Friday, January 30, 2009

Thoughts on Chinese New Year

While I used to enjoy CNY very much as a kid, CNY has now devolved to become my least favorite holiday.

This has to do with a number of reasons. For one thing, my fondest memories of CNY have to do with playing with my cousins in my grandmother's flat in the old (since torn down) Tiong Bahru HDB estate. I remember lots of open spaces, blocks of flats situated atop a hill, and flights of staircases at the ends and middles of the blocks where my cousins would chase after each other up and down the block in games of tag ("catching" in local parlance).

We also had Hongbao money to spend on sparklers and those little exploding pellets that would crackle and pop on impact when thrown on the ground.

Now these things about the holiday no longer appeal, including the Hongbao. Instead, CNY has become a holiday of mainly obligations: either visiting relatives or receiving guests. I do enjoy spending time with my immediate family, but visiting relatives that I hardly see during the year and have very little in common with doesn't stand very high on my list of priorities. Fortunately, my parents don't pressure me on this point, so I pretty much can decline to do the visiting bit. I do have to help entertain guests though.

The other annoying thing about CNY is that all shops and most restaurants pretty much shut down over the holiday, so there's very little to do apart from the traditional activity of visiting relatives.

Instead, if there is one traditional festival that is my favorite holiday, it would be the Mid-Autumn Festival, which unfortunately, isn't a public holiday at all in Singapore, unlike say in Hong Kong and China.

Mid-Autumn Festival is simply brilliant. Because of the significance of the moon, it lends itself very naturally to events held at night (zhong1 qiu1 wan3 hui4). And on a night with a full moon, there's something very romantic associated with these events. Not romantic in the BGR sense, but as in the sensual and the sentimental.

As a festival, it's also immensely kid-friendly, with the lanterns and sparklers for the young (and not so young). For the adults, there's mooncake, tea and the oh-so-genteel custom of chatting by moon and starlight and the poetic contemplation of the moon (not that most of us do that, but the idea is nice). It also helps that Mid-Autumn festival is more than just about having fun, but has complex meaning on both literal and metaphorical levels: the folklore of Chang'Er juxtaposed with the traditional importance of timing the harvest near the Autumn Equinox. 

Finally, apart of being a festival with none of the compulsory obligations of CNY, Mid-Autumn Festival doesn't coincide with a near-total shutdown in the economy. I like my holidays when shops, restaurants, cafes and attractions are all still open and services are available. That is probably the best part about Mid-Autumn Festival.

Tuesday, January 20, 2009

Blogging Break

I seem to be taking more frequent breaks from blogging these days. Anyways, between the larger volume of work I'm dealing with these days, getting used to a slight shift in responsibilities due to a partial secondment (which also explains the workload), and the holidays, it's a bit harder for me to find time to blog.

More to the point, I don't have many fresh leads to blog in none that are interesting. It's been pretty blah for the last few weeks, and this includes the newspaper clippings I normally reproduce on my blog.

I might have new updates after CNY though. We'll have to see how it goes.

Thursday, January 15, 2009

Tuesday, January 13, 2009

"Singapore state fund counts Merrill losses"

I have reproduced an article below, sourced from singapore-window. If it's good enough for the Financial Times, it's definitely good enough for this blog. Maybe not good enough for the Straits Times though, that paragon of publishing excellence.

Do note that this is a follow-on from a previous post.

Singapore state fund counts Merrill losses 
Financial Times 
Januray 8, 2009
By Saskia Scholtes and Greg Farrell in New York

TEMASEK, the Singapore state investment fund, is sitting on significant paper losses related to its stake in Merrill Lynch, the investment bank acquired by Bank of America last week. 

The state agency's unrealised losses could amount to more than $2 billion, excluding any hedges, according to a Financial Times analysis based on publicly available filings.

The loss is emblematic of the damage the financial crisis has wrought on sovereign wealth fund investments in the banking sector and helps explain why funds have been reluctant to commit further capital to banks.

Some 40 per cent of Temasek's portfolio is in the financial sector. The fund has suffered paper losses on other investments including those in Barclays, Bank of China and China Construction Bank.

Temasek on Monday, Jan 5, disclosed it had converted its 13.7 per cent stake in Merrill into BofA shares following the acquisition.

On December 31, the last day of trading before the deal closed, Temasek's remaining stake in Merrill - for which it paid an average of $23 a share - had dropped to $12.10.

After ploughing $5 billion into Merrill between December 2007 and February 2008, and with a further $900m commitment last summer, Temasek owns 189m BofA shares, according to Monday's disclosure.

At yesterday's opening price, they were worth $2.7 billion.

However, Temasek appears to have sold more than 30m shares of Merrill stock in the first and third quarters of 2008, according to regulatory filings. And, even if Temasek sold at the lowest possible prices in these periods, the sales would have generated a modest profit to defray some of Temasek's unrealised loss.

Temasek declined to comment.

It could have been worse - Temasek's initial investment allowed it to buy more than 104m shares at $48 per share.

But, after Merrill was forced to raise further capital in July, the terms of Temasek's original investment were reset. This effectively bought Temasek 151m new shares in Merrill for just under $6 per share, bringing the average price paid per Merrill share to a little over $23.

Temasek's investment suffered again in September, as Merrill shares plunged on concerns about the US banking sector.

Any losses seemed to vanish when BofA agreed to buy Merrill in an all-stock deal that valued the latter at $29 a share. In the immediate aftermath of the announcement, it appeared that Temasek stood to gain about $1.5 billion from the acquisition.

BofA's shares have since slumped, however. When the deal closed, BofA's shares were trading at $14.08. According to the terms of the transaction, every share of Merrill Lynch, which had about 1.6bn shares outstanding, would be exchanged for 0.8595 shares in BofA.

Additional reporting by John Burton in Singapore

Monday, January 12, 2009

LoUC and Organ Trading

There was a recent news report speculating that a local tycoon who had been charged with attempting to buy a kidney had received an organ from an executed convict. See the article here.

Bearing in mind that the donation was a directed one (in which the donor specifies explicitly who is to receive his organs), and considering the rapidity with which Tang Wee Sung received the organ, his age, and his admittedly poor health that renders him a less than ideal organ transplant patient, it's tempting to speculate if any ex gratia payment was made by him to those Tan Chor Jin is survived by. 

Now far be it for me to impugn the character of anyone in this matter, or to speak ill of the dead. I am doing neither. I am merely using this to illustrate a possible effect of the Law of Unintended Consequences (LoUC) should organ trading be legalized. I am neither for or against organ trading. I simply am not wise enough to know which is the better option, hence I choose to reserve my opinions.

Many people have spoken of in favor or against organ trading. One prominent local blogger, for instance, has written on it.

One argument against legalizing organ trading is that it permits the poor and destitute to be exploited by those rich enough to pay for their organs.

I have a different take on this, and that is that legalizing organ trading could reduce the supply of organs for patients too poor to pay for them. Do bear in mind that this in no way necessarily means that I am against legalizing organ trading. I am merely exploring consequences here.

The strength of the legalization argument rests on the premise that it would immediately raise the number of organ transplants (lubricated by money), hence increasing the number of lives saved.

Economics tells us that by having a clear and transparent market for organs, the own price elasticity of organ supply should increase (when it is now exceedingly inelastic, being illegal), leading to a rise in the number of transactions (i.e. lives saved) and a fall in the market price for organs (the fall in price is relative to the presumable black market price for an organ, or any analogous illegal product, like a narcotic drug). The implicit assumption is that the demand for organs remains unchanged, which is a reasonable assumption to make, given that a person either needs or doesn't need an organ, and organs can't be stored. 

So far, it's all good. More lives saved, cheaper organs. But the key thing to note here is that the "cheaper" applies only to people who are willing and able to pay for organs anyway, even to the extent of going to the black market, like tycoon Tang did. What about patients who are too poor to pay the market price for organs? What then, since the demand for organs is almost always much higher than the available supply? What happens when something that was formerly a gift of a new lease of life is now commoditized and subject to the discipline of the market? Will poor organ transplant patients be priced out of the market?

And will it stop there? What if the donors who had formerly donated their organs now choose to hold back, seeking payments for themselves and their families? What will that do to the market clearing price for an organ? Will middle-class patients find themselves gazumped at the last minute, outbid by someone who is willing to pay more? In Singapore, where our society is already one of the most inequitable on Earth, will organ trading also lead to organ transplants being one more thing that will be reserved only to the rich?

Certainly, the story I highlighted above about Tang Wee Sung doesn't exactly lend confidence to the view that these things will not happen.


Thursday, January 8, 2009

Book list refreshed

I've updated my Amazon widget on my "current" list of books. Half the books have been replaced by fresh selections.

I've removed:

Animal, Vegetable, Miracle by Barbara Kingsolver
Closing the Innovation Gap by Judy Estrin
Science for Sale by Daniel S. Greenberg
Earth: the Sequel by Fred Krupp and Miriam Horn

I've added:

The Misbehavior of Markets by Benoit Mandelbrot
Against the Gods by Peter L. Bernstein
What They Teach You at Harvard Business School by Philip Delves Broughton
Guns, Germs and Steel by Jared Diamond

Monday, January 5, 2009

The spread between private and public housing

“Spread” is finance jargon. It means difference in price or level. For example, the bid/ask spread in a stock is the difference between the highest price potential buyers are willing to pay and the lowest price potential sellers are willing to accept.

The spread between private and public housing I am referring to in the title of my post is, of course, the difference in price between a HDB flat and a comparable (in location and square footage, among other things) private apartment.

Private apartments obviously cost more than HDB flats and are also more “desirable” or “better” for a number of reasons, which I will not elaborate on here. Ample information is available elsewhere, given how property is a national obsession.

Unless you’ve been living in a cave somewhere, you should know that we’re headed for a global recession. Singapore is already in a technical recession and private property prices here are starting to crash. Hard. 

We could go on and on about the imminent new supply of private apartments coming on stream and the delayed redevelopment and subsequent letting out of enbloc-purchased units by developers. These are all warning signs that private property prices are poised to go “cliff-diving” (ah, how that catchphrase just rolls off the tongue).

But we won’t. As mentioned before, my blog focuses only on fresh perspectives or perspectives with less exposure. And right now, I want to focus on credit.

Credit as in debt financing for property. Mortgages in other words.  

Today’s ongoing global financial and economic crisis was in many ways brought about by too-easily available credit. Enough ink has been spilt over why this is the case. Suffice it to say that banks are now yanking back easy credit, and even though Asia is not the epicentre of the crisis, even here in Singapore, we see that credit availability has been tightened, for both companies as well as individuals.

How does this affect residential property prices?

Well, property being such a big-ticket purchase, it is almost always purchased on credit (for normal people that is). 

The thing is, for families that buy HDB flats, credit is exceedingly cheap (by global standards) at 2.6% p.a. from the HDB. Contrast that with the expense associated with a bank loan to purchase private property in Singapore, even if interest rates have been driven to multi-year lows by central banks around the world.

And that’s if you can get a bank loan. Word is getting out that even if servicing debt has not become more onerous, getting credit in the first place is harder than before.

So the spread between private and public housing is set to narrow in Singapore. This is mostly due to private property prices crashing hard after attaining bubble-like characteristics. But what I am pointing out here also is that the spread is contracting because of the unavailability of easy credit. Unavailability of credit, by the way, is also one of the culprits behind shrinking trade, which is unequivocally bad news for trade-dependent Singapore.

Private property prices are falling because bank loans to purchase them are harder to come by. Asset deflation, as economic pundits would put it. Anything that needs credit to purchase (including cars) is going to see its price fall unless that credit is still available.

Further to this is the liquidity issue. Something that needs credit to purchase when that credit is not forthcoming is unlikely to be a highly liquid asset. And illiquid (relatively speaking) assets are subject to a liquidity discount.

To put it another way, HDB flats in the near and foreseeable future are likely to be priced at only a modest discount to private property. Not because they are almost as desirable as private apartments (which is debatable), but because they are far easier and cheaper to obtain financing for, and are easier to move in a property market that is in recession.

In some ways, these factors have always applied, but they are more pertinent today than before because the era of easy credit has come to an end.

So what does this mean for property buyers and sellers?

I am not in the habit of giving advice on this blog, much less advice that has import on actions of such magnitude as property transactions. So don’t misconstrue anything here as advice, you have been warned.

Now that the disclaimer has been done with, my take is this:

HDB prices are likely to reverse course after a short-term rise, and start to slide as Singapore endures a serious recession. But their slide will be cushioned by many reasons, including the ones I have cited above. 

As for private property prices taking a tumble, does this mean that they are a good, cheap, value-for-money buy? 

It depends on your view as to whether reflation will occur, whether easy credit will make a comeback, and whether the economy will swing back to the same dizzying heights it experienced in 2006 through mid-2007. 

This is entirely reasonable to expect as Asia in general and Singapore in particular suffered much less of the speculative excesses of the real estate markets in developed countries.

On the other hand, economists and “analysts”, never mind their dismal track record for forecasting, have been busy prognosticating that recovery will take place in the [insert number] quarter of 20[insert number], after credit and economic conditions “stabilize” and return to “normal”.

“Normal”, as I am fond of reminding people, is a matter of historical perspective and frame of reference.

Festive Foods

We received a fruitcake over the holidays from a neighbour.

Yeah, I know what you’re thinking. It actually didn’t taste as bad as you would think, but notwithstanding that, I’ve never quite understood why we consume such “seasonal” festive foods in Singapore.

Quite apart from the fact that Christmas is a religious holiday observed by Christians (and in fact, Christmas has some of its festive origins in pagan customs), I simply don’t understand why Singaporeans, and people around the world in general, choose to celebrate the occasion by consuming foods that are frankly, alien to our cultural heritage.

I might be generalizing, but it seems to me that many cultures historically have had some kind of festival in winter to celebrate the harvest and to simultaneously usher in the New Year. And in many cases, those celebrations have been and continue to be marked by consuming foods that have been prepared using, out of necessity back then, preserved ingredients. 

Fruitcake is a prime example. It’s composed of dried fruits (which are generally native to the northern hemisphere) that have been soaked in alcohol. Smoked ham could be considered another festive preserved food. Turkey, on the other hand, is part of Thanksgiving due to its historical connection with Native Americans and the Pilgrims.

If you’re European or American, I can totally understand why you would continue to consume such festive foods (which don’t taste half as good as fresh foods) out of tradition and heritage.

But if you’re a Singaporean living in the tropics? Hello?

I don’t see why we should eat tough and gritty turkey simply because it’s considered “part of Christmas”. Or fruitcake for that matter. And definitely don’t get me started on matzo balls for Jewish holidays. I’ve had those before. No offence to Jews, but ugh. 

If it doesn’t taste good, the only reason to eat it is out of tradition, or politeness in the spirit of the occasion if you’re invited to a party held by native celebrants of the festival. And it’s just not part of our tradition. Not really.