Archives for category: Economics

We’ve made it through another week!

September’s almost over which means we’ll be heading into 4Q soon.

books on bookshelves

Photo by Mikes Photos on Pexels.com

 

The Housing Bubble Burst All Over Reality TV (The New York Times)

This is interesting because what we see on television reflects what’s going on with the world. This article shows how HGTV’s programmes (which I happened to watch a lot of while it was still on Starhub) changed as the housing bubble inflated and then popped.

The same could be said of how many crypto-related seminars and talks were being promoted last year as compared to this year. Lately, what I’ve been seeing is a lot of ads on Stock Trading which is probably a reflection of the U.S markets doing so well since last year.

 

Growth and well-being: policy should not be based on GDP alone (Microeconomic Insights)

Very economics-heavy post on the relationship between GDP per capita and ‘Welfare’. ‘Welfare’, in the article, encompasses many factors such as inequality, leisure, and consumption.

Singapore gets a few mentions in the article. From the mentions, it seems that Singapore’s growth model has remained the same since the 90s — lots of growth through investment and this comes at the expenses of leisure and consumption.

 

Paul Krugman’s latest opinion piece spells out what everyone’s been feeling about the markets — most of us can’t see any particular sector blowing up to the point of crippling the world economy.

Krugman also shows us why it’s important to study history because the recession of the early 90s was one that didn’t have a proximate cause but rather, it had many small causes.

I also like how Krugman cites Minsky as a source for his hypothesis. Minksy was overlooked by almost everyone until the Global Financial Crisis hit. I tend to agree with Krugman’s views. The world today is awash in cash that is flowing towards moonshots and we know that most moonshots don’t work out.

In other words, much of the money going into all the fancy new ventures won’t pay off. Fortunately, it doesn’t seem that people are using borrowed money to bet on moonshots. Much of the moonshots are funded by people who have money to lose. The question right now is whether the money that they can lose is due to a booming stock market and economy? And if so, then what happens when the economy starts to slow down?

Hold on, hand tight, and stay around for the ride.

 

The Psychology of Playing the Lottery (A Wealth of Common Sense)

An excellent piece by Ben Carlson that explains why poor people make poor choices. From the Bloomberg piece cited in the article, it shows that poor people spend more on the lottery than rich people. Gambling is a big thing in Singapore but I’m not sure if there are statistics that show whether poorer people spend more on the lottery than the rich in Singapore.

The good news, cited in Carlson’s article, is that someone’s set up a lottery to help poor people save more. Saving money in the account leads to a participation in a lottery. Unfortunately, the return on savings in almost zero for those that don’t get the huge payoff but I suppose it’s better than having them spend money on something that is statistically going to return less than zero in the long-run.

Maybe this will be the new model for Singapore Pools?

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We’re into September! We don’t have seasons here in Singapore but September is always a special month for personal reasons.

Hope your week’s been good!

books on bookshelves

Read! Read! And read some more!

 

Why 35 to 50 Year Old Singaporeans Should Value Financial Peace More (Plus 6 Tips to Achieve More Financial Peace) (Investment Moats)

Fresh from the oven, Kyith over at Investment Moats has a piece that I think will resonate with many Singaporeans. It talks about how Singaporeans in their late 30s to 40s tend to find themselves in a precarious position if they get laid off in the private sector.

To be honest, it’s difficult for me to imagine the kind of uncertainty about job security that people in the private sector face. Job security in the public sector is such that I have colleagues who have stay with the organisation for 30-odd years. Those that choose to leave normally do so because greener pastures lie elsewhere.

With that sort of job security in the public sector, it’s very easy to plan for investments and the growth in net worth tends to be fairly predictable over time. Any of my colleagues that fail to retire wealthier than the average Singaporean must have either had some sort of huge burden due to medical costs or due to profligate spending*. Once again, this is the beauty of accounting for human capital in your investment plan.

 

Nose breathing in yoga may calm the mind by slowing brainwaves (NewScientist)

Full article hidden behind a paywall but first two paras provides the gist of it:

Take a deep breath. In some forms of yoga and meditation, people are supposed to breathe in slowly through their nose. Now we may know why it’s helpful: nerves inside the nose start firing in a similar slow rhythm, prompting parts of the brain to do the same.

And in a test, people who did yoga with slow nasal breathing seemed to enter a deeper meditative state than when they did so breathing at the same rate through their mouths.

No secret here but breathing through your nose supposedly has many other benefits. A book that’s been cited quite often on the supposed benefits of this is “The Oxygen Advantage” by Patrick McKeown. I haven’t read the book but I’ve been trying to consciously breathe in through my nose whenever I can.

What’s Your Type? The Myers-Briggs Test and the Rise of the Personality Quiz (The Ringer)

A review of the book that looks at the history of the Myers-Briggs test and how the test is mostly useless in terms of determining one’s personality.

I found this interesting not because of the test itself but that the education system is paying lots of money to hire consultants that base their training on some version of this personality test.

If it’s all so bogus, then what the hell are we paying them good money for?

 

Show me the incentives and I will show you the outcome (The Reformed Broker)

Josh Brown has a post that builds on how perverse incentives leads to perverse outcomes. There’s an example buried in the post about how a financial advisor in the U.S. ‘churned’ a client’s account to generate commissions (presumably also under the pressure to meet the sales quota) but the post is mostly about how Mao led a country towards the largest man-made famine in modern history. I have “Mao’s Great Famine” on my reading list after I’m done with “Utopia for Realists”.

I have more to say about financial advisors here in Singapore but that’s something for another time.

 

Notes:

*Profligate spending doesn’t just mean buying bigger houses or cars than they can afford. It could also mean the unnecessary spending on things kids’ tuitions, enrichment classes and so on. IMHO, those things are really unnecessary.

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Is your housing expenditure detriment to your retirement?

 

Alternatively, this could have been titled, “An Ode to my CPF”.

I know I’ve given lots of shit to CPF (for example, “CPF monies: to depend on it for retirement is a pipe-dream“, the footnote in “Early retirement: some math“, or more recently, “What’s the economic logic behind CPF’s accrued interest policy?“) but think about it:

What if you had regular contributions to your CPF and you let it compound?

There is a group of people in Singapore that has spent so much on housing that they have barely any contributions to their CPF each month. Those that even have to fork cash out of their pockets to pay the mortgage are in truly dire straits. If you happen to find yourself in this situation, read on below.

A Very Personal Example

I happen to belong to the camp that has regular CPF contributions because my housing loan is so low that my monthly CPF contributions more than covers the monthly mortgage. Also, I will finish paying off my loan in another 4 years or so (background here).

So I decided to run the numbers on the following scenarios to see how much I would have when I turn 55 (the age that we can finally take some of the money out of our CPF accounts):

A: If I work for another 20 years
B: If I work for another 10 years
C: If I work for another 5 years

The assumptions I’ve made are as follows:

#1: Current contributions increase by $10,000 per year after our housing loan is paid off.

#2: Contributions remain constant over time. i.e. No increases in salary.

This is for easy math and anyway, I don’t expect my salary to increase drastically beyond the inflation rate so the contributions can be viewed in ‘real’ terms.

#3: CPF returns 3% across all accounts.

I’m assuming this despite having more monies in my Special Account (SA) at this point in time. I know the SA earns a higher rate of interest and combined sums (subject to a cap of $60,000) in your accounts earn an extra 1% but once again, this is for easy math and to set a floor.

#4: I’m starting with roughly $130,000 in both my OA and SA.

Numbers

Thanks to the magic of Excel:

Scenario        Final Amt at 55 ($)

    A                  $1,180,000

B                  $772,000

C                  $495,000

Final Thoughts

Obviously, the numbers above are not going to be representative of what another Singaporean might end up with. I’m making above the median salary although NOT much more than the Median Household Income. Of course, a major factor is that my wife also works and our household size is smaller than the average*.

I still believe that the CPF system needs a revamp. Way too many people are spending what should be their retirement savings on a property, either as an investment (which is still somewhat excusable) or on housing (gasp!). That’s probably one of the main reasons why only about half of CPF members can meet the retirement sum despite pledging their property.**

Also, one big sore point for many people is the Retirement Sum*** going up. There’s a good article on what the retirement sum may be like for younger people today when they reach 55 later on. Just eyeballing the table, it seems that based on my calculations above, meeting the retirement sum shouldn’t be a problem.

Very often, people forget that compounding needs time to work its magic but for compounding to work, there’s needs to be something to compound in the first place. If you spending all your money on housing, there won’t be anything left to compound. And if you want to turbo-charge compounding then you need both time and regular contributions.

 

Notes:

*I believe the average household size is 2.1 in Singapore. No, us having a cat doesn’t count.

**There are also other factors at play. I suspect that the labour force participation rate should explain quite a bit. Some (especially mothers) may have only worked very few years of their lives and hence have little in their CPF accounts. For example, my own mother practically stopped working full-time after she had me and my brother. By the time my youngest brother came along, she had already stopped working for some years.

***The Retirement Sum is the minimum you need to have in your CPF accounts so that the CPF can slow-drip the money back to you in old age so that you have enough money to meet your basic spending needs.

pexels-photo-323705.jpeg

 

I’m glad someone’s finally come out to put a stop to the nonsense that’s been going around on the internet. The hoo-ha started when property analyst Ku Swee Yong wrote an opinion piece in the ST which prompted a reply in the ST forum pages.

Basically, the debate was whether calling HDB flat owners “owners” accurate or whether it was more accurate to call them “tenants” since the leasehold term for an HDB flat lasts for only 99 years, after which, the flat automatically goes back to the government.

The forum writer’s reply was that calling HDB flat owners “tenants” is not good for national defense for psychological reasons.

The Big Question

So what’s the truth?

HDB owners vs tenants: unpacking the great illusion

[…]

So am I an owner or a tenant?

Both. What you own is a tenancy. Clearly, if you have a flat on a 99-year lease, you are a tenant (as opposed to a lodger) because you have exclusive possession of the flat. However, it is also clear that you are not an owner because your right to use the property exists for a fixed term – you will have to surrender your lease at some point.

So it is clear – you do not own the flatbut that does not mean you are not an owner of anything. What you do own is the tenancy. This is because a tenancy an asset that can be bought and sold and your freedom to deal with your tenancy fits with the idea of ownership described above.

[…]

The article that I’ve referred to makes a good case that HDB flat owners are still owners. It’s just that they do not own the flat itself but that they own the lease. After all, this is the effectively the same as owning a private property that has a land lease of 99 years.

Those that say that HDB flat owners are mere tenants forget that if you rent a place, you can’t profit from the sale of the place. Unfortunately, this is what HDB flat owners can do which automatically contradicts the fact that HDB flat owners are mere rentiers.

The Better Way to Think About HDB flats

Property, just like any other asset class, depends on a market of willing buyers and sellers to establish a price for the asset. A 99-year old piece of property ultimately has a quicker pace of depreciation built into it.

You may buy the official line about how HDB flats are a good store of value but that will ultimately depend on the generosity of the sole buyer of that asset at the end of its 99-year life.

Alternatively, you may treat it as a gamble on having the HDB flat be selected for SERS (Selective En-Bloc Redevelopment Scheme) and you get a new property in a similar location which would be worth a lot more than what you paid for the older property.

At the same time, remember that if you stay in your HDB flat, you don’t have to deal with the hassle of renting a place. The downside is that you have to pay for property taxes and conservancy fees.

PM Lee’s NDP Rally Message doesn’t change things

I wrote the previous two sections before Sunday’s (19 Aug 2018) National Day Parade Rally and it didn’t occur to me that he was going to touch on housing in such a big way during the rally.

PM Lee announced quite a few things that will impact housing in Singapore, particularly in the HDB market. I don’t think it changes much of what I’ve said above and the announcements were mainly to assuage the general public that their biggest asset would still retain its value. Notice that he didn’t say that HDB flats will be your goldmine, just that the flats should retain its value.

To be honest, it doesn’t change the dynamics much and you have to remember that the first generation of HDB owners have seen great capital gains for their flats only because Singapore’s economy has grown at an outstanding pace over the last 50 or so years. As the economy has grown, naturally the cost of living and the assets that provide these services must get more valuable.

I think the first generation of flat owners is going to benefit from HDB price appreciation. But what about the second and third generation? We have to remember that Singapore’s resident population is barely growing and much of the growth is due to new residents and permanent residents as our birth rate is below replacement levels.

For newer HDB flats to retain value when they get older, the housing supply will have to decrease or the resident population has to increase.  Perhaps, at some point, HDB will not build new flats in place of older ones.

Parting Thoughts

By the way, private property owners better hope that HDB flats retain their value. Otherwise, the private property markets will be hit as well. The markets, while distinct, are more related than people think.

After all, an apartment and a flat are ultimately just a place to stay. A fair number of private property buyers also come from HDB flat owners who have sold off their flats and wish to upgrade to a condominium apartment. If one type of property gets much cheaper relative to the other, prices will have to correct to narrow the gap between the two.

In summary, don’t forget that housing is an expense whether you own or rent the place. And if you’re into a property as an investment, don’t forget that you’re in it for the leverage and not the yield.

beach blue car combi

Ah, a car. Every young Singaporean’s dream.

 

 

 

 

 

 

 

 

 

 
I love reading through other bloggers’ work because very often, they’ve (a) already written on something that I might have liked to write on, and/or (b) written it better than I ever could.

Mr. 15HWW has a new post out on the cost of owning a car in Singapore. It’s a combination of research plus back-of-the-envelope calculations and I think it’s a fair estimate of the actual monthly expenses related to owning a car. A friend of mine who’s also the sort to do these detailed comparisons came up with a similar figure so I think the number is fairly accurate. If you’re interested in owning a car, please do go and read his post.

I wrote about owning a car in Singapore many years ago and my take on it still stands. This post merely adds some comments to Mr. 15HWW’s as someone whose main form of transport has a car for the last 10 or so years.

Owning and driving a car in Singapore is expensive

It’s notoriously expensive to own and drive a car in Singapore. Car prices are terribly expensive because, in addition to the huge import taxes on cars, you have to purchase a license known as the ‘Certificate of Entitlement’ (COE)which gives you the right to own the car for 10 years.

COEs are divided into categories based on the vehicle’s engine size and type of vehicle (e.g. motorcycles, goods vehicles, cars, etc.) and the price of the COE depends on forces of Demand and Supply. The supply is terribly restricted as the quota follows a formula set by the authorities so the pricing of the COE is pretty much determined by demand. As of this point in writing, it costs over S$30,000 for the COE of a small car with an engine size below 1,600cc.

Other points for consideration

Not that it’s going to make it much better but I’d like to point out that when considering the numbers in his post, you must also factor in the following:

(1) With a car, it should reduce the amount spent on public transport. This should partially offset some of the expenses on the car. This works in one’s favour if one is currently paying for 2-4 persons’ worth of public transport although loading 3-4 people in one vehicle usually means an increase in petrol expense.

(2) Traffic jams can be a bitch. It’s not going to be felt in your pocket but you’ll feel it mentally. Partially offset by the mental stress of getting on a crowded train/bus or not being able to get a taxi/grab when you need to.

(3) Parking costs also come in the form of fighting for a lot with other drivers. Parking at shopping malls during peak hours can be a pain.

(4) Freedom of checking out far-flung places. This is partially mitigated by the prevalence of taxis and grab.

Final Words

Owning and driving a car in Singapore is expensive. To be honest, if you stay near an MRT station and 90% of the places you go to is within a 3-5km radius of where you stay, a car’s not necessary.

For the lazy and those that need to travel to the ends of Singapore often, a car is definitely going to make things different but you have to be aware of the future wealth that you’re giving up to make the present a little better.

July’s almost over! Here are some reads to make your week better.

 

Canada’s Secret to Escaping the ‘Liberal Doom Loop’ (The Atlantic)

Ah, Canada. We visited the Niagara Falls area, Toronto, Montreal and Quebec on our honeymoon and I have very good memories of the country.

The article provides a commentary on Canada’s much greater propensity to accept migrants. A nice overview of Canadian history as well as their approach towards multi-culturalism.

Singapore is also supposed to be a melting pot of cultures but I’m too sure about whether we’ve become more or less accepting of immigrants over time. I suspect we’ve become less welcoming towards migrants over time.

Maybe we need to take a leaf from Canada’s playbook on this.

 

Understanding The Yield Curve: A Prescient Economic Predictor (Financial Samurai)

The Flattening (The Irrelevant Investor)

These ones are for the economics/investing crowd.

Of late, the yield curve has been brought up a lot. This was one of those things that I struggled to understand in university but now that you know it, it’s so trivial.

Read Financial Samurai’s piece for a primer on what an inverted yield curve shows us and read Michael Batnick’s piece for some analysis done on yield curves. What’s particularly instructive is the chart from oddstats about how the S&P500 was up anywhere from 20-70% in the 500 days following where the yield curve is now.

Unfortunately, 500 days is a long time and I suspect that many people will not be able to live with the drawdown that comes with a recession. As always, you can’t react to things when a recession or a bear market comes, you already need a plan before these things happen.

 

The topsy turvy logic of Trump’s trade tirades (Tim Harford)

One more for the econ crowd. Tim Harford always makes current economic affairs so simple to understand. If I read his books while I was in junior college, I might not have been so bad at economics.

Anyway, go read his piece to realise how stupid Trump is with his war on trade.

The same is true for Mr Trump’s new steel and aluminium tariffs. Ostensibly an attack on perfidious foreigners, the tariffs hurt any American who directly or indirectly uses steel or aluminium, all 327m of them. And by obstructing US imports they obstruct US exports, too.

And also some American’s obsession with the trade deficit:

There is the US trade deficit. This is the result of the world’s insatiable desire to invest in US assets, coupled with the American consumer’s preference to spend rather than save. It has little to do with tariffs on milk powder or anything else.

 

In part 1, I detailed the most important takeaways from ‘The Intelligent Investor‘ (although in my haste, I left out the idea of Margin of Safety). In this part, I want to show you the parallels between the act of buying the book and investing.

This is essentially the second reason why I asked my younger brother to buy the book. I wanted to see what his thought and action process was like.

Reason 2: Buying stocks from a value perspective is pretty much like buying anything else

intelligent-investor-benjamin-graham

#1: Hardcover or Softcover?

Now, there are various ways to think about the difference but let’s take a look at the first factor that comes to mind — price.

Hardcover books are more expensive than softcover books although the first print comes out earlier than the softcover. In the past, I used to automatically buy the softcover version of the book since I figured that I was getting the same content for a cheaper price.

As the years have passed, I’ve come to realise that hardcover version of the book lasts much longer than the softcopy version of the book. Sadly, my own copy of ‘The Intelligent Investor’ is an example of this.

For things that you genuinely treasure, it never makes sense to consider only the price of the stock. In investing, the parallel to this would be buying stocks just by looking at price. Some people who buy stocks actually think that a stock that costs $10 is a more expensive stock that cost $1.*

The other parallel is to remember that sometimes, cheap stuff is cheap for a reason. Just like the book, a stock that sells for pennies (aptly called “penny stocks”) could reflect the actual fundamentals of the company.

#2: Borrowing before buying

Although I recommended that my brother buy the book, one other thing he could have done is go to the library to borrow the book first. You may say that he trusted me, as his brother and someone who knows a thing or two about the markets and therefore didn’t have to check the book out first.

However, borrowing the book is a smart thing to do if you want to know whether it’s worth spending your money on. In investing, this is akin to fundamental analysis where a would-be investor investigates the earnings, assets and cashflows of the firm in order to know what price to pay for the stock.

This could also be a good step before you decide whether it’s worth buying the hardcopy or just the softcopy, or whether the book is even worth buying at all.

Conclusion

In short, most people know exactly what to do when they buy a product. They check out the reviews, they compare the specifications between one product and another and they also compare where they can buy the good for the best price as well as other factors like delivery and any warranties from the manufacturer.

It’s strange that many people don’t do this when it comes to investing. They don’t compare the returns from one investment to another, whether those investments are guaranteed or the guarantee is merely a probability. They buy high for fear of missing out and sell low for fear of losing everything. Swayed by fluctuations in price, they hold investments for ever shorter periods of time.

It’s just weird.

Investment should be like buying anything else. Thinking of it as such will make you a better investor.

 

Notes:

In case you’re wondering, paying $1 or $10 for a stock doesn’t matter. What matters is how much you pay relative to the earnings per share.

grayscale photography of man praying on sidewalk with food in front

Photo by sergio omassi on Pexels.com

 

It’s been some time since I wrote about inequality and how the poor in Singapore have fewer options. Since then, there’s been a slew of commentary and in-depth articles on this topic (for example, see here for a piece from the ST).

I’m not sure why there’s been so attention on this topic lately but I’m glad that this topic is in the limelight. In fact, the Straits Times (ST) article that I shared above mentions three cases and how in each of those cases, the poor have terrible options that could either (a) hinder social mobility or (b) mean that they’re always living life on the edge and one unfortunate incident could push them over.

What Many Singaporeans (Still) Think About The Poor

For me, the gem is in the comments and discussions on the reddit page discussing the article and there are some people who still don’t get it that the poor face terrible odds when it comes to making it out of poverty.

The commentators who say that being poor is a result of terrible choices and that the poor should know better are typical of the government’s thinking that welfare is a dirty word and will lead to a crutch mentality*.

To be fair, the government has softened its stance in recent years (probably as a result of GE 2011) but structurally, welfare tends to be on a case-by-case basis as the government has this thing about appearing prudent.**

You can tell that the government still thinks welfare across the board is a dirty word because they like to mention that certain ministers came from humble backgrounds and despite that, they’ve succeeded. In recent years, the same goes for students who have done relatively well, or passed, national exams despite odds like less-than-average family backgrounds or illnesses.

Using Isolated Stories As Shing Examples of Self-Reliance Doesn’t Help

The problem with using isolated examples is that it gives a distorted view of how big a handicap being poor is. I’m not a privy to such data but I sure hope someone that’s doing the research is looking into it. We need the data and if the data shows that majority of poor people lead less healthy and/or have less chance at social mobility for them or their children, then we can call the bluff on the government’s use of isolated examples. Otherwise, the government can call the bluff on the activists, academics and critics calling for more help for the disadvantaged.

For me, I was quite convinced because I heard the economic argument by Nick Hanauer (see here for a later version of his talk). Think of it. How much stuff can rich people buy? Rich people may have wealth and incomes that are thousands of times that of poor people but they certainly don’t buy thousands of stuff more than a poor person. You don’t see a rich person with a thousand times more T-shirts than a poor person, do you? And Mr Hanauer was talking about the middle class. So what more the poor?

Like I said, I don’t have all the answers and I think most people in Singapore don’t either. What I’m aware of is the issues are not as simple as “self-reliance” or “to try harder” and I think many people need a paradigm shift from that idea. I’m glad that the mainstream media and the academics finally have time in the sun on this topic.

 

Let me know what you think in the comments below.

Notes:

* The irony is that these same people are probably the sort that expects the government to do something for every single situation. MRT breakdown? LTA’s not doing their job. Floods? PUB’s not doing their job. Kid failing in school? Teacher’s not doing their job. And as for the crutch mentality, guess what? We’re already heavily dependent on the government to provide housing.

** The irony of this is that our Ministry of Defence gets the lion’s share of the budget each year and no one questions the prudence of military spending because there’s always the boogeyman that someone is out to get us if we appear weak. I guess MINDEF can thank Mahathir for making a comeback. This argument holds more water now that there’s a different government up north.

Markets in this region have been tanking and the STI has fallen below the 200-day EMA to the point that it’s about to pull the 50-day EMA below the 200-day. While this isn’t a perfectly reliable indicator in itself, this could present a good buying opportunity if this trend continues for another 6-9 months.

Anyway, if you’ve had a tough week, here are some reads to make it better.

 

‘Stingy’ millionaire donates S$3.35 million from S$20 million fortune to charity after his death (TODAY)

I’ve written about people like Agnes Plumb and Ronald Read. Finally, there’s an example from our local shores. Mr. Low Kum Moh was a sub-accountant who was born into a family of fishmongers. The secret to his wealth? Frugality and investing in the stock market over a long time-frame. This is pretty much the same story as the other ones I’ve featured here. The point of it all is that great fortunes can be made by people that most would consider very normal. The trick is to find a strategy that works and keep plugging away at it.

Which brings us to the second read.

 

In Praise of Incrementalism (Rebroadcast) (Freakonomics)

Freakonomics was the book that convinced me that economics could be interesting and that probably saved my university life.

In this episode of their podcast, they make the point that lots of progress in this world are based on incremental progress. The problem with most of us is that we tend to view great events or inventions as if they happened miraculously.

In particular, I love this example that their guest, economist David Laibson points out:

LAIBSON: One has the impression that it’s impossible to save enough for retirement — and to a certain extent, it is impossible if you start at age 50. But if you start early in life, and every year, you contribute let’s say 10 percent of your income, and maybe there’s an employer match, so now we’re up to maybe 15 percent, and you invest that savings in a diversified mutual fund, stocks and bonds, and you have low fees, and you keep going at that year in and year out, and you don’t decumulate prematurely — it’s amazing how that process produces millions of dollars of retirement savings. So it’s kind of hard to imagine how you go from what seems like a little bit of money each year to being a millionaire but that’s exactly the way it works when you work out the math.

Instead, most people often aim for that lottery ticket like buying bitcoin. Most people who do this put very little at the beginning (like a lottery ticket) and when it starts to pay out in a substantial way, they then proceed to bet the farm thinking that what has happened will go on indefinitely.

Unfortunately, this is almost always precisely the time when things start to go bad. Think of someone who bought bitcoin at $500 or $1,000. After seeing the price of bitcoin go to $10,000, they feel like a genius and proceed to place even bigger bets. Well, the bet may have paid off temporarily but look at how it’s turned out.

Which brings us to…

 

Bitcoin Bloodbath Nears Dot-Com Levels as Many Tokens Go to Zero (Bloomberg)

I’ve been writing about the problems with Cryptos since late last year (see here, here and here). To be honest, I’m not as pessimistic about crypto now as I was last year. Of course, there’s nothing fundamental to base my thoughts on but buyers are surely not as euphoric about cryptos as they were late last year.

I suppose the article compares the crash in cryptos to the crash in the tech sector during the dot-com era as prices in both situations have nothing fundamental to support them but I would argue that bitcoin is in a worse situation because, in case of the dot-com stocks, you could at least see if things were getting better based on a turn-around in cashflows and profits.

For bitcoin and cryptos, you have to track whatever these cryptos are meant to replace and see if those things are getting replaced at all.

Anyway, here’s the million-dollar picture from the article above.

bitcoinCrashJun18

 

Have a great week ahead!

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The chance to read a good book like this, with a cup of cheap coffee. That’s not something everyone gets to do

 

I finally got my hands on Teo You Yenn’s book “This is What Inequality Looks Like” and so far, it’s been a very enlightening read. In fact, the picture above shows what inequality really IS like in Singapore.

Here I am, a Chinese male Singaporean, able to read this book without having to buy it. On top of that, I am able to read this book at my leisure without having to worry about losing some wage while I’m reading the book.

Now, the only reason why I could borrow the book for free and read at my leisure is that my job allows me to. It’s a white-collar profession that depends more on my smarts than the amount of physical labour that I have to put in. And this would not have been possible if not for the fact that I am a university graduate.

Now, I’m not particularly intelligent. In fact, if not for a stroke of luck that the National University of Singapore’s Faculty of Social Science accepted me in the second year that I applied, I wouldn’t have made it there. This is also despite the not-so-trivial sums of money that my parents spent hiring tuition teachers for me when my brother and I weren’t doing so well in school.

I’m also on track to obtain a net worth or wealth that’s easily more than the average Singaporean will obtain in their lifetime. This is a testament to my strategy but it’s also a testament to the fact that I was born into a relatively privileged family. I never had to worry about there being no food on the table. Family holidays, albeit to destinations that weren’t so far off, were a norm.

This good fortune isn’t just confined to my immediate family. By virtue of my education, I managed to get a job in a government organisation that paid pretty well. It was there where I met my wife who comes from an equally privileged background. Of course, it helps that she was brought up well and while we may not be one-percenters, we are certainly not poor by any means.

In short, we were lucky to be born into the right families, we (at least my wife really did) made the best of it, and while we still need to work hard, we’ve largely benefitted from the system.

Why some get left behind by the system

Unfortunately, not everyone benefits from the system.

Teo’s book highlights how the poorest can fall through the cracks and remain there. It’s a mix of bureaucracy and policy that never really attempts to understand the people that the policy is supposed to serve.

Teo gives a good example in the book where she writes about how the Singapore government has made childcare more affordable but when you’re poor, it’s not just about having affordable childcare that matters. The low-income work in very different kinds of jobs from the average person. Those jobs may not allow them to pick up their children from childcare, or to buy the things for their children to participate in the usual activities that childcare centres organise.

And unfortunately, I see this at work too.

Occasionally, we counsel students who wish to withdraw from school, aren’t doing well in their studies, or who just have issues with attendance. Often, the story is that these students have family issues. Sometimes it’s the family finances that cause lots of tension in the family; Sometimes, the student’s mixing with the wrong crowd; Sometimes, they have issues with self-image.

Of course, not all of them struggling with their studies come from low-income families but I suspect if we were to actually do a proper survey, we will find that a disproportionately high share of them come from families with financial problems.

And I get it, what’s the point of doing well in school when there are more pressing concerns? After all, the payoff from doing well in school only come much later. Even if they don’t have pressing circumstances, these students that came through the non-traditional academic track then to already have disadvantages in English-language and mathematical ability.

We call them “less academically-inclined” but it very well could be that they are bad at their studies because they’ve been starting further behind the starting line in the same race all those years ago.

And so, what are we to do?

It’s not very much help to tell someone to run faster if they’re starting 20m behind the starting line in a 100m race. It also doesn’t help to tell someone to train harder for the same race if they have fewer resources (time, effort, money) to do so.

I have no answers

While my heart goes out to these lower-income people, I have no answers for them. It’s very hard to give people a solution when the system isn’t designed for them. The civil service has always prided itself on hiring some of the best and the brightest. And it does.

Unfortunately, if the best and the brightest comprise mostly of people who have gotten relatively ahead in life because they were born into the right circumstances, then it’s hard to imagine that these same people would be capable of designing a system that caters to the marginalised. Instead, the system is probably designed for the people just like themselves.

Now, don’t get me wrong. Teo’s book sheds some light on the marginalised in Singapore and the difficulties they face in getting help. From her narrative, it appears that this group of people have very low chances of escaping the poverty trap.

On the other hand, we have our government constantly highlighting how some of their own have come from underprivileged backgrounds, crawled up despite their circumstances and, in the eyes of modern society, made it.

Nowadays, the local newspapers also always highlight those who have overcome adversity to do relatively well at the national exams. No more highlighting of the best and brightest who had an easy life. Instead, they highlight those who have overcome the odds.

And that’s where I think we need to focus on for a start.

What’s the real story? Are most of the underprivileged more like those highlighted in Teo’s book? Or do most of them fit into the narrative described by our government and the media?

I hope Teo’s book is the match that lights a conversation on this.