Archives for category: Singapore

It’s another birthday! And here’s what I wrote last year.

lighted happy birthday candles

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Last year, I wrote about having failed spectacularly on many counts. I failed to stick to a healthy lifestyle, failed to pick up a craft, and failed to get into coding in a more concrete way.

I’m happy to report that this year I managed to chalk up impressive gains on all those goals and I’m going to share how I did that.

 

Eating and living healthier

Last year, I was saying that my weight hit an all-time high. I was wrong. In fact, my weight inched up even more after I wrote that post and in December, I hit an all-time high of 70kg.

Now, that might not sound like a lot but for someone my height, it’s definitely overweight. Not obese but overweight. That was the wake-up call for me and I started to research into a variety of ways to cut back on the weight gain.

In my research, I learned about something fasting, and in particular, something called “intermittent fasting”. The main positive about fasting is that it doesn’t slow your metabolism down as opposed to people who cut back on consuming calories. This explains why people who go on traditional diets lose weight but then put it back on as quick or even more quickly. The experience of some of those that went on the TV show, “The Biggest Loser” is particularly instructive.

Anyway, long story short is that (roughly) sticking to a regime of going 16 hours without food and then eating within an 8-hour window helped me shed 10kgs. Restricting your eating to an 8-hour window automatically means cutting out one meal. You could eat as many calories as a normal person within the window but that would mean eating more meals or mega-sized meals. I just cut out breakfast.

I’ve also cut sugar from my coffee as all the government institutions now require that coffee is served, by default, without any sugar. You have to add sugar to your coffee if you choose to.

I didn’t know if this regime was doing me harm on the inside or not. So, a couple of months ago, I had a health checkup done. The good news is that my health checkup results came back good. Nothing out of the ordinary. For the first time in a long time, I’ve also managed to score a “gold” on the physical fitness test that we National Servicemen have to do every year despite putting in the same amount of training as I’ve done in previous years. It’s not rocket science. It’s easier to run faster if you’re 10 kilos lighter.

Furthermore, limiting my meals have made me become more aware of whether I’m eating because I need food or because I want food. As far as possible, I eat only when I need to and not when I want to.

Having a cat around the house also made me adopt a more regular meditation routine. Every morning, after feeding him, I’ll take up my spot on the floor and try to get in 15-20mins of just being aware of my breathing.

One breath in. One breath out. One at a time.

I’m not sure if I’m experiencing any physical effects (like increased grey matter) as reported in some medical experiments but I think meditating more regularly has helped me gain some clarity into when people are tapping into their emotions and how to deal with people who are clearly in a heightened emotional state.

 

Coding

While I’ve slacked off the bandwagon of late, I’m happy to report that I finally worked on a project and I made a website where I can track and share the data I’ve collected in the STI’s PE10. The code is amateur and the website definitely can have better features but I think I’m relatively happy with it.

At work, I also wrote two scripts in python that automated some of the administrative work that we have to do. It’s a hacky way around doing some things and I’m pretty sure it’s not that kosher but who cares, it saves me an hour of mindless clicking. The other script probably saves my colleague 15 minutes of mindless clicking as well.

 

Craft

Now, I’ve been slacking off on coding because I’ve finally decided to put more effort towards pursuing interests in this area. I’ve been writing some stories (featuring my cat) and I really enjoy that but I’ve always been more of a visual person.

Problem is, I pretty much suck at art. Right now, I’m probably as good as a kindergarten kid when it comes to drawing.

I’ve been spending a lot of time on Youtube and I really, really like the style that comes with pen and ink drawing (in particular styles like this). For the rest of this year and next, I’m going to be making a conscious effort towards improving my drawing and my inking skills.

I also figure that in the next few decades, even if A.I. and automation can take over a multitude of jobs, the stuff that will be valued more will be the stuff that doesn’t seem impressive even if done by a machine.

For example, they may make machines that can cook food. However, a delicious meal cooked by a human being is always going to be more highly valued because it’s not something that anyone can do without some sort of training or experience.

Humans that can produce things with a degree of customisation or finesse to it will do well in the future. If your job is of a routine nature because you are producing things in huge quantities, then you probably need to worry about your future in the next 10 to 20 years. Owners of capital will prefer to own a machine that doesn’t ask more salary, take breaks, or fall sick.

 

Money matters

As for wealth, things are pretty much on auto-pilot. I know the markets have really sucked (especially outside the U.S.) which means that there are some bargains to be had but my approach now is really more of a systems-based approach.

My system right now is: save, invest broadly, rebalance as required. Rinse and repeat.

I’ll report on how things work out at the end of the year.

******

Lastly, it’s crazy how I didn’t remember what I wrote last year but so much of what I did last year was a continuation of what I wrote in last year’s birthday post. I managed to achieve certain things that I set out to do but I can assure you that when I wrote about it last year, I didn’t have a freaking clue how I was going to do it.

On hindsight and having read James Clear’s Atomic Habits, it seems that I got certain things right that allowed me to lose all the weight and keep it off as well as attain more regularity with meditation.

I’m not pretty convinced that we are limited by what we can imagine but getting to where we want to requires a paradigm shift in behaviour that can only be brought about by changing your environment to suit your goals. Will elaborate more on this in a future post.

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So lately, inequality has been given the spotlight here in Singapore.

It probably started when Dr. Tommy Koh brought it to the fore while moderating a dialogue with DPM Tharman during an Institute of Policy Studies (IPS) event. DPM Tharman, as well as other politicians, rightly pointed out that the Oxfam study that put Singapore near the bottom in tackling income inequality was not a very good study.

This also comes after Minister Janil Puthucheary hosted a video that (kind of) explored the issues surrounding “class” in Singapore. (You can read my take on that here)

And following Dr. Tommy Koh’s remarks on his own Facebook page about how a pump attendant he met was earning less than what Dr. Koh called a “living wage”, the Ministry of Social and Family Development (MSF) has come out with a paper that essentially defends its policies.

The latest is a feature by the Today newspaper that showcases four individuals that managed to make it to university despite the odds of coming from a low-income household.

 

And this is the big issue I have

I don’t doubt that we have very smart people in the government and civil service. The problem I have is that it seems that the way they’ve thought about and approached the issue of inequality is to assume that giving people unconditional help will always lead to bad outcomes.

Look through all the responses from the government or those who are part of it and you’ll notice that the message is consistent: we give targeted help, it works as you can see the GINI coefficient lower with the help, and education is the escape route.

Implicitly, the message is that we cannot give handouts as we have no idea whether people will take it and spend it on alcohol or drugs or what-not. We need to be prudent because these are taxpayers monies. Also, if we give unconditional handouts, it’ll encourage people to be lazy and not want to work.

Read any of the profiles of those featured in the Today piece and you’ll wonder whether it’s necessary to make their families jump through hoops in order to keep the lights on or put food on the table. For one of them, the lack of money meant that he couldn’t even collect his exam certificate.

We have to remember that doing means-testing, following up on their cases and what-not also has a cost. Administrative personnel and social workers have to be employed, paperwork has to be filled, and inevitably, lags will cause situations such as their electricity being cut.

 

A different paradigm

Now, I’m not saying that we should jump straight into giving away stuff for free to everyone or even the needy. What I’m saying is that we need to experiment instead of sticking to the same mantra that we’ve always stuck to.

Look at the debate the term “minimum wage” generated at the same IPS forum. Both MOS Josephine Teo and economist Walter Theseira fell back on standard theoretical formulations of what minimum wage could do to employment when there is economic literature that shows that minimum wage may not be all that bad.*

It’s pretty clear that some ideas are outdated or have even been proven false by the empirical data. In Singapore, the problem is that there is too much debate and not much collection and analysis of data when it comes to social services. There needs to be more experimentation in order to check our beliefs and see if studies overseas apply to our context as well.

Now without the data, I cannot conclude that unconditional help is universally superior to our current approach but I think we’ve come a long way from 1965. So, we can afford to do more for those that struggle to even meet basic needs like shelter, food, utilities, and education.

 

Notes:

*To be honest, I’m quite shocked that Kruger and Card’s study was from the 90s and so many people fall for the econ 101 analysis of how minimum wage will lead to lower unemployment.

 

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So check this out.

CNBC reported that Southern California suffers its worst housing slump in over a decade with home sales and prices much lower than the year before and historical norms. I’m not too surprised that prices are much lower than recent history because you have to remember that the housing boom of the first decade of 2000 caused prices to be inflated.

From the article, what’s more worrisome is this (emphasis mine):

LePage noted that while the median sale price was up 3.6 percent year over year in September, the principal and interest mortgage payment on the median-priced home was up 14.2 percent because mortgage rates increased about 0.8 percentage point over that period.

It appears that interest rate hikes are beginning to have an impact on the housing market in the U.S.

 

Mortgages in Singapore will get more expensive

In Singapore, things are still pretty ok. I haven’t heard much about homeowners complaining about the interest on their mortgage.* Most homeowners in Singapore are on some form of 25 to 30-year loan with floating rates so interest rate hikes in the U.S. will definitely hit home at some point.

The reason why it hasn’t hit home is probably due to some combination of the fact that we’ve allowed the U.S. dollar to appreciate against the Singapore Dollar (the USD has gone from about 1.31 since the beginning of the year to about 1.38) and the fact that regional currencies (like the IDR) are doing worse than us**.

If the SGD moves in line with the USD, we’ll kill our trade with Indonesia but if we don’t allow a full adjustment of the exchange rates, we’ll have to run our stash of USD in our reserves down. I suspect this is the middle of the road scenario that MAS prefers unless interest rate hikes in the U.S. start to pick up even more. When that happens, we’ll have less choice but to have rates in Singapore follow the path of U.S. interest rates a little more closely. If you want to understand the mechanism, I have a post on that here.

Back to interest rates, our 10-year Singapore Govt Bond yields have been moving up which is great news for the many mom-and-pop investors that love the Singapore Savings Bonds (SSB) but from the yields, you can also see that short-term yields are heading north (see the chart in the post).

 

Back-of-the-envelope Calculations

I’ve said it before. Singaporeans are obsessed with property.

Recently, two close friends of mine bought new properties for their own stay. A reasonable guess is that one of them took a loan of $1m and the other, a loan of $1.5m. This means that a reasonable estimate of their mortgage payments (assuming it’s a 30-year, 2% p.a. loan) comes up to $3,696 and $5,544 per month respectively.

Just picture that. The median household income in Singapore is $9,026 so obviously, my friends are doing much better than most people.

Both their spouses work (albeit one less than the other) but even so, to service the loans from their CPF contributions alone mean that their household monthly incomes must be $16,069.57 and $24,104.34 respectively. That’s certainly possible for two adults working white-collar jobs close to the peak of their careers. However, if their incomes are any less than those numbers, then they will be servicing a decent amount of the loan using cash.

My worry for them is that it doesn’t leave any room for bad luck or errors.

For the next 30 years, they will essentially have to hope that the family doesn’t experience any shortfall in income due to loss of jobs. It will also mean that they have to find a job that either pays as well or better in the event their current work environment is no longer as fulfilling as it once was.

Looking further down the road, if they use their CPF-OA to service the mortgage, then I hope they are putting some of their cash aside for life after work. If they are using cash out of pocket to service some of the loans, then life after retirement becomes a lot harder.

In any case, what my friends have done is ensure that for the next 30 years, they have to play a very strong offensive game. They have to continue to work as hard as they have or even more to find other sources of income.

Oh yes, and they have to hope that interest rates don’t go up much.

 

It all comes down to rate hikes in the U.S.

Which way the markets are going to move will depend heavily on future rate hikes. I’m pretty sure we haven’t seen the end of rate hikes because the U.S. economy has been reporting strong numbers on the employment front. That’s also what the markets seem to expect and the Fed could even throw everyone off by hiking more than expected.

The point is, I’m quite sure I’m not alone when I say that no one is expecting interest rates to get lower in the near future. If anything, we need to expect that interest rates will go up. And if you’re not comfortable seeing the interest rates on your mortgage go up at least a percentage point, then I guess you’re in trouble, my friend.

 

Notes:

*This would apply more to investors that own private property in Singapore. HDB flat owners have the choice of taking the loan from HDB directly which pegs the interest on the loan to the CPF rate + 0.1%. I don’t think CPF rates will move up and cause more pain to flat owners with a mortgage.

**Against the USD, the IDR has depreciated more than it has against the SGD.

Sorry for the late notice but the PE10 has been updated.

airport bank board business

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Following the selloff in the last week of October, the PE10 reached lows that we haven’t seen since early 2017. At a PE10 of 12.2x, that translates into a 10-year earnings yield of slightly over 8%.

It’s cheap but it certainly isn’t dirt cheap. Dirt cheap would be when the PE10 is hovering around 10x average 10-year earnings. That would mean that the STI would be at levels of around 2500 or so.

Having said that, there’s no guarantee that the STI will fall to those levels. The market has run up a bit since I took the reading so who knows where we’re headed. What I’m confident enough to say is: based on what we’re seeing in the market, we’re certainly close to cheap than expensive.

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edit: I used the words “Mickey Mouse” and shoebox interchangeably.

 

A good friend brought to my attention this commentary about URA’s latest move to restrict the size of units in new private housing developments outside the Central Area.

Reading the commentary and the news when the restrictions were first launched, it appears that the main beef URA had with these “Mickey Mouse” apartments was that the proliferation of these apartments in certain areas would increase the population density and hence increase the strain on public infrastructures such as roads, MRT lines, and buses.

The commentary piece also seems to feature the downsides of shoebox units quite heavily:

  • Rental yields under pressure
  • Stagnant to falling prices for such units
  • Buyers who would easily have turned to a resale HDB if they had a choice
  • Sneaky developers who use such units to elevate the PSF of the project

 

What does the future hold for such shoebox unit owners?

In the light of rising interest rates, I would say that these guys are screwed. However, it bears noting that “these guys” are probably a small subset of the market. After all, who on earth thought that it would be a good idea to buy a Mickey Mouse-sized apartment in the heartlands to stay or as an investment?

Location is a big factor in property investment. Areas like Tanah Merah or Woodlands are one of the cheapest places to stay in Singapore. You can easily tell which areas are more prized thanks to the difference in HDB resale prices by area.

The next thing after location would be size. I think it would be quite universal to say that when it comes to living space, “more is better”. Of course, that reasoning can only be taken to a certain extent but shoebox units are starting from the other extreme. Try convincing people with one or two children to live a minimalist lifestyle.

While the article also mentions how some owners are optimistic that there will be less supply of shoebox units and hence it’ll raise the value of the units, my bet is that the rising interest rate environment forces more units onto the market and adds the existing supply of shoebox units.

 

Salvation for shoebox unit owners

The only salvation I can think of for shoebox unit owners in the heartlands would be an increase in the number of tenants.

These tenants could come from the longer-term stay because they’re here for work and on tighter budgets. This assumes, of course, that there are so many of them that they already drive rentals in the HDB market up to the point that shoeboxes become attractive.

The other group of tenants would be from short-term stay like Airbnb but oops, that market is also heavily restricted right now. Meanwhile, the property market is expected to continue to add more than 10,000 new private residential units every year (except for 2020) up until 2021 and vacancy rates are creeping up.

 

Conclusion

I’m pretty sure that with URA’s latest move, it’s signalled to the market that shoebox unit owners are screwed. Note that the restriction wasn’t a major move — it just inched the size development guidelines up by a bit and confined that restriction to projects outside the Central Area, but in that one move, it’s shifted the limelight to shoebox units and what the downsides of owning one are like.

I’m pretty sure that shoebox unit owners who can’t hold on to their property amid rising supply and vacancies are going to feel quite bad. If the shoebox unit is just a part of their investment portfolio, they’ll be fine. If it’s the ONLY part, they are going to feel quite a bit of pain.

airport bank board business

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As of yesterday, I think we can finally say that sentiment in ALL major markets have turned. For those of us outside the U.S., I think we’ve been feeling this way pretty much since the 2nd quarter of the year.

Well, for those in the U.S. markets, welcome.

As of yesterday, the S&P 500 is a whisker away from correction territory while the Dow is also almost there. Asian markets have had it much worse; The Shanghai Stock Exchange (SSE) composite is officially in a bear. And so is the Hang Seng. The Straits Times Index (STI) is also a whisker away from bear market territory.

 

What the Market Giveth, the Market Taketh Away

Not too long ago, the markets proclaimed Jeff Bezos the richest man in the world thanks to the rising valuation of Amazon stock. As of yesterday, Amazon’s value fell below Microsoft’s, taking $11 billion off Bezos’ wealth.*

This isn’t to say that Amazon is a bad company or that they are in trouble. It just shows how stretched valuations were. Even with yesterday’s drop, Amazon has a P/E of 130. Just imagine how much Amazon has to grow each year for decades in order to justify that sort of valuation. The danger for stretched valuations is that any hint of danger to the growth justification story and Amazon’s value will get hammered, just as it did on Friday.

The other point is that those newly minted millionaires and billionaires have to be careful when they first ascend the lists. It’s usually during times of great optimism and growth that these people suddenly find themselves among the richest in the world. The problem is whether their riches will still be there when the tide goes out.

In retirement planning, this is known as sequence risk. It’s pretty often the case that many people retire at the top of the market cycle because that’s when their wealth is the most. The problem is whether their wealth remains at that level after the market cycle turns. This is important because if their wealth gets decimated due to the downturn in the cycle, then these new retirees may find it difficult to remain retired as their wealth would no longer be able to generate the kind of income they need to live the rest of their days without income from a job.

 

The Economic Story

Of course, what’s going on in the markets is a reflection of where economic reality on the ground and where people think the economy is headed. The sudden change in sentiment in the market while government bodies are reporting great economic growth numbers is probably a reflection that interest rate hikes have come home to roost.

Rate hikes have been a feature of the environment since late 2015 but it’s only with Powell’s recent moves that the hikes have started to hit a little bit harder. This is obviously the beginning and further rate hikes, which the markets have been pricing in, is going to hit harder.

In Singapore, we’re definitely going to get good GDP numbers for this year (that’s pretty much a given). The question is, what will the numbers for next year look like? Currently, MAS still expect next year’s growth to be quite decent (above 2.5%) but that could easily change if a global recession hits us.

 

What to do? What to do? What to do?

If anything, I would say that here in Asia, a buying opportunity is on the horizon. Valuations in our markets are undemanding. The STI’s P/E and PE10 are less than 15x. In fact, another drop of 300 or so points in the STI will see us at valuations on par with the depths of the Global Financial Crisis (GFC) and 2016.**

Of course, what you CAN do is constrained by your budget. If you were happily buying into the market in 2017 as prices rose and have been holding onto assets from then up till now, your hands are pretty much tied. If you have regular savings socked away, then you probably have enough bullets waiting for you to pull the trigger.

The other thing to remember is that even when you think things are cheap, prices could still go down further. Buffett is famous for being early. I remember seeing CNBC plaster his quotes about how he’s a net buyer of U.S. stocks throughout 2008. Of course, his game is a little different from yours and mine because he has this ridiculous cashflow from Berkshire’s operating businesses and insurance operations. You and I? We probably have savings from our salary as well as dividends or other passive income that could be cut in the depths of a downturn.

Anyway, long story short. It may be a good time to buy but you may have to live with being early.

 

Notes:

*This is Forbes’ way of calculating how much someone is worth but let’s be realistic – Jeff Bezos himself knows that there’s no way he’s worth that much because if there was even news that he was trying to cash out his equity stake in Amazon to realise whatever Forbes says he’s worth, the stock would crash and he would automatically be worth much less. Billionaires know this and only the really insecure ones care about which position they are on the Forbes’ rankings.

** Not many people realise this but 2016 was one of the best times in recent years, valuation-wise, to buy into the markets. Markets in early 2016 were actually down about 30% from the highs made in 2015. We hit bear market territory but not many people realised it and the bear market was over pretty quick. Unfortunately, I know of many people who waited on the sidelines thinking that the markets would go down further even though its PE10 was already lower than that during the GFC.

person reading the daily fake news newspaper sitting on gray couch

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So, I highlighted a documentary that Channel NewsAsia (CNA) ran and in my piece, I mentioned that the documentary had flaws. Ricemedia.co has a fantastic piece that features how the documentary came under some clever editing for the producers to paint the story that they wanted to.

I’m not sure if CNA has realised but the world has changed. In fact, this comes pretty much at the same as the resignation of a senior CNA staff due to the misrepresentation of certain facts in her interview. That one was a major boo-boo because Minister Teo Chee Hean used a point raised in the reporting of the interview as a defense of high ministerial salaries in parliament.

It’s also no secret that The Straits Times (ST) is hardly a paradigm of objective reporting. Otherwise, we would Singapore be ranked 154th in the 2016 edition of the World Press Freedom index?

The Current Environment

I can understand why the government would have wanted newspapers on their side in the early pre- and post-independence era. Getting the support of the populace behind your policies would make the government’s job easier and control over the newspapers would also stop the spread of misinformation.

Unfortunately, the years have come and gone but it seems that the mainstream media haven’t learned that they now face endless competition in terms of reporting and beyond the reporting of facts, the more heavily they lean towards any one group (for example, the government), the less objective and trustworthy they will seem to be. This leads to a double whammy of declining readership and a loss in revenue.

Is it any surprise that some of the most widely-shared articles on my Facebook feed tend to come from non-mainstream sources?

What CNA and ST need to do

In order to save themselves, I think CNA and the ST need to move away from being partisan to the government. It doesn’t matter if the reporting was directed from above or it was an act of self-censorship. CNA and the ST need to move away from being perceived as mouthpieces of the government.

In fact, proper reporting of facts and opinions on the ground will give the government a better idea of sentiment and facts on the ground, which will lead to better inputs for policy-making. I don’t believe for a moment that REACH serves as a portal for an accurate portrayal of things on the ground.

If CNA and ST need any direction on what needs to be done, I think mothership.sg* and ricemedia.co are some good examples of the direction they need to head in. In fact, former NMP Kuik Shiao-Yin is another example of the stance that our mainstream media should be taking.

CNA and ST should do it while completely one-sided platforms like TOC and The Independent still exist. Those are decidedly partial to the opposition and quite frankly, annoy the objective, rational crowd as much as the ST does.

 

Notes:

*Yes, yes. I know this one has the backing of one George Yeo. But you can’t deny that they’ve been quite objective in their reporting. Their efforts to produce mindless, entertaining viral pieces are quite terrible though. SGAG fares much better in that department.

I guess this should be titled “Best Things I’ve Read All (Two) Weeks” because I didn’t post last week due to reservist. Reservist is a pain but…No buts. It’s a pain.

 

books on bookshelves

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Why The Best Predictor of Future Stock Market Returns is Useless (Of Dollars and Data)

I was quite excited to learn about this indicator. The indicator in question is the American Association of Individual Investors’ Asset Allocation Survey. Apparently, selling out of stocks to get into 5-year treasuries brings about better returns with less drawdown. The problem, as highlighted in the article is lack of outperformance over a period of easily 2-4 years.

However, I’m adding it to my list of things to watch because, while I believe market timing is futile, it’s a good psychological indicator to know when investors are optimistic (i.e. they move a higher proportion of their portfolio into equities) and when they are pessimistic.

How To Stay in the Game (A Wealth of Common Sense)

A good reminder that it doesn’t matter even if you have the best strategy if the strategy includes the risk that you get wiped out. I can’t even count the number of wise people I’ve read that have cautioned against the use of excessive leverage because of the double-edged nature of leverage.

Here are two of the best:

“The market can stay irrational longer than you can stay solvent” – John Maynard Keynes

“My partner Charlie says there is only three ways a smart person can go broke: liquor, ladies and leverage,” he said. “Now the truth is — the first two he just added because they started with L — it’s leverage.” – Warren Buffett

Corporate debt growth has exploded – The added macro shock sensitivity creates real risks (Disciplined Systematic Global Macro Views)

I’ve been reading Dalio’s and Marks’ latest books and their description of credit cycles are probably as clear and accurate as it gets. Guess what happens in the late part of the credit cycle?

Anyway, head on over to the link for more details on U.S. corporates.

5 REASONS MY PARENTS ESCAPED THE LOWER CLASS (AND NO, IT’S NOT HARD WORK) (THE GIVE AND GET: FOR FINANCIALLY FEARLESS SINGLETONS)

I read this via Minimalist In the City. I think most of the points made are extremely sensible and should be instructive for most people who want to live a reasonably good life.

My only gripe is whether the point about “being entitled” is accurate. I’ve seen people who don’t have much who hustle hard too. Maybe even harder than people who have more. Could it be a case where the people that hustle have a greater chance at social mobility and therefore, we sometimes confuse the cause and effect – that middle-class people hustle more?

 

Column: This is what happens when you take Ayn Rand seriously (PBS)

I must confess that in my undergraduate days, I believed strongly in the all-powerful nature of the free market. In recent years, I’m not so sure. After all, the free market can produce imbalances in market and political power that eventually cause itself to function less effectively than what is described in economics textbooks.

The Global Financial Crisis was a good example of how free-market ideals led to an asset bubble in the housing and banking sector which eventually imploded unto itself. The eventual salvation was a massive intervention that free-marketers would scoff at.

I’m not saying that the free market doesn’t work. What I’m saying is that we need to be careful in prescribing the free-market as a cure for everything. What’s important is making sure that market participants have the right incentives and are subject to the right checks and balances in order to ensure outcomes that are conducive for society.

I know. Easier said than done.

I’m constantly reminded of how lucky I am to be where I am.

 

green club flower

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My grandfather recently celebrated his 90th birthday. 90 years of life seems an incredibly long time and it’s even more mind-boggling when you realise that he was born right at the start of the Great Depression, has lived through World War 2, multiple recessions including the Asian Financial Crisis, Dot-Com boom, and the Global Financial Crisis. He also came from nothing to eventually owning his own business, effectively bringing his family from lower-income to upper-middle class. This is all despite him only having completed primary 5.

In essence, the life I had growing up depended a lot on the fortunes of the family business as my dad was working for my grandfather and the business thrived in the 90s as Singapore experienced one of the fastest periods of economic growth in its relatively short history.

I’m also making way through Joe Studwell’s How Asia Works (aside: Bill Gates provides a good review and overview of the book) and in one of the early parts of the book, Studwell cites a figure that states how a Chinese person, born in a village in 1920s China only had a life expectancy of 25 years.

Jesus. Imagine the odds of me being alive or living the kind of life that I’m living now if my great-grandfather had not decided to move to Singapore to seek greener pastures. If they stayed in China and managed to live through World War 2, the Great Leap Forward might have killed them.

It’s no secret that being lucky isn’t enough to get ahead in life but I think sometimes, we also need to appreciate the fact that we are fairly lucky in life. I think this sense of appreciation then reminds me not to do anything stupid because so stars had to align for me to be where I am today — healthy, educated, good friends, earning a relatively decent income, married to a wonderful person, and with the good fortune to understand what is going on in the world.

The first week of October is over!

Weather has been crazy hot and Howard Marks’ new book is out. Funny enough, on the Kindle, it’s about a buck cheaper than the pre-order price. No perks for pre-ordering.

books on bookshelves

Photo by Mikes Photos on Pexels.com

Trump Engaged in Suspect Tax Schemes as He Reaped Riches From His Father (New York Times)

Someone’s finally broke news about Trump’s finances and the origins of his wealth. It’s amazing that someone who’s been lying about how he obtained his wealth has managed to hoodwink people for so long.

What’s even more amazing is that this person has managed to become POTUS and there’s nothing that the citizens of the USA can do about having someone this dishonest represent their country.

By the way, Singapore has its fair share of ‘financial gurus’ that purport to teach you how to become wealthy like them. I’m willing to bet that 9 out of 10 of them are rubbish. If they can reproduce their investing returns over a 20-year period, you can believe them.

 

All the nightmares for stock investors start in the bond market (The Business Times)

 I used to think if there was reincarnation, I wanted to come back as the president or the pope or a .400 baseball hitter. But now I want to come back as the bond market. You can intimidate everybody.

– James Carville, advisor to former U.S. President Bill Clinton

The BT ran a piece (cross-syndicated from Bloomberg) that tries to find a cause for the drop in markets last week and namely, it’s about how yields in the 10-year treasury spiked last week.

The article also cites a number of money managers who are concerned about the high debt levels and the damage that higher yields will cause. What’s interesting to me is this quote from the article:

“Leverage is near all-time highs, and companies used tax reform proceeds for buybacks instead of paying down debt,” said Max Gokhman, head of asset allocation for Pacific Life Fund Advisors, which manages US$40 billion. “More than triple the debt that came due in 2018 will be due each year from ’19-’21. If yields go up, there’s real concern about companies’ ability to reissue and keep their leverage.”

If triple the debt IS coming due in the next 3 years, then there’s going be a fair portion of it refinanced at higher rates. The higher debt repayments can only be sustained if growth is sustained. That is something we won’t know until 2019-2021 comes around but what we can say for sure is that it increases the odds that things don’t turn out well.

In my own circles, I just heard from a friend about how his friends are feeling a bit more stretched now that mortgage rates are moving up*. The funny thing is he said that his friends are feeling stretched on their mortgage payments because the bank’s raised their rates by 50 basis points.

My first reaction was, “50?! Wait till they experience a 150 basis points increase.”

By the way, even a friend of mine who works in a bank doesn’t expect rates to increase to anywhere near 5%. But this is because we’ve seen interest rates remain so low for so long. Unfortunately, many people in Singapore who’ve overstretched themselves on housing are on 25 to 30-year loans. This increases the probability that they may see a day where interest rates are 3-5% instead of the 1-2% we’ve experienced over the last decade or so.

This, my friends, is why you shouldn’t pay too much for housing.

 

Why big companies squander brilliant ideas (The Undercover Economist)

A brilliant article for those who want to understand why organisations fail to change for the better. The article looks at companies and the military but you could extend the same logic for any large, incumbent organisation.

There’s a theory I read somewhere on why large organisations fail to use innovation to improve productivity and that’s because large organisations already have a structure in place that provides cashflow or profitability and the innovation while useful in the long-run is painful in the short-run. Most times, having the innovation means having to retool or start from ground zero. This explains why mobile payments caught on so fast in places like China (with a less developed existing payments system) while it hasn’t caught on so much in Japan or Singapore (with already established payments systems).

That’s basically also the gist of the article.

Now, applied to the local context, you can see why it’s so hard to expect political systems and other branches of government to change. For example, in education, there’s been a huge push towards skills and other forms of assessments other than exams for entry requirements. It’s been the same where I teach.

Unfortunately, while the admissions system was forced down our throats, they haven’t forced us to make changes at the assessments level. This means that we’re taking in students who are less academically-inclined and forcing them to go through a course that hasn’t moved away from exams and tests. Us teachers are still questioned about the results of the modules we teach so of course, that’s what our focus is going to be.

In short, no matter what you see about big changes in government policy, remember this article because you can’t change one part of the policy and expect it to be equally well received by other parts of the structure. And if the rest of the structure/organisation doesn’t accomodate, then the policy probably won’t be very effective.

 

 

Notes:

*The interest rates on mortgages in Singapore are typically floating rates tied to SIBOR or SOR. These rates are heavily influenced by interest rates around the world (particularly, U.S. interest rates) and since rates have been moving up, our mortgage rates have been moving up as well.