Sunday, February 20, 2011

Quick Thoughts on Straits Times, 20-21 February 2011

Budget 2011

At the risk of taking this out of context, my favorite quote regarding the budget:

"The return of the 20 percent personal income tax rebate is designed to benefit the middle-income earners most and will be welcomed by all taxpayers. The changes to personal income tax rates are welcome, but with no adjustment to rates for many years, this is long overdue to bring us back to where we started in real terms."

- Ernst and Young human capital partner, Grahame Wright, p.A6, Saturday 19 February, 2011.

What Wright is saying is that we have been paying more income tax in real terms for the last several years due to inflation-induced bracket creep. The latest adjustments serve simply to correct an underlying unfairness that has been present for many years.

The comment should properly be interpreted only within the context of tax rates, but this is my favorite quote because the last clause of his comment so perfectly captures my sentiment regarding the entire budget.

Thank you for this budget. After losing ground for so many years, in real incomes, job prospects, foreign competition, retirement plans, housing, transport, and with the specter of serious inflation on the horizon, I am certain that Singaporeans are grateful to be returned to the starting line again in real terms.

This time around, perhaps you should remind us which direction we should face? I've never liked walking backwards. Easier for you too, you know, post-elections, when you need us to, uh, bend over.

"Never too old to start new businesses" - Invest, p. 30, Sunday 20 February, 2011.

Mr William Ong indicated that his best investment to date has been in commodities, particularly in gold and silver. $450,000 invested in 2006 is now worth $1.2 million, and with lower volatility than equities, if I may add.

I haven't done nearly as well, having jumped onto the bandwagon only in late 2007, and I certainly didn't have $450 grand of capital just lying around back then. But to recap from a previous post on 3 October, when a commenter raised concerns about the precious metals looking toppy, gold closed at USD1315.40 and silver closed at USD20.02 on that date. The most recent close for gold has been USD1388.20 (respectable but unspectacular) and silver USD32.30 (courtesy of a short squeeze).

Again, don't take this as advice to go long on gold and silver.

"Shrink from Shoebox Apartments" - Invest, p. 31, Sunday 20 February, 2011.

As I argued many moons ago, shoebox apartments are NOT a value proposition. My long form comment here.

My view of the property market has become more nuanced of late. I still hesitate to call it a bubble, but I still believe that prices are likely to come down within a matter of months. Not that that will help anybody. It won't help buyers and it most certainly won't help sellers.

Why not buyers? Because I think that prices are going to fall due to a double whammy of lower real household incomes due to inflation (courtesy of the money printing "Bernank") and rising interest rates (which at this point, can only go in one direction). That will really screw with the affordability of property, regardless of lower prices.

If we stir in a recession into the mix due to say, fresh (or rather, not so fresh but emerging from beneath the carpet) economic problems in the US, China or Europe, or an oil crisis due to unrest in the Middle East, it will only exacerbate matters.

Property prices may drift lower in the coming months ahead, but it's difficult to say who will be in the mood to buy then, given why they may drift lower. The only positive factors may be increased supply and the government relaxing the newly imposed restrictions on property transactions.

"Poor pickings in Orchard" - Lifestyle, p. 24, Sunday, 20 February, 2011

I have not been to Orchard in literally months. Too busy with other things. But this sure reminds me of an article I wrote. I wonder whether poor pickings are confined only to F&B outlets, or to a wider swathe of the retail scene. Reader comment welcome.


Fox said...

I wonder if anyone has pointed out that under Singapore's progressive taxation system, the growing disparity in income means that the government has been getting more revenue from income taxes. When the poor lose $100 in household income and the rich gain that $100, more of that $100 becomes taxable.

Anonymous said...

That's actually an argument used by Reaganomics supporters in the US. The fact that the the top 10% pays an increasing share of all tax collected and therefore the rich is over-taxed. The way you put it the counter-argument has been reversed. This is the case only because of increasing income disparity.