SMRT strike - NSP's shameless political opportunism

The National Solidarity Party issued a statement on Nov 28 regarding the illegal strike.  While paying lip service to the rule of law, much of the statement appeared to be an attempt to throw stones at SMRT management and to try to justify the actions taken by the errant bus drivers.

Painting the issue as a 'breakdown in our labour relations' shows the narrowness of the thinking of the NSP leadership in trying to blame the PAP establishment for the problem (a usual opposition tactic, I might add). As I was advised by a Singaporean who is an experienced China hand, the issue was in large part due to cultural differences between Singapore's style of running things and the mindset of the PRC workers.  Would that really qualify as a 'breakdown in our labour relations'?  While I can understand the need for Singapore companies to adapt to foreign practices when operating overseas, the case of the Singapore management bending backwards on a core principle like the freedom to set wages locally is much weaker.  Why should a local company operating within Singapore adopt the standard PRC practice of '同工同酬‘, especially since there are valid HR reasons for paying Malaysian workers more?

Besides this, there is also evidence to suggest that the PRC drivers did not attempt to engage SMRT management regarding their issues, as can be see from a news report carried by Yahoo! Singapore:

One Malaysian bus driver who spoke to Yahoo! Singapore was visibly annoyed at Monday's strike, saying the move to do so was "irresponsible and uncalled for".

"First of all, they should have approached the management first to discuss things," he said. "Going on strike is illegal and we all understand that."

So, was there really a 'breakdown in our labour relations'?

The more disturbing thing about the NSP statement is that by citing allegations by poor pay and living conditions, the party appears to be trying to use 'moral' arguments to justify the breaking of the law.  Aside from the fact that this is factually incorrect, since the unhappiness was about alleged unequal treatment relative to Malaysian drivers, the NSP has failed to realise that such arguments open up a can of worms, since 'moral' grounds are ill-defined and everyone can then argue that they have valid reasons for breaking the law.  Where do we then draw the line so that we can unequivocally condemn those who break the law?

Of course, I'd expect that the NSP cite the first paragraph of its statement to show that it respects the rule of law. But as far as I am concerned, its statement on the matter shows the typical politician's 'gift' of talking out of both sides of one's mouth.

And if I may add, the NSP seems to be a shadow of its old self since the departure of Goh Meng Seng.

Somewhat Disconnected

In recent months, I have been telling some friends that Singaporeans appear to be oblivious to the ongoing financial and economic crisis that is raging across the globe.  I base my claim on the following:

• Record COE prices


• Property prices that continue to rise despite a decade of inflation at roughly double the rate of wage increases


• New graduates asking for higher pay and quick promotions.

While I'm not sure when reality will reassert itself in the Singaporean consciousness, I'm waiting patiently and collecting data points in the mean time.  And one such data point is the following comment by that consummate financial insider, George Soros, made recently to Newsweek:

“I am not here to cheer you up. The situation is about as serious and difficult as I’ve experienced in my career,” Soros tells Newsweek. “We are facing an extremely difficult time, comparable in many ways to the 1930s, the Great Depression. We are facing now a general retrenchment in the developed world, which threatens to put us in a decade of more stagnation, or worse. The best-case scenario is a deflationary environment. The worst-case scenario is a collapse of the financial system.”

And to put money where his mouth is, Mr. Soros has reportedly been selling his financial stocks (the growth story) and buying more gold (the-sky-is-falling story).

In the meantime, the bubble continues to expand in Singapore.  We live in interesting times indeed!

Global Slowdown

This week we hear quite a bit of news of global economic weakness. We have various central banks around the world cutting interest rates and taking other easing policy measures in the face of a rapidly weakening global environment.

China's GDP numbers came in weaken than expected while the US earnings season has been kicked off with more warnings of forward weakness.

Back at home, the Singapore economy shrank in the 2nd quarter at an annualized rate of 1.1%, although things appear not to be weak enough given the government's position that emergency measures are not needed as of now.

Despite this, though not unexpectedly, news of. Cut in COE quota has people all agitated about higher prices in the coming months. In fact, there appears to be signs of buyer capitulation, as reported in the news this evening on TV, wherein those who have been holding off buying new cars have decided to go ahead in fear of higher COR prices.

As I have maintained for a long time, that which is unsustainable will break eventually. Thus while the supply of COEs may be falling, I am expecting that demand would also be falling in view of the global economic situation. It is possible that we get a repeat of 2008 in late summer that will lead to a crisis of a more serious nature than the liquidity crisis back then.

Let's see what happens.

Singapore's Debt Problem

I came across the following passage from an article written by Doug Casey in the May 2012 edition of the Casey Report:

There’s nothing wrong with debt in itself; lending is one way for the owner of capital to deploy it. But if a society is going to advance, debt should be largely for productive purposes, so that it’s self-liquidating; and most of it would necessarily be short term.

But most of the scores of trillions of debt in the world today are for consumption, not production. And the debt is not only not self-liquidating, it’s compounding. And most of it is long term, with no relation to any specific asset. A lender can reasonably predict the value of a short-term loan, but debt payable in 30 years is impossible to value realistically. All government debt, mortgage debt and consumer debt and almost all student loan debt does nothing but allow borrowers to live off the capital others have accumulated. It turns the debtors into indentured servants for the indefinite future. The entire world has basically overlooked this, along with most other tenets of sound economics.

This was written in the context of asserting that the Western world had sustained an artificially high standard of living since World War II through the device of accumulating excessive debt.

When I read this, Singapore's situation come to mind.

Looking around us, one could easily see that Singaporeans have also accumulated a lot of consumption-based debt.  In our case, we don't even realise this, because we think that taking on a lot of debt to fund our HDB flats is an investment, when it is actually a durable goods consumption.

An HDB flat has a 99-year lease, which means that it will eventually run out.  The reason why we think it is an investment is because we believe that we can sell the lease to someone at a higher price, which is akin to a Ponzi scheme, or assumes that the government will continually pursue a policy of asset inflation, both of which are harmful to society.  Unfortunately for our future financial security, we bought into the mistaken notion that our HDB lease is an asset, when most of us don't generate rental income from our flat.  I blame this on the Goh Chok Tong government, who propagated this myth under the so-called 'asset enhancement' strategy.

This over-consumption of housing is further encouraged by the distorted investment policies attached to CPF funds, as the poor alternative choices drive many Singaporeans to rationally conclude that putting CPF funds into real estate is the best use of those funds.

Mis-allocated Capital

For decades now, there has been a general lament about a lack of capital in Singapore to fund entrepreneurs, which is obviously true.  Imagine what could have happened if the government had stuck to the original goals of the HDB, to provide low-cost housing.to Singapore, for that would have freed up a lot of capital for other more productive uses.

Given the fact that real estate has become increasing unaffordable, it is time to look at the basic paradigm underlying the CPF system, and reform it to support better capital formation and usage.  After all, the government has been lamenting the fact that we face increasing challenges to economic growth.  Surely having more productive usage of capital would help, and then we can obviate the need to adopt morally questionable policies like encouraging gambling via casinos.

Debt and Derivatives Crisis

The current financial crisis that we are in has 2 causes:

• Excessive debt, especially in the developed world; and


• Excessive speculation, especially in financial derivatives

Given the size of the problem, a worsening of the global economic and financial situation is, in my view, inevitable.  To only question is timing, and that is dependent on how much longer governments around the world can delay the collapse due by using various policy measures, including monetary easing.

Enclosed below is a short presentation on the financial crisis situation from someone who appears to me to be very well-informed.  Be warned, and be prepared!

[scribd id=95493792 key=key-2bukmjiiyjtzns9qcorz mode=list]

Higher CPF Minimum Sum

The CPF Minimum Sum has been raised again, this time to $139,000. The reasons given by the government were rising life expectancy and inflation.

I am of the view that the CPF Board needs to find additional ways of dealing with the inflation problem. Minimally, there should be changes to the CPFIS rules to allow members more freedom to pursue investment goals that are consistent with higher rates of inflation.

For example, since inflation is a problem and since we have a negative real interest rate environment, why is the maximum gold allocation only 10%? How is that going to protect the other 90% effectively?

I would contend that the current rules effectively drive people into real estate, and serves to prop up prices in that market. Such policies which encourages a misallocation of capital should be stopped. Otherwise we will see a retirement crisis in the not-too-distant future, as I had previously warned of.

Euro Crisis - Greek Children Abandoned

I heard a podcast yesterday wherein a member of the EU Parliament mentioned that some Greek parents are now leaving children at the doorsteps of Greek Orthodox churches, with notes around the children's necks, saying that they could no longer afford to feed them on account of the severe economic depression that is now happening there.  Is it any wonder that the Greeks are now rioting and demanding an end to austerity?

From the looks of things, the Greeks are on their way out of the Eurozone, unless Germany agrees to the issuance of Eurobonds.  But that would be very unfair to the German populace.

So it looks like we have a crisis on our hands.  I really wonder to what extent the ECB and the US Federal Reserve can postpone the problem by more quantitative easing.  Besides this, the stock market appears to be egging the central banks to move in the direction of more QE. But if we look at things from the Austrian School perspective, given how little impact the previous 2 rounds had on the real economy, and the fact that QE is subject to the law of diminishing returns, I wonder how much of a boost to the stock market another round of QE will achieve, unless it is in the multiples of trillions.  But imagine what that would do to oil and commodity prices?

In any case, given that the Singapore government was not particularly prepared during the initial part of this crisis in 2008, we need to brace ourselves for a rough ride in case they read things wrongly again, and/or are too preoccupied with domestic issues.

Asia Decoupling

We are getting more and more news about China slowing down. India is also slowing down as we can tell from the easing monetary policy actions. Japan is in full QE mode as far as I can tell. While I have not followed the news about the rest of Asia, it is likely that the story is the same.

Many have blamed this slowdown on the problems Olin Europe. There is some truth in that claim. Be that as it may, it does mean that the much hoped for decoupling of Asia from the developed world has yet to happen.

Here in Singapore, there is still talk of pay hikes. It seems like there is still complacency about how things can turn bad.

For me, I prefer to be safe than sorry. On full defensive mode now.

EUR crisis - Impact on Singapore

Read a story on zerohedge.com claiming that Singapore is rightly worried about the fallout from the European sovereign debt crisis because European banks have claims in our financial system that amounts to around 60% of our GDP.

I asked a banker friend about this and he said that his guess regarding this would be that a lot of European banks have bought Singapore government bonds.  In any case, he felt that MAS would be able to handle any suddenly repatriation of funds back to Europe.

I personally am not sure what impact any fund repatriation will have on our financial system. Could it lead to a drop in the value of the SGD against other major currencies? How will it affect the stock market and property market, if at all?

Bank Run In Europe

If you still have money parked inside the EU financial system, including the UK, it's time to bring the funds out. There is still time before the crisis gets worse.

Europe = Big Mess

So we have the French electing a man who has never had a real job in his life, and who has promised to spend much more public funds which does not exist to create government jobs.

We also have Greeks voting for parties that some have characterised as being extreme.

The Italian military is now being deployed to protect economic assets due to increased attacks from disgruntled citizens.

How long more will Spain's young people tolerate 50%+ unemployment?

Here in Singapore, people are still bidding up COE and property prices as if nothing's happening out there in the world.

How I wish there were derivatives for me to short the 2 aforementioned set of prices!