (World Bank), 5th (IMF) or 6th (CIA) richest people - definitely well ahead of our financially-beleaguered American friends.

Our strong dollar

And oh, what a volatile year for currencies it has been.

And yet, ironically, we're now roughly back to Square One vis-a-vis major reserve currencies like the US dollar and the euro as well as vis-a-vis the Malaysian ringgit.

Back on 1 Jan, for instance, S$100 could be exchanged for US$69.01.

By yesterday afternoon, the same S$100 could still be swapped for almost the same amount of greenback - that is, US$69.36, to be exact.

Vis-a-vis major Asian currencies like the Japanese yen and the Chinese yuan, however, we've weakened somewhat.

For instance, the money-changer at the mall will now give you only 6,263 yen for your $100 as compared to 7,756 a year ago - down by nearly 20 per cent.

But vis-a-vis currencies like the Australia dollar and the New Zealand dollar, we've seen our purchasing power grown much, much stronger.

A year ago, for example, S$100 could get you only A$79.43 in exchange. By yesterday, however, the same S$100 was worth A$100.56. That translates into a hefty currency appreciation of 26.6 per cent in less than a year!

Overall, however, much to the relief of many traders, the Singapore dollar remains fairly stable vis-a-vis a trade-weighted basket of reference currencies.

Our bulging reserves

Back at the end of 2006, barely two years ago, our official foreign reserves already totalled a humongous S$209 billion.

It is still growing, albeit at a slower pace in recent months (mainly because of the global financial crisis).By end-October, however, our reserves stood at around S$241 billion.

This money will surely come in handy to help us weather the bad economic storm that's still brewing in 2009 and beyond.

In fact, a good chunk of this money has already been set aside to guarantee all regular deposits in our local banking system, thus allowing Singaporeans like you and I to avoid the kind of panic that has engulfed savers in many other countries.

In short, sleep tight, my friend, knowing that all is still well with Singapore.

Source: The New Paper, Wed 31 Dec 2008

2008-12-29T22:42:00.006+08:00

Can we expect Santa Claus rally this year?
Stock markets traditionally see upward swing during the 12 days of Christmas

By Zhen Ming

THE bottom line for investors in 2008: Recession, recession, recession.

Methinks, maybe not - there's still a good week left to prove the pundits wrong.

That's my take on the old adage about the Santa Claus rally - a phenomenon that often (but not always) proves remarkably reliable for stock markets around the world.

This year-end rally is usually a surge in the price of stocks that often occurs in the week between Christmas and New Year's Day.

There are numerous explanations for this yearly phenomenon - including tax considerations, happiness around Wall Street (none this year), people investing their Christmas bonuses (again, none this year) and the fact that the pessimists are usually on vacation this week.

For the Singapore stock market in particular, this Santa Claus rally does stand up to fairly rigorous statistical analysis.

Fact and fantasy

Fact and fantasy have marched arm-in-arm on three out of every four Christmases in Singapore in the past 20 years.

That is, if we were to systematically track the performance of this phenomenon as starting from 11 Dec (two weeks before Christmas) and ending on 5 Jan (on the 12th Day of Christmas, remember that song?).

Even during some years when Father Christmas failed to show up in time, he sometimes made up for it - by paving the way for a January Effect rally instead.

On Christmas Eve, the Dow Jones Industrial Jones ended the shortened trading week at 8,468.48 - a 683.13 point pullback from its intra-month high of 9151.61.

Meanwhile, the Straits Times Index closed at 1,736.99 - 3.19 per cent lower than its 1,794.16 closing on 11 Dec (the supposed start date for this year's Santa Claus rally).

But with five trading days still left before the 12th Day of Christmas, the question on everyone's mind: Has Santa skipped Singapore? Or is he just a bit too late this season?

To be sure, the gloomy economic data earlier this week was hardly surprising.

But, this time, it's not only US and European automakers that are hurting.

The Japanese automaker Toyota has already said it expects to post its FIRST operating loss in more than 70 years, an announcement that capped a year of record-breaking corporate losses and sheer drops in global stock markets.

Although stock markets have historically performed well in the weeks around Christmas and New Year's Day, expect investors hoping for a last-minute rally to ring out 2008 to be somewhat disappointed.

At this juncture, expect trading volumes in global stock markets to remain light, what with many traders already on vacation.

Silver lining

But there's an imminent silver lining here: Expect an amazingly volatile January Effect in 2009 when the so-called Big Boys return from their holidays.

These Big Boys (from Shenton Way to Wall Street) have already been quietly accumulating stocks on the sly, all in anticipation of January.

Here's my 'proof' of what's going on:

According to the latest Reuters poll, amid the gloom and doom, global investors quietly lifted their equity holdings for the second month running in December.

Surveys of 44 leading investment houses in the US, Japan, continental Europe and Britain showed an average mixed-asset portfolio holding 56 per cent in stocks, up from 54.8 per cent in November.

Recent uptick

But this recent uptick in equity holdings among the Big Boys still remained below the long-term average holding of almost 60 per cent.

Here's more good news (especially if you had timed your investment successfully): In the past few weeks, world stocks, as measured by the Morgan Stanley Composite Index, rose by around 20 per cent - after hitting a 51/2-year low on 21 Nov.

So, while (for many) Santa might have been late this year, (for me) he's already arrived - in late November, unannounced, and without fanfare.

By all means, do proceed to welcome January, with your eyes wide open. Only with the money you can live without.

Source: The New Paper, Sat 27 Dec 2008

2008-12-22T20:10:00.010+08:00

Don't worry about gurus of gloom

By Zhen Ming

WITH just 10 days left before New Year's Eve, the countdown to 2009 will soon begin.

It's time now for me to look ahead and make some predictions for the New Year.

And as I gently wipe the dust from my crystal ball, all I can see initially is the word 'recession'.

And then I can also see signs of cutbacks, layoffs - and pure worry.

That's because, for many, the future is frightening.

A record 63 per cent of Americans in a recent ABCNews/Washington Post poll, in fact, think the US is in a 'long-term economic decline'.

So how bad is it out there? And what's in store for us in 2009?

To find out, I scoured cyberspace to seek the views of three gurus of gloom:

Marc Faber

Known internationally as 'Dr Doom' , the Swiss-born investment guru is publisher of the Gloom, Boom & Doom Report. He once warned investors months before the so-called Black Monday crash of 1987.

Dr Faber recently made the following predictions on Bloomberg television:

'Next year, if the economy in the US is as weak as I think it would be... I think sovereign wealth funds are going to be very busy supporting their own markets, they won't have much money to buy assets around the world.

'The next emergency measure will be that Americans are not allowed to buy foreign currency and transfer money overseas, and the next measure will be not permitting Americans to buy gold and so on and so forth.'

Nouriel Roubini

Also known as 'Dr Doom' but more among Americans, the economics professor at New York University reputedly saw the 2007 mortgage-related meltdown coming - long before many of his peers did.

Dr Roubini this month made the following scary predictions in Fortune magazine:

'We are in the middle of a very severe recession that's going to continue through all of 2009 - the worst US recession in the past 50 years ...

'For the next 12 months I would stay away from risky assets. I would stay away from the stock market. I would stay away from commodities. I would stay away from credit, both high-yield and high-grade.

'I wish I could be more cheerful, but I was right a year ago, and I think I'll be right this year too.'

Gerald Celente

As CEO of the Trends Research Institute (a panel consisting of 25 experts with a variety of backgrounds), he is renowned for accurately predicting future world events such as the fall of the Soviet Union and the 1987stock market crash.

Mr Celente told Fox News late last month that, by 2012, America will become an undeveloped nation, and that there will be a revolution marked by food riots, squatter rebellions, tax revolts and job marches.

In a subsequent interview, Mr Celente also added: 'It's going to be very bleak. There is going to be a lot of homeless, the likes of which we have never seen before. Tent cities are already sprouting up around the country and we're going to see many more.'

Mr Celente, who also successfully predicted the 1997 Asian currency crisis and the sub-prime mortgage collapse, last year told UPI that 2008 would be known as 'The Panic of 2008', adding that 'giants (would) tumble to their deaths'.

Mr Celente's predictions have seemed to come true, what with the collapse of the likes of Bear Stearns and Lehman Brothers.

So how worried should we be by these dire warnings? Should we lose any sleep over their predictions?

To be sure, many banks in the West have had to be saved, asset prices have plummeted, and a recession is now hitting the global economy.

To be sure, we're now in a period of what economists call 'forced liquidation', which has happened less than 10 times in the past 150 years.

And yet, we're still around.

And yet, if you were take a good look around, the streets of Singapore are still full of flashy cars, our shops still full of food, and most of us are still gainfully employed and comfortably housed.

So let's shrug off our irrational shivers and instead look forward to 2009.

Source: The New Paper, Sun 21 Dec 2008

2008-12-20T10:39:00.004+08:00

Worst 5 money predictions of '08

By Zhen Ming

HERE'S my pick :

1 Jan 2008

PREDICTION: According to the Chief Executive magazine's annual poll, US CEOs expect the Dow Jones Industrial Average to sit at around 13,359, oil prices to be at US$96 a barrel and US Federal Reserve funds rate to remain at 4.25 per cent by the end of 2008.

REALITY: Fast forward to Wednesday, and the Dow is still largely directionless at 8,824, oil prices are at a four-year low of around US$40 a barrel and Fed rates are now at near zero per cent.

Oil, which peaked in July at about US$147 in July, could even decline to US$25 next year - despite the OPEC production cuts.

2 Mar 2008

PREDICTION: Jim Cramer, the volatile host of CNBC's Mad Money programme, when responding to a viewer's e-mail, arrogantly asserted:

'Peter writes: 'Should I be worried about Bear Stearns in terms of liquidity and get my money out of there?'

'No! No! No! Bear Stearns is fine! Do not take your money out. ... Bear Stearns is not in trouble.

'I mean, if anything they're more likely to be taken over. Don't move your money from Bear! That's just being silly! Don't be silly!'

REALITY: Hopefully, Peter (the viewer put down by loud-mouthed Cramer) had the cow-sense to seek a second opinion.

Six days after the show's broadcast, Bear Stearns was sold for a pittance to JPMorgan Chase - after widespread speculation about the investment bank's massive exposure to subprime mortgage.

4 Sep 2008

PREDICTION: Donald Luskin, in his article 'Quit Doling Out That Bad-Economy Line' (appearing in The Washington Post), boldly proclaimed:

'Anyone who says we're in a recession, or heading into one - especially the worst one since the Great Depression - is making up his own private definition of 'recession'.'

REALITY: The day after Luskin's self-delusional forecast, Lehman Brothers filed for bankruptcy. And the rest is history.

5 Nov 2008

PREDICTION: Outgoing US Treasury Secretary Henry Paulson, on National Public Radio, prematurely bragged about the improved health of US banks:

'I believe the banking system has been stabilised. No one is asking themselves anymore, is there some major institution that might fail and that we would not be able to do anything about it.'

REALITY: Paulson, who emerged in October with a US$700 billion 'bazooka' to blast away toxic assets in troubled US banks, ended up acquiring direct equity stakes instead (a move he himself had rejected earlier).

Unfortunately for Paulson, shortly later, Citigroup's stock price plunged 75 per cent in one week - closing below US$5 for the first time in 14 years.

June 2007

PREDICTION: Dennis Blair and Kenneth Lieberthal, in their Foreign Policy essay 'Smooth Sailing: The World's Shipping Lanes Are Safe', declared:

'In reality the risks to maritime flows of oil are far smaller than is commonly assumed. Tankers are much less vulnerable than conventional wisdom holds.

Limited regional conflicts would be unlikely to seriously upset traffic, and terrorist attacks against shipping would have even less of an economic effect.

REALITY: On Wednesday, the United Nations said Somali pirates in inflatable rafts have made US$120 million ($175 million) in pirate attacks this year.

In two months, they had hijacked 30 ships.

The UN on Wednesday approved air and sea attacks on Somali pirate bases.

Source: The New Paper, Fri 19 Dec 2008

2008-12-14T20:35:00.008+08:00

Another Ox Year, Another Baby Bust?

By Zhen Ming

THE proverbial stork now comes much later and on fewer occasions, too.

Not surprisingly, the size of the average Singapore family has shrunk sharply.

Among women 40 years or older who have ever married (that is, among those who are quite likely to have already completed their child-bearing) the average number of children has fallen continuously since the 1990s — this, despite a slew of generous procreation incentives introduced in recent years.

Singapore women in their 40s, for instance, gave birth, on average, to a total of 2.75 children in 1990.

But by last year, most of them would have experienced motherhood, at most, only twice in their lifetime (an average of 2.07 children).

(My own better half is in this category and we have two grown-up daughters.)

Dwindling dramatically

Even among the older generation (women 50 years or older), the average number of children has also dwindled dramatically — from 4.69 in 1990 to only 3.03 by last year.

Amazingly, despite a faster-growing population in Singapore since the start of the new millennium (arising chiefly from the influx of new immigrants), the number of locally-born children has stayed consistently below 40,000 a year since 2003 — when a serious SARS epidemic placed a big dampener on the local economy.

Earth Dragon high

This low birth rate situation in 21st century Singapore pales in comparison to the all-time high of 52,957 newborns in 1988, during the auspicious Year of the so-called Earth Dragon, when the Singapore economy was also on the up and up.

To be sure, with three-quarters of all Singaporeans still of Chinese descent, zodiac signs will likely remain an important consideration as to when many newlyweds should start their families (and when we can expect a bumper harvest of new babies).

More recently, however, the cyclical ups and downs of the Singapore economy have become equally important for the many married Singaporeans who remain childless by choice, especially during their first five years of marriage.

But what do oxen, tigers and dragons (plus nine other zodiac sign animals) have to do with when our newlyweds will take their first plunge into parenthood?

And how has this time-tested formula for family planning been rudely interrupted by the periodic economic dislocations that we’ve experienced since the mid-1980s?

Back in 1985 (a Year of the Ox, a beast of burden), when Singapore experienced the onset of its first full-blown post-Independence recession, there was widespread workforce retrenchment.

Lag time

But given the (ahem) unavoidable lag of about nine months between conception and birth, the sharp drop in new babies showed up only in the following year (which back then also coincided with an avoid-it-if-you-can Year of the Tiger).

A similar delay-parenthood-if-we-can pattern showed up in mid-1997 (another Year of the Ox) when the onset of the Asian currency crisis led to another sharp economic downturn (this time, on a much broader, region-wide, basis).

Not surprisingly, Singapore went through a prolonged two-year baby bust — starting in 1998 (another Year of the Tiger) and spilling over into 1999 — before the return of confidence and a new Dragon Year in 2000 (at the height of the dotcom boom) helped our newlyweds overcome their fears about first-time parenthood.

Short-lived boom

But this baby boom soon proved short-lived when the ensuing dotcom bust of 2001 and then (horrors) the subsequent SARS slowdown of 2003 all but ensured that the number of new babies thereafter would stay permanently below 40,000 a year.

And just when you think the worst is over, here we are, once again, about to set off for yet another economic (and family-planning) roller-coaster ride.

The Ox returns

With the onset of the global credit crunch in late 2008 — and with further economic uncertainties in store for us next year (another Year of the Ox!) — expect the next baby bust to last at least two years (inclusive of another Tiger Year!).

But if life is an ever-repeating zodiac cycle (like what most Chinese families think it should be), expect a rebound in new babies by 2012 (another Dragon Year).

That’s when, thankfully, you can also expect a full-fledged global economic recovery.

Source: The New Paper, Sun 14 Dec 2008

2008-12-14T20:19:00.007+08:00

Pity if hidden gems remain hidden

By Zhen Ming

SWEDEN'S Prime Minister Olof Palme died in 1986 in Stockholm at the hands of an assassin.

Back then, his murder in the middle of Stockholm's downtown shocked the world. (Political assassinations, until then, were virtually unheard of in Scandinavia.)

Mr Palme was born into an upper-class, conservative family in Sweden in 1927. Nevertheless, he still required a scholarship to study at the pricey Kenyon College (my alma mater in Gambier, Ohio), graduating with a BA in 1948.

At Kenyon, Mr Palme was an excellent student, earning all As in his major subjects (economics and political science). He was also a member of Kenyon's first varsity football squad. And, like me, he washed the college president's car for pocket money.

After graduation, Mr Palme spent three months hitchhiking his way through the US with only US$300 (S$450) in his pocket.

Mr Palme later said that what he heard and saw on that US trip - the deep economic inequality and racial segregation - influenced his political and social ideals.

Around the time when Mr Palme was still prime minister of Sweden, one Barack Obama was enrolled, on a college scholarship, at Columbia University in New York City, where he majored in political science with a specialisation in international relations.

Mr Obama then graduated with a BA from Columbia in 1983 and later entered Harvard Law School in late 1988 (here again, on another college scholarship).

He gained national media attention when he was elected the first black president of the Harvard Law Review. And the rest, as they say, is history.

Seventeen years after graduating with a Juris Doctor magna cum laude from Harvard in 1991, Mr Obama is set to be the 44th president of the United States.

Generations of outstanding men (and women) like Mr Palme and Mr Obama have all benefited from the generosity of the privately-funded US higher educational system.

For years, it all seemed so simple - donations would first roll in, the booming stock market would then multiply them, and the college endowments would then swell.

At the wealthiest schools, the millions would become billions, and even small colleges (like Kenyon) would start to amass sizeable fortunes.

But with Wall Street's recent meltdown, all bets are off.

With most endowments predicted to plummet by 30 per cent this academic year, many US universities are downsizing or even shelving long-term plans.

Even the wealthiest schools - among them Harvard, MIT and Dartmouth - suddenly find themselves in the unfamiliar situation of trimming budgets and freezing hiring to offset heavy investment losses.

In September, Harvard University announced that its endowment, the country's largest, had risen to a staggering US$36.9 billion as of 30 Jun.

But just last week, in a stark sign of the economic times, Harvard said the value of its investments had plunged 22 per cent, or about US$8b, in the past four months. It anticipates a further 30 percent loss by next June.

Now, many other top universities worldwide (including those in Singapore), while declining to provide specifics, have also publicly acknowledged substantial losses.

My hope for 2009 - that this swift reversal of university fortunes won't hinder a future Olof Palme or another Barack Obama from maximising his or her potential.

Source: The New Paper, Fri 12 Dec 2008

2008-12-06T21:15:00.005+08:00

Detroit's rescue could also be S'pore's windfall

By Zhen Ming

IF the US government bails out the car makers, this could be good news for Singapore.

The US government will set conditions which car companies were reluctant to follow before.

President-elect Barack Obama plans to put one million 150-mpg (about 64 kpl), plug-in hybrids on US roads within six years and give American consumers a US$7,000 ($10,700) tax credit to buy these fuel-efficient cars.

This retooling of Detroit impacts Singapore.

Dr Michael Quah Cheng-Guan, a Harvard-trained American fellow at our Energy Studies Institute, said there would be a trickle-down effect that would help our economy.

'For instance, the need to develop and improve components of these electric systems would spin off R&D benefits to Singapore's strength in semiconductors, power control devices, IT command and control programs, and even to the new nano-materials, which will serve the high power needs for switch gear and associated peripheral components.'

But it will be a tough ride for US car makers, said Dr Quah, and it remains to be seen if the US can get over 'its obsession with what Singapore's (Ambassador-at-large) Prof Tommy Koh calls the 'Socially Unacceptable Vehicles (SUVs)'.

Said Dr Quah: 'The car lobby remains very strong simply because American car companies (and their suppliers) constitute a major industry in the US, where many jobs, including those in my home state of Michigan, are on the line.'

Last but not least, the US - as a country with 5 per cent of the world's population using 25 per cent of its energy resources - must admit that there are huge opportunities in energy-efficiency gains.

Source: The New Paper, Fri 05 Dec 2008

2008-11-30T22:13:00.007+08:00

Buffett also bets big on derivatives

By Zhen Ming

IN his 2002 letter to his Berkshire Hathaway shareholders, billionaire investor Warren Buffett made headlines when he loudly condemned derivatives as "financial weapons of mass destruction".

These contracts sold to the world as a way to reduce risk were "time bombs, both for the parties that deal in them and the economic system", he strenuously asserted.
Back then, Buffett also made this gloomy prediction:

"The derivatives genie is now well out of the bottle, and these instruments will almost certainly multiply in variety and number until some event makes their toxicity clear. Central banks and governments have so far found no effective way to control, or even monitor, the risks posed by these contracts."

He did it too

But now the whole world has found out that Buffett had also allowed his insurance and investment conglomerate to make big (and disappointing) bets on derivatives.

On 7 Nov, Berkshire reported paper losses from derivative bets totaling US$6.73 billion at the end of the third quarter, causing the company’s shares to drop by 34.4 per cent in less than two weeks to a 52-week low of US$74,100 apiece.

When compared against their all-time record high of US$151,650 apiece, Berkshire shares had fallen by more than half by 20 Nov.

Berkshire shares have since then recovered by some 40 per cent to close at US$104,000 apiece on Friday after Buffett promised to tell all.

How did he err?

What went wrong for our 77-year-old Oracle from Omaha?

According to corporate filings, buyers of the derivatives would be entitled to billions of dollars from Berkshire if four stock indexes (including the Standard & Poor’s 500) drop below agreed-upon levels on dates beginning in 2019.

Berkshire explained it has contracts whose values depend on where the four stock indexes would trade between 2019 and 2027.

Berkshire also explained it could theoretically owe as much as US$37.04 billion on the contracts. But Buffett's follow-up email later said the four stock indexes would all have to fall to zero for Berkshire to be liable for the entire sum that's at risk.

You'll know next year

Acknowledging investor concern, Buffett said he will disclose more information on how he calculates losses on Berkshire's derivative bets in his next yearly letter to shareholders (expected around end-February).

The report will disclose "all aspects of valuation" and cover "deficiencies in the formula" for pricing the derivatives, "which we nevertheless use," Buffett said.

"If he'd stayed silent on this, the stock would have stayed at US$80,000," said Berkshire shareholder Michael Yoshikami.

Not surprisingly, in the past few months, Buffett has called on investors to begin investing in US stocks again, and has made a few high profile investments himself recently, including buying preferred shares of Goldman Sachs and General Electric.

Recovery — not so soon

Yet Buffett has also been equally candid about the downtrodden US economy. Although the Federal Reserve and others are suggesting that it will begin recovering in mid-2009, Buffett says it will take longer, and unemployment will continue to rise for some time.

"There are going to be more people unemployed," Buffett said during a Friday interview on Fox Business Network. "I'm not worried about five years from now. Five months from now, can be very painful," and "it will not turn around by mid-year next year."

In happier times, back on 23 Oct 2006, the price of a share of Berkshire became the first stock to ever close at the six-digit mark at US$100,000.

Back then, for the same US$100,000, you could buy a high-performance Mercedes-Benz CLS63 AMG coupe in America or a 74-day round-the-world cruise in a Royal Suite on the Queen Mary 2.

Back then, Buffett was hailed as the greatest investor alive. But his prior successes may have forced him to buy in billion-dollar chunks to impact Berkshire's bottom line.

This problem of too much cash for too few investing opportunities may have given rise to “cash intoxication” — resulting in Buffett's recent foray into currency and commodity speculation and even bets on derivatives.

Ironically, Buffett once said, "Wide diversification is only required when investors do not understand what they are doing."

Berkshire Hathaway’s Share Price Milestones

................................ Date ..................... Price per Share ... % Change

Average Cost1 .......... 1962 — 1963 ......... US$15 ................... NA

Six-Digit Record ........ 23 Oct 2006 .......... US$100,000 ....... + 666,567% (est)

All-Time High ............ 11 Dec 2007 .......... US$151,650 ....... + 51.6%

52-Week Low ............ 20 Nov 2008 .......... US$74,100 ........ - 51.1%

Latest Close ............. 28 Nov 2008 .......... US$104,000 ....... + 40.4%

1 Warren Buffett started accumulating Berkshire Hathaway shares in 1962 when they were less than US$8 apiece. By 1963, the average cost of his acquisition was estimated at around US$15 apiece whereas the company’s shares were then trading at about US$18 apiece.

Source: The New Paper, Sun 30 Nov 2008

2008-11-30T15:43:00.011+08:00

Rise and fall of Citigroup

By Zhen Ming

YOU could almost sense that nervous, somewhat uneasy, almost palpably put-on calm among staff when you walked into any Citi Singapore branch last Monday morning.

But staff at the Singapore unit of Citigroup soon heaved a huge sigh of genuine relief on news of the US government's enhanced bailout package costing up to US$288 billion ($435 million) in capital and guarantees.

Privately, some staff, fretting over the prospect of 52,000 job cuts across Citigroup's worldwide operations, had spent a sleepless weekend wondering if they were next on the chopping block - even though it was announced that no more than 250 jobs (out of a total of 9,100 in Singapore) would be affected.

Calming ads

Citi Singapore had, in fact, gone to great lengths on all fronts to restore calm in recent days - taking out full-page newspaper advertisements to reassure its clients and sending e-mail updates to encourage its staff.

And now that Citigroup will live to fight another day, what lies ahead for this 'Citi that never sleeps' - a financial conglomerate that still boasts some 200 million retail account holders in 106 countries (roughly, one in every 32 people on this planet)?

An appropriate answer to this nagging question later on, I promise.

Changing fortunes

But first, let me retrace Citigroup's swiftly changing fortunes by tracking the highs and lows of its share prices during the past couple of years.

Towards the end of 2006, barely two years ago, Citigroup was, by far, the world's largest bank by market value. Not even ICBC, the world's current Number One, could come anywhere close to Citigroup in asset size and geographical reach.

Citigroup's share prices achieved an all-time high of US$57 apiece on 28 Dec 2006 - giving the bank an assumed market value of US$311 billion (assuming it had the same number of shares then that it has today).

Singapore investment

Earlier this year, on 15 Jan, when the Government of Singapore Investment Corporation (GIC) announced its decision to invest US$6.88 billion in Citigroup, the bank's shares were still worth US$26.94 apiece.

On Wednesday, Citigroup shares were US$7.05 apiece - giving it a market value of about US$38 billion.

Based on Wednesday's US$38.4 billion total market value for Citigroup shares, if the GIC were to convert its perpetual convertible securities into an estimated 4 per cent stake, then these shares would be worth a ballpark US$1.54 billion - that is, a paper loss of roughly US$5.34 billion.

Thankfully, Singapore's investment in Citigroup has built-in safeguards that allow the GIC to hold on to its interest-bearing 'perpetual convertible securities' until the day Citigroup share prices could hit the (publicly unknown) conversion price.

Meanwhile, the GIC will still get to collect a dividend of 7 per cent on the value of original sum invested for as long as we choose to do so. That 7 per cent works out to a fairly handsome payout of US$482 million a year.

Pain is not over

But Citigroup's sufferings aren't over yet.

When its shares tumbled last year on the bank's subprime mortgage woes, angry investors sued for fraud.

Now, stockholders are due to file a new version of their lawsuit as their losses have become much more stark.

A consolidated shareholder complaint in the case is scheduled to be filed in the US District Court in Manhattan by Monday.

An earlier version accused Citigroup and several individuals, including former CEO Charles Prince, of violating securities law by artificially boosting the bank's stock price by concealing its exposure to subprime-linked debt.

Citigroup believes the lawsuit 'is without merit, and will defend against it vigorously,' company spokesman Mike Hanretta said on Tuesday.

Meanwhile, how big do you think is the US$272 billion lost to date?

It is 1.8 times the size of Singapore's GDP for 2007. It is almost 1.4 times the worth of Coca-Cola and Google combined.

Citigroup’s Changing Fortunes

................................ Date .............. Share Price ... Assumed Market Value1

All-Time High ............ 28 Dec 2006 .... US$57.00 ...... US$310.6 Billion (Est)
When GIC Invested ... 15 Jan 2008 ..... US$26.94 ...... US$146.8 Billion (Est)
All-Time Low ............. 21 Nov 2008 .... US$3.05 ........ US$ 16.6 Billion
Latest Close ............. 26 Nov 2008 .... US$7.05 ........ US$ 38.4 Billion

1 For comparability reasons, Citigroup’s assumed market value is based on price of Citigroup shares on each date specified multiplied by the same number of Citigroup shares as of 25 Nov 2008. Citigroup has issued additional shares to new investors since the onset of the global financial crisis.

Source: The New Paper, Sat 29 Nov 2008

2008-11-24T21:09:00.012+08:00

Time for Some Good News

The recession is here, but S'pore households
have enough wealth to weather the storm

By Zhen Ming

The Average Singapore Household’s Balance Sheet

...................................... End-2000 .............. End-2006

Assets

Currency & Deposits ....... $136,310 ............... $157,930
Shares & Securities ........ $ 75,340 ................ $120,360
Life Insurance Equity ....... $ 30,750 ............... $ 76,820
CPF / Pension Funds ...... $ 94,190 ................ $119,930
Residential Property ........ $386,830 ............... $384,920

Total Assets .................. $723,420 ............... $859,970

Liabilities

Mortgage Loans ............. $106,800 ............... $110,390
Personal Loans .............. $ 38,450 ................ $ 39,180

Total Liabilities ............ $145,250 ............... $149,570

Net Wealth ............... $578,160 ............ $710,400

NB: Numbers may not add up because of of rounding off. Assumes
average household size was 4.2 and 4.1 in 2000 and 2006, respectively.

Basic data: Yearbook of Statistics Singapore, 2008

BY now, you're probably fed up with reading all that bad news about the economy.

By now, you're also sick of listening to all those 'I told you so' stock market prophets of doom who - after years of being totally wrong - are finally having their day.

So let me, for a change, try to provide you with some year-end cheer instead - at least towards the end of this column on the upside of doom and gloom.

But first - yes, it's official, folks - recession has finally come to Singapore.

And yes, after years of free-spending and saying 'charge it' at every turn, we're again using words such as 'scrimp and save' and 'scrape up some cash'.

We're also cutting back on almost all fronts, regardless of how much we earn, by trimming grocery costs and buying fewer luxuries.

We're also saying 'no' and 'maybe' to travel for the holidays, eating out at restaurants, and entertainment such as going to movies.

Fear factor

Blame it, if you like, on a falling stock market that has eaten away at our wealth and on all those other consumers (not me) who feel panic and fear.

Blame it also on those kiasu banks that are now cautious about making new loans, causing a ripple effect in the economy as more businesses have trouble surviving.

The Government has taken emergency measures to break the downward spiral by making available $2.3 billion in loan and credit facilities to companies and $600 million for retraining workers.

The upside is that we should realise how blessed we've been since 1965 when we as a nation finally stood on our own two feet.

Since independence, like the proverbial hard-working ants that we've been, we've managed to squirrel away huge surpluses that are now the envy of many.

Not counting the mountain of foreign reserves held publicly (which, strictly speaking, we can't touch as individuals), even if we were to take stock of only the wealth that we've personally accumulated, we should be gratified to learn that the average Singapore household has done outstandingly well.

At the turn of the new millennium, at end-2000, the average household's private balance sheet showed a net wealth of $578,160.

This personal household wealth comprises an assortment of highly-prized assets - from currency and deposits, shares and securities, to life insurance, Central Provident Fund savings and the value of our homes less any outstanding loan (mortgage or personal) we may still have.

By end-2006 (the latest available data), six short years later, this net wealth had grown by 22.9 per cent to $710,400 per average household of 4.1 people.

Going by the rate at which we spent our money in 2006, even if all of us were to stop working all at once, it would still take us at least 8.75 years to totally run down our combined personal wealth totaling $762.6 billion to an absolute zero.

So never mind if others say the global economy need time (three, four, five years, according to Minister Mentor Lee Kuan Yew) to clean up the mess left behind by years of excessive debt and spending - we, as a people, will surely survive the worst that's yet to come.

So never mind if our own companies, too, need even more time to clean up their balance sheets - they will only emerge leaner to weather the slowdown and to expand even more when positive growth returns to the economy.

In the meanwhile, the hard times will only force a new generation of younger Singaporeans to regain control of their spending by foregoing a lifestyle beyond their means (through accumulating more debt than they can handle).

Rational behaviour

Lest we forget, during the current economic crisis, it is also important for all of us to keep a clear head and not get caught up in the fear.

After all, left unchecked, the credit crunch could inadvertently cause many of us to irrationally assume the worst and take drastic steps that can only make things worse.

To be sure, over time, this crisis will surely end and the economy will begin to expand once again.

So, go ahead, my friend, do spend more on Christmas gifts this year than last. But only if you can afford it.

Source: The New Paper, Sun 23 Nov 2008

2008-11-22T17:41:00.010+08:00

Giants on their knees

The global financial crisis has cut the world's top banks down to size

By Zhen MIng

GIANTS are part of our folklore, so let's start with a folk tale.

Once upon a time in France, there was a 31-year-old derivatives trader by the name of Jerome Kerviel.

He worked for a giant bank named Societe Generale. The bank was 150 years old.

Bored by his daily routine (in our folk tale) - and allegedly pressured by mounting losses (in real life) - Jerome decided he would make unauthorised bets on the stock market.

And just like the magician's apprentice, who could not stop the multiplying brooms from nearly drowning him, Jerome was soon engulfed in an ocean of debt - his bank's, not his.

This debacle eventually cost his bank almost 5 billion euros ($9.6 billion).

His supervisors later said they had had no idea what he was up to.

This story is true and it happened in January. And it had an important lesson to the heads of banks - pay attention and don't get greedy.

Unfortunately, this lesson went unheeded. And now, after the severe global credit crunch, which was partly fuelled by greed, the once giant banks of Europe and the US are reeling.

Societe Generale and at least eight other equally well-known financial institutions have endured a drastic plunge in market values.

To date, according to The Boston Consulting Group, the losses incurred by all banks have translated into an ocean of shareholder red ink totalling nearly US$3trillion (about $4.6 billion).

Since Europe's loss - and America's, too - is now Asia's gain, expect a so-called 'new world order' for banks.

With Asia now boasting four of the world's 10 biggest banks by market value (and with three of the top five hailing from China), the Chinese have, in fact, become the banking world's new 'masters of the universe'.

By way of comparison, Bank of America (BofA), the world's second largest bank, is a distant also-ran behind Industrial & Commercial Bank of China (ICBC), the world's No 1 bank. (In market value terms, BofA is only 70 per cent the size of ICBC.)

As recently as 2003, at least half of the banks ranked as the world's top 10 were American (without a single Asian rival), according to data compiled by Bloomberg.

Now, there are four Asian and four US banks in this exclusive Top 10 Club.

More changes

And, oh, what a great difference barely a couple of years can make.

Less than 21 months ago, Citigroup was still the world's biggest bank by market value. Back then, ICBC was just into its fourth month as a publicly-traded company.

Not anymore. The US sub-prime mortgage market collapse has wiped out tens of billions of dollars off Citigroup's market value while ICBC's fortunes have held steady.

Through Friday, Citigroup shares had fallen 68 per cent this year, leaving the bank with a market worth of only US$52billion - barely twice the US$25 billion it received from the US Treasury. (Citigroup was still worth US$82 billion back in late October.)

Not surprisingly, Citigroup said Monday that it will have to cut another 52,000 jobs by early next year - this, on top of the 23,000 already eliminated so far this year.

But this latest retrenchment will still leave the 197-year-old bank with about 300,000 jobs worldwide (down 20 per cent from end-2007).

The good news: Citi Singapore, one of the largest banking sector employers locally, will face only 'modest headcount reductions'.

But if the job cuts were proportional, as many as 1,300 Citibankers here could be out of work - as compared to the 900 laid off worldwide by DBS Group.

Speaking of DBS Group, the plunging stock market in October has done 'the once unthinkable' - on 20 Oct 2008, it made South-east Asia's once largest bank the smallest of the three local banks by market value.

This swift reversal of fortunes allowed OCBC Bank to briefly overtake DBS Group in market value - the first time this has happened in seven years. (As of Tuesday, DBS Group was slightly ahead of OCBC Bank.)

So don't count on the volatility as being over yet for global banking.

With one in 10 US mortgages now 'delinquent' or 'in foreclosure', and with house prices still falling further, such 'toxic waste' will surely continue to burn holes in bank balance sheets everywhere.

Not the kind of news you'll want to hear every day. But not the kind you can well afford to ignore either.

Source: The New Paper, Thu 20 Nov 2008

2008-11-18T16:21:00.006+08:00

G20 CRISIS MEETING
Great minds on the Great Crash

By Zhen Ming

YESTERDAY, the G20 - comprising leaders of 20 of the world's biggest industrialised and developing economies - huddled in Washington to discuss the global financial crisis.

There were calls for new controls, new monitoring mechanisms, and a 'supersized' International Monetary Fund (IMF) to cope with the crisis.

But will the G20's so-called Bretton Woods II effort save the world?

To find out, I brought together my own 'G5' dream team - a virtual think tank comprising five of the world's top economic gurus - all of them winners of the Nobel Prize in Economics.

Here's how they have weighed in publicly on what went wrong and what else should be done to fix the problem:

Blame the Republicans

Paul Samuelson (1970 Winner):

'Using markets is not the same thing as unregulated capitalism... Convincing proof... can be found in the deterioration in the US from 2001 to 2008.

'As CEO pay rose respective to median employee pay - from a more normal 40 to 1 ratio up to and beyond 400 to 1 - industrial progress deteriorated rather than accelerated...

'If America turns protectionist, blame past Republican deregulating - a fine instance of the Law of the Unintended Consequences.'

Fine tune

Reinhard Selten (1994 Winner):

'Apparently the market does not value new types of complex securities correctly. For this reason, it is necessary to establish rules for the registration of new types of securities.

'Securities, not unlike food, should be given risk-related labels ...

'We must take steps to ensure that proposed regulations are, on the one hand, as straightforward as possible and, on the other hand, cannot be circumvented.

'Of course, detailed institutional and legal knowledge is necessary to construct such rules - as is so often the case, the devil is in the details.'

Recession the more immediate problem

Robert Emerson Lucas Jr (1995 Winner):

'I think if the current Federal Reserve lending policies are continued aggressively our chances of avoiding a recession larger than that of 1982 are very good.

'At this point, I think this is the best that can be hoped for and it is a lot better than a replay of the 1930s ...

'The regulatory problem that needs to be solved is roughly this: The public needs a conveniently-provided medium of exchange that is free of default risk or 'bank runs'.

'The best way to achieve this would be to have a competitive banking system with government-insured deposits.'

IMF overstretched

Joseph E Stiglitz (2001 Winner):

'There is mounting evidence that the developing countries may require massive amounts of money, amounts beyond the capacity of the IMF.

'The sources of liquid funds are in Asia and the Middle East.

'But why should they turn their hard earned money over to an institution with a failed track record; one which pushed the deregulatory policies that have gotten the world into the mess we are in now; one which continues to advocate the asymmetric policies which contribute to global instability; and one whose governance structure is so flawed?

'Hopefully, at the summit in Washington, the leaders of Europe and Asia will lead the way, beginning the task of creating the global financial architecture that the world needs if we are to have a stable and prosperous 21st century.'

New regulatory mindset needed

Edmund S Phelps (2006 Winner):

'There is no question that the banking industry in the US has gone awry... That the banks chose to take on ever-greater levels of risk, with no end in sight until the collapse, was an effect of employee compensation ...

'Is regulation required here? Undoubtedly some new regulations are required here and there.

'Yet, many observers have argued the lack of restraints on the banking industry was more a failure of the regulatory authorities to exercise their powers than it was an absence of regulatory authority to act. A new mindset is required, above all.'

Source: The New Paper, Sun 16 Nov 2008

2008-11-15T12:54:00.010+08:00

IF ALL HIT ROAD AT SAME TIME, S'PORE WILL HAVE ...

Islandwide
mega jam

Vehicles lined end to end will fill tightly every metre of main roads, expressways

By Zhen Ming

IMAGINE a nightmare day when every motorist in Singapore decides to travel at, say, 8am.

The vehicles clog up every main road and expressway bumper to bumper - such that none can move even a metre forward.

Yes, this can happen now.

By 2025, if all the projected 1.2 million motor vehicles we own by then were lined up, then they would occupy a total of 3.8 lanes of all our major roads.

That's when there'll be at least 6.5 million of us living on the island.

So, if all of us go out on the road at the same time, we'll have a mega jam.

Back in 1982 (when I first returned from America), when there were only 2.5 million of us, we were already close to gridlock with 3.2 lanes jam-packed.

Thankfully, a road expansion programme managed to keep pace with the rapid rise in car ownership in recent years, ensuring that the number of lanes occupied on a bumper-to-bumper basis was kept at 3.2 (to this day).

But this can't go on forever.

With 12 per cent of our land already allocated to roads, road expansion is slated to slow down to only 0.5 per cent yearly from 2009 onwards.

And while the vehicle population will still be allowed to grow at 1.5 per cent (that is, thrice as fast), the longer-term outlook for car ownership is definitely not too rosy.

Singapore's transport system must therefore be overhauled, yet again, if we are to soon realise our aspirations to be a thriving congestion-free global city.

A world-class global city of 6.5 million people will soon put us in a different league - not too far behind the likes of Paris (9.6 million), London (7.6 million), and Chicago (6.9 million) - but it will also mean a more crowded Singapore.

Faster than you may imagine, we will have to figure out how best to feed, shelter and move around 6.5 million people - instead of just the 4.8 million we now have.

Trust me, this target population will be hit - within the next 7-17 years - whether you think the country's population should continue to grow as fast as it did over the past three years (4.3 per cent a year, with the intake of more foreigners), or at a slower 'natural' rate (1.7 per cent a year, without new immigrants).

So, like it or not, whether it's mid-2015 (fast track) or end-2025 (natural pace), let's brace ourselves for 6.5 million of us - each with an average land area of only 109sqm (versus a more spacious 250sqm back in mid-1982).

This bigger population, in turn, calls for radical changes to vastly improve our existing land transport system, which must include enhanced measures to restrain the number of motor vehicles as well as our propensity to take them out for joyrides.

More ERPs?

With this in mind, expect Singapore motorists to face stiffer usage disincentives to ensure smooth-flowing traffic on our roads.

Expect the Electronic Road Pricing (ERP) system to play a more prominent role.

Expect ERP coverage to be more extensive and ERP charges to be much higher. And expect the so-called ERP II (the next generation ERP system) to soon make distance-based congestion charging possible.

That's because the Certificate of Entitlement scheme, blamed for failing to check the explosive growth in car ownership in recent years, is too dependent on the anticipated number of vehicles to be scrapped - a less-than-accurate forecast that requires fine-tuning.

Futile

Even with the lowering of our vehicle population growth rate to 1.5 per cent a year (from the present 3 per cent), with effect from Quota Year 2009, holding back the tidal wave of cars seems, to me, akin to King Canute's futile seaside attempt.

Given our land constraint, the projected increase in travel demand must be met largely by public transport.

A single-deck bus, for instance, can transport about 80 passengers at any one time, whereas the average occupancy of our cars is only about 1.5 persons per car.

Expect, therefore, more bus services and new roads built partly or wholly underground.
However, these roads won't come cheap. So guess where we can expect the money to come from?

Bumper to Bumper Gridlock

Year ... Vehicle Population ... Lanes Occupied*

1982 ....... 421,041 ....................... 3.2

2008 ....... 874,969 ....................... 3.2

2025 .....1,156,611 ....................... 3.8

* Refers to the number of lanes occupied on all major roads in Singapore if all motor vehicles in the country were lined up bumper to bumper (assuming the average vehicle length = 4.6 m).

NB: Motor vehicles include cars, taxis, buses, goods vehicles, motor cycles and scooters while major roads include all expressways, major arterial roads and collector roads managed by the Land Transport Authority. They exclude local roads.

Source: The New Paper, Fri 14 Nov 2008

2008-11-09T14:33:00.012+08:00

Open Letter to

President-Elect Obama

Dear Mr Obama ...

spend your way out of trouble

Our columnist pens an open letter to the next president of the US

By Zhen Ming

DEAR President-elect Obama,

My heartfelt congratulations on your election as the 44th President of the United States of America!

I was deeply moved when I watched you triumphantly proclaim live on global TV that “change has come to America”.

It was already Wednesday afternoon in Singapore. But it still felt like as if I was really there with you, and with the countless jubilant supporters who had gathered at Grant Park in Chicago, Illinois on that historic Tuesday night to celebrate a truly “American moment”.

There you were, standing tall, as America’s first African-American President-to-be.

And there you were, on stage, with your lovely wife Michelle, with your two adorable daughters Malia and Sasha, and with that heart-warming promise of a cute First Puppy come Tuesday, 20 January 2009 (the day of your forthcoming inauguration).

But, amidst the euphoria, you also glumly reminded us of the tough challenges ahead:

"The road ahead will be long. Our climb will be steep. We may not get there in one year or even one term, but America — I have never been more hopeful than I am tonight that we will get there. I promise you — we as a people will get there."

Mr Obama, you had campaigned on a message of hope and change.

America agreed with you.

Consequently, you won 52.5 per cent of the popular vote in the largest turnout in a recent US presidential election.

We’re still 72 days away before we can officially call you “Mr President”.

Meanwhile, the US is in the midst of a painful recession, what with more than 10 million Americans out of work.

First priority

Rightfully, your first obligation is to solve the worst economic crisis the US has ever experienced in living memory.

What began with the bursting of the US housing bubble in 2007 has now unfolded into a far-reaching global crisis affecting everyone and everything — from banks to retail sales to the auto industry.

But as you set yourself to revamp the half-baked US$700 billion bailout for Wall Street and as you focus on creating more jobs for Main Street, do spare a kind thought, too, for Singapore and the rest of us who live outside the US.

So, as you tweak the US Budget for fiscal 2009, may I boldly suggest you just go ahead to pump-prime the US economy to save the world by way of racking up a deficit of US$1 trillion a year over the next four years during your first term in office.

Trust me, the US government can afford a much bigger Budget deficit — US government debt as a percentage of GDP is still way below those chalked up by the supposedly prudent governments of the European Union and even Japan.

Jobs, jobs, jobs

So, go on, spend wisely to create those five million “green jobs” you’ve promised through investment in renewable energy.

And, by all means, do create another two million new ones by rebuilding the country’s crumbling infrastructure.

Also, do overhaul the US education system so that “no child will be left behind”. (Education, by the way, is a shockingly tiny item in the US Budget whereas it is the second biggest priority for Singapore — and look where it has gotten us.)

On a brighter note, when the US economy has stabilized, we’re truly keen to welcome you to next year’s Apec Leaders Meeting in Singapore.

But if that’s still not possible, how about a whirlwind tour of Asean during the summer of 2010? That’s when Singapore will host the world’s first Youth Olympic Games.

Last but not least, may I wish you and your family a happy relocation as you prepare to move into the White House by late January!

Yours sincerely,

Zhen Ming

Source: The New Paper, Sun 09 Nov 2008

2008-11-03T09:03:00.007+08:00

Oil prices have dipped to half of their record high, so ....

Utilities bill to fall by next year?

By Zhen Ming

I'M staring at my SP Services bill for October and it's not good.

Below the total current charges (inclusive of GST), I am reminded, with effect from 1 Oct, electricity tariff is 30.45 cents/ kWh - up 21.5 per cent from previously.

My only consolation is that this electricity tariff rate rise is not permanent.

In fact, it's quite likely that my monthly utilities bill will fall back by 2009.

That's because the outlook for oil is weak.

Oil fell again on Halloween (freaky Friday?) - the last trading day of October - as the global economic crisis put crude on track for the biggest monthly drop ever.

US crude fell US$1.82 ($2.70), or almost 3per cent, to US$64.14 a barrel by mid-day Friday. It is now down by around 35 per cent for October - its steepest monthly decline to date as demand worldwide slows. This, despite an OPEC output cut.

Simply put, oil prices are now at well below half the level of their July all-time high of US$147.27.
What's more, oil prices could soon test the US$50 level again.

Quite amazing, I'm sure you'll agree, when you look back at 2007 when oil prices rose from just above US$50 in January to near US$100 at year's end. (Back then, the crude oil spot price in the US actually averaged US$72 for the whole year.)

Good news

Good news, I suppose, for all heads of household who have to pick up the tab for the monthly utilities bill. And don't forget the Singapore motorist, too.

If I'm not sounding overly enthusiastic about this financial reprieve, it's because I'm also worried about the longer-term implications.

While it's good news to know that global demand for oil is shrinking (85.7 million barrels a day in 2007), it's bad news to learn that the world is having a hard time expanding oil supply fast enough to keep up with this dwindling demand.

Energy companies must therefore continue to invest despite the downturn to avoid another spike in oil prices once the economy recovers, the chief executive of the French oil company Total said Wednesday.

'Supply will remain short, and if we don't pay attention, the recovery will come and supply will be less and the price will climb again,' Mr Christophe de Margerie said during a speech at last week's Oil & Money 2008 conference in London.

Mr de Margerie's comments echo warnings by others that the tightening of credit might lead energy companies to abandon or postpone necessary oil projects, which could threaten supply in the future.

Output from the world's oilfields is already declining faster than previously thought, the first authoritative public study of the biggest fields shows.

Without extra investment to raise production, the natural annual rate of output decline is 9.1 per cent, the International Energy Agency (IEA) says in a draft of its forthcoming annual report, the World Energy Outlook.

More investments needed

Further investments are therefore needed to make up for the natural decline of output at existing oil fields, including those in the North Sea, Russia and Alaska.

'The future rate of decline in output from producing oilfields as they mature is the single most important determinant of the amount of new capacity that will need to be built globally to meet demand,' the IEA says.

Simply put, the oil industry is now running faster and faster, just to stand still.

The good news? This decline will not necessarily be felt in the next few years because demand is slowing down. But with the expected slowdown in investment, the eventual effect will be magnified in later years, oil executives warn.

The bad news? The IEA expects oil consumption in 2030 to reach 106.4 million barrels a day. All this increase in oil demand will come from emerging countries.

All in all, the world will need US$45 trillion - roughly three times the size of the US economy - in new energy investments.

Take it from me, one way or another, we'll all have to pay for this global effort.

Source: The New Paper, Sun 02 Nov 2008

2008-10-30T12:54:00.010+08:00

Race to the White House

Who'll be the economic heavyweight?

The answer may surprise you —
the economy has historically preferred Democrats

By Zhen Ming

THE US election is five days away, but many believe it’s a done deal.

Two Thursdays ago, Paddy Power PLC, Ireland’s largest betting agency, announced that it was so confident in the outcome of this year’s US election that it would start paying out over 1 million euros (around S$2 million) on bets already made that Mr Barack Hussein Obama II will become the next president.

Bets aside, barring something sinister between now and next Tuesday, Mr Obama, the 47-year-old first-term US Senator from Illinois, will be elected America’s 44th President — and its first African-American one, too.

He will face the most financially-challenged economy for any new US President since Mr Franklin Delano Roosevelt took over amid the Great Depression in 1933.

But what if Mr Obama were to lose to his Republican rival, Mr John McCain?

Will that usher in a better, or bleaker, economic future for the US (and the world)?

Rethinking the known

According to conventional wisdom, Mr McCain’s free-trader mindset should be a definite plus point for world trade and a booster shot in the arm for the stock market.

Stock returns should therefore improve when the Republican maverick is in office since the Grand Old Party is traditionally regarded as pro-business and anti-tax.

Democrats, on the hand, have been much maligned for their anti-business, tax-and-spend platform (which seeks to redistribute wealth from the rich to the poor).

Well, guess what?

This conventional wisdom about how well or not the stock market will perform if one party or the other wins is, in the end, all urban legend.

According to a 2003 study, expect better stock market returns but only when the US Presidency is held by a Democrat!

Political cycles

Peace and prosperity for all — but only if the next US President were a Democrat?

Yes, say the University of California’s Pedro Santa-Clara and Rossen Valkanov.

They analyzed stock market returns between 1927 and 1998 in their book The Presidential Puzzle: Political Cycles and the Stock Market and uncovered these findings:

When a Republican president held office, the value-weighted return of the US stock market delivered an excess premium of a miniscule 1.7 per cent over three-month US Treasury bills.

But when a Democrat held office, the excess gain over T-bills was a chest-thumping 10.7 per cent.

In the same vein, results from an equal-weighted portfolio were even more startling — with a whopping 16.5 per cent excess premium for Democrats as compared to a very dismal, NEAR-ZERO per cent, deficit discount for Republicans.

Is it possible, then, that the Democrats — the so-called anti-business party — will, ironically, generate much better results for business than the Republicans?

Frenetic 77-day transition

Whatever the case, “Dr Obama” will still have tough medicine to prescribe when it comes to deciding how best to turn the US economy around.

He will probably have to set aside some of the campaign promises (at least for now) to problem-solve five economic priorities on his to-do list. (See report, below.)

Expect, therefore, the 77-day transition period between the election and inauguration to be frenetic, frenzied and even frantic.

WHAT HE NEEDS TO DO IF ELECTED

Restoring public confidence through regular fireside broadcasts during first 100 days so that the US can meet and solve the financial challenges ahead.

Figure out how best to put his own stamp on the financial industry rescue plan to “part nationalize” more banks, insurers and assorted financially-distressed companies.

Revamp a regulatory structure largely built during the Great Depression so that it better reflects the speed and complexity of the current global financial system.

Burn the midnight oil, from 5 November onwards, to prepare a revised US Budget for fiscal 2010, due by early February.

Multi-task on all else, such as being prepared for terrorists to strike during the transition, while reviewing the campaign promises to expand healthcare coverage without increasing the tax burden of 95 per cent of all Americans.

Source: The New Paper, Thu 30 Oct 2008

2008-10-27T22:24:00.007+08:00

When it's good to destroy

There's a silver lining during such gloomy times

By Zhen Ming

NOT all of The Great Crash is bad.

If history is to repeat itself, what will follow has to be not only good for the world's economy, but would probably be better than its previous model.

On Friday, on the 79th anniversary of the stock market crash that began the Great Depression, Wall Street joined stock markets around the world in a huge sell-off.

This massive sell-off sent major market indexes to their lowest levels in more than five years, on the belief that a punishing economic recession is at hand.

This fear of economic history repeating itself is part of the dog-eat-dog world of big-time business.

Except, here, we business-types prefer to call it 'creative destruction'.

Creative destruction is good

This is a term first coined by economist Joseph Schumpeter in his work entitled Capitalism, Socialism and Democracy (1942) to denote a 'process of industrial mutation that incessantly revolutionises the economic structure from within, incessantly destroying the old one, incessantly creating a new one'.

In business, creative destruction - not unlike greed - is not only inevitable, it is good.

Creative destruction occurs when something new (usually better) 'kills' something older.

Out of this seemingly merciless destruction, a new spirit of creativity arises.

A great example of this would be the advent of personal computers.

The PC industry - led by Microsoft and Intel - destroyed many mainframe computer companies in the process.

A dozen years ago, James Grant - perhaps one of the wisest commentators on Wall Street - wrote a book called The Trouble with Prosperity.

Grant's survey of financial history basically captures his crusty theory of 'economic predestination'.

According to Grant, we all go through cycles of self-delusion, sometimes too giddy and sometimes too glum.

The consolation is that the genesis of the next business take-off usually lies in the ruins of the last economic shake-out.

Essentially, our economic triumphs and follies will always follow a predestined circular rhythm - one that can be influenced but never be circumvented.

Thus, if things seem dismal now, they will surely get better. Crisis, in fact, spawns opportunities and progress.

Heroic examples from history

And there are enough heroic examples from history that might encourage you.

Walt Disney, for instance, lost an acting job as a movie extra and started his famous cartoon company in a garage during the recession of 1923-1924.

Years later, in 1938, William Hewlett and David Packard teamed up in Silicon Valley during the Great Depression.

And then there's Bill Gates. He dropped out of Harvard College to launch Microsoft during a downturn in 1975.

The Great Depression debate

The recent bailout events - the stock market's wild swings - have thrust everyone from Seattle to Singapore into a debate about the risks of another Great Depression.

Has enough been done to protect the economy? Who or what caused this mess? Also, what does all this mean?

If you must know, it means that, in terms of the stock market, the Dow Jones industrial average will again find its way back down near 7,000 to see whether that is the new floor, or if it is somewhere even below that.

It means, buckle up, we're in for a lousy economy.

And it also means the financial sector is not out of the woods and more banks could get in trouble.

Rest assured, however, after a recessionary phase, the expansionary phase will start again.

After all, in the repetitive circle of business life, bad times can only breed good.

Something you can, most definitely, count on.

Source: The New Paper, 26 Oct 2008

2008-10-24T12:00:00.009+08:00

NOBEL PRIZE WINNER PAUL KRUGMAN

He's speaking up for ordinary Joes

By Zhen Ming

THE problem first started with financial intermediaries.

Back then, the institutions whose liabilities were perceived as having an implicit government guarantee were essentially unregulated.

This led to severe moral hazard problems.

Consequently, the excessive risky lending of these institutions created inflation - not of goods but of asset prices.

The overpricing of assets was then sustained in part by a sort of circular process: The proliferation of risky lending first drove up the prices of risky assets which, in turn, made the financial condition of the intermediaries seem sounder than what it was.

And then the bubble burst.

Sounds familiar? Sounds like 2008? And sounds like the final bursting of the recent US housing bubble, doesn't it?

Yes, it does sound familiar. Yes, it does sound like 2008. And yes, it does sound like mortgage titans Fannie Mae and Freddie Mac getting themselves in deep trouble.

But it is not. It is instead an incisive analysis of what happened back in 1997. And the financial institutions that were in deep trouble back then were those in Asia.

This analysis was first made by none other Mr Paul Krugman, a professor at Princeton and concurrently an Op-Ed page columnist for The New York Times.

And as all economists should know by now, Mr Krugman, 55, will receive this year's Nobel Memorial Prize in Economic Science in Stockholm, Sweden on 10 December.

The prize, however, was awarded for earlier academic research that Mr Krugman had conducted, starting in 1979, on the 'analysis of trade patterns and locations of economic activity'.

Mr Krugman's solid-gold reputation, however, was only forged in the mid-'90s, when he was among the most consistent predictors of the 1997 Asian crisis.

A couple of years later, he correctly predicted that Asia would stage an impressive comeback.

But this enfant terrible of international trade theory, this self-proclaimed 'conscience of a liberal' - a larger-than-life critic of US President George W Bush - is not without controversy.

Back in September 1998, Mr Krugman irked the Western establishment, especially the International Monetary Fund, when he openly supported the controversial economic strategy of then Malaysian Prime Minister Dr Mahathir Mohamad.

Back then, Dr Mahathir had blamed machinations by Western speculators for Malaysia's woes. He had also imposed temporary controls on the outflow of capital - 'a step denounced by all but a handful of Western economists'.

At that time, in his September 1998 article for Fortune titled Saving Asia: It's Time to Get Radical, Mr Krugman had called for emergency currency controls.

Shortly after its publication, Dr Mahathir boldly implemented Mr Krugman's 'radical' recommendations.

Said Mr Krugman: 'As it turned out, (Dr Mahathir's) economic strategy was right.'

More recently, with the onset of the latest global financial crisis, Mr Krugman has shifted his focus to highlighting President Bush's many failed economic policies.

In his 9 Oct 2008 op-ed column entitled Moment of Truth, he said: 'Last month, when the US Treasury Department allowed Lehman Brothers to fail, I wrote that Henry Paulson, the Treasury secretary, was playing financial Russian roulette.

'Sure enough, there was a bullet in that chamber: Lehman's failure caused the world financial crisis, already severe, to get much, much worse.'

Tough line

But with the US elections only 12 days away, Mr Krugman has also flagged key bread-and-butter issues that concern ordinary Americans.

On supposedly 'ordinary American' Samuel J Wurzelbacher (America's by-now-famous and very-highly-paid 'Joe the Plumber'), he quipped: 'You may recall that in one of the early Democratic debates, Charles Gibson of ABC suggested that US$200,000 ($300,000) a year was a middle-class income.

'Tell that to Ohio plumbers: According to the May 2007 occupational earnings report from the Bureau of Labor Statistics, the average annual income of 'plumbers, pipefitters and steamfitters' in Ohio was US$47,930.'

For now, as far as Mr Krugman is concerned, the most important thing for him is to make ordinary Americans realise that 'the story of modern America is, in large part, the story of the fall and rise of inequality'.

Spoken like a true-blue bleeding-heart economist. And one with a liberal conscience too.

Source: The New Paper, Thu 23 Oct 2008

2008-10-20T20:30:00.007+08:00

3 Fridays in 3 cities yield 3 remedies

By Zhen Ming

I'VE somehow crash-landed my time-machine in the middle of Harvard Square on 8Aug 2008 when I should have been at the Bird's Nest in Beijing.

But my wayward trip on this freaky Friday is not entirely wasted.

While the Chinese capital is enjoying its Olympic moment, I learn first-hand that three of the biggest banks operating in the US - UBS, Citigroup and Merrill Lynch - have pledged to buy back nearly US$39 billion ($58 billion) worth of bonds that their retail clients couldn't sell.

The Swiss bank UBS has reached a US$19.4 billion agreement to buy back bonds in the biggest settlement yet over claims that several US banks had misled investors to buy the so-called 'auction-rate securities', the Massachusetts Secretary of State's office at Beacon Hill in downtown Boston said on that momentous Friday.

Citigroup's buyback - announced just a day earlier in coordination with US regulators - called for the bank to re-purchase up to US$7.3 billion of bonds from its smallest customers in the collapsed US auction-rate securities market.

Merrill (soon to be acquired by Bank of America) also announced its plan, which called for the bank to buy back up to US$12 billion in bonds.

For an industry that normally vigorously stonewalled investor lawsuits and delayed settlements with US regulators, the astonishing speed and seeming generosity of the buyback plans indicated the severity of the three banks' public relations problem.

In reaching their settlements, the three banks did not acknowledge any wrongdoing.

Fast forward 70 days and I find myself teleported to Hong Kong. And it is here that I experience deja vu - basically, yet another freaky Friday.

After weeks of wrangling with small investors, the Hong Kong Association of Banks announces that it has agreed to a government plan - more like an ultimatum, to me - for ALL banks in Hong Kong to buy back, at market prices, the by-now-infamous 'Minibonds'.

(These are complex structured products once arranged by the now-bankrupt Lehman Brothers and sold aggressively through Hong Kong banks.)

Reportedly, more than 40,000 affected investors in Hong Kong - many of them pensioners whose life savings were tied up in the products - have been staging noisy demonstrations in protest.
They are particularly angered by what they perceive as 'misleading' marketing techniques by the banks that sold the products.

All in all, they had bought some HK$20 billion ($4 billion) of these structured notes.

Rightly or wrongly, the Hong Kong Monetary Authority and the Securities Futures Commission there have borne the brunt of the flak for failing to monitor the financial institutions selling these products.

Quick closure

But with this latest move, the banks in Hong Kong are hoping to bring to a quick close an issue that has caused widespread anger and mistrust.

Meanwhile, the fate of the Minibonds that brought the global credit crunch closer to the lives of ordinary Hongkongers has also been felt in Singapore.

Last Friday, in an announcement, partly in response to developments in Hong Kong, the Monetary Authority of Singapore (MAS) said it now wants banks and other financial institutions here to give 'top priority' when investigating complaints of mis-selling similar Minibonds to lowly-educated retiree investors.

MAS also wants the financial institutions to avoid taking an 'overly legalistic' approach in dealing with such cases. And in situations where the product was mis-sold or was clearly inappropriate, given the investor's profile and circumstances, MAS wants the institutions to take full responsibility.

'We expect them to do the right thing,' said MAS managing director Heng Swee Kiat at Friday's press conference.

Asked to elaborate, Mr Heng later told The Straits Times in an e-mail reply that 'the financial institutions should reach a fair settlement in full or in part'.

Said former NTUC Income chief Tan Kin Lian, who has championed the plight of Minibond investors in Singapore: 'I suggest (for most cases) that the amount to be paid can be the current value plus half of the difference; that is, the investor and distributor share the loss equally.'

Expect Singapore's 'tailor-made' solution - which strives for fairness - to drag on, as every claim here has to be worked out case by case.

In contrast, Hong Kong's 'one-size-fits-all' solution - which strives to buy back all Minibonds at the same price- is likely to proceed efficiently, though it may seem somewhat arbitrary, even unfair.

Many Hongkongers have, in fact, rejected this plan. They want a full refund instead - something possible only under special circumstances in Singapore.

Source: The New Paper, Sun 19 Oct 2008

2008-10-17T11:22:00.006+08:00

Sometimes, it pays to hold on

By Zhen Ming

WICKED. That's the only way to describe last week's stock market rout.

We're only halfway through, but expect this October to go down in the annals of world financial history as the global financial system's most volatile month ever.

Earlier this week I had watched, from the safety of the sidelines, wide-mouthed and flabbergasted, as Wall Street stormed back after its worst week ever to stage the biggest single-day stock rally since the Great Depression in the 1930s.

The benchmark Dow Jones industrial average regained 11.6 per cent in one day - after tumbling some 22 per cent over the previous eight trading days.

That was on Monday.

Global stock markets staged a historic 'relief rally' on that day, as European governments pledged a total of 1.87 trillion euros (about $3.7 trillion) to save their ailing banks, and as the US confirmed it would follow suit with a similar rescue.

Watching US investors rummage through the financial wreckage on Wall Street for so-called bargains, you might think the worst is over.

But is it?

To answer this question, we need to take a closer look at last week's historic fall on Wall Street, which left the Dow at 8,451 on that frenzied Friday - 40.3 per cent off its 9 Oct 2007 all-time high of 14,164.

Friday was a roller-coaster day that saw the Dow dip briefly below the 8,000-point mark before creeping back up as investors snapped up last-minute bargains.

Indeed, last week's precipitous drop eclipsed the dark days of the Great Depression.

All in all, the Dow lost 18.2 per cent over five days, worse than the dismal week that ended 22 Jul 1933, when it plunged 17 per cent - and that was when the exchange on Wall Street was open six days a week.

But consider the worst period in history from a long-term investor's perspective.

If you were 55 just before the stock market crashed in 1929, and had been rich enough to invest US$100,000 in the market, you would have been in a very sorry shape by the time you retired 10 years later.

After an 83 per cent decline in the stock market by 1932, you would have recovered some of your money by retirement in 1939 - but not all of it.

On your retirement, you would have had only US$60,200 for your nest egg, according to market data tracked by Ibbotson Associates, a Chicago research firm.

That's because, on average, it took an investor just before the 1929 crash almost 13 long years to recover all that was lost.

But what about younger investors?

If you were only 25 just before the 1929 crash, the humongous loss in the Great Depression would have been a distant memory by the time you retired in 1969.

By then, you would have seen your US$100,000 investment grow 21-fold to US$2.1 million.

A harsher bear market

But, young or old, don't count on history repeating itself to prove you right.

This bear market - a term often defined as a prolonged drop in stock prices of 20 per cent or more - already is harsher than most of the 10 bear markets since the 1930s. (Those earlier bear markets have lasted an average of only 16 months from peak to trough.)

Expect a turnaround no earlier than 2010.

The Hong Kong Monetary Authority, for instance, has said that it would provide government backing for all of the US$773 billion in Hong Kong bank deposits through 2010 as government assistance for banks in Europe and the US put pressure on Asian regulators to follow suit (though Asian banks tended to be better capitalised).

The good news? Since the record 83 per cent plunge in 1929-32, the current market plunge is exceeded only by the drops of 49 per cent in 2000-02 during the dotcom implosion and 48 per cent in 1973-74 during a recession and energy crisis.

Unfortunately, many investors have now convinced themselves that this time it's different - that the credit crisis could push economies worldwide into the deepest recession since the Great Depression.

But in their panic, investors are ignoring 70 years of history.

Since the Great Depression, governments throughout the world have become far more aggressive about intervening when credit markets seize up or economies struggle.

And, trust me, those interventions have generally succeeded.

Source: The New Paper, Thu 16 Oct 2008

2008-10-13T12:47:00.010+08:00

Should CEOs take ethics oath just like doctors?

By Zhen Ming

SHORTLY after the eyeball-popping terrorist attacks of 9/11, US investors on Wall Street came under a gut-wrenching attack of another kind.

It was an attack similar to the kind we all saw last week when markets around the globe lost an estimated US$6 trillion (about S$9 trillion) in a non-stop wave of panic selling. (This humongous loss, over just five days, is equivalent to snatching away US$3,600 in hard-earned savings from every family of four on this planet.)

Then, big corporations like Enron and WorldCom admitted that they had overstated their earnings by billions of dollars.

They went bankrupt, so did a few other big companies which had done the same.

All in all, these scandals wiped out some US$500billion worth of investments in US stocks.

The current crisis and the one in 2001 had one thing in common. CEOs, many of whom had MBAs from top universities, were too greedy.

In a new article in the Harvard Business Review, Rakesh Khurana and Nitin Nohria - who both teach at the Harvard Business School - say that it is time for a managerial version of the Hippocratic Oath, to which all doctors must swear (see sidebar).

Implicit in their argument entitled 'It's Time to Make Management a True Profession' is a criticism of the MBA degree itself, which many of today's failing managers hold.

According to the two professors, true professions have codes, and the meaning and consequences of these codes are taught as part of the formal education required of their members.

Two schools of thought

But the main challenge in writing an enforceable Hippocratic Oath for CEOs lies in two deeply divided schools of thought.

One school argues that management's aim should simply be to maximise shareholder wealth; the other argues that management's purpose is to balance the claims of all the firm's stakeholders.

Professor Jeffrey Pfeffer of Stanford's Graduate School of Business thinks the oath itself will do little to change things.

'This oath, in and of itself, will do little or nothing to professionalise management. That does not mean it is a bad idea, only that a pledge is insufficient to fix the problem.

'The core issue is that business education uses economic language and theory as its primary foundation, and economics proceeds from the assumption of self-interest. It is hard to 'square' that intellectual foundation with a pledge to take the interests of other parties into account.'

Indeed, of late, there has been much tongue-lashing at the failure of the MBA courses that Wall Street's 'best and brightest' took before rising up the ranks of global finance and making those big mistakes.

As I see it, the question is do we need MBAs at all to recognise the fact that someone is a good manager?

Many, after all, believe that management is as much art as science, better mastered through experience than formal education.

I asked Professor Pfeffer (who taught me 'Power and Influence' at The B-School).

He said: 'I don't think experience is the only valid teacher... Management education could add more value and may - given the many reforms in business school curricula now being implemented.'

Nobel Prize-winning economist A Michael Spence, however, believes that an MBA is merely a signalling device: Going to a business school allows individuals to credibly signal their greater commitment to a career in management.

And many MBA students have yet a different perspective: They believe that business school is simply an opportunity to develop a robust network of peers and alumni.

Indeed, the success of iconoclasts like Bill Gates - a Harvard dropout, no less - might suggest that a lack of formal management training was a positive advantage in becoming a successful entrepreneur.

The proposed CEO oath

Hippocratic Oath for managers? The Hippocratic Oath is an oath taken by doctors to ensure medicine is practiced ethically. The following is the oath Harvard professors Khurana and Nohria has proposed for managers.

As a manager I serve as society’s fiduciary for one of its most important institutions: enterprises that bring people and resources together to create valued products and services that no single individual could produce alone. My purpose is to serve the public’s interest by enhancing the value my enterprise creates for society. Sustainable value is created when the enterprise produces an economic, social, and environmental output that is measurably greater than the opportunity cost of all the inputs it consumes. In fulfilling my role:

I recognize that any enterprise is at the nexus of many different constituencies, whose interests can sometimes diverge. While balancing and reconciling these interests, I will seek a course that enhances the value my enterprise can create for society over the long term. This may not always mean growing or preserving the enterprise and may include such painful actions as its restructuring, discontinuation, or sale, if these actions preserve or increase value.

I pledge that considerations of personal benefit will never supersede the interests of the enterprise I am entrusted to manage. The pursuit of self-interest is the vital engine of a capitalist economy, but unbridled greed can be just as harmful. Therefore, I will guard against decisions and behavior that advance my own narrow ambitions but harm the enterprise I manage and the societies it serves.

I promise to understand and uphold, both in letter and in spirit, the laws and contracts governing my own conduct, that of my enterprise, and that of the societies in which it operates. My personal behavior will be an example of integrity, consistent with the values I publicly espouse. I will be equally vigilant in ensuring the integrity of others around me and bring to attention the actions of others that represent violations of this shared professional code.

I vow to represent my enterprise’s performance accurately and transparently to all relevant parties, ensuring that investors, consumers, and the public at large can make well-informed decisions. I will aim to help people understand how decisions that affect them are made, so that choices do not appear arbitrary or biased.

I will not permit considerations of race, gender, sexual orientation, religion, nationality, party politics, or social status to influence my choices. I will endeavor to protect the interests of those who may not have power, but whose well-being is contingent on my decisions.

I will manage my enterprise by diligently, mindfully, and conscientiously applying judgment based on the best knowledge available. I will consult colleagues and others who can help inform my judgment and will continually invest in staying abreast of the evolving knowledge in the field, always remaining open to innovation. I will do my utmost to develop myself and the next generation of managers so that the profession continues to grow and contribute to the well-being of society.

I recognize that my stature and privileges as a professional stem from the honor and trust that the profession as a whole enjoys, and I accept my responsibility for embodying, protecting, and developing the standards of the management profession, so as to enhance that respect and honor.

Source: The New Paper, Sun 12 Oct 2008

2008-10-10T18:05:00.009+08:00

Global financial turmoil

SLAUGHTER IN EUROPE

Recovery harder with European dis-Union

By Zhen Ming

BEER festival Oktoberfest, usually a 16-day event held each year in Munich, Germany, ended last Sunday and attracted six million visitors. This is 200,000 fewer than last year.

Beer consumption fell by 300,000 litres to 6.6 million litres - due probably, in part, to the cold and rainy weather.

Thankfully, there wasn't much real-life blood-letting at the festival - the number of oxen slaughtered for food remained stable at 104.

Not so, on the morning after. Not so, for the tens of millions of cowering bulls slaughtered in financial markets throughout Europe and elsewhere globally.

With the party over, visions of German men in hillbilly lederhosen and German women in milkmaid dirndl vaporised the moment Europeans awoke on Monday from their drunken stupor to the stark realisation that the European Union (EU) now faces a banking and economic crisis of its own, not linked solely to bad US sub-prime debt.

Consequently, on what's now called Red Monday, many of the already-castrated financial bulls throughout the EU were gingerly slaughtered in a market bloodbath on a scale not seen in recent times.

And while the thundering herd throughout the EU and elsewhere tried to flee helter-skelter by selling frantically - on a growing realisation that the global credit crisis was likely to take a heavy toll - their mass panic only helped them to collectively lose US$2.5 trillion ($3.7 trillion) on that one day alone.

Thus far this week, European bankers are still scrambling to complete mergers and win government backing for emergency rescue packages. The EU's once-proud financial sector resembled a jungle in which only the fittest are likely to survive.

But as the disunited European leaders continue to bicker over the need for a continent-wide bailout solution, Britain and Spain couldn't wait. They have moved ahead to mount separate rescues of their own financial industries.

For instance, UK Prime Minister Gordon Brown on Tuesday night ordered a massive taxpayer-backed cash injection to rebuild the balance sheets of Britain's High Street banks, effectively part-nationalising the sector at a cost of tens of billions of pounds.

Loss of confidence

The root cause of the EU's current banking woes? Simply put, it's the loss of trust and confidence among the banks themselves.

Mr Bob McDowall, European research director at financial services consultancy Tower Group in London, said: 'Banking is like religion. It's all about trust and confidence.

'Governments and regulators are trying to demonstrate firm leadership and show confidence, but banks don't trust each other.'

Underlying this panic is the EU's over-leveraged banking system.

The more you borrow on top of the funds (or equity) you already have, the more highly leveraged you are. Take the 'overall leverage ratio' - a measure of a bank's total assets to its shareholder equity. For the average European bank, the ratio is 35 (due to large in-house investment banking operations). For the largest US banks, it is below 20.

This means that relatively small writedowns on a typical European bank's assets could have a potentially devastating impact on its razor-thin capital.

Power vacuum

The EU is also in a financial quandary because of a perpetual power vacuum. There's no real boss, so to speak. So, while the US is being governed from Washington, the EU governs itself from 27 national capitals and Brussels (its capital city).

The resulting irony could be that even though banks in the EU have, on average, engaged in less of the risky lending that pulled down so many of their American counterparts, a European banking recovery could take even longer.

The problem here is not a lack of understanding of how to stop financial crises. The problem here is a lack of political will.

Sadly speaking, unless European leaders unite to address this crisis before it spirals out of control, they may find themselves fighting over how best to salvage what's left.

Source: The New Paper, Thu 09 Oct 2008

2008-10-06T16:08:00.007+08:00

Star who stayed a son of the soil

Actor Paul Newman a shining example of social entrepreneurship

By Zhen Ming

I USED to live only a stone's throw away from Hollywood screen legend Paul Newman and his wife Joanne Woodward 30 years ago. I am glad I did.

And, not unlike millions around the world, I was sad to learn of Newman's passing two Fridays ago, after a long battle with leukaemia. He was 83.

Back in 1978, a spritely 53-year-old Newman had returned to the campus of his alma mater Kenyon College in Gambier, Ohio - where I was an undergraduate - to direct the first production in the university's new Bolton Theatre.

Back then, I would hurriedly pass Newman's home while on my way to classes.

Sneaking a daily peek at his front porch to see if he was there, I would wonder why someone like him would bother to come back to this 'hole in the wall' place, where he had once landed in jail after a bar room brawl and where he had later graduated 'magna cum lager' (alluding to his extreme fondness for beer).

As a World War II navy veteran, Newman entered Kenyon on an athletic scholarship. He played American football and acted in a dozen plays before graduating in 1949.

But Newman the blue-eyed movie star was much more than just your regular Hollywood 'pretty face'. He was also a political activist and what you might call an 'entrepreneur-philanthropist'.

Newman's legacy to Kenyon, for instance, includes a long history of generous, usually unpublicised donations, culminating in a recent US$10 million ($14 million) gift for scholarships which made headlines worldwide.

Privately, Newman often considered himself more lucky than talented to have the career he achieved.

Luck had, in fact, made all the difference. Luck to get into a hit show on Broadway; luck to be snapped up by Warner Brothers, and luck to be picked for his breakthrough film called 'Somebody Up There Likes Me'.

Newman's Own (the food company he co-founded in 1982 with writer AE Hotchner), in fact, began as a happy-go-lucky joke - putting homemade salad dressing in an old wine bottle, tying it with a ribbon, and then giving it away to friends.

Today Newman's Own is a top-grossing multi-million-dollar business which donates ALL its profits after tax - more than US$250 million so far - to some 1,000 charities and causes around the world (including Newman's personal favourite, the 11 'Hole in the Wall Gang' camps for children with life-threatening illnesses).

You might think that Newman's Own is an unusual form of enterprise, where the entrepreneur recognises a social problem and uses traditional entrepreneurial principles to organise, create, and manage a venture to make social change.

But it actually isn't.

Nobel laureate Muhammad Yunus pioneered a not-for-profit business to provide micro-credit to help those trapped in poverty.

In 1974, the unassuming economist started a social revolution when he lent US$27 to 42 Bangladeshi basket-weavers.

After years of dispensing small loans to the desperate, he set up the Grameen (Bengali for rural) Bank in Bangladesh in 1983 to help even more needy folk, whom he made part-owners of Grameen.

Today, Grameen is owned by 7.5 million Bangladeshis. And with a default rate of only 2 per cent, Grameen would be the envy of troubled US banks, with default rates of nearly 10 per cent.

From Muhammad to Newman, social entrepreneurs and social enterprises have come a very long way indeed.

And while other actors of his celebrity lived and partied in Hollywood and vacationed at exotic resorts, Newman and his family made their home in a Connecticut farmhouse and devoted their spare time to charitable enterprises.

Newman's circle-of-life parting shot: 'The trick of living is to slip on and off the planet with the least fuss you can muster. I'm not running for sainthood. I just happen to think that in life we need to be a little like the farmer, who puts back into the soil what he takes out.'

Source: The New Paper, Sun 05 Oct 2008

2008-10-04T01:07:00.011+08:00

New York had milk scandal too

By Zhen Ming

STEROID-FED pigs and chickens, fish pumped up with hormones, pesticide-laced dumplings and, yuck, lard made from sewage - so what else do you think is new?

In recent years, China's food and safety scandals have involved nearly everything unthinkable, from fake baby milk formulas and soy sauce made from human hair, to instances where cuttlefish were soaked in calligraphy ink to improve their colour and eels were fed contraceptive pills to make them grow long and slim.

But what about the latest tainted milk thingy? Picture this:

'The milk was marketed as pure and wholesome, and it looked fine to the naked eye. How were the mothers to know they were poisoning their babies? They had paid good money for it on the open market.

'It would take thousands of sick children before lawmakers did anything to stop it.'
Sounds familiar, doesn't it?

China in 2008?

No, New York City in 1858, points out Ms Bee Wilson, the author of Swindled: The Dark History of Food Fraud from Poisoned Candy to Counterfeit Coffee.

According to Ms Wilson, missing from the coverage of today's Chinese baby formula poisoning is how often it has happened in other countries before.

'The disaster unfolding now in China - and spreading inevitably to its trading partners - is eerily similar to the 'swill milk' scandal that rumbled on in New York for several decades of the 19thcentury,' she said.

In 1853, it was found that 90,000 or so quarts (85,000 litres) of cow's milk entered New York City each day. But that number 'mysteriously' increased to 120,000 quarts at the point of delivery.

And here's why there were 30,000 extra quarts.

Diluted, then padded

'Some of the increase was due to New York dairymen padding their milk with water, and then restoring its richness with flour - just like their latter-day Chinese counterparts, who increased the protein levels in watered-down milk by adding the noxious chemical melamine.

'But the greater part was swill milk, a filthy, bluish substance milked from cows tied up in crowded stables adjoining city distilleries and fed the hot alcoholic mash left from making whiskey.

'This too was doctored - with plaster of Paris to take away the blueness, starch and eggs to thicken it and molasses to give it the buttercup hue of honest Orange County milk.'

Back then, The New York Times reported as many as 8,000 American children each year died because of this 'swill milk'.

In the end, it took about 50 years for NewYork to clean up its food and safety act.
In China's case, news about its melamine-in-milk scandal seems to get worse with each passing day.

Tainted infant formula was also at the centre of another food scandal in China in 2004 that prompted a crackdown on rogue suppliers.

Then, more than 200 Chinese infants suffered malnutrition and at least 12 died after being fed phony formula that contained no nutrients.

So far, four infants have died and some 53,000have developed kidney stones or other illnesses after drinking the melamine-contaminated baby formula.

Not unlike New Yorkers in the past, Chinese producers trying to make more money often cheat by diluting milk with water, which lowers the nutritional content.

But the addition of melamine, which is high in nitrogen, helps the milk appear to meet nutrition standards by artificially raising its protein count.

'It's true you can make a lot more profit by putting melamine in,' said a Chinese animal feed seller.

'Melamine will cost you about US$1 (about $1.40) for each protein count per ton whereas real protein costs you about US$6, so you can see the difference.'

Not surprisingly, Chinese suppliers - squeezed by higher costs for fertiliser, feed, gas and labour - are believed to have turned to melamine.

But before you start pointing fingers, remember the uncanny similarities between China today and New York 150 years ago.

Remember, too, that the latest tainted milk scandal only shows how a fast-growing capitalist economy, coupled with a government unable or unwilling to regulate the food supply, can only mean one thing - an open invitation to wholesale swindling.

Source: The New Paper, Thu 02 Oct 2008

2008-10-01T18:58:00.010+08:00

Bickering, anger, scandal & drama have gripped Washington and Wall Street.

If it were a movie ...

EPISODE 1: RAIDERS OF THE U.S. TAXPAYER

By Zhen Ming

DASHING, money market adventurer, Indiana Bank and Auntie Sam have been seeing each other for years.

They are on a 1-on-1 romantic date at a fine-dining restaurant on Wall Street in New York when an awkward moment arises.

When the bill for the meal is presented, Auntie Sam sits pretty, expecting the usual - that it would be paid for by Mr Bank since he's the one who had asked her out.

Except that, ahem, this time around, Mr Bank is almost flat bankrupt.

He can't make the payment on his mortgage, his credit cards are all maxed out, and now he doesn't know how to tell it to Auntie Sam, the love of his life.

Fortunately for Mr Bank, Auntie Sam is a considerate girlfriend. Sensing a problem, she offers to split the bill.

In some South American countries, the people use a Spanish phrase 'pagar a la Americana' - literally, 'to pay American style' - to describe this bill-splitting.

Closer to home, in Thailand, this propensity for bill-splitting among non-Asians, particularly Americans, is often referred to simply as 'American Share'.

And 'American Share' it will be.

You can count on it - when it's time for someone to pick up the tab for the US Treasury's proposed US$700 billion (S$995 billion) bailout of Wall Street.

But first, a quick recap of what has happened.

The US rescue plan announced 10 days ago had sent stock markets worldwide shooting up the day after. But, despite the initial euphoria, stock markets earlier last week were back to their 'business-is-not-usual' selves.

Sensing stiff political resistance, US President George W Bush went 'live' on Wednesday night to urge the American people and their lawmakers to support his rescue package, saying that a failure to do so could plunge the US into 'a long and painful recession'.

At the heart of this package is a so-called 'Troubled Asset Relief Programme' (Tarp).

In its original version, Tarp calls for US Treasury Secretary Hank Paulson Jr or his successor to oversee the purchase of rock-bottom mortgage-backed securities at any price it deems right 'without oversight or legal recourse'.

Amazingly, Tarp will also pay Wall Street to save Wall Street. At a 'standard' management fee of 2 per cent a year, never mind the 'traditional' 20 per cent upside, Tarp could provide Wall Street with a hefty windfall of US$28 billion over two years!

No wonder Main Street is outraged - it's a blatant act of financial highway robbery!

Outrage aside, is Tarp a big enough tarpaulin to shield the US economy from the current financial firestorm? Also, will this plan, even in a modified form, work?

According to columnist Jonathan Weil writing for Bloomberg, the US Treasury will pay financial institutions above-market prices for garbage assets nobody else wants.

Then, through the magic of 'mark-to-Paulson' (instead of mark-to-market) accounting, everybody else that owns similar stuff will use those same prices, or marks, to value the trash on their own balance sheets

'Shazam! Banks and insurance companies write up the asset values on their books. They post big profits. Their capital goes up. Everyone gets fooled. And nobody knows the difference,' Mr Weil explained.

Financial confusion

'Except, we do. And that's why the plan probably won't work.'

Now you know why time is literally 'running out' for Wall Street - 30 Sep, just two days away, will mark the end of the third-quarter reporting period for 2008.

If this Tarp is not set in place by early next week, then mark-to-market accounting could spell financial confusion for Wall Street!

Inclusive of Tarp, the latest guesstimate for this clean-up on Wall Street is a whopping US$1.6 trillion - roughly US$5,200 for every American citizen.

So will 'American Share', in the end, mean only US taxpayers will have to share among themselves to pick up the tab?

But be thankful at least for Tarp - even if you don't subscribe to 'American Share' and even if you don't believe it'll work the way it's intended

That's because, by making it known that he had a bailout proposal, Uncle Sam has bought the markets the most valuable commodity of all - time.

And with Wall Street's clock ticking away, there may be only one thing worse than Tarp: No Tarp.

Source: The New Paper, Sun 28 Sep 2008

2008-10-01T18:52:00.007+08:00

Financial meltdown

The worst is yet to be

Why spending hundreds of billions of dollars won't help the financial crisis

By Zhen Ming

THE Pamplona bull run - made famous by American writer Ernest Hemingway in his novel The Sun Also Rises - starts promptly at 8am over eight days each year.

And so it did - on the dot - this year, just two months ago.

Every morning, from 7 to 14 Jul, runners dressed in white, each with a red handkerchief around their necks, were chased by six presumably fierce fighting bulls as well as two herds of relatively harmless bullocks.

Given the short distance of 825 metres - from the corral at Santo Domingo (where the bulls are kept) to the town's bullring (where they will fight that same afternoon) - the average time of this bull run, from start to finish, is about three minutes.

The Pamplona bull run, a part of Spain's famed Festival of San Fermin, is what you might call 'good clean fun'. Most times, no human runner ever really gets hurt (not in any serious manner, anyway), despite the adrenaline rush of its 'thundering herd'.

Not so for the bull run of another kind, in a city that never sleeps, across an ocean, six time zones away.

At precisely 9.30am on 7 Jul, in downtown New York City, a 'thundering herd' of wild and panicky investors started dumping shares of Fannie Mae and Freddie Mac on Wall Street - after a report suggested a change in accounting rules could require the two companies to raise more capital.

Thus began a topsy-turvy bull run that has gone astern - one that now threatens to stomp out the very foundations of the global financial system.

Over the past 77 days, what we have witnessed is the toppling of one Wall Street titan after another. Fannie Mae and Freddie Mac. Merrill Lynch. Lehman Brothers. The American International Group (AIG).

Who might be next?

But the US is not alone. The way things are going, 'The Nightmare on Wall Street' has now caught up with 'Greed in the City'.

In a commentary in The Guardian, rogue trader Nick Leeson who brought down Barings Bank in 1995 wrote: 'Quite simply, the banks have traded recklessly over the past 10 years and have put everybody's wellbeing at risk. Anybody and everybody could get whatever credit they wanted as recently as three years ago.'

More weak spots

And that's not all. Events took an ominous turn on Wednesday when it became clear that even US money market funds - supposedly safe repositories for some US$3.5 trillion in savings (roughly half of the US' M2 money supply) - were scaling back.

Yet another weak spot is the US$62 trillion market for credit default swaps (CDS). This has given US regulators nightmares after Bear Stearns went kaput in March.

Any collapse of this CDS market could lead to an even bigger mess than the fallout from the subprime mortgage debt.

That collapse almost happened last week when CDS trading volumes reached unprecedented levels as hedge funds and dealers tried to unwind their positions.

This panic prompted the US government to save AIG, a key player in the CDS market. AIG's collapse could have nuked other banks and ushered in the unthinkable.

But, you know, the US has seen worse before.

When President Franklin D Roosevelt took office in 1933 - right in the midst of the Great Depression - about 4,000 banks had closed in just two months.

It took him 100 days to roll out his New Deal programme for rescuing American capitalism from the depths of the Depression.

Now, in response to what economists call the greatest financial crisis since the 1930s, the US government rolled out, in less than a day, a sweeping series of actions aimed at preventing the global financial system from grinding to a total halt.

Not surprisingly, stock markets around the world rallied in relief, hoping that the US government's moves might finally address the roots of the problem.

What else needs to be done?

Leeson said: 'For my role in the collapse of Barings I was pursued around the world, and ended up being sentenced to six and half years in a Singaporean jail. Who is going to go after the reckless individuals responsible for this financial catastrophe? Apparently no one.'

Sad but true. As I see it, the US financial mess - even if it has already taken down a few Wall Street giants - is far from over.

After all, that 'thundering herd', first let loose on Wall Street 77 days ago, is still out there. Still frightened, still confused and still dangerously directionless.

Source: The New Paper, Sun 21 Sep 2008

2008-10-01T18:45:00.007+08:00

Save AIG, save the world?

US Federal Reserve bails out insurance giant to stabilise global fiancial markets

By Zhen Ming

YOU could see it in their afraid-to-lose-out faces: fear, anxiety and confusion.

Better safe than sorry, I suppose.

This was the sentiment on Tuesday when hundreds of policyholders of AIA Singapore - a subsidiary of the American International Group (AIG) - lined up outside its Shenton Way office to terminate their policies. This, despite assurances from the Monetary Authority of Singapore that AIA has 'sufficient assets' to meet its liabilities to policyholders.

A knee-jerk reaction, no doubt. It was triggered soon after news that AIG would be allowed to access US$20 billion ($29b) of capital from its own subsidiaries to help it out of its difficulties.

The US Federal Reserve announced yesterday that it would lend AIG up to US$85 billion in emergency funds in return for a government stake of 79.9 per cent in the company.

It was an extraordinary step meant to stave off the collapse of the giant insurer that plays a crucial role in the global financial system.

To be sure, most of AIG's businesses are still healthy.

But AIG was saved to save the world - because of its links to many of the world's financial institutions and the major role it plays in the largely-unregulated credit default swaps (CDS) market.

On Monday, for instance, the Dow Jones industrial average lost more than 500 points, its steepest point drop since the day the stock market reopened after the 11 Sep 2001 attacks. This wiped out some US$700b from retirement plans, government pension funds and other investment portfolios.

The carnage was, by far, the most stomach-churning in a single day since a financial crisis began to bubble up from billions of dollars in rotten mortgage loans.

Loans that have crippled the balance sheets of one bank after another, and that have landed mortgage giants Fannie Mae and Freddie Mac under the control of the US federal government.

Meanwhile, Merrill Lynch, the world's largest retail brokerage, had fled into the awaiting arms of Bank of America (BofA), in an all-stock deal worth US$50b.

BofA agreed to pay 0.8595 shares of its common stock for each Merrill share. The price, which comes to about US$29 per share at the time of the announcement, represents a 70 per cent premium to Merrill's share price last Friday.

On paper, Temasek Holdings - as Merrill's biggest shareholder - could stand to reap ballpark gains of US$1.5b from this sale. But this would have to depend on the value of BofA shares when the transaction closes in the first quarter of next year.

Meanwhile, it's getting lonely at the top of Wall Street's investment bank pyramid - with only two major players, Goldman Sachs and Morgan Stanley, still standing. Will they suffer a similar fate as their ex-rivals?

And the other question: What went wrong for the others? In one simple word: complexity.

Columnist Nils Pratley in The Guardian: 'The complexity lies in modern markets' love affair with derivatives - the financial contracts sold to the world as a way to reduce risk. Got too many mortgages on your balance sheet? No problem, slice them up, package them, sell them on. Worried about your trading partner defaulting? Buy some insurance. The possibilities are almost endless.'

Amazingly, the gross value of outstanding derivatives is now counted in tens of trillions of dollars.
Consequently, what was once a traditional backwater of the investment banking business has now become a principal activity - and a pretty dangerous one, too, as the great investor Warren Buffett figured out years ago.

His 2002 letter to his Berkshire Hathaway shareholders made headlines by condemning derivatives as 'financial weapons of mass destruction'.

They were 'time bombs, both for the parties that deal in them and the economic system'.

Back then, Buffett also made this gloomy prediction: 'The derivatives genie is now well out of the bottle, and these instruments will almost certainly multiply in variety and number until some event makes their toxicity clear. Central banks and governments have so far found no effective way to control, or even monitor, the risks posed by these contracts.'

Who to blame?

At the rate things are going, expect the pace of bank failures in America to pick up.
Who then should we blame for this mess?

Back in 1993, religious institutional investors began making 'eerily prophetic warnings' of an impending subprime mortgage debacle in the US, said Laura Berry, executive director of the Interfaith Center on Corporate Responsibility.

If the warnings had been heeded, the world 'would have avoided the kind of meltdown we are experiencing today,' she said.

Meanwhile, the globalisation of finance and the ability to move money and financial information with great speed through modern communications has perhaps multiplied the dangers from poor and unethical investment decisions.

It's a sure-fire recipe for disaster - with the benefit of hindsight, of course.

Source: The New Paper, Thu 18 Sep 2008

2008-10-01T18:40:00.009+08:00

The money's in green energy

Kicking our oil addiction & using alternative power will spur growth

By Zhen Ming

SOMETIME in the not-too-distant future, petrol at the pump could cost Americans a whopping US$40 a gallon (roughly, $15 a litre) - 10 times what it is today.

But that's not my real concern. What's troubling me is the imminent threat of global Armageddon.

You see, the Western Coalition (the US and Europe) are at war. Not with each other, mind you, but with the so-called Red Star Alliance (Russia and China).Singapore and the rest of the world, meanwhile, can only watch.

This time, though, the two warring sides are not fighting over tiny Georgia - that trans-continental country in the Caucasus.

This time, the stakes are much higher as the two sides square off over the world's last oil reserves - in a country called Turkmenistan, bordered by Afghanistan and Iran, located somewhere in Central Asia.

Amid hunger, water scarcity and power outages in this oil-rich desert country, soldiers from both sides descend upon bombed-out cities and abandoned villages to fight it out.

Thankfully, this 'dystopian' vision, set in the year 2024, is only speculative fiction.

It is presented in Frontlines: Fuel of War - a new video game, released earlier this year, inspired in part by contemporary fears about war over oil.

Before you say 'nah', consider what Mr Luis Cataldi, one of the game's developers, has to say: 'It's a global issue that everyone's very much aware of, but it's also fascinating.'

Fast forward to the year 2050 and what we will have is a more plausible, but truly scary, scenario in which the world will have used up its last drop of oil.

You see, as at the end of last year, the world was still sitting pretty atop a huge mountain of 1.3 trillion barrels of oil in proved reserves.

But the world has also been guzzling this oil at a breakneck speed of about 83.6 million barrels a day, which translates into some 30.5 billion barrels a year.

Assuming the world hasn't found new oil since 2007, and assuming also the world will stick to its current pattern of oil consumption, then what we'll see is a world that will run out of oil on Thursday, 21 July 2050 - less than 42 years away.

It's a doomsday date I don't wish to keep - one that's only as good as whether the world is able to find new oil, and whether it will also cut back. But all these moves will only delay, but not prevent, the inevitable.

And just in case you think I'm being a teeth-gnashing pessimist - that our way of life could disappear 42 years from now - wait till you hear what one Big Oil company itself has to say about this problem.

In a recent advertisement, Chevron made this telling point: 'It took us 125 years to use the first trillion barrels of oil. We'll use the next trillion in 30.'

Thankfully, the world is determined to kick its oil addiction and to go green.

Black gold has been good, but green gold is even better. Here's why.

Every nation that has taken serious steps to adopt 'a greener energy future' has reaped economic growth.

Take Sweden, which announced in 2006 the phase-out of all fossil fuels (and nuclear energy) by 2020. Thousands of entrepreneurs there have rushed to develop new ways of generating energy from wind, the sun and the tides, from wood chips, agricultural waste and garbage.

Rich returns

And guess what? Sweden is now the world's eighth most-affluent nation (on a per capita GDP basis).

The same goes for Iceland. It was once 80 per cent dependent on imported coal and oil in the 1970s and was among the poorest economies in Europe.

Today, Iceland is 100 per cent energy independent, and according to the International Monetary Fund, it is now the world's fourth-richest nation.

And did you know that Brazil's recent move to 'de-carbonise' its transport system has resulted in the most robust economic expansion in its history?

But how about the US - the world's most profligate user of energy?

As I see it, the US could soon lead the way by developing more efficient vehicles and by expanding carbon-free energy sources like wind and solar power.

Asserts Robert F Kennedy Jr, a senior attorney for America's Natural Resources Defense Council:

'The US has far greater domestic energy resources than Iceland or Sweden. We sit atop the second-largest geothermal resources in the world. The American Midwest is the Saudi Arabia of wind.

'Solar installations across just 19 per cent of the most barren desert land in the South-west could supply nearly all of our nation's electricity needs even if every American owned an electric car.'

By kicking its oil addiction, America will again increase its national wealth. Everyone else will then profit from this green gold rush.

Concurs Timothy Lutts, president of Cabot Heritage Corp: 'Today, though it's not widely acknowledged yet, what's being destroyed is our petroleum-based economy. That it's an entrenched part of our global economy is obvious. But it's been entrenched for less than a century - oil replaced coal, remember - and it's time for something better.'

As I see it, expect the providers of this 'something better' - clean green energy - to thrive beyond your wildest dream. Expect also individuals, companies and institutions with stakes in the old petroleum economy to fight back against this inevitable transition.

It is something unfortunate. But it is also something unavoidable.

Source: The New Paper, Sun 14 Sep 2008

2008-10-01T18:34:00.009+08:00

HOW DO AMERICANS VOTE?

With their gut

By Zhen Ming

QUICK question, dude - how many Deputy Prime Ministers do we have?

Please, please say you know the answer (it rhymes with flu).

Otherwise, man, we will be like the fellows in the US.More people there know the name of J K Rowling's boy wizard Harry Potter (57 per cent) than they do their vice president, Mr Dick Cheney (50 per cent), according to a survey by public opinion pollster Zogby International.

But wait, this name-recall thingy gets worse. According to the same survey, only 27 per cent could name both of their US senators.

But American voters are like that, you know.

In 1992, the one fact that almost every American voter knew about George HW Bush, besides that he was the incumbent US president, was that he loathed broccoli. A close second was the name of his pet dog, Millie, which 86 per cent said they knew.

But when it came to the positions of Bush and his opponent, Bill Clinton, on 'the important issues', American voters were, shall I say, 'a tad clueless'.

Just 15 per cent, for instance, knew that both candidates supported the death penalty.

American voters have what US psychologists now euphemistically call 'cognitive-processing limitations' - most cannot, or will not, learn about and remember candidates' records or positions.

This means they must substitute something else for that 'missing knowledge'.

A large fraction, in fact, use political party as that substitute - some 60 per cent typically choose a candidate solely, or largely, by party affiliation.

Single-issue voters

The next criterion is candidates' positions on issues - single-issue voters, in particular, will never even consider a candidate they disagree with.

Asserts political scientist Richard Lau of Rutgers University: 'That's when you get people voting by heuristics (cognitive shortcuts) and going with their gut, with who they most identify with, or with how the candidates make them feel.'

Because most American voters are not computers, willing and able to remember and analyse candidates' every position, they rely on, what some psychologists now call, 'gut rationality'.

In the 1992 campaign, for instance, when George HW Bush looked at his watch during a debate with Bill Clinton, the message that 'gut rationality' received was that 'Bush didn't want to be there'. Read his eyes, folks - you just can't trust him.

In contrast, during the debate, Clinton walked over to a questioner in the audience; as he looked into her eyes and spoke about the economy, she nodded and nodded.

That one small move led hundreds of thousands of Americans to go with their gut, change their minds, and vote for Clinton.

In other words, get real, all you political pundits out there. Don't expect most Americans to vote on 'the issues' - they're more likely than not to vote only for whom they like.

Childhood agendas

Explains Rev Sam Sewell, an ordained Christian clergyman and a psychotherapist: 'Ask any priest, pastor, rabbi, teacher, psychotherapist, supervisor or elected official and they will be happy to confirm that the people they deal with are all trying to work out their childhood agendas on any available authority figure.

'Some of us want a 'sugar daddy' and a 'sugar family' who takes care of us, and we cede our personal power and freedom to this Democrat Parent/Party who promises security.

'Some of us want a 'strong daddy' who will protect us from danger and who expects us to be strong as well, and we vote for a Republican Parent/Party.'

This year, the structural factors that the Democrats think favour them certainly exist. Americans are in a morose mood about the economy and the country in general. The unpopularity of President George W Bush - the other Bush - will act as a drag on Republicans.

Yet as November approaches, Democrat nominee Barack Obama and his Republican rival John McCain are still running neck and neck. It's a statistical dead heat but Mr McCain may now have a slight edge, if the latest polls are any indication.

Here's my politically incorrect hint: According to a recent New York Times poll, whilst only 5 per cent of American voters said they would not vote for a black candidate, 27 per cent said they thought the US was not yet ready for a black president.

Americans, in the end, are no worse, or no better, than the rest of us. They approach their politicians the same way they approach other people and issues, like who they want to marry and which breakfast cereal they prefer.

Expect, therefore, US political campaign ads in the weeks ahead to aim for the American heart, even when they seem to be addressed to the head.

As I see it, the campaign that best harnesses this 'power of the heart' thingy is just about certain to see its candidate at the White House.

And, to think, the fate of the world economy will have to ultimately depend on this go-with-the-gut voting decision.

Oh, what a system, you know. But somehow it works.

Source: The New Paper, Thu 11 Sep 2008

2008-10-01T18:28:00.008+08:00

MONEY POLITICS OR ...

How one million cows won an election

By Zhen Ming

DUDE, if I told you money politics has something to do with chickens and cows, you just might tell me I'm full of, well, chicken droppings.

But hold your horses (okay, more animals but bear with me).

Let me take to you back, to February 2005. Incumbent Thai multi-millionaire prime minister Thaksin Shinawatra, running for his second term in office, is promising running water in every province and computers for every school. He also says he is 'giving away' one million cows.

Thai government, he says, would 'lend' cows to poor farming families who could then sell the milk and calves for profit. They could also use the same cows as collateral, to borrow money for their farms.

Thaksin's promise reminds me of another promise, but in another place (the US), and in another time (1928). Back then, a campaign circular promoting the Republican Party presidential candidate, Mr Herbert Hoover, promised that if he won, there would be 'a chicken in every pot and a car in every garage'.

It was tacky but Mr Hoover's promise of prosperity contributed to a landslide victory for him.
In Thaksin's case, Thailand's rural poor was 'sold' on his promises and his Thai Rak Thai (TRT) party was convincingly re-elected in a landslide victory.

Power to the animals.

By fighting the election on a US-style party platform, Thaksin had re-written Thailand's social contract - with populist promises to redistribute income more fairly.

But this did not put an end to the dark side of money and politics that's still pervasive in Thailand (and, some say, most of Asia).

Prior to Thaksin, businessmen, mostly those with moderate wealth, had dominated Thai politics. But with Thaksin, a group of the biggest Bangkok business groups now called the shots.

Sometimes, in this Land of Smiles, corruption money comes in the form of big bribes. Here, detractors allege, the system 'works' because the 'unspoken' procedures for offering a bribe are well known and well understood.

'The parties involved are businessmen, and the bureaucrats and political office-holders who are in a position to influence business profits,' observed Mr Pasuk Phongpaichit, the co-author of Corruption And Democracy In Thailand.

'But the big issue and the big money is about the interface between business and government.

'Parliamentary candidates invest huge sums in getting elected. Indeed, by some estimates (not ours), the total unofficial expenditure on a Thai general election is equal to the official expenditure in a US presidential campaign. This, of course, is quite bizarre,' he added.

Except this is Thailand - and there are cows and cowboys a-plenty.

Goodbye, Thaksin

In September 2006, following months of anti-government protests by the People's Alliance for Democracy (PAD), the Thai military staged a bloodless coup.

Thaksin was booted out. A new Thai cabinet later scraped the TRT's controversial One Million Cows distribution project, citing 'non-viability' as the reason.

But the People's Power Party (PPP), alleged to be a proxy for the disbanded TRT, soon won new elections - on the back of a promise to now provide, would you believe it, two million cows - yes, twice as many as the TRT.

Except that this is Thailand - and our Thai urban cowboys are still at it.

Just 12 days ago the anti-government PAD took to the streets again. It raided a government-controlled TV station and launched protests outside several government ministries.

On Tuesday, one pro-government demonstrator died and 43 others from both sides were hurt in violent clashes, provoking prime minister Samak Sundaravej to declare a state of emergency and to propose a referendum.

So, what could happen next? So far, most of Bangkok has gone about its business as normal, though there are fears that there may be some economic fallout.

What's worrisome to me is the PAD's demand for a Thai-style 'New Politics'. It will automatically reduce every Thai citizen's right to elect their own representatives by at least half.

It's a class war between two well-moneyed groups; so for now, expect money and politics - our proverbial Siamese twins - to remain hopelessly inseparable.

Source: The New Paper, Sun 07 Sep 2008

2008-10-01T18:23:00.008+08:00

Are we doomed by global travel boom?

The travel bug is causing an epidemic that is bound to exact a heavy cost in the future

By Zhen Ming

IT'S the Muslim month of fasting, but Rabu's mind is not here.

Rabu is day-dreaming about his once-in-a-lifetime Haj, or pilgrimage to Mecca, this December.
It's an obligation of every able-bodied Muslim who can afford to do so.

Meanwhile, Daniel, a regional corporate mover-and-shaker, zips in and out of Singapore and 16 other Asia-Pacific countries effortlessly.

Daniel uses what's known as an Apec Business Travel Card, which helps him cut through the red tape of travel while on business, but sometimes for leisure too.

Both Rabu and Daniel are thoroughly bitten by the travel bug. And they're not alone.

International tourism is now one humongous cross-border phenomenon - one that sees hundreds of millions, each year, caught up in the craze of roaming the globe.

Is this a good thing for the world economy?

Well, yes and no.

Last year, there were over 903 million international tourist arrivals. That's equivalent to one foreign trip made by every seventh person on this planet (assuming, of course, we each travelled only once a year).

By comparison, in 1960, there were only 25 million globe-trotters.

This year the total number of cross-border trips we make should exceed 930 million.

By the year 2020, expect trains and planes and buses and cars the world over to unload some 1.6 billion camera-clicking tourists eager to 'get away from it all'.

By one count, global tourism spending totalled about US$856 billion ($1.2 trillion) last year.

If you add the passenger fare that's already paid in your own country, the total spent topped a cool US$1 trillion.

But if you encompass all other components of consumption, investment, government spending and exports, the world will spend nearly US$8 trillion this year on travel and tourism.

Ten years from now, it could exceed US$15 trillion.

This year alone international tourism provided jobs for an estimated one out of every 12 people on this planet.

By 2018, the number will be one out of every 11 workers worldwide.

For 83 per cent of countries in the world, tourism is now one of the top five sources of foreign exchange.Caribbean countries derive half of their GDP from tourism.

For centuries, beginning with the first tourists on holy pilgrimages, travel has been about adventure and discovery and escape from the pressures of daily life.

Crowded spots

But thanks, and no thanks, to globalisation and still-cheap transportation, there aren't many places in this world where you can travel today to avoid the masses of tourists who seem to appear, out of the blue, 'at every conceivable site'.

Observes Ms Elizabeth Becker, a tourism media expert: 'The streets of Paris and Venice are so crowded that you can barely move. Cruise ships are filling harbours and disgorging hordes of day-trippers the world over.

'Towering hotels rise in ever-greater numbers along once pristine and empty beaches.'
Blame it on developments in technology, such as jumbo jets and low-cost airlines.

Blame it also on improvements in transport infrastructure, such more accessible airports. They have all made many types of tourism more affordable.

Consequently, there'll be a heavy (but hidden) price to be paid by all of us for this global travel boom.

Many of the places we love, for instance, are fast-disappearing. Many of them are also deteriorating fast.

Says Ms Becker: 'Look at Cambodia. The monumental temples at Angkor and the beaches on the Gulf of Thailand have made that country a choice destination, especially for Asians, who spent $1 billion there last year.

'But the foundations of those celebrated temples are in danger of sinking as the 856,000 tourists who every year crowd into Siem Reap, the nearby town of 85,000, drain the surrounding water table.'

She added: 'And at night along the riverfront in the capital Phnom Penh, the sight of ageing Western men holding hands with Cambodian girls young enough to be their granddaughters is ugly evidence of the rampant sex-tourism trade.'

It's a sad, sad traveler's tale, indeed.

Source: The New Paper, Thu 04 Sep 2008

2008-10-01T18:17:00.008+08:00

Zimbabwe's poor billionaires

Hyperinflation wreaks havoc on economy

By Zhen Ming

IN economics, hyperinflation is inflation that has run amok.

It's a condition in which prices go up at an extremely high rate of at least 50 per cent a month, causing a country's money to quickly become practically worthless - sometimes overnight.

That's what's happening right now in the southern African nation of Zimbabwe, whose economy is fast collapsing with each passing day, and where the country's 84-year-old President (some say, dictator), Mr Robert Mugabe, has still refused to step down from power despite more than 20 years of misrule.

Those who're old enough will probably remember the so-called 'banana money' issued by Imperial Japan during the Japanese occupation of Singapore, Malaya, North Borneo, Sarawak and Brunei. (It was named as such because of the motifs of banana trees on 10-dollar bank notes.)

Back then, the Japanese occupiers simply printed more notes whenever they required more money.

This resulted in high inflation and a severe depreciation in value of the banana note. After the surrender of Japan, the currency became worthless - except as a collector's item.

And that's precisely what's also happening in Zimbabwe today. The country's money-printing presses are running full time and the country has even had difficulty obtaining sufficient supplies of special paper with which to print enough currency.

President Mugabe first wrecked his country's agricultural industry when he broke up large white-owned working farms to distribute in small parcels to poor Zimbabweans without training them how to farm.

Destructive

Then, faced with economic sanctions and the difficulty raising money to finance his government, he took what seemed to be the easy way out by printing more money.

In a way, his hands were tied as he could not tax Zimbabweans whose average income is barely at the subsistence level. All in the name of keeping himself in power at all costs.

Zimbabwe is not alone in abandoning financial integrity. To date, some 15 countries - including China (just before the communist takeover) and Japan (just after World War II) - have experienced post-war hyperinflation.

But the hyperinflation in Zimbabwe is perhaps the fastest-ever in living memory. Last month, the country's inflation was officially running at 2.2 million per cent but independent economists said it's closer to 12.5 million per cent.

Back in July, a loaf of bread cost 200 billion old Zim dollars in Harare, the country's capital. As of Monday, the same loaf cost 1,600 billion old Zim dollars. One Zimbabwean observes: 'We are billionaires and we can't buy anything.'

Sadly enough, dropping 10 zeros from its hyper-inflated currency - a move which officially took effect on 1 Aug - hasn't improved the situation at all. Bread in Harare still cost 160 new Zim dollars at the start of this week, compared to only 20 new Zim dollars less than a month ago.

'Hyperinflation is greatly destructive to a nation's economy because it basically terminates the usefulness of money,' said Dr Ron Ross, an economist based in California.

'Money's primary roles in an economy are to serve as a medium of exchange and as a store of value. Hyperinflation destroys both these roles.'

In the case of Zimbabwe, the hyperinflation is further exacerbated by a 'crisis of confidence' in an economy wrecked by civil war (or its aftermath), gross economic mismanagement, and political or social upheaval.

And don't expect this hyperinflation to go away overnight, without Mr Mugabe first relinquishing his power.

Then and only then, might there be hope yet for this country that was once one of the most prosperous and productive in Africa.

Source: The New Paper, Mon 01 Sep 2008

2008-10-01T17:45:00.006+08:00

Is Obama the man?

By Zhen Ming

MR Barack Obama, the 47-year-old senator from Illinois, is the man of the moment. He has made history, the media claims, as the first African-American major-party nominee for US President. (Never mind that he's actually multi-racial.)

On Thursday, he accepted the Democratic Party nomination, declaring that the 'American promise has been threatened' by eight years under President George Bush and that Mr John McCain represented a continuation of policies which undermined the nation's economy and imperilled its standing around the world.

If the latest CNN 'poll of polls' is to be believed, it's quite possible that Mr Obama would be elected 65 days from now.

But if worldwide public opinion mattered and if the rest of the world could vote, we would not have to even wait 65 days to find out. Mr Obama would have won by a landslide.

Asserts Mr Alan Stoga, writing for FLYP, a new online magazine that looks at the people and issues shaping America: 'That is the clear conclusion from dozens of interviews and a close reading of polls from around the world. The overwhelming dominant view is that Obama will win, and that his victory will bring dramatic, positive change to US domestic and foreign policies.'

The latest online poll by The Guardian showed that 91.3 per cent of its readers agreed that his 'I have a plan' acceptance speech was a success.

Except that Mr Obama has a formidable and wily opponent in Mr McCain, who has tapped little-known Alaska Governor Sarah Palin to be his vice-presidential running mate.

Restore maverick reputation

The surprise pick will help Mr McCain reach out to women and restore his maverick reputation. Former Arkansas governor Mike Huckabee said Ms Palin (a former Miss Alaska 1984 runner-up) was a reminder to women, 'that if they are not welcome on the Democrats' ticket, they have a place with Republicans'.

If Mr McCain wins, America will have a woman VP for the first time.

But if Mr Obama wins (yes, he can), will he be really good for the world? What would be his top three overall priorities if elected? This is his American promise:

'My top priority as president will be ending this war in Iraq; providing universal health care to the 47 million Americans who currently do not have it will be another top priority of my administration, as will combating global warming and putting our country on the path toward energy independence.

'And all these issues share one thing in common: In order to fully address them, we have to do more than change political parties. We have to fundamentally change our politics and transform the way business is done in Washington.'

No mention of Nafta, no mention of FTAs whatsoever, at least for the time being. After all, the world can't vote in November. But it can wait - and hope for the best.

Source: The New Paper, Sun 31 Aug 2008

2008-10-01T17:34:00.007+08:00

Why Thursday is the new Friday

4-day work week is Uncle Sam's latest move to cut oil use

By Zhen Ming

IT'S only 5am. The radio alarm in your bedroom goes off.

Five more minutes, you mumble to yourself, as you stumble in the dark to press the snooze button. But the alarm goes off yet again.

It's time to wake up. And here's what you can expect to do, if you are the average American worker: 24 minutes of grooming (more if you're a woman) and 18 to 36 minutes of breakfast, plus whatever multi-tasking you can squeeze in, like reading the newspaper, or watching the early morning show on TV.

By 6.30am, it's time to start your 25-minute commute - alone - in your car. Except that, it's Friday in Utah, and, argh, you've just realised you don't have to show up for work today.

Utah is the first American state to institute the four-day work week as a policy.

The new policy, a year-long experiment established by executive order, took effect on 4 Aug.

It means that Utah state employees work from Monday through Thursday from 7am to 6pm. They will put in the usual 40 hours spread over four days instead of five - but save on the cost of driving on the fifth.

But employee saving is not the main reason why Utah is taking a new look at alternative work schedules. It expects to save about 20 per cent, or US$3 million ($4.2 million), in energy costs.

Cutting costs

Other state and local governments across America, including New Mexico, Virginia, and Washington, are also following suit - hoping to conserve energy, reduce fuel consumption, and alleviate congestion.

The federal government also wants to put its weight behind this four-day work week bandwagon.

US House Majority Leader Steny H Hoyer has asked the US Office of Personnel Management (OPM) to 'undertake comprehensive analysis of the transitioning to a four-day work week for all possible federal employees and inform me by 31 Aug, of any additional actions Congress would need to take to implement such a policy by the end of fiscal year 2008'.

In the US, fiscal year 2008 ends on 30 Sep. This means, as early as 1 Oct, US may implement a four-day work week nationwide.

Mr Hoyer said in his letter to the OPM: 'In these times of high gasoline prices, I believe the federal government should do all it can to ensure that federal agencies and departments are appropriately reducing gasoline consumption. This goal can be accomplished with the adoption of personnel policies to limit unnecessary commuting.'

Ouch! It's a sign of how deeply gas prices are cutting into employees' pay and businesses' bottom lines.

Says Ms Michelle Conlin, working life editor of BusinessWeek magazine: 'If the 20th century was about the five-day work week, nine-to-five, the 21st century is going to be about flexibility.

'But, she adds, four-day weeks aren't for everyone: 'Certainly, for manufacturing lines, for retail, for 24-hour customer service support and things like that, this isn't applicable.'

'The notion of our standard work week here in America has remained largely the same since 1938,' explains Mr Aaron Newton, an American land planner and global peak oil expert.

'That was the year the Fair Labour Standards Act was passed, standardising the eight-hour work day and the 40-hour work week. Each Monday, Tuesday, Wednesday, Thursday and Friday, workers all over the country wake up, get dressed, eat breakfast and go to work.'

Arbitrary

To be sure, the 40-hour work week was a vast improvement for many Americans who were, at the time, forced to work 10-plus hours a day, sometimes six days a week.

Adds Mr Newton: 'So a 40-hour work week was seen as an upgrade in the lives of many of US citizens.'

But the notion that we should work for five of these days in a row before taking two for ourselves is, as best I can tell, rather arbitrary.'

The math, as I see it, goes thus: Depending on the kind of assumptions you make, Americans can save anywhere from 1.6 million to 8.4 million barrels of oil a week if the country adopts a four-day week.

At Friday's average price of regular unleaded at the pump, Americans will save up to US$609 million if they all stop driving for just a day.

And with the government taking the lead, American industry will follow.

In an effort to save costs, Chrysler is considering reducing the work-week at the Toledo plant from the normal five days down to four, and allowing its workers to stay on for 10-hour shifts.

And for many Americans, Thursday is the new Friday.

But it will take a while to see Thursday like it's Friday.What Americans will realise is that Thursdays will become very busy, because they have to finish everything for the week.

The result: Thursdays can get a bit hectic. Friday would've been hectic anyway, so why not get the work done one day early?

What do you think, folks? If you were an American, would working four long days be ideal, or would it throw your life into chaos?

Source: The New Paper, Sun 24 Aug 2008

2008-10-01T17:27:00.009+08:00

50 desperate housewives bring down a government

Japan's rice policy is changed forever

By Zhen Ming

LET'S pretend I'm a time traveller today. People power can bring down governments, folks. I've seen this via my time machine.

Kimonos are all aflutter on a beach in Uozu, a small Japanese fishing port, as 50 fishermen's wives gather to protest in July.

They are upset that food prices have doubled. Stop rice speculation, they tell the local town master. It's downright profiteering. Rice is life to the Japanese.

The news spreads and 12 days later, 600 women in a neighbouring town start a similar petition. One group lose their cool and attack a rice merchant's warehouse.

'Attack of the Hungry Housewives', 'Taisho Rice Riot', scream the headlines. Copycat assaults on rice merchants and others spread to larger towns.

My time machine fast forwards to 12 Aug, and I stare at the burnt-out remains of the landmark Suzuki Store in Kobe.

The next thing you know, troops hit the streets to quell a whopping 700,000 angry protesters. No soldiers die but more than 30 civilians are killed. The summer of discontent lasts three months and ends only after the government of the day resigns.

Am I staring into a make-believe future? No, all this happened exactly 90 years ago.

Uozu housewives changed the way rice is grown and traded in Japan. And, in subsequent years, they also affected rice politics and rice business in Asia.

Responding to numerous petitions for self-sufficiency in food supply or state regulation of rice prices, a new Japanese government stepped in after the riots to control the distribution of rice.
This unfortunately had serious long-term consequences.

Lamented food policy commentator Yamashita Kazuhito, a senior fellow at Japan's Research Institute of Economy, Trade & Industry (Rieti): 'Consumers started the Taisho rice riot in 1918. And it was consumers who had to stave off hunger during the postwar period by gradually and painfully selling off their belongings for food.'

He added: 'The current policy, under which the government restricts food supply, keeps high prices, and shifts the burden onto consumers, is contradictory to the true idea of food security.'

So here's the truth for you: For years, instead of lowering prices, a prospering Japan has mollycoddled rice, artificially maintaining high prices by means of high tariffs on imports.

At the same time, however, Japan has imported wheat and corn in huge volumes, becoming the world's largest importer of agricultural products. And guess what? High retail prices of rice led to the gradual decline in Japanese rice consumption.

Self-sufficiency falls

This rice policy is blamed for putting Japan's agriculture in hot water - with its food self-sufficiency ratio falling from 79 per cent in 1960 to the current 39 per cent.

Tokyo is now said to be left with only 4.6 million ha of farmland which, if used for planting only potatoes and rice (to max out the possible number of calories), would barely be enough to keep the Japanese population alive.

So spare a thought for rice policies, while you tuck into your chicken rice.Though rice prices have recently stabilised somewhat, they are still higher than before, as supply and demand continue to go in opposite directions.

Over the past few years, global grain harvests have consistently fallen short of consumption, reducing carryover stocks - our only buffer against unanticipated crop failure - to their lowest levels since the 1980s.

The bad news: A total of 37 countries are now confronted by a crisis in food costs, according to the UN's Food and Agriculture Organisation. At the last count, rice riots have broken out in two dozen of them.

Look at the recent long lines to buy government-subsidised rice in the Philippines.

Well, guess what? A stop-gap solution has been made possible, ironically, by a quirky World Trade Organisation rule that obliges Tokyo to buy high-grade American rice it does not need. This is good rice that eventually turns bad over time and becomes feed - fit only for Japanese hogs and chicken.

When re-exported with US permission, this good rice will soon be more than enough to feed the entire Philippines for the next 18 months.

It could also send rice prices plummeting in the coming weeks. It's a relief that's on the way - with Tokyo already preparing to ship an initial 200,000 tons to Manila.

Bit more good news for you: A good harvest awaits much of Asia. Chew on that, folks.

Source: The New Paper, Thu 21 Aug 2008

2008-10-01T17:15:00.006+08:00

Fannie, Freddie & The Nightmare on Wall Street

By Zhen Ming

KNOW Fannie Mae and Freddie Mac?

You should, because these US mortgage giants have created a US$5.3 trillion ($7.5 trillion - gasp!) financial black hole that the whole world has been dragged into.

What happened here? And who should we blame?

Hold your horses, dudes. Bring me the popcorn and soda first. And I will tell you a story about a feel-good, black-and-white Hollywood movie made back in 1946, back when life was simpler.

Movie Hero

In It's A Wonderful Life, all-American hero George Bailey (played by James Stewart) saves his building and loan association from a run by using the money from his own wedding dowry - all US$2,000 of it - to supply cash to his panicked depositors.

Young GB tells the town's people that things aren't as gloomy as they appear. He tells depositors that 'we're all in this together' - that their money is tied up (stuck, lah) in their neighbours' houses... as an investment.

Though jittery, the townsfolk trust in young GB's honesty and agree to withdraw only what they need to last the week.

At the end of the day, when the financial house closes its doors, it is spared from going bust - all because of a balance of US$2.

Young GB is your model investor - he saves, he reinvests dividends.He takes the long view while others around him mock him and snap up short-term gains. He sticks to his core values, though at times he feels shortchanged.

Fast forward some 60 years later and the sub-prime crisis, initially unnoticed, in the US in 2006, morphed into a full-blown, headline-splashing global panic by July last year.

Rising interest rates, which increased the monthly payments on newly popular adjustable rate mortgages, left many American homeowners unable to service their loans.

However, something uniquely American was on their side.

The home loans were on a 'no recourse' basis - that is, a borrower could easily 'walk away' and nothing else would happen to him, other than the lender seizing his house and reporting the default to a credit agency.

And, guess what?

Many Americans did just that - especially those with the so-called sub-prime loans. They walked away without sparing any thought for their lenders.

Meanwhile, property values, which suffered from the bursting of the US housing bubble, left the by-now-desperate American banks without a ready means to recoup their losses.

This, in turn, led to declines in stock markets worldwide, several hedge funds becoming worthless and, not surprisingly, it also led to the bankruptcy of several mortgage lenders.

Barely a year later, just last month, I witnessed 'live' on CNN another GB making a shock announcement.

Not our young George Bailey, but our not-so-young US President George Bush.

Taxpayer's Money

Old GB talks about the health of Fannie Mae and Freddie Mac and, get this right, the huge repercussions which would occur in the banking and mortgage industry if either one fails.

His stop-gap solution: Truckloads of US taxpayer's money for both Fannie and Freddie. Much more than the US$2,000 that young GB put up.

Uncle Sam's share of the bill is now estimated at US$300 billion, based on the Housing and Economic Recovery Act of 2008 that old GB signed into law on 30Jul.

How deep is this US cesspool?

At this point, the truth be told, no one really knows for sure.

But the direct result of this financial uncertainty has been a traumatic collapse in trust.

This is worrisome since the sole foundation of today's banking is trust.

So what's next, doc?

Some analysts say a US government bailout for Fannie and Freddie is unlikely and that, in any event, it shouldn't be hurried.

They say there's still time for Fannie and Freddie to raise more money from the capital markets, but with some kind of government backing. Others say the time to act is now, before things get worse.

I say, let's replay It's A Wonderful Life - to understand the real truth, to learn the real lessons. Let's also remember young GB. Let's restore trust first. The rest will follow.

Source: The New Paper, Sun 17 Aug 2008

2008-10-01T16:55:00.008+08:00

Why Number 1 means a lot to 1.3 billion people

By Zhen Ming

NUMBERS mean a lot to the Chinese.

It was no coincidence that at 8.08pm, on the eighth day of the eighth month of the eighth year of perhaps Team China's eighth millennium as a civilisation, they finally had their Olympic moment

The critics, of course, ask: But at what expense

They point to human rights abuses and curbs on freedoms.

But for the full story, one should first take a walk to the ruins of the Summer Palace, or YiHe Yuan, not far from the Beijing Olympic Park.

This will evoke the time when Britain forced opium on China which 'enslaved a generation of Chinese and caused corruption on a scale that dwarfs anything in present-day China', as writer Richard L King noted.

'The burnt Summer Palace remains a symbol reminding China of its past weakness and humiliation,' said Travis Hanes and Frank Sanello in their book Opium Wars.

REINVENTING ITSELF?

Is it any wonder that China is sparing no expense to reverse such memories?

A whopping US$43 billion (S$61 billion) has been spent to build roads, stadiums, parks and subway lines to create a world-class Olympic city.

Athens spent only U$S12.8 billion, in current dollars, to play host in 2004.

In theory, the Olympic Games are not supposed to be about national pride over individual and team achievement.

The reality is very different.The Beijing Games has become a perfect metaphor for Team China's desire to be No1 in a hurry.

Barely two decades ago, bicycles dominated the streets of China - even in downtown Beijing.

Today, while Team China is still only the world's fourth largest economy, the Chinese are set to outdo the Americans by 2015 in cars owned.

LOOK OUT, USA

Team China is also set to soon overtake Team USA as the world's largest producer of manufactured goods - four years earlier than expected.

Proclaims blogger JXie in a recent posting on the Fool's Mountain website:

In 2002, the GDP of China was 10.2 trillion yuan (S$2.1 trillion) while the GDP of the US was US$10.6 trillion (S$15 trillion).

Last year, China's GDP was 24.7 trillion yuan and the US's was US$14 trillion.

'If we assume the relative paces of the underlining economic numbers remain the same, China will catch up ... in 2019,' he asserts.

On a 'Big Mac' purchasing-power-parity basis, however, Team China's GDP could overtake Team USA's sooner - by 2013. That's barely five years from now.

So the Beijing Olympics is indeed the coming-out party for Team China. Hard to believe, isn't it? What a Long March to become Number One!

But, for now, the world will only remember the great video moments at the Bird's Nest and the snapshots of iconic buildings like 'The Egg'.

Source: The New Paper, Wed 13 Aug 2008