Showing posts with label Singapore politics. Show all posts
Showing posts with label Singapore politics. Show all posts

Monday, February 24, 2014

Phisix: Scrutinizing the Property Inspired Rally

We believe investors often confuse waves of capital inflows into emerging markets-when global monetary conditions are permissive and the consequent asset inflation and credit booms -with some fundamentally-driven intrinsic “growth” theme in emerging markets. There are many ebullient investment ideas we have hear d over the past 25 years: the massive infrastructure theme, the growing middle class, the nutrition/water idea, the urbanization meme, the emergence of this sub-region or the other. We remain skeptical and cynical. Eventually, these glossy investment views have run into tighter global monetary conditions, the inevitable crises, large capital losses and vows of “never again”. Until, of course, the next global monetary easing, when all is forgiven, and a fresh wave of investors wades in again. Ajay Singh Kapur, Ritesh Samadhiya,and Umesha de Silva

Bullish hopes had been rejuvenated this week as the Philippine equity benchmark, the Phisix, went into a melt up mode.

Powered by foreign buying, the Phisix leapt by 3.18%. Year to date gains suddenly tallied to 7.11% after last week’s 1.71% rally. The bulk of the annual gains had been built on from the late January surge. The advances during the last two weeks piggybacked on this despite the sporadic accounts of downside volatilities from late January.

Market Breadth Highlights Fragility of Recent Run Up

Stock market bulls have latched their hopes on a sustained “high” statistical economic growth, ignoring recent developments or facts (Aldous Huxley syndrome) that unemployment data has surged in late 2013 and of the deterioration of sentiment by recent surveys on the quality of life. They would most likely see the recent rally backed by foreign flows as signs of a return to “rational” assessment by foreigners of Philippine assets.

The technically speaking, the recent rally which broke beyond the January highs will be seen as “falsification” of the “descending” triangle that has haunted and encumbered the Phisix. Yet the fact is that the late January inspired rally represents the third major attempt to push the Phisix back into bullish territory where the previous two failed.

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The health of the recent rally can be measured by relative market breadth developments which are indicative of sentimental changes. 

While it has been true that foreign buying may have returned to their “senses” (putting on the hat of the bulls), previous patterns of foreign flows tell us, in 2013, a different story. In the past, spikes in foreign flows (in both directions) have been accompanied by major volatile periods marked by interim peaks and bottoms (left window/ blue circles). While the recent rally has not reached levels as those with May, July and September, yet if the recent rate of foreign inflows will continue in the coming week or so, this may portent of another major interim retracement. That’s in the condition where the past will rhyme.

In addition, it would be a mistake to read foreign flows as a static or linear based dynamic. In 2013, foreign flows have mostly been mercurial characterized by drastic and substantial reversals of sentiment, particularly from June onwards. I don’t think this dynamic would stabilize anytime soon for reasons I have long stated, and for reasons I will elaborate below.

Moreover, despite the very impressive 4.89% two week swing supported by a sudden turnaround in foreign sentiment, peso volume (weekly averaged or total peso volume for the week divided by the number of trading days) has materially lagged the earlier denial rallies of July and September (right window).

In other words, in the face of the nice numerical gains, it would seem that the bulls have hardly maintained a wholehearted conviction of a sustainable upside move, or that the bulls have remained reluctant. This seems in contrast to the bears whom has used the buy-up as opportunities to exit.

We then move from flows to trades.

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This week’s massive rally has been accompanied by a spike in the number of daily trades (averaged weekly or total weekly daily trades divided by number of trading days) as shown on the left diagram.

A sustained upsurge in daily trades has coincided once again with major interim tops (Feb 2013, May 2013 and July 2013). Sudden and dramatic increases in daily trades have been indicative of increases in trade churning. This implies more participation from retail participants who has bought into bullish “growth” story/spin.

Yet in every peak of stock market cycles, retail investors, who are usually the last movers into maturing runs, have usually been the last left holding the proverbial empty bag[1]. So if there should be another significant gush of churning activities in the coming week or so, then we should expect another major downside move soon. That’s again if the past will rhyme.

Such sentiment metric has hardly been any different with advance decline spread. The current run has been broad based. Weekly averaged advance decline spreads have reached levels where previous rallies has been abbreviated or accompanied by a big downside swing.

And such scale of climaxing bullish sentiment has translated into interim peaks which has been apparent in February 2013, May 2013, July 2013, October 2013 and the late January 2014 rally. So again if the past will rhyme, any sustained bullish breadth this coming week or so, would translate into a selling opportunity.

Despite the impressive gains during the past two weeks, four market breadth indicators (flow) peso volume and foreign money flux and (trade) daily trades and advance-decline spread have shown how fragile the current rally has been.

This means that while technically the declining triangle may have been invalidated (this depends really on reference points), bullish sentiment based on the above facts reveal of a largely uncommitted stance.

Excess Volatility, Market Tops and History Rhymes

Since we are into Mark Twain’s history doesn’t repeat but history rhymes, let me exhibit why I believe patterns reinforce their existence.

As a student of the business cycle and of economic history, I am convinced that this time will not be any different. Inflationism as evidenced by the symptoms—rising markets (expressive of overconfidence) driven by excessive speculation founded on rampant debt accumulation—is fundamentally unsustainable. This has been proven all throughout history and has even been documented by Harvard professors Carmen Reinhart and Kenneth Rogoff[2]. And rising rates in the face of such untenable conditions serve as the proverbial pin that eventually that leads to what I call as the Wile E. Coyote moment (a bubble bust).

I am not a fan of simplistic pattern based analysis for one simple reason: people’s social interactions and reaction with the environment will hardly ever be constant.

But there are reasons why patterns, which can be expressed as cycles, exist.

Despite technological advances and the permeation of education, people incur the same errors. And such errors have been induced by social policies. Unfortunately a majority of people, including the so-called intellectuals, can’t seem to comprehend that the impact of regulations or of social policies has never been neutral. Social policies affect people’s incentives and behavior to such extent that people have been lead to commit the same mistakes; thus such become cycles. So for instance, when central bankers dabble with money inflation, almost similar to the way Roman emperors debased their coins[3], eventually crises occurs and society degenerates.

I have noted that bubble cycles operate on a “periphery to the core” dynamic where the zenith of bubble cycles applied to the stock market can be seen via extreme volatility or what I say as volatility in both directions with a downside bias. 

I have previously demonstrated how “volatility in both directions with a downside bias” applies to the Philippine Phisix, based on the 20 years of history[4]

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Applied to the US we see the same volatility dynamic at work.

In hindsight all topping process in the S&P 500 has been accompanied by “volatility in both directions with a downside bias” whether in 2007-8, 2000 dotcom bust, 1973-1975 US recession and 1929 stock market crash that ushered in the Great Depression.

Like me, the source of the charts above except 2007, fund manager John Hussman who hasn’t been a fan of patterns too but notes on why patterns may become a self-fulfilling reality[5] “We would dismiss historical analogs like this if the recent market peak did not feature the “full catastrophe” of textbook speculative features – particularly the same syndrome of extreme overvalued, overbought, overbullish, rising-yield conditions observed (prior to the past year) only at major market peaks in 2007, 2000, 1987, 1972, and 1929.” 

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This brings us back to the Phisix in the context of a 1994-1997 top and today’s perhaps more truncated cycle. The numbers are not Elliott Wave counts, instead they are occasions when the Phisix suffered from bear market seizures.

So far, there seems to be a pattern or a resemblance between 1994-95 topping process and today’s cycles. The common denominator three bear market strikes (June, August, December 2013) and three bear market convulsions (1994-1995).

Yes I know the difference: today 5,800 has been the support, while in 1994-5 the decline has been a downside channel.

If the past should repeat then we should see a final blowoff phase rally prior to the capitulation.

Troubling Signs from Property Bubbles

One of the troubling indicators underscoring the “this time is different mentality” is from an article touting “Who’s afraid of interest spike?”[6] noting of the largest property developer thrust to finance a major expansion program by going into the debt markets.

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Last week’s rally has been inspired by the property sector largely premised on the supposed jump in the profits of Ayala Land in 2013. Company officials announced that past is the future so they will sustain a massive expansion program to be financed mostly by debt

I had wondered if truly the officials of the largest property developer expected an interest spike as the title of the article suggested.

Well it turned out to be a disappointment. The quoted official of developer said that “We have debt capacity we can utilize” and when asked how interest rates developments affected their plans the reply was “already built in to the plan”

Would a company acquire massive debts if faced with “spiking” interest rates that would jeopardize their profit position? From a rational economic position the answer would be NO. Instead the company will take on more debt because they foresee that profits will eclipse the cost of debt servicing.

So it is obvious that “built in to the plan” extrapolates to expectations for a negligible rise in interest rates. Obviously too that a “spike” in interest rates has hardly been a factor into the expectations of company’s officials in the context of demand for the company’s property products. Company officials seem to see that the finances of their customers are without limits.

The article even quotes the BSP governor who reportedly said “high liquidity in the banking system will help mitigate any increases at all.” When does “mitigate any increases” equal to “interest rate spike”?

So contra the headline of the article whose author may be impliedly sneering at cynics, the headlines represents an inaccurate and inconsistent depiction of the official stand of the property company. There hardly has been any trace of expected “spike” in interest rates.

Two reasons why these are troubling signs. The inaccurate representation of the company official’s position is a sign of media’s undiscerning promotion of bubbles. It is also a sign of illusion of superiority based on what seems as false knowledge or the Dunning–Kruger effect[7].

Two, the stock market players bidded up on property stocks based on past performance (last year’s profits) and based on the company’s optimism via a massive debt financed expansion. This means that stock market players practically threw “risk” under the bus and virtually agreed that “debt is growth”. Such signifies nauseating signs of overconfidence or reckless yield chasing speculation or both.

Where will Domestic Demand for Properties come from?

If the recent surge in unemployment rates have anywhere been accurate, and if this has been supported by deteriorating sentiment on the public’s perception in terms of quality of life standards (due to spreading price inflation), then demand for middle and lower class housing will begin to taper.

The adverse impact from inflation will also impact demand from remittance based finances or OFW dependent markets, a sector that previously contributed to an estimated one fourth of demand of the housing industry[8]. While it is true that devaluing peso means more pesos for every unit of foreign currency, such advantage will be offset by increases in domestic prices of other goods and services. As pointed before, Philippine households are mostly sensitive to changes in food, energy and housing as part of their consumption distribution basket. So a switch in spending to food and energy or even to rental would mean less money available for housing acquisition.

And if inflation intensifies and will get reflected on interest rates, there will be reduced demand for housing even to people with access to the banking system, since debt servicing will eat up a larger share of a shrinking income base, due to reduced purchasing power from an inflated peso.

This also means that any sustained boom in demand for property will largely depend now on a narrowing spectrum of markets, particularly the elite (perhaps funded via debt financed purchases) most likely for speculation (flipping) purposes, from foreigners (mostly for speculation), and from some property owners who benefited from the expansion undertaken by property developers by selling to the latter.

While it is true that high end properties may not even be price sensitive as they can perceived as “status symbol” products or Veblen Goods[9], demand for such goods will depend on the prestige behind the scarcity, and the available financing to acquire such products.

But the race to develop properties has been an industry wide phenomenon, not limited to the prime developers, so inventories have been rising faster relative to demand in almost all categories.

And rising rates from increasing signs of inflation will mean lesser availability of capital.

One demand for property boom comes from previous property owners who sold to the developers. Some may have bought into developer’s project while others may have joined the race in the snapping up of properties in the hope of flipping them again to developers. Both have contributed to higher property prices. Some have used the windfall for consumption.

Nonetheless, for such segment consumption and property speculation extrapolates to capital consumption. When developers see the light of a slowing demand, such beneficiaries will also feel the heat from financial losses once the excess from the supply side becomes apparent.

The Singapore Model for Foreign Demand of Philippine Properties?

The last dynamic driving housing demand comes from foreigners.

Experts from the housing industry said last year that new regulations and taxes in Hong Kong and Singapore in order “to curb speculation in their property markets”, drove demand for domestic properties since the Philippines have become a “more foreign-investor friendly destination”[10]

As a side note, I’d say that liberalization that led to a “foreign-investor friendly destination” has been mostly in the construction sector[11], and hardly the general economy. Like almost every government elsewhere today, the incumbent have used bubbles to spruce up statistical economic growth.

In short, what the report should have said was that speculative demand merely transferred from Hong Kong and Singapore to the Philippines.

Here is more of what they didn’t say.

Singapore’s property bubble fuelled by the Singaporean central bank’s easy money policies has essentially driven a stake into the hearts of the Singapore’s free market model[12].

The politically divisive easy money policies by Singapore’s monetary authority have made foreigners a lightning rod for politically correct populist inequality sloganeering that has raised nationalist sentiment[13]. As such, Singapore’s politics has ushered in statists leaders who has imposed welfarist programs[14], and has recently even imposed labor protectionism[15] by putting a law to prioritize on locals over foreigners. 

A few days ago we see Singapore’s descent deeper into a welfare state by the imposition of sin taxes[16]. Those low tax days appear to be numbered.

Would you believe that riots afflicted a developed economy like Singapore in late December[17]?

So what the report didn’t say was that the untoward political repercussions from Singapore and Hong Kong’s property bubbles would have been inherited by the Philippines. But that’s if the housing boom transmission persists.

The good news is that rising bond yields of 10 year treasuries of both in Singapore and Hong Kong will most likely stymie any foreign demand for Philippine properties for speculative purposes. So this should temper any political ramifications from massive inflow of foreign money on domestic properties. But this will be bad news for developers and for stock market investors who bought into the “debt is prosperity” spin.

And as I previously noted the property bubble will induce a change in the composition of ownership[18]
…the ongoing leveraging by players in the property sector whom has access to the banking system may be acquiring properties from the 68% of households and selling these projects to the same high end sector whom have been speculating both in stocks and in properties
As events in Singapore reveal, property bubbles has nasty political consequences.






[2] Carmen Reinhart and Kenneth Rogoff This Time is Different Princeton Press



[5] John P. Hussman Topping Patterns and the Proper Cause for Optimism, Hussman Funds, February 17, 2014




[9] Wikipedia.org Veblen Goods







[16] Wall Street Journal Singapore Ups Sin Taxes Amid Higher Social Spending February 22, 2014


Tuesday, December 10, 2013

How Inflationism Propagated Singapore’s Riots

Sovereign Man’s Simon Black Singapore eloquently explains of the unexpected recent outbreak of riots in Singapore.
Like individual people, societies have their own breaking points. They build up anger and frustration for years… sometimes decades. Then all it takes is one spark. One catalyst. And it all becomes unglued.

Just yesterday, a 33-year old Indian man got hit by the proverbial bus in Singapore’s Little India neighborhood. That was the catalyst. What transpired for the next several hours was a full blown riot… the first of its kind since 1969.

Several hundred rioters stormed the streets. They started off smashing the up the bus that was still on the corner of Hampshire Road and Race Course Road. Then they started throwing objects at the ambulance staff who were unsuccessful in extracting the man in time to save his life.

By the end of the evening, an angry mob had lit five police vehicles on fire, plus the ambulance, leaving the streets in a towering inferno.

The government immediately went into damage control mode trying to explain what happened. But the explanation is really quite simple.

Singapore has had years of tensions building. The wealth gap is growing like crazy. Wealthy people are becoming ultra-wealthy, while the majority of folks see the cost of living rise at an alarming rate.

Strong ideological and ethnic differences are boiling over. And backlash against immigrants, especially from certain countries, is becoming an acute and obvious problem.

These issues are commonplace. Ideological differences. The wealth gap and economic uncertainty. Immigration challenges.

They’re the same issues, for example, that have plunged much of Europe into turmoil, including the rise of a blatantly fascist political party in Greece.

And these same issues exist, in abundance, in the Land of the Free… where a number of serious ideological divides are becoming obvious social chasms.

Printing money with wanton abandon. Racking up the greatest debt burden in the history of the world. Doling out wasteful and offensively incompetent social welfare programs at the expense of the middle class. Brazenly spying on your own citizens. These are not actions without consequences.

And if it can happen in Singapore– one of the safest, most stable countries on the planet, it can happen anywhere. Even in a sterile American suburb.
It is indeed disappointing to see upheavals erupt in what has been ‘successful’ economies. Singapore is one place I would prefer as residence.

But riots have indeed been a manifestation of tensions building overtime.

Growing politicization of the marketplace, e.g. latest labor protectionism, compounds only to social tensions

As I wrote about Singapore’s gradualist transformation to a welfare state in August of 2012
Once the ball gets rolling for the feedback loop of tax increase-government welfare spending then Singapore eventually ends up with the same plagues that has brought about the current string of crises, particularly loss of economic freedom, reduced competitiveness and productivity, lower standard of living, a culture of dependency and irresponsibility and of less charity and unsustainable debt conditions. The outcome from politically instituted parasitical relationship would not merely be a financial or economic crisis but social upheavals as well.
Be reminded that all these massive money printing measures and zero bound rates has only been driving a deeper wedge between the beneficiaries—which really are disguised bailouts of banks, the political elite and their cronies and of the bankrupt governments—and the main street (from whom the transfer to elites has been sourced)

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Singapore is of no exception. 

Singapore’s loan to the private sector has been exploding, it began its upside acceleration in 2006, but then the ascent has intensified since 2011. Today this has turned nearly parabolic

Singapore’s massive credit bubble has been reflected on her money supply M3 growth (red rectangle)

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The credit bubble has found its way largely to the property sector where Singapore’s property index has already eclipsed the pre-1997 Asian crisis highs.

Populist politics, which always looks at the superficial, the “visible” or the symptom, blame this largely on immigration rather than central bank policies led by the US Federal Reserve and Singapore’s counterpart Monetary Authority Singapore (MAS). The MAS has been resorting to "containing” the rise of the Singapore dollar vis-à-vis the US Dollar by pumping a domestic credit bubble.

Popular clamor has thus spurred more and more interventionism that has only been inciting social tensions which paved way for the recent riot.

So it should be no surprise when inflationism will continue to provoke riots worldwide, even in places deemed as ‘safe’ or stable.  We have seen a similar outbreak of public turmoil in Sweden last May.

Here in the Philippines, today the media announced of a massive jump in electricity prices in the metropolis. This will not only prick local bubbles but will also provoke a public uproar via demonstrations and possible riots.

Bubbles just can’t last forever. Heed the prescient admonitions of the great Austrian economist Ludwig von Mises:
But the boom cannot continue indefinitely. There are two alternatives. Either the banks continue the credit expansion without restriction and thus cause constantly mounting price increases and an ever-growing orgy of speculation, which, as in all other cases of unlimited inflation, ends in a “crack-up boom” and in a collapse of the money and credit system. Or the banks stop before this point is reached, voluntarily renounce further credit expansion and thus bring about the crisis. The depression follows in both instances.
Riots serve as the proverbial writing on the wall.

Tuesday, September 24, 2013

How Inflationism Spurred Singapore’s Labor Protectionism

In August of 2012, I wrote about Singapore’s “gradual descent into the welfare state” as politicians divert the public’s attention by blaming symptoms of bubbles (zooming property prices and wage inflation) on immigrants to justify increased taxes for social spending.

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Singapore’s homegrown bubbles as seen via record home prices (as of August) has been fueled by massive credit expansion or the zooming loans to the private sector.

This has been enabled and facilitated by the central bank’s accrued efforts to suppress the domestic currency, the Singaporean Dollar, from rising by accumulating enormous foreign exchange reserves by printing lots of domestic currency, thereby the easy money environment.  And due to such exchange rate management measures, the Monetary Authority of Singapore (MAS) even posted a $10.2 loss last year.

These bubble activities by the MAS have only amplified on the growing nationalism where this year the ruling party lost due to increasing populist clamor for immigration curbs.


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Singapore’s housing index has already surpassed the pre-Asian crisis highs. This shows why the recent “FED taper” turmoil in May-June materially affected Singapore’s financial markets.

Now to Singapore’s labor protectionism, from Bloomberg:
Singapore will widen foreign-worker curbs to professional jobs as the government clamps down on companies that hire overseas talent at the expense of citizens, stepping up efforts to counter a backlash against immigration.

The Southeast Asian nation said yesterday it will set up a job bank where companies are required to advertise positions to Singaporeans before applying for so-called employment passes for foreign professionals. The unprecedented policy will target jobs that currently pay at least S$3,000 ($2,400) a month.

“There are concerns among Singaporeans, which I think is fair, and so it’s timely for us to introduce this,” Acting Manpower Minister Tan Chuan-Jin said in a Bloomberg Television interview yesterday. “There are Singaporeans out there, well-skilled and capable, who are looking for jobs and I think this step would actually facilitate that process.”

The country is persisting with a four-year campaign to reduce its reliance on foreign workers, after years of open immigration policy led to voter discontent over increased competition for housing, jobs and education. The move has led to a labor shortage and pushed up wages, prompting some companies to seek cheaper locations…

Singapore will also raise the minimum pay for employment-pass holders by 10 percent to S$3,300 a month in January, the Ministry of Manpower said in a statement yesterday. The job bank will be set up by mid-2014, it said. Companies with 25 or fewer employees will be exempt from the new rules, as well as jobs that pay a fixed monthly salary of S$12,000 or more, the ministry said.
Singapore’s declining economic freedom and the rise of economic nationalism as a consequence of the global and Singapore’s easy money regime is a sad development especially that I have regards for the country. 

Yet one thing leads to another. Since property bubbles and wage inflation are symptoms, policies that address symptoms means the disease won’t be cured. And once the labor-immigration controls fail to stem her bubbles and the perceived political inequalities, the government of Singapore will resort to even more controls or interventions in other areas (perhaps capital and exchange controls, trade, social mobility as the above, deeper wage and labor controls and more), that would mean lesser prosperity for Singaporeans.

And growing politicization of an economy will lead to more social tensions as various parties compete to use government ‘coercive’ machinery as means to promote their self-interests through the repression of the interests of the others. So as economic freedom declines, economic fascism and or cronyism increases.

Inflationism and social controls or political economic interventionism have always been intertwined. As the great Austrian economist Ludwig von Mises warned (On The Manipulation of Money and Credit)
Inflationism, however, is not an isolated phenomenon. It is only one piece in the total framework of politico-economic and socio-philosophical ideas of our time. Just as the sound money policy of gold standard advocates went hand in hand with liberalism, free trade, capitalism and peace, so is inflationism part and parcel of imperialism, militarism, protectionism, statism and socialism

Wednesday, September 04, 2013

Lessons from Singapore’s Central Bank: Central Banks are Vulnerable to Bankruptcies

Mainstream media and their favorite experts continue to impress upon the gullible public that foreign currency reserves acts as a shield against the risks of a crisis.

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Well based on this theory, Singapore’s humongous forex reserves (more than twice the Philippines) imply that the current meltdown suffered mostly by emerging markets should have Singapore the least affected. 


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Reality has shown otherwise. 

10 Year Singapore government bond yields continue to unsettle now at 3 year highs

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The Singaporean Dollar has been sold off. The USD-SGD on an uptrend since December 2012.

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The ASEAN meltdown has Singapore’s STI reeling from the ASEAN bear market forces.

While Singapore has technically not yet in a bear market, the break below the June lows and the recent ‘reprieve’ or tepid ‘suckers’ rally reveals of the STI’s vulnerabilities.

In my view, the stress in Singapore’s markets exhibits an ongoing deterioration of trade and financial linkages with ASEAN.

Now Sovereign Man’s prolific Simon Black propounds on how central banks can go bankrupt using the recent Singapore experience. (bold mine)
A few months ago, the Monetary Authority of Singapore (MAS), the country’s central bank, released its annual report for the fiscal year ending 31 March 2013.

And the results were ‘shocking’, at least for those of us who read central bank annual reports cover to cover like a Harry Potter novel.

The bottom line for MAS showed a mind-boggling S$10.2 BILLION loss (roughly $8 billion USD), about as much as General Motors lost in its worst year.

This is the antithesis of what one would expect from Asia’s dominant financial center. And it begs the question– how can a central bank, which has the power to conjure money out of thin air, even suffer a loss, let alone such a heavy one?

Simple. MAS was desperately trying to hold back the Singapore dollar’s rise against the US dollar.

Because Singapore is a trade-based economy and the US dollar is so central in international trade as the world’s reserve currency, MAS has been trying to keep the Singapore dollar somewhat restrained vs. the US dollar.

Essentially MAS was buying US dollars and then intentionally selling them at a lower price in order to create artificial demand for US dollars.

This was a completely failed strategy.

Singapore’s ultra-healthy economy attracts investment from around the world, and the natural tendency is for the Singapore dollar to rise.

This rise has been even more pronounced given Ben Bernanke’s journey into monetary madness over the last several years.

Since 2008, the Singapore dollar steadily appreciated by more than 20% from peak to trough as investors sought a more stable currency alternative. After all, Singapore is a very strong, growing economy with zero net debt.

Because of these factors, MAS lost a prodigious sum trying to prevent its currency’s natural rise; the S$10.2 billion they lost constitutes roughly 3% of GDP.

In fact, Singapore’s economy only grew by S$11.5 billion from 2012-2013… so MAS managed to blow through 87% of the country’s economic growth last year fighting Ben Bernanke. Crazy.

This is something that is clearly not sustainable. And while that term is a bit overused today, such losses cannot continue indefinitely.

A central bank CAN go bankrupt, often creating a major currency crisis. And this is what suggests to me, above all else, that the fiat system is on the way out.

Fiat currency has been the greatest monetary experiment in the history of the world. Four men control over 70% of the world’s money supply, giving them control over the price of… everything.

And this system is so absurd that, healthy nations like Singapore are forced to lose billions in order to keep playing the game.

That’s exactly what it is– a game. Like most nations, Singapore has been playing this game for decades while the US changes the rules whenever it sees fit.

And it’s becoming obvious that the cost of playing is now far exceeding the benefit it receives. The hard numbers are very clear on this point.

This spells one inexorable conclusion: game over.
Another interrelated consequence of this US dollar recycling (vendor finance scheme) by Singapore’s central bank has been to blow homegrown bubbles 


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Growth in the loans to the private sector has virtually been skyrocketing

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Singapore’s surging housing index has passed the 1997 Asian crisis highs!

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And domestic credit to the private sector at 112% of GDP is about the highs of the 1980s and similarly approaches the Asian crisis highs of 1997.

I don’t have data on the claims to the banking system on ASEAN by Singapore and vice versa, but I suspect that there may be significant private sector exposures on the ASEAN investment corridor, as well as ASEAN investments in Singapore

Should the ASEAN meltdown continue or deepen then the risks of a regional crisis grows. 

We should thus be vigilant on the conditions ASEAN markets

And despite the denials of media and their clueless highly paid mainstream experts, we should expect the unexpected 

Mounting losses compounded by economic slowdown or recession will place central banks on the spotlight.

Caveat emptor

Monday, January 28, 2013

Singapore’s Gradualist Descent to the Welfare State 2: The Rise of “Consultative Government”

Last year I wrote about how the impact of inflationism in Singapore may prompt her to gradually embrace into the welfare state model
Crises emanating from busting bubbles have been frequently used to justify social controls…

Once the ball gets rolling for the feedback loop of tax increase-government welfare spending then Singapore eventually ends up with the same plagues that has brought about the current string of crises, particularly loss of economic freedom, reduced competitiveness and productivity, lower standard of living, a culture of dependency and irresponsibility and of less charity and unsustainable debt conditions. The outcome from politically instituted parasitical relationship would not merely be a financial or economic crisis but social upheavals as well.
It appears that the results of the recent election have partly validated my outlook.

From the Bloomberg,
Singapore’s ruling People’s Action Party lost a by-election with the widest margin in almost three decades, signalling Prime Minister Lee Hsien Loong may struggle to claw back support as the cost of living climbs.

The Workers’ Party’s Lee Li Lian, a 34-year-old sales trainer, won 54.5 percent of votes in the four-way race in the northeastern Punggol East district over the weekend, a 10.8 percentage point lead over the ruling party’s candidate. That’s the most for a district held by the PAP since the 1984 general elections, according to data from the Elections Department.

Record-high housing and transport costs, public discontent over an influx of foreigners and infrastructure strains are weakening approval for the only party that has ruled Singapore since independence in 1965. Its policies, which have helped forge Southeast Asia’s only advanced economy, are now being questioned by voters, many of whom are looking for a government that is less authoritative and more consultative.
I say partly because this is just one development. It remains to be seen if such political trend will intensify.

Yet “consultative government” signifies nothing more than a façade based on the appeal to the majority (social democracy) to justify the use of force to attain redistribution goals

As the 4th President of the US and founder of the US Constitution James Madison in a letter to John Monroe wrote; (bold mine)
There is no maxim, in my opinion, which is more liable to be misapplied, and which, therefore, more needs elucidation, than the current, that the interest of the majority is the political standard of right and wrong. Taking the word “interest” as synonymous with “ultimate happiness,” in which sense it is qualified with every necessary moral ingredient, the proposition is no doubt true. But taking it in the popular sense, as referring to immediate augmentation of property and wealth, nothing can be more false. In the latter sense it would be the interest of the majority in every community to despoil & enslave the minority of individuals; and in a federal community to make a similar sacrifice of the minority of the component States.
And more signs of Singapore’s slippery slope to the welfare state. From the same article….
The prime minister said after the Jan. 26 poll that by- elections tend to be tougher for the ruling party, and he will continue to focus on policies for the longer term that may take more time to yield results.

Last year, his administration cut ministerial pay, sped up construction of homes and made permanent a program to provide cash and medical funds for the elderly and low-income households. This month, it said it will give priority housing to families with children and provide greater childcare subsidies…

The island’s population has jumped by more than 1.1 million to 5.3 million since mid-2004, driving up property prices and stoking social tension as the government used immigration to make up for a low birth rate. Lee, who has led the country since 2004, has also raised foreign-worker levies and salary thresholds to slow the inflow of non-Singaporeans.
Inflationism or the global bubble cycles will continue to bamboozle or mislead the public to the populist welfare trap which will only exacerbate the current political settings in Singapore and elsewhere.

Yet the gist of the problem hasn’t been free market inequality and or immigration, which has falsely been attributed to, but rather central bank policies designed to promote the interests of the banking-political class cabal through financial repression—which includes negative real rates regime and balance sheet expansions.

And the next step for Singapore will likely be a gradualist transition towards a deeper welfare state that will be accompanied by more regulations, more restrictions of civil liberties, higher taxes, protectionism, cronyism and invasion of privacy which eventually leads to more social strains

From the behavioral perspective, I’ll borrow from Italian Statesman and Political Philosopher Niccolo Machiavelli’s observation on why the welfare state deludes the majority or the concensus.
For the great majority of mankind are satisfied with appearances, as though they were realities, and are often more influenced by the things that seem than by those that are.
Sad to see one of my ideal place lose its free market or economic freedom luster.

Thursday, November 29, 2012

Singapore Central Bank Acknowledges Elevated Risks of Homegrown Bubble

Bubble policies affect people’s behavior and attitudes. In Singapore I recently wrote about how bubbles policies seem to have spurred a populist demand for state welfarism

Last month Singapore’s central bank raised the alarm of a full blown property bubble and took measures to curb such eventuality 

From Yahoo.com
"Eventual correction could be painful to borrowers and destabilise the economy."

The sound of alarm came as Singapore's central bank, the Monetary Authority of Singapore (MAS) announced a new round of measures meant to subdue rising housing prices, including capping loan tenure at 35 years.

MAS said that recent government measures such as the Additional Buyer's Stamp Duty "have had a moderating effect on residential property prices" and that "there is also significant supply of housing that will come onto the market over the next two years" the demand for housing is simply not slowing down.
Apparently, such actions have failed as corporate debt levels continues to rise as debt quality has eroded

From Reuters,
Singapore banks could see loan quality fall sharply should interest rates rise or if the economy worsens as corporate debt levels are high by historical standards, the city-state's central bank warned on Wednesday.

"Corporates are more leveraged today than they were a year ago as low borrowing costs may have prompted some corporates to borrow more than they would have otherwise," the Monetary Authority of Singapore (MAS) said in its annual Financial Stability Review.

Large firms have issued twice the amount of debt in the first nine months of this year compared with the same period last year, while loans to small- and medium-sized enterprises have continued to expand robustly, MAS added…

Singapore interest rates are hovering near all-time lows amid a surge in inflows resulting from quantitative easing by Western central banks.
Household debt levels have also been rising, but at a more moderate pace, from the same article
MAS had a more benign view on household debt levels, noting Singapore's household net wealth stood at four times gross domestic product, an increase of 7.3 percent from a year ago.

Total cash and deposits belonging to households have also continued to exceed aggregate debt, it added.

MAS said government measures since 2009 to pre-empt the formation of a bubble in Singapore's residential market has led to a "noticeable slowdown in the pace of housing loan growth".
Singapore’s authorities are in an apparent state of quandary.

Although one positive development is that Singapore has recently cut taxes on sales of precious metal, which should allow Singapore's residents to seek refuge on them from central bank inflationism.

The bottom line is that the conventional central banking tools under today's US dollar standard continues to fuel rampant speculations (via yield chasing dynamic) at the asset markets, and continues to propel massive malinvestments or the bubble phenomenon across the globe. 

As a side note, another positive development could be that Singaporean political authorities may be (and hopefully remain) more open minded than their developed world counterparts. That's based on the observation made by Professor Bryan Caplan at the econolog,  
A room full of Singaporean civil servants actually asked me a series of earnest questions about anarcho-capitalism. Can you imagine U.S. bureaucrats doing the same? Unlike most observers, I guess, I barely noticed Singaporeans' material egalitarianism. What struck me was their intellectual elitism. Many Americans would be horrified, but I was delighted.