My Outlook for 2011

After an eventful 2010, I believe that 2011 will bring even more surprises as we move into the next phase of the global financial crisis. Here are some of my thoughts on what could be important issues for the year:

Sovereign Debt Crisis

With credit spreads of the PIIGS countries near record levels, I believe that the market will start to recognise that the debt problems of the EU countries cannot be resolved without either outright default or being inflated away through debt monetisation. I also believe that the US and China's debt problems will start to appear on the radar screens of more investors, and that there is a small chance of them being blown up to full-scale crises. All these will make investing very 'interesting' in 2011, to put things mildly.

Singapore General Elections

While I am not able to foresee whether there will be significant changes to Parliament following the next GE, I believe that none of the long-term problems facing our country will be tackled irrespective of the GE results. As I have previously mentioned, I don't believe that any of the opposition parties have any clue about the serious external threats that Singaporeans will have to deal with in the next decade. As for the PAP government, since I am not privy to what goes on inside the system, I can only say that the outward signs are that no one there appears to be willing to discuss the same long-term threats as well. As such, as far as I can tell, the next GE will not have any direct bearing on those long-term issues.

Retirement

Singaporeans will continue to ignore the looming retirement crisis by over-spending on real estate and cars, while at the same time complaining about the high cost-of-living in the country. We will raise concerns about foreigners taking away our jobs but at the same time fail to realise that this heightened job insecurity situation is at odds with our willingness to commit to 35-year housing loans in order to have the old stereotypical 'good life' of living in a private apartment. Those under 40 will continue to display an ignorance of the virtues of thrift. Many will seek to maintain their standard of living by spending their parents' wealth, thus endangering the retirement savings of the latter. The harsh reality of diminished future prospects due to greater global competition will continue to be ignored.

Inflation

Short of a wholesale deleveraging like what we saw in 2008, where investors sold every kind of risk assets, there is a good chance that oil and food prices will continue to move higher given the supply and demand fundamentals of these markets. Furthermore, if China continues to refuse to let the RMB appreciate against the USD, MAS could be forced to continue letting our money supply grow at high single-digit rates as the US Federal Reserve continue its money-printing and debt monetisation schemes (a.k.a. 'quantitative easing'). This will contribute to higher inflation rates and perhaps inflation in some local asset markets. Singaporeans will complain about the inflation but will do nothing to deal with the issue, preferring to blame the government and ignoring the power of our own behavioural choices.

Self-reliance

PM Lee's New Year's Day message contained a call to 'strengthen the spirit of self-reliance among Singaporeans'. I believe Singaporeans will continue to bitch and moan against the government whenever we are unhappy with things, and prefer to see ourselves as victims rather than do the adult thing of taking responsibility. And because of this, very few people will be interested in preparedness.

Have a joyous and peaceful 2011!