All about what is happening in the global economy...

Reply to All about what is happening in the global economy... on Thu, 27 Dec 2012 04:51:46 GMT

Coolkidsrock2 — Thu, 27 Dec 2012 04:51:46 GMT

Sorry, I left out the word "loss".

Reply to All about what is happening in the global economy... on Wed, 26 Dec 2012 16:31:05 GMT

Harlequin — Wed, 26 Dec 2012 16:31:05 GMT

Wrong info, Coolkidsrock.

Wachovia sold it’s 60% stake in Grange 100 to CDL for $204.5 million, average price works out to $2956psf. Certainly not sold at $800psf.

If any Grange Road district property is at $800psf, the whole Singapore property market would go mari-kita liao.

Reply to All about what is happening in the global economy... on Tue, 25 Dec 2012 08:11:22 GMT

Coolkidsrock2 — Tue, 25 Dec 2012 08:11:22 GMT

With 2012 coming to an end, any thoughts on the real estate and equity markets’ directions. Per today’s Straits Times, Wachovia just unwound its investment in Cliveden at $800psf approx. Should we be reading into it as a sign to come?

Reply to All about what is happening in the global economy... on Tue, 18 Dec 2012 08:33:10 GMT

phtthp — Tue, 18 Dec 2012 08:33:10 GMT

what is the exchange rate between US$ and S$ today ?

http://www.youtube.com/watch?v=NpPX0pRxVSo

http://www.youtube.com/watch?v=44bwvSQN4nI

Reply to All about what is happening in the global economy... on Mon, 14 Nov 2011 16:24:55 GMT

MadScientist — Mon, 14 Nov 2011 16:24:55 GMT

Awesome blogpost!

http://gonzalolira.blogspot.com/2011/11/beginners-guide-to-european-debt-crisis.html

[i]A Beginner’s Guide to the European Debt Crisis

For ordinary, non-specialist people just tuning in to the horror-show which is the European crisis, the whole mess can seem daunting and almost hermetic—almost like a secret language, or a really complicated code.

Euro-this and euro-that and euro-the-other—that’s all everyone seems to be talking about. That, and words like troika, haircuts, bailouts, yields, not to mention an alphabet-soup’s worth of acronyms like EC, ECB (they’re different), EFSF, PIIGS, IMF, EMU—

—OMFG!

For us dweebs neck deep in this stuff, it’s all mother’s milk. At my Strategic Planning Group, we’ve been game-playing what do when the eurozone breaks up since May—but for people who’ve just realized, “Hey! Something’s going on over there in Europe!”, it can be a bit much, like tuning in to a soap opera five minutes before the end of the episode: Everything seems terribly portentous and important and shocking . . . but basically incomprehensible.

Which wouldn’t matter if this was a soap-opera—but this is real life. This European crisis will affect your financial future, no matter if it’s happening on another continent. This is major—

—which is why so many ordinary people are confused and frightened: Because it seems terribly complicated.

But like all things which seem complicated at first glance, when you break it down, it’s simple.

This is what happened:

In 1999, the Europeans implemented a common currency, the euro. They did it in order to improve trade between the eurozone nations, and thus bind the European countries closer together.

This new currency was centrally managed—that is, there was a single issuer of this new currency. Which of course makes sense: In the United States, you don’t have 50 states issuing currency—you just have the Federal Reserve, issuing dollars for the entire country.

Same with Europe: Thus the eurozone—the zone of countries that had the euro as their currency. This new currency was managed by the European Central Bank—the ECB—out in Frankfurt, Germany. The ECB’s primary concern—like all central banks—was making sure that the currency it was supervising did not lose value. That is, it made sure that inflation stayed below 2% per year.

However, just like in the U.S., though there was a central bank—in this case the ECB—each of the member states of this European Money Union (from where we get the acronym “EMU”)—could issue its own debt.

So far, so good: The euro was printed and managed by the ECB in Frankfurt. The individual countries—Spain, France, Germany, Holland—could each issue their own debt, and of course manage their own government budgets.

Now, the strongest economy in Europe is Germany’s. For our purposes, the reasons why of this don’t matter. What matters is, Germany’s cost of borrowing was the lowest of the eurozone.

This makes sense: If I make a million bucks a year, and borrow $10,000 for expenses and stuff, I’m going to get a pretty good interest rate from my credit card company or my bank. You know how lenders are: They lend you an umbrella when it’s sunny, then take it away when it rains. Since I don’t need to borrow the ten grand, all the lenders will trip over themselves to lend me money at extremely low rates, because they know I’m good for it. I won’t default on the debt.

Same with nations—and same with Germany: German debt was always cheap, in the 1%–3% range, because Germany was good for it. After all, it’s the fifth largest economy in the world, and the biggest within the eurozone, racking trade- and fiscal budget surpluses year after year. So who wouldn’t feel comfortable lending money to the Germans? Nobody—‘cause see the Germans? They pay up—always.

But here comes the problem: Banks felt very comfortable lending money cheaply to Germany. Germany was a member of the eurozone. Therefore, lenders assumed that the other countries in the eurozone were going to be as good a credit risk as Germany.

So the banks lent money to the other, weaker countries in the eurozone at the same rates of interest as they lent to Germany.

Yeah, I know: !!!

Imagine you have a great credit rating—so the bank gives your kid a $100,000 consumer line of credit, just because he happens to live in the same house as you do. The bank lends your kid the money because it says there’s a “tacit promise” that if your kid doesn’t pay back the money, you will.

Crazy, right? Right—but that is the core problem: Countries like Portugal, Italy, Ireland, Greece and Spain—countries whose initials spell out the acronym “PIIGS”—could go into debt at the same rates of interest as Germany, just because they shared the euro as a currency.

The economies of the PIIGS were not as sound as Germany’s—but the lenders treated them as if they were. Not only that, the lenders assumed that, if any country got into trouble—i.e., if any one of the PIIGS couldn’t pay back their loans—the eurozone as a whole would be good for the debt.

This was great for the PIIGS. Because it meant cheap and plentiful loans, with which they could go out and buy stuff.

So they did: The PIIGS went into debt—too much debt—while the banks gave them all the slack they needed. Which makes complete sense: If before 1999, these countries were borrowing at (say) 6% or more, and all of a sudden their cost of borrowing drops in half, what will they do? Go into debt!

Which is what they did—massively.

And what did these countries do with the debt? Create a false sense of prosperity!

This in a nutshell is what happened between 1999 and 2010, when the Greek crisis first erupted: During those “boom” years (which were really no more than junior going crazy with the credit card), the various countries of the eurozone went into massive debt, in order to both fund a social safety net, and cut taxes on their citizens.

In other words, something for nothing, bought and paid for with cheap debt. Kind of like America . . . —but that’s for another time.

Though they now don’t want to admit it, the Germans encouraged this over-indebtedness, by the way—as did the French. Why? Because with this false sense of prosperity, the over-indebted nations bought German and French goods and services. German and French banks were at the forefront of lending money to the PIIGS—which essentially made the whole scheme nothing more than vendor financing on a massive scale: I lend you money so that you can buy my products.

Just like a junkie setting up an addict, or a predatory credit card company giving you teaser rates, the Germans and the French—via their banks and government institutions—gave the weaker economies all the incentive in the world to go into massive debt, and then go out and buy German and French products.

It was bound to end in tears. As is happening now. It all goes to the issue that all these countries are over-indebted. And that overindebtedness is being reflected in the sovereign bond markets.

Let’s take a slight detour, to explain what this means.

What Are Bonds? What Are Yields? And Why Do They Matter?

A bond is a bit of paper that is traded, just like stocks. But unlike a stock, which is a piece of ownership in a company, a bond is essentially a promissory note: You lend me money, and I give you this piece of paper where I promise to pay you back. The bond has a face value, and an interest rate. The person who buys the bond at the market price collects the interest, and receives the principal of the bond on maturation. A person can own a bond, or sell it to someone else, just like a stock.

Corporations issue bonds, in order to finance factories, expansion, whathaveyou. And governments issue bonds, in order to finance various infrastructure projects, as well as their deficit spending.

With all bonds, there are three pieces you have to understand: There is the face-value of the bond, there is the interest that the bond pays, and then there’s the effective return-on-investment of the bond—which is known as the yield.

The yield of a bond is what everyone pays attention to. The yield on a bond is a percentage value: It is the interest rate of the bond, times the face value of the bond, divided by the current price of the bond. The yield is inversely affected by the price of the bond: The higher the price of the bond, the lower the yield, and vice versa.

So you see, it’s a seesaw: When the yield of the bond is going up, then the price of the bond is going down. When the yield is going down, then the price of the bond is going up.

Let’s see an example: Say I sell you a bond for €1,000, paying 5% interest per year. The bond is trading in the open markets at €900. So 5% times €1,000, divided by €900, equals 5.55%—the yield has widened, as they say in the biz. That is, the yield has gone up, since the price of the bond has gone down.

But say instead that the bond has risen in value, which of course can happen: Say the price is up to €1,100 per bond. So 5% (the original interest) time €1,000 (the face value), divided by €1,100 (the current price, gives us a yield of 4.54%. The bond’s yield is said to be narrowing.

Since bonds all have different conditions insofar as maturation, interest rate, etc., it is simpler and quicker to speak of changes in yield only: “The yield is rising” means that the price of the bond is going down.

Why is the price of a bond going down? Because investors think that the person who owes the debt—the bond issuer—is not necessarily good for the debt. That is, they think the debtor might default. So the owners of the bond sell it at a lower price, because they don’t want to have the risk of a default.

Why does a bond go up in price? Because the debtor might show signs that it won’t default—so the high yield makes it attractive for a buyer to pay more for the bond, thereby driving up the price, thus paradoxically lowering the yield of the bond.

So what does this mean for countries?

Well, when the yield of a government bond rises, it means that people are selling that country’s bonds. Take the above example of €1,000 bonds paying 5%. If the bonds are now at €900, the yield is at 5.55%, as per the above example.

Now, if the yield on that bond rises to 7%, what does that mean? It means that the bond is trading at distressed levels. Because for a €1,000 bond paying 5% interest to be yielding 7%, then the bond is trading in the €715 range. (The face-value price of €1,000 times 5% divided by a current price of €715 yields 7%.)

(By the way, this is a simplified version of calculating yields. In markets, often as not, the “yield” being referenced is the “yield-to-maturity” (YTM), which is a more complicated calculation. If you’re interested, check out this discussion, which explains it in relatively straightforward detail.)

So say you’re a government, and you have to fund €1 billion for a bridge. You will issue bonds to finance the bridge, bonds that will pay an interest of 5% a year. In order to raise those billion euros, you have to sell not a million €1,000 bonds—you have to sell 1,400,000 bonds with a face value of €1,000.

And therefore, you have to pay interest on 1,400,000 bonds, instead of 1,000,000 bonds. And when these bonds mature—that is, when they have to be paid off in full—the government won’t be paying out €1 billion in principal: They’ll be paying out €1.4 billion in principal, on what was supposed to be a €1 billion bridge. Because bonds are paid full face value on maturation.

Thus a government’s cost of borrowing has risen. And it’s all expressed in the yield.

That’s why yields matter. And unfortunately, rising yields is what’s been going on with European debt: They have risen massively—because investors think there is a less likelihood that the bonds will be paid back in full.

Why does this matter? Because these nations are all relying on deficit spending: They spend more money than they bring in. So they need to issue more debt, in order to pay off their obligations, such as salaries, pensions, medical care, not to mention pay off the interest on the previous bonds they’ve already issued.

So in this situation, a country can get to the point where its bonds are selling at such a discounted value that it cannot issue enough bonds to simultaneously pay off their obligations and allow them to continue to function at their current level.

That is, countries can get to the point of bankruptcy—depending on how high the yields on their bonds rise.

Now, About Greece

This is what happened to Greece: Its cost of borrowing rose so much that they no longer had the ability to raise the cash to pay off all their obligations.

So starting in April of 2010, the so-called Troika—the International Monetary Fund (IMF), the European Central Bank (ECB), and the European Commission (EC, the executive arm of the European Union)—structured a bailout package, which was eventually passed through in June.

The bailout package of course had some conditions, which the Greeks agreed to in order to get the money—and which they then promptly failed to live up to. (How am I not surprised . . .)

The details aren’t that important for the purposes of this discussion. What matters about the Greek Drama is two-fold:

• One, Greece is a small economy within the EMU—about 2% of the eurozone’s GDP—so therefore its debts, while massive, were all-in-all manageable.

• Two, the bailout of Greece was supposed to be swift and decisive, and act as a signal to the markets that the Troika would defend the eurozone, and not allow any of its members to go bankrupt. In other words, Greece was a firewall, to protect the other economies.

But the problem was, the Troika dithered.

Why did they dither? Because it became immediately clear that the only way to fix the Greek situation was by debt haircuts—and haircuts were impossible, because they would bankrupt the European banks. And the American ones too.

Let me explain.

Fear of a Credit Event

Part of any debt restructuring—be it a poor man’s bankruptcy, or the bankruptcy of a large corporation—is debt haircuts: That is, lenders get less than the 100% of the debt that they are owed.

Say I owe $10,000 to a car dealership for a new car I bought last year, and I go bankrupt. The dealer will get a percentage of the money I have left after everything (including the car) is liquidated. But they won’t get the full $10,000 that I owe them, obviously, because I’m bankrupt: I owe more than I have.

Same with nations: Greece owed more than they had—so Greece’s lenders were going to have to take a haircut. That is, they would have to take less money than they were owed.

This is what’s known as a “credit event”.

This was a problem.

If there was a haircut on Greek debt—a credit event—then the banks and insurance companies which held the debt (predominantly German and French banks) would have to write a loss on those loans. Huge losses. Losses bigger than their capital.

Thus these banks would go bankrupt, if there was a credit event in Greek debt.

Even if they didn’t go bankrupt, these financial institutions would have to sell off other bonds, in order to raise the cash to stave off bankruptcy.

This massive sell-off of sovereign bonds would have a contagion effect: In order to cover their Greek bond losses, banks would have to sell their Italian, Spanish and French bonds—at a loss—so as to raise the cash to stay solvent, which would in turn make Italian, Spanish and French debt toxic.

In other words, a domino effect.

Furthermore, American banks—which don’t own much in the way of PIIGS debt directly—have written a lot of insurance on those sovereign bonds: The famed credit default swaps (CDS). Bank of America especially has made a lot of money selling CDS’s on those debts in 2008, 2009 and 2010, as has JPMorgan.

If those sovereign bonds defaulted, those American banks would have to pay off these CDS’s—

—and thus they would go bankrupt too!

Everything is connected: A credit event in Greek bonds would trigger credit events in Italian, Spanish and eventually French bonds, which would bankrupt European banks as well as American banks—

—basically, a repeat of the 2008 Global Financial Crisis, only bigger, and without the happy ending.

This is why the Troika dithered. They talked tough, and they even put the gun to Greece’s head: Pass these austerity measures, or else no bailout money. But they never pulled the trigger and let Greece fail—because if they did, the European and American banking sector would collapse.

Since the Greek financial hole grew bigger between 2010 and 2011—because the Greek’s didn’t live up to most of their promises—a second bailout package had to be created.

Again—more dithering. This time, the dithering was because the Germans in particular feel that they are propping up spendthrift countries—and nobody likes to feel like the chump who’s paying for other people’s good times.

There is enormous political pressure on Merkel to not save Greece. The people pressuring Merkel don’t realize what will happen if Greece collapses.

So then last October 28, the Troika plus German Chancellor Angela Merkel and French President Nicolas Sarkozy finally came up with a “solution” to the Greek Drama.

I say “solution” in the loosest possible sense of the word: In the weeks previous to the Oct. 28 announcement, the Europeans had been going around the world, hat in hand, asking emerging markets—especially China—to fund their bailout facility. They had been politely refused—because they’re not stupid: They saw that the bailout facility—the famed European Financial Stability Facility (EFSF)—was just a lot of smoke and mirrors, essentially throwing good money after bad.

Through some clever accounting tricks and some not-so-clever baldfaced lies involving accounting standards, the Europeans managed to cobble together a workable EFSF which could give Greece and potentially one of the other PIIGS a lifeline.

But in order to show that they were “serious”, the Troika and Merkel and Sarkozy insisted that the Greeks agree to a serious of painful austerity measures.

The big news, however, was that this second bailout of Greece included haircuts on Greek debt. The advertised number on the Greek haircuts was fifty percent! (Though when you looked more closely at the details, it was more like 20%.) The Oct. 28 deal stipulated that the haircuts on the Greek debt would be voluntary—“voluntary” as opposed to “forced”, which would have triggered a credit event)—

—but then on the following Monday, Georgios Papandreou, the Prime Minister of Greece, threw a monkey wrench into the Rube Goldberg contraption that is the Second Greek Bailout Package:

G-Pap called for a popular referendum of the bailout!

All hell broke loose.

The eurocrats famously do not like going to the public to ask for their support—they like to dictate instead. Why? Because they consistently lose the popular vote, to the point where they no longer bother putting things up for a vote.

For Papandreou to put the austerity package to a popular referendum meant that it would likely not pass—because no citizenry likes to be asked if they want their government to give them less services and entitlements (duh!).

Therefore, the Troika suspended the €8 billion tranche of the first bailout package that the Greeks were supposed to get in November.

Without that tranche, Greece goes bankrupt on December 15.

So Papandreou backtracked on Thursday, November 3, and said that there would be no referendum.

But the damage was done: The bond markets got so freaked out that they started looking at the next weak link in the European chain.

So Now, We Have Italy

In mid October, Italian debt was yielding about 3.5%—very respectable. Italy, furthermore, has a very large debt, but it is far from insolvent: In fact its government regularly meets its budget with a bit of a surplus. Balance of trade is okay, growth is low but in line with the rest of Europe. And aside from periodice sex scandals, the Berlusconi government is fairly competent and efficient.

Overall, Italy is in pretty good shape.

But it needs more debt to pay off previous debts, and to shore up its economy, which is in a recession much like the rest of the world’s. It’s debt load is growing, but strictly because its government is spending to prop up the sagging Italian economy.

Nevertheless, after the Greek fiasco, the bond markets turned on Italy.

On the Monday after the Greek Week (Nov. 7), Italian yields rose from their 5% level—then spiked on Wednesday to above 7.6%, which is potentially catastrophic. Why catastrophic? Because at those levels, no advanced economy can finance itself—not to mention the fact that certain derivatives require that yields stay below certain thresholds. If they remain above certain yield numbers for a set period of time, they are considered credit events—which triggers CDS’s, which lead to bank bankruptcies.

So those yields have to go down now—fast.

This crisis in Italy has led Silvio Berlusconi to announce he will resign, once austerity measures are passed. His resignation will likely calm the markets—for a bit. At my Strategic Planning Group, I’ve been live-blogging the nightmare, and discussing what to do about it.

What strikes me is the inanity of the eurocrats’ response. They come up with vague and flimsy packages, and a lot of flowery rhetoric—you should have just heard Sarkozy, after the Oct. 28 deal, going all French Literature on the thing.

But the Europeans don’t seem to understand that they have a nuclear weapon at their disposal—which they refuse to use.

And that nuclear weapon in the European Central Bank.

Fear of Monetization

The easiest way to fix this entire debt situation would be for the European Central Bank to simply print up money, and go out and buy enough Greek and Italian debt to bring down their yields.

It wouldn’t even have to be very much—a mere €50 billion would do the trick. The fear that the markets would have of being caught on the wrong side of a trade against the ECB would be enough to keep the markets docile and quiet.

I’m not saying this is a best solution to the current situation—or even a solution at all. However, you cannot make sound economic policy on the fly, as you react to a crisis. You have to stabilize the patient, before you give him the treatment—not operate him for liver cancer while he’s still bleeding from a gunshot wound to the leg.

Read on here: http://gonzalolira.blogspot.com/2011/11/beginners-guide-to-european-debt-crisis.html

[/i]

Reply to All about what is happening in the global economy... on Sun, 23 Oct 2011 06:39:44 GMT

MadScientist — Sun, 23 Oct 2011 06:39:44 GMT

phtthp:
hi MadScientist,

curious ...

the global economy outlook look dismal. (2011 Q4 ending soon)

if suppose one fine day in future, our global financial hub/ HQ is shifted from US to Europe - any idea which popular, prominent leader likely selected to head this new global financial monetary system ?

at the moment, any market feedback or idea who are some suitable candidates gaining popularity ?

Hiya phtthp,

IMHO the shift from US to Europe is a given, but not before the Europe sorts out this mess. Until then, which is a long road, the US will still hold the global financial hub status. I do not have view on which leader as this can be very fluid depending not the times. However, I see that the forerunner looks to be Germany. By far, it is not only the richest European nation, but if it ever leaves the EU, the Mark would be at sky high levels. It may take something of that nature to effect such a movement, and at this point, it is only speculation at best.

From another perspective, a close friend of mine spoke to me about a particular character emerging out of Europe, one of a particular charm, and a particular agenda... In effect to unite the region, and as well to the consequential detriment of mankind as we know it. It is apparently prophecy, but then this is something out of my league. Your question reminded me of that related story btw.

Reply to All about what is happening in the global economy... on Sat, 22 Oct 2011 00:20:05 GMT

phtthp — Sat, 22 Oct 2011 00:20:05 GMT

hi MadScientist,

curious …

the global economy outlook look dismal. (2011 Q4 ending soon)

if suppose one fine day in future, our global financial hub/ HQ is shifted from US to Europe - any idea which popular, prominent leader likely selected to head this new global financial monetary system ?

at the moment, any market feedback or idea who are some suitable candidates gaining popularity ?

Reply to All about what is happening in the global economy... on Wed, 19 Oct 2011 03:28:25 GMT

mummyhk — Wed, 19 Oct 2011 03:28:25 GMT

Hi dicky, MadScientist,

Thank you for your views. All very useful perceptions for me! Property Markets has always been the last to be affected somewhat given the relatively illiquid nature of the transaction. For serious buyers like myself who has been sitting on the fringe for the past 3 years, it has been an agonising wait so far. Will love to see a dip before making that plunge.

Perhaps the Q3 earnings announcement of the major banks in the coming weeks will send some ripples through.

Reply to All about what is happening in the global economy... on Tue, 18 Oct 2011 14:44:21 GMT

MadScientist — Tue, 18 Oct 2011 14:44:21 GMT

mummyhk:
Hi MadScientist,

Thanks for all your insights into the global/regional economy and your perceptions of the challenges ahead.

I specifically wanted to get your views/thoughts on the Singapore Real Estate Market. There has been murmurs of a slowdown/scaling back on rental and sale prices. There has also been the implementation of a reinforced stamp duty which is deemed to be somewhat punitive and flushes out the short term investors. I am less optimistic about all these having a dampening effect on the market. I worry that as rest of world (US and EMEA) getting into a bind, we will see hot monies flowing into this part of the world. And as our properties are considered to be somewhat affordable to this flow of funds, we might still get the properties prices trending upwards.

Would love to hear your views. Don't get me wrong, I prayed for a price correction in the Singapore property market. I just don't think we will see that happening at all.

Hi mummyhk,

You are most welcomed.

I too pray for a serious correction... But a mild one at best is what I expect. Not just yet, but soon enough.

Why I think that the RPPI will correct:
The global crisis will send shockwaves out and almost all markets will feel the hit.
There will be a recession, and at least job losses.
Leveraged buyers may face some difficulty due to a recession.
The recent run up is technically way above itself and overextended.

What I think will not be a major correction like 2008:
Our floodgates are open... And there is probably backlog of new citizens coming online
Our interest rates are super low
Our supply levels are not ramped up until 2013
We do not have proper capital controls, and are very very unlikely to do so.
The current measures actually work against proper market forces

You are probably right about the fund flows... http://www.dnaindia.com/money/report_singapore-gold-only-safe-havens-russell-napier_1594372
However, in a panic, it will be a panic and fund flows should be running into short term money markets like bonds and USD.
What would follow next is an unintentional synchronized outflow into safe haven assets that have better yields and one of the Asian flavors is SG. Note also that this time, smart and ot money already knows which havens to run to... So the moves would be very much quicker.

We have the power to minimize it but seems like we choose a high price for economic growth.
More importantly, there would be an onset of hyperinflation...
Not only about hot money inflows, which would increase the SGD (counterintuitive to inflation argument for now but bear with me) and make our exports weaker... But also our CPI is linked to COE prices, and the recent announcement tells me that inflation will set due to higher COE. PLUS, the current floods in Thailand will bump our imported rice prices to over $30/10kg bag by the next harvest (which is non-existent).
Property prices would also increase and this adds to the inflationary environment.

Thing is, with bad exports due to apparent high export prices, the growth of our manufacturing sector may be stunted. Which means wage growth is likely to be low.

And, oh yeah, it appears to me that by some longshot, Eurobonds will be the order of the day to save Europe really... The last time a few trillions were pumped, we had a decent inflation... Another trillion perhaps?

It could turnout to be the 70s all over again...

Now... That would signal to me that we are at the beginning of the end. The bubble will burst when interest rates start rising, then leading to the third and final bust.
We can buy cheap properties then, only if we still have any money left...

So, that is my realistic views, subject to change. I may be wrong... And I was about the RPPI in 2009, as I didn't count on inflows. This time, it's part II, and some conditions have changed, whilst others have not.

Reply to All about what is happening in the global economy... on Tue, 18 Oct 2011 09:53:53 GMT

dicky — Tue, 18 Oct 2011 09:53:53 GMT

Price correction will be there, and like you I don’t see that coming anytime soon. This is not a rumour, everyone can see that coming, but no-one can truly say when…

Because at the moment everything is in theory (launches, land supply etc), but homing supply in practical is not there yet. Hot money can flow in, but without good rental due to coming large supply and cut in foreigner quota, they get out easily too.

I’m 2nd guessing that at best price will moderate, not fall as long as stock mkt remains volatile and gold prices remains high. As for news on world economy, it doesn’t affect pty mkt on the same scale as stock mkt…

Reply to All about what is happening in the global economy... on Tue, 18 Oct 2011 07:07:16 GMT

mummyhk — Tue, 18 Oct 2011 07:07:16 GMT

Hi MadScientist,

Thanks for all your insights into the global/regional economy and your perceptions of the challenges ahead.

I specifically wanted to get your views/thoughts on the Singapore Real Estate Market. There has been murmurs of a slowdown/scaling back on rental and sale prices. There has also been the implementation of a reinforced stamp duty which is deemed to be somewhat punitive and flushes out the short term investors. I am less optimistic about all these having a dampening effect on the market. I worry that as rest of world (US and EMEA) getting into a bind, we will see hot monies flowing into this part of the world. And as our properties are considered to be somewhat affordable to this flow of funds, we might still get the properties prices trending upwards.

Would love to hear your views. Don’t get me wrong, I prayed for a price correction in the Singapore property market. I just don’t think we will see that happening at all.

Reply to All about what is happening in the global economy... on Wed, 12 Oct 2011 14:36:16 GMT

MadScientist — Wed, 12 Oct 2011 14:36:16 GMT

peapot:
Hi mad scientist, think you have the passion for investing. Do you think if someone offers u $200,000 to invest and you need to return yearly say with a 5 percent interest charged for loan term of say 5 years, would you take up such offer?

Hiya peapot!

Thank you for your vote of confidence... yes, I've had that for years now... only recently, taking it more seriously... just in time as the global movement will also shift wealth across social stratas.

With regards to your question...
I'd restructure the deal...

Reply to All about what is happening in the global economy... on Tue, 11 Oct 2011 12:55:04 GMT

peapot — Tue, 11 Oct 2011 12:55:04 GMT

Hi mad scientist, think you have the passion for investing. Do you think if someone offers u $200,000 to invest and you need to return yearly say with a 5 percent interest charged for loan term of say 5 years, would you take up such offer?

Reply to All about what is happening in the global economy... on Wed, 05 Oct 2011 13:16:23 GMT

Fxman — Wed, 05 Oct 2011 13:16:23 GMT

next coming report, Non Farm Payroll in the US. This is a high impact news for the global economy

Reply to All about what is happening in the global economy... on Mon, 03 Oct 2011 03:06:40 GMT

MadScientist — Mon, 03 Oct 2011 03:06:40 GMT

Moving into October, after the typically worst month of the year (September), we find October to be the month of crashes... not a good record really.

And... to see these reports on the first day of October is an omnious sign, if at all.

http://www.marketwatch.com/story/new-greek-austerity-plan-short-of-target-report-2011-10-02

http://money.cnn.com/2011/10/02/news/international/greece_budget/index.htm?iid=HP_LN

Reply to All about what is happening in the global economy... on Sun, 02 Oct 2011 14:39:55 GMT

MadScientist — Sun, 02 Oct 2011 14:39:55 GMT

http://www.washingtonpost.com/business/clsas-napier-recommends-buying-asian-currencies/2011/09/23/gIQAJfWgpK_video.html

One of the best economist/analyst IMHO... one that is about 95% accurate since 2005! He is the authour of Anatomy of a Bear.

Reply to All about what is happening in the global economy... on Fri, 30 Sep 2011 03:10:34 GMT

MadScientist — Fri, 30 Sep 2011 03:10:34 GMT

3Boys:
MadScientist:

As for Europe, Paul Krugman is one of the best NYTimes writers...
in his recent article:
http://www.nytimes.com/2011/09/26/opinion/euro-zone-death-trip.html?hp

Cheers!
Well, I read quite a bit of Paul Krugman and his pal, Joseph Stiglitz. A bit too leftist for my taste. But his analysis of the Euro (and Europe) is a fair one I believe.

I have to agree with you on that.

I also like John Mauldin's editorials about Europe. Very comprehensive and easily digestible.

Reply to All about what is happening in the global economy... on Fri, 30 Sep 2011 02:51:55 GMT

3Boys — Fri, 30 Sep 2011 02:51:55 GMT

MadScientist:

As for Europe, Paul Krugman is one of the best NYTimes writers...
in his recent article:
http://www.nytimes.com/2011/09/26/opinion/euro-zone-death-trip.html?hp

Cheers!

Well, I read quite a bit of Paul Krugman and his pal, Joseph Stiglitz. A bit too leftist for my taste. But his analysis of the Euro (and Europe) is a fair one I believe.

Reply to All about what is happening in the global economy... on Mon, 26 Sep 2011 08:25:38 GMT

MadScientist — Mon, 26 Sep 2011 08:25:38 GMT

European worries... and UBS...

Something you might like to know about UBS... The CEO resigned IMMEDIATELY taking responsibility for the rogue trading.
http://www.marketwatch.com/story/ubs-ceo-gruebel-resigns-in-wake-of-rogue-trades-2011-09-24

Bloomberg News
Gruebel Resigns From UBS After $2.3 Billion Trading Loss

Sept. 24 (Bloomberg) -- Oswald Gruebel, chief executive officer of UBS AG since February 2009, resigned his post at Switzerland’s largest bank after a $2.3 billion loss from unauthorized trading.

He will be replaced on an interim basis by Sergio P. Ermotti, the bank’s CEO for Europe, the Middle East and Africa, UBS said in a statement today. Gruebel, 67, leaves after the Zurich-based bank’s board of directors met in Singapore.

Gruebel joined UBS after about 37 years at rival Credit Suisse Group AG and is the only person to have served as CEO of both of the biggest Swiss banks. He returned UBS to profit about six months after arriving, resolved a dispute with the U.S. over banking secrecy that threatened the firm’s existence and stemmed nine straight quarters of client defections at the private bank.

“Oswald Gruebel feels that it is his duty to assume responsibility for the recent unauthorized trading incident,” Chairman Kaspar Villiger said in the statement. “During his tenure, he achieved an impressive turnaround and strengthened UBS fundamentally.”

The board had asked Gruebel to remain until the annual shareholders meeting next year, Villiger said on a conference call with reporters today.

UBS has said it may be unprofitable in the third quarter after last week’s unauthorized trading. The loss, less than two months after Gruebel said the firm had “one of the best” risk- management units in the industry, raised questions about the bank’s controls.

Investment Bank

“They’ve got to change the aspirations of the investment bank and they’ve got to shrink it,” said Peter Thorne, a London-based analyst at Helvea SA. “I presume Gruebel was a bit of an obstruction to that because he felt the world was going back to the good old days and UBS was going to be a powerful investment bank.”

The loss resulted from trading in Standard & Poor’s 500, DAX and EuroStoxx index futures over the past three months, UBS said on Sept. 18. While the positions were taken within the “normal business flow of a large global equity trading house,” the size of the risk was hidden by phony trades, UBS said at the time.

Kweku Adoboli, 31, the UBS trader charged with fraud and false accounting that may have resulted in the loss, remained in custody after a hearing in London on Sept. 22. He has yet to enter a plea.

Succession Plan

“In the future, the investment bank will be less complex, carry less risk and use less capital to produce reliable returns and contribute more optimally to UBS’s overall objectives,” Villiger said today. “The investment bank will continue to strengthen its alignment with UBS’s wealth management businesses.”

The bank will announce further changes to the investment back in a presentation to investors scheduled for Nov. 17, Ermotti said on a conference call with the reporters today.

Gruebel’s departure throws into relief the lack of a succession plan at UBS. Chairman Villiger, 70, is scheduled to step down in 2013 and be replaced by former Bundesbank President Axel Weber, 54, who lacks hands-on experience running a commercial bank. The trading loss also reduces the chance that Carsten Kengeter, the 44-year-old head of the investment bank, will ascend to the top job.

Ermotti

Ermotti, a 51-year-old Swiss national who joined UBS in April after working at Merrill Lynch & Co. and UniCredit SpA, will be interim CEO while the board seeks a permanent successor to Gruebel, the bank said. In his 18 years at Merrill Lynch, Ermotti oversaw businesses including the global equities division before leaving in 2003 to join UniCredit, Italy’s biggest bank.

As UniCredit’s investment banking chief, Ermotti also supervised global transaction and private banking. Ermotti had aimed to compete with the world’s top securities firms as mergers soared and business flourished before the subprime crisis spread and credit became scarce. He later scaled back the plan to focus on corporate and investment banking business in the lender’s home markets.

Ermotti, who became UniCredit’s deputy CEO in July 2007, will be a “permanent candidate” for the top job at UBS, Helvea’s Thorne said.

To contact the reporter on this story: Giles Broom in Geneva at gbroom@bloomberg.net

To contact the editor responsible for this story: Frank Connelly in Paris at fconnelly@bloomberg.net
Find out more about Bloomberg for iPad: http://m.bloomberg.com/ipad/

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My concern is that the exit was very abrupt.
He is a very smart man, aptly put by one of my buddies...
and so when he moves this fast, I cannot help but sense something else more than the rogue trades.
There may be more that meets the eye at this point IMHO... only time will tell.

As for Europe, Paul Krugman is one of the best NYTimes writers...
in his recent article:
http://www.nytimes.com/2011/09/26/opinion/euro-zone-death-trip.html?hp

Cheers!

Reply to All about what is happening in the global economy... on Mon, 26 Sep 2011 08:14:11 GMT

MadScientist — Mon, 26 Sep 2011 08:14:11 GMT

jeestan:

Hmm, your input always makes me think. My sister is in New York, her job is quite stable so far. Now they are not buying, just saving and saving. Why would the coming times be low growth and high inflation? I thought inflation was tied to growth?

That IS the idea, isn't it?
Gimme a cookie. :boogie:

Yes, I absolutely agree with that thought... I did think so too, until recently (in early 2008).

Low growth and high inflation is called STAGflation.
Globally, we went through one round in the 70s. As your parents, they will remember how it is like. I never got enough of an answer from anyone who lived through that time... and clearly, those in this time, have no idea what it is like.

Look at Greece, if not most of Europe...
They are having low growth now, and inflation will start to creep in, if not already.

SG is a little luckier in Asia... even as Asia is battling huge inflation pressures now (SG CPI in excess of 4%), our growth rate is nothing spectacular to the years of 2004-2007.
Add to that the low interest rate environment, the alleged safe haven status of our SGD (seen after a deleveraging bout usually), the influx of FI (aka hot money) for our economic growth (read GDP growth)... can anyone really say that our inflation is in line with our economic growth? What's more is that there is an increasing disparity with headline inflation rate, and the real inflation rate we experience. Case in point, my wife noticed that our favourite green tea can is now the same price for 315ml, instead of the 330ml we used to get. Check carefully... you will see that there is a 4.5% reduction of volume. Another case in point, the price of basic food like rice, or bread... has escalated more than 10% in the last 2-3 years. For rice, particularly.

Your sister is smart... they need not only to save, but also to grow. The game just got harder, to grow your investments, etc. in an environment of low growth? That's why a lot of money is moving into real assets like physical gold and real estate. The low interest environment is not helping the latter either (in US, it is not spurring sales; in SG, it's the opposite but the statement holds true as well!).

Reply to All about what is happening in the global economy... on Mon, 26 Sep 2011 05:22:38 GMT

jeestan — Mon, 26 Sep 2011 05:22:38 GMT

MadScientist:
jeestan:
Thanks MadScientist. Basically, from what I understand US is not going to get any better in a long long time because they have spent their future. Hence it is quite a good choice to relocate.

Europe as the financial centre does sound a little strange at this point.
If I may offer a contrarian view...

It is actually a good idea to relocate TO USA. :yikes:
Particularly if one has a very stable job...

Things will be a lot cheaper there... and it is already so. Unlike times where economies are booming, and you want to be where the economies are booming, the coming times would probably be like low growth and high inflation... so, surviving also means to have a low base. To earn less and spend more is devastating... can survive, but devastating. That's how the 30s-40s were like.

Hmm, your input always makes me think. My sister is in New York, her job is quite stable so far. Now they are not buying, just saving and saving. Why would the coming times be low growth and high inflation? I thought inflation was tied to growth?

Reply to All about what is happening in the global economy... on Mon, 26 Sep 2011 02:26:05 GMT

MadScientist — Mon, 26 Sep 2011 02:26:05 GMT

phtthp:
which part of Europe is controlling financial centre being shifted to ?

That's a long term hypothesis...
From the looks of it, Germany is a contender for now.
The others are lagging way too far behind... even France.

Reply to All about what is happening in the global economy... on Mon, 26 Sep 2011 02:17:55 GMT

phtthp — Mon, 26 Sep 2011 02:17:55 GMT

which part of Europe is controlling financial centre being shifted to ?

Reply to All about what is happening in the global economy... on Mon, 26 Sep 2011 02:10:31 GMT

MadScientist — Mon, 26 Sep 2011 02:10:31 GMT

jeestan:
Thanks MadScientist. Basically, from what I understand US is not going to get any better in a long long time because they have spent their future. Hence it is quite a good choice to relocate.

Europe as the financial centre does sound a little strange at this point.

If I may offer a contrarian view...

It is actually a good idea to relocate TO USA. :yikes:
Particularly if one has a very stable job...

Things will be a lot cheaper there... and it is already so. Unlike times where economies are booming, and you want to be where the economies are booming, the coming times would probably be like low growth and high inflation... so, surviving also means to have a low base. To earn less and spend more is devastating... can survive, but devastating. That's how the 30s-40s were like.